Haniel Group: Revenue and earnings performance
The stable economic growth in the markets relevant for Haniel was overlaid by declining development in the international commodity markets. This led to declining revenue and earnings at the ELG division. Despite excellent business development, in particular at TAKKT, and the positive contributions of the Bekaert Textiles division included since June, the Haniel Group therefore posted a decrease in revenue and operating profit. The development of profit before taxes was encouraging, which increased significantly due to the easing of the debt burden attained in previous years.
Heterogeneous market environment for Haniel
According to the International Monetary Fund (IMF), at a 3.1 per cent increase in 2015, the global economy posted lower growth than the 3.4 per cent in the previous year. The economy in the US and Europe benefited from a moderate, but continuous recovery. In this regard, economic growth and the resultant positive stimuli for business development were stronger in the US than in Europe. While the IMF reported 2.5 per cent economic growth in 2015 in the US, growth in the euro zone was only 1.5 per cent. Within Europe, Haniel benefited primarily from steady growth in Germany of 1.5 per cent as well. By contrast, restrained buying in Switzerland following the appreciation of the Swiss franc resulted in lower growth with noticeable effects on business activities there.
Global economic growth in 2015 was also characterised by reduced momentum in the emerging markets and developing countries. Those regions achieved growth of just 4.0 per cent after 4.6 per cent in the previous year. Among others, this decrease was driven by the Chinese economy.
In addition to the macroeconomic environment, the conditions in the stainless steel market segment are of great significance to the Haniel Group. These conditions were substantially worse in 2015 than in the previous year. A major cause of this was the economic cooling in China. Dampened economic expectations and the worldwide oversupply of primary nickel resulted in a price decline for nickel, the most significant price driver in stainless steel.
Revenue decline at ELG due to business development
The Haniel Group posted an overall decline in revenue of 3 per cent to EUR 3,808 million in 2015. Business development at ELG caused this decline – by contrast, acquisitions had an overall positive effect on revenue. In addition to Haniel’s acquisition of Bekaert Textiles as a new division, business acquisitions at the existing divisions also delivered positive contributions to revenue development: in 2015, TAKKT expanded its portfolio with Post-Up Stand and BiGDUG, while CWS-boco acquired several smaller companies. Currency translation effects, in particular due to the stronger US dollar, also had positive impacts. By contrast, the sale of the Plant Equipment Group in the 2015 financial year, and the closure of the Topdeq business at TAKKT in the previous year had a negative effect.
Adjusted for these business acquisitions and disposals as well as currency translation effects, revenue was down year on year by 12 per cent. This is attributable solely to the historically low price of nickel and the lower output tonnage as a result of the difficult market situation facing the ELG division. The revenue of all other divisions developed positively compared to the previous year. Of particular mention here is TAKKT’s strong revenue growth in the US, where the division benefited from a positive business climate and business models with strong growth.
Operating profit declined
The Haniel Group’s operating profit is characterised by the poor business development of ELG caused by market conditions. The lower output tonnage compared to the previous year and the considerably lower margin in the stainless steel scrap business resulted in a sharply lower operating profit at ELG, which was negative in financial year 2015. TAKKT, however, increased its earnings in particular due to the positive business development in the US; CWS-boco also generated a higher operating profit. Additionally, Bekaert Textiles made a positive contribution to consolidated income. In the aggregate, however, ELG’s deficit could not be entirely offset so that the 2015 operating profit was EUR 193 million and hence below the previous year’s level of EUR 217 million.
Profit before taxes significantly higher through easing
of the debt burden
Profit before taxes increased from EUR 31 million to EUR 174 million. This is attributable to both a higher investment result and an improved result from financing activities.
The investment result, which encompasses solely the result from the Metro investment, increased from EUR 14 million in the previous year to EUR 57 million in the 2015 financial year. As a result of the sale of METRO Cash & Carry Vietnam, the METRO GROUP posted fewer one-offs in total, despite the impairment loss on goodwill at Real Germany. Thanks to that, but also due to the positive growth at METRO Cash & Carry and at Media-Saturn, the METRO GROUP generated a slightly higher operating profit than in the previous year. In addition, an improved net financial income, lower tax expense and the net disposal gain from the sale of Galeria Kaufhof contributed to the increase in the net investment result at Haniel. Haniel’s May 2015 decrease in the Metro investment from 30.01 per cent to 25.00 per cent reduced earnings.
