Avesta Sheffield AB - Interim Report for April - September 1999

Avesta Sheffield AB - Interim Report for April - September 1999 The Avesta Sheffield AB (publ) financial year is from 1 April - 31 March The result after financial items for the second quarter was a profit of SEK 37 million (@191m) and for the half year a profit of SEK 96 million (@515m). This corresponds to an earnings per share after full tax of SEK 0.20 (@ 1.31) and SEK 0.41 (@3.30) respectively. The half-year result benefited from cost reductions of SEK 380 million compared with the first half of last year. Cost reductions during the last two years have totalled over 1.5bn SEK. Deliveries for the half year totalled 422,000 (450,000) tonnes. Deliveries of coil increased during the half year, and the fall in deliveries is related to lower sales of quarto plate, semi-finished and ferritic products and the mothballing of production in Baltimore. Raw material prices continue to rise with nickel reaching USD 3.70 per lb. There was a positive price change in inventory of SEK 280 million (@275m). Higher nickel prices and a stronger USD reduced the conversion gap despite rising stainless prices. European demand for stainless steel coil products remained at a good level through the second quarter. Demand in both North America and Asia also improved. Base selling prices for coil products are increasing, although prices in the second quarter were still 4 per cent below the same period last year. The outlook for coil products remains positive, with some signs of improvement also being seen for other products. Orders for coil products are running at high levels and are being carefully balanced against capacity to safeguard service levels. The order book for all other products is beginning to strengthen as world capacity and demand moves towards a balance. The Group is in the process of acquiring Lee Steel Strip in the UK, which is in line with the Group's strategic objective to add value. Lee Steel Strip's production is 14,000 tonnes per year. April 1999- April 1998- Sept. 1999 Sept. 1998 Net sales (SEKm) 7,025 8,456 Operating result before depreciation (SEKm) 380 @251 Result after financial items (SEKm) 96 @515 Net result for the period (SEKm) 65 @521 Earnings per share after full tax (SEK) 0.41 @3.30 Return on equity after full tax (%) 2 negative Return on capital employed (%) 3 negative Net borrowings at period end (SEKm) @1,216 @1,486 "European demand for coil products was good in the quarter, despite the seasonal slow down, with improvements also seen in Asia and North America. Base selling prices in Europe for coil products increased by just over 4 per cent in the first financial half year, but still remain lower than last year's level. This gradual recovery is forecast to continue, underpinned by the rising price of nickel. Cold rolled coil products represents some 40 per cent of the Group's sales and there are now signs of improving prices and demand in our other businesses. Demand and prices for project-related business remain low, although there are some signs of recovery. The benefits from the cost reduction programme continue to be realised, and this has put the Group in a strong position to benefit from the improving market conditions", says Avesta Sheffield's CEO, Stuart Pettifor. British Steel/Koninklijke Hoogovens merger Following the merger with Koninklijke Hoogovens, effective from 6 October 1999, British Steel plc, which owns 51 per cent of the issued share capital of Avesta Sheffield AB (publ) became a wholly owned subsidiary of a newly formed holding company named Corus Group plc. Corus Group plc will have a financial year end date of 31 December. Proposals to adopt the calendar year as the financial year and that the financial year beginning 1 April 2000 should be shortened to end at 31 December 2000 will be made at the Annual General Meeting of Avesta Sheffield AB (publ) in June 2000. At an extra General Meeting on 22 October 1999, Tony Pedder and Franswillem Briët were elected as new Board members to replace John McDowall and Peter Wheelen. Tony Pedder was elected as the new chairman of Avesta Sheffield AB (publ). GROUP Market European demand for cold rolled coil products was stronger than anticipated over the traditionally quiet summer period. This was driven by the improved economic sentiment in Western Europe and was reflected in firm demand from end users. Recently there have been signs of improvements in the economies of Germany and Italy, Europe's two largest consumers of stainless steels. In Asia, demand for coil products has strengthened as the region's recovery continues and material becomes more difficult to source from a few local producers. North American consumption also increased, as inventories were reduced and anti dumping measures began to restrict imports, bringing supply and demand more into balance. Base price increases for cold rolled products, which were implemented in Europe at the beginning of April, were consolidated during the summer. Further increases have now been announced, with the most significant increases still to be reflected in invoiced sales. Since 1 April base prices have increased by just over 4 per cent. Project related demand for tubular, welding and quarto plate products remains subdued. Prices for these products have still to show the recovery that is being seen for coil products. Enquiry levels are increasing indicating the possibility of recovery in the next year. Demand for precision strip products is still recovering , as a result of strong consumption in the automotive sector. Base prices have stabilised and are expected to improve in the next calendar year. Demand for long products is strong, although competitive conditions have prevented improvements in price levels to date. Prices for raw materials, especially nickel, rose strongly in the period and have continued to do so, with the result that effective prices have risen faster than base prices. This may have provided a further stimulus to demand, but there is no evidence of significant speculation or stock build by customers. Acquisitions and Disposals On 12 November, the Group will finalise the purchase of Lee Steel Strip Ltd in the UK from Carclo Engineering Group plc. The purchase price comprises SEK 241m for the shares and SEK 36m for related properties. 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 to the existing Avesta Sheffield range. The business will be managed as part of the Group's Precision Strip Business Area. As this transaction was not completed before 30 September, the financial effect of the purchase is not included in these Interim Accounts. Effective 30 September, the Group sold its Canadian sales company, Avesta Sheffield Inc (Canada) to Reynolds Aluminium Supply Company. The sale proceeds comprised SEK 196m, including the assumption of bank debt. The profit on disposal, after costs but before taxation, is SEK 10m. Rasco Specialty Metals, as the company will be called, will remain a distributor of the Group's products in the Canadian market place. Net sales Delivered tonnage of 422,000 (450,000) tonnes for the half year was 6 per cent down on the same period last year. Deliveries in the second quarter totalled 196,000 (214,000) tonnes. The reduction in deliveries for the second quarter includes a reduction in project related European quarto plate sales, reduced sales of semi finished products and ferritic steels and the withdrawal from CPP production in the USA. It also includes the effect of reduced working weeks in 1999. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/11/11/19991111BIT00290/bit0001.doc Full Report http://www.bit.se/bitonline/1999/11/11/19991111BIT00290/bit0002.pdf Full Report