Table of contents. SSAB Svenskt Stål AB (publ) Registration number Report of the Directors. Consolidated and parent company accounts

Transcription

1 Annual Report 1998 Steel is the leading construction material in the world. The only competitor to steel is even better steel. SSAB is consolidating its position in the commercial steels sector as a manufacturer of specialty steels, giving customers added value through strength, formability or abrasion-resistance.

2 Table of contents 1 Shareholders meeting 2 Operations 4 Comments by the Chief Executive Officer 6 Development through co-operation 8 SSAB and the environment 12 The SSAB share Report of the Directors 14 Group review 24 SSAB Tunnplåt 27 SSAB Oxelösund 3 Plannja 32 SSAB HardTech 34 Tibnor 36 Dickson PSC 37 SSAB Finance 38 Other companies Consolidated and parent company accounts 39 Consolidated profit and loss account 4 Consolidated balance sheet 41 Consolidated funds statement 42 Parent company s profit and loss account 43 Parent company s balance sheet 44 Parent company s funds statement 45 Notes 59 Disposition of profit 6 Auditors report 61 Group management, staff, and auditors 62 Board of Directors 64 Addresses SSAB Svenskt Stål AB (publ) Registration number Joe Brig Art AB, Gothenburg. Foto: Hans Wretling, Bo Björkdahl, Dag Sundberg. Print: Graphium Västra Aros, Västerås Translation: L.L. Legal Language Services AB.

3 Shareholders meeting The Annual General Meeting of the Shareholders will be held in Luleå on Friday, April 23, 1999, at 1: p.m. To be entitled to participate in the Annual General Meeting of the Shareholders, shareholders must be included in the printout of the share register that is made on April 13, 1999 and must notify SSAB of their intention to participate in the meeting not later then 12: noon on April 2, Nominee registered shares Shareholders whose shares are registered in the name of a nominee must register their shares in their own names in order to be entitled to participate in the shareholders meeting. In order that the shares might be re-registered in time, shareholders should request temporary ownerregistration (voting registration) in sufficient time prior to April 13, Notice Notice in respect of participation at the shareholders meeting shall be made by letter, telefax, or telephone to: SSAB Svenskt Stål AB Corporate Control Box 2628, SE-1 4 STOCKHOLM Telephone: Telefax: The name, personal identification number (company number), address, and telephone number of the shareholder must be provided in the notice. Shareholders who wish to participate in the shareholders meeting must provide notice of such not later than April 2, 1999 at 12: noon, at which time the notice period expires. Nominating committee Leif Gustafsson, Chairman of the Board of Directors Carl-Erik Feinsilber, member of the Board of Directors of SSAB and Industrivärden Björn Franzon, Vice President, Fourth AP-Fund The nominating committee presents proposals to the shareholders meeting concerning, inter alia, the election of members of the Board of Directors and remuneration to the Board of Directors. Dividends April 28, 1999 is proposed as the record date for the right to receive dividends. Payment of dividends is anticipated to be effected through VPC on May 5, The Board of Directors and the President propose that the shareholders meeting resolve upon the payment of a dividend for 1998 in the amount of SEK 4.5 per share. Financial information SSAB intends to submit the following information for the operating year 1999: Report for the first quarter, April 23, Half-year report, August 17, Report for the first three quarters, October 27, Results for 1999, February 2. Annual report, March 2. 1

4 Operations Sales (SEK millions) 15,116 18,611 17,162 17,474 17,835 Profit after financial items (SEK millions) 2,145 3,832 2,91 1,96 1,424 Investments in plants and facilities (SEK millions) 568 1,69 1,311 2,145 2,35 Cash flow (SEK millions) 1,351 1,891 1, Net debt (SEK millions) 1,27 2,754 3,687 2,929 1,644 Capital employed (SEK millions) 1,929 12,994 13,74 14,121 12,864 Total assets (SEK millions) 14,866 17,245 17,587 18,211 17,126 Return on capital employed before taxes (%) Return on equity after taxes (%) Equity ratio (%) Dividend per share (SEK): 1998 proposal Profit per share (SEK) Average number of employees 9,517 9,778 9,75 9,63 9,661 Production of crude steel (thousands of tonnes) 3,296 3,256 3,45 3,349 3,39 Definitions are set forth in note 2. Data per share has been recalculated as a consequence of the split at 4:1 which was carried out in The Group is pursuing a deliberate niche strategy designated to consolidate the position as one of the leading manufacturers of high-strength sheet and quenched steels within the plate area. This niche orientation and close co-operation with customers has given the Group a position as a specialist steels supplier within the commercial steel sector. The sheet operations are conducted within SSAB Tunnplåt and the plate operations within SSAB Oxelösund. Exports sales take place primarily through Ore Coal Coking plant Ore Coal Metallurgy Luleå Hot Strip Mill Borlänge Crude steel 242 kt wholly-owned sales companies. The production flow and deliveries in the steel operations are illustrated by the figure below. The trading and processing operations constitute an important sales channel for the steel operation s range of products, particularly on the Swedish market. In 1998, approximately 38, tonnes of the steel operation s products were sold through the processing and trading operations. The Group s finance operations are conducted by SSAB Finans, which is an independent profit centre within the parent company, and by the Irish subsidiary, Coronet Finance. Cold-rolled Metal-coated Organic-coated Hot-rolled steel sheet 995 kt Cold-rolled steel sheet 486 kt Metal-coated steel sheet 349 kt Organic-coated steel sheet 181 kt Metallurgy Oxelösund Coking plant Hot Plate Mill Heavy plate 369 kt Slabs 21 kt 2

5 Share of the Group s value added profit after financial items capital employed Share of the Group s value added profit after financial items capital employed SSAB Tunnplåt SSAB Tunnplåt manufactures hot-rolled, cold-rolled, metal- and organic-coated sheet, with an emphasis on high-strength sheet. The sheet s main areas of use are within the engineering and construction industries. SSAB Oxelösund SSAB Oxelösund manufactures plate. The majority consists of quenched steels, i.e. high-strength, structural steel, and abrasion-resistant steel. These are used, inter alia, in construction machinery, mining equipment, and bridges. Plannja Plannja organic-coats and profiles steel and aluminium building sheet, and manufactures wall systems and systems for rainwater runoff. SSAB HardTech SSAB HardTech manufactures press-hardened safety components for the automotive industry. The product range includes side impact beams, bumpers, and components for the car s safety cage. Dickson PSC Dickson PSC prefinishes sheet by slitting and cutting to size. Sales are conducted through Tibnor and SSAB Tunnplåt. Tibnor The trading company, Tibnor, conducts a large portion of steel trading in Sweden. Metals, building products, tools, machinery, and other industrial and building supplies supplement the product range. SSAB Finance SSAB Finance manages the Group s investments of liquid funds on the Swedish money market as well as foreign exchange dealings and borrowing. Coronet Finance Coronet Finance manages the Group s investments of liquid funds on the international money markets and attends to the financing requirements of primarily the Group s foreign subsidiaries. President Group Management SSAB Finance Group Staffs Steel Operation Processing Trading SSAB Tunnplåt Dickson PSC Tibnor SSAB Oxelösund Plannja Foreign sales companies SSAB HardTech 3

6 Comments by the Chief Executive Officer A shifting year for steel 1998 was characterised by a strong first half and a weak second half of the year. The crisis in Asia led to significant decreases in steel consumption in Japan and South Korea, which resulted in a significant change in the global trading flows of steel. For the Western European steel industry, this meant both decreased exports to Asia as well as increased steel imports from Asia and Eastern Europe. In combination with a continued high utilisation of capacity in the Western European steel industry, the changed trading flows created an increase in the supply of steel in Western Europe. During the first half of the year, it was possible for this increase in supply to be absorbed through continued increases in steel consumption, and steel prises in Western Europe could be gradually increased. However, steel consumption reached a peak at the end of the first half of the year following an upswing phase which lasted just under a year and a half one of the shortest in modern times. However, steel consumption had, by then, reached a record level. After the summer, the effect of the increased supply in steel was noticeable in Western Europe. Delivery times, which had been long during the first half of the year, decreased rapidly and steel prices fell under heavy pressure. Thus, during the second half of the year, prices fell for, primarily, hot and cold-rolled sheet of lower grades. The effect on our speciality products high-strength sheet and quenched steels in the plate sector was, however, limited. Falling steel prices resulted, however, in our earning capacity gradually decreasing during the second half of the year. Continued niche orientation SSAB is one of the mid-sized steel companies in Western Europe. We have chosen to develop our steel operations through a strong niche orientation, i.e. by identifying a few smaller sub-markets where we can achieve a dominant position. In the plate sector, we have achieved such a position for our quenched steels where we today have a global market share of almost 2%. Within the sheet sector, we are one of the largest producers of high-strength steel in Western Europe. The growth of our speciality products has been strong. During the most recent five year period, sales of quenched steels increased by over 7% and deliveries of high-strength sheet more than doubled. We forecast continued good growth possibilities for these speciality products. Therefore, the strategy for the steel operations remains firm. Growth will, in the future, take place primary within our niche areas. At the same time, with the help of our trading and processing companies Tibnor, Plannja, and Dickson, we will maintain a strong position on our home market Scandinavia where we are competitive in the entire product range. Three strategic investment projects completed In order to create the conditions for continued growth in our niche areas, in the beginning of the 199s we decided to invest a total of SEK 3,5 million in three strategic projects: General Plan OX2, Development Plan Domex 2, and the construction of a new production facility for SSAB HardTech in the United States. The operations during the past year were, to a large degree, characterised by the start-up and breaking-in of a number of large facilities included in these three projects. We commenced rolling in our new four-high rolling mill in Oxelösund at the end of March and in our new rougher for the strip mill in Borlänge in October. Production at SSAB HardTech s U.S. production facility started in two stages during the autumn. The work entailed in the investment projects resulted in a strain on the entire organisation and was not entirely painless. During the first three quarters, we experienced a number of interruptions in production in our steel operations which resulted, at times, in limitations on our delivery capacity and larger increases in our processing costs than planned. The start-up of the facilities is now largely complete. At the end of 1998, we ran our new four high rolling mill at an annual rate of over 5, tonnes, thereby at a pace slightly more than 25% higher than in The start-up of the rougher proceeded faster than we had anticipated and, in SSAB HardTech's U.S. production facilities, series deliveries started as planned during the autumn. Added value for our customers Following the completion of our three strategic investment projects, we now possess the fundamental facilities necessary for continued growth in our niche areas. Calculated at today's price levels, we have created the conditions for increased sales of our speciality products by approximately SEK 3,5 million per year. 4

7 Such increases in sales can only be achieved by continuing to create added value for our customers. By utilising our quenched steels or our high-strength sheet, our customers will be able to improve their products and their profitability. This creation of added value is a process which often takes place in close co-operation between the customer and our specialists. Two examples of how we work and how we will continue to work are described in a separate section in this annual report. We wish to share with the customer the added value which is created in order to ensure continued sound profitability in our operations. Consolidation in will be a tough year for steel. Steel consumption in Western Europe is still high even if it decreased somewhat after the market reached a peak at the end of the first half of last year. However, an all too large supply continues to press prices which, in the beginning of 1999, were just over 1% lower than the average prices during The balance on the market has, in fact, gradually improved as a consequence of the cut-backs in production which were carried out by Western European steel producers. However, our earnings capacity at the beginning of 1999 is significantly lower than last year. We are, therefore, in terms of markets, concentrating on trying to continue to increase the volumes in our speciality products and on regaining the sales of more standard products, especially on our home market, which we were forced to give up as a consequence of interruptions in production in A necessary prerequisite in order for us to be able to achieve this is that we maintain the production stability which we have now achieved, at the same time as we continue the fine-tuning of our new facilities. In our internal work, we will also concentrate on our processing costs and our cash flow. With this focus and the measures which we have taken on the cost side, we will, through savings, be able to make-up for wage inflation and the effects of cost increases due to increased volumes, so that processing costs will not increase in 1999 in absolute numbers. One measure which will provide a significant cost reduction effect in the long run is our decision to modernise and expand our large blast furnace in Luleå and thereby, largely, double the volume in the furnace. We will thereby be able to run our entire Luleå hot metal production in this single expanded furnace which is currently being run in two blast furnaces. This project, totalling SEK 85 million, is being carried out in two stages. During 1999, we will complete the raw material handling for the furnace and next year the actual replacement of the furnace will take place. In order to strengthen our cash flow, which has been negative the past two years during the intensive investment phase, we are extremely selective in our investments at the same time as we are taking special measures in order to decrease our inventories. This will enable us once again to achieve a positive cash flow. With this concentration on the market and on costs and cash flow, we will meet the challenges of a tougher market in 1999 and also lay the groundwork for our continued expansion of SSAB as a manufacturer of speciality steels in the commercial steels sector. Torsten Sandin 5

8 Development through co-operation Marketing and development often go hand in hand when it comes to the leading products, high-strength sheet and quenched steels within the plate operations. New improved steels are often tested in especially demanding applications employed by various customers. Following the tests, the steel is then marketed and used in ordinary production, both by the customer who participated in the tests and other customers. In addition, customers place their own demands regarding new product qualities and/or new areas of use. This often leads to the start-up of a joint development project together with the customer. Within the Group, both application engineers as well as development and production personnel are engaged. The following two examples illustrate how co-operation can take place and the results it provides. Brackets for tow eyes made of high-strength sheet Bendiro, with production units in Mariestad and Falkenberg, manufactures roll-formed and stamped components from sheet for, among other sectors, the automotive industry. Bendiro employees 125 persons and has a turnover of SEK 135 million. One of the components which Bendiro manufactures is the bracket for a tow eye on the Volvo S8 model. In its original form, the bracket was produced by another manufacturer in an ordinary steel. The tow eye is used, in addition to towing, also as a transport safety device in sea transportation. The North Sea storms soon revealed that the old brackets were not able to handle the stress. Bendiro was then retained by Volvo to produce a new bracket which could handle the demands placed on it. Contact was therefore taken with Kennet Olsson who is responsible for Impact 2, SSAB Tunnplåt s high-strength sheet project for the automotive industry. This was the beginning of a several month long intensive project between Bendiro, SSAB Tunnplåt, and tool and machine manufacturers. Bendiro s designers described the bracket and its function as well as the special strength requirements. SSAB Tunnplåt s strength and design specialists thereafter produced proposals for suitable high-strength sheet and carried out finite element analyses on various design solutions. In this way, a new bracket was developed step by step. The last phase of the work was carried out by the machine and tool manufacturers who adapted Bendiro s production equipment to the new material and design requirements. The new bracket is manufactured from SSAB 6 Tunnplåt s ultra high-strength steel, Docol 14 DP. The strength requirements have been met and surpassed and the bracket weighs only half as much as the old one. In this case, the change over to high-strength sheet resulted in both improved functionality and, for the automobile manufacturer Volvo, the added benefit of a weight decrease. Light dumper bodies in HARDOX Dumper bodies are specially constructed platforms on trucks for demanding use, such as transportation of stone and soil. Heinrich Carnehl Fahrzeugbau manufactures approximately 55 dumper bodies per year in its plants in Wittstock and Pattensen in Germany. The company employs 12 persons and has a turnover of approximately SEK 275 million. In order to increase the value for its customers, Carnehl wished to decrease the weight of its dumper bodies. At the same time they wanted to lower their production costs and retaining the bodies load capacity, strength, and life cycle. They therefore contacted Mats Haglund who is an application engineer at SSAB Oxelösund, and a joint development project was commenced. Traditionally, dumper bodies are constructed in a rigid design for which Carnehl previously used a pure construction steel. In the dumper body which was developed together with SSAB Oxelösund s technical customer services, the high-strength of HARDOX plate was used to make the body more flexible and elastic. It thereby became more durable and could effectively withstand blows and shock energy. The excellent bendability of the HARDOX plate made possible a softer and rounder design. This, together with the sheet s higher resistance to wear, resulted in a significant extension of the life span of the body. Carnehl s new dumper body is therefore now manufactured from SSAB Oxelösund s abrasion-resistant steel HARDOX 45. Through the use of the HARDOX plates s combination of hardness and toughness, the life span of the body was doubled. The weight decrease achieved also made possible an increase in load capacity of slightly more than 5%. In order to improve the total strength of the design and to provide a greater resistance against sudden increases in stress, the chassis frame was also changed. It is now constructed in SSAB Tunnplåt s high-strength steel Domex 69 or in SSAB Oxelösund s high-strength construction steel WELDOX 7, instead of the previous use of an ordinary steel. These improved qualities provide significant added value for the users of the dumper bodies. For the manufacturer, Carnehl, there is also the added advantage that the new dumper body can be manufactured at lower

