become lighter, truck beds stronger, and containers more durable.
Our customers achieve reduced costs and improved performance. This benefits the customers and the environment.
This is the way we create a stronger,
lighter and more sustainable world.
SSAB is a leading manufacturer of high strength and quenched steels, with production in Sweden and the United States. We develop solutions that increase the competitiveness of our customers. In 2009,
sales amounted to SEK 29,8 billion.
SSAB PLATE Production in:
Oxelösund, Sweden
SSAB STRIP PRODUCTS Production in:
Luleå, Borlänge,
Sweden
SSAB NORTH AMERICA Production in:
Mobile, Alabama, Montpelier, Iowa,
USA
Iron ore and coal
Scrap iron and electricity
Main input materials Rolling
Four-high rolling mill
Strip mill
Steckel mill
Smelting
Production of slabs
Refi ning
Casting
Different methods for
different qualities:
Tempering Quenching/
Hardening Annealing
and in certain cases
Blasting Galvanizing
Organic coating
22%
26%
29%
88%
29%
21%
Plate
Strip
Plate
Table of contents Significant events during 2009
The operations
• 2009 was marked by a very weak steel market as a result of the global financial crisis
• Slight improvement in demand toward the end of the year
• Strong cash flow despite an operating loss
• The cost reduction program proceeded well
• Continued reduction in the number of accidents
Profit
• Sales declined by 45 percent to SEK 29,838 (54,329) million
• Profit after financial items amounted to SEK -2,061 (8,953) million
• Profit after tax was SEK -879 (6,508) million. Earnings per share were SEK -2.69 (19.90)
• Cash flow from the current operations was SEK 3,387 (5,387) million
• Net debt/equity ratio at year-end was 49 (48) percent
• Proposed dividend of SEK 1.00 (4.00) per share
Page Significant events during 2009 1 Comments by the Chief Executive Officer 2
Strategies and targets 4
SSAB’s offering 7
Report of the Directors
Table of contents 9
Market 10
Sales and profit 11
Capital expenditures and cash flow 16 Compensation to senior executives 20 Risk and sensitivity analysis 22
Outlook for 2010 23
SSAB Strip Products 24
SSAB Plate 26
SSAB North America 28
Tibnor 30
Other companies 32
Sustainability
- Environment 34
- Employees 39
- Suppliers 42
SSAB on the stock exchange 44
5-year summary 46
Financial reports
Consolidated income statement 48 Consolidated statement of
comprehensive income 48
Consolidated balance sheet 49
Consolidated statement of changes in equity 50 Consolidated cash flow statement 51 Parent company’s income statement 52 Parent company’s balance shee 53 Parent company’s changes in equity 54 Parent company’s cash flow statement 55 Accounting and valuation principles 56
Table of contents, notes 64
Proposed allocation of profit 100
Auditor’s report 101
Corporate governance report 104
Board of Directors 114
Group Executive Committee 116 Annual General Meeting,
Nomination Committee, Calendar 118 Steel Talk ABC – a glossary 119
Addresses 120
The Annual Report is published in Swedish and English. In the event of differences between the English translation and the
%
09 08 07 06 -10 05
0 10 20 SEK m 30
0 10,000 20,000 30,000 40,000 50,000 60,000
09 08 07 06 05
Operating margin Sales
Prompt response lessened the impact of the crisis
Without question, 2009 was dominated by the global economic downturn in the wake of the financial crisis. Almost all markets and segments in which we operate were affected. Although this led to a negative result, we succeeded in maintaining a positive cash flow.
We are living in a period of rapid change. It is crucial to adapt quickly to the market dynamics. At the same time, one must have a clear and unambiguous strategy for the future.
During the autumn of 2008, SSAB initiated an ambitious cost reduction program. Thanks to the excellent cooperation and efforts of our employees, we exceeded our initial targets.
The program resulted in savings of SEK 750 million in 2009 and is expected to generate annual sustainable savings of SEK 1 billion commencing 2010. Together with other ef- ficiency enhancement measures, this resulted in a positive operating cash flow of SEK 4,868 million.
In particular, it should be noted that our North American business recovered quickly from the economic crisis and was able to report positive earnings as early as the third quarter. Key factors include two modern steel mills and a flexible organization which is able to adapt quickly to market fluctuations.
Demand in our markets was very weak during most of the year. The only real exceptions were the light vehicle segment within our strip products operations, as well as the aftermarket segment, Hardox Wearparts, within the plate operations . As a consequence of the weak market conditions, we ceased all slab production in Sweden for more than two months. This was an extremely unusual measure in response to an extremely unusual situation.
At the same time, we were able to exploit the slow pace of production for additional training and skills development.
Also we substantially reduced the percentage of accidents with absense. The number of accidents continues to be low in our U.S. operations, and we have now also significantly improved the situation at our Swedish plants.
The capital expenditure program of SEK 5.3 billion, decided upon in the autumn of 2008, was under constant review during 2009. In light of market conditions, only parts
of the investments were commenced. Those are primarily our investment in quenched steel in Borlänge. In the long-term, our ambition is to continue to invest in order to increase our quenched steel capacity.
Our strategy of being the leader in high strength steels, where the acquisition of IPSCO was an important step, re- mains unchanged. During the year, we further strengthened our ambitions of increasing the share of niche products to 50 percent of our deliveries in 2015. Our strategy also in- cludes maintaining our position in our domestic markets;
i.e., in the Nordic region and North America. At the same time, we will establish a stronger foothold in Asia with particular focus on China. We will also coordinate our entire marketing and sales organization in order to provide a clearer and more focused product and service offering to our customers.
To support this new strategy, we decided to introduce a new organization structure. Effective January 1, 2010, we have three geographic business areas: SSAB EMEA (Europe, the Middle East and Africa); SSAB Americas (North and Latin America); and SSAB APAC (Asia, Australia and New Zealand).
The new business structure replaces the divisions SSAB North America, SSAB Strip Products and SSAB Plate.
SSAB has demonstrated a pioneering position as one of the leading steel companies which has progressed the most to limit carbon dioxide emissions from blast furnace- based production. With currently available technology, it is not possible to go much further to limit emissions from iron ore-based steel production. SSAB is intensifying its research efforts to develop new production methods. We have become a core member of the European cooperation project, ULCOS (Ultra–Low Carbon dioxide Steelmaking), which is aimed at developing production methods to halve carbon dioxide emissions from steel production in the long-
term . We have the ambition to enhance the efficiency of our existing manufacturing processes; by 2012, we aim to reduce carbon dioxide emissions by 2 percent per produced tonne (under normal production conditions at our blast furnace- based plants).
SSAB’s focus on high strength steels is in itself beneficial to the environment. Light and high strength steel applica- tions save materials and energy, both during production and for the end user. The use of SSAB’s steels in vehicles, exca- vation machinery and cranes give products with a longer life and reduced fuel consumption, which in turn lead to lower emissions.
Naturally, reduced fuel consumption and increased lifespan are of greatest importance for our customers. It has been particularly pleasing to note that during this crisis year, we have had more development projects in cooperation with our customers than at any time in our history. This demon- strates that there is a long-term interest in SSAB’s niche products.
