Ovako Provides 2012 Year-End Report
02/14/2013 - European engineering steelmaker Ovako said business conditions deteriorated progressively throughout 2012 as a consequence of the macroeconomic turbulence, resulting in order intake and invoicing levels significantly lower in the second half of the year than in the first.
Fourth quarter 2012
• Sales amounted to € 196 (266) million, a decrease of 26% compared to the fourth quarter of 2011. Adjusted for the production stoppage at the Imatra steel mill in Finland, the decrease was 23%.
• Operating profit amounted to € -13 (9) million, including restructuring costs of € 4 (0) million.
• Cash flows from operations amounted to € 33 (24) million, an improvement of 38% compared to the previous year, due to reduced inventory and other working capital improvements.
Full year 2012
• Net Sales amounted to € 937 (1,121) million, a decrease of 16% compared to 2011. Adjusted for the production stoppage at the Imatra steel mill, the decrease was 15%.
• Operating profit amounted to € 20 (90) million, corresponding to 2.1 (8.0)% of net sales. The operating profit includes restructuring costs of € 4 (0) million. Compared to the previous year, the result was charged with € 17 million in negative foreign exchange effects and items of a non-recurring nature related to restructuring costs and costs for previously entered hedging contracts on electricity.
• Cash flows from operations amounted to € 87 (56) million, an improvement of 55% compared to the previous year, due to reduced inventory and other working capital improvements.
• Net debt was reduced by € 34 million during the year and contributed to an improvement in the net debt/equity ratio to 130%, compared to 137% at the end of 2011.
(Amounts in brackets in this report refer to the corresponding period in the previous year.)
Comments from the president and CEO Tom Erixo:
"Business conditions deteriorated progressively throughout 2012 as a consequence of the macroeconomic turbulence. The order intake and invoicing levels were significantly lower in the second half of the year than in the first. The slowdown was particularly clear in December. In early 2012 we initiated an adjustment of capacity and other costs to a lower level, and have during the year reduced staff by 200 full-time employees. Inventory levels and other working capital elements have been adjusted during the year, which has strengthened our cash flow significantly, while operating profit was negatively impacted. Cash flows from operations for the full year improved by 55% to € 87 million.
“Our investments for 2012 were completed according to plan, and amounted to € 49 million. Several new investments and process improvements will be brought into service during 2013. The expansion of our sales and marketing organization continued, and Ovako is now present in several Eastern European markets. An increased focus on research and development in Ovako coincided with Patrik Ölund, Ovako’s head of R&D, receiving an award for many years of work on developing a highly clean steel that has seen its major application in diesel injection. Work is continuing with new applications for this steel, called IQ-Steel®, and the development of the next generation of products. Despite low capacity utilization, productivity at all three steel mills improved during the year. Delivery accuracy improved to over 90% and the quality effort has yielded positive results during the year.
“In light of a weak and uncertain market during the autumn, a new cost-reduction programme was initiated. The programme will bring savings of € 25 million compared to 2012 and will be fully implemented during 2013. The cost-reduction programme, which has been previously announced, includes staff reductions of 150 full-time employees, of which approximately 50 have already left the company during the fourth quarter. The remaining 100 are expected to leave during 2013. In addition, approximately 1,800 employees at the operations in Hofors and Imatra are included in agreements for reduced working hours and salary during the first half of 2013. The agreements secure the group’s flexibility to meet growing demand once the economy improves. The fourth quarter was charged with € 4 million in restructuring costs related to the cost-reduction programme. In total, the year’s profit compared to the previous year was charged with € 17 million in negative foreign exchange effects and items of a non-recurring nature related to restructuring costs and costs for previously entered hedging contracts on electricity.
“Extensive work is underway to improve safety within the group, and the accident rate decreased by 18% compared to 2011. Despite this, the number of work-related injuries is still too high, and a major focus in 2013 will be to ensure that the next steps are taken with regard to safety.
Short-term outlook
“Demand during the first quarter 2013 is expected to remain at approximately the same level as in the second half of 2012, and thus be lower than in the first quarter of the previous year."
Ovako is a leading European producer of engineering steel for customers in the bearing, transportation and engineering industries. Its production covers low-alloy steels and carbon steels in the form of bars, tubes, rings and pre-components. The company has production plants in 11 locations and a number of sales companies in Europe and the U.S. Net sales in 2012 amounted to € 937 million and the company had 3,040 employees. Its total production capacity is 1.3 million tonnes of steel per year.
