Results for 1998

Results for 1998 Profit after financial items declined by 25% to SEK 1,424 (1,906) million. A weak inflow of orders and continued pressure on prices resulted in the profit during the last quarter being slightly more than SEK 400 million lower than in 1997. An unchanged dividend of SEK 4.50 per share is proposed. SEK millions 1997 1998 Sales 17,47 17,83 4 5 Cost of goods sold - - 14,26 14,79 4 8 Gross profit 3,210 3,037 Selling and administrative - - expenses 1,663 1,727 Other net operating revenues 132 -3 and expenses Affiliated companies 84 48 Operating profit 1,763 1,355 Financial items 143 69 Profit after financial items 1,906 1,424 Tax -536 -427 Minority shares -34 -15 Profit after tax 1,336 982 Return on capital employed 14 11 before tax (%) Return on equity after tax (%) 11 8 Earnings per share (SEK) 10.40 8.20 Equity per share (SEK) 100.0 88.70 0 Equity ratio (%) 70 58 Shares at the end of the 128.0 112.1 period (million) 0 1 The Market According to the autumn assessment from the International Iron & Steel Institute, in 1998 world steel consumption declined by 1% from the record level of the previous year. It is thus estimated that steel consumption amounted to 690 million tonnes, which is the next highest level ever. During the first half of the year, demand for steel continued to be strong on most markets in Western Europe, but peaked at the end of the first half of the year and was thereafter weaker during the autumn. The upward economic trend which began in the spring of 1997 was thus short-lived, but nevertheless resulted in steel consumption in Western Europe in 1998 being higher than ever before. Trends, however, were very varied on different markets. In addition to Western Europe, steel consumption increased in the United States and China. On most Asian markets, however, steel consumption fell drastically - by just over 10% in Japan and just over 30% in South Korea. The reduced steel consumption in Asia resulted in a major change in the global flow of trade in steel. Exports to Asia by West European and East European steel producers decreased, while exports from Asian steel producers, primarily to the US and Western Europe, increased rapidly. Western Europe, which for a long time has been a major net exporter, became in 1998 a net importer of steel, and in the United States steel imports increased to the highest level ever. In Western Europe, the changed flow of trade resulted in a substantial increase in supply which, however, at the beginning of the year, could be absorbed by an increase in demand. At the end of the second quarter, however, the increased supply put pressure on steel prices, which resulted in gradual reductions in prices of most steel products during the second half of the year. Price reductions have been heaviest in hot- and cold-rolled sheet, while prices for quenched steel within the plate area have been relatively stable. During the fourth quarter, the Group's steel prices in Swedish kronor were 6% lower than during the third quarter. Of this, lower prices in local currencies accounted for 4 percentage points, a weaker mix accounted for a further 4 percentage points, while a weaker krona lessened the price reductions by 2 percentage points. However, price increases during the first half of the year resulted in the Group's steel prices in kronor being, on average, 9% higher than in 1997. Capacity utilisation in the West European steel industry continued to be high during the first half of the year. Towards the end of the year, however, steel companies reduced their production of steel in order to restore balance to the market. Falls in production meant that, during the last two months of the year, capacity utilisation in the steel industry within the EU was just under 80%. Orders received by the sheet operation decreased during the fourth quarter. Towards the end of the quarter, however, the inflow of orders increased to the previous level during the year. Production and Deliveries Since the end of March, all plate is produced at the new four-high rolling mill in Oxelösund. The start up of the new mill has taken longer than planned, but during the fourth quarter it was possible to stabilise production at a higher level than previously. The reduction in orders for slabs and sheet resulted in falls in both crude steel production and sheet production during the fourth quarter. During the fourth quarter, crude steel production amounted to 830,000 tonnes and sheet production to 650,000 tonnes. These amounts were, respectively, 18% and 11% lower than during the fourth quarter of 1997. In total, sheet production during the year fell by 4% to 2,535,000 tonnes, while crude steel production increased by 1% to 3,390,000 tonnes. During the last quarter, deliveries from the steel operation were 11% lower than during the preceding