The number of shareholders continued to increase dur- ing the year and has now reached approximately 70,000. In light of the negative earnings and the fact that our net gear- ing is higher than our long-term target, the Board has pro- posed that the dividend be reduced to SEK 1.00 per share.
The development going forward is difficult to assess.
Most signs indicate that the world’s steel industry is through the worst crisis and that the market has stabilized. How- ever, it remains uncertain how quickly the recovery will take place. But the world will continue to need steel in the future.
Infrastructure and transport systems need to be further de- veloped. As a consequence of increased demands for lower carbon dioxide emissions, lighter, stronger and more sus- tainable steel products are increasingly in demand.
SSAB has a clear strategy in place for the future.
Olof Faxander President and CEO
SSAB’s overall strategy is to be a global leading supplier of high strength steels, while at the same time maintaining its strong positions in its domestic markets of the Nordic region and North America. The new organization, which is in place as of 2010, supports this strategy.
Increasing the share of niche products
SSAB enjoys global leadership within the development and production of high strength steels and has an expressed ambition to expand the market through new areas of use. By replacing traditional steels with advanced high strength steels, the end products can be made lighter, stronger and more durable. This gives the end user improved economic benefits, while at the same time reducing environmental impact.
In the long-term, SSAB’s assessment is that high strength steels will demonstrate higher growth rates than standard steels. Thus, SSAB is endeavoring to increase the share of niche products as a percentage of total deliveries. On a Group level, the objective is to reach a 50 percent share in 2015. In 2009, niche products accounted for 32 percent of total deliveries.
SSAB advances its positions
“Together with our customers we will go further than anyone to realize the full potential of lighter, stronger and more durable steel products.”
Securing strong positions on the domestic markets SSAB has two domestic markets: The Nordic region and North America. A clear presence and strong position in these mar- kets, together with production close to the customers, provide SSAB with cost advantages, not only within high strength steels but also within standard grades. SSAB is the leading supplier of strip products in the Nordic region. The subsidiary, Tibnor, is a leading full range distributor, supplying the steel needs in the Nordic markets. In North America, SSAB is one of the leading suppliers of plate, with sales both directly to end customers and via distributors.
Strengthening presence in Asia
Currently SSAB has a relatively limited presence in Asia.
The long-term strategy includes strengthening the position in the Asian market, with particular focus on China. With approximately half the world’s steel production as well as consumption, China remains a highly important market for the steel industry. However, the market for high strength steels remains relatively untapped, therefore offering significant opportunities for growth in the years ahead.
In these markets, there is still a great need for important infrastructure development, at the same time as demands are increasing for improved environmental and sustainability standards.
In connection with the major reorganization of SSAB’s operations in 2010, a new business area, APAC, has been established covering Asia, Australia and New Zealand. The business area’s management team is based in Kunshan in the vicinity of Shanghai (see page 5).
In January 2010, SSAB completed an extensive reorganiza- tion of SSAB’s operations, representing an important element in the creation of future conditions for achieving the strategic objectives. In the new organization, the former divisions have been replaced by three geographic business areas.
The aim is to strengthen and broaden the product and service offering to our customers. Through increased presence and coordination across the former divisions, customers receive a broader offering, encompassing SSAB’s entire product and service portfolio. This strengthens the possibilities to accelerate growth within our niche products.
The new organization is expected to generate signifi- cant synergies within purchasing, inventory management, research and distribution. The former sales organizations within the different divisions have been coordinated into a joint marketing organization within each business area, as well as the HR, finance, purchasing and IT functions. SSAB is a global knowledge company. With this reorganization, SSAB continues to strengthen its position and continues to attract the brightest and the best employees.
New organization – a strategic decision
The central features of SSAB’s strategic action plan are based on increasing growth within niche products, increasing profitability at existing plants, and strengthening the organization.
The acquisition of IPSCO in 2007 was an important step in achieving the strategic goals.
The new structure comprises the following three business areas:
SSAB EMEA (Europe, Middle East and Africa)
•
SSAB Americas (North and Latin America)
•
SSAB APAC (Asia, Australia and New Zealand)
•
Pro forma 2009
External sales in SEK billion
Deliveries in thousand tonnes (steel operations) Quenched
steels AHSS Ordinary steels
SSAB EMEA 12.4 167 282 1,026
SSAB Americas 10.7 108 376 1,230
SSAB APAC 1.6 62 46 1
Tibnor 5.1 - - -
Total 29.8 337 704 2,257
Pro forma for 2009, sales and deliveries broken down by the new business areas would have been as follows:
Financial targets
SSAB’s strategy is aimed at securing the Company’s long-term development, thereby creating value for shareholders and other stakeholders. To support the strategy, SSAB has established a number of financial targets.
Profitability
Taking into consideration the equity ratio requirement and the dividend policy, the target for the return on capital employed is that it shall exceed 15 percent over a business cycle.
In 2009, the return on capital employed was negative (17 percent).
Capital structure
The Group’s operations are sensitive to the state of the economy. The objective is a long-term equity ratio of approximately 50 percent and a long term net debt/equity ratio of 30 percent.
As of December 31, 2009, the equity ratio was 51 (51) percent and the net debt/equity ratio was 49 (48) percent.
Dividends
Dividends shall be adapted to the average level of earnings over a business cycle and, in the long-term, constitute ap- proximately 50 percent of profit after tax. In the short-term, however, the net debt/equity ratio must be taken into ac- count. It shall also be possible to use dividends to adapt the capital structure.
The Board proposes a dividend for 2009 of SEK 1.00 (4.00) per share.
%
-15 0 15 30 45 60 75 90 105 120 135 150 165
09 08 07 06 05 04 03 02 01 00 99
Target Result
Net debt/equity ratio
0 5 10 15 20 25 30 35 40
09 08 07 06 05 04 03 02
%
Target Result
ROCE – return on capital employed
0 500 1,000 1,500 2,000
Swedish steel operations SSAB North America kt
09 08 07 06 05
Niche products (deliveries)
1) SSAB North America 5.5 months
1) Information is not relevant since the return was negative.
1) 1)
1) SSAB North America 5.5 months
SSAB’s offering strengthens the customer
SSAB work continously to realize the potential of high strength steels, together with the customers. The starting point is SSAB’s global leadership within the high strength steel niche market, from production and process development to innovation and sales.
Leading product quality
SSAB’s steel products are recognized for their superior characteristics, including high and consistent quality. SSAB is continously engaged in research projects for metallurgy and new product applications. A research and development council has been established to coordinate the strategic research efforts. In addition, SSAB also cooperates with re- search and development institutions throughout the world.
Strong brands
SSAB has several well-known brands: Hardox, Domex, Wel- dox, Docol, Armox, Prelaq and Toolox. SSAB enjoys a strong market position thanks to the unique product properties with regard to, for example, high strength, wear resistance, abrasion resistance, bending, and welding. SSAB participates in various customer and end user forums to increase knowl- edge about the Group’s brands.
