Comments on the report

Second quarter

The Group’s consolidated net sales for the period decreased by 18 percent compared to last year and amounted to SEK 1,045 M (1,272). The decline is explained by negative organic tonnage growth of -10 percent directly connected to the Finnish unit, negative price and mix effects of -4 percent, closure of the Baltic and Polish units of -2 percent and currency effects of -2 percent.

During the second quarter, the steel market in the Nordic region and Europe has continued to be characterized by uncertainty, low demand and increasing import pressure, which led to falling steel prices for both flat and long products. Besides weak market conditions, the Finnish operations sales and tonnage has been significantly negatively affected by lower efficiency since the transition to a new business system in the beginning of March. Tonnage decreased by 17 percent while the Finnish market is estimated to have decreased by approximately 7 percent. An action plan has been developed focusing on improving efficiency, delivery capacity and customer satisfaction to regain lost tonnage.

Tonnage in the Swedish operations increased by 2 percent driven by increased demand from the construction segment while demand from OEM customers and the industry segment continued to be weak.

Lower steel prices, decreased tonnage and increased costs caused by the transition to a new business system in the Finnish operations contributed to gross profit decreasing to SEK 111 M (152) and led to a gross margin of 10.7 percent (12.0). The operating result amounted to SEK -492 M (11). Adjusted for items affecting comparability of SEK -463 M and inventory gains and losses of SEK 7 M (-7), the underlying operating result amounted to SEK -36 M (18). The underlying operating margin for the period amounted to -3.4 percent (1.4).

Items affecting comparability

In the second quarter, a review of the book value of BE Group’s assets was conducted as a result of the market environment and the continued high yield requirements from the market which puts pressure on the value of the assets.

Impairment testing of goodwill and participations in shares in subsidiaries and joint venture is performed annually during the fourth quarter and upon any indication of a decline in value. The goodwill items are related to historical acquisitions in the Swedish and Finnish operations. This has led to a more conservative assessment of the the long-term earnings for the assets concerned. The testing indicates that there is a need for a goodwill impairment of SEK -409 M to better calibrate with the current market situation. Impairment of goodwill has resulted in the parent company to write-down its shares in the Swedish subsidiary  with SEK -234 M.

The book value of the new business system has also been reviewed. Certain functionality and configuration have not met the requirements and need to be adjusted to increase efficiency, which leads to a write-down of SEK -31 M.

The write-downs have been recognized as items affecting comparability and have no impact on cash flow, see note 4.

During the second quarter, the closure of the units in Arvika and Poland has in all essential been finalized and the restructuring has been completed in the Swedish unit. One-off costs of SEK -23 M are recognized as items affecting comparability during the second quarter, see note 4.

First six months

During the first six months, the Group’s net sales decreased by 17 percent compared to last year and amounted to SEK 2,150 M (2,577). This is explained by negative organic tonnage of -6 percent, negative price and mix effects of -6 percent, closure of the Baltic and Polish units of -4 percent and currency effects of -1 percent. Tonnage in the Swedish unit increased by 3 percent while the Finnish unit delivered -15 percent less. Gross profit amounted to SEK 226 M (317) and the gross margin amounted to 10.5 percent (12.3).

The operating result amounted to SEK -504 M (15), corresponding to an operating margin of -23.4 percent (0.6). Adjusted for items affecting comparability of SEK -463 M (-27) and inventory losses of SEK -3 M (-18), the underlying operating result amounted to SEK -38 M (60). During the period, the underlying operating margin amounted to -1.8 percent (2.3).