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April 29th, 2009
- Reports
Sandviken Sweden - Sandvik results shocks stock analysts but not industry insiders
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The market situation for Sandvik Materials Technology that includes wire and tube remained very weak during the first quarter of 2009, mainly because of low demand from most customer segments. An exception being the energy segment, (which includes Sandvik Tube) comprising products for nuclear power and oil/gas, continued to perform strongly in the first quarter. To this effect Sandvik Inc. has leased new industrial space in northwest Houston that will allow the company to expand the local material technology tube products operation by 60 percent. The 80,000-square-foot building in Cole Creek Business Park where it will house the southeast regional sales office and warehouse for material technology tube products.
Sandvik traditionally does not report results per segment. For the entire Sandvik Materials Technology sector order intake fell by 40% and invoicing by 31% at fixed exchange rates for comparable units. The effects of changed metal prices had a negative impact on order intake and invoicing of about 12 and 16 percentage points, respectively. The market for mainly tube products for the energy segment remained strong during the quarter. Demand for products to the nuclear industry was very good and a high degree of capacity utilization was reported. Order intake from the oil/ gas industry was also healthy.
Demand from other segments, mainly the automotive and consumer related industries, was weak or exceptionally weak essentially in all markets and for all product areas. Low activity in the mining sector meant that the volume of drill steel products decreased dramatically. High value-added products demon demonstrated a clearly superior trend to low-value added
products.
The low volume trend resulted in low capacity utilization especially in capital-intensive areas of the production process, such as smelting plants and rolling mills, thus entailing the under-absorption of fixed costs. The action program aimed at offsetting this continued during the quarter and mainly involved personnel reductions and production restrictions to reduce costs and inventory levels.
The workforce was reduced by about 300 employees during the quarter and inventory was reduced by about SEK 600 M.
Total nickel inventory levels declined from 10,000 tons to 9,000 tons. Changed metal prices had a negative effect of SEK 426 M on earnings.
Operating profit in the first quarter was negatively impacted by about SEK 750 M by the fall in sales and production volumes. Changed exchange rates had a positive impact of about SEK 200 M.
The operating loss totaled SEK 521 M (profit: 82) or 12.2% of invoicing. Adjusted for the effects of changed metal prices, the operating loss was SEK 95 M (profit: 599), or 2.2% of invoicing.
Return on capital employed declined to 3.2% (9.8).
Commenting on the results Sandvik~{!/~}s President and CEO Lars Pettersson said "The exceptionally weak market position that prevailed at the end of 2008 continued during the first quarter of 2009. Order intake declined in price and volume by 39% compared with the corresponding quarter in the preceding year, including cancellations amounting to approximately SEK 900 M, relating mainly to mining equipment. Order intake leveled out on a low level. Invoiced sales fell in price and volume by 25% and totaled slightly more than SEK 19 billion." "A reduction in inventory levels in all business areas was achieved by the rate of production being lower than invoiced sales. There was a significant decrease in operating profit as a result of a sharp drop in sales and production volumes." "The weak demand means that we continue to take measures that gradually result in lower cost levels. Since the downturn began, we have reduced the workforce by more than 5,000 people. Our collective activities aimed at rapidly adjusting the rate of production and inventory levels and prioritizing cash flow already started to yield results in this quarter,"
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