9 Jan-Olof Gustavsson, Bendiro Kennet Olsson, SSAB Tunnplåt The brackets for the tow eye on the Volvo S8 are manufactured from SSAB Tunnplåt s ultra high-strength steel, Docol 14 DP. The co-operation between Bendiro and SSAB Tunnplåt in the development of the new bracket yielded both higher strength and lower weight. Horst Spangenberg, Carnehl Mats Haglund, SSAB Oxelösund Carnehl s new dumper body is manufactured in SSAB Oxelösund s abraison resistant steel HARDOX 45. The co-operation between Carnehl and SSAB Oxelösund resulted in a dumper body with a life span twice that of the previous one and increased load capacity. 7

10 SSAB and the environment Protection of the environment is one of the most important issues facing society. It is the Group s goal to maintain a leading position in the steel industry as well as in the environmental compatibility of its products and processes. These goals are summarised in the Group s environmental policy. The policy emphasises, among other things, a continuing improvement in the environmental qualities of steel products and the use of resource-efficient manufacturing processes which are also technically and commercially viable. The Group employs clear and measurable environmental goals. The environmental work is conducted in an open and objective manner. Investments for an improved environment normally account for 1 15% of the Group s total capital expenditures. Steel a recyclable material Steel plays a significant role in the global economy and is one of the cornerstones in the development of our modern society. Steel can be reused an infinite number of times without its main constituent, iron, losing any of its original qualities. Scrap steel can thus be melted down an unlimited number of times and used in the production of new steel products. Accordingly, steel possesses the fundamental qualities required by a recycling society. There exist highly-developed systems for the collection and recycling of scrap steel. Currently, approximately 4% of the world s steel production is based on such re-cycled scrap steel. Approximately the same percentage applies to the steel production in Sweden. The manufacturing process The steel manufacturing takes place in modern plants using efficient processes. The manufacturing is iron ore-based, which is a pre-condition for the manufacture of the Group s high-strength products. A chemical reduction must take place in order to extract hot metal. Coke is used as the reduction agent and carbon dioxide is therefore formed during the process. There are no commercially feasible alternative means of reduction. When the hot metal is converted to steel it must be cooled, as a stage in the process. Scrap metal is used in the cooling which thus results in an efficient use of energy and natural resources. Metallurgy in the steel operations currently consumes just over 35 per cent of the quantity of iron and steel scrap which is used in steel manufacturing in Sweden. As a result of a high degree of automation and computer-controlled processes, a high level of precision has been obtained in production. The use of materials and energy is thereby made more efficient at the same time as it has been possible to fulfil long-standing demands for reduced emissions into the environment. The products Society is developing towards more resource-efficient production and use of materials. This coincides well with the Group s strategy to develop and manufacture stronger and more resistant steel types. The investments being made in the plate operations are providing the market with access to increasingly durable and strong steels. The life-span of products is increasing and downtimes for the replacement of worn parts are being reduced. In addition, bridges and cranes, for example, can be manufactured from thinner steel. Similarly, the investments being made within the sheet operations are making it possible to manufacture products while consuming less in materials and with maintained or improved functions. For the automotive industry, the ULSAB project has demonstrated that car bodies can be made up to 25% lighter using the new steels. This reduces the automobiles fuel consumption which results in an improvement in the environment. Informing customers and other interested parties regarding the environmental quality of the steel is becoming an ever more important part of marketing. In 1997, work was begun to produce environmental product specifications for the Group s products. This work continued in 1998, and additional products have been furnished with environmental product specifications. The specification provides the customer with an opportunity to evaluate the steel from an environmental perspective and to utilise life-cycle analyses in order to find the product or design which is least detrimental to the environment during the life of the product. Transportation Transportation of raw materials and finished products affects the environment. During the year, a policy was established regarding transportation ope- 8

11 Processed by-products from steel production have several areas of use. For example, blast furnace slag which has been air cooled is an excellent road construction material. The by-product, Merit 5, gives cement unique and significantly improved qualities and is used in, among other products, roofing tiles. Reduced iron oxide is used in the igniting mixture in matches, and is used together with other metal oxides in the manufacture of ferrite magnets. rations within SSAB Tunnplåt. The policy points out, among other things, the importance of using means of transport involving low energy consumption, that the means of transport should depend on the distance involved, and that transportation capacity should be utilised. The steel operation s transportation is already adapted to a large degree to result in a low environmental impact. The transportation of the raw material take place almost exclusively by rail or boat. Approximately 85% of the deliveries of finished steel products to customers are made by rail or boat. The extensive transportation of steel slabs from the steel mills in Luleå and Oxelösund to the hot rolling strip mill in Borlänge takes place exclusively by rail. The possibility to utilise return capacity is exploited to the greatest possible degree. By-products The overriding goal with the by-products activities is to minimise the quantities that are discarded and to seek commercial uses for the by-products for re-use or recycling. The steel production generates 1.9 million tonnes of by-products annually, of which approximately 9% are recycled or processed into various products. In those cases in which disposal or intermediate storage of by-products must take place, this is done in an approved and supervised manner. For many years, SSAB Merox has worked to increase the degree of recycling and processing of by-products. Processed by-products are sold on a competitive market in which the functionality of the material is the central focus. These products are used within, among others, the electronics industry, as road construction and ground stabilisation materials, as well as in paint pigments and cement raw materials. Active environmental work The environmental conditions for the Group s steel operations are subject to public scrutiny. Consultations with, among others, public authorities and persons living in the vicinity of operations are a regular feature when determining which environmental conditions should apply to steel production. Recurrent reviews and new permits have gradually resulted in the steel industry being subject to strict environmental conditions which, in many cases, are more stringent than those which apply to foreign competitors. Emissions are monitored through a large number of measurements. The results are 9

12 public and are submitted to the relevant authorities for their supervision. Co-operation with interested parties takes place, among other things, through meetings with representatives of municipalities, County Administrative Boards, and the Swedish National Environmental Protection Agency. The Group is represented in various air and water protection associations and also participates in the Agenda 21 work. In order to study the environmental effects and changes in the areas surrounding the steel facilities, various types of studies are conducted regarding, inter alia, air and water quality. The Group carries out active environmental work with the aim of developing and securing the operations in order to minimise the effect on the surrounding environment. The work covers emissions into the air and water, savings of energy and raw materials, the handling of by-products and chemicals, risk analyses, preparedness for environmental accidents, etc. Within the Group, there are effective systems for the sorting at source of, among other things, paper, plastics, batteries, fluorescent tubes, corrugated cardboard, waste oil, and oil filters. In many cases, the processes and the products are developed based on a life cycle perspective. The managers of the respective subsidiaries are responsible for ensuring compliance with the Group s environmental policy. At the steel plants, there are special environmental protection departments charged with monitoring, auditing, and giving advice on environmental matters. There is an environmental council for the co-ordination of such work within the Group, as well as within the steel industry in general. The Group applies many significant portions of the established environmental guidelines systems EMAS and ISO 14. The current environmental guidelines system will be supplemented in order to meet the requirements for EMAS and 1SO 141 registration in the year 2. The Group has a comprehensive network in order to follow research and development within the environmental area and participates actively in several projects regarding industry-specific research within the Swedish Ironmasters Association and with Swedish institutes and universities. In addition, the Group has an extensive contact network with other companies in the industry, both in Sweden and abroad. Comparisons with other steel manufacturers show that the environmental work is at a high level from an international perspective. Material and energy balance During the year, 3.4 million tonnes of crude steel were produced which were processed to 3. million tonnes of finished products. The following figure illustrates the material and energy balance for the manufacture of 1, kilograms of finished products. Environmental events during 1998 During the year, waste heat was collected within the steel operations corresponding to the energy content of almost 21, cubic meters of fuel oil annually. This waste heat is converted to distance heating and electricity. Distance heating accounts for more than 9% of the energy requirements in the distance hea- Particles.42 (.55) kg SO 2.41 (.54) kg NOX.54 (.52) kg CO2 1,5 (1,8) kg Iron raw materials 1,6 kg Alloying elements and slag-formers 135 kg Coal 68 kg Energy (oil, electricity and LPG) 93 kwh Material and energy balance in the steel operation 1998 (per produced tonne of finished product) Suspended solids.72 (.54) kg Oxygenconsuming substances.59 (.59) kg Oil and grease.127 (.8) kg Steel 1, kg Waste products for recycling 65 kg Waste products to disposal 8 kg Energy for electr. end heat product. 75 kwh 1

13 ting network within the Luleå and Oxelösund municipalities, and approximately 1% in the Borlänge municipality. Emissions from operations remain at a low level. The figures set forth on the opposite page illustrates the emission of particles and sulphur dioxide into the air, as well as oil and grease into the water. During the year, several changes in the operations were made which resulted in a decreased impact on the environment. In Luleå, the construction was commenced of a new facility for the handling of raw material for the blast furnaces. The facility will be placed into operation in the middle of Together with the ongoing conversion of the equipment for the repouring of molten hot metal, these investments will, among other things, result in decreased emissions of dust. In Borlänge, a new facility is being built for the recycling of chlorhydric acid and the extraction of iron oxide. The facility will be brought into operation in 1999 and will increase selfsufficiency in chlorhydric acid for the impregnation of hot-rolled sheet, increased recovery of iron oxide, and reduced emissions into the surrounding environment. In Oxelösund, the processing of water and sedimentation has improved in conjunction with the entry into operation of the new four-high rolling mill. Continued reinvestments in the coke plant s byproduct plant have, among other things, resulted in significantly lower levels of emissions of sulphur dioxide. During the year, the steel operations received seve- Permited annual production volumes SSAB SSAB In thousand tonnes Oxelösund Tunnplåt Coke 53 8 Hot metal 1,7 2,3 Crude steel 1,9 2,5 Hot-rolled plate / sheet 82 2,8 Cold-rolled sheet 1,2 Hot-dip galvanized sheet 3 * Aluminium-zinc coated sheet 25 Organic-coated sheet 25 * During 1998 a temporary permit was granted for an additional 2, tonnes. ral new environmental permits. In Oxelösund, a permit was received for the construction of a new barge dock, and in Borlänge a permit was obtained for a temporary increase in production of pickled hot-rolled-sheet. In addition, the Group obtained a permit from the Environmental Protection Licensing Board for increased steel production in Luleå. The decision is subject to new conditions for the operation. The conditions are, in the main, deemed capable of being fulfilled, but some of them will be the subject of an appeal. The steel operations applies a total of more than 17 conditions for its business. These are of various natures and set forth, among other things, values for guidelines, limits, and goals, or requirements for supplementary studies. Permits within the steel operations in respect of permitted annual production volumes are summarised in the table below: Emissions from the operations are, in most cases, significantly lower than the limits set by the public authorities. In one case, however, disruptions occurred which resulted in a limit being exceeded during the year. Measures were taken which resulted in the emission in this case being, at the end of the year, approximately 35% below the limit. Group companies were not involved in any environmentally-related disputes during the year. The Group possesses liability insurance which covers damage to third parties and environmental damage insurance, as required by law. Taxes and fees The total energy and environmental tax burden during the year amounted to SEK 69 million. If the operations were taxed in the same manner as other steel works within the EU, the tax burden would be approximately SEK 5 million lower. Particles Sulphur dioxide Oil and grease Kg/t Kg/t Kg/t

14 The SSAB share Redemption of shares In June, a redemption of shares was carried out. During the spring shareholders were invited to redeem every eighth share at a price which was just over 25% higher than the stock market price. Following the application period, the redemption price was fixed at SEK 28 per share. In total, 15.9 million shares were notified for redemption, corresponding to 99.3% of the maximum number of shares which could have been redeemed. Accordingly, in total shares were redeemed for SEK 3,35 million. There was lively trading in the redemption rights during the application period. 44% of the outstanding redemption rights were traded at prices between SEK 5. and SEK 6.5. Share capital Following the redemption, the share capital amounts to SEK 2,83 million divided into million shares with a nominal value of SEK 25 each million shares are class A shares and 3.2 million shares are class B shares. All shares are non-restricted. Each class A share entitles the holder to one vote and each class B share entitles the holder to one-tenth of one vote. Dividend The proposed dividend amounts to SEK 4.5 per share, corresponding to slightly more than 5% of the profit after tax. Since 1989, the dividend has thus corresponded, on average, to 31% of the profit after tax, which is well in accordance with the Group s dividend policy. Share Price Lowest / highest A-shares B-shares General index of Affärsvärlden Number of shares traded per month SEK Million SSAB on the stock exchange Since 1989, the shares have been listed on the A-list of the Stockholm Stock Exchange, and since 1994, listed among the most actively traded stocks. A trading unit consists of 2 shares. During the year, shares were traded at a value of SEK 8,4 million. Trading in SSAB shares took place on all exchange days at an average value of SEK 35 million per exchange day. Almost 6% of the outstanding shares during the year were traded, which was just under 1% of the total turnover on the Stockholm Stock Exchange A-list. The trading per month during the past five years is set forth in the diagram below. The lowest trading price for the share during the year was SEK 65 and the highest price was SEK 172. At the end of the year, the SSAB s exchange value amounted to slightly more than SEK 8,6 million. Since the spring of 1994, Optionsmäklarna has issued put and call options. Shareholding structure At the end of the year, Robur aktiefonder was the largest shareholder in terms of capital, followed by Industrivärden, the Fourth AP Fund, and SPP. Since 1994, Industriväden has been the largest shareholder in terms of voting capital. Foreign ownership has declined from 21% to 13%, while both Robur aktiefonder and Industrivärden have increased their shareholdings. The number of shareholders declined somewhat during the year and, at year end, was 34,8 (38,7). Of these, 32,6 shareholders own 1, shares or less. The ten largest institutional owners own just under 6% of the shares. 12

