Avesta Sheffield AB - Interim Report for April - June 2000

Avesta Sheffield AB - Interim Report for April - June 2000 The Avesta Sheffield AB (publ) financial year 2000 is from 1 April to 31 December 2000. The result after financial items for the first quarter was a profit of SEK 547 million (59m). This corresponds to earnings per share after tax of SEK 2.59 (0.22). * The result for the quarter benefited from a significant improvement in conversion margins as increases in base selling prices were seen across the Group's product range. * Deliveries for the first quarter totalled 260,000 (226,000) tonnes. * There was positive effect from price change in inventory of SEK 122 million (97m). Nickel prices have remained volatile. * The outlook for coil products remains strong in all markets. Good order intake and increased capacity utilisation will support higher base selling prices. April 2000- April 1999- June 2000 June 1999 Net sales (SEKm) 5,403 3,743 Operating result before depreciation (SEKm) 705 200 Result after financial items (SEKm) 547 59 Net result for the period (SEKm) 409 34 Earnings per share after tax (SEK) 2.59 0.22 Return on equity after tax (%) 20 2 Return on capital employed (%) 22 4 Net borrowings at period end (SEKm) 2,334 1,225 "This was an excellent quarter for the Group. The strong demand and increases in base selling prices and margins across the Group's entire product range, coupled with high deliveries, resulted in a further improvement in profitability. Although there has recently been some easing in demand as customers react to lower nickel prices and destock, strong market conditions and increased capacity utilisation means that good profitability will continue" says Avesta Sheffield's CEO, Stuart Pettifor. GROUP Market Consumption for coil products in Western Europe during the first quarter continued to be strong, reflecting further economic recovery in the region. Cold rolled shipments increased by 6 per cent compared to the same quarter last year and were the second highest on record. This growth was driven by strong manufacturing exports from Europe, helped by the competitive advantage of a weak euro. Average base prices in Europe increased by approximately 12 per cent during the quarter and represented the strongest rise in prices since the recovery in the stainless market began at the end of 1998. The US economy continued to achieve strong levels of economic growth, driving stainless steel coil product consumption. Coil base prices increased in April supported by good levels of demand. By June, coil base prices in the US had weakened in line with a decline in the price of nickel. Firm growth in South East Asia supported coil demand at the beginning of the quarter, but Chinese anti dumping duties and the dip in nickel prices had a dampening effect on the market. Total prices declined to reflect the fall in the value of nickel. Nevertheless underlying demand in the region remains strong. The quarto plate market is continuing to show signs of gradual improvement in volumes as further project related investments are announced. Shipments increased by 7 per cent compared to the previous quarter. Base prices for quarto plate were maintained at the previous quarter's improved levels. Global demand for long products and precision strip remained good, with price increases achieved in line with expectations. Net sales Delivered tonnage of 260,000 (226,000) tonnes for the first quarter was a 15 per cent increase compared with last year. This is the Group's second highest quarterly deliveries and follows the previous quarter's record deliveries. The largest percentage improvement was in Asia, where demand continues to recover. Deliveries increased throughout Europe, except for the UK where, despite the beneficial effect of Lee Steel Strip sales, they were marginally down on the same period last year. Net sales / deliveries (April to June) Net Sales, SEKm Change in % Net Deliveries, Kton Change Market in % 1999/2000 2000 1999/2000 2000 Europe 2,897 4,203 45 180 204 13 North America 650 820 26 30 34 13 Asia 115 268 133 10 16 60 Rest of World 81 112 38 Total Sales / Net Deliveries 3,743 5,403 44 226 260 15 Net sales for the first quarter were SEK 5,403m (3,743m). Of the 44 per cent increase in net sales compared with last year, 15 per cent relates to higher volumes and 33 per cent to mix and price improvements, including the beneficial effect of the Alloy Adjustment Factor, offset by a deterioration of 4 per cent as a result of adverse exchange rate movements. Raw Materials The significant increase in nickel prices seen throughout last year continued until March when a peak of USD 4.84 per lb was reached. However, the price then fell sharply during the quarter to June, dropping by approximately 20 per cent against the end March figure. However, despite this fall, average nickel prices for the first quarter were the same as for the previous quarter. Nickel prices at the end of June were USD 3.75 per lb, but then fell to USD 3.40 per lb before recovering to USD 3.86 per lb in August. Although London Metal Exchange nickel stocks have reduced to below 20,000 tonnes, and a shortfall in nickel supply is still forecast for 2000 in total, the future direction of nickel prices remains uncertain. Strong demand has resulted in chromium prices continuing to increase, reaching USD 0.43-0.45 per lb by the end of June 2000. Molybdenum prices showed a small increase during the quarter. There was a positive effect from price change in inventory of SEK 122m (97m) for the first quarter. The effect of the reductions in nickel prices began to affect price change in inventory negatively during May. Result The operating result for the first quarter was a profit of SEK 586m (73m). The result after financial items was a profit of SEK 547m (59m). The improvement in the operating result compared to the same period last year was principally the result of: * A 15 per cent increase in delivered tonnage to 260,000 tonnes, which improved the result by SEK 170m. * Increased conversion margins (the difference between net selling prices and raw material costs) totalling SEK 550m, mainly resulting from the improvement in base selling