Expertise in developing new applications
SSAB is committed to educating its customers and end us- ers by offering technical expertise to help demonstrate how high strength steels contribute to improved productivity and environmental advantages. Through collaborative research projects, SSAB continues to build long-term relationships, promote innovation and increase sales.
Platform for SSAB’s customer offering
Superior product quality and industry-leading properties
•
Strong brands designed to support customer needs
•
Best in class technical expertise to support develop-
•
ment of new applications
Strong sales and support organizations
•
Strong sales organization
SSAB continues to identify new markets and applications where high strength steels can be used. The sales organiza- tion carries out joint efforts with customers to develop new product applications. In doing so, the sales organization creates increased exposure for SSAB’s product and service offering.
Close cooperation to realize steel’s potential
Focusing on the customer’s needs, SSAB’s ambition is to constantly identify new high strength steel applications which can create customer benefits such as improved functionality, cost savings and reduced environmental impact.
During 2009, this ambition has resulted in many good projects.
Swedish Steel Prize 2009
The Swedish Steel Prize, which is aimed at stimulating new, innovative ways of using high strength steels, was awarded for the eleventh consecutive year. The competition is open to customers who use high strength steels in their product applications. The result is solutions with functional and environmental advantages which increase the customer’s competitiveness.
The 2009 winner was the Canadian refuse truck manu- facturer, Labrie Environmental Group, with its new Wittke Starlight vehicle model. This is a front-loader refuse collec- tion truck that has around 700 kg higher payload capacity than earlier models. In addition to being lighter, the new vehicle is also built to achieve higher compaction of the
refuse in the container. This has resulted in a more efficient vehicle that contributes to fewer transport journeys and thus reduced environmental impact.
There were a variety of entry submissions representing a large range of applications. In 2009, the other submissions that were nominated included a new sprayer unit spreader arm, a roller ski built of high strength steel, and a trailer with a sandwich construction platform.
Energy-saving steel in the Swedish Pavilion
The Swedish Pavilion, which will house the Swedish exhibition at the World Expo 2010 in Shanghai, was unveiled during the year. SSAB’s Prelaq Energy steel, which reduces the need for artificial indoor cooling in hot climates, was used for the pavilion’s façade and roof. Thanks to the properties of the coated surface, energy consumption can be reduced by up to 15 percent.
SSAB’s in-house development projects
As an example of SSAB’s endeavors to further develop applications using high strength steel, the company has produced in-house an entirely new design for a free- standing dumper bed. The new design provides significantly greater payload, but weighs only half as much as a tradi- tional dumper bed.
The prototype is manufactured in Hardox 450, and has been tested under exacting conditions. The free-hanging U-shaped dumper bed structure means that the weight of the bed is reduced substantially, while at the same time as the new design is more abrasion resistant.
Labrie Environmental Group was awarded the Swedish Steel Prize in Stockholm for its new vehicle model, Wittke Starlight.
Report of the Directors
Page
Market 10
Sales and profit 11
Capital expenditures and cash flow 16 Compensation to senior executives 20 Risk and sensitivity analysis 22
Outlook for 2010 23
SSAB Strip Products 24
SSAB Plate 26
SSAB North America 28
Tibnor 30
Other companies 32
Sustainability
- Environment 34
- Employees 39
- Suppliers 42
SSAB on the stock exchange 44
5-year summery 46
Financial reports 48
Proposed allocation of profit 100
Table of contents
Reduced global demand offset by continued strong growth in China
Crude steel production per market (million tonnes)
2009 2008 % Q4-09 Q4-08 %
Europe 139 198 -30 41 39 5
USA 58 91 -36 18 16 12
Former Soviet
Union 97 114 -15 27 19 42
China 568 500 14 147 110 34
Other 358 424 -16 94 88 7
Global 1 220 1 327 -8 327 271 21
At the start of 2009, the steel industry was characterized by great uncertainty. In April, the steel industry organization, the World Steel Association issued a forecast which indicated a decline of 14.9 percent in global steel consumption in 2009.
A large-scale downturn in the economies of both the west- ern world and several developing countries forced most steel producers to curtail production in response to the weaker demand and falling prices. The mature economies of Europe, North America and Japan were hardest hit, with demand fall- ing by more than 30 percent in each region.
Favorable recovery driven by China
Due to significant governmental stimulus packages, how- ever, the economic recovery started earlier than expected, even if there is still great uncertainty regarding its durability.
The global recovery in steel consumption, driven primar- ily by China’s substantial stimulus measures, caused the World Steel Association to revise its forecast upward in October and, instead, to state an anticipated decline of 8.6 percent in steel consumption for 2009. On the supply side, global crude steel production in 2009 fell by 8.1 per- cent. China’s importance for the international steel market further strengthened during the year. In 2009, the country accounted for 47 percent of total global crude steel produc- tion and, according to the revised forecast from the World Steel Association, approximately 48 percent of global steel consumption.
Fluctuations in raw materials prices
The beginning of 2009 was characterized by falling raw materials prices. Prices of Australian coking coal fell by 60 percent, while the price of iron ore pellets almost halved.
Despite these price decreases, the 2009 contract prices for coal and iron ore are at the second highest levels ever. In the agreements for 2010, prices for coking coal and iron ore are expected to increase once again, largely due to increased Chinese demand. Scrap metal prices in North America fell during the first quarter of 2009 and thereafter turned up- ward. By the end of the year, North American scrap metal prices had more than doubled compared with the lowest prices noted at the beginning of April.
A degree of recovery in the market
After the price rally in 2008, global steel prices fell during the first quarter of 2009. Despite price increases during
third quarter, prices at the end of the year were far below the 2008 levels. The sharpest price decreases at the beginning of the year took place in Europe and the United States. Price growth in these regions thereafter continued to be weaker than in China. During the first half of the year, extensive inventory liquidation took place at distributors and consum- ers, and thus demand at steel companies fell more sharply than the underlying demand. As inventory restocking takes place in various steel consuming industries, demand at steel companies is increasing by more than the underlying demand . During the second half of 2009, the demand at steel companies increased, due to a certain upturn in de- mand but also due to the end of the destocking.
Continued uncertain market trend
With the first signs that the bottom of the recession had been reached, a number of steel producers brought forward planned restarts of blast furnaces in order to increase pro- duction capacity. Demand outside Asia, however, continue to develop weakly. It remains to be seen if the increases in production in Europe will be in line with demand and not gen- erating overcapacity.
An additional uncertainty factor is the impact the con- clusion of the various stimulus packages will have on steel consumption. The wave of consolidations and structural transactions which have characterized the steel market in recent years tapered off during 2009. Most companies in the industry have focused on internal matters and worked on cost savings and activities to promote cash flow.
Sales
Demand was very weak in almost all markets during most of the year.
The Group’s sales amounted to SEK 29,838 (54,329) million, a decline of SEK 24,491 million or 45 percent. Lower volumes accounted for a negative effect of 39 percentage points, lower prices for a negative effect of 10 percentage points, a weaker product mix for a negative effect of 1 per- centage point, while currency effects accounted for a posi- tive effect of 5 percentage points.
