Half Year Report 1998

Half Year Report 1998 Sales increased by 9%, primarily as a result of increased prices. Profit after financial items increased by SEK 188 million to SEK 1,266 (1,078) million. 15.9 million shares were redeemed, for a total of SEK 3,305 million, during the second quarter. Consolidated profit and loss account (unaudited) 1997 1998 1997 July 97- SEK millions Jan-June Jan-June Full Year June 98 Sales 8,965 9,743 17,474 18,252 Cost of goods sold -7,244 -7,743 -14,264 -14,763 Gross profit 1,721 2,000 3,210 3,489 Selling and administrative -823 -867 -1,663 -1,707 expenses Other net operating 77 4 132 59 revenues and expenses Affiliated companies 44 40 84 80 Operating profit 1,019 1,177 1,763 1,921 Financial items 59 89 143 173 Profit after financial 1,078 1,266 1,906 2,094 items Tax -298 -350 -536 -588 Minority shares -19 -16 -34 -31 Profit after tax 761 900 1,336 1,475 Return on capital employed before tax (%) - - 14 15 Return on equity after tax - - 11 12 (%) Earnings per share (SEK) *) 5.90 7.10 10.40 11.50 Equity per share (SEK) *) 95.60 87.80 100.00 87.80 Equity ratio (%) 69 60 70 60 Shares at end of the period 128.00 112.11 128.00 112.11 (million) *) *)The calculation does not include the 16 million C shares that was issued in June and that will be redeemed during the autumn. The Market Steel consumption in both Western Europe and the United States appears to have levelled out at a high level. Lower steel consumption in Asia has, however, entailed a significant change in the flow of trade which, among other things, resulted in a decline in net exports of steel from Western Europe. In combination with a continued high capacity utilisation within the Western European steel industry, this has resulted in pressure on prices, primarily those for hot-rolled sheet. During the second quarter, prices for the Group's steel products in local currencies were largely unchanged compared with the first quarter. A changed product mix resulted, however, in prices in Swedish kronor being 5% higher than during the first quarter. Accordingly, during the first half of the year, prices were 14% higher than during the first half of the preceding year. Orders received by the steel operations from Swedish customers have been at approximately the same level as during the autumn of 1997. Deliveries to Swedish customers were thus 6% higher than during the first half of 1997. Volumes in our trading operation, which is dependent on the Swedish market, have been at the same level as during the autumn of 1997 and thus 8% higher than during the first half of the preceding year. Production and Deliveries Since the end of March, all heavy plate production takes place at the new four-high rolling mill in Oxelösund. The start-up of the new mill took longer than planned and resulted in production being just over 20% lower than during the first half of the preceding year. On the other hand, the production of sheet was 4% higher than during the preceding year, notwithstanding a number of minor disruptions. During the second quarter, crude steel production amounted to approximately 1,000,000 tonnes, and plate and sheet production amounted to approximately 600,000 tonnes. These figures are, respectively, 7% higher and 8% lower than during the second quarter of 1997. As a consequence of lower production, deliveries from the steel operations were 7% lower than during the second quarter of the preceding year. Sales and Profit Sales increased by 9% to SEK 9,743 (8,965) million. 8 percentage points of the increase were due to higher prices, whilst higher volumes contributed with 1 percentage point. Prices for iron ore and coal are quoted in U.S. dollars. In the agreements which were entered into for 1998, prices for iron ore increased while those for coal fell. As a consequence of a higher dollar rate of exchange, the total cost for ore and coal in Swedish kronor will, however, increase by just over 9%. Processing costs were 5% higher than during the first half of 1997. Operating profit improved by SEK 158 million to SEK 1,177 (1,019) million. As is evident from the table below, improved margins in the steel operations and increased volumes in the trading and processing operations contributed with SEK 550 million, while increased processing costs negatively affected the result by SEK 120 million. In addition, the operating profit for the preceding year included non-recurring