SSAB’s strategy aims to secure the company’s long-term development to create value for shareholders and other stakeholders. SSAB’s main financial objective is to secure industry leading profitability and to generate solid cash flows.
Strong offering and market positions
SSAB has a strong global position in high-strength steels and value-added services, and holds leading positions in its Nordic and North American home markets. After the combination with Rautaruukki, SSAB has an overall market share of around 45% for flat carbon steels in the Nordic region. In North America, SSAB is the largest producer of plate, with more than 20% of the total market. Having been focusing on integration and cost-cutting initiatives following the successful combination with Rautaruukki, SSAB now intends to continue the transformation of its business model. The transformed business model includes product mix evolution in favor of growing the share of high-strength steels and other premium products, increased focus on service and after-market activities, as well as further growth in attractive market segments from the current well-invested asset base.
Actions to strengthen balance sheet and improve financial flexibility
SSAB is undertaking comprehensive measures to strengthen its balance sheet to pursue its journey toward achieving industry-leading profitability. These measures will put SSAB in a competitive financial position, which, together with the transformed business model, will enable long-term profitable growth and competitiveness.
Suggested measures to strengthen the balance sheet and improve flexibility going forward include the forthcoming rights issue of approximately SEK 5 billion. The rights issue, combined with divestments of non-core assets and internal cash flow generation, is expected to strengthen the Company’s balance sheet, reduce net debt by around SEK 10 billion and improve net gearing to around 30% by year-end 2017, in line with SSAB’s long-term financial targets.
Further financing measures taken include an extension of debt maturities of SEK 3.2 billion, existing bank guarantee extensions of SEK 3.7 billion and a new five-year (3+1+1 years) RCF of EUR 300-500 million. The financing package provided by shareholders and banks is expected to secure the refinancing needs during the next 3-5 years. Part of the financial package is subject to that the rights issue is realized.
Through the rights issue, SSAB will raise approximately SEK 5 billion, before the deduction of rights issue costs, which are estimated at SEK 130 million (including compensation of SEK 90 million to the underwriting guarantors). SSAB intends to use the SEK 4.9 billion proceeds from the rights issue primarily to strengthen its balance sheet and improve its financial flexibility in order to pursue its journey toward achieving industry-leading profitability, and to create financial preparedness to manage periods of low demand for steel.
Actions to reduce costs
SSAB has several actions ongoing to structurally further reduce cost and increase efficiency across the Group. Overall, SSAB aims to lower the cost base by SEK 2.8 bn annually, compared to the cost level in 2014, with full effect from 2017. The synergies from the acquisition amount to SEK 1.8 bn with annual full run rate from the second half of 2016.
Global demand for steel has been subdued in recent years and also in 2016 demand growth is expected to be lower than the historical average. Long-term growth projections are promising in emerging markets, in after-market services and for high-strength steels globally. With its leading products, assets, brands and knowledge, SSAB continues to be well placed to take advantage of growth opportunities in high-strength steels. Growth in high-strength steels, services and other premium grades will mean better returns for SSAB since profitability is relatively higher in these areas.
Dividends are adapted to average earnings level over a business cycle and, in the long term, constitute approximately 50% of profit after tax, taking into consideration the net debt/equity ratio. The ambition is to be able to use future cash flow both to reduce debt and to pay out dividends.
Read more about SSAB's business from Annual Report 2015
Information about the rights issue can be found here