2016 / 172017 / 182017 / 182017 / 18
2,490.92,450 / 2,550850 / 9001,600 / 1,650
202.5200 / 22095 / 105105 / 115
Order book
2,5322,800 / 3,100350 / 4002,450 / 2,700
millions of €

Dear Shareholders,
Customer and Colleagues

Fiscal 2016/2017 was another challenging year for metals plant builders. As expected, the market for investments in new plants contracted by an average of 30/35% for the third year in a row, reconfirming the current “New Normal” period. In particular, it is difficult to predict what will be the average annual growth rate for steel consumption in the near future.

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The previous New Normal period lasted from 1970 to 2000 with an average increase in steel consumption of 8 Mtpy. In any case, this situation has prompted metals plant developers to downsize their organizations and expand their range of services, in order to align engineering and manufacturing capacity with market demand. However, the prospects for steel and non-ferrous metal producers – our customers – are looking better because, fortunately, China is being less aggressive on export prices and customs barriers have been put in place. The combination of these two facts has relieved pressure on prices, allowing a return to acceptable profitability. This situation would appear to be stable in the short term, also because markets such as the US, Europe, China, Vietnam and Russia are seeing growing demand, and the 30/35% underutilization of the existing plants is showing signs of improvement. The consequence of all of this is that our customers have started investing again, mostly in revamps to rationalize plants - while others are being upgraded or shut down - and in technological packages aimed at improving OpEx, quality, operating flexibility and the environmental impact.

But, investments in new plants are still below par if compared to the period 2000-2012. A decline in sales is therefore expected for plant builders, but profitability probably will increase thanks to the restructuring of engineering and manufacturing resources to rebalance supply and demand. In spite of the market situation described above, for Danieli fiscal 2016/17 ended with a reasonable EBITDA and a satisfactory net profit – considering the market we have to work with and the losses deriving from the FATA acquisition, Danieli Corus and the seamless tube production plant acquired from ABS in Germany, i.e. ESW Röhrenwerke.

The year 2017/18 will be similar to 2016/17, with the plant-building sector probably experiencing a further erosion of EBITDA, due to orders with unprofitable prices obtained in the last two years and an unfavorable US dollar exchange rate. We predict that as of 2018/19 a trend reversal will take place, bringing with it higher profitability. It also seems that much better results can be expected from steelmaking (ABS). Another positive result of 2016/17 is that shareholders’ equity and net cash remained unchanged. The prospects of a possible reversal of the current situation are backed by the forecast of an increase in steel consumption between now and 2035. The forecast points to an average increase in the annual steel consumption of approximately 20 Mtpy which, although being well below the amount of approximately 52 Mtpy for the period 2000-2012 (an increase which is mainly attributable to China, but also to other regions, such as India, MENA, SEA), is nonetheless considerably higher than the average increase of approximately 8 Mtpy that characterized the “normal period” from 1975 to 2000. If that is the case, the current New Normal period will be characterized by an average annual growth midway between the disastrous one – for plant builders – of the years 1975-2000, with an average increase in steel consumption of 8 Mtpy, and the exceptional one of 52 Mtpy of the period 2000-2012. Therefore, the outlook is reasonable. A few remarks on the major events of the past fiscal year: 

Plant Making

— With the Shougang plant (China) for hot strip production (Danieli Universal Endless – Danieli patent) that will be coming on stream in mid-2018, and with the MI.DA. at CMC Oklahoma (Danieli patent for endless production of long products), Danieli is well established as the front-runner in the new generation of continuous plants for both flat and long products.
— Considerable progress was made in terms of technology and market positioning in the aluminum sector with the supply of hot and cold rolling plants for flat products to Tri-Arrows (USA) and Anshan (China) - world leaders in aluminum, while the plant of Kumz (Russia) for the aerospace, aviation and automotive sectors will start production at the end of 2017. Also worthy of note are the quality results - beyond all expectations - achieved by the endless plant of Sural (Canada) for the production of high-strength aluminum wire.
— Danieli Automation achieved its first successes with Industry 4.0 and is solidifying its base of operations through investments and the acquisition of a company specialized in the use of robots.
— Finally, the numerous patents generated in past years enabled us to win new orders thanks to our technological competitiveness.

Steel Making

— The steel market is on the upswing, resulting in better margins for ABS as well (Acciaierie Bertoli Safau). Despite the losses incurred by ABS - in connection with the restructuring of the newly purchased ESW Röhrenwerke seamless pipe mill in Germany, and the stoppage of the Sisak steelmaking plant in Croatia, which will probably resume production at the beginning of 2018 - it managed to end the year with a good profit.
— The ramp-up of the Rotoforge plant continues, and market appreciation of its products is on the rise, thus providing a source of greater added value for the future.
— The DIGIMET 4.0 program and plant robotization were given the green light. So, the outlook is good for the steelmaking segment, with growth expected to continue through 2017/18 as well.

We continue to apply “lean thinking” principles across the Group, in order to become more competitive and create added-value per person, and especially to enhance our customer service. Customer centricity requires continuous improvement. In conclusion, we feel that the “new normal” period will continue to influence our business in the next few years, but it is difficult to predict for how long. It follows that the plant-building segment until 2018-2019 will maintain its current level of sales thanks to a recovery in demand primarily for revamps and services, while profitability should increase thanks to the downsizing of worldwide plant departments. Starting from 2018-2019, the effects of an increase in steel demand, which is expected to reach approximately 20 Mtpy, should involve an increase in the demand of new plants as well, which today is still slowed by the post-boom shock. Finally, it can be stated that the prospects for the steel-making segment will probably remain positive for at least the next couple of years. The Board thanks the Danieli Group team for their enthusiasm, dedication and passion for their work. Their energy and positive attitudes are critical factors to maintaining our success, constant progress and expansion, and on top of this, the ability to innovate. These attributes cannot be bought or learned, but have been built into the company’s character since the beginning, and have come to be our most valuable, intangible asset. We also thank our customers, whose innovative spirit makes them true partners in our quest to set new production records and to do things better, in order to remain front-runners. Finally, we wish to thank our shareholders, who allow us to invest more than 95% of our profits back into the company to finance growth and innovation. We like to believe that this approach and vision stands not only for trust, but also for motivation in sharing with the Danieli team our pride in continued improvement, keeping us a step ahead.

Gianpietro Benedetti

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