prices across the Group's product range. * Cost reductions which improved the result by an estimated SEK 50m compared with last year. Additional costs, such as maintenance, were incurred in the quarter to support the increased levels of production and deliveries. These positive effects were offset by: * Adverse exchange rate movements, principally related to the weakness of the euro, the net cost of which is estimated at SEK -250m compared with last year. * Net cost increases of SEK 50m following the acquisition of Lee Steel Strip Limited and Smidesbolaget L. Persson AB, offset by reductions following the sale of Avesta Sheffield Inc. (Canada). The share of profits of associated companies was SEK 14m (-4m), with the improvement attributable to increased profitability at Fagersta Stainless. Financial expenses were higher than last year because of increased borrowings. Financial Position There was a cash inflow from operations of SEK 469m, after non-recurring expenditure of SEK 20m on items provided against profits in prior years. Net borrowings (interest bearing liabilities less liquid assets) were SEK 2,334m as at 30 June 2000, compared with net borrowings of SEK 2,343m as at 31 March 2000. The gross interest bearing liabilities as at 30 June 2000 were SEK 3,086m (2,903m at March 2000) and liquid assets were 752m (560m at March 2000). The Group's debt/equity (gearing) ratio has remained unchanged from March 2000 at 28 per cent. The solvency ratio has improved marginally since March 2000 to 51 per cent. June March March 2000 2000 1999 Solvency % 51 53 56 Gearing % 28 28 14 Working capital increased in the quarter by SEK 105m to SEK 5,984m. Inventories increased as additional stocks were produced ahead of the summer vacation period, and this increase was offset to some extent by increased payables. Accounts receivable remained virtually unchanged from March 2000. Capital employed increased in the quarter by SEK 170m to SEK 11,307m. Investments and acquisitions Capital expenditure for the quarter totalled SEK 96m (65m). Additionally, in May 2000, the acquisition was completed of Smidesbolaget L. Persson AB for SEK 27m, plus borrowings taken over at acquisition of SEK 31m. Capital expenditure will increase during the remainder of the year as the major projects approved in late 1999 and early 2000 are progressed. The Group's strategy remains to grow capacity in line with the increase in market demand, and to focus on projects which either reduce costs, improve operational efficiency or have a strong market or customer focus. To strengthen its position in France, the Group has acquired the Deroulinox stainless steel service centre in Tours. The purchase price was FFR 22 million and the purchase will be effective from 1 November 2000. Personnel The number of employees at the end of June 2000 totalled 6,447, a net increase of 139 from March 2000. This net increase includes 70 additional employees related to the acquisition of Smidesbolaget and also temporary summer vacation employees in Sweden. E-commerce Avesta Sheffield actively uses the Internet as an important channel to market products and service. By using Internet technology, the information flow between Business Areas and customers can be integrated. Through secured web sites customers can order steel for new products or buy steel from stock, follow the status of orders and download certificates, online 24 hours a day. The Order On Line pilot, that offers the possibility to buy steel, has been running for internal use during the spring. Usage will be expanded to selected customers and partners. In August auctions of prime arising and non-prime stainless steel products have been implemented. PARENT COMPANY The Parent Company reported net sales of SEK 2,547m (1,558m). The result after financial items was SEK 210m (24m). The improvement in net sales and profitability was attributable to substantially the same items as explained earlier in this report. Capital expenditure totalled SEK 48m (35m) and liquid assets stood at SEK 267 (280m) as at 30 June 2000. MARKET OUTLOOK Industrial production and GDP growth in Western Europe is forecast to remain strong. This will drive further improvement in coil product consumption. Despite signals that US economic growth has now started to slow, coil demand is anticipated to remain firm. The sale of excess inventory during the summer should bring supply and demand in the market more into balance by the autumn 2000. Optimistic growth prospects in South East Asia should encourage further firm demand for all coil products. The outlook for coil base prices remains positive, supported by good order intake and capacity utilisation. The underlying trend for coil base prices remains upward. The quarto plate market is continuing to show signs of a gradual recovery and this will be further stimulated by any new announcements for project related investments throughout the year. Base prices are anticipated to remain stable in the coming months, but will be supported by any further acceleration in demand. The outlook for long products, precision strip and tubular products looks increasingly positive, with further improvements in demand expected during the remainder of the year. FINANCIAL REPORTS The following financial information will be published during the course of 1 April - 31 December 2000 financial year: Interim report, Q2 (April - September 2000)9 November 2000 Year-end report, (April - December 2000) 22 February 2001 Stockholm, 25 August 2000 AVESTA SHEFFIELD AB (publ) Stuart Pettifor President and Chief Executive Officer This report has not been the subject of any specific examination by the Company's Auditors. For further information, please contact: Ian Cooper, Chief Financial Officer, tel. +46 (0)8 613 36 47 Email: ian.cooper@avestasheffield.com Inga Lundberg, Investor & Media Relations, tel. +46 (0)8 613 44 19 Email: inga.lundberg@avestasheffield.com More information about Avesta Sheffield AB is available on the Internet: www.avestasheffield.com ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/08/25/20000825BIT00520/bit0001.doc The full report http://www.bit.se/bitonline/2000/08/25/20000825BIT00520/bit0002.pdf The full report