items (capital gains) which affected the profit by slightly more than SEK 50 million. The change in the operating profit between the first half of 1998 and the first half of 1997 (SEK million) Steel operations - Improved margins +450 - Lower delivery volumes -50 Trading and processing operations - Weakened margins -75 - Increased volumes +100 Increased processing -120 costs Non-recurring items in -50 1997 Miscellaneous -97 Improved operating +158 profit Return on the Group's liquid assets increased to 6.0 (4.4)%. The higher return resulted in an improvement in net financial items to SEK 89 (59) million. Taken together, this resulted in an improvement in profit after financial items of SEK 188 million to SEK 1,266 (1,078) million. The operating profit for the second quarter amounted to SEK 552 million, which was SEK 73 million lower than during the first quarter. The decline was primarily due to lower delivery volumes from the steel operations. Capital expenditures During the first half of the year, decisions were taken to carry out investments totalling SEK 1,493 (683) million. Of these, SEK 850 million relate to the decision to modernise and expand the large blast furnace in Luleå such that, following the conversion, it will be possible to achieve an increase in hot metal production using only one blast furnace, instead of the present two blast furnaces. In addition, two large projects are underway in the steel operations: Development Plan Domex 2000 and General Plan OX 2000 which, together, comprise investments of approximately SEK 3 billion. Through both of these projects, the conditions are being created for continued expansion within the niche products, high-strength hot-rolled sheet, and quenched steels within the plate operations. Running in of the new four-high rolling mill in Oxelösund is underway and the new rougher in Borlänge will be placed into operation during the third quarter. Within SSAB HardTech, the construction of a new production facility in North America is in its final stages. Production at the new facility will commence at the end of August/beginning of September. This project involves total investments of SEK 500 million. Capital expenditures during the first half of the year were SEK 861 (1,021) million. Approximately SEK 500 million relates to the four projects mentioned above. In total, remaining expenditures on these projects up to and including the year 2000 amount to just under SEK 1.8 billion. Redemption of shares During the second quarter, shareholders were invited to redeem every eighth share for SEK 208. In total, 15.9 million shares were redeemed. The redemption amount totalling SEK 3,305 million was disbursed on June 25. In order to facilitate a speedy disbursement of the redemption amount to the shareholders, 16 million class C shares were issued on June 8. These shares were subscribed for by Handelsbanken at their nominal value, totalling SEK 400 million. The class C shares do not entitle the holder to dividends, and their share of the company's assets is limited to the nominal value of the shares. Following a judicial examination, the shares will be redeemed at their nominal value. This is anticipated to take place before the end of the year. Following the redemption, the number of shares will amount to 81.9 million class A shares and 30.2 million class B shares. Since the redemption procedure was carried out at the end of the second quarter, the earnings ratios and earnings per share in the report were only marginally affected by the changed capital structure. On a pro forma calculation, assuming that the redemption had taken place at the beginning of the relevant period, these key ratios would have been as follows: Pro Reported forma Return on capital employed before tax (rolling 16 15 12-months), % Return on equity after tax (rolling 12- 14 12 months), % Earnings per share (January-June 1998), SEK 7.40 7.10 Earnings per share (rolling 12-months), SEK 12.00 11.50 Financing and Liquidity Accounts receivable have largely been unchanged during the quarter, while inventories have increased somewhat. An improved profit and lower capital expenditures have resulted in the cash flow improving to 206 (-26) million. During the second quarter, an MTN (Medium Term Note) programme totalling SEK 1,500 million was introduced for long-term financing. At the same time, the limit for the Group's Swedish commercial paper