Interim Report for Second Quarter 2016

Second quarter 2016 

  •  Sales volume increased by 8 percent compared to the previous year, while revenue decreased by 6 percent. Revenue development was influenced by lower scrap and alloy surcharges and a weaker sales mix  
  •  Order intake increased by 12 percent
  •  EBITDA before restructuring costs amounted to EUR 28 (26) million
  •  Operating profit (EBIT) amounted to EUR 17 (16) million after restructuring costs of EUR 1 (0) million
  •  Cash flow from operating activities amounted to EUR 8 (4) million, including payment of restructuring costs of EUR 2 million
  •  Ovako’s restructuring program is proceeding according to plan and has contributed EUR 6 million in the form of lower costs during the quarter. 175 people have left the group since the start of the program, and the number of employees is 184 fewer than in the previous year

Group KPIs

Amounts in brackets in this report refer to the corresponding period in the previous year.

2016Q2 2015 Q2  2016Q1-2 2015 Q1-2  2015 Full year 
Sales volumes 1)  kton  201 187  386 375  681 
Net revenue 2)  EURm  219 233  420 462  834 
EBITDA before restructuring cost 3)  EURm  28 26  46 53  48 
Adjusted EBITDA margin 3)  %  13.0 % 11.2 %  11.0% 11.4 %  5.7 % 
EBITDA 3)  EURm  28 26  44 53  44 
EBITDA margin 3)  %  12.6 % 11.2 %  10.6 % 11.4 %  5.2 % 
EBIT before restructuring cost 3)  EURm  18 16  26 32  7 
Adjusted EBIT margin 3)  %  8.4 % 6.8 %  6.1% 7.0 %  0.9 % 
Operating profit (EBIT) 2)  EURm  17 16  24 32  1 
EBIT margin 3)  %  8.0 % 6.8 %  5.7 % 7.0 %  0.1 % 
Net profit/loss  2) EURm  10 7  10 15  -23 
Cash flow from operating activities 2)  EURm  8 4  11 -1  25 
Net debt (excl pension liabilites)/equity ratio 3)  %  180 % 144 %  180 % 144 %  181 % 
Return on capital employed (ROCE) 3)  %  -1 % 3 %  -1 % 3 %  0 % 
Full time employees at end of period (FTE) 1)  No.  2,809 2,993  2,809 2,993  2,905 

Comments from the CEO

“The positive sales development and strong progress implementing the restructuring program contributed to improved profit in the quarter, despite a weaker sales mix. Operating profit for the quarter increased to EUR 17 million, compared with EUR 16 million for the corresponding quarter in the previous year.

The second quarter of 2016 was characterized by increased demand. Order intake strengthened further, and was 12 percent better than in the corresponding period of the previous year. The high order intake also contributed to positive development in delivery volumes. Total deliveries were 201 thousand metric tons, which is 8 percent above the same quarter in the previous year, and the highest delivery volume since 2011. The good order intake during the quarter also contributed to positive development of the order book for the third quarter.

The sales mix remains challenging. Underlying, it is mainly the market for heavy trucks that is experiencing good development, as well as the car market which is less important for Ovako. Otherwise, the market is characterized by weak industrial activity and excess capacity. Sales growth is generated mainly through successful new sales for new applications in the standard segment for bearings, with Ovako’s efficient route from Imatra being used more and more. In addition, positive growth is seen in new business for forging applications to the automotive industry. The challenges consist mainly of weak development in bearings for industrial applications and of the oil and gas market in general.

Geographically, growth was good in Europe, except for Scandinavia where growth was unchanged. North America showed a negative trend compared to the previous year, mainly driven by the oil and gas market, which stagnated ahead of the third quarter in the previous year.

The restructuring program launched last fall has been strengthened during the quarter. Savings for the program as a whole have been increased from EUR 45 million to EUR 50 million, with full effect from 2018. The planned reduction in the number of employees has increased from 250 to 300, and since the start of the program 175 employees have left Ovako. New savings have been identified mainly through further streamlining of production processes, maintenance, service and administration at all sites. A decision was taken during the quarter that the rolling mill in Hällefors will not be closed as previously stated. By avoiding the major rerouting of production flows that a closure would have brought about, work is focusing instead on achieving greater competitiveness in existing flows. This is leading to faster and greater savings at lower risk and with lower investment costs. The closures of the distribution and finishing operations in Turenki and Forsbacka are proceeding according to plan.

Safety still has top priority at Ovako. The trend is in the right direction and the frequency of accidents leading to absence from work has decreased by 23 percent in the past year, compared to the year before.

In order to contribute to more fuel-efficient cars and trucks, and to strengthen Ovako's market position, Ovako is participating in a number of development projects together with customers in the automotive industry. The aim is to be able to reduce the weight of vehicle powertrains through increased use of high-purity and high-strength steels. Ovako is already delivering steel for specific critical components, and is involved in developing the next generation of solutions that are designed based on our high-clean steels to allow significantly lower weight.

Short-term outlook 

We expect the market for engineering steel in Europe to be characterized by continued uncertainty during the coming quarters. In view of the strong order intake during the second quarter, we believe that Ovako's deliveries in the third quarter will be slightly better than in the previous year.”

Marcus Hedblom
President and CEO
 

Further information can be obtained from:
Nicholas Källsäter, Head of Group Business Control, +46 (0)8 622 13 23
Elina Olsson, Group Communications, +46 (0)8 622 13 22

Ovako develops high-tech steel solutions for, and in cooperation with, its customers in the bearing, transport and manufacturing industries. Our steel makes our customers’ end products more resilient and extends their useful life, ultimately resulting in smarter, more energy-efficient and more environmentally-friendly products.

Our production is based on recycled scrap and includes steel in the form of bar, tube, ring and pre-components. Ovako is represented in more than 30 countries, and has sales offices in Europe, North America and Asia. Ovako’s sales in 2015 amounted to EUR 834 million, and the company had 2,905 employees at year-end. For more information, please visit us at www.ovako.com

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About Us

About OvakoOvako develops high-tech steel solutions for, and in cooperation with, its customers in the bearing, transport and manufacturing industries. Our steel makes our customers’ end products more resilient and extends their useful life, ultimately resulting in smarter, more energy-efficient and more environmentally-friendly products. Our production is based on recycled scrap and includes steel in the form of bar, tube, ring and pre-components. Ovako has over 3,000 employees in more than 30 countries. Ovako’s sales in 2017 amounted to EUR 921 million. Since June 2018, Ovako is part of the Japanese steel corporation Nippon Steel & Sumitomo Metal Corporation that employs 92,000 globally and has a revenue of EUR 37 billion. For more information, please visit us at www.ovako.com and www.nssmc.com.

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Quotes

The second quarter of 2016 was characterized by increased demand. Order intake strengthened further, and was 12 percent better than in the corresponding period of the previous year.
Marcus Hedblom, President and CEO