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13. Março 2019

SCHMOLZ + BICKENBACH achieves annual targets despite slowdown in the fourth quarter

  • Annual targets for 2018 achieved – adjusted EBITDA of EUR 236.7 million 6.3% higher than in previous year; turnaround of Ascometal confirmed with slightly positive contribution to adjusted EBITDA, integration progressing rapidly.
  • Sales volume in 2018 at 2,093 kilotons, 16.5% higher than in 2017 thanks to Ascometal.
  • Free Cash Flow of EUR –159.8 million compared to EUR 16.3 million in the prior year, lower due to investments in future growth and increased net working capital, primarily at Ascometal.
  • Net debt increased to EUR 655 million due to acquisition of Ascometal and higher inventory levels, from EUR 442 million at year-end 2017; almost unchanged compared to EUR 651 million at the end of Q3 2018.
  • Impairment of EUR –109 million (EUR –81 million after taxes) on Finkl Steel Business Unit due to structural market changes in recent quarters.
  • Outlook for the 2019 financial year: due to political and macroeconomic risks, SCHMOLZ + BICKENBACH expects a continuation of the dip in growth followed by a recovery in the further course of the year. On this assumption, adjusted EBITDA of between EUR 190 million and EUR 230 million is forecasted.

 

CEO Clemens Iller commented: “In 2018 we achieved most of our targets despite strong headwinds in the final quarter. Adjusted EBITDA was within the target range, which was increased in the middle of the year, and the integration of Ascometal, acquired in February, is progressing rapidly. However, the slowdown in global economic momentum towards the end of the year and the gloomy outlook for global economic growth also left their mark on SCHMOLZ + BICKENBACH's fourth-quarter results. In the current market environment with many political and macroeconomic uncertainties, we forecast adjusted EBITDA of between 190 million euros and 230 million euros for the full-year.”

 

Financial key figures

 

SCHMOLZ + BICKENBACH Group

Unit

2018 1)

2017

Δ (%)

Q4 2018 1)

Q4 2017

Δ (%)

 

 

 

 

 

 

 

 

Sales volume

kilotons

2,093

1,797

16.5

498

433

15.0

Revenue

million EUR

3,312.7

2,677.8

23.7

795.5

659.4

20.6

Average sales price

EUR/t

1,583

1,490

6.2

1,597

1,523

4.9

Adjusted EBITDA

million EUR

236.7

222.7

6.3

39.2

48.5

–19.2

EBITDA

million EUR

251.4

214.9

17.0

28.0

43.8

–36.1

Adjusted EBITDA margin

%

7.1

8.3

4.9

7.4

EBITDA margin

%

7.6

8.0

3.5

6.6

EBIT

million EUR

34.7

88.0

–60.6

–108.0

12.9

Earnings before taxes

million EUR

–8.7

42.4

–122.4

4.9

Group result

million EUR

–0.7

45.7

–93.1

26.2

Investments

million EUR

139.6

103.2

35.3

72.0

49.9

44.3

Free cash flow

million EUR

–159.8

16.3

13.6

13.6

0.0

 

Unit

31.12.2018 1)

31.12.2017

Δ (%)

30.9.2018 1)

 

 

 

 

 

 

 

 

 

 

Net debt

million EUR

654.8

442.0

48.1

651.0

 

 

Shareholders’ equity

million EUR

707.7

717.5

–1.4

818.6

 

 

Gearing

%

92.5

61.6

79.5

 

 

Leverage

x

2.8

2.0

38.6

2.7

 

 

Balance sheet total

million EUR

2,531.8

2,113.1

19.8

2,617.4

 

 

Equity ratio

%

28.0

34.0

31.3

 

 

Capital employed

million EUR

1,739.5

1,535.1

13.3

1,891.9

 

 

Employees at closing date

positions

10,486

8,939

17.3

10,424

 

 

 

Unit

2018 1)

2017

 

Q4 2018 1)

Q4 2017

 

 

 

 

 

 

 

 

 

Earnings/share2)

EUR/CHF

0.00/0.00

0.05/0.06

 

–0.10/–0.12

0.03/0.03

 

Shareholders’ equity/share3)

EUR/CHF

0.75/0.88

0.75/0.88

 

0.75/0.88

0.75/0.88

 

Share price high/low

CHF

0.886/0.495

0.960/0.660

 

0.783/0.495

0.950/0.850

 

 

1)       Including Ascometal, fully consolidated since February 1, 2018

2)       Earnings per share are based on the group result after deduction of the portions attributable to non-controlling interests

3)       As at December 31, 2018 and December 31, 2017, respectively

 

Lucerne, March 13, 2019 – SCHMOLZ + BICKENBACH, a global leader in special long steel, today reported a 16.5% increase in sales volume for 2018 to 2,093 kilotons, up from 1,797 kilotons in 2017. Revenue rose to EUR 3.313 billion, 23.7% higher than in the previous year (2017: EUR 2.678 billion) thanks to the Ascometal Business Unit, which has been part of the Group since February 1, 2018, and higher sales prices. Adjusted EBITDA increased by 6.3% to EUR 236.7 million, after EUR 222.7 million in 2017, and EBITDA by 17.0 % to EUR 251.4 million, after EUR 214.9 million in the previous year. The over-proportional increase in EBITDA is based on the badwill of EUR 45 million resulting from the Ascometal acquisition. Group result amounted to EUR –0.7 million after EUR 45.7 million in the full year 2017. The decline was caused by an impairment of EUR –108.6 million before taxes or EUR –81.1 million after taxes on the net assets of the Finkl Steel Business Unit. Implementation of the turnaround plan for Finkl Steel has already begun. SCHMOLZ + BICKENBACH plans not to pay a dividend for fiscal year 2018.

