Avesta Sheffield AB - Interim Report for April - December 1999

Avesta Sheffield AB - Interim Report for April - December 1999 The Avesta Sheffield AB (publ) financial year is from 1 April - 31 March * The result after financial items for the third quarter was a profit of SEK 123 million (-521m) and for the nine months a profit of SEK 219 million (-1,036m). This corresponds to earnings per share after full tax of SEK 0.63 (-2.40) and SEK 1.04 (-5.70) respectively. * The result for the nine months benefited from cost reductions of SEK 490 million compared with the same period last year. Cost reductions since April 1997 have exceeded 1.6bn SEK. * Deliveries for the nine months totalled 645,000 (653,000) tonnes. Deliveries during the third quarter of 223,000 tonnes were 10 per cent up on the same period last year, with improvements seen in Europe, North America and Asia. * Raw material prices continued their upward trend, with nickel reaching USD 3.95 per lb at end January 2000. There was positive price change in inventory of SEK 513 million (-473m). The rapid increase in raw material prices continues to put pressure on conversion margins despite rising stainless steel prices. The higher raw material prices also contributed significantly to the increase in net borrowings during the quarter. * European demand for stainless steel coil products remained strong through the third quarter. Demand in North America and, particularly Asia also improved. Base selling prices for coil products are increasing in all of the Group's major markets. Other products are also beginning to show signs of improvement in both demand and selling prices. * The outlook for coil products remains strong. Good order intake and increased capacity utilisation will further support higher price levels. * The acquisition of Lee Steel Strip in the UK was finalised in November 1999. April 1999- April -1998 Dec. 1999 Dec. 1998 Net sales (SEKm) 10,814 12,135 Operating result before depreciation (SEKm) 666 -627 Result after financial items (SEKm) 219 -1,036 Net result for the period (SEKm) 164 -901 Earnings per share after full tax (SEK) 1.04 -5.70 Return on equity after full tax (%) 3 negative Return on capital employed (%) 4 negative Net borrowings at period end (SEKm) -2,317 1,300 "Demand for the Group's products was strong through the third quarter in the main markets of Europe, North America and Asia. Deliveries into Asia in particular improved. Base selling prices for coil products, which represent about 60 per cent of the Group's sales, are increasing steadily, and increases are now also being seen in quarto plate. However, in the quarter, despite the increasing Alloy Adjustment Factor, total effective selling prices remained below the same period last year. The rapidly increasing nickel price continued to put pressure on conversion margins, although there was some improvement towards the end of the quarter. Improved demand and increases in base selling prices are now being seen across much of the product range. Coupled with the improving output from the Group's production facilities and continuing cost reductions, this will lead to an improvement in the Group's financial position through 2000, despite the current combination of a weak euro and strong sterling", says Avesta Sheffield's CEO, Stuart Pettifor. GROUP Market Underlying demand for stainless steel cold rolled coil products strengthened through the third quarter with the continued recovery of the global economy. In Western Europe this was driven primarily by a more optimistic manufacturing sector, where exports have benefited from the weak euro and buoyant demand. Demand in the North American market gathered momentum in the latter part of 1999, underpinned by high levels of consumer confidence and increased output from white goods and automotive sectors. South Korea and Taiwan, with their improving economies, have been at the forefront of the recovery for stainless demand in Asia. Stainless steel delivery lead-times have lengthened as order bookings have continued to improve. Base prices for coil products have risen in all of Avesta Sheffield's major European markets as a result of strong market conditions. Over the quarter coil base prices in Germany have increased by 5.5 per cent. The gap between Asian and European base prices narrowed during the quarter as Asian stocks reduced and material supply/demand balance tightened. Effective prices have also increased because of the rising cost of raw materials, notably nickel. There are now clearer signs that project-related demand for tubular, welding and quarto plate products is beginning to improve. This can be attributed to higher commodity prices in the oil and gas and pulp and paper sectors and the general economic recovery in South-East Asia. Precision Strip has experienced a sudden and rapid recovery in demand for its products since the New Year, with mills fully booked until the next quarter. Prices have now started to improve and the upward trend is expected to continue. Acquisitions On 12 November, the Group finalised the purchase of Lee Steel Strip Ltd in the UK from Carclo Engineering Group plc. The purchase price comprised SEK 243m for the shares and SEK 36m for related properties, plus borrowings taken over at acquisition of SEK 33m. Lee Steel Strip specialises in the production of precision strip, has a world leading position in carbon spring steels and produces other precision stainless products complementing the existing Avesta Sheffield range. The business is managed as part of the Group's Precision Strip Business Area. Net sales Delivered tonnage of 645,000 (653,000) tonnes for the nine months was 1 per cent down on the same period last year. Deliveries in the third quarter totalled 223,000 (203,000) tonnes. The improvement in deliveries for the third quarter compared with last year includes an increase in deliveries in the main markets of Europe, North America and particularly Asia, offset by a small reduction in Rest of World markets. However, in all the main markets average effective selling prices remained below the levels achieved in the same period last year. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/02/17/20000217BIT00800/bit0001.doc The full report http://www.bit.se/bitonline/2000/02/17/20000217BIT00800/bit0002.pdf The full report