year, primarily as a consequence of weak demand for sheet. For the year as a whole, deliveries by the steel operation were 8% lower than in 1997. Volumes in our trading operation which is dependent on the Swedish market also weakened towards the end of the year but were, for the year as a whole, 4% higher than during the preceding year. Sales and Profit During the year, sales increased by 2% to SEK 17,835 (17,474) million. Of this increase, 4 percentage points were due to higher prices, while lower volumes resulted in a loss of 2 percentage points. Prices for iron ore and coal were 8% higher and processing costs were 5% higher than in 1997. Processing costs have been affected by the extensive capital expenditures during the year as well as disruptions in steel production. A number of measures have been taken to reduce costs. Processing costs during the fourth quarter were 3% higher than in 1997. The operating profit declined by SEK 408 million and amounted to SEK 1,355 (1,763) million. As is evident from the table below, improved margins in the steel operation and higher volumes within the trading operation contributed with SEK 475 million, while lower volumes within the steel operation, weaker margins within the trading operation, and increased processing costs and deprecation affected the profit by just under SEK 900 million. The operating profit includes non-recurring items totalling SEK 20 (68) million. Changes in the operating profit between 1998 and 1997 (SEK millions) Steel operation - Improved margins +400 - Lower volumes -350 Trading and processing operations - Weakened margins -175 - Increased volumes +75 Increased processing costs -275 Increased depreciation -91 Non-recurring items -48 Miscellaneous +56 Decline in operating profit -408 Return on the Group's liquid assets increased to 5.9 (4.5)%. Notwithstanding the higher return, however, net financial items declined to SEK 69 (143) million as a consequence of the redemption of shares in the amount of SEK 3,305 million which was carried out at the end of the first half of the year. The profit after financial items thus declined by SEK 482 million to SEK 1,424 (1,906) million. The operating profit for the fourth quarter declined to SEK 230 (604) million. This lower profit was mainly due to lower deliveries and production in the steel operation, as well as weakened margins in both the steel operation and the trading and processing operations. Subsidiaries' Sales, Operating Profit/Loss and Return on Capital Employed Sales Operating Profit/los Return profit/lo s after on ss financial capital items employed % SEK millions 1997 1998 1997199 1997 1998199 199 8 7 8 Subsidiaries: SSAB Tunnplåt 8,55 8,75 876 776 832 722 20 15 9 4 SSAB Oxelösund 4,17 4,05 364 272 292 178 12 8 2 7 Plannja 1,01 1,03 71 61 66 55 25 19 0 8 SSAB HardTech 343 364 107 87 99 71 36 17 Dickson PSC 106 117 24 20 25 20 25 21 Tibnor 6,32 6,54 332 166 316 152 23 12 8 5 Other subsidiaries 554 515 10 1 69 66 - - Parent company: SSAB Finans - - -11 -10 84 74 - - Other Parent Company - - -47 -74 87 30 - - units* Affiliated companies - - 43 29 43 29 - - Group adjustments - - -6 27 -7 27 - - 3,59 3,55 8 5 Total 17,4 17,8 1,76 1,3 1,90 1,424 14 11 74 35 3 55 6 * Excluding dividends from subsidiaries and affiliated companies. The profit in other Parent Company units is primarily comprised of administrative costs and a positive figure for financial items. Capital Expenditures During the year, decisions were taken to carry out new investments totalling SEK 1,636 (848) million. Of this amount, SEK 850 million relates 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 this project, the construction of the new raw material processing facility is underway and the facility will be brought into operation in the summer of 1999. Within the steel operation, the two large projects, Development Plan Domex 2000 and General Plan OX 2000, which together comprise investments of approximately SEK 3 billion, are now in the final stage. Through these projects, the conditions are being created for continued expansion within the niche products, high-strength sheet, and quenched steels within the plate operation. Running in of the new four-high-rolling mill in Oxelösund is continuing. In Borlänge, rolling has been taken place in the new rougher since the beginning of October, with good results. In SSAB HardTech's new production plant in the United States production started in the first line started as planned in September, and in the second production line in November. This project involves investments totalling SEK 500 million. Capital expenditures during the year amounted to SEK 2,021 (2,021) million, of which SEK 1,109 (1,381) million relate 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 1.2 billion. Consolidated Funds Statement SEK millions 1997 1998 Cash flow from