Important steps to create a strong and profitable company for the long term

When we summarize 2016, we can see that many changes were made and that a stronger base to build our future on has been created. We introduced a new decentralized organization focused on our two core businesses: Distribution and Production, at the same time that we discontinued unprofitable units in the Czech Republic and Slovakia. A new simplified customer segmentation was introduced, to have a clearer customer focus and make the work of adapting our product offering easier. We have started the work on an overall purchasing strategy where we want to build a more defined partnership with selected suppliers. Part of this was that the Group Management was extended with a sourcing director to give the right focus on this important work. In the business units, new management is in place that represents a good mix of experience and new energy. We have now created an organization that is motivated with clear roles and responsibilities, and are working in the same direction. After intensive efforts during the year and with several challenging years behind us, we now look at the future with optimism and great curiosity. Our journey has just begun. I would therefore like to take this opportunity to express a huge thank you to our employees for all of your extraordinary work during the year.

Better financial development

BE Group’s sales in 2016 decreased by 7 percent to SEK 3,870 M, mainly attributable to the restructuring of the operations in the Czech Republic and Slovakia. Tonnage in our main markets, Sweden and Finland, increased by 2 percent in total. The underlying operating profit increased by more than 50 percent to SEK 33 M, which shows that our measures for improved profitability have begun to yield results. The price increase on steel resulted in inventory gains of SEK 28 M, which together with the better underlying earnings and lower non-recurring costs, contributed to the operating profit improving to SEK 16 M compared with SEK -114 M in the preceding year. Cash flow also developed positively, due to a significantly better operating profit and lower capita tied-up l. With the improved cash flow, we were able to reduce the net debt. Altogether, BE Group has a strong financial position with lower net debt and good liquidity.

Positive market development

In connection with the Lehman crash in 2008, the world market for steel consumption collapsed. In the Group’s main markets, steel consumption was nearly halved between 2007 and 2009. The market has since then been challenging with lower consumption and low prices. In 2016, however, the price of steel began to rise, which has a directly positive impact on earnings for our business. We also saw rising growth in the distribution markets in Sweden and Finland. In general, the market climate was more positive this year. In our main markets, Sweden and Finland, the housing sector continued to be strong and the industry sector also had a positive development.

Improvement potential in Business Area Sweden & Poland

Sales for Business Area Sweden & Poland declined by 5 percent to SEK 1,941 M in 2016, mainly as a result of lower average prices. Operating profit improved to SEK 25 M compared with SEK -79 M in the previous year. The Distribution business is improving its earnings, but the underlying operating profit was lower, which is due to a negative earnings trends in the business area’s project operations Lecor Stålteknik in Kungälv and the production operations in Eskilstuna. During the autumn, we implemented organizational changes and a number of measures in these units and are expecting stronger earnings in 2017.

Good development for Business Area Finland & Baltics

Sales for Business Area Finland & Baltics amounted to SEK 1,794 M, which was an increase of 3 percent compared with the previous year. Operating profit improved strongly to SEK 68 M (21), helped by inventory gains. The underlying operating profit improved by 80 percent to SEK 54 M. Delivered tonnage increased by 4 percent during the year and the price was rising. In Finland, the market grew strongly, especially for the construction industry and our capacity utilization increased in the autumn. In the Baltic countries, the market was stable and BE Group held its position among the many other players.

Closure of unprofitable units

During the year, the decision was made to close our operations in Slovakia as well as the sales operations of flat carbon steel in the Czech Republic. We also closed a minor production unit in Estonia. These units had too low sales and were struggling with profitability problems for many years. The affected staff implemented the closure commendably and contributed strongly to a successful process. The costs of the closures are according to plan and savings will be realized in early 2017.

The change programme BE Group 2.0

The restructuring and changes implemented during the year are following the plan that we set up in the form of our change programme BE Group 2.0. The programme includes our new decentralized organization with the split into Distribution and Production, focus on main markets, new customer segmentation for a more adapted customer offering, greater focus on strategic purchasing and the closure of unprofitable operations.

Achieving good profitability with the current volume

Our change programme forms an important part in our long-term strategy. We come from a long period of negative profitability, so the first step is to ensure profitability at the current volumes and the next step is to generate growth. With the changes made as a base, we have now begun work to analyse the long-term strategy. Our goal is to generate growth by strengthening our positions in existing markets and to achieve a long-term underlying profit margin of at least 5 percent.

Outlook

Efforts to improve the Group´s performance continue in many areas. In our main markets we believe in a somewhat growing market in 2017. The price increase for steel products that we have seen during the year has provided a more sustainable situation. Current trade barriers, as well as anticipated future ones, make the market more regional, which should lead to a more stable price development. We are continuing to work according to plan and market conditions are, after several years of negative growth, now brighter.

Anders Martinsson

President and CEO