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Ruukki transformation

Ruukki transformation. Marko Somerma, Senior Vice President Corporate Planning Akatemia February 10. 2006. Ruukki in Brief Why to change Strategic Choice Status of structural change Summary. Ruukki in Brief. Production. Processing. Sales and service. Ruukki today .

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Ruukki transformation

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  1. Ruukki transformation Marko Somerma, Senior Vice President Corporate Planning Akatemia February 10. 2006 Marko Somerma

  2. Ruukki in Brief • Why to change • Strategic Choice • Status of structural change • Summary Marko Somerma

  3. Ruukki in Brief Marko Somerma

  4. Production Processing Sales and service Ruukki today • Ruukki supplies a wide range of metal-based products, components and systems • Special focus on construction and mechanical engineering industries • Net sales EUR 3.7 billion in 2005 • Crude steel production capacity 3.5 Mt; rolling capacity 3.7 Mt • Approx. 12,000 employees in 23 countries Marko Somerma

  5. Why to change? Marko Somerma

  6. Arcelor 47 mt US Steel 21 mt Usinor EvrazHolding 12 mt National Steel JFE Group 31 mt Arbed Nizhny Tagil US Steel NKK Aceralia Anben 17 mt Zapsib Kawasaki Anshan11,3 mt Mittal Steel 59 mt (2004 proforma) Kuznetsk International Steel Group LNM Holdings Benxi5,5 mt 16 mt = LTV + Bethlehem Steel + Acme Steel + Weirton 43 mt Ispat Int’l Nippon + Sumitomo + Kobe 51 mt Nippon Steel 31,4 mt Baosteel 21mt RED = merger implemented / announced BLUE = alliance partners Figures for 2004 crude steel production(MB 21.3.2005) KobeSteel 7,7 mt Posco 31 mt Sumitomo 12,3 mt Mittal Steel the first truly global player Marko Somerma

  7. Major steel producers in Europe 30,2 bEUR 47 mt Arcelor 13,8bEUR 20 mt Corus 13,7 bEUR 17 mt ThyssenKrupp Steel 8,0 bEUR 18 mt Mittal Steel Europe 7,9bEUR 17 mt Riva 5,9bEUR 8,7 mt 5,4bEUR 6,0mt voestalpine Salzgitter 2,7bEUR 4,1 mt 3,6bEUR 4,5mt Rautaruukki SSAB Net sales and crude steel production 2004. Marko Somerma

  8. Trends in supply Consolidation Globalisation Up-streaming Service for volume markets Trends in customer demand Down-streaming Outsourcing Product specialization New application segments Industry playground is changing Opportunities for big global players New business niches emerge Marko Somerma

  9. Strategic Choice Marko Somerma

  10. Our vision: solutions for specific segments based on customer needs Construction Construction Engineering Engineering Solutions Solutions Solutions Service Metal Products Metal Products Metal Products 2008-2010 The most desired solution supplier 2003 Reliable steel producer Marko Somerma

  11. Strategic intent A leading metal based CONSTRUCTION solution provider in Nordic & CEE countries A leading solution provider for specific ENGINEERING customers in Northern Europe Leading METAL PRODUCTS supplier in Nordic & Baltic countries Marko Somerma

  12. Closer to customers in the value chain Category Example • Why to seek growth from solutions? • Profitable long term growth • Reduces our exposure to cyclical changes • Customers are searching for strong realiable strategic partners Integrated systems • Drilling rig system • Prefabricated halls Systems • Cabins, booms & frames • Building façade solution Solutions Components & parts • Paper machine rolls • Airbag components • Panels • Flame-cutparts • Why to reduce share of standard steel products? • We do not see growth potential in traditional steel industry and we do not have distinctive competitive advantage against low cost producers Special products • High strength steel • Coated products Products • HDG • HR & CR • Plates & tubes Standard products Marko Somerma

  13. Ruukki´s products and services Metals Construction Engineering Customized cabins for mobile machines Sheets Frames and other load-bearingstructures, roofs Cabins, actuators and frames forforest machines Coils Facades and prefabricated walls Frames, masts, booms and cabins for material handling equipment Piling and foundations Parts Marko Somerma

  14. Status of structural change Marko Somerma

  15. Actions taken Ruukki Construction – Steel-Mont 1) ~25 Me Ruukki Construction – PPTH ~100 Me Dec 2005 Ruukki Engineering – Weibulls ~50 Me Oct 2005 Ruukki Engineering – sale of Halikko unit about -10 Me Sept 2005 Ruukki Construction – Metalplast ~65 Me Aug 2005 Ruukki Metals –Froh Housetech -10 Me Ruukki Engineering – Velsa ~50 Me June 2005 May 2005 Ruukki Metals – restructuring of long products about -600 Me Nov 2004 1) acquisition awaiting for approval from competition authorities * Lifting, Handling and Transportation Marko Somerma

