SSAB Svenskt Stål AB

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SSAB Svenskt Stål AB

Birger Jarlsgatan 58
Stockholm,
Sweden
Telephone: (+ 46 8) 45 45 700
Fax: (+46 8) 45 45 725
Web site: http://www.ssab.se

Public Company
Incorporated: 1978
Employees: 8,737
Sales: SEK 31.05 billion ($4.54 billion) (2006)
Stock Exchanges: Stockholm OMX Nordic
Ticker Symbol: SSAB
NAIC: 331111 Iron and Steel Mills; 332322 Sheet Metal Work Manufacturing; 421510 Metal Service Centers and Offices.

THE 1978 FORMATION OF SSAB

FURTHER RESTRUCTURING AND STOCK LISTING

SHIFTING FOCUS TO HIGH-STRENGTH STEELS

2007: AN ACQUISITIVE TURN

PRINCIPAL SUBSIDIARIES

PRINCIPAL DIVISIONS

PRINCIPAL COMPETITORS

THE 1978 FORMATION OF SSAB

At one time the world’s largest exporter of steel, the Swedish steel industry was deeply troubled at the time of the formation of SSAB. The Swedish government decided to concentrate the country’s ailing steel industry under one umbrella group, engineering the merger of the three largest steel producers on January 1, 1978, to create SSAB Svenskt Stål AB. The oldest of the merged concerns was Domnarvets Järnverk, which was located in Borlänge in central Sweden. Stora Kopparbergs Bergslags AB (which later merged with Enso Oyj to form Stora Enso Oyj) had founded Domnarvets in 1878 through the merger of several smaller iron mills. Norrbottens Järnverk (NJA) was established by the Swedish state in 1940 in the northern seaport of Luleå on the island of Svartö. In addition to its steel mill, NJA also brought to SSAB its Plannja subsidiary, a supplier of building sheet products that NJA had established in 1967. The third of SSAB’s predecessors was Oxelösunds Järnverk, a firm based in Oxelösund, south of Stockholm, that had been owned by Gränges AB. Established in 1915, the mill had gained its more modern form by the 1960s with its expansion into an integrated ironworks, steelworks, and rolling mill, with heavy plate as the main product.

All three of these operations were flirting with bankruptcy at the time SSAB was formed. Heading the negotiations that led to the merger was the managing director of NJA, Björn Wahlström, who was named managing director of SSAB. Reflecting the previous ownership, the Swedish state held a 50 percent stake in SSAB on its founding, with Stora and Gränges each owning 25 percent. This structure held until 1981, when Stora sold its stake to the Swedish state; Gränges, in the meantime, had been acquired by AB Electrolux the previous year.

The three main mills that had been amalgamated were given different responsibilities under the new umbrella company. The mill in Borlänge was given the task of specializing in strip, sheet, wire, and rails; the Luleå mill was charged with producing beam products and universal steels; and the Oxelösund operation was to concentrate on heavy plate. The merged companies also brought to SSAB various related operations, including ore mines, wholesaling businesses, and railway enterprises. In the extensive restructuring that was carried out between 1978 and 1981, these noncore activities were gradually divested, thousands of jobs were cut from a staff that had initially numbered nearly 18,000, overall steel output capacity was cut by a quarter, the remaining mills were modernized, and a new thin steel sheet line was built at Borlänge. Also during this period, SSAB strengthened its position in the domestic steel market through the 1979 acquisition of Swedish steel distributor Tibnor AB.

By 1982 the restructuring, which was aided by SEK 5 billion in government financing, had cut annual costs by SEK 1.1 billion. SSAB had suffered a net loss of SEK 669.5 million in its first year and then whittled down its red ink over the new few years. The firm eked out a pretax profit of SEK 23 million in 1982 before achieving a more robust profit of SEK 303.4 million ($38 million) one year later. In 1984 pretax profits surged 86 percent, to SEK 565 million ($60.7 million), while sales climbed 15 percent, to SEK 11.96 billion ($1.28 billion).

COMPANY PERSPECTIVES

SSAB is a global niche producer of high-strength steel with a leading market position and productivity which develops solutions in order to increase the competitiveness of its customers.

In the plate area, investments are taking place within quenched steels, i.e., abrasion-resistant steels and high-strength construction steels, in which the Group is a world leader. Investments within the sheet area are taking place within high-strength steels, especially extra and ultra high-strength sheet, in which the Group is one of the leading companies in Europe.

By using quenched steels or high-strength sheet, customers are able to improve their products and thereby their profitability. This creation of added value is a process that often takes place in close co-operation with the customer. The added value that is created benefits both the customer and SSAB and thereby ensures continued good profitability for the Group.

FURTHER RESTRUCTURING AND STOCK LISTING

Wahlström had left SSAB in 1981 to lead Swedish iron ore producer LKAB, one of SSAB’s suppliers, and was succeeded by Henry Lundberg. Wahlström returned in 1986 as both chairman and managing director and led the company through another phase of restructuring and the firm’s stock exchange listing. Prior to these events, however, the ownership structure changed again. Late in 1986 the Swedish state purchased Electrolux’s 25 percent in SSAB, and LKAB loaned the company SEK 700 million ($100 million). As an outcome of the latter move, LKAB eventually gained a 22 percent stake in SSAB. Around this same time, a consortium of Swedish insurance companies and pension funds, led by the Skandia AB insurance group, purchased a 33 percent stake in SSAB.

