Burkhard Dahmen, Spokesman of the Managing Board, SMS GmbH (left) and Torsten Heising,
Member of the Managing Board, SMS GmbH
STEEL AND ALUMINUM MARKET
Steel prices developed positively in 2018. Protectionist measures, in particular by the US and the EU, boosted the sales prices of hot strip and rebars. At present, prices in the US are on a high level. As a result, previously unprofitable plants were able to produce profitably again.
However, the problem of global overcapacities of around 30 percent remains unsolved and is depressing prices. Global steel production in 2018 was up on the previous year by approx. 4.7 percent. Growth was driven above all by increased production in Asia and the Middle East. India overtook Japan to become the second-largest steel producing nation. Once again, in 2018 every second ton of steel came from China. Due to the trade conflict, the export rate of the Chinese steel industry dropped to 7 percent.
Compared to the previous year, global primary aluminum production increased by 1.5 percent to 64.3 million tons. Here again, China is the main growth engine and by far the most important region for primary aluminum production. There were no significant capacity changes in primary aluminum production in all other regions.
MARKET SITUATION IN PLANT CONSTRUCTION
The market situation for metallurgical machine and plant construction in 2018 stabilized at a level comparable to 2017. The recovery in steel prices resulted in a slight upswing in inquiries. Despite this, overcapacities and fierce competition among suppliers is keeping machine and plant prices down to the same low level as in the previous year.
Customers are still very interested in modernizations, especially those designed to improve efficiency and quality. As a result, projects have generally become smaller and more complex. Also in demand are eco-friendly products and processes. These are increasingly gaining importance in emerging economies.
There is an increased demand for digital products such as Smart Alarm from SMS digital. This application is quickly scalable to various plant types – also outside the steel industry. In 2018, as part of the digitalization strategy, SMS created the foundations necessary for meeting increased demand in this area as well as for pooling the required know-how.
There is a special focus on continuously developing our service business. The trend toward outsourcing maintenance services continued in 2018, and looks set to keep rising. The digital further development of our product portfolio to include e-services is an important step in increasing closeness to customers and accelerating order processing.
Beyond our core business, we are successfully expanding our product portfolio into adjacent markets with growth potentials. We bring together these growth topics under the name New Horizon. As a leading company in metallurgical plant construction, we can apply our vast experience in plant technology and process expertise here.
Particularly noteworthy is our joint venture with port operator DP World. Together with DP World, the SMS subsidiary AMOVA will build the first pilot plant for a new warehousing system for marine containers in time for the EXPO 2020 in Dubai.
In the field of additive manufacturing, we have successfully commissioned our own pilot plant for powder production. It produces high-purity metal powder for use in 3D printers.
In response to the continued difficult market environment and unsatisfactory business result, we launched our Task Force 2021 transformation program in 2018.
Its main goals are the sustained strengthening of our core business and optimization of processes in a drive to improve our earnings situation. The individual divisions and the central functions have drawn up transition plans with more than 600 cost-cutting measures with an effect horizon of up to 2021.
Furthermore, important, inter-divisional topics will be tackled in “Central Projects.” Cost cutting will focus above all on modularization and standardization of our portfolio, optimization of sales, order processing, and project management, and construction site organization.
Included here are measures to cut costs for personnel, materials, and overheads. We will continue to invest in innovations and develop new products so that our range consistently contains technologically sophisticated products.
For 2019, the World Bank expects a slight decline in global economic growth after the high point at the beginning of 2018 appears to be over. It is anticipated that economic growth will weaken, above all in the US, to just +1.7 percent in 2020. Furthermore, the loose monetary policy of recent years seems to be coming to an end. This threatens a capital outflow from the developing economies, which will put the financial markets there under additional pressure.
In 2019, we must keep a close eye on developments resulting from trade conflicts as well as political topics such as Brexit, which will have far-reaching consequences for the global economy.