operations +2,20 +2,02 4 0 Change in working capital -437 -614 Investing activities - - 2,021 2,021 Cash flow -254 -615 Financing activities -359 - 2,212 Change in liquid assets -613 - 2,827 Financing and Liquidity Accounts receivable declined as a consequence of lower sales at the end of the year and amounted, relative to sales, to 14 (15)%. During the second half of the year, however, inventories of slabs and sheet in the steel operations increased. Relative to sales, inventories were 22 (19)%. The increase in inventories resulted in working capital increasing by SEK 614 million during the year. Together with the high capital expenditures, this meant a negative cash flow of SEK -615 (-254) million. During the year, 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 year, borrowing through these two programmes amounted to just over SEK 1,800 million. The negative cash flow, the borrowing, the redemption of shares for just over SEK 3,300 million and the payment of dividends, have together resulted in a reduction of liquid assets by SEK 2,827 million since the beginning of the year, to SEK 1,065 million. At the end of the year, interest-bearing liabilities were approximately SEK 1,644 million greater than interest-bearing assets. Consolidated Balance Sheet SEK millions 1997 1998 Assets Fixed assets 7,858 9,018 Inventories 3,260 3,905 Accounts receivable 2,580 2,531 Other assets 621 564 Liquid assets 3,892 1,065 Total assets 18,21 17,08 1 3 Equity and liabilities Equity 12,82 9,941 1 Minority shares 175 159 Deferred tax and other 1,699 1,851 provisions Long-term liabilities 511 1,289 Current liabilities 3,005 3,843 Total equity and 18,21 17,08 liabilities 1 3 Prospects for 1999 Steel prices in Western Europe were under continued pressure prior to the first quarter of 1999. Accordingly, most steel producers have had to accept price reductions. Prices for the niche products, high-strength sheet and quenched steels, show, however, considerably greater stability than other, more standardised products. In January, the Group's steel prices in Swedish kronor were 8% lower than during the fourth quarter and thus just over 10% lower than the average prices in 1998. The decreased supply from West European steel companies have, however, resulted in a significantly improved balance on the market. The prices for raw materials for the steel industry - iron ore, coal, scrap, and alloys - have been under great downward pressure, which will probably result in significant price reductions. It is anticipated, however, that these price reductions will not be able to compensate for the effect of lower steel prices and, accordingly, margins in the steel operations are expected to weaken in 1999. In 1998, disruptions in production in the steel operation have, at times, restricted deliveries. The investments which have now been completed within the steel operation create the conditions for stable operations and thereby improved productivity, as well as continued growth within high-strength sheet and quenched steels during 1999. Sensitivity Analysis The Group's profit is greatly affected by price and volume trends in the steel operation, volumes and margins within the processing and trading operations, costs for salaries and raw materials, and changes in currency exchange rates. In 1999, changes in these factors result in approximately the following effect on profit after financial items and earnings per share. Change Profit effect Effect on % SEK million earnings per share, SEK Prices - steel 10 1,000 6.40 operation Volume - steel 5 200 1.30 operation Volume - trading 10 125 0.80 peration Margins -trading 2%-enh 125 0.80 operation Wage and salary 2 70 0.45 costs Prices - raw 10 450 2.90 materials SEK index 10 350 2.25 Dividend The Board of Directors proposes to the Shareholders Meeting that an unchanged dividend be paid in the amount of SEK 4.50 per share, corresponding to SEK 504 million. Stockholm, 12 February 1999 Torsten Sandin Profit per Quarter SEK millions 1/962/963/96 4/961/92/9 3/974/9 1/9 2/983/984/98 7 7 7 8 Sales 4,704,583,574,304,324,643,784,724,924,81 3,7 4,30 1 0 3 9 5 0 8 1 9 4 85 7 Operating - - - - - - - - - - - - expenses 3,783,853,373,733,713,893,463,944,114,07 3,6 3,83 6 6 4 9 0 2 4 0 4 0 30 4 Depreciation -180-182-186-202-194-194-203-198-208 -214 --242 216 Affiliated 16 18 20 27 16 28 19 21 18 22 9 -1 companies Financial 93 82 84 93 33 26 34 50 52 37 - -5 items 15 Profit after 844 642 117 488 470 608 174 654 677 589 -67 225 financial items The Shareholders Meeting will be held on 23 April in Luleå. In conjunction therewith, a report for the first quarter of 1999 will be published. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/12/19990212BIT00740/bit0001.doc The Complete Report http://www.bit.se/bitonline/1999/02/12/19990212BIT00740/bit0002.pdf The Complete Report