programme was increased to SEK 1,500 million. At the end of the half year, borrowing within the two programmes amounted to just over SEK 1,350 million. The positive cash flow, borrowing, the issuance of class C shares, the redemption programme, and the payment of dividends have together resulted in a reduction of liquid assets by SEK 1,901 since the start of the year, to SEK 1,991 million. At the end of the half year, interest-bearing liabilities were approximately SEK 350 million greater than the interest-bearing assets. Sensitivity Analysis Change during Profit Effect on second half effect, earnings per year, % SEK millions share, SEK Plate prices - Steel 5 250 1.60 operations Volume - Steel 5 100 0.60 operations Volume - Trading 10 60 0.40 operations Margins - Trading 2 %-pts 60 0.40 operations SEK index 10 150 1.00 Prospects for the Remainder of the Year The scope of maintenance work within the steel operations during the summer break has, as planned, been greater than normal. The running in of the new four-high rolling mill has taken longer than planned but will gradually provide increased heavy plate production. The start-up of the new rougher in Borlänge may result in certain disruptions in production, but should allow for increased sheet production towards the end of the year. The redemption of shares and the new issue of class C shares have reduced interest-bearing assets by just over SEK 2,900 million and, accordingly, will have a negative effect on net interest income/expense commencing at end of the second quarter. The demand for steel in Sweden as well as in Western Europe is still strong even if it appears to have levelled out. Prices in Western Europe have, however, been under pressure as a result of an increased supply of steel. It is difficult to estimate price trends during the second half of the year, and they will continue to constitute the factor which primarily determines the Group's profit trend. Stockholm, August 14, 1998 Torsten Sandin The interim report for the first three quarters will be published on October 27. Consolidated Funds Statement (unaudited) 1997 1998 1997 July 97- SEK millions Jan- Jan- Full June June June Year 98 Cash flow from operations 1,206 1,462 2,204 2,460 Change in working capital -211 -395 -437 -621 Investing activities -1,021 -861 -2,021 -1,861 Cash flow -26 206 -254 -22 Financing activities -173 -2,107 -359 -2,293 Change in liquid assets -199 -1,901 -613 -2,315 Consolidated Balance Sheet (unaudited) 30 June31 Dec30 June SEK millions 1997 1997 1998 Assets Fixed assets 7,181 7,858 8,319 Inventories 2,937 3,260 3,367 Accounts receivable 2,866 2,580 2,973 Other assets 553 621 555 Liquid assets 4,306 3,892 1,991 Total assets 17,84318,211 17,205 Equity and liabilities Equity 12,23212,821 10,242 Minority shares 161 175 157 Defered tax and other 1,569 1,699 1,764 provisions Long-term liabilities 722 511 1,197 Current liabilities 3,159 3,005 3,845 Total equity and 17,84318,211 17,205 liabilities Subsidiaries' Sales and Profit/Loss (unaudited) Profit/loss Return on Sales Operating after capital profit/loss financial employed items 1997 1998 1997 1998 1997 1998 1997 July 97- SEK millions Jan- Jan- Jan- Jan- Jan- Jan- Full June June June June June June June Year 98 Subsidiaries: SSAB Tunnplåt 4,397 4,846 378 711 353 685 20 26 SSAB Oxelösund 2,308 2,363 333 244 303 197 12 10 Plannja 445 489 31 30 28 28 25 23 SSAB HardTech 168 183 54 55 49 49 36 31 Dickson PSC 55 59 18 9 19 10 25 18 Tibnor 3,181 3,450 190 155 181 150 23 21 Other 299 281 9 -1 36 27 - - subsidiaries Parent Company: SSAB Finance 0 0 6 -6 42 63 - - Other Parent Company units 0 0 -20 -36 48 41 - - * Affiliated - - 21 26 21 26 - - companies Group - -1,928 -2 -10 -2 -10 - - adjustments 1,888 Total 8,965 9,743 1,018 1,177 1,078 1,266 14 15 *Excluding dividends from subsidiaries and affiliated companies. The profit in other Parent Company units is primarily comprised of a positive figure for financial items. Profit per quarter SEK 1/96 2/96 3/96 4/96 1/97 2/97 3/97 4/97 1/98 2/98 millions Sales 4,701 4,580 3,573 4,309 4,325 4,640 3,788 4,721 4,929 4,814 Operating -3,786-3,856-3,374-3,739-3,710-3,892-3,464-3,940-4,114-4,070 expenses Depre- -180 -182 -186 -202 -194 -194 -203 -198 -208 -214 ciation Affiliated 16 18 20 27 16 28 19 21 18 22 companies Financial 93 82 84 93 33 26 34 50 52 37 items Profit 844 642 117 488 470 608 174 654 677 589 after financial items