15 Changes in the number of shares and share capital since 1989 Change in Number Change in share Share capital Year no. of shares of shares capital (SEK m) (SEK m) 1989 Conversion +1,5, 26,5, +15 2, Conversion + 5,5, 32,, , Split 4:1 + 96,, 128,, 3, Redemption 15,891, ,18, ,83 Data per share Trading price, class A Dec. 31, SEK Profit, SEK P/ E ratio Equity, SEK Dividend, SEK Yield, % ) Data per share have been recalculated as a consequence of the split at 4:1 which was carried out in ) Calculated on an average number of shares, million. 2) The redemption in 1998 reduced equity per share by SEK ) Pursuant to the proposal by the Board of Directors. Largest shareholders Share in % of: capital votes Robur aktiefonder Industrivärden Fourth AP Fund SPP Skandia LKAB AMF Pension Handelsbanken fonder WASA AMF Försäkring Foreign shareholders Other shareholders Total Analyses During the year, the following banks and investment brokers, among others, published analyses of SSAB: Alfred Berg Aragon Aros Carnegie CI Nordic Den Danske Bank Den Norske Bank Deutsche Morgan Grenfell Dresdner Kleinwort Benson Enskilda Securities H. Lundén Fondkommission Hagströmer & Qviberg Handelsbanken HSBC Matteus Merrill Lynch MeritaNordbanken Paribas Salomon Smith Barney Société General Swedbank Warburg Dillon Read Distribution of shares Shareholding Number % of all shareholders % of share capital , , 3, ,1 5, 1, ,1 1, ,1 5, ,1 1, , Total 34, The tables illustrating the largest shareholders and the distribution of shares are based upon information obtained from VPC on December 31,

16 REPORT OF THE DIRECTORS Group review International review According to the International Iron and Steel Institute (IISI), world steel consumption decreased by 1% from the record level in Steel consumption was thereby 69 million tonnes, which is the second highest level ever recorded. Development has been decidedly different on various markets. Steel consumption increased 5% in Western Europe, 4% in the United States, and 1% in China. On all three of these markets, steel consumption reached its highest level ever. On most Asian markets, however, steel consumption decreased considerably by 15% in Japan and by almost 35% in South Korea. The decrease in steel consumption in Asia resulted in a large change in the global trading flow in steel. Exports to Asia from Western and Eastern European steel producers decreased at the same time as exports from Asian steel producers, primarily to the United States and Western Europe, increased. Western Europe, which for some time has been a major net exporter, became a net importer of steel in 1998 and, in the Steel consumption Millions of tonnes Change in % EU Other European countries Former Soviet Republics 3 3 North America Japan China South Korea Other Asian countries Other countries Total Source: IISI United States, steel imports increased to their highest level to date, slightly more than 31 million tonnes. China has experienced an extremely rapid increase in consumption during the entire 199s. During the last ten year period, steel consumption has more than doubled. China s share of the world market during the same period increased from 9 just over 16%. Also in the United States, steel consumption has increased considerably during the 199s. Following the recession year of 1991, steel consumption has increased by more than 5%. In the former Soviet Union, steel consumption decreased significantly at the end of the 198s. This market has decreased its share of the world market from 2 to 4%. Consumption during the year remained at a low level. World production decreased by 2% and amounted to 775 million tonnes of crude steel. Since 199, production in the former Soviet Republics has decreased by just over 5%, while production in developing countries continues to increase. The European market Demand for steel, which continued to be strong during the first half of the year, peaked at around the end of the first half of the year and thereafter weakened during the autumn. The upswing in the economy which started in the spring of 1997 was thereby short-lived, but nonetheless led to higher levels of steel consumption in Western Europe in 1998 than ever before. The changed trading flow in steel led to a sharply increased supply which, at the beginning of the year, could be absorbed by an increase in demand. At the end Crude steel production Western Europe North America Eastern Europe incl. Sovjet Asia Steel consumption in the USA Steel consumption in Western Europe Other countries Mt Mt Mt

17 of the second quarter, however, increases in supply caused pressure on steel prices which resulted in gradual price decreases on most steel products during the second half of the year. Utilisation of capacity in the Western European steel industry continued to be at high levels during the first half of the year. At the end of the year, however, the steel companies decreased their production in order to achieve balance on the market. The decreases in production resulted in the utilisation of capacity in the steel industry within the EU only amounting to just under 8% during the last two months of the year. However, the high utilisation of capacity during the first half of the year resulted in crude steel production being almost 1% higher than The Swedish market The trends in Sweden were similar to those of Western Europe in general. Steel production is estimated to have increased by 7%. The market for sheet is estimated to have increased by almost 1%, to approximately 1,9, tonnes, and the plate market by just over 1%, to approximately 22, tonnes. Deliveries to the Swedish market by the Group s steel operations decreased by 4%, among other things as a consequence of limited supplies of plate. The market shares for sheet and plate thereby dropped to slightly over 4%. Sales It was possible to increase prices on the group s steel products during the first and, in certain cases, also during the second quarter. At the end of the second quarter, however, prices for steel in Western Europe generally became subject to pressure and it has been necessary to accept price decreases on primarily hot and cold rolled sheet. However, prices for quenched steels within the plate operations have been stable during the second half of the year. In Swedish kronor, the Group s steel prices at the end of the year were 7% lower than at the end of the second quarter and were thereby back to approximately the same level as at the end of The price trend in Swedish kronor is set forth in the diagram below. The price trends resulted in the Group s steel prices in Swedish kronor being on an average 9% higher than during Approximately 3 percentage points of the increase is a consequence of the weaker Swedish krona. A number of minor disruptions in the sheet operations, as well as low levels of production during the start-up and breaking in of the new four-high rolling mill, led to decreased delivery volumes during the first three quarters of the year. During the last quarter, low Sales per operating area SEK millions 1997 % 1998 % Steel operations 11, , Processing operations 1, ,155 6 Trading operations 6, , Group adjustments 1,384 1,459 Total 17, , numbers of orders received resulted in a decrease in the production of sheet. This resulted in deliveries by the steel operations decreasing during the year by 8%, and amounting to 2,381, (2,62,) tonnes. Steel consumption in Sweden Steel consumption in Sweden Moving 12 months Price trend Index 1 = 1988 quarter kt 3,5 3, 2,5 2, 1,5 1, kt 3,5 3, 2,5 2, 1,5 1, Index

18 Sales per geographic region SEK millions 1997 % 1998 % Sweden 8, ,91 5 Denmark 1, ,59 9 Finland Norway Germany 1,32 8 1,289 7 Great Britain 1,2 6 1,98 6 Italy Benelux countries Other EU countries North America Other regions Total 17, ,835 1 For the trading operations, which are dependent on the Swedish market, demand was relatively stable but weakened somewhat for, among other products, long products during the second half of the year. The delivery volumes for steel and metals were, however, 4% higher than in 1997 and, in total, sales in the trading operations increased by 3%. Sales per operating area are set forth in the table below. An increased prioritisation of the domestic market resulted in a decrease in the steel operations exports sales and, measured in volume, this was slightly more than 6 (65)% of sales. However, for the Group as a whole, the share of exports remained unchanged at 5%, as is evident from the following table showing sales per geographic region. In total, the Group s sales increased by 2%. Higher prices contributed by 4 percentage points while lower volumes contributed with a decrease of 2 percentage points. Cost structure and cost trends Costs in the operations increased to SEK 16,813 (16,17) million. Of this, approximately SEK 4, million related to the purchase of products for resale which are not produced by Group companies. These are primarily sold by the Group s trading company Tibnor. The remaining costs of approximately SEK 12,8 million consist of manufacturing costs, depreciation, and costs for raw materials and energy. Manufacturing costs consist primarily of costs for personnel and services. These costs are, to a great extent, related to wages. Productivity in the steel operations was affected negatively by a number of minor disruptions in the sheet operations and to the start-up of the new fourhigh rolling mill. The number of man hours per tonne remained unchanged however at 3.5. The extensive investment operations as well as the disruptions in the steel productions resulted in increased costs, especially for services purchased. This contributed to an increase in manufacturing costs by 5%. A number of projects have been started up during the year in order to reduce these costs. Depreciation increased to SEK 88 (789) million as a consequence of the current major investment programmes in the steel operations and in SSAB HardTech. In the manufacture of sheet and plate, approximately one half of the costs are related to raw materials. Agreements in respect of prices and deliveries for iron Cost structure Sales Crude steel production Depreciation 5% Raw material 28% Purchased products 24% SEK m 17,5 15, 12,5 kt 3,5 3, 2,5 1, 2, 7,5 1,5 Energy 5% Manufacturing costs 38% , 2, , 5 16

19 ore and coal are entered into on an annual basis at the beginning of the year. Alloys, however, are mostly purchased on a quarterly basis. Raw materials are priced on the world market and the prices, which are primarily quoted in USD, are greatly dependent on the state of the steel market. Coal and iron ore are the dominant raw materials. Calculated in USD, the price of coal decreased while the price of iron ore increased. However, a weaker Swedish krona resulted in an increase in the costs of iron ore and coal by 8%. The costs for alloys were largely unchanged. The Group s cost structure is illustrated by the adjacent diagram. Energy Coal is a raw material in iron ore-based steel production. Coal is an essential reduction agent in order to remove oxygen from the iron ore. Coal is also the basis for most of the energy, approximately 85%, provided for the steel operations. Energy is otherwise provided by electricity, oil, and LPG. In total, the steel operations in 1998 consumed 1,38 GWh of electric power as well as 1,4 GWh of oil and LPG. Through the utilisation of the energy-rich gases which arise during steel production, electricity is produced by the half-owned energy company, Lulekraft, and in the OK3 power station in Oxelösund. During the year, these facilities produced 65 (6) GWh of electricity which was used in the steel operations. In total, energy costs (excluding coal) increased to SEK 746 (692) million. Included in the costs are various taxes amounting to SEK 69 (54) million. SEK millions Sales 17,474 17,835 Costs 15,6 15,648 Depreciation Affiliated companies Operating profit 1,763 1,355 Financial items Profit 1,96 1,424 The year 2 During the past two years, comprehensive work has been carried out in identifying and implementing necessary changes in the Group s administrative information systems and production control systems in order to ensure the functioning of these systems at the turn of the millennium. This work is expected to be complete in all significant respects at the end of June Changes in operating profit Steel operations SEK millions Improved margins + 4 Decreased volumes 35 Trading and processing operations Weakened margins 175 Increased volumes +75 Increased processing costs 275 Increased depreciation 91 Non-recurring items 48 Miscellaneous + 56 Change in operating profit The total cost for necessary programming is estimated to amount to just under SEK 3 million, of which slightly more than SEK 1 million affected the year s earnings. Steel production Profit after financial items Moving 12 months Currency flows EUR =Currencies within the Euro-block Sheet Plate Inflows Outflows SEK m kt SEK m 4, 3,5 3,5 3, 3, 3, 2, 2,5 2,5 1, 2, 2, 1,5 1,5 1, 1, 1, 2, 5 5 3, , USD EUR DKK GBP NOK Others 17

20 The Euro Prior to the introduction of the Euro, a review was carried out of its effects on the Group s operations. Price transparency on the steel market is already significant, and the Euro s introduction is therefore not expected to result in any significant increase in this. The preparations have therefore been concentrated on adapting systems and routines for handling the new currency. Profits The operating profit was SEK 48 million lower than in 1997 and amounted to SEK 1,355 (1,763) million. As is apparent from the table below, improved margins in the steel operations and increased volumes in the trading operations contributed by SEK 475 million, while decreased volumes in the steel operations, weakened margins in the trading operations, and increased processing costs and depreciation lowered profits by just under SEK 9 million. Operating profit includes non-recurring items totalling SEK 2 (68) million. In addition, the operating profit includes an allocation in the amount of SEK 34 (94) million to the Group s profit sharing system. Return on the Group s liquid funds increased to 5.9 (4.5) %. Despite the higher return, net financial items dropped to SEK 69 (143) million as a consequence of the redemption of shares in the amount of SEK 3,35 million which was carried out at the end of the second quarter. The profit after financial items decreased therefore by SEK 482 million to SEK 1,424 (1,96) million. Profitability and equity ratio The decline in profit resulted in a decrease in the return on capital employed before taxes to 11 (14) % and on the shareholders equity after taxes to 8 (11) %. Return on operating capital was 12 (18)%. Following the redemption of shares, the equity ratio dropped to 58 (7)%. Dividends The Group s dividend policy provides that dividends shall be adapted to the average profit level over an economic cycle and that dividends, on a long-term basis, shall constitute one third of profit after taxes. It is proposed that the dividend remain unchanged at SEK 4.5 per share, resulting in a total dividend of SEK 54 million. Foreign exchange Sales in export markets occur primarily in local currencies. Therefore, export sales create inflows of mainly West European currencies and US dollars. Purchases of raw materials, primarily iron ore and coal, occur in US dollars. Other currency outflows are a result of major investments which partially occur in foreign currencies, primarily DEM. In total, this means that the Group has a net inflow of all currencies except USD. The net inflow of foreign currencies increased to SEK 3,6 million, of which approximately 3% consists of currencies within the Euro block. The Group s most significant currency flows are set forth in the adjacent diagram. The Group s currency risks are managed by SSAB Investments in plants and depreciation Liquid assets Cash flow Depreciation SEK m SEK m SEK m 2, 4, 2, 1,75 3,5 1,5 1,5 3, 1, 1,25 2,5 5 1, 2, 75 1, , 1, , , 18

