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
In 2016, SSAB has undertaken comprehensive measures to strengthen its balance sheet and improve flexibility.
The rights issue announced in April 2016 was successfully completed in June 2016. Through the rights issue, SSAB received proceeds of around SEK 5 billion and, in addition to this, the refinancing package SSAB now has in place will significantly reduce the amount of loans maturing during the next 3-5 years and extend the duration of company's credit facilities. SSAB aims for a total reduction of SEK 10 billion in net debt by the end of 2017, through the rights issue, divestment of non-core assets and through cash flow generated from the operations. The completion of the rights issue and the refinancing package secures SSAB’s long-term possibilities to continue to develop business to achieve the goal of industry leading profitability. A strongly improved financial position makes SSAB well placed to take advantage of the opportunities in the market while driving profitable growth in well-defined focus areas.
Actions to reduce costs
SSAB has several actions ongoing to structurally 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 of Rautaruukki amount to SEK 2.0 bn with annual full run rate from the second half of 2016. The synergy program was completed with significantly more synergies realized than the SEK 1.0-1.35 billion that was originally communicated in January 2014 and one year earlier than originally planned.
The steel market is cyclical and the demand for steel products is affected by global economic conditions, levels of industrial investment activity and industrial production.
Long term, the global steel market (excluding China) is expected to grow 2-3% a year driven by continued growth globally, greater demand from a growing middle class in emerging countries, and by the development of new applications. Emerging markets in Africa, India and Latin America are expected to offer above-average growth rates, whereas moderate steel demand growth rates are anticipated in SSAB’s home markets.
In recent years, the slower economic growth has been reflected in steel demand and led to production overcapacity especially in Asia and Europe. The imbalanced supply-demand situation has led to growing export volumes especially from China, South Korea and Russia. The situation is expected to improve gradually in the years to come, driven by demand growth and in the short and medium term, increased import duties, and possibly structural removal of old capacity, particularly in Europe and China.
Requirements and demand for improved material and energy efficiency are important drivers leading to the growing use of high-strength steels, which provide advantages in the form of stronger, lighter and more durable steel applications. 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 in 2016 can be found here