For the Group as a whole, 76 (75) percent of sales were outside Sweden, as shown in the table below.
Sales per market area
SEK millions 2009 Share, % 2008 Share, %
Europe 16,881 57 31,756 59
of which Sweden 7,099 24 13,518 25
NAFTA 10,366 35 19,171 35
South America 413 1 526 1
Asia 1,915 7 2,154 4
Other 263 1 722 1
Total 29,838 100 54,329 100
Sales in the largest markets
SEK millions 2009 2008 Change, %
USA 8,621 17,962 -52
Sweden 7,099 13,518 -47
Germany 1,813 2,810 -35
Canada 1,447 1,101 +31
Finland 1,287 2,306 -44
External sales per business area
SEK millions 2009 % 2008 %
SSAB Strip Products 7,798 26 14,110 26
SSAB Plate 6,525 22 10,760 20
SSAB North America 8,769 29 16,455 30
Tibnor 5,236 18 10,457 19
Other 1,510 5 2,547 5
Total 29,838 100 54,329 100
Sales and profit
Global steel consumption Steel consumption in the USA Steel consumption in EU-15 Steel consumption in Sweden mt
Other Former Soviet Union
Japan USA China
South Korea EU 25
0 100 200 300 400 500 600
10 05 00 95 90 85 80 75 70
mt
45 60 75 90 105 120
10 05 00 95 90 85 80 75 70
mt
90 110 130 150 170 190
10 05 00 95 90 85 80 75 70
kt
2,000 3,000 4,000 5,000
10 05 00 95 90 85 80 75 70
Without question, 2009 was dominated by the global
economic downturn in the wake of the financial crisis.
Cost reduction program
As a consequence of the severe decline on the steel market and the uncertain prospects for 2009, at the beginning of De- cember 2008 the Board decided on a cost reduction program aimed at reducing operating costs by at least SEK 1 billion an- nually. A reserve of SEK 498 million for the cost of this program was incurred in 2008. In 2009, implementation of the program has, in all major aspects, proceeded somewhat quicker than originally estimated and the cost is now estimated at SEK 422 million. During 2009, SEK 76 million of the reserve was reversed.
The savings are estimated to have generated a positive effect of just over SEK 750 million in 2009 and, commencing 2010, it is estimated that the sustainable yearly cost reduction will amount to approximately SEK 1 billion.
Cost trends
Costs in the business decreased by 30 percent compared with the preceding year and were SEK 32,412 (46,306) million. Of these costs, SEK 3,706 (6,969) million related to products purchased in the processing and trading operations.
Remaining costs consists primarily of processing costs, selling and administrative costs, depreciation/amortization, and costs for input materials and energy.
Processing costs, selling and administrative costs are comprised primarily of costs for the Group’s own personnel and purchased material and services. Due to the low produc- tion and sales, the processing costs have been reduced sig- nificantly during the year. The fixed costs have been reduced
by SEK 1,552 million of which SEK 750 million relates to the cost reduction program.
Raw materials are priced in the world market and the prices, which are primarily quoted in USD, are very sensi- tive to the steel business cycle. Iron ore and coal are the dominant raw materials within the blast furnace based manufacturing in Sweden and price and delivery agreements are normally entered into annually at the beginning of the year. Scrap metal is an important raw material for the North American operations with two scrap-based steel works.
Agreements on the new price for iron ore pellets were not reached until the third quarter and entailed price decreases in USD of 48 percent i.e. a price decrease in SEK of approximately 36 percent. The iron ore agreements entered into force at the beginning of 2009 but, due to ex- isting stocks, the new price impacted earnings only towards the end of the second quarter.
Agreements on new coal prices were reached during the second quarter and entailed price decreases in USD of 47per- cent, i.e. a price decrease in SEK of approximately 35 percent.
The coal agreements entered into effect on April 1 but, due to existing stocks and the slow pace of production, the new price impacted earnings only towards the end of 2009.
The price of scrap metal was volatile during 2009, but with a rising trend from April onward. Changes in scrap prices have a relatively quick impact on earnings due to a high rate of inventory turnover. The Group’s cost structure is shown in the diagram on page 13.
Energy
Coal is an essential reduction agent to remove oxygen from iron ore and constitutes one of the most important raw materials in iron ore-based steel production. Coal also provides approximately 85 percent of the energy for the Swedish steel operations.
Energy is otherwise provided through electricity, oil and LPG. In total, the Swedish steel operations consumed 1,243 (1,638) GWh of electric power and 1,102 (1,629) GWh of oil and LPG during the year. By utilizing the energy-rich gases that are formed during steel production, among other things, electricity is produced at the OK3 heat and power plant in Oxelösund and in the half-owned energy company, Lulekraft.
During the year, these plants produced 516 (837) GWh of electricity.
Electricity and natural gas represent significant energy costs for SSAB North America and account for approximately 10 percent of total steel plant production costs. SSAB North America has long-term, inflation-indexed agreements.
In total, the Group’s energy costs (excluding coal) amounted to SEK 2,484 (3,146) million.
1) SSAB North America’s operating profit during the year was impacted by SEK 942 (745) mil- lion in depreciation/amortization of surplus values on intangible and tangible fixed assets.
2) The provisions at the end of 2008 are reported as a joint item for the entire Group. The allocation between the divisions is SEK 200 million for SSAB Strip Products, SEK 125 million for SSAB Plate, SEK 0 million for SSAB North America, SEK 34 million for Tibnor and SEK 62 million for Other, as well as an unallocated portion of SEK 77 million. SEK 76 million of the reserve was dissolved in the fourth quarter of 2009.
3) Profit includes a profit of SEK 313 (240) million on the sale of emission rights, allocated as SEK 13 (-) million to SSAB Strip Products and SEK 300 (240) million to Other.
4) The discontinued operations relate to the tubular business in North America which was divested in 2008. The cost for the year of SEK 131 million is a provision in respect of warranty obligations to the buyer.
Input materials 34.4 % Depreciation 7.7%
Manufacturing costs 23.5%
Personel costs 15.3%
Energy 7.7%
Purchased products 11.4%
The Group’s cost structure
Rolling four quarters SEK m
-4,000 -2,000 0 2,000 4,000 6,000 8,000 10,000 12,000
09 08 07 06 05
Profit after financial items Result
SEK millions 2009 2008
Sales 29,838 54,329
Operating profit per business area
- SSAB Strip Products -1,637 3,324
- SSAB Plate -73 3,154
- SSAB North America 1) -271 2,951
- Tibnor -38 634
Provisions, cost reduction program 2) 76 -498
Other 3) 351 -49
Operating profit -1,592 9,516
Financial items -469 -563
Earnings after financial items -2,061 8,953
Tax 1,182 -2,445
Earnings after tax for continuing
operations -879 6,508
Earnings after tax for discontinued
operations 4) -131 490
Earnings after tax -1,010 6,998
Key ratios
Return on capital employed before
tax (%) neg 17
Return on equity after tax (%) neg 22
Earnings per share (SEK) -3.09 21.41
of which for continuing operations
(SEK) -2.69 19.90
Goodwill 19,701 21,105
Equity 31,002 35,193
Net debt 15,314 16,992
Net debt/equity ratio (%) 49 48
Operating profit for the year was down SEK 11,108 million and amounted to SEK -1,592 (9,516) million.