21 Finance, the Group s internal bank. The subsidiaries hedge their contracted currency flows with this internal bank. To the extent that these flows cannot be offset against other currency flows, SSAB Finance covers the currency risks, primarily through forward contracts. Since the order stock for the steel operations normally only corresponds to approximately seven weeks production, this means that changes in currency rates affect the profit relatively quickly. Changes in exchange rates between 1997 and 1998 resulted in a positive effect on profit of approximately SEK 1 million. Taxes Taxes for the year in the amount of SEK 427 (536) million consist of corporate income taxes of SEK 274 (359) million, deferred taxes on transfers to untaxed reserves for the year in the amount of SEK 142 (157) million, and a share in taxes for affiliated companies in the amount of SEK 11 (2) million. The effective tax rate for the Group was 3. (28.1) %. Investments The investment operations were dominated by the three pending strategic investment projects: General Plan OX 2 in the plate operations, Development Plan Domex 2 within the sheet operations, and the construction of a production unit for safety components for automobiles within SSAB HardTech. Funds statement SEK millions Cash flow from operations + 2,24 + 2,2 Change in working capital Investment activities 2,21 2,21 Cash flow Financing activities 359 2,212 Changes in liquid assets 613 2,827 General Plan OX 2 comprises investments totalling SEK 1,65 million including a new four-high rolling mill and a finishing line for plate in thin dimensions as the largest projects. These investments are aimed at creating conditions for continued expansion within the area of quenched steels. The capacity in the four-high rolling mill is being increased by approximately 6%. In addition, it will be possible to roll thinner dimensions of plate and improvements will be obtained in surfaces, smoothness, and thickness tolerances. Development Plan Domex 2 comprises investments totalling SEK 1,28 million. The largest investments relate to the installation of a new rougher at the rolling line in Borlänge and a new coal injection facility for the metallurgy in Luleå. The Development Plan Domex 2 will create the conditions for continued expansion within the area of high-strength sheet. The conditions for the production of thinner high-strength sheet are being improved at the same time as the total production capacity is increased by 25%. An expanded dimensions programme is also creating opportunities to further strengthen the position on the domestic market for all sheet products. The development plan for SSAB HardTech involves investments totalling SEK 5 million and comprises, among other things, the construction of a new production unit in the United States. The unit is being constructed in Mason, Michigan close to the automotive industry in Detroit. The new production unit will make it possible to satisfy an increasing demand for safety components. The advantages of the press-hardening technology with narrower tolerances, dimension stability, and weight reduction can continue to be developed in close co-operation with automobile manufacturers in both Europe and the United States. In the beginning of the year, a decision was taken to modernise and expand the large blast furnace in Luleå in order to allow for increased hot metal production to be run in a single blast furnace following the upgrade. The smaller blast furnace in Luleå can thereafter be taken out of operation which will make possible significant improvements in efficiency. The project, which includes investments totalling SEK 85 million, also includes a new raw material handling. Net debt Accounts receivable Inventories SEK m % of sales SEK m % % of sales SEK m % 4, 4, 4 4, 4 3, 3,5 35 3,5 35 2, 3, 3 3, 3 1, 2,5 25 2,5 25 2, 2 2, 2 1, 1,5 15 1,5 15 2, 1, 1 1, 1 3, ,

22 Sales, profit / loss and return on capital employed Sales Operating Profit / loss after Return on profit / loss financial items capital employed, % SEK millions Subsidiaries SSAB Tunnplåt 8,559 8, SSAB Oxelösund 4,172 4, Plannja 1,1 1, SSAB HardTech Dickson PSC Tibnor 6,328 6, Miscellaneous Parent company SSAB Finans Other parent company units* Affiliated companies Group adjustment 3,598 3, Total 17,474 17,835 1,763 1,355 1,96 1, * 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. Among investments decided during the year, there is also a new steel harbour in Oxelösund at a cost of SEK 165 million. The harbour will be placed into operation after the summer of 1999 and will make possible significant improvements in efficiency through the co-ordination of the Group s sheet and plate deliveries via Oxelösund. In total, decisions for new investments were taken amounting to SEK 1,636 (848) million. Net investment Cash flow SEK millions SSAB Tunnplåt SSAB Oxelösund Plannja SSAB HardTech Dickson PSC Tibnor Other subsidiaries Parent company* Total * excluding investments in shares in subsidiaries. payments amounted to SEK 2,21 (2,21) million, of which SEK 1,19 (1,381) million related to the three strategic projects and the blast furnace project. Total remaining payments in these projects amount to just under SEK 1,2 million. Financing and liquidity Accounts receivable decreased as a consequence of decreased sales at the end of the year, and amounted, in relation to the Group s sales, to 14 (15) %. Inventory volumes of slabs and sheets in the steel operations increased during the second half of the year. Balance sheet SEK millions Assets Fixed assets 7,858 9,18 Inventories 3,26 3,95 Accounts receivable 2,58 2,531 Other assets Liquid assets 3,892 1,65 Total assets 18,211 17,126 Equity and liabilities Equity 12,821 9,941 Minority shares Deferred tax and other provisions 1,699 1,851 Long-term liabilities 511 1,289 Current liabilities 3,5 3,886 Total equity and liabilities 18,211 17,126 In relation to sales, inventories were 22 (19)%. The increase in inventory resulted in an increase in operating capital by SEK 614 (437) million. Together with the continued high net investment payments this resulted in a negative cash flow of SEK 615 ( 254) million. Interest-bearing liabilities at year end were SEK 1,644 ( 2,929) million greater than interest-bearing assets. Cash flow in the various operations is set forth in the following table. 2

23 For long-term financing, an MTN (Medium Term Note) programme was introduced during the year totalling SEK 1,5 million. At the same time, the Group s Swedish Commercial Paper Programme was increased to SEK 1,5 million. The Swedish Commercial Paper Programme is placed by Standard & Poor in a rating category of K-1. In addition, there is a Euro Commercial Paper Programme in the amount of USD 1 million. Borrowing within these programmes amounted to SEK 1,83 million at year end. The liquid assets are invested both on the Swedish as well as the international money market. At year end, investments amounted to SEK 685 (3,436) million. Research and development The Group s research and development operations are based on the needs of the market and focus on improving the competitiveness of its customers. Most of the resources are invested in developing new products and improving the characteristics of existing steel and offering customers qualified technical support. Within the steel operations, significant investments are also being made in rendering more efficient processes for the manufacture of steel. The goal, in terms of product and quality, is to be one of the leading steel companies. The costs for the R&D operations amount to just under SEK 1 million, corresponding to.8% of sales in the steel operations. A study conducted by IISI shows that these costs, in relation to sales, are of the same size as those of other Western European steel companies, but that at SSAB a larger share is invested in product development and customer support. Modern steel is often characterised by demonstrating good qualities concurrently in several areas such as strength, formability, high abrasion, weldability, and corrosion resistance. The desire of steel users to introduce new technology and automate their manufacturing methods requires that the steel which is used possesses small variations in its qualities. In this respect, the Group s steel fulfils the great demands placed on it. A contributing factor is that the steel is manufactured in iron ore-based processes. A study, conducted by IISI, shows that the Group s steel products possess low impurity contents as compared with its competitors. The recent major investments in the steel operations are, to a significant extent, a result of the market s demand for improved steel. The new facilities render possible the manufacture of thinner and stronger sheets and plates with narrower tolerances. Customers can use this steels in order to produce products with improved performance, lower weight, and at a reduced cost. Manufacturing throughout the steel operations is carried out with well-tested processes. In addition to further improvements in the performance of the processes, the development work is primarily focused on manufacturing the Group s speciality products with a high degree of efficiency and quality. The aim is to be able to produce speciality products with the same efficiency as ordinary steel. In the manufacture of steel, various types of by-products are produced. Extensive development work is being carried out in order to re-use these by-products in a profitable manner. To an ever greater extent, research and development takes place primarily in co-operation with steel users. In addition, the Group utilises resources at universities and research institutes as well as industry organisations. With regard to strengthening the position of steel as opposed to competing materials, the Group also co-operates with other steel companies. This is currently taking place in, among other areas, a rapidly increasing number of projects within EU research. Of the project proposals which were initiated within the Group, most have been accepted following tough competition from other steel manufacturers and research institutes proposals. Another example of this type of co-operation is ULSAB, where over thirty sheet manufacturers from all over the world have demonstrated the possibilities for steel in achieving an automobile body where the weight is reduced by 25%. The Group will also be participating in the next development phase of this project. The development efforts have resulted in the fact that high-strength steel products constitute approximately 35% of the deliveries as compared with 15-2% for the leading competitors in Western Europe. The goal-oriented development work has resulted in products with positive growth potential. Within the area of high-strength steel, hot-rolled cold-forming steels, as well as quenched, abrasion-resistant steels, and structural steels are well established, but these steels are continually being developed for new areas of application, with improved qualities. Cold-rolled steel and metal-coated sheet are also being developed with higher strength levels for new applications. During the year, orders were received, from among others, the automotive industry for such products. The use of the Group s steel products is supported by providing customers with access to various types of software aides which have been developed within the Group. During the year, WeldCalc, DoSelect, Prelaq School, and a handbook for abrasion-resistant steel, among others, were introduced. These services, which are somewhat unique, are well sought after. Within the Group s processing companies, products are being developed for the construction and automotive industries. Methodical development work within the construction area has resulted in a leading position for the Group in roof, walls, and water drainage products. For vehicle components, the press-hardening technology has been developed in order to render possible additional weight reduction for both existing and new applications. A focus has been made on press-hardened steel strips for bumpers and has resulted in orders from several automobile manufacturers. 21

24 Registered number of employees on 31 December Change in % SSAB Tunnplåt 4,5 4,44-2 SSAB Oxelösund 2,497 2, Plannja SSAB HardTech Dickson PSC Tibnor 1,669 1,73 +4 Miscellaneous Total 9,542 9,584 Personnel The number of employees at the end of the year was 9,584 (9,542). The increase at SSAB HardTech is a consequence of the establishment in the United States. The average number of employees was 9,661 (9,63), of whom 674 (589) were employed outside Sweden. During the past few years, recruitment has been modest. However, a number of younger, well-educated persons have been brought into the Group each year. This has been done in order to acquire skills and to counteract an overly unbalanced age distribution. The latter reason applies not least to administrative personnel. The age structure for white collar and blue collar employees is set forth in the adjacent diagram. Most of the new employees with a recent university education have completed a student engineering programme. The large number of employees due for retirement in coming years means that valuable skills must be replaced. In order to meet future recruitment needs for welleducated employees, co-operation with universities and high schools is continuously being developed. Commencing in 1999, the two first years at the Royal Technical College s materials programme will be situated in Borlänge. This, in combination with industry stipends to students from, among other places, Bergslagen, means that the number of applicants from locations traditionally involved in steel work will in all probability increase. In this way, the future supply of skilled personnel will be facilitated. The market s demands for improved quality, delivery security, and customer adaptation are increasing steadily. Therefore, it is of utmost importance to find organisational solutions in which employees commitment and sense of responsibility can be utilised. During the year, work in developing personnel and the organisation has continued. In SSAB Tunnplåt, for example, approximately 25 employees have discussed the future operations and organisation in groups with participants from various departments. The experience is positive and many excellent suggestions for development efforts and improvements have been received. Innovation work creates new roles for both managers and co-workers and has generated a comprehensive need for skills development. The development of leaders and leadership groups is an area which has been prioritised. As a consequence of a decreased number of firstline managers, and an increased delegation of responsibility and authority to work teams, education regarding group development and problem solving in groups has been significant. In order to assess how efforts to develop new working models, etc., are perceived, opinion surveys are carried out in certain subsidiaries. Aspects such as satisfaction, pride, and commitment have received good scores. Similarly, there is a great interest in participating in the development of the operations. In order to facilitate skills development, adult education at the high school level which is carried out on employees free time has been introduced on a test basis within several units. The company bears the costs of text books and course fees and contributes a certain amount when the participants has completed the studies with satisfactory results. To date, the experience has been positive. Personnel expenses Number of accidents per million working hours Age structure % of sales White collar Blue collar SEK m 3,5 3, 2,5 2, 1,5 1, 5 % Age No. 22

25 The Group continually invests in safer production routines. In conjunction with new and replacement investments, the working environment is further improved. In combination with education, information, and a continuous commitment to working environment issues, this has resulted in the fact that the number of accidents during recent years has remained at a low level. All employees of the Group participate in a profitsharing system. The system was commenced in 1994 and in 1998 gave an employee who worked full time a profit share of approximately SEK 3,3. The share of female white collar employees was 24 (24) % and blue collar female employees was 11 (11)%. Turnover in personnel continued to be low and amounted to 6 (4) %. Absenteeism as a consequence of illness amounted to 3 (2) % for white collar employees and 7 (6) % for blue collar employees. As a result of the low turnover in personnel many employees have worked a large portion of their professional lives within the company. The average employment time is slightly more than 2 years. In the heavy processing segments within the steel operations (coking plants, blast furnaces, steel mills, and rolling mills) continuous operations are necessary in order to maintain high utilisation of capacity. Work at these facilities is conducted in shifts. Approximately 4% of the employees in the steel operations work in some form of shift, primarily so-called 5-shifts. Shift work is not as common within the processing and trading operations (approximately 1% work in shifts). The total cost for salaries and payroll taxes and levies amounted to SEK 3,655 (3,562) million, which corresponds to 2 (2) % of sales. The Group will, in the future, benefit from the pension insurance company SPP s over-consolidation, which will reduce future pension costs. Forecast for 1999 Steel prices in Western Europe continued to be under pressure prior to the first quarter of Thus, it was necessary to accept price reductions on most steel products. The prices for the speciality products, highstrength sheet, and quenched steels, however, demonstrate a significantly greater stability than other more standard products. In January, the Group s steel prices in Swedish kronor were 8% lower than during the fourth quarter, and were thereby just over 1% lower than the average prices for The decreased supply from Western European steel companies has, however, resulted in a significantly improved balance on the market. Even prices for raw materials for the steel industry (iron ore, coal, scrap, and alloys) are under heavy pressure which will lead to probably significant price reductions. These price reductions, however, are not expected to be able to compensate for the effect of lower steel prices and therefore the margins in the steel operations are expected to decrease in During 1998, disruptions in production in the steel operations curtailed deliveries from time to time. The investments which have now been completed in the steel operations will create the conditions for stable operations and thereby improve productivity as well as continued growth in the area of high-strength sheet and quenched steels in Sensitivity analysis The Group s profit is significantly affected by the development of prices and volumes within the steel operations, volumes and margins within the processing and trading operations, and cost trends for salaries and raw materials, as well as by changes in currency rates. Changes in these quantities are often very large. During 1998, steel prices increased, for example, by almost 1%, while in 1996 they decreased by 15%. The approximate effect in 1999 of changes in the above-stated factors on profit after financial items and on earnings per share is set forth in the table below. Sensitivity analysis Profit Effect on Change effect, SEK earnings per in % millions share, SEK Prices, Steel operations 1 1, 6.4 Volume, Steel operations Volume, Trading operations Margins, Trading operations 2%-pts Wage and salary costs Prices, raw materials SEK index

26 SSAB Tunnplåt Curt Johansson, President SSAB Tunnplåt Key ratios SEK millions Sales 8,146 8,559 8,754 Profit Capital expenditures ,18 Capital employed 4,53 4,681 5,584 Return on cap. empl. (%) Number of employees 4,623 4,621 4,56 See note 2 for definitions Share of the Group s value added 49% Profit after financial items profit after financial items 51% Cash flow SEK m 1,75 1,5 1,25 1, capital employed 43 % SEK m 1,25 1, SSAB Tunnplåt is the largest manufacturer of steel sheet in the Nordic region and one of the leading companies in Europe within the area of high-strength products. Following the completion of the investment programme, production capacity amounts to approximately 2.8 million tonnes per year. The coking plant, blast furnaces, and steel plant with continuous casting lines for the manufacture of slabs are located in Luleå and rolling mills for the production of sheet and facilities for coating and subsequent treatment are situated in Borlänge. In the coking plant, coal is converted into blast furnace coke which, along with iron ore, comprise the raw materials for the manufacture of steel. The metallurgy unit is completely based on iron ore in the form of pellets from LKAB. The ore possesses low impurity quantities which is an important prerequisite for end products of high and uniform quality. All steel for sheet manufacturing is cast into slabs which are then shipped by rail for sheet production in Borlänge. Just over 1% of the steel is delivered in fluid form to Inexa Profil in Luleå, which contributes to the high-capacity utilisation of the blast furnaces and steel mill. The metallurgy capacity in Luleå is not sufficient to supply all sheet manufacturing needs. The remaining slab required (approximately 3%) is therefore purchased from the affiliate SSAB Oxelösund. The slab is hot-rolled to sheet in Borlänge. During the year, approximately half of the sheet is further processed by cold-rolling and about 5% is subsequently coated with a layer of zinc or an aluminium-zinc alloy. Approximately 19 thousand tonnes of the metal-coated sheet is organic-coated in Borlänge or Finspång. Just over 3% of the total sheet volume comprised of highstrength qualities. The product range includes sheet in the thickness range.1 16 mm with a maximum width of 1,6 mm. The products are marketed under the trade names Domex, Docol, Dogal, Dobal, Aluzink, and Prelaq. SSAB Tunnplåt s strategy is based both on increasing the share of high-strength hot- and cold- rolled sheet and maintaining a commanding position for all sheet products on the domestic market. Sheet with higher strength can be used by customers to replace existing steel with a steel which is lighter but performs the same functions. High-strength sheet is used, among other things, in the automotive industry and by crane manufacturers. Especially within the high- 24

