Salzgitter Group breakeven in Q2 2012 despite difficult market environment
The Salzgitter Group's business activities in the first half of 2012 were influenced by an environment impacted by growing economic uncertainty. Following an upswing at the start of the year, the order activity of many steel product customers was extremely reticent in the second quarter. Economic sentiment appears to be poorer to date at least in Germany than is justified by the actual order situation of many steel processing sectors. Given the virtually overall satisfactory capacity utilization situation, accompanied, however, by an unsatisfactory selling price trend, the Group achieved another healthy breakeven in the pre tax result in the second quarter of the financial year 2012, having closed the preceding quarter at a loss. Thanks to its broad based positioning and an unchanged equity ratio of 43 %, as well as a net financial position of EUR 535 million, the situation of the Salzgitter Group remains decidedly sound.
Consolidated external sales climbed to EUR 5,378.5 million, an increase of around EUR 600 million (first half of 2011: EUR 4,773.5 million). The significant expansion in the Trading Division's business volume was a major influencing factor. In the first six months of 2012, the Salzgitter Group delivered a pre-tax result of EUR -17.9 million (first half of 2011: EUR 130.0 million) and, following a difficult start to the new financial year, is now reporting an uptrend. An amount totaling EUR 34.6 million in after-tax contribution by Aurubis AG, a participation included at equity, is included in the consolidated financial statements (first half of 2011: EUR 46.5 million). The consolidated after tax result amounts to EUR 22.5 million (first half of 2011: EUR 93.7 million), bringing basic earnings per share to EUR -0.46 (first half of 2011: EUR 1.70). The return on capital employed (ROCE) posted 0.4 % (first half of 2011: 6.6 %).
The Steel Division reported generally satisfactory capacity utilization, buoyed by the relatively high consumption of steel by industrial customers in Germany and support from the distribution sector replenishing its inventories during the first quarter. Moreover, the changed parity of the euro against the US dollar allowed rolled steel exports to countries outside the EU. Shipment volumes exceeded the year-earlier period by almost 10 %, and external sales advanced to EUR 1,406.8 million (first half of 2011: EUR 1,367.0 million). The pre-tax result (EUR -97.8 million; first half of 2011: EUR 30.4 million) was negative, burdened by the unsatisfactory selling price trend and the persistently high cost of raw materials, particularly in the flat steel product segment.
In the Trading Division, the still healthy order volumes of international trading generated shipments that were significantly higher than a year ago. Consequently, external sales rose by more than one third to EUR 2,398.4 million (first half of 2011: EUR 1,737.3 million). The Trading Division generated a pleasing pre tax profit of EUR 27.6 million, a figure below its year earlier counterpart that was impacted by windfall profits (first half year of 2011: EUR 38.2 million).
Growth in the Tubes Division's shipments of HFI welded tubes and seamless stainless steel tubes was unable to fully compensate for the shortfall in the volumes of large diameter tubes in the first three months of 2012 caused by the cancellation of an order. The severe lack of capacity utilization was rectified towards the end of the first quarter, which saw the start to the production of more than 410,000 tons of large-diameter pipes for an Australian natural gas pipeline. As a consequence of the project freeze, external sales dropped by some 10 % to EUR 790.5 million (first half of 2011: EUR 903.2 million). The pre tax result, which came to EUR 8.3 million in the first six months of 2012 was positive although lower than the previous year's figure (first half of 2011: EUR 46.7 million).
The external sales of the Services Division (EUR 212.2 million) declined slightly against the year earlier period (first half of 2011: EUR 238.7 million). The Division generated EUR 10.2 million in pretax profit, lifting it above the result posted a year ago (first half of 2011: EUR 8.3 million).
The Technology Division's order intake exceeded the year-earlier figure by almost a quarter in the first six months of 2012, which was mainly attributable to the pleasing growth of the KHS Group. External sales rose to EUR 548.5 million (first half of 2011: EUR 485.7 million). Pre-tax profit came in at EUR 2.6 million, which is a substantial improvement against the previous year's period (first half of 2011: EUR -17.7 million). The KHS Group's high capacity utilization held steady, and sales margins in the project business continued to widen. The success of the “Fit4 Future” program initiated in 2011 and the good performance sustained by the special machinery engineering companies were reflected in the result as well.
The external sales of Other, which are based mainly on business in semi-finished products with subsidiaries and external parties, dropped to EUR 22.0 million due to the economic environment (first half of 2011: EUR 41.8 million). Pre-tax profit stood at EUR 31.1 million, which is higher compared with a year ago (EUR 24.1 million). This figure includes the very pleasing after-tax profit of EUR 34.6 million (first half of 2011: EUR 46.5 million) contributed by Aurubis AG, a participation included at equity.
Salzgitter intra group sales grew to EUR 1,472.6 million in the reporting period (first half of 2011: EUR 1,317.4 million).
The economic outlook for the whole euro area is subdued due to the severe problems from the European sovereign debt and currency crisis. The comparatively robust situation of Germany is also coming increasingly under pressure of contagion. Against this backdrop, many steel processors and stockholding steel traders that replenished their inventories in the first quarter are currently adopting a wait-and-see stance. At the same time, the inventory coverage of the steel trade remains at a normal level. It therefore appears feasible that the fall may bring a recovery in demand and the implementation of urgently needed price increases. A prerequisite for this assumption is that international demand for German industrial goods remains strong. Breakeven can, however, no longer be expected for the Steel Division this year.