The profit analysis is set forth in the table below.
Change in operating profit between 2009 and 2008 (SEK millions) Steel operations
- Lower prices -4,120
- Lower volumes -7,220
- Higher variable production costs -340 Tibnor
- Lower volumes, change mix
and margins -780
Lower fixed costs +1,552
Lower sales of by-products and slabs -655 Higher provisions for anticipated bad
debt losses -31
Costs for under-utilized subcontractor
agreements -103
Non-recurring insurance indemnification,
preceding year -114
Sold emission rights +73
Reserve for cost reduction program 2008 +574
Other +56
Change in operating profit -11,108
Index
150 200 250 300 350
05 06 07 08 09 0
1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Swedish Steel Operation SSAB North America thousand tonnes
09 08 071) 06 05
Price trend 1) Crude steel production
Profit
Operating profit for the full year was negatively impacted by write-downs of the finished goods inventories in the steel operations and Tibnor by SEK 445 (489) million and coke inventories by SEK 316 (-) million. Fixed costs declined by SEK 1,552 million, of which just over SEK 750 million relates to the ongoing cost reduction program, and expected to be sustainable savings. Costs for anticipated bad debt losses increased and amounted to SEK 88 (57) million. Due to weaker demand, it is believed that some agreements with subcontractors will not be utilized and the resulting costs
impacted earnings by SEK 103 million. Due to a weak Swedish krona sales were positively impacted by approximately SEK 2.5 billion while operating expenses were negatively impact- ed by approximately SEK 1.6 billion compared with 2008.
Financial items for the full year amounted to SEK -469 (-563) million. Financial items for 2008 included SEK +146 million with respect to the interest compensation included in the indemnification relating to an older blast furnace breakdown.
Earnings for the full year after financial items were SEK -2,061 (8,953) million, a decline of SEK 11,014 million.
Tax
Tax for the year amounted to SEK +1,182 (-2,445) million.
The effective tax rate was +57 (-27) percent. Tax for the year was positively impacted by 9 percentage points as a conse- quence of changes in the calculated tax rate, primarily due to a reappraisal of the deferred tax liability from the acquisi- tion of SSAB North America. Furthermore, lower tax rates on positive earnings and higher tax rates on negative earnings in foreign subsidiaries impacted positively by 22 percentage points.
Result and earnings per share
Earnings after tax (attributable to the shareholders) for the continuing operations amounted to SEK -871 (6,445) million or SEK -2.69 (19.90) per share. Including the divested operations, earnings for the year amounted to SEK -1,002 (6,935) million or SEK -3.09 (21.41) per share.
0 1,000 2,000 3,000 4,000 5,000 6,000
SSAB Plate SSAB Strip Products
SSAB North America thousand tonnes
09 08 071) 06 05 Plate production
1) SSAB North America pro forma full year of 2007.
1) SSAB North America pro forma full year of 2007.
1) Relates to the Swedish steel operations.
-20,000 -15,000 -10,000 -5,000 0 5,000 10,000 15,000 20,000
EUR
USD CAD
SEK m
Other NOK DKK
GBP Currency flows
Return on capital employed/equity
The return on capital employed before tax and return on equity after tax were negative for 2009. For 2008, the corresponding figures were 17 percent and 22 percent respectively.
Equity
Following deduction for the year’s losses attributable to the Company’s shareholders of SEK -1,002 million, other com- prehensive income (primarily comprising translation differ- ences) of SEK -1,855 million, and after payment of the year’s dividend of SEK 1,296 million (SEK 4.00/share), the share- holders’ equity in the Company amounted to SEK 30,841 (34,994) million, equal to SEK 95.21 (108.64) per share.
Profitability and the net debt/equity relation in relation to targets are presented in a diagram under the heading Financial Targets on page 6.
Test of impairment for goodwill
On November 30, the annual impairment test was carried out regarding goodwill. At the end of the year there remained SEK 19,701 million in goodwill, of which in principle the entire amount relates to SSAB North America. The result of the impairment test indicated no impairment. For further infor- mation, see Note 6.
Divestment of the North American tubular business The tubular business was sold on June 12, 2008 for a pur- chase price of USD 4,038.5 million. In the income statement for 2008, the items relating to the discontinued operations
were removed from the income statement and reported net on a separate line, “Earnings after tax for discontinued operations”. There are warranty obligations to the buyer relating to the period prior to the divestment. In connection with the divestment, a provision was made for this type of obligation. In connection with the accounts for 2009, a renewed estimate has been made and an increase of the provision by SEK 131 million was made and reported for the year as “Earnings after tax for discontinued operations”.
Capital expenditures and cash flow
Capital expenditures
During the year, decisions were made regarding new capital expenditures totaling SEK 572 (7,314) million, of which SEK 0 (5,483) million involved strategic investments. Capital expen- diture payments for the entire operations amounted to SEK 1,912 (2,606) million, of which SEK 944 (770) million related to strategic investments. Project planning regarding the ma- jor strategic investments was underway, but the pace of the investments was reduced and was regularly being reviewed.
Since the end of the period, decisions have been made to continue on a somewhat smaller scale with the investment program presented in the fall 2008. Accordingly, the con- struction of a quenching line in Mobile, Alabama will continue to be implemented in a somewhat scaled down form, which will result in an increase of approximately 200 thousand tonnes in quenched steel production capacity. In addition, the investment to render possible production of quenched steel at the plant in Borlänge will be implemented, which will allow for an initial sales volume of 300 thousand tonnes of quenched steel. Both investments amount to approximately SEK 3.6 billion, of which approximately SEK 0.5 billion was paid in 2008–2009. Of outstanding projects totaling SEK 1.7 bil- lion of the original SEK 5.3 billion that were announced during the fall 2008, projects of approximately SEK 1.5 billion have not yet been started. Since the end of the period, the Board has also decided on an investment of just over SEK 300 mil- lion for a finishing line in Kunshan, China. The line will have capacity for formatting, blasting and organic coating and is expected to be commissioned in the middle of 2011.
Financing and liquidity
During the year, the operating cash flow amounted to SEK 4,868 (9,085) million, primarily as a consequence of a reduc- tion in working capital in all divisions totaling SEK 5,135 million.
Excluding currency effects, inventories declined by SEK 4,532 million and accounts receivable by SEK 984 million, which were offset by a reduction in accounts payable of SEK 268 million. The cash flow from current operations amounted to SEK 3,387 (5,387) million. Cash flow were negatively affected by expenditures of just over SEK 380 million in respect of the ongoing cost reduction program.