 

Effects of the acquisition of Ascometal on results

The results of Ascometal, recently acquired and managed as a Business Unit within the Group, have been included in the Group figures since February 2018. The figures for the relevant prior-year periods have not been adjusted, which has had significant effects on the comparative period. This is reflected in higher sales volume, revenue, and expenses. Ascometal made a positive contribution to adjusted EBITDA in the fourth quarter. Over the fiscal year 2018 as a whole, Ascometal achieved a slightly positive adjusted EBITDA. The moderate purchase price which, in comparison with the higher net assets, led to badwill and was reflected accordingly in EBITDA, was partially used as scheduled for restructuring and transformation expenses. Further measures will be implemented in 2019. The integration also had a substantial impact on the key figures in the balance sheet and statement of cash flows. Details will be provided in the next paragraphs and in the 2018 Annual Report of the company in Note 9 to the Consolidated Financial Statements, "Consolidated Group and business combinations". This is available on the company's website.

 

Business development in fiscal year 2018

In 2018, the results of SCHMOLZ + BICKENBACH were strongly influenced by the acquisition of Ascometal and the impairment of Finkl Steel. The acquisition of Ascometal led to higher sales volume and revenue in the Group, while the adjusted EBITDA margin and free cash flow were lower as well as debt higher.

 

From an operating point of view, the first half of the year was particularly pleasing, supported by strong market momentum, with even signs of overheating in the automotive industry in the first quarter. In the second half of the year, the demand for steel began to cool down in certain areas in face of increasing political and economic uncertainty. Especially the demand from the automotive industry sharply declined during the last quarter. Our North American Business Unit Finkl Steel increasingly suffered from structural changes in the oil and gas industry and – via the Canadian location Finkl Steel Sorel – from US protective tariffs. Also our Swiss Business Unit Swiss Steel was affected towards the end of the year by the insufficient quotas of the so-called safeguard measures of the EU. However, in contrast to the automotive market, the mechanical and plant engineering industry showed a constant upward trend, albeit at a slower pace. The other end markets tended to be weaker, but remained robust overall.

 

Prices for the most important raw materials followed the global economic trend and, with the exception of molybdenum (molybdenum oxide), which rose by 11%, were significantly lower at the end of 2018 compared with year-end 2017. Scrap, for example, fell by approximately 23%, nickel by around 17% and ferrochrome by almost 22%. Sales volumes increased by 25.2%, entirely driven by the quality & engineering steel (Q&E) product group Sales volume of stainless steel and tool steel fell by 3.1% and 6.7%, respectively, for the year as a whole.

 

Revenue increased by 23.7% to EUR 3.313 billion, which was due to higher sales prices in all three product groups and higher sales volumes of Q&E. In 2018, the average sales price rose to EUR 1,583 per ton, 6.2% higher than in the previous year (2017: EUR 1,490 per ton). Q&E revenue rose by 48.5% to EUR 1.702 billion. Stainless steel and tool steel also recorded higher revenue of 6.8% (to EUR 1.096 billion) and 1.1% (to EUR 437.9 million), respectively. From a regional perspective, double-digit revenue growth was achieved in all three regions Europe, America and Africa/Asia/Australia, led by Europe with 26.7%, followed by Africa/Asia/Australia with 14.9% and America with 11.8%.

 

EBITDA adjusted for one-off effects increased by 6.3% to EUR 236.7 million (2017: EUR 222.7 million). The one-off effects of EUR 14.7 million were the net of the positive contribution of badwill for the Ascometal acquisition (EUR 45.1 million) and the transaction and restructuring expenses of EUR 30.4 million. The latter were mainly incurred for integration measures of Ascometal. At 7.1%, the adjusted EBITDA margin was lower than in the previous year at 8.3% due to the dilution effect of Ascometal. Before adjusting for one-off effects, EBITDA improved by 17.0% to EUR 251.4 million compared to EUR 214.9 million in 2017. The corresponding margin was 7.6% compared to 8.0% in the same period of the previous year.

 

The continued structural changes in the North American forging market, especially a general decline in demand for Finkl’s products for the oil and gas industry, overcapacities in production and the impact of the US steel safeguard measures on the Canadian production site, triggered an impairment charge at the Finkl Steel Business Unit. The after-tax effect on the Group result amounted to EUR –81.1 million (EUR –108.6 million before taxes). A comprehensive turnaround plan for the Business Unit is already in execution. No particular further provisions needed to be taken.

