Half Year Report 2000

Half Year Report 2000 * Profit after financial items, excluding non-recurring items, improved by SEK 561 million to SEK 908 (347) million as a result of increased volumes and improved margins. * In addition, profit includes SEK 625 million as a result of forthcoming disbursements of surplus funds from SPP. Thus, profit after financial items amounted to SEK 1,533 (347) million. * The major blast furnace conversion in Luleå is underway and the new furnace will start up as planned at the end of August. Consolidated profit and loss account (unaudited) 1999 2000 1999 2000 1999 July 99- SEK millions QuarterQuarter Half Half Full June 00 2 2 Year Year Year Sales 4,440 5,075 8,696 9,849 16,807 17,960 Costs of goods sold -3,729 -4,167 -7,440 - -14,493 -15,033 7.980 Gross profit 711 908 1,256 1.869 2,314 2,927 Selling and administrative -445 -455 -856 -901 -1,738 -1,783 expenses Other operating revenues and -11 621 -25 592 -59 558 expenses *) Affiliated companies 4 -1 3 9 25 31 Operating profit 259 1,073 378 1,569 542 1,733 Financial items -20 -18 -31 -36 -75 -80 Profit after financial items 239 1,055 347 1,533 467 1,653 Tax -72 -299 -106 -435 -177 -506 Minority shares -3 -26 -6 -34 -9 -37 Profit after tax 164 730 235 1,064 281 1,110 Return on capital employed - - - - 5 15 before tax (%) Return on equity after tax - - - - 3 11 (%) Earnings per share (SEK) 1.50 6.50 2.10 9.50 2.50 9.90 Equity per share (SEK) 86.10 91.30 86.10 91.30 86.50 91.30 Equity ratio (%) 58 54 58 54 56 54 Number of shares at end of 112.11 109.32 112.11 109.3 112.11 109.32 the period (million) 2 *) The net present value of forthcoming disbursements of surplus funds from SPP amounts to SEK 625 million and is included as other operating revenue during the second quarter of 2000. The Market Steel consumption in Western Europe continued to increase during the second quarter. For the year as a whole, the International Iron and Steel Institute anticipates that consumption will reach its highest ever level. Steel consumption is also increasing in Asia and remains at a high level in the United States. Demand for all sheet products has been good. Demand for ordinary plate, which responded slowly to the upturn in the business cycle, has gradually improved. Demand from Swedish customers further improved during the second quarter. The steel operations deliveries to the Swedish market have thus increased and, during the first half of the year, were just over 20% higher than during the weak first half of last year. It has thus been possible to carry out price increases in local currencies during the second quarter with respect to sheet and plate products which have not been sold pursuant to half yearly or yearly contracts. In total, the steel operations' prices during the second quarter increased by 7% in Swedish kronor, of which 5 percentage points were due to higher prices in local currencies and an additional 3 percentage points were due to an improved product mix, while a stronger Swedish krona resulted in a reduction of 1 percentage point. Thus, prices during the first half of the year were 11% higher than during last year. Production and Deliveries Pending the construction of the new large blast furnace in Luleå, production in one of the existing blast furnaces was stopped as planned at the beginning of June. Crude steel production during the second quarter was, however, only 3% lower than during the preceding quarter and amounted to 909,000 tonnes. Production during the first half of the year as a whole was 3% higher than last year. In order to ensure production in the rolling mills, notwithstanding the reduction in hot metal as a result of the conversion of the blast furnace during the summer, agreements have been reached to purchase just over 150,000 tonnes of steel slabs from other steel works. Sheet production during the second quarter amounted to 770,000 tonnes which, taking into consideration the lower number of working days during the quarter, meant an unchanged rate of production compared with the first quarter. In total, production during the first half of the year was 6% higher than during the first half of last year. Deliveries of the steel operation's niche products, high-strength sheet and quenched steels, were somewhat lower during the second quarter than during the first quarter and amounted to 311,000 tonnes. However, compared with the second half of last year, volumes increased by 14% and were thus 18% higher in total during the first half of the year than during the same period last year. Total deliveries from the steel operations during the second quarter were largely unchanged compared with the first quarter and amounted to 765,000 tonnes, an increase of 5% compared with the second quarter of last year. Deliveries during the first half of the year as a whole thus increased by 8% and amounted to 1,542,000 tonnes. Volumes in the trading operations which are dependent on the Swedish market were 9% higher during the second quarter than during the corresponding quarter of last year. Thus far this year, volumes have been 8% higher than last year. SPP's surplus funds The Group's share of SPP's surplus funds amounts to SEK 734 million. Rules as to the manner in which these funds will be distributed have now been finally published by SPP. Based on the rules, it is estimated that the payments to the Group companies will take place during a period