Cash flow before financing was SEK 2,474 (29,525) mil- lion and, together with positive translation effects on the debt of SEK 500 (-2,071) million, meant that the net debt during the year declined by SEK 1,678 million, after the dividend of SEK 1,296 (1,620) million, and on December 31, amounted to SEK 15,314 (16,992) million. Equity (including the minority share) declined during the year by SEK 4,191 million, from SEK 35,193 million to SEK 31,002 million. The net debt/equity ratio
was 49 (48) percent. 0
1,000 2,000 3,000 4,000 5,000 6,000
09 08 07 06 05 SEK m
Cash flow from current operations Operating cash flow/change in net debt
SEK millions 2009 2008
SSAB Strip Products 1,006 2,692
SSAB Plate 1,312 1,818
SSAB North America 1,376 4,139
Tubular business (up to date of
divestment) 0 -160
Tibnor 725 677
Other 449 -81
Operating cash flow 4,868 9,085
Financial items 1) -538 -1,132
Taxes 2) -943 -2,566
Cash flow from current
operations 3,387 5,387
Acquisition of companies
and operations 0 -10
Strategic investments -944 -770
Divestment of businesses and
operations 3) 31 24,918
Cash flow before dividend and
financing 2,474 29,525
Dividend -1,296 -1,620
Net debt in divested companies 0 817
Currency translation, etc. 4) 500 -2,071 Change, net debt (increase-/
decrease+) 1,678 26,651
1) Financial items consist primarily of paid interest, while reappraisals of financial instruments and currency differences are reported in the financing activities.
2) Taxes means tax paid during the period.
3) Divested companies and operations during the year refers to SSAB Laminated Steel (lamination of steel and aluminum sheet), while for 2008 it refers to the North American tubular business.
4) Most of the currency translation comprised reappraisals of liabilities against equity for hedging of foreign operations.
During the fourth quarter 2009, bond loans of SEK 3.5 bil- lion were issued, and were used in partial repayment of bank loans. These measures resulted in a more evenly-spread debt maturity structure on the loan portfolio and an exten- sion of the average term to maturity by approximately 6 months. The term to maturity at December 31 was 3.5 (4.1) years, with an average fixed interest period of 0.9 (0.8) years. Of the loan portfolio of SEK 18,876 (19,704) million, short-term commercial paper was SEK 2,601 (1,339) million.
The Group’s liquidity preparedness consisted of cash and cash equivalents and non-utilized binding credit facili- ties, but excluding short-term commercial paper of SEK
SEK m %
0 900 1,800 2,700 3,600 4,500 5,400 6,300 7,200 8,100 9,000
0 6 12 18 24 30 36 42 48 54 60
09 08 07 06 05
Accounts receivable Investments and depreciation/
amortization
0 500 1,000 1,500 2,000 2,500 3,000
09 08 07 06 05 SEK m
SEK m %
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
0 5 10 15 20 25 30 35 40
09 08 07 06 05 Inventories
2,601 (1,339) million, at December 31 amounted to SEK 16,249 (8,431) million, equal to 54 (16) percent of annual sales. Including the short-term commercial paper, liquidity preparedness amounted to approximately 63 (18) percent of annual sales.
Dividend
The Board proposes that the Annual General Meeting issue a dividend of SEK 1.00 (4.00) per share, equal to SEK 324 (1,296) million. For considerations relating to proposed allocation of profit, see Note 30.
The divisions’ / subsidiaries’ sales, profits and return on capital employed
Sales Change Change 3) Operating profit
Return on capital employed
SEK millions 2009 2008 2009 2008 2009 2008
SSAB Strip Products 10,091 17,981 -44% -47% -1,637 3,324 neg 39%
SSAB Plate 7,634 13,237 -42% -47% -73 3,154 neg 40%
SSAB North America 1) 8,799 16,745 -47% -57% -271 2,951 neg 10%
Tibnor 5,286 10,562 -50% -50% -38 634 neg 31%
Other subsidiaries 1,633 2,171 -32 68 - -
Parent Company 2) - - -43 2,232 - -
Parent Company's affiliated companies - - 5 84 - -
Provision for cost reduction program - - 76 -498 - -
Other Group adjustments -3,605 -6,367 421 -2,433 - -
Total 29,838 54,329 -45% -50% -1,592 9,516 neg 17%
1) SSAB North America’s operating profit during the year was impacted by SEK 942 (745) million in depreciation/amortization of surplus values on intangible and tangible assets.
2) The Parent Company’s profit includes a profit of SEK 300 (240) million on the sale of emission rights. In 2008, the Parent Company’s profit included the sale of the tubular business.
3) Adjusted for changes in exchange rates.
Research and development
SSAB’s research and development work focuses on process development, product development and customer applica- tions. During the year, research and development expendi- tures amounted to almost SEK 200 million. Research and development activities are governed by the Group’s business strategy and validated by the Research and Development Council. To further strengthen SSAB’s long-term product development goals, a new strategic research center for the entire Group will be established in 2010. With respect to ongoing process development, SSAB in 2009, success- fully pioneered a method for producing cleaner (less non- metallic inclusions) steel with improved material properties.
Also during this year, SSAB conducted a record number of development projects with customers. In particular, SSAB successfully launched a new concept for lightweight dumper bodies which reduces fuel consumption and offers improved productivity.
In terms of the product range, a number of new steel grades were introduced to the market. Domex 960 is a new high strength construction steel for applications within heavy transportation and the lifting industry. Docol 1000 CLE is a new cold rolled steel with significantly improved welding qualities, ideal for safety components in the auto- motive industry.
During the year, SSAB has become a core member of the European cooperation project ULCOS, which is aimed at developing production methods to reduce carbon dioxide emissions.
SEK millions
31 dec 2009
31 dec 2008 Assets
Goodwill 19,701 21,105
Other intangible assets 5,374 6,663
Tangible fixed assets 17,137 17,584
Participations in affiliated companies 348 373
Financial assets 55 119
Deferred tax receivables 164 245
Total fixed assets 42,779 46,089
Inventories 8,221 12,924
Accounts receivable 4,435 5,921
Current tax receivables 667 154
Other current receivables 665 1,454
Cash and cash equivalents 3,652 2,713
Total current assets 17,640 23,166
Total assets 60,419 69,255
Equity and liabilities
Equity for shareholders in the company 30,841 34,994
Minority shares 161 199
Total equity 31,002 35,193
Deferred tax liabilities 5,283 6,279
Other long-term provisions 550 504
Long-term interest-bearing liabilities 14,878 18,064 Total long-term liabilities 20,711 24,847 Current interest-bearing liabilities 3,998 1,640
Current tax liabilities 96 868
Accounts payable 3,063 3,831
Other current liabilities 1,549 2,876
Total current liabilities 8,706 9,215
Total equity and liabilities 60,419 69,255 Consolidated balance sheet
SSAB enjoys close cooperation with a select net- work of leading institutions and industry organiza- tions including the Swerea institutions (Swedish research), MEFOS and KIMAB, the Swedish Steel Producers’ Association, Eurofer (European Con- federation of Iron and Steel Institutes), and the World Steel Association. In North America, SSAB supports research activities at a number of universi- ties including the Colorado School of Mines and the University of Iowa.
abrasion-resistance and resistance to
knocks. The end customers benefit from
increased payload, lower fuel consumption,
as well as fewer and shorter maintenance
stoppages. «
Compensation to senior executives
Proposal by the Board for 2010
For 2010, the Board proposes that compensation to the President and other members of the Company’s manage- ment shall comprise a fixed salary, possible variable salary component, other benefits, such as company car, as well as pension. “Other members of the Company’s manage- ment” means members of the Group Executive Committee, currently eight persons in addition to the President. The total compensation package shall be on market terms and competitive in the employment market in which the execu- tive works. Fixed salary and variable salary components shall be related to the executive’s responsibilities and authority.