  16. Jan-Sep 2004 Ruukki Construction and Ruukki Engineering 19 % 81 % of net sales Ruukki Metals Marko Somerma

  17. Running rate November 2005 Ruukki Construction and Ruukki Engineering incl. full year effect of acquisitions in 2005 and Ovako 32 % 68 % of net sales Ruukki Metals Marko Somerma

  18. Target in 2007 Ruukki Construction and Ruukki Engineering Ruukki Metals Marko Somerma

  19. Summary Marko Somerma

  20. Strategy aims at good profitability over the cycles • Enhancing profitability: • less capital intensive • improving cost-competitiveness • balanced corporate structure decreases vulnerability to cyclical changes Marko Somerma

  21. Summary • Changing steel industry prompted Rautaruukki to apply the new strategy • Attractive growth prospects in targeted customer sectors and geographical areas • Strong focus also on internal efficiency and profitability • Platform for new corporate structure in place • Solid financial position enables the continued strategy implementation Marko Somerma

  22. Financial Review 2005 February 8, 2006 Marko Somerma

  23. Ruuki in Brief • Strategy Moving Ahead • Business Environment • Financials 2005 • Dividend Proposal • Near-term Outlook • Summary Marko Somerma

  24. Ruukki in Brief Marko Somerma

  25. Production Processing Sales and service Ruukki today • Ruukki supplies an integrated range of metal-based products, components and systems • Special focus on construction and mechanical engineering industries • Net sales EUR 3.7 billion in 2005 • Crude steel production capacity 3.5 Mt; rolling capacity 3.7 Mt • Approx. 12,000 employees in 23 countries Marko Somerma

  26. Ruukki´s products and services Metals Construction Engineering Customized cabins for mobile machines Sheets Frames and other load-bearingstructures, roofs Cabins, actuators and frames forforest machines Coils Facades and prefabricated walls Frames, masts, booms and cabins for material handling equipment Piling and foundations Parts Marko Somerma

  27. Strategy Moving Ahead Marko Somerma

  28. Our vision: solutions for specific segments based on customer needs Construction Construction Engineering Engineering Solutions Solutions Solutions Service Metal Products Metal Products Metal Products 2008-2010 The most desired solution supplier 2003 Reliable steel producer Marko Somerma

  29. Strategic intent A leading metal based CONSTRUCTION solution provider in Nordic & CEE countries A leading solution provider for specific ENGINEERING customers in Northern Europe Leading METAL PRODUCTS supplier in Nordic & Baltic countries Marko Somerma

  30. Potential in customer industries • Increasing demand for integrated systems • Strong growth in CEE, Russia and Ukraine • Metal based market about EUR 7.5 bn • CONSTRUCTION • Customers going downward in value chain and outsourcing operations • Major opportunities in Lifting, Handling and Transportation (LHT) • LHT target market about EUR 1.4 bn • ENGINEERING CUSTOMERS • Solid market position in Scandinavia • Expanding service centre activities • More vertical value adding • Share of special products (i.e. extra high strength steel) increasing • METALS Marko Somerma

  31. Actions taken Ruukki Construction – Steel-Mont 1) ~25 Me Ruukki Construction – PPTH ~100 Me Dec 2005 Ruukki Engineering – Weibulls ~50 Me Oct 2005 Ruukki Engineering – sale of Halikko unit about -10 Me Sept 2005 Ruukki Construction – Metalplast ~65 Me Aug 2005 Ruukki Metals –Froh Housetech -10 Me Ruukki Engineering – Velsa ~50 Me June 2005 May 2005 Ruukki Metals – restructuring of long products about -600 Me Nov 2004 1) acquisition awaiting for approval from competition authorities * Lifting, Handling and Transportation Marko Somerma

  32. Integrated systems for construction Marko Somerma

  33. Focus on growing eastern European commercial construction Annual change (% by volume) 2006e Western Europe Eastern Europe 4,0 -0,6 New residential 1,5 6,3 New commercial 13,5 2,9 New civil engineering 1,8 4,0 Residential renovation 1,3 4,2 Commercial renovation 1,3 6,4 Civil engineering renovation Source: Euroconstruct Marko Somerma