27 strength hot-rolled sheet area, SSAB Tunnplåt is one of the leading manufacturers in Europe. The main competitors are Thyssen Krupp Stahl and Usinor. Ordinary sheet is used primarily within the engineering, construction, and automotive industries. Competitors within these segments consist of most western European steel companies. The subsidiaries, SSAB Dobel Coated Steel in England, SSAB Prelaq in Holland, SSAB Sino Staal in Denmark, and SSAB Teräs-Taive in Finland, have processing lines for organic-coated and metal-coated sheet. The subsidiary SSAB Swedish Steel in Italy manufactures mainly high-strength, hot-rolled sheet. The affiliated company, European Electrical Steels (EES), is one of the largest producers of electro-plate in Europe with production units in Newport, South Wales and in Surahammar, Sweden. The market Sheet is the largest product group within the commercial steel sector and constitutes just over half of the Scandinavian market for commercial steel. The price situation for sheet is relatively similar on the larger markets in Europe. Demand for sheet was strong during the first half of the year on both domestic and export markets, but peaked at the end of the first half of the year. Consumption of sheet in Sweden is estimated to have increased to approximately 1,9, tonnes. In the rest of Western Europe, consumption increased somewhat to approximately 8 million tonnes. The price of ordinary sheet was under pressure at the end of the second quarter and declined during the third and fourth quarters. The price for high-strength sheet was however less affected by the general decline. Taken High-strength sheet is used in applications in which high strength in combination with low weight is required. The high-strength steels are used in, among other areas, the automotive industry and by crane manufactures. SSAB Tunnplåt manufactures sheet in thicknesses from.1 mm to 16 mm in widths upp to 1,6 mm. The production line includes both hot and cold-rolled as well as metal and organic-coated sheet. Just over 3% of the sheet is high-strength sheet. together, this meant that average prices (measured in Swedish kronor) were 9% higher than in Deliveries were approximately 5% lower than in The share of exports decreased somewhat to 61 (62)%. The largest export markets, Germany, Denmark, Italy, Great Britain, the United States, and Norway accounted for an unchanged 7% of exports. Deliveries of the leading products, high-strength hotand cold-rolled sheets, increased by 3% and accounted for approximately 32% of deliveries during the year. Production Production within metallurgy was at a high, stable level Change Kt /98 Coke % Crude steel 2,13 1,849 1,935 +5% Hot-rolled 1,43 1,6 1,9 5% Cold-rolled % Metal-coated % Organic-coated % 25

28 within the area of high-strength sheet. The new rougher was installed during the summer holidays and final assembly was carried out during the autumn. Test rolling started in October, somewhat earlier than planned. The fine tuning of the various functions has proceeded better than anticipated. The coal injection facility was brought into production at the start of the year at the same time as the new oxygen plant which AGA has built beside the metallurgy unit in Luleå. A fifteen year supply agreement has been signed with AGA. In total, these investments (Development Plan Domex 2) will result in a significant improvement in the conditions for the production of thinner dimensions of high-strength steel, while at the same time the total production capacity is being increased by 25%. At the beginning of the year, a decision was taken to modernise and expand the large blast furnace in Luleå so that, after the expansion, it will be possible to achieve an increase in hot metal production using only one blast furnace instead of the present two blast furnaces. This will mean a considerable increase in efficiency. The measures, which also include a new raw material processing facility, will be completed during the summer of 2 and involve total expenditures of SEK 85 million. during the greater part of the year. Towards the end of the year, however, the rate of production was reduced since profitability in external slab transactions declined, rendering such transactions unfeasible, at the same time as demand for sheet declined. In total, however, crude steel production increased by approximately 5% to 1,935, tonnes. Deliveries of crude steel to Inexa Profil increased somewhat and amounted to 242, (225,) tonnes. Production in the hot strip mill amounted to 2,146, tonnes, a decrease of just under 3%. The reduction was due both to minor disruptions, which were partly due to the major investment projects, and to a decrease in the pace of production towards the end of the year as a result of the decrease in demand. Profit Profit declined by SEK 11 million to SEK 722 million. The decline in profit was primarily due to lower volumes. The profit includes non-recurring items totalling SEK 2 ( 36) million. Capital expenditures In 1996, a decision was taken to invest SEK 1,28 million in, inter alia, a new rougher in the hot rolling strip mill in Borlänge and a coal injection facility at the metallurgy unit in Luleå. Through these investments, the opportunity is provided for continued expansion Product and process development During the year, demonstration car bodies from the ULSAB (Ultra Light Steel Auto Body) project, in which SSAB Tunnplåt is participating together with some thirty steel companies, have been shown to automotive manufacturers and the general public, among other things, in conjunction with automotive trade fairs. The project has demonstrated that it is entirely possible, using high-strength steel and modern welding technology, to manufacture safer and lighter automobiles. The demonstration car bodies are approximately 25% lighter than corresponding conventional reference car bodies and, from a safety perspective, have a significant improvement in torsional rigidity of approximately 8%. It is estimated that it will be possible to produce the car bodies at a cost which is somewhat lower than that for conventional car bodies. Within the metallurgy area, work has been concentrated on the creation of an even and stable production process in order to facilitate further improvements in quality Effective time control of production is of primary importance and, therefore, production development has been aimed at measures for improving time control. Development of sheet products is aimed primarily at achieving new high-strength sheet qualities and new applications for high-strength sheet. A moulding manual was produced during the year in order to help customers best utilise the advantages of the modern highstrength steels. 26

29 SSAB Oxelösund Dan Johansson, President SSAB Oxelösund Key ratios SEK millions Sales 3,664 4,172 4,57 Profit Capital expenditures 636 1, Capital employed 2,53 3,228 3,726 Return on cap. empl. (%) Number of employees 2,487 2,422 2,439 See note 2 for definitions Share of the Group s Profit after financial items value added 25% SEK m profit after financial items 13% Cash flow capital employed 29% SEK m , SSAB Oxelösund is the world s leading manufacturer of quenched steels. Quenched steels refers to plate with extra-high strength and good weldability, in combination with high abrasion-resistance and good formability. The main products within quenched steels are abrasionresistant steels, HARDOX, and construction steels, WELDOX. Manufacturing in Oxelösund is carried out in an integrated process from iron ore to finished plate. The plants include a coking plant, blast furnaces, a steel mill, and continuous casting lines for the manufacture of slabs, as well as a rolling mill for the production of plate in the thicknesses mm and widths of up to 3,5 mm. The metallurgy is iron ore based and the ore supply consists of pellets from LKAB. Slab production capacity is approximately 1.6 million tonnes. Slightly less than one-half of the slabs are further processed into plate. During the year, just over 2, tonnes were sold to customers outside the Group and the remainder was delivered to SSAB Tunnplåt. Plate production has been focused on quenched steels. The quenched steels are used in applications where abrasion-resistance, toughness, and high-strength in combination with low weight provide advantages as compared with conventional steel. Construction machinery, mining equipment, and large construction projects such as bridges are examples of such applications. Competitors within the quenched steels sector are primarily Thyssen Krupp Stahl and Dillingen, in Europe, and Lukens, in North America. The ordinary steels are traditionally used in the shipbuilding industry and in the general engineering industry. Competitors within this sector are most large western European steel companies. More than 9% of the by-products of steel manufacturing are recycled for use within the Group or sold through the subsidiary SSAB Merox. Sales of by-products span a broad area and cover, among other areas, road construction materials, raw materials for the electronics industry, and paint pigments. The market SSAB Oxelösund s sales of plate declined by 2% and amounted to just under 4, tonnes. Deliveries were restricted by low production during the start-up and breaking-in of the new four-high rolling mill. Of the deliveries, approximately 2% went to the Swedish market and the remaining 8% were exported, primari- 27

30 as compared with Quenched steels accounted for just over 7% of total plate sales. Quenched steels, i.e. the aberration restistant HARDOX steels and the extra high-strength structural WELDOX steels are used in applications with extreme demands for high-strength in combination with good weldability or high abrasion resistance. The quenced steels are sold throughout the world and used in, among other areas, construction and mining equipment. SSAB Oxelösund manufactures heavy plate in thicknesses from 4 mm to 155 mm in widths up to 3,5 mm. Just over 7% of sales consist of quenced steels. ly within the European Union and to North America. In order to increase sales of quenched steels, in recent years sales companies have been established in 17 countries, primarily in eastern Europe and Asia. During the year, a quenched steel distributor in Vancouver was acquired, with operations in western Canada and the north-western United States. Demand for quenched steels was strong throughout the entire year. Demand for ordinary steels was good during the first half of the year, but weakened during the rest of the year. It was possible to increase prices during the first half of the year, and it was possible to maintain prices for quenched steels at this level. Prices for ordinary steels were under pressure towards the end of the year, but it was possible to sell available volumes at largely unchanged prices. Taken together, prices (measured in Swedish kronor) were, on average, 15% higher than in As a result of the breaking-in of the four-high rolling mill, the volume of quenched steels declined somewhat Production Production in metallurgy during the first three quarters was higher than previously. Towards the end of the year, however, the rate of production was reduced since profitability in external slab transactions declined which made such transactions unfeasible. Slab production thereby declined somewhat to 1,328, tonnes. Change Kt /98 Coke % Steel slabs 1,286 1,395 1,328 5% Plate % The breaking-in of the new four-high rolling mill took longer than planned and resulted in a reduction in production of nearly 1% to 389, tonnes. Towards the end of the year, however, the rate of production in the new four-high rolling mill was at the same level as in the old one, i.e. equivalent to an annual rate of 5, tonnes. Profit Improved margins could not compensate the lost production volumes. Taken together, this resulted in a decline in profits of SEK 114 million to SEK 178 million. The profit includes non-recurring items totalling SEK (4) million. Capital expenditures In 1995, the decision was taken to invest SEK 1,65 million in order to create conditions for continued expansion within quenched steels General Plan OX 2. Test-rolling in the new four-high rolling mill star- 28

31 ted in November 1997, and since the end of March 1998 all production has taken place at this mill. A new finishing line for thinner dimensions of plate was ready during the summer, after which fine tuning and production have taken place simultaneously during the autumn. All in all, General Plan OX 2 means that the conditions for the production of quenched steels are considerably improved by making it possible to roll thinner sheet, and through rolling with improved surfaces, flatness, and thickness tolerance. In addition, capacity in the four-high rolling mill has been increased by 6% to approximately 8, tonnes. During the year, a decision was taken to construct a new steel harbour at a cost of SEK 165 million. The harbour will be brought into operation after the summer of 1999 and will enable co-ordination of the Group s sheet and plate deliveries via Oxelösund. Development Product development resources are concentrated on quenched steels, of which the principal products are abrasion-resistant steels, HARDOX, and high-strength structural steels, WELDOX. The use of quenched steels provides a number of advantages for the user, including lighter weight structures and reduced downtimes for replacement of worn parts. The HARDOX steels combine abrasion-resistance with toughness and are easy to weld and cut. The steels are, therefore, used both as pure abrasion-resistant steels, for example, in the mining and cement industries, and as combined abrasion-resistant and structural steels. Great resources are being committed to further developing the user-friendliness and abrasion-resistance of the HARDOX steels. The directly quenched WELDOX steels combine high strength with excellent weldability. The steels are making inroads on the market and are being used in, among other things, major steel construction projects. The quenched and tempered WELDOX steels are used for demanding applications where the need for low weight is often decisive, for example, in cranes and vehicles. Development is being focused on a gradual improvement of strength and toughness. In order to satisfy increasing demands for light weight steel structures, e.g. for manufacturers of mobile cranes and concrete transport vehicles, improved methods for rolling and hardening of thinner dimensions of plate are being developed. The development and production possibilities within these areas are further improved by the new four-high rolling mill. Efforts are increasingly being devoted to applications engineering and technical customer service. In a training centre in Oxelösund, customers are given an opportunity to test and become acquainted with the properties and potentials of quenched steels. 29

32 Plannja Mikael Nyquist, President Plannja Key ratios SEK millions Sales 94 1,1 1,38 Profit Capital expenditures Capital employed Return on cap. empl. (%) Number of employees See note 2 for definitions Share of the Group s Profit after financial items value added 4% SEK m profit after financial items 4% Cash flow capital employed 3% SEK m Processing is of great strategic importance for the Group s possibility to maintain its strong domestic market position within the sheet sector. Through many years of considered efforts in product and market development accompanied by strategic acquisitions, Plannja has become one of the leading European producers of processed steel and aluminium building sheet. Plannja s operations are conducted within the parent company with production in Luleå, and in the subsidiaries Plannja Siba in Järnforsen and Plannja A/S in Aalborg. The feed stock for these operations is principally metalised sheet which is painted and profiled. Plannja s annual consumption of sheet amounts to just over 7, tonnes. Most of the material is supplied by SSAB Tunnplåt. Plannja s marketing and sales are aimed at both the contractor and consumer markets. In addition, painted sheet is marketed to the sheet metal working industry. The product range consists of flat and profiled building sheet, sheet roofing tiles, and wall panels. The products are used as supporting structures and as roofing and cladding for both residential and industrial premises. Plannja s market share in the contractor and consumer market in Sweden is slightly higher than 3%. Competitors include Haironville, Gasell, and Lindab Profile. Sales in Norway, Germany, and the UK take place through sales subsidiaries and, in other markets, through retailers. Plannja Siba manufactures and markets a complete system for rainwater runoff made of organic-coated, galvanised sheet. The Danish subsidiary Plannja A/S manufactures and markets a complete range of building sheet for the Danish and northern German markets. The market Demand for construction plate products on both the industrial and renovation markets in Sweden remained at the 1997 level. Export volumes, which in previous years included a number of large projects, declined but were offset by a continued positive volume trend in Denmark and Poland. In total, sales increased by 3% to SEK 1,38 million. Foreign sales accounted for an unchanged 5% of total sales. Profit 3