The variable salary component shall be based on results as compared with defined and measurable targets and shall be subject to a ceiling in relation to the fixed salary. Variable salary shall not be included in the basis for computation of pension, except in those cases where so provided in the rules of a general pension plan (e.g. the Swedish ITP plan). For
senior executives outside Sweden, all or parts of the variable salary may be included in the basis for pension computation due to legislation or local market practice.
The program for variable salary should be structured such that, in the event of exceptional circumstances, the Board has the possibility to limit or withhold payment of variable salary where such a measure is deemed reasonable and compatible with the Company’s responsibilities to sharehold- ers, employees and other stakeholders.
Consulting fees on market terms may be payable to the extent a director performs work on behalf of the Company, in addition to the duties serving on the Board.
Senior executives in Sweden must give six months’ notice of termination of employment. In the event of termination by the Company, the total termination period and the period dur- ing which severance compensation is payable shall not exceed 24 months. Pension benefits are determined either as benefit- based or contribution-based, or a combination thereof, with
Compensation and benefits for the President and other Group Executive Committee members
President Other Group Exec. Comm. Members
SEK millions 2009 2008 2007 2009 2008 2007
Fixed salary 4.7 4.7 4.5 16.6 16.6 11.2
Other benefits 0.2 0.3 0.1 0.8 0.9 0.5
Variable salary - 2.2 2.2 - 9.8 7.2
Incentive program - 4.5 - - 11.2 -
Other compensation 1) - - - - 2.2 -
Total compensation 4.9 11.7 6.8 17.4 40.7 18.9
Pension expenses 1.3 1.4 1.3 7.3 7.8 5.5
Total 6.2 13.1 8.1 24.7 48.5 24.4
1) Relates to disbursed severance compensation.
For more detailed information regarding compensation, see Note 2.
individual retirement ages, however under no circumstances below the age of 60. Benefit-based pension benefits are con- ditional on the benefit being earned during a predetermined period of employment. In the event the employment termi- nates prior to retirement age, the executive shall receive a paid-up policy regarding earned pension. Termination periods and severance compensation for senior executives outside Sweden may vary due to legislation or local market practice.
The Board of Directors shall be entitled to deviate from the guidelines where special reasons exist in an individual case. For more detailed information regarding compensa- tion, see Note 2.
Variable salary 2009
For the President and the other members of the Group Ex- ecutive Committee, the variable salary component 2009 is linked to the Group’s EBITDA margin relative to a number of comparable steel companies and to a target for cash flow established by the Board, combined with one or more indi- vidual targets. There will be no variable salary paid for 2009.
Temporary incentive program
In connection with the acquisition of IPSCO, the Board made the assessment that, in light of the size of the acquisition and the major financial strain resulting from the acquisition, it was of the utmost importance to achieve a rapid integra- tion of the business, that identified synergies quickly could be realized, that earnings continued to develop positively during the integration of the merged SSAB/IPSCO, and that senior executives remained with the Company during this
critical period. Therefore, the Board of Directors decided on a temporary incentive program for a number of key persons stationed in Sweden who are engaged in the integration of SSAB North America, which includes the Swedish members of the Group Executive Committee, including the President.
This temporary incentive program consisted of variable compensation and applied as a supplement to the already existing variable salary component. For the Swedish mem- bers of the Group Executive Committee, the incentive pro- gram applied during a maximum of two years commencing July 2007 and was capped at 100 percent of each member’s fixed annual salary. The amount payable depended entirely on the degree to which a number of established targets were achieved as regards the integration of SSAB North America into SSAB’s operations. The targets comprised the Group’s EBITDA margin compared with a number of comparable steel companies, a cash flow target established by the Board, and realized synergies. The first year’s outcome was paid in cash in 2008. Payment of the second year’s outcome, two thirds of the maximum outcome, was, for the time being, stopped in accordance with the resolution adopted at the 2009 An- nual General Meeting which authorized the Board to limit or withhold payment of variable compensation in the event of exceptional circumstances.
Compensation and benefits
During the last three years the following compensation and benefits have been paid to the President and other Group Executive Members.
Significant risks and uncertainty factors
The Group’s results and financial positions are affected by a large number of factors, several of which are beyond the Company’s control. These include, for example, the political and economic conditions that affect the markets for steel.
The dramatic events of recent times on the global finan- cial markets have been accompanied by increased general uncertainty, which also results in risks and uncertainty in the business operations. The consequent main risks and uncertainty factors encountered by the Group relate to the impact of the macro-economy on demand, existing financ- ing and possibilities for future financing, as well as changes in value of fixed assets and operating assets.
Weak demand leads to a low rate of inventory turnover, which increases the risk of physical obsolescence in invento- ries within the steel divisions.
The work of identifying and analyzing the risks and de- ciding how, and to what extent, the risks shall be addressed is a prioritized area in the Group.
Risks and uncertainty in the Group’s operations Steel production takes place in a chain of processes. Dis- ruptions in any part of the chain can rapidly have serious repercussions on the entire process. Thus, a disruption in the operations due, for example, to transportation obstacles and damage to assets resulting from, e.g. fire, explosions and other types of accidents can be costly. The risk that disruptions in one part of the process will have repercus- sions on other parts of the process can be minimized by keeping stocks of raw materials, work in progress, inventories of finished goods, as well as other types of inventory on as optimal a level as possible. Both property insurance and business disruption insurance are held in order to minimize the costs resulting from this type of problem.
The possibility to attract and retain skilled personnel represents a key factor in being able to conduct the opera- tions with good profitability in the long term. Thus, skills development and management development are prioritized areas. The niche strategy is contingent also on a continued strong process and product development, and thus skills de- velopment in these areas is of particular importance.
The Group’s reputation can be eroded quickly if safety, environmental responsibility and ethics are called into question, and thus priority is given to these issues in the day-to-day work as well as in long-term training and work on influencing attitudes.
The acquisition of IPSCO resulted in a significant increase in the net debt/equity ratio, but the Group’s exposure to inter- est rate changes has been reduced as a consequence of the divestment of the tubular business in 2008, and subsequent reduction in the net debt.
In an international business such as SSAB’s, there are also a number of financial risks in the form of currency risks, financing risks, liquidity risks, interest rate risks and credit risks. The management of these risks is governed by the Group’s finance policy which is described in greater detail in Note 27.