of just over 6 years. The net present value of expected disbursements is SEK 625 million and this has been reported during the second quarter as other operating revenue. It is estimated that the first disbursements of the surplus funds will commence in September. Accordingly, they have not had any effect on cash flow thus far. Sales and Profit Sales increased by 13% to SEK 9,849 (8,696) million. Higher prices contributed 8 percentage points of the increase, while higher volumes contributed 5 percentage points. Prices for iron ore and coal are quoted in US dollars. This year's iron ore agreement resulted in a price increase in Swedish kronor of 15% and had a gradual impact during the first quarter. Costs for iron ore during the first half of the year were thus 12% higher than during the corresponding period last year. The coal agreements, which entered into force on 1 April, entailed price increase in Swedish kronor of 9%. However, the full impact of the new agreements was only felt towards the end of the second quarter, and thus costs for coal were 6% lower than during the first half of last year. In total, costs for raw materials during the first half of the year were almost 6% higher than last year. Processing costs increased by 7% compared with the first half of last year, primarily as a result of increased volumes. Improved margins and higher volumes in the steel operations and higher volumes in the trading and processing operations resulted, however, in an improvement in the operating profit of SEK 566 million to SEK 944 (378) million, notwithstanding increased costs. Together with the SEK 625 million which constitute the effect on profit of forthcoming disbursements of surplus funds from SPP, this means that operating profit amounted to SEK 1,569 (378) million. The result analysis is set forth in the table below. Change in operating profit between the first half of 2000 and the first half of 1999 (SEK millions) Steel operations - Improved margins +400 - Increased volumes +210 Trading and processing operations - Improved margins +10 - Increased volumes +170 Increased processing costs -200 Increased depreciation -31 Surplus funds from SPP +625 Other +7 Improvement in operating profit +1,191 Financial items amounted to SEK -36 (-31) million. Profit after financial items thus amounted to SEK 1,533 (347) million. Profit during the second quarter was negatively affected by approximately SEK 60 million as a result of the commencement of the blast furnace conversion. However, excluding the effect on profit of forthcoming disbursements of surplus funds from SPP, profit was just over SEK 190 million higher than during the second quarter of last year. Capital expenditures During the first half of the year, decisions were taken to carry out new investments totalling SEK 366 (258) million. During 1998, a decision was taken to construct a new blast furnace in Luleå at a cost of SEK 850 million. The blast furnace is being constructed on the foundations of the larger of two existing furnaces. In this manner, large parts of the existing infrastructure can be utilised. The facility for the handling of raw materials for the new furnace was completed last year. The older furnace has now been demolished and construction of the new furnace is underway. It is estimated that production can commence in the new furnace according to plan at the end of August. The smaller blast furnace in Luleå can thereafter be shut down, which will render a significant increase in efficiency. In 1999, a decision was taken to invest in a second quenching line in Oxelösund. The quenching line will provide the possibility for an expansion of the product range within quenched steels and will increase quenching capacity by 50%. The investment amounts to SEK 550 million and the line is expected to be brought into operation in the autumn of next year. Capital expenditures during the first half of the year amounted to SEK 801 (506) million, with the two major projects referred to above accounting for just over half of this amount. Within both of these projects, remaining investments amount to just under SEK 550 million. Financing and Liquidity Since the beginning of the year, accounts receivable have increased by just over 20% as a consequence of increased sales, while the value of inventories has remained largely unchanged. An increase in working capital in combination with higher capital expenditures meant that cash flow during the first half of the year declined to SEK -51 (454) million, notwithstanding the increase in profit. The negative cash flow, the payment of dividends of SEK 504 million, and the repurchase of the company's own shares in an amount of SEK 261 million meant that the net debt, including receivables from SPP, increased somewhat to SEK 1,896 million. A Medium Term Note Programme is used for long-term borrowing, while a Swedish commercial paper programme is used for short-term borrowing. During the second quarter, these programmes were expanded to SEK 2,000 million each. At the end of the half-year, borrowing within these two programmes amounted to SEK 2,475 million. Liquid assets at the end of the half-year amounted to SEK 890 million, of which SEK 203 million were held by the parent company. Repurchase of Own Shares In accordance with a resolution adopted by the general meeting of the shareholders, repurchase of the Company's own shares has commenced. During