33 Profit declined by SEK 11 million to SEK 55 million, primarily as a result of weaker margins. Capital expenditures During the year, investments were carried out to increase machinery and production flow efficiency in most of the production lines. Development For a long time Plannja has carried out extensive development in the areas of profiled building sheet and sheet roofing tiles. The development of new products is being carried out both for the construction as well as the consumer markets, and the use of high-strength sheet is increasing. The development of a wall system product of the sandwich type started at the beginning of the 199s. During the year, this product received a new and improved fire safety rating. At the same time, the load-bearing capacity of the wall has been improved by slightly more than 2%. Light-weight construction techniques for multi-family homes is another prioritised area in which Plannja is coordinating an international development project within ECSC, the European Coal and Steel Community, with representatives from universities and the steel industry. Within the project, wall system products are being developed which consist of profiled construction sheet, insulation and plaster-board sheets, thus creating the basis for industrial housing construction based on sheet technology. Construction materials in metal- or organic-coated profiled sheet are used both as supporting structures as well roofing and facing products for residental and industrial premises as well as offices and schools, etc. The facing product, Plannja Prewall, the beam system, Plannja Combideck and Plannja Siba s water run-off products are examples of Plannja s focus on complete and fully-planned systems solutions for both large and small construction projects. 31

34 SSAB HardTech Thord Jonsson, President SSAB HardTech Key ratios SEK millions Sales Profit Capital expenditures Capital employed Return on cap. empl. (%) Number of employees See note 2 for definitions Share of the Group s value added 4% Profit after financial items profit after financial items 5% Cash flow capital employed 5% SSAB Hard Tech develops, manufactures, and markets safety components for the automotive industry. The operations are based on the technology of hardening boron steel in combination with formpressing. The boron steel is delivered by SSAB Tunnplåt. The presshardening technology makes possible narrower tolerances, improved dimension stability, and weight reduction and can, therefore, provide safer, lighter, and more costefficient solutions as compared with existing alternative methods. The operations are conducted in two production facilities, in Luleå and in Mason, Michigan. The facility in Mason was completed and placed into operation in the autumn of 1998, and supplies the North American market with side impact beams. The facility in Luleå is a production facility for bumpers as well as side impact beams for the European and Asian markets. In addition, processing and tool technology are being developed in Luleå. The focus on the automotive industry started during the second half of the 198s. The commercial breakthrough for the press-hardening technology was achieved with an agreement with Ford for deliveries of side impact beams for Ford Mondeo, the first real world car. These deliveries started in 1993 in both Europe and the United States. The product range has thereafter been gradually expanded to also include bumpers and components for the car s safety cage SEK m SEK m The market The demand for low fuel consumption has meant that most automobile manufacturers have been investing in ways to reduce the weight of the car. This, in combination with high safety requirements and new impact norms, provides competitive advantages for SSAB HardTech s press-hardened products. Benteler is the market leader for side impact beams. In 1997, Thyssen introduced a cold moulding steel with which they gained orders for simple side impact beams. Deliveries of safety components increased by 13% during the year. The export share was approximately 9%. Deliveries of bumpers and side impact beams for the Ford Focus, which was introduced during the year, accounted for most of the increase in deliveries. Marketing efforts have increased in the United States in conjunction with the establishment there. Agreements regarding future deliveries have been entered into with General Motors and for additional Ford models. 32 Profit Profit declined by SEK 28 million to SEK 71 million.

35 The decline in profit was primarily a consequence of weaker margins. Capital expenditures During the autumn of 1996, a decision was taken regarding the establishment of a production unit in the United States. The plan involved investments totalling SEK 5 million. The unit is located in Mason, Michigan, in close proximity to the large automobile manufacturers in Detroit. The construction of the plant for the new production unit commenced in 1997 and the machinery was assembled during the spring and summer of Production started as planned in two stages during the autumn of The new production unit means that an increased demand for safety components can be met. The advantages of press-hardening technology with narrower tolerances and weight reductions can also continue to be developed in close co-operation with automobile manufacturers in both Europe and the United States. Development The press-hardening technology is gradually being developed, both with respect to process and tool technology and newer, improved applications. The development of applications is conducted in close co-operation with several automobile manufacturers. Through such co-operation, SSAB HardTech s designers are brought in at an early phase in the development of new car models. Thus, optimal use can be made of the advantages of press-hardening technology in the design of safety components. Development is focused both on bumper rails, which are integrated into the body of the car, and side-impact beams where several functions are built in. The development work sometimes leads to unique design solutions. During the year, a patent was obtained for, among other things, a bumper rail with an integrated impact box. Low weight for lower fuel comsumption and greater demands for safety are key concepts in the automotive industry. Through its pre-hardening technology, SSAB HardTech has participated in the development of safe, light and extremely cost efficient side impact beams, bumper rails and components for the automobile s safety cage. 33

36 Tibnor Sven Bergman, President Tibnor Key ratios SEK millions Sales 6,623 6,328 6,545 Profit Capital expenditures Capital employed 1,477 1,487 1,666 Return on cap. empl. (%) Number of employees 1,768 1,714 1,748 See note 2 for definitions Share of the Group s Profit after financial items value added 16 % SEK m profit after financial items 11% Cash flow capital employed 13 % SEK m Tibnor is the leading trading company in the Swedish steel market and constitutes an important sales channel for the steel operations product range. 85% of the company is owned by SSAB and 15% by Avesta Sheffield. In addition to supply through steel trading companies, the supply of steel to the Swedish market takes place through Swedish and foreign steel mills. Other participants in the market include various steel service centres with cutting and slitting lines together with companies specialised within certain product segments. Tibnor is one of the largest trading companies in the Nordic region focused on customers within the engineering, construction, and processing industries. Competitors in Sweden include Trelleborg-owned Bröderna Edstrand, and a number of smaller and often specialised companies which primarily conduct operations in local markets. Tibnor s nationwide sales, warehouse, and distribution functions make it an important partner in the supply of material and supplies to industry. By offering a wide range of products and services Tibnor, with its business system, is increasingly becoming an integral part of the customers production flows. Approximately 65% of Tibnor s total sales are steelbased and cover a range of commercial steels, special steels, tube and pipe, and stainless steel. The remaining portion consists of non-ferrous metals, building products and tools, machinery, and other industrial and building supplies. The steel and metal products are increasingly delivered in a pre-treated and adapted form in order to be placed directly into the customer s production. Tibnor s traditional core business lies within the areas of steel and stainless steel, in which a complete range of products is offered to industry. The most important customer groups are found within the engineering, construction, and processing industries. A significant portion of the customer companies are suppliers to Swedish export industries. Within the area of special steels, Tibnor has established itself in the other Nordic countries with its own subsidiaries. In the Metals business area, a specialisation has taken place in trading in metals for industrial use. In addition to Sweden, Tibnor has significant operations in this area in Denmark and Finland, and is the Nordic region s largest distributor of raw materials and semi-finished goods of aluminium, copper, brass, and zinc. Tibnor offers the construction industry a range of 34

37 steel-based construction products, concentrated on site preparation, foundation, and structure. Tibnor is one of Sweden s leading suppliers of reinforcement steels and possesses four facilities for the manufacturing of insertion-ready re-bar products. Tibnor s Industrial Supplies group is focused on the sale of tools, industrial and building supplies, as well as machinery. From three regional warehouses and through the industrial supply group s shops, local manufacturing and construction companies are offered a product range spanning approximately 3, products. The industrial supplies group often enjoys a prominent position in its local markets. Sales Change SEK millions /98 Steel 1,389 1,381 1,5 +9% Sheet 1,585 1,534 1,661 +8% Component steel % Stainless steel % Metals % Construction % Industrial supplies 1,186 1,115 1,182 +6% Total 6,623 6,328 6,545 +3% The market The demand by the engineering industry continued to be strong while demand by the processing and construction sectors was weak. Demand from the construction sector increased from a low level. In total, delivery volumes for steel and metals increased by 4%. It was possible to increase prices somewhat during the first half of the year for most products within the steel and metals product range, but prices were subject to pressure after the summer. The price of stainless steel materials continued to be low throughout the entire With the market s broadest selection of commercial steels, special steels, tubing and stainless steel and with a nationwide logistics system, Tibnor has become a natural link in its customer s production chains. The steel is delivered blasted, pre-painted, cut, sheared or slitted in order to be capable of being placed directly in the customer s production process. Metals, construction materials, tools, machinery and other construction supplies are included in the production range. year. The increase in volume resulted in Tibnor s sales increasing by 3% to SEK 6,545 million. Profit Higher volumes could not compensate for weaker margins and, as a result, the profit declined by SEK 164 million to SEK 152 million. Profit includes items of a non-recurring nature totalling SEK (55) million. Capital expenditures A new information system was installed during the year. The new R/3-system is totally integrated and replaces several older systems and makes possible more efficient and improved customer service. The system s financial functions were placed in operation at the beginning of the year, while other functions including orders, stock processing, and purchasing commenced at the end of September/beginning of October. In total, the investment in the new information system amounts to approximately SEK 1 million. 35

38 Dickson PSC Björn Ringborg, President Dickson PSC Key ratios SEK millions Sales Profit Capital expenditures Capital employed Return on cap. empl. (%) Number of employees See note 2 for definitions Dickson Plåt Service Centre pre-finishes sheet and supplies the Swedish engineering industry with slit strips and sized blanks which can be directly used in the customer s production. Deliveries of pre-finished sheet with short lead times also decrease customers needs for warehouse facilities. Approximately 25% of the Swedish sheet market consists of pre-finished sheet. Dickson PSC is the largest producer in Sweden within this area, with a market share of slightly more than 5%. Dickson PSC, therefore, is highly significant to the Group s development of the sheet business in Sweden. Production facilities comprising cutting and slitting equipment are located in Borlänge and Gothenburg. Dickson s role is to be an efficient contract manufacturer of pre-finished sheet, while Tibnor and SSAB Share of the Group s value added 1% profit after financial items 1% capital employed 1% Profit after financial items Cash flow SEK m SEK m Tunnplåt handle the marketing, sales, and material supplied The market Demand for pre-finished sheet continued to improve during In total, deliveries increased by 6% to just over 24, tonnes. Profit Profit declined by SEK 5 million to SEK 2 million. Profit includes non-recurring items totalling SEK (9) million. 36

39 SSAB Finance SSAB Finance is an independent profit centre within the parent company with responsibility for the management of currency flows, borrowing, and financing of subsidiaries, as well as for the investment of the Group s liquid funds on the Swedish money market. The objective is to achieve the highest possible return on the liquid assets within the defined guidelines for interest and credit risks. In addition, the Group s currency flows are offset to the greatest extent possible and remaining currency risks are dealt with in accordance with adopted guidelines. SSAB Finance borrows, on market terms and conditions, the parent company s liquid assets. SSAB Finance acts as an internal bank for the Group vis-á-vis the subsidiaries. Borrowing and hedging of currency transactions by the subsidiaries are dealt with by SSAB Finance, on market terms and conditions. The Group s currency risks arise mainly in the commercial money flows. The subsidiaries hedge their currency risks with SSAB Finance which, in turn, covers the currency risks mainly by means of forward exchange contracts. With the introduction of the Euro, currency risk management will be simplified. During the year, preparations have taken place for handling the future flows in the new currency. As a result of the redemption of shares for SEK 3,35 million, a need for borrowing arose in the Group. Accordingly, in the spring of 1998, a Medium Term Note (MTN) programme totalling SEK 1,5 million was introduced. Within the framework of the MTN programme, there are possibilities created for open borrowing in Swedish kronor with a term until maturity of 1 to 1 years. In addition, the existing Swedish commercial paper programme was increased to SEK 1,5 million and there is an already existing USD 1 million Euro Commercial Paper Programme. At year end, borrowing under the MTN programme amounted to SEK 97 million and under the commercial paper programme to SEK 86 million. Investment volumes declined sharply at the end of the first half of the year following the execution of the redemption and at year end amounted to SEK 124 (2,871) million. The rate of return on financial investments depends on interest rates and risk level chosen. Changes in the risk profile in order to protect the value of the portfolio in the event of interest rate movements are effected, inter alia, through the use of interest futures. International interest rates fell during the year, and Swedish interest rates followed suit. Positions taken in Göran Fritzell, General Manager SSAB Finans Key ratios SEK millions Profit Number of employees See note 2 for definitions Share of the Group s value added % Profit after financial items SEK m profit after financial items 5% capital employed 2% Swedish money market instruments were successful. The return on the investment portfolio improved to 6.3 (4.2)%, which was 1.4 percentage points better than the index for treasury bills and 2.7 percentage points better than investments on the call loan market. Nothwithstanding the higher return, a lower investment volume during the second half of the year resulted in profit declining by SEK 1 million to SEK 74 million. 37

40 Other companies Profit / ownership share SEK millions Holding % Coronet Finance European Electrical Steels Norsk Stål Norsk Stål Tynnplater Lulekraft 5 Oxelösunds Hamn Coronet Finance Part of the Group s liquid assets is invested in the international capital market. These investments are made by the Irish subsidiary Coronet Finance which conducts active portfolio management. Coronet Finance also accommodates financing requirements of inter alia foreign subsidiaries. The average investment and lending volume amounted to approximately SEK 1,25 (1,1) million. Profit improved somewhat to SEK 57 (56) million. European Electrical Steels European Electrical Steels (EES) was formed in 199 by a merger of SSAB s and British Steel s operations within the electrical steel sector. The company is one of the largest producers of electrical steels in Europe. EES is owned by British Steel (75%) and SSAB Tunnplåt (25%). Production facilities are located in Newport in south Wales and in Surahammar. Some further processing takes place in the United States and Canada. There are 895 employees. Weaker demand led to lower volumes. Sales declined to SEK 2,14 (2,229) million and profit decreased to SEK 7 (151) million, due to both lower volumes and weaker margins. Norsk Stål Norsk Stål is Norway s largest steel wholesaler with a market share of just over 35%. There are 31 employees. Norsk Stål is 5% owned by SSAB and 5% by British Steel. Demand for steel in Norway was strong during the greater part of the year, but weakened in the autumn. Sales increased to SEK 1,568 (1,434) million, but weaker margins resulted in a decline in profit to SEK 57 (69) million. Norsk Stål Tynnplater Norsk Stål Tynnplater is Norway s largest sheet service centre with a market share of approximately 7%. There are 72 employees. Norsk Stål Tynnplater is 5% owned by SSAB and 5% by British Steel. Demand for processed sheet on the Norwegian market was strong during the greater part of the year, but weakened towards the end of the year. Sales increased somewhat to SEK 458 (415) million, but weaker margins resulted in a decline in profit to SEK 2 (16) million. Lulekraft Lulekraft operates a combined heat and power plant in Luleå and is 5% owned by SSAB and 5% by the municipality of Luleå. The combined heat and power plant extracts heat from energy-rich off-gases from SSAB Tunnplåt s slab manufacturing operation and produced approximately 724 GWh of district heat and 53 GWh of electricity. The district heat is sold to Luleå Energi, which distributes it to approximately 2, households in the municipality of Luleå. The electricity is sold to SSAB Tunnplåt. There are 32 employees. Sales was largely unchanged and amounted to SEK 248 (241) million. Profit amounted to SEK () million. Oxelösunds Hamn The port operations in Oxelösund are some of the largest in Sweden. The harbour has excellent draught conditions and plays an important role in the Group s extensive imports of raw materials. Oxelösunds Hamn is 5% owned by SSAB Oxelösund and 5% by the municipality of Oxelösund. There are 222 employees. Sales increased somewhat to SEK 175 (171) million. Profit declined to SEK 2 (7) million. 38