The major restructuring carried out in 1987 and 1988 further narrowed SSAB’s focus to two main product lines: steel sheet, produced at the Borlänge plant, and steel plate, produced at Oxelösund. In 1988 subsidiaries were created to oversee these two areas. SSAB Tunnplåt AB focused on steel sheet, while SSAB Oxelösund AB handled the steel plate activities. The Luleå mill, which became part of SSAB Tunnplåt, concentrated on basic steelaking and served as a feeder for the Borlänge plant. The various divestments made as part of this restructuring entailed a further workforce reduction of 15 percent, or approximately 2,200 jobs.

The foundation was thus laid for a successful listing of SSAB’s shares on the Stockholm Stock Exchange. The soundness of the company’s more focused strategy became evident in 1989 when pretax profits totaled SEK 1.5 billion ($240 million). In July of that year, the Swedish state successfully floated SSAB’s stock on the exchange.

European steelmakers were hit hard by the recession of the early 1990s, with prices falling and demand for steel in Sweden dropping 15 percent in 1991. In this environment, SSAB still managed to make a profit of SEK 200 million, one of the few European steelmakers to operate in the black. The company did not fare as well the following year, when a weak Swedish economy translated into a modest loss of SEK 165 million ($21 million). SSAB swung back to profitability in 1993. One year later, the Swedish state divested the last of its ownership interest in the company.

SHIFTING FOCUS TO HIGH-STRENGTH STEELS

In the mid-1990s, under the leadership of Leif Gustafsson as chief executive, SSAB decided to embark on a strategy shift that entailed a gradually increasing presence in the niche of high-strength flat steels, specifically very high strength steel sheet products and quenched steels within the steel plate area. Quenched steel plate was used in such products as mobile cranes, cement mixers, containers, and barges. Increasing production in these “value-added” niche areas was enticing because they held the promise of higher profits than could be earned through standard flat steel products.

To support this shift, SSAB embarked on a major investment program, spending approximately SEK 3.5 billion ($430 million) from the late 1990s into 2001 on several projects. In 1998 a new plate mill came online at Oxelösund that replaced the previous mill and enabled higher quality steels to be produced faster, supported the production of thinner and smoother plate, and increased capacity by around 60 percent. That same year, an upgrade enabled the Borlänge mill to begin producing thinner high-strength steel. In 2000 the larger of two blast furnaces at Luleå was upgraded and expanded to double its capacity, and this investment also allowed the plant’s small blast furnace to be shut down, resulting in considerable cost savings. The last major component of this program was the installation of a second quenching line at Oxelösund, which boosted output of heat-treated plate and increased production of thinner quenched plate. When this line began production in 2001, SSAB’s overall capacity for quenched plate increased by 50 percent. Between 1996 and 2000, before this quenching line had been completed, SSAB had increased its production of niche products by 55 percent.

KEY DATES

1978:: The Swedish government engineers the merger of the nation’s three largest steel producers to create SSAB Svenskt Stål AB.
1982:: Company posts its first profit.
1989:: SSAB’s stock makes its debut on the Stockholm Stock Exchange.
1994:: Swedish state divests the last of its ownership interest in SSAB.
2001:: Company completes a major investment program that supports its shift in emphasis toward high-strength steels.
2007:: SSAB acquires IPSCO Inc. for $7.66 billion.

Anders Ullberg, who had been promoted from executive vice-president to president and CEO in 2000, oversaw the completion of the investment program. From 2001 to 2005, SSAB’s production of its core niche products grew by an average of more than 15 percent per year, while the company’s more standardized products declined somewhat in volume. The niche products grew to encompass more than one-third of SSAB’s steel deliveries and were exported around the world. More than 90 percent of these products were sold outside Sweden. During this period, China became the world’s largest steel market, and SSAB found that this rapidly growing country was an increasingly attractive target for its niche product exports. By 2006, the company was generating 2 percent of its sales in China.

Despite steep increases in raw material costs, SSAB enjoyed stellar results for the period from 2004 to 2006 as the shift to high-strength steels paid clear dividends. Sales reached a record SEK 31.05 billion ($4.54 billion) in 2006, while net profits soared to SEK 4.25 billion ($621 million), making SSAB one of the world’s most profitable steelmakers. Earnings per share skyrocketed from SEK 1.90 in 2002 to SEK 16.02 in 2006. In April 2006 Ullberg retired and was succeeded by Olof Faxander. The 35-year-old Faxander joined SSAB from Outokumpu Oyj, a Finnish stainless steel manufacturer, where he had served as vice-president in charge of the firm’s specialty stainless steel business.

2007: AN ACQUISITIVE TURN

In early 2007 SSAB unveiled a new strategic plan centered around a goal of achieving global leadership in high-quality niche steel products by 2010. The plan aimed to accelerate growth in the firm’s niche areas, to increase the profitability of its plants, and to strengthen and enhance the company’s overall operations. While growth to this point had been of the organic kind, SSAB announced that it was considering acquisitions as well.

In May 2007 the company followed through on this plan by reaching an agreement to acquire IPSCO Inc., a Canadian company with operational headquarters in Lisle, Illinois, for $7.66 billion in cash. Like SSAB, IPSCO was a niche steelmaker, producing steel plate as well as pipe and tubular goods for the oil and natural gas industry. With relatively new mills in Montpelier, Iowa, and Mobile, Alabama, as well as another mill in Regina, Saskatchewan, IPSCO in 2006 had garnered net income of $643.1 million on sales of $3.78 billion. Speculation arose about a possible post-acquisition sale of IPSCO’s pipe and tube operations, a move that would enable SSAB to continue its concentration on steel plate and steel sheet. With or without such a divestment, the acquisition of IPSCO promised to significantly bolster SSAB’s presence in North America and represented a major step toward fulfilling the company’s ambitions for global leadership. Upon the deal’s completion in July 2007, the acquired company was organized within SSAB as the IPSCO Division.