Once again in 2019, the metallurgical plant construction market will remain tense and price competition will be fierce for available projects. Global overcapacities are still depressing our new plants business. However, we expect continued positive development of our modernization activities. Vital to ensuring our competitiveness are cost optimization and greater efficiency as well as efforts to secure our technology leadership. That is why we are continuing and intensifying our work in this area. Apart from driving the continuous expansion of our service business and increasing digitalization, we are working hard on new business fields in our New Horizon strategy.
Looking at order intake prospects in 2019, we expect an almost constant result on the same level as in 2018. We anticipate a slight increase in group sales compared to the previous year. Due to the expected effectiveness of restructuring measures, the group’s net result in the current business year should be significantly better, although still on a low level.
SMS group order intake in 2018 totaled EUR 3,087 million. This was EUR 217 million up on the previous year (2017: EUR 2,870 million). This means we exceeded our forecast of matching the previous year’s order intake. Metallurgical plant construction generated orders worth EUR 2,812 million (2017: EUR 2,591 million). That was an increase of EUR 221 million compared to 2017. Business with plants improved to EUR 2,113 million (2017: EUR 1,907 million). Service business also continues to attract steadily growing orders. At the year’s end, the figure reached EUR 698 million, which was slightly above the order intake in the previous year (EUR 685 million).
elexis generated an order intake of EUR 222 million (2017: EUR 210 million). In contrast, Elotherm posted a significantly lower order intake than the EUR 73 million in 2017, generating just EUR 56 million in 2018.
At EUR 2,805 million, sales of SMS group in the past business year were EUR 82 million below the previous year’s level (EUR 2,887 million). This confirmed our forecast of a slightly lower sales result.
Sales in metallurgical plant construction were EUR 2,517 million, which was below the previous year (EUR 2,638 million). Sales from plant business continue to decrease and amounted to EUR 1,842 million (2017: EUR 1,977 million). Sales in service business are steadily growing and amounted to EUR 675 million (2017: EUR 660 million).
This is how SMS group sales broke down according to global regions:
Asia: 33 percent (2017: 33 percent)
Europe: 31 percent (2017: 31 percent)
America: 20 percent (2017: 25 percent)
Africa: 10 percent (2017: 4 percent)
Russia: 6 percent (2017: 7 percent)
elexis generated sales totaling EUR 208 million, which exceeded the previous year’s figure (EUR 193 million) by EUR 15 million. Sales by Elotherm (EUR 78 million) improved compared to the previous year (2017: EUR 57 million) by EUR 21 million.
Due to an order intake higher than sales, the order backlog, at EUR 3,623 million, is slightly above the previous year’s figure (EUR 3,472).
In the 2018 business year, SMS group had an average of 13,872 employees (2017: 14,305). That corresponds to a decrease of 433 employees on the previous year.
The number of employees at elexis/Elotherm was 1,562, on a level with the previous year (2017: 1,566).
In the 2018 business year, SMS group generated a net result of EUR 27 million, which was slightly higher than the previous year (EUR 23 million). Therefore, we succeeded in fully meeting our forecast of a significantly improved pretax result compared to the previous year.
The equity ratio of 20.5 percent is higher than in 2017 (18.8 percent).
Compared to the previous year, cash and cash equivalents were down by EUR 103 million to EUR 685 million (2017: EUR 788 million).
In addition, we also hold securities from current assets with a market value of EUR 277 million. After deduction of financial liabilities of EUR 78 million, this results in net liquidity of EUR 884 million (2017: EUR 1,076 million).
The investment volume in intangible assets and property amounted to EUR 38 million (2017: EUR 81 million). Investments essentially went into a powder atomization facility as well as the expansion or replacement of existing IT systems.
We invested EUR 55 million in other business interests and investment securities (2017: EUR 66 million). That compares with proceeds from the disposal of financial assets totaling EUR 18 million (2017: EUR 25 million).
The advance payments received that are customary in the industry are secured by bank guarantees. The proportion of guarantee and borrowing facilities utilized is approx. 50 percent.
BALANCE SHEET in EUR thousand
CONSOLIDATED INCOME STATEMENT in EUR thousand