41 Consolidated profit and loss account SEK millions Sales (Note 1) 17,474 17,835 Cost of goods sold (Note 2) 14,264 14,798 Gross profit 3,21 3,37 Selling expenses (Note 2) 1,489 1,535 Administrative expenses (Note 2) Other operating revenues Other operating expenses (Note 2) Shares in earnings of affiliated companies (Note 3) Operating profit 1,763 1,355 Financial items (Note 4) Profit after financial items 1,96 1,424 Tax (Note 5) Minority shares in earnings Net profit for the year 1, Return on capital employed before tax (Note 2) 14% 11% Return on equity after tax (Note 2) 11% 8% Equity ratio (Note 2) 7% 58% 39

42 Consolidated balance sheet SEK millions ASSETS Fixed assets Intangible assets (Note 6) Tangible assets (Note 7) 7,312 8,466 Financial assets (Note 8) Total fixed assets 7,858 9,18 Current assets (Note 3) Inventories, etc. (Not 9) 3,26 3,95 Accounts receivable 2,58 2,531 Prepaid expenses and accrued income (Note 1) Other short-term receivables (Note 5) Short-term investments 3, Cash and bank accounts Total current assets 1,353 8,18 Total assets 18,211 17,126 EQUITY AND LIABILITIES Equity (Note 11) Restricted equity Share capital 3,2 2,83 Restricted reserves 2,487 2,857 Unrestricted equity Unrestricted reserves 5,798 3,299 Net profit for the year 1, Total equity 12,821 9,941 Minority shares Provisions Provisions for pensions Deferred taxes Other provisions Total provisions 1,699 1,851 Long-term liabilities (Note 13) 511 1,289 Current liabilities (Note 3) Liabilities to credit institutions 41 1,3 Accounts payable 1,516 1,385 Accrued expenses and prepaid revenues (Note 14) Other current liabilities (Note 5) Total current liabilities 3,5 3,886 Total equity and liabilities 18,211 17,126 Pledged assets (Note 18) Contingent liabilities (Note 19)

43 Consolidated funds statement SEK millions BUSINESS OPERATIONS Profit Sales 17,474 17,835 Other operating revenues Operating expenses (excl. depreciation) 15,381 15,933 Financial items Tax Other items ,24 + 2,2 Working capital Inventories (+ decrease) Accounts receivable (+ decrease) Accounts payable (+ increase) Other current receivables (+ decrease) Other current liabilities (+ increase) INVESTMENT OPERATIONS Investments in plants and facilities 2,145 2,35 Acquisition of new operations 3 12 Sale of companies + 7 Sale of plants ,21 2,21 CASH FLOW FINANCING OPERATIONS Dividends to shareholders Redemption of shares 3 35 Changes in long-term loans (+ increase) Changes in short-term loans (+ increase) Tax liabilities (+increase) Financial investments (+decrease) Other long term receivables (+decrease) Other financing (+increase) ,212 CHANGE IN LIQUID ASSETS 613 2,827 LIQUID ASSETS Balance on 1 January + 4,55 + 3,892 Change in liquid assets 613 2,827 Balance on 31 December + 3, ,65 Non-utilised bank credit + 1, Disposable liquid assets + 4, ,35 41

44 Parent company s profit and loss account SEK millions Gross profit Administrative expenses (Note 2) Other operating revenues 7 11 Operating profit Dividends from subsidiaries (Note 4) Financial items (Note 4) Profit after financial items 867 1,7 Periodization reserve Capital based tax equalization reserve Profit before tax 846 1,59 Tax (Note 5) 42 3 Net profit for the year 84 1,29 42

45 Parent company s balance sheet SEK millions ASSETS Fixed assets Tangible assets (Note 7) 4 9 Financial assets (Note 8) 3,942 4,216 Total fixed assets 3,946 4,225 Current assets (Note 3) Receivables from subsidiaries 2,164 3,473 Prepaid expenses and accrued revenues (Note 1) 16 3 Other receivables (Note 5) 15 1 Short-term investments 2, Cash and bank accounts Total current assets 5,374 3,779 Total assets 9,32 8,4 EQUITY AND LIABILITIES Equity (Note 11) Restricted equity Share capital, million shares, nominal value SEK 25 3,2 2,83 Premium reserve 2 Legal reserve Unrestricted equity Profit brought forward 3, Net profit for the year 84 1,29 Total equity 7,736 4,884 Untaxed reserves (Note 12) Provisions Provisions for pensions 8 1 Total provisions 8 1 Long-term liabilities Liabilities to subsidiaries 5 5 Other long-term liabilities (Note 13) 378 1,162 Total long-term liabilities 428 1,212 Current liabilities (Note 3) Liabilities to subsidiaries Liabilities to credit institutions 327 1,27 Accrued expenses and prepaid revenues (Note 14) Other current liabilities (Note 5) 2 14 Total current liabilities 768 1,57 Total equity and liabilities 9,32 8,4 Pledged assets (Note 18) 56 3 Contingent liabilities (Note 19)

46 Parent company s funds statement SEK millions BUSINESS OPERATIONS Profit Other operating revenues Operating expenses (excl. depreciation) Financial items (excl. dividends from subsidiaries) Tax Working capital Current receivables (+ decrease) 1 +1 Current liabilities (+ increase) Commercial intra-group transactions INVESTMENT OPERATIONS Investments in plants och facilities 5 Investments in shares in subsidiaries CASH FLOW FINANCING OPERATIONS Dividends to shareholders Dividends from subsidiaries Redemption of shares 3,35 Changes in long-term loans (+increase) Changes in short-term loans (+increase) Financial investments (+decrease) Other long-term receivables (+decrease) Financial intra-group transactions 874 1,495 Other financing (+increase) ,662 CHANGE IN LIQUID ASSETS 612 2,787 LIQUID ASSETS Balance on 1 January + 3,71 + 3,89 Change in liquid assets 612 2,787 Balance on 31 December + 3, Non-utilised bank credit Disposable liquid assets + 3,98 + 1,186 44

47 Notes Accounting and Valuation Principles The annual report has been prepared in accordance with the Swedish Annual Accounts Act and the recommendations and policy statements of the Swedish Financial Accounting Standards Council. The accounting and valuation principles are unchanged as compared with the preceding year. Consolidation principles The consolidated accounts have been prepared in accordance with the purchase method. The consolidated accounts include SSAB Svenskt Stål AB and the companies in which the parent company directly or indirectly owns more than 5% of the voting capital or where the parent company otherwise exercises a controlling influence. Affiliated companies of which SSAB owns between 2 and 5% of the voting capital are reported in accordance with the equity method. Goodwill and surplus value in fixed assets are depreciated in accordance with the principles set forth below under "Fixed Assets". The profit and loss accounts of foreign subsidiaries are translated into Swedish kronor at the average exchange rates for the year. Balance sheets are translated into Swedish kronor at the year-end exchange rates. The differences are reported directly as equity. Intra-Group profits in subsidiaries inventories are eliminated in the consolidated accounts. In the Consolidated Funds Statement, the purchase price of acquired and sold operations is reported under the heading "acquisitions/sales of operations/shares". The assets and liabilities held in the acquired/sold companies at the time of the acquisition/sale are, therefore, not included in the change in working capital reported in the funds statement. Receivables and liabilities in foreign currencies Receivables and liabilities in foreign currencies are valued at the year-end rates. In cases where exchange rates have been hedged through forward contracts, the forward rate is applied in the valuation. Loans which were incurred in order to hedge net assets in foreign subsidiaries are reported by the parent company at acquisition cost. In the consolidated accounts, these loans are reported at the rate applicable as per the balance sheet date. Any exchange differences are set off against the translation differences which arise in conjunction with recalculation of these subsidiaries balance sheets to Swedish kronor. Inventories Inventories are valued in accordance with the lower of cost and market value principle. Raw materials and products in the trading operations are thereby valued at the lower of the acquisition and replacement costs, while manufactured goods are valued at the lower of the manufacturing cost and the sales value after deduction of sales and administrative expenses. The necessary provisions are made for obsolescence. Fixed assets Fixed assets are reported after deductions for accumulated depreciation according to plan. Depreciation according to plan is based on the acquisition cost and estimated economic life of the assets. Tangible fixed assets are classified for depreciation purposes into six groups on the basis of economic life according to the following table. Through new technology, the economic life of blast furnaces has increased, resulting in a depreciation of the blast furnaces commencing in 1995 over 1 12 years as opposed to the previous term of 7 years. Economic Group Examples of items life, years 1 Vehicles, computers, and relinings of blast furnaces up to and including Office equipment, light machinery, and relinings of blast furnaces commencing in Steel furnaces and manufacturing equipment Rolling mills, cranes, and heavy machinery Blast furnaces, coking ovens, and turbines Buildings and land improvements

48 NOTES Intangible fixed assets are classified in the same manner in two groups where goodwill is calculated to have an economic life of 5 years, and other intangible fixed assets 3-5 years. Leased fixed assets The costs for fixed assets which are leased instead of owned are primarily reported as lease costs (operational leases). Where the leasing agreements contain terms and conditions pursuant to which the Group benefits from the economic advantages and incurs the economic risks which are associated with ownership of the property (financial leases), they are reported under fixed assets in the balance sheet. This does not apply, however, to the leasing of passenger cars and office machinery of a lesser value. Sales Sales are reported after deduction of valueadded taxes, rebates, returns, and freight. Pricing between Group companies The prices of goods and services delivered between companies in the Group are set at market levels. Deliveries of slabs from SSAB Oxelösund to SSAB Tunnplåt, however, are set at the estimated cost price. Appropriations and deferred taxes Tax legislation in Sweden and in certain other countries permits consolidation by allocation to untaxed reserves. In this way, individual companies can, to some extent, dispose of reported profits without being subject to immediate taxation. In the parent company, changes in untaxed reserves that have been made during the year are reported as appropriations in the Profit and Loss Account. The cumulative value of such allocations is reported in the Parent company s Balance Sheet under the item Untaxed Reserves. In the consolidated accounts, however, appropriations and untaxed reserves are not reported. Instead, these are broken down into shareholders equity and deferred taxes with the application of the tax rate relevant in each country. The changes for the year of the calculated deferred tax in the appropriations are reported in the consolidated profit and loss account as deferred tax costs. The deferred taxes in untaxed reserves are reported in the consolidated balance sheet as an appropriation. A deferred tax claim is only reported as an asset when, and to the extent, it is probable that sufficient taxable surpluses will be available. Short-term investments Short-term investments include bonds and other interest-bearing instruments (portfolio management). Short-term investments are valued at their year-end market value. Unrealised gains and losses are reported as a net amount under financial items. Valuation at market value has resulted in short-term investments being valued at SEK 2 (5) million higher than if valuation had been made at the lower of cost and market value. 46

49 NOTES 1 SALES Group SEK millions Hot-rolled sheet 3,17 3,312 Cold-rolled and metal-coated sheet 3,288 3,383 Organic-coated and profiled sheet 2,49 2,481 Heavy plate 2,762 2,557 Trading operations 4,61 4,634 Crude steel and slabs Vehicle components By-products Other 45 9 Total 17,474 17,835 Sales broken down per geographic market and operating area are set forth in the Group review on page 15 and OPERATING EXPENSES Cost categories Group Parent company SEK millions Input materials 4,523 4,769 Purchased products in the trading operation 3,864 3,96 Energy Personnel 3,562 3, Services 1,457 1, Depreciation/Write-down Other 1,283 1, Total 16,17 16, Operating expenses have been reduced by the following state subsidies: State subsidies Group Parent company SEK millions Employment-stimulating subsidies 1 1 Freight subsidies Total Continuation of note 2 on next page. 47

50 NOTES 2 OPERATING EXPENSES, CONTINUATION Directors, Presidents and Other Wages, other compensation and social security costs Executive Vice Presidents employees SEK millions Parent company* Subsidiaries in Sweden ,27 2,257 Subsidiaries outside Sweden Denmark Finland France Italien Netherlands 5 6 Norway UK Germany USA Other countries Total wages and salaries ,399 2,482 Social security costs , 3 1,52 (of which, pension expenses) (8) (27) (138) (134) Profit shares Total ,495 3,568 * Applies only to personnel employed and active within the Parent company. Personnel in certain major subsidiaries are formally employed in the Parent company, but are listed in terms of number (Note 16) and expense in the subsidiaries. Total wages and salaries include profit-based salaries to Presidents and Executive Vice Presidents with SEK 2 (2) million, related to the Parent company. Terms of employment for senior Group management Chairman of the Board Director s fee SEK.3 (.3) million. President and Chief Executive Officer Leif Gustafsson retired with a pension on 3 June Total compensation from Group companies amounted to SEK 2.4 (3.6) million. The company is responsible for supplementing the pension during the first three years so that it is equivalent to full salary, less any SSAB directors' fees paid during this three-year period. Following the three-year period, a lifetime pension is payable which will amount to slightly less than 4% of the pension-qualifying salary. This obligation is covered by insurance. Torsten Sandin became President and CEO in April of Total compensation from Group companies during the year amounted to SEK 3.4 million, of which SEK.7 million constituted a profit-based salary component which will be paid in In addition to this, Torsten Sandin also has the benefit of a cost-free residence. The earliest retirement age is 6. At such time, the pension will be 6% of the pension-qualifying salary until the age of 65, and thereafter approximately 4%. On dismissal by the company, the period of notice is 12 months. A severance payment equivalent to 12 months salary is payable in addition to this. Other Group Management Retirement ages vary between 6 and 62 years. On dismissal by the company, the period of notice is 12 months. A severance payment equivalent to months salary is payable in addition to this. Pension obligations and similar benefits The Group participates in the ITP plan which is insured by SPP. In all material respects, obligations not covered by the ITP plan set forth above are covered by separate insurance policies. 48

51 NOTES 3 AFFILIATED COMPANIES Share in earnings and share of equity Share in earnings Share of equity SEK millions European Electrical Steels Ltd Lulekraft AB 1 1 Norsk Stål A/S Norsk Stål Tynnplater A/S Oxelösunds Hamn AB Total Receivables from affiliated companies Group Parent company SEK millions Are included in: Accounts receivable Pre-paid expenses and accrued revenues Total Liabilities to affiliated companies Group Parent company SEK millions Are included in: Accounts payable Other current liabilities Total

52 NOTES 4 FINANCIAL ITEMS Group Parent company SEK millions Dividends from subsidiaries Dividends from affiliated companies 2 24 Profit from other securities and claims which are fixed assets Dividends Interest income from subsidiaries Other interest income 4 4 Capital gains on sales 5 Exchange rate differences 1 Other interest income and similar income Interest income from subsidiaries Other interest income Capital gains on sales 2 Recovered depreciated investments Exchange rate differences Total financial income ,9 1,243 Interest expenses and similar expenses Interest expenses to subsidiaries Other interest expenses Estimated financial expenses on pension liabilities 5 5 Other Total financial expenses Financial items ,154 5 TAXES Tax costs Group Parent company SEK millions Swedish corporate income taxes Foreign corporate income taxes Deferred taxes Share in taxes of affiliated companies 2 11 Total Tax receivables Group Parent company SEK millions Are included in: Other short-term receivables Tax liabilities Group Parent company SEK millions Are included in: Other current liabilities