Risks and uncertainty in the steel industry
The steel industry is strongly affected by the business cycle for steel and the most important raw materials. The high percent- age of fixed costs due to the large capital expenditures that characterize the steel industry also increases sensitivity to busi- ness cycle fluctuations. It is difficult to protect against this, but a focus on niche products and long-term agreements for the supply of raw materials are examples of ways in which SSAB has chosen to minimize the cyclical nature of its earning capacity.
In times of sharply falling prices for both raw materials (coal and iron ore) and steel, there is the risk that steel prices will con- tinue to fall after the annual agreements for purchases of coal and iron ore (which are entered into the beginning of the year) have been concluded.
Competitors’ development is something that cannot be influenced; however, the major acquisitions and merg- ers within the steel industry in recent times are a positive factor for a niche company such as SSAB. It is through a continued focus on developing its niche products that SSAB can maintain and, preferably, strengthen its position against competitors.
The system of carbon dioxide emission rights has resulted in new rules for companies in the steel industry. As the system functions today, there is a risk of distortion of competition due to the fact that a large proportion of steel producing countries in the world are not covered by the system.
External risks and uncertainty
There are a large number of extraneous factors that impact the entire steel industry and, therefore, SSAB. Examples in- clude the introduction of various obstacles to trade, energy price trends and increased environmental requirements.
Risk and sensitivity analysis
Demand is expected to strengthen somewhat during the first quarter of 2010. In the US, prices during the first quarter are expected to be lower, primarily as a consequence of mix changes. In Europe and Asia, it is anticipated that general pressure on prices during the fourth quarter of 2009 will lead to lower prices during the first quarter.
The degree of utilization at SSAB’s production lines has gradually increased but is estimated to be somewhat lower than normal during the first quarter. The full impact of the cost reduction program will be realized during 2010, in line with the fourth quarter of 2009.
At the steel works in Montpelier, Iowa, a scheduled main- tenance outage will take place for three weeks commencing the third week in March. The outage is estimated to impact earnings by just over SEK 250 million, of which just over half is expected to be incurred during the first quarter. Major maintenance outages of this type normally take place every two to three years at each plant in the United States.
New price agreements for iron ore and coal have not yet been signed. Spot prices for both ore and coal have in- creased in excess of the levels in the 2009 agreements and the market expects both iron ore and coal prices in USD to increase compared with the 2009 agreements. However, over time the higher raw material prices are expected to be compensated by the improving market conditions. Coal agreements will impact earnings towards the end of the second quarter, whereas iron ore agreements will impact earnings during the first quarter.
The price of scrap metal was volatile during 2009, but has been on the rise from April onward. The increasing price trend has thus far carried over into 2010 and at the end of January prices were approximately 17 percent above the level at the end of December 2009. Changes in scrap prices have a relatively quick impact on earnings due to a high rate of inventory turnover.
Outlook for 2010
(The work of managing environmental risks and increased environmental requirements is addressed in greater detail under the section entitled “SSAB’s environmental activities”).
Sensitivity analysis
The approximate effect in 2009 on profit after financial items and earnings per share of changes in significant factors is shown in the sensitivity analysis below.
Change, %
Effect on profit, SEK millions
Effect on earnings per share, SEK 3) Steel prices - steel
operations 10 2,250 5.10
Volumes - steel operations
10 400 0.90
Iron ore prices 1) 10 170 0.40
Coal prices 1) 10 270 0.60
Scrap metal prices 10 310 0.70
Interest rates 1 percent- age point
130 0.30
Krona index 2) 5 390 0.90
1) Prices are established in annual agreements.
2) Calculated based on SSAB’s exposure without hedging. If the krona is weakened, this has a positive effect.
3) Calculated based on a tax rate of 26.3%.
Advanced high strength steels can be used in a large number of different applications to reduce weight, increase strength and extend product life. Hot-rolled advanced high strength steels are used, among other things, in the automotive in- dustry, primarily for trucks, and in areas such as cranes and containers. Cold rolled advanced high strength steels are used primarily for safety components in the automotive industry.
Galvanized advanced high strength steels are used in ap- plications that require a high level of anti-corrosion protec- tion. The main European competitors within advanced high strength steels are ThyssenKrupp, and ArcelorMittal.
Ordinary strip steel is used primarily within the engineer- ing, construction, and automotive industries. Competitors within these sectors consist of most Western European steel companies.
Strip is produced in thicknesses ranging from 0.1 mm to 16 mm, with a maximum width of 1,600 mm. Production takes place mainly at two plants: an ore-based metallurgy comprising coking plant, blast furnaces, and steel mills for the production of slabs is located in Luleå, while rolling mills as well as coating and after-treatment lines are situated in Borlänge. The capacity in Luleå is insuffi cient to supply all strip production needs. The remaining slabs required are, therefore, purchased from SSAB Plate. Production capacity in Borlänge is almost 3 million tonnes per year.
Further processing is also carried out through organic coating in Finspång and through cutting to size at subsidiar- ies in Italy, Great Britain and The Netherlands.
SSAB Strip Products’ strategy is to grow and become a leading company in Europe within the area of advanced high strength steels. At the same time, a leading position in the
SSAB Strip Products
SEK millions 2009 2008
Sales 10,091 17,981
Operating profi t -1,637 3,324
Operating cash fl ow 1,006 2,692
Capital expenditures 900 1,127
Capital employed at year-end 7,727 9,876
Return on capital employed % 1) neg 39
Average number of employees 3,468 3,789
1) Refers to return on average capital employed.
Head of Division: Martin Lindqvist
entire strip product range will be maintained on the domestic market in the Nordic region.
Market
Strip products constitute the largest product group within commercial steels. In Europe, this product group accounts for approximately one half of the market. Price levels for or- dinary strip steel are relatively uniform on the larger markets in Europe.
During most of the year, demand for strip steel in Europe was very weak, as it was in large parts of the world, with falling prices as a result. Demand increased somewhat during the fi nal months of the year.
Deliveries of advanced high strength steels amounted to 410 (857) thousand tonnes, a decrease of 52 percent.
Total deliveries declined to 1,400 (2,335) thousand tonnes, primarily due to the general economic situation. Deliveries of advanced high strength steels, accounted for 29 (37) percent of total strip product deliveries. Exports accounted for 67 (70) percent of sales. The geographic breakdown of deliveries is shown in the table on the following page.
Capital expenditures
During 2009, the Division focused on maintaining a positive cash fl ow, despite weaker earnings. One objective with this was to render possible implementation of the strategically important investment in quenching capacity for quenched steel.
All in all, decisions were made during the year regarding new capital expenditures totaling SEK 153 (2,189) million.
The investment in increased quenching capacity totaling
SSAB Strip Products is the largest manufacturer of strip products in the Nordic region and one of the leading companies in Europe within the niche for advanced high strength steels. The products are marketed under the Domex, Docol, Dogal, and Prelaq brands. The niche products are mainly sold directly to the end
customers, whereas ordinary grades also are sold via Steel Service Centers.
Share of the Group
Sales 26%
Registered number of employees 41%
Capital employed 15%