the quarter, 2,789,100 (1,781,600 class A shares and 1,007,500 class B shares), amounting to 2.5% of the total number of outstanding shares, were acquired at a cost of SEK 261 million. Accordingly, at the end of the half-year the number of shares (excluding repurchased shares) amounted to 109.3 million. The average number of shares during the first half of the year was thus 111.7 million. Prospects for the Rest of the Year It is anticipated that demand for steel will remain strong during the second half of the year. Accordingly, prior to the third quarter it has been possible to carry out price increases in local currencies of just over 5%. During the second half of the year, a continued high rate of delivery is expected in both the steel operations and the trading and processing operations. As a result of the purchases of steel slabs which have been carried out, it is estimated that access to slabs will not restrict the steel operation volumes, despite a reduction in slab production during the third quarter as a result of the conversion of the blast furnace in Luleå. The use of purchased slabs will, however, negatively affect margins in the steel operations. Costs for raw materials will increase during the second half of the year when the full impact of the executed coal agreements is felt, and increased volumes will result in an increase in processing costs compared with last year, however to a lesser degree than during the first half of the year. In total, it is estimated that margins in the steel operations will improve compared with the preceding year. Combined with higher volumes in the entire business, it is thus anticipated that profit, excluding the effect of forthcoming disbursements of surplus funds from SPP, will be considerably higher than during 1999. Sensitivity Analysis Change during Effects on Effects on earnings per the profit, SEK share, SEK*) second half millions of the year, % Prices - steel 5 250 1.65 operations Volume - steel 5 125 0.80 operations Volume - trading 5 25 0.15 operations Margin - trading 2% pts 50 0.35 operations SEK index 5 150 1.00 The sensitivity analysis describes how profit before tax and earnings per share will be affected by changes in the stated factors during the remainder of the year as compared with the first half of the year *) The effect has been calculated on the basis of the number of outstanding shares on 30 June 2000. Stockholm, 25 July 2000 Torsten Sandin The report for the first three quarters will be published on 26 October. SSAB Svenskt Stål AB (publ) Registration No. 556016-3429 Cash flow (unaudited) 1999 2000 1999 2000 1999 July 99- SEK millions QuarterQuarter Half Year Half Year Full Year June 00 2 2 Cash flow from 444 596 784 1,210 1,433 1,859 operations Change in working 38 -41 176 -460 213 -423 capital Investing -281 -484 -506 -801 -1,210 -1,505 activities Cash flow 201 71 454 -51 436 -69 Financing -194 -3 -595 2 -562 35 activities Change in liquid 7 68 -141 -49 -126 -34 assets Consolidated balance sheet (unaudited) 30 June 31 Dec. 30 June SEK millions 1999 1999 2000 Assets Fixed assets 8,997 9,161 9,841 Inventories 3,329 3,628 3,678 Accounts receivable 2,864 2,676 3,296 Other assets 566 851 759 Liquid assets 924 939 890 Total assets 16,680 17,255 18,464 Equity and liabilities Equity 9,648 9,699 9,978 Minority shares 149 151 176 Deferred tax and other provisions 1,848 1,916 2,110 Long-term liabilities 1,480 1,306 1,257 Current liabilities 3,555 4,183 4,943 Total equity and liabilities 16,680 17,255 18,464 Subsidiaries' Sales, Profits/Loss and Return on Capital Employed (unaudited) Sales Operating Profit/loss Return on capital profit/los after employed s 2) financial items 2) (%) 1999 2000 1999 2000 1999 2000 1999 July 99- SEK millions Half Half HalfHalf Half Half Full June 00 year year year year year year year Subsidiaries: SSAB Tunnplåt 4,2495,0307 451 -25 410 2 10 SSAB Oxelösund 2,2102,518259 283 216 232 5 6 Plannja 455 519 28 39 25 35 26 29 SSAB HardTech 244 279 39 71 27 58 13 17 Dickson PSC 57 64 6 12 7 12 17 24 Tibnor 3,0633,46465 140 56 131 8 13 Other subsidiaries 239 303 -1 4 28 36 - - Parent company units: SSAB Finance 0 0 -8 -6 9 17 - - Other parent company0 0 -20 -27 1 0 - - units 1) Affiliated companies- - 7 5 7 5 - - Group adjustments - - -4 597 -4 597 - - 1,8212,328 Total 8,6969,849378 1,569347 1,533 5 15 1) Excluding dividends from subsidiaries and affiliated companies. The profit in other parent company units consists primarily of administration costs and a positive figure for financial items. 2) The effect on results of the forthcoming disbursement of surplus funds from SPP in the amount of SEK 625 million is included in Group adjustments. Of these, SEK 183 million will be reported in the partly- owned (85%) Tibnor Group. Profit per quarter SEK millions 1/98 2/98 3/98 4/98 1/99 2/99 3/99 4/99 1/00 2/00 Sales 4,9294,8143,7854,3074,2564,4403,5984,513 4,774 5,075 SPP surplus funds 625 Operating - - - - - - - -3,900 -4,015 -4,346 expenses 4,1144,0703,6303,8343,8763,9233,514 Depreciation -208 -214 -216 -242 -260 -262 -264 -291 -273 -280 Affiliated 18 22 9 -1 -1 4 1 21 10 -1 companies Financial items 52 37 -15 -5 -11 -20 -22 -22 -18 -18 Profit after 677 589 -67 225 108 239 -201 321 478 1,055 financial items ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/07/25/20000725BIT00180/bit0001.doc http://www.bit.se/bitonline/2000/07/25/20000725BIT00180/bit0002.pdf