53 NOTES 6 INTANGIBLE ASSETS Patents, Tenancy Total Group licences and rights and intangible SEK millions similar rights similar rights Goodwill assets Acquisition value, 1 January Acquisitions 2 2 Increase through acquisition of companies 9 9 Sales and disposals 2 2 Re-classifications 1 1 Translation differences 1 1 Acquisition value, 31 December Accumulated depreciation, 1 January Sales and disposal 2 2 Re-classifications Depreciation for the year Translation differences Accumulated depreciation, 31 December Residual value according to plan TANGIBLE FIXED ASSETS Fixtures, Assets under fittings, construction, Total Group Buildings and tools, and advances to tangible SEK millions real property Machinery equipment suppliers assets Acquisition value, 1 January 2,312 8, ,3 14,247 Acquisitions 31 3, ,415 2,16 Increase through acquisition of companies Sales and disposals Re-classifications Translation differences Acquisition value, 31 December 2,662 11, ,25 Accumulated depreciation, 1 January 97 5, ,935 Accumulated depreciation through acquisition of companies Sales and disposals Re-classifications Depreciation for the year Translation differences Accumulated depreciation, 31 December 1,61 5, ,566 Accumulated revaluation, 1 January Revaluation for the year 7 7 Accumulated revaluation, 31 December 7 7 Residual value according to plan 1,68 5, ,466 The item machinery includes financial leasing agreements with SEK 6 (6) million in acquisition value and SEK 6 (6) million in residual value according to plan. The tax assessed value of real property in Sweden was SEK 2,544 (2,915) million, while the corresponding property s residual value was 1,34 (1,185) million. Out of the revaluation for the year, SEK 7 () million, SEK 5 () million have been booked against a revaluation reserve in equity and SEK 2 () million against deferred tax. Continuation of note 7 on next page. 51

54 NOTES 7 TANGIBLE FIXED ASSETS, CONTINUED Fixtures, Assets under fittings, construction, Total Parent company Buildings and tools, and advances to tangible SEK millions real property Machinery equipment suppliers assets Acquisition value, 1 January Acquisitions Sales and disposals 1 1 Acquisition value, 31 December Accumulated depreciation, 1 January Sales and disposal 1 1 Depreciation for the year Accumulated depreciation, 31 December Residual value according to plan The tax assessed value of real property in Sweden was SEK 5 (3) million while the residual value of corresponding property was SEK 7 (3) million. 8 FINANCIAL FIXED ASSETS Equity shares Other Other Total Group in affiliated shares and long-term financial SEK millions companies participations receivables assets Acquisition value, 1 January Investments Sales/amortisations 4 4 Re-classifications 4 4 Acquisition value, 31 December Equity shares after acquisitions Residual value according to plan Shares in Other Receiv- Other Shares affiliated shares ables long- Total Parent company in sub- com- and parti- from sub- term re- financial SEK millions sidiaries panies cipations sidiaries ceivables assets Acquisition value, 1 January 3, ,942 Investments Sales / amortisations Acquisition value, 31 December 3, ,216 Residual value according to plan 3, ,216 During 1998, the Parent company increased the share capital in Coronet Finance by SEK 258 million. 52

55 NOTES 8 FINANCIAL ASSETS, CONTINUED Book value, Company Registered Holdings, SEK Shares and participations reg. number office number %** millions Parent company s shares and participations in subsidiaries Swedish operating subsidiaries: Dickson Plåt Service Center AB Borlänge 48, 1 51 Plannja AB Luleå 8, 1 16 SSAB HardTech AB Luleå 1, SSAB Oxelösund AB Oxelösund 1, 1 45 SSAB Tunnplåt AB Borlänge 1, 1 1,5 Tibnor AB Stockholm 85, Foreign operating subsidiaries: Coronet Finance Ireland 1,294,3,2 1 1,292 Others* 4 Dormant subsidiaries 1 Total 3,719 Parent company s shares in affiliated companies Lulekraft AB Luleå 1, 5 1 Norsk Stål A/S Norway 31, Norsk Stål Tynnplater A/S Norway 13, Total 51 Subsidiaries shares and participations in affiliated companies European Electrical Steels Ltd Great Britain 42,666, Oxelösunds Hamn AB Oxelösund 5, 5 45 Total 298 Equity shares in affiliated companies shareholders equity in excess of the book value in the parent company 77 Total Group shares in affiliated companies 426 Parent company s other shares and participations Tenant-owned apartments 3 Total 3 Subsidiary's other shares and participations* 3 Total of Group's other shares and participations 6 * A complete specification of other shares and participations is available from SSAB s Group Headquarters in Stockholm. ** The percentage figures indicate the equity share which, in all cases, corresponds to the share of the voting capital. 53

56 NOTES 9 INVENTORIES, ETC. Group Parent company SEK millions Raw materials, consumables and semi-finished goods 1,287 1,496 Work in progress Stocks of finished goods 1,871 2,236 Work in progress on behalf of third parties 2 2 Advances to suppliers 3 2 Total 3,26 3,95 1 PRE-PAID EXPENSES AND ACCRUED REVENUES Group Parent company SEK millions Non-invoiced goods and services delivered Bonuses, discounts, licences and suchlike Pre-paid rents Accrued interest revenues Other items Total EQUITY Group Parent company SEK millions Share capital At beginning of year 3,2 3,2 3,2 3,2 Redemption of shares At year-end 3,2 2,83 3,2 2,83 Premium reserve At beginning of year Redemption of shares 2 At year-end 2 Restricted equity / Legal reserve At beginning of year 2,61 2, Allocated to restricted equity 2 Allocated to revaluation reserve 5 Translation difference 25 6 Re-allocation between restricted and unrestricted equity At year-end 2,487 2, Unrestricted equity At beginning of year 6,72 7,134 3,64 3,896 Redemption of shares 2,928 2,928 Dividends Translation difference 9 8 Net profit for the year 1, ,29 Re-allocation between restricted and unrestricted equity At year-end 7,134 4,281 3,896 1,421 The Group s restricted equity includes an equity share fund of SEK 267 (266) million and a revaluation reserve of SEK 5 () million. Out of revaluation of real property of SEK 7 () million, SEK 5 () million have been booked against a revaluation reserve and SEK 2 () million against deferred tax. 54

57 NOTES 12 UNTAXED RESERVES Parent company SEK millions Periodization reserve Capital-based tax equalization reserve Total Untaxed reserves are split in the Group between equity and deferred taxes. Such a split is, however, not made in the Parent company, but deferred taxes on the untaxed reserves of the Parent company amounts to SEK 19 (16) million. 13 LONG-TERM LIABILITIES Group Parent company SEK millions Structure loans; 5%, maturity Mortgage loans Foreign loans MTN-programme Financial leasing agreements 5 6 Other Total 758 1, ,199 Less amortisation, 1998 and 1999* Total 511 1, ,162 Repayment of long-term liabilities SEK millions Later Group Parent company * Included under Current liabilities in item Liabilities to credit institutions. 14 ACCRUED EXPENSES AND PRE-PAID REVENUES Group Parent company SEK millions Accrued costs of personnel Non-invoiced goods and services received Accrued interest expenses Accrued bonuses and discounts Other items Total

58 NOTES 15 NET DEBT Group Parent company Mkr Cash and bank accounts Short-term investments 3, , Long-term investments Receivables from subsidiaries 2,54 3,916 Other receivables Interest-bearing assets 4,2 1,12 5,796 4,218 Short-term liabilities to credit institutions 4 1, ,27 Long-term liabilities 511 1, ,162 Provisions for pensions Liabilities to subsidiaries Other liabilities Interest-bearing liabilities 1,91 2,764 1,187 2,72 Net debt 2,929 1,644 4,69 1, AVERAGE NUMBER OF EMPLOYEES No. of employees Women, % Parent company Sweden Total Parent company Subsidiaries Sweden 9,14 8, Denmark Finland Italy Norway UK Germany USA Other countries <2 employees Total subsidiaries 9,63 9, Total Group 9,63 9, The figures are based on a normal number of working hours per year in different production areas, with allowance for different shift forms. The breakdown by gender refers to the number of employees at the end of the year. 56

59 NOTES 17 OPERATIONAL LEASES Operational leases with remaining terms of more than one year occur only to a very limited extent within the Group. Consequently, obligations in respect of the payment of leasing fees are in insignificant amounts. 18 PLEDGED ASSETS Group Parent company SEK millions For own long-term liabilities Real property mortgages 4 31 Floating charges Total for own long-term liabilities Other pledged assets Real property mortgages 3 3 Pledged custodian accounts Total other pledged assets Total pledged assets CONTINGENT LIABILITIES Group Parent company SEK millions Guarantees Contingent liabilities on behalf of subsidiaries Other contingent liabilities Total contingent liabilities The Group is involved in a very limited number of legal disputes concerning guarantees and complaints. In the result, consideration has been given to the anticipated outcome of these cases. 57

60 NOTES 2 Sales Sales less deduction for value added tax, discounts, returns, and freight. DEFINITIONS Cash flow Internally generated funds including change in working capital less investments. Equity Reported equity according to the Consolidated Balance Sheet. Capital employed Total assets less non-interest-bearing operating liabilities and deferred taxes. Operating capital Capital employed less interest-bearing assets. Liquid assets Cash and funds in bank, as well as short-term investments. Net debt Interest-bearing liabilities less interest-bearing assets. Return on equity after tax Profit after taxes as a percentage of average equity during the year. Return on operating capital Operating profit before shares in affiliated companies as a percentage of average capital employed during the year. Return on capital employed before tax Operating profit before shares in affiliated companies plus financial income as a percentage of average capital employed during the year. Equity ratio Equity as a percentage of total assets. Valued added Sales and other operating revenues less cost of purchased goods and services. Earnings per share Profit after taxes divided by average number of shares. P / E ratio Share price at year-end divided by earnings per share. Equity per share Equity divided by number of shares. Direct yield Dividend divided by share price at year-end. Definitions for subsidiary tables: Profit Profit after financial income and expenses. Capital expenditures Capital expenditures activated during the year. Return on capital employed Return on average capital employed. Number of employees Average number of employees. 58

61 Disposition of profit Recommended Disposition of profit The amount at the disposal of the Annual General Meeting is as follows: profit brought forward 392 net profit for the year 1,29 SEK millions 1,421 The Board of Directors and the President recommend that the earnings be disposed of in the following manner: dividend to the shareholders SEK 4.5 per share 54 to be carried forward 917 SEK millions 1,421 As reported in the Consolidated Balance Sheet, the Group s disposable earnings amounted to SEK 4,281 (7,134) million. Stockholm, 12 February 1999 Leif Gustafsson Tommy Andersson Anders G Carlberg Dan Eriksson Per-Olof Eriksson Carl-Erik Feinsilber Tony Hagström Björn Hall Owe Jansson Sven-Åke Johansson Torsten Sandin President Our Auditors report was submitted on 12 February 1999 Åke Danielsson Authorized Public Accountants Göran Tidström 59

62 Auditor s report To the general meeting of the shareholders of SSAB Svenskt Stål Aktiebolag (publ) Registered Number We have audited the Parent Company and the consolidated financial statements, the accounts and the administration of the Board of Directors and the President of SSAB Svenskt Stål Aktiebolag (publ) for These accounts and the administration of the Company are the responsibility of the Board of Directors and the President. Our responsibility is to express an opinion on the financial statements and the administration based on our audit. We conducted our audit in accordance with Generally Accepted Auditing Standards in Sweden. Those Standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and their application by the Board of Directors and the President as well as evaluating the overall presentation of information in the financial statements. We examined significant decisions, actions taken and circumstances of the Company in order to be able to determine the possible liability to the Company of any Board member or the President or whether they have in some other way acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below. In our opinion, the Parent Company and the consolidated financial statements have been prepared in accordance with the Annual Accounts Act and consequently we recommend that the income statements and the balance sheets of the Parent Company and the Group be adopted, and that the profit of the Parent Company be dealt with in accordance with the proposal in the Report of the Directors. In our opinion, the Board members and the President have not committed any act or been guilty of any omission, which could give rise to any liability to the Company. We therefore recommend that the members of the Board of Directors and the President be discharged from liability for the financial year. Stockholm, 12 February 1999 Åke Danielsson Authorised Public Accountants Göran Tidström 6

63 Group management Group management at the new rougher in Borlänge. From left to right, Anders Ullberg, Torsten Sandin, Dan Johansson, Åke Sander and Curt Johansson. Torsten Sandin (1943), President and CEO Employed since Shareholding: 2,4 shares. Curt Johansson (1943), President SSAB Tunnplåt. Employed since Dan Johansson (1938), President SSAB Oxelösund. Employed since Shareholding: 3,2 shares. Group staffs Åke Sander (1938), Executive Vice President, Technology. Employed since Shareholding: 4,725 shares. Anders Ullberg (1946), Executive Vice President, Chief Financial Officer. Employed since Shareholding: 1, shares. Holdings include shares owned by closelyassociated persons. Control and Finance Legal Affairs Public Affairs Anders Ullberg Bo Legelius Ivar Ahlberg Auditors Auditors Alternate Auditors Åke Danielsson Authorized Public Accountant PricewaterhouseCoopers Göran Tidström Authorized Public Accountant PricewaterhouseCoopers Ulla-Britt Larsson Authorized Public Accountant PricewaterhouseCoopers Ingvar Pramhäll Authorized Public Accountant PricewaterhouseCoopers 61

64 Board of Directors APPOINTED BY THE ANNUAL GENERAL MEETING Leif Gustafsson (194) Chairman of the Board since Board Member, Sveriges Industriförbund, Svedala, Elektrokoppar Svenska, Custos, and Gränges. Shareholding: 2,4 shares. Anders G Carlberg (1943) President of Axel Johnson International. Board Member since Chairman of the Board of Munksjö. Board Member, inter alia, Axel Johnson, Elkem, BPA, and Enator. Shareholding: 1,6 shares. Per-Olof Eriksson (1938) Board Member since Chairman of the Board of Svenska Kraftnät, Thermia and Odlander och Fredriksson o Co. Board Member, Sandvik, Svenska Handelsbanken, SKF, Volvo, ASSA ABLOY, Skanska, Custos, PREEM Petroleum, Kungl. Tekniska Högskolan, Koninklijke Sphinx Gustavsberg, and Sveriges Industriförbund. Shareholding: 1, shares. Carl-Erik Feinsilber (1931) Deputy Chairman of the Board. Board Member since Chairman of the Board of Inductus. Board Member, Bonnier and Industrivärden. Shareholding: 2, shares. ELECTED BY THE EMPLOYEES Holdings include shares owned by closely-associated persons. Tommy Andersson (1955) Steelworker, SSAB Tunnplåt. Employee representative since Dan Eriksson (1939) Engineer, SSAB Tunnplåt. Employee representative since Owe Jansson (1945) Steelworker, SSAB Oxelösund. Employee representative since