The result from financing activities, which is composed of finance costs and other net financial income, totalled EUR -76 million in the reporting period. In the previous year, it was EUR -200 million due to the early redemption of bonds of the Haniel Holding Company and the concomitant extraordinary charge. In addition, finance costs were significantly smaller due to the lower level of indebtedness in the 2015 financial year than in the previous year. Haniel thus benefited from the systematic debt reduction of previous years.
Higher profit after taxes from continuing operations
At a higher profit before taxes, the profit after taxes from continuing operations was also markedly above the previous year’s level. Profit after taxes was increased – also supported by a slightly lower tax expense – from EUR -28 million to EUR 120 million in the 2015 financial year. The profit after taxes including discontinued operations also amounted to EUR 120 million in 2015. In the previous year, this was EUR 686 million and included a profit from discontinued operations of EUR 714 million resulting from the sale of the Celesio division.
Haniel value added and ROCE under year-earlier level
In addition to the revenue and earnings figures, the Haniel Group also uses the Haniel value added (HVA) and the return on capital employed (ROCE) as value- oriented performance indicators.** HVA expresses the value contribution generated within a single year. Positive value is added if earnings after taxes and before finance costs, i.e., the return, exceeds the cost of capital. The cost of capital is calculated by multiplying the weighted average cost of capital with the average capital employed. The weighted average cost of capital reflects the return expectations of equity and debt holders, factoring in the risks associated with providing capital. The costs of equity and debt are determined each year, as is their weighting. A weighted average cost of capital of 8.1 per cent was used to calculate HVA in 2014 and 2015.
|- Cost of capital||634||492|
|Haniel value added (HVA)||273||-283|
|/ Average capital employed||7,832||6,080|
|Return on capital employed (ROCE)||11.6%||3.4%|
HVA was EUR -283 million in 2015, significantly below the previous year’s level of EUR 273 million. The primary cause for the decrease was the sale of the Celesio division in the previous year: the 2014 return included a positive contribution from the sale of Celesio. The reduced capital costs in the 2015 financial year had a counter effect because the average capital employed declined substantially as a result of the sale of Celesio.
The performance indicator ROCE reflects the return realised on the average capital employed. The Haniel Group’s ROCE fell from 11.6 per cent in the previous year to 3.4 per cent in 2015. Hence, the return on average capital employed during the 2015 financial year was below the weighted average cost of capital of 8.1 per cent; it had been above that figure in the previous year.
Revenue and operating profit below expectations
For 2015, Haniel had forecast that both a rising stainless steel production in the US and a higher nickel price would have a positive impact on the Haniel Group’s business development. Since the nickel price as well as demand in the stainless steel market segment declined contrary to the forecast, ELG did not generate the expected growth in revenue and operating profit. However, TAKKT and CWS-boco were able to realise slight or moderate increases in revenue and operating profit as forecast. At the Group level, the expected increases in revenue and operating profit were not attained due to ELG’s business development.
As expected, adjusted for currency translation effects, the METRO GROUP posted a slight increase in both revenue adjusted for acquisitions as well as operating profit before one-offs. Contrary to the forecast, Haniel’s investment result significantly exceeded the previous year’s level. The causes for this were primarily the net disposal gain from the sale of the Galeria Kaufhof sales line and of the METRO Cash & Carry activities in Vietnam.
The Haniel Group’s profit before taxes in 2015 – as expected – was markedly above the previous year’s level. In addition to the forecasted substantially improved net financial income as compared to the previous year, the higher investment result also contributed to this increase.
The 2015 profit after taxes declined as expected due to the net disposal gain earned on the sale of Celesio in the previous year. This also applies to the value-oriented performance indicators HVA and ROCE.
* From continuing operations
** For a detailed calculation of the HVA and ROCE indicators, see the explanation in the notes to the consolidated financial statements.