Salzgitter posts mixed results as steel weakens, tech thrives

Investing.com -- Salzgitter AG (ETR:SZGG) on Friday reported a mixed financial performance in 2024, as strong earnings from its Technology Business Unit and its participation in Aurubis AG (ETR:NAFG) helped offset struggles in its steel-related activities. 

While the steel producer posted a positive pre-tax profit of €109 million before extraordinary items, a €406 million impact from restructuring expenses and impairments resulted in a pre-tax loss of €296 million and an after-tax loss of €348 million.

Despite challenges, the company’s EBITDA of €445 million was 43% higher than consensus expectations (€311 million) and exceeded the previously lowered guidance range of €275-325 million. 

The pre-tax loss included a €184 million contribution from Aurubis, impairments of €278 million—of which €130 million related to Mannesmann precision tubes and the steel processing unit—and €128 million in restructuring costs, primarily in the trading business. 

CEO Gunnar Groebler stressed the need for strategic discipline in tough economic times, stating, “The economic challenges in Germany and the world show how important it is to systematically implement our strategy. We are forging ahead with futureproofing Salzgitter Group’s position, and the measures we have implemented are bearing fruit,” in a statement.

External sales declined to €10.0 billion from €10.8 billion in 2023, reflecting lower steel product revenues and weaker orders in the Steel Processing Business Unit. EBITDA dropped to €445 million from €677 million. 

The company’s net financial debt rose to €574 million from €214 million, largely due to investments in its green transformation strategy. 

The return on capital employed fell to -3.4% from 5.6% in the prior year, while earnings per share stood at €-6.51 compared to €3.70 in 2023. 

Despite the losses, the Executive Board and Supervisory Board will propose a dividend of €0.20 per share at the Annual General Meeting on May 22.

Fourth-quarter EBITDA reached €124 million, exceeding the €19 million consensus estimate and Jefferies’ projection of loss of €46 million, largely due to a €76 million contribution from Aurubis. 

Free cash flow was positive at €144 million, supported by a €459 million working capital release but offset by €468 million in capital expenditure for the quarter, bringing full-year capex to €968 million.

The company’s individual business segments reflected varied performance. The Steel Production segment recorded €28 million in EBITDA, below the €57 million consensus, as demand remained low in key customer sectors amid weak construction and industrial activity. 

The Steel Processing division reported a loss of €15 million, better than the expected €-33 million, though still impacted by weak demand and historically low prices. 

The Trading segment also suffered losses, reporting a deficit of €38 million versus a consensus loss of €47 million, due to lower year-on-year prices, though international shipments showed improvement. 

In contrast, the Technology division emerged as a bright spot, delivering €43 million in EBITDA and surpassing the €36 million consensus, bolstered by strong performance from the KHS unit.

“In spite of a tough economic environment, we have achieved a positive pre-tax result before extraordinary items of €109 million. At the same time, our net financial debt has turned out lower than expected. This shows that our measures are having an impact,” said Birgit Potrafki, chief financial officer at Salzgitter AG.

Salzgitter AG remains cautious about 2025, citing continued economic stagnation in Germany and uncertainty around international trade policies. 

While stimulus measures from the federal government may provide relief in the second half of the year, broader market conditions are expected to remain difficult. 

The company forecasts external sales between €9.5 billion and €10 billion, EBITDA in the range of €350 million to €550 million, and earnings before taxes fluctuating between a €-100 million loss and a €100 million profit. A slight improvement in ROCE compared to 2024 is also anticipated.

Jefferies analysts acknowledged the company’s stronger-than-expected EBITDA performance but warned about ongoing risks, stating, “Salzgitter’s FY24 EBITDA of €445m was 43% ahead of consensus expectations and exceeded its own revised guidance.”

“SZG does not see near-term changes in stagnating German economy (41% sales) & that market conditions remain challenging, but positively economic stimulus measures might have beneficial impacts from 2H25,” Jefferies added.

Further economic support could come from the German government’s €1 trillion spending plan on military and infrastructure, which may boost demand from the second half of 2025 onward. 

This could be particularly beneficial for Salzgitter, as 41% of its sales come from Germany and around 80% from Europe. However, uncertainty surrounding US tariffs and trade policies remains a risk factor.