Salzgitter delivers pre-tax profit in a persistently challenging market environment

In an environment characterized by great political uncertainty, compounded by multiple trade conflicts and economic headwind, the Salzgitter Group generated a pre-tax profit of € 40.7 million in the first nine months of the financial year 2019. The gradual decline in rolled steel selling prices over the course of the year, accompanied by a temporary sharp increase in the cost of iron ore and a downturn in demand, not only from the automotive sector, burdened the steel producing and processing companies. By contrast, the KHS Group as the largest company of the Technology Business Unit continues to develop very satisfactorily.

“The current framework conditions are very challenging, especially for our steel producing companies. The strategic decision to work toward achieving a balance between our steel-related activities and areas not so closely related to steel has once again proven to be correct. We continue to rigorously and consistently improve our structures and processes under our “FitStructure 2.0” optimization program. We want this program to generate a minimum of € 240 million in profit improvement potential by 2022. Together with our sound balance sheet and our precautionary measure of procuring CO2 allowances for the fourth period of the EU’s trading system for greenhouse gas emissions, this gives us the assurance of being well positioned to take on the challenges that lie ahead,” explains Chief Executive Officer Prof. Dr. Ing. Heinz Jörg Fuhrmann.   

The Salzgitter Group’s external sales decreased to € 6,637.3 million in the first nine months of the financial year 2019 (9M 2018: € 6,931.2 million) due above all to selling prices. Earnings before taxes of € 40.7 million (9M 2018: € 284.6 million) comprise a risk provision of € 141.0 million in connection with the desired mutually agreed and timely end to the investigations conducted on the grounds of suspected cartel arrangements regarding heavy plate and strip steel products, as well as well as the release of € 48.8 million in provisions at the Strip Steel and Plate / Section Steel business units. The result also includes a contribution of € 78.1 million from the participating investment in Aurubis AG accounted for using the equity method (9M 2018: € 29.2 million). The after-tax result stood at € –29.8 million (9M 2018: € 194.0 million). The high tax rate is attributable in particular to the provision established in the context of an end to the anti-trust investigation proceedings and that is not tax deductible, as well as to the remeasurement of deferred tax assets relating to loss carryforwards. Earnings per share therefore came in at € –0.63 (9M 2018: € 3.51) and return on capital employed at 2.5 % (9M 2018: 11.6 %). Even after another reduction in the actuarial rate applicable to pension provisions to only 0.75 %, the company continues to enjoy an extremely sound financial basis, with an equity ratio of 33 %.

Outlook

Salzgitter affirms its earnings forecast for the financial year 2019, adjusted on September 26. Against the backdrop of restructuring expenses still to be determined for the implementation of the “FitStructure 2.0” profit improvement program, the Salzgitter Group anticipates

• a pre-tax loss in the mid-double-digit million euro range,
• lower external sales of under € 9.0 billion compared with the previous year,
• a return on capital employed (ROCE) that is tangibly below the year-earlier figure.

Salzgitter refers to the fact that criteria of the annual financial statements and imponderables, including changes in the cost of raw materials, precious metal prices and exchange rates, may still have a considerable impact on the end of the financial year 2019.

Source and photo: Salzgitter AG