 

At EUR –43.4 million, the financial result in 2018 was slightly better than in 2017 at EUR –45.6 million.

 

Earnings before taxes for 2018 were lower than in the previous year due to the impairment and amounted to EUR –8.7 million compared with EUR 42.4 million in 2017. This resulted in a tax income of EUR 8.0 million (2017: tax income of EUR 3.3 million) and a Group result of EUR –0.7 million (2017: EUR 45.7 million).

 

A negative Free Cash Flow of EUR –159.8 million (2017: EUR 16.3 million) reflected the acquisition of Ascometal and the increased investment activity. The sudden slowdown of sales towards year-end added a temporary rise in inventories.

 

Net debt rose accordingly to EUR 654.8 million, compared to EUR 651.0 million at the end of the third quarter of 2018. Net debt in relation to adjusted EBITDA (based on the last twelve months) rose slightly to 2.8 x after 2.7 x at the end of the third quarter of 2018.

 

Business development in the fourth quarter of 2018

In the fourth quarter of 2018, the weakening market dynamics and the resulting destocking in the end markets left their mark on earnings. Demand from the automotive industry in particular declined sharply towards the end of the quarter. In addition, the Swiss Steel Business Unit was temporarily impacted by the effects of the EU safeguard measures, as the quotas set were partly exhausted in December. The developments in the North American market that impacted the Finkl Steel Business Unit also weighed on the Group result.

 

At 498 kilotons, steel sales in the fourth quarter of 2018 were 15.0% higher than in the prior-year quarter (Q4 2017: 433 kilotons). This increase was mainly due to Ascometal's contribution. On a comparable basis, i.e. excluding Ascometal, sales volumes decreased by 8.0%.

 

The average sales price per ton of steel in the fourth quarter of 2018 was EUR 1,597, 4.9% higher than in the prior-year quarter (Q4 2017: EUR 1,523 per ton). The increase is attributable both to higher base prices and to higher scrap and alloy surcharges year-on-year. However, compared to the third quarter of 2018, the average sales price decreased mainly due to the normalized product mix which had been seasonally elevated at that period. Scrap and alloy surcharges were lower while base prices remained nearly stable in the fourth quarter.

 

Revenue increased 20.6% year-on-year to EUR 795.5 million (Q4 2017: EUR 659.4 million). The growth was primarily due to Ascometal's contribution.

 

Adjusted for the non-recurring costs incurred mainly for the acquisition of Ascometal, EBITDA in the fourth quarter of 2018 was EUR 39.2 million, 19.2% below the same quarter of the previous year (EUR 48.5 million). The one-off effects had a negative impact of EUR 11.2 million on EBITDA. Without these adjustments, EBITDA decreased by 36.1% to EUR 28.0 million from EUR 43.8 million in the fourth quarter of 2017. The adjusted EBITDA margin decreased to 4.9% from 7.4% in the fourth quarter of 2018 and the EBITDA margin to 3.5% from 6.6% in the prior-year quarter.

 

At EUR –14.4 million (Q4 2017: EUR –8.0 million), the financial result for the fourth quarter of 2018 was lower than in the prior-year quarter.

 

Earnings before taxes (EBT) were negative at EUR –122.4 million (Q4 2017: EUR 4.9 million) due to the impairment in the fourth quarter, which led to tax income of EUR 29.3 million in the quarter. Group result for the fourth quarter was EUR –93.1 million compared to EUR 26.2 million for the same period last year.

 

At EUR 13.6 million, free cash flow in the fourth quarter of 2018 was at the level of the prior-year quarter.

 

Outlook for the 2019 financial year

Despite interventions in free trade and political tensions, the global economy grew dynamically in 2018 but has cooled noticeably in the last few months. This has led to a sharp drop in steel demand, particularly in the important end market automotive, partly as a result of destocking. It is not clear how fast a recovery shall commence, yet we expect overall the normalization to evolve gradually during the first half-year 2019. This is indicated by a weak start to the year but encouraging order inflows.

 

The main focus of SCHMOLZ + BICKENBACH in 2019 will be on the next steps in the industrial integration of Ascometal. The takeover has created the conditions for further strengthening the market position of SCHMOLZ + BICKENBACH in the medium to long term. The company intends to consistently exploit this opportunity while at the same time working on efficiency, profitability and optimization of inventories. A further focus will be on measures to improve the earnings position of Finkl Steel.

 

In view of the numerous uncertainties and contradictory signals with regard to the further course of the global economy, reliable forecasts for the 2019 financial year are subject to a high degree of uncertainty. Due to political and macroeconomic risks, SCHMOLZ + BICKENBACH expects a continuation of the dip in growth followed by a recovery in the further course of the year. Based on this assumption as well as on a progressive turnaround at Ascometal and Finkl Steel, SCHMOLZ + BICKENBACH expects adjusted EBITDA of between EUR 190 million and EUR 230 million

 

– END

 

For further information:

 

Dr Ulrich Steiner

Vice President Corporate Communications, Investor Relations & CSR

Telephone +41 (0)41 581 4120

u.steiner@schmolz-bickenbach.com