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2.3 Management report on on the Group Results of of operations of of the the business areas areas The processing plant in in Alabama will will have an annual hot-rolled capacity of of over 5 million tons. Adjusted EBIT negative but lower quarter by quarter Adjusted EBIT came to €(1,071) million. This was mainly due to startup costs from the completion of the projects, the ramp-up of the facilities and the entry into the NAFTA market. In addition there were higher expenses for dealing with operating disruptions at the Brazilian steel mill, which mainly affected the coke plant. Increased raw material prices likewise impacted earnings. EBIT impacted by high impairment charges The persistent, higher-than-expected startup losses gave us cause to test the assets of Steel Americas for impairment. This test showed that impairment charges of €2,075 million had to be recorded. They mainly related to property, plant and equipment and construction in progress, and to a lesser extent to transfer taxes and inventories. The impairment charges amounted to roughly 25% of the relevant carrying amounts. This resulted in an income tax reduction of €233 million. The main reasons for the impairment charges were cost overruns in the construction of the mill in Brazil, which resulted in higher acquisition costs, and the delayed ramp-up, which led to significant and persistent startup losses. On top of this came the current and expected near-term relative strength of the Brazilian currency, which is weighing on the competitiveness of the Brazilian mill. In addition, the continued weakness of the sales markets in the USA and Europe had an effect, hampering market entry for Steel Americas’ products. The increase in the weighted average cost of capital also had an impact. Steel mill in Brazil The new integrated iron and steel mill near Rio de Janeiro produced around 2.8 million tons of slabs for the US processing plant and Steel Europe in 2010/2011. The second blast furnace was fired up successfully; however, work on the coke plant is progressing with delays. The final coke oven battery is scheduled to go into operation in spring 2012. Total crude steel capacity is more than 5 million tons a year. In December 2010 the dumping of hot metal resulted in graphite dust emissions. We took measures to reduce the escape of free graphites into the air and capture them as far as possible. At no time was there any danger to the health of employees or residents. All emissions since the startup of the new steel mill have been well below the limits set by the Brazilian environmental authorities. During the ramp-up the mill is operating initially under a provisional license. Following the ramp-up we are confident of meeting all statutory requirements and obtaining a permanent operating license. Processing plant in the USA After a three-year construction period the new processing plant of Steel Americas in Calvert, Alabama, was officially opened on December 10, 2010. It will have a total hot-rolled capacity of over 5 million tons per year. Construction work for the hot and cold rolling mills was completed with the startup of the pickling line in November 2010. Three of the four hot dip galvanizing lines were also put into operation in the reporting year; the fourth and final line is expected to follow at the beginning of 2012. 74
Management report on the Group 2.3 Management report on the Group Results of operations of the business areas Materials Services Materials Services in figures 74 | 75 2009/2010 2010/2011 Change in % Order intake million € 12,805 14,768 15 Sales million € 12,763 14,776 16 EBIT million € 463 478 3 EBIT margin % 3.6 3.2 — Adjusted EBIT million € 382 533 40 Adjusted EBIT margin % 3.0 3.6 — Employees (Sept. 30) 33,856 36,568 8 With 500 locations in over 40 countries the Materials Services business area specializes in materials distribution including technical services. Generally high demand – significant sales growth Materials Services increased its order intake by 15% to €14.8 billion in 2010/2011. Sales came to €14.8 billion, an increase of €2.0 billion or 16% from the prior year. Materials Services order intake Materials Services EBIT in million €, quarter on quarter rate of change in million €, quarter on quarter rate of change Q1 2,681 Q1 Q2 + 14% 3,059 Q2 Q3 + 21% 3,695 Q3 Q4 (9)% 3,370 Q4 2009/2010 2009/2010 Q1 (3)% 3,259 Q1 Q2 + 20% 3,918 Q2 Q3 + 1% 3,973 Q3 Q4 (9)% 3,618 Q4 2010/2011 2010/2011 The The metals metals warehousing and service service business in particular showed significant significant growth. Shipments increased year-on-year by by 18% to 5.6 million tons, reflecting high demand from from the engineering, automotive and other manufacturing sectors. This was true of Germany, Eastern Europe and several Western European countries, whereas demand in the countries of Southern Europe was much more subdued. The construction industry provided hardly hardly any stimulus. In North America the nonferrous metals business in particular particular profited from from the economic recovery. Despite Despite generally good demand, prices and margins came came under increasing pressure from from the the start of the the 2nd fiscal half. (47)% + 132% (32)% (21)% + 92% (9)% (46)% 129 68 158 108 85 163 149 81
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Annual Report 2010/2011 At the cent
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