  34. Processing / Components & partsDE SundernSE AnderslövRU StPeterburg Prefabrication / Flat rolled productsFI Järvenpää, NaantaliSE HalmstadNO FredrikstadPL ZyrardowDE Duisburg Prefabrication / Long productsFI HyvinkääNO Oslo, Trondheim Stocking, with lim. prefabricationEE Tallinn LV RigaLT Vilnius PL GdanskHU BiatorbagyNO Bergen, Bryne, Fauske, Kopervik, Porsgrunn, Tromsø, Ørsta Service centers and processing units Marko Somerma

  35. Role of service centers and processing PROCESSING UNITS - additional services compared to service centres- contract manufacturing Components and complete deliveries - cabinets for electronic industry- panels for household appliances- airbag components- parts for light engineering industry SERVICE CENTRES Flat rolled products- cutting to length, slitting- re-coiling, bending - laser- and plasma cutting (alu, stainless) Long products- sawing, laser cutting - shot blasting, priming Tailor made semi-finished productsfrom own production and external suppliers Supported by:- mill deliveries- standard materials from stock- excellent customer service STOCKS - comprehensive product sortiment- effective logistics Standard products -sortiment matched to local market and specific customers- local presence supported by mill deliveries Marko Somerma

  36. Special Products • Special products are less price-sensitive than standard products • Main line of businesses: • heavy engineering outside Nordi • Electronics and Automotive subcontractors • Long-term customer relationships • Examples of special products: • High- and ultrahigh strength tubes and flats • Organic coatings for roofing+facades, dirt resistant applications, anti-bacterial applications • Abrasion resistant steels Marko Somerma

  37. Business Environment Marko Somerma

  38. Overall demand in 2005 was good • Good demand continued in construction and engineering industries • construction activity high in the main markets • commercial construction • infrastructure construction • continued strong order books in engineering • Lifting, Handling and Transportation • Offshore and Marine • Steel product markets showed signs of strengthening towards the end of the year • Market disturbances decreased apparent demand for standard steel products especially during the summer months • Steel industry adjusted output according to apparent demand Marko Somerma

  39. Commercial construction* activity has been strong in CEE and Baltics Value ofcommercial construction Europe 2005, Eur billlions Growth in commercial construction Europe 2002-2005e, percent EST Baltics LAT 2002 2003 2004 2005 LTU CEE POL CZE SVK 2002 2003 2004 2005 HUN Nordics 2002 2003 2004 2005 WesternEurope * Includes new construction and renovation 2002 2003 2004 2005 Source: Euroconstruct, VTT Marko Somerma

  40. 450 400 350 300 250 index 200 150 100 50 0 2000 2001 2002 2003 2004 2005 1-9 Strong increase in LHT players’ order books Source: Compiled order book data of some LHT players within Ruukki’s market Marko Somerma

  41. Apparent and Real Steel Consumption in EU, %-change quarter on quarter Forecast Source: Eurofer, January 2006 Marko Somerma

  42. Product price development in Germany 1985 index = 100 Source: Statistisches Bundesamt, Germany

  43. Financials 2005 Marko Somerma

  44. Full year 2005 • Comparable net sales increased by 14 % • the share of the solution businesses increased to 28 % of net sales (21 % of 2004 comparable net sales) • Profitability at a high level • active measures to improve the sales structure • positive price development • Deliveries decreased by 7 % on comparable basis • production was adjusted according to profitable demand • Balance sheet structure strengthened further • gearing 22.8 % at the year end Marko Somerma

  45. Fourth quarter versus third quarter: Highlights • Group net sales and deliveries increased from third quarter • seasonally strong quarter in engineering and Syneco consolidated in Ruukki Engineering • improving market activity in steel products • low season in construction • EBIT increased from third quarter • profitability at a good level • active measures to improve sales structure were continued • steel product prices decreased somewhat • Share of Ovako profit was affected by one-off costs • total Ovako one-off costs amounted to EUR 25 million in Q4 Marko Somerma

  46. Net sales, Group total 3402 3192 3019 Excluding Ovako Comparable with 2005 Years 2000 – 2003 according to FAS and from 2004 according to IFRS. Marko Somerma

  47. Group net sales by division2005 (2004) Ruukki Construction 550 m€ (377 m€) 15 % (11 %) Ruukki Engineering 476 m€ (329 m€) 13 % (9 %) Ruukki Metals 2625 m€ (2850 m€) 72 % (80 %) Marko Somerma

  48. Group net sales by area2005 (2004) Other countries 3 % (3 %) Finland 29 % (26%) Other Western Europe 26 % (32 %) CEE-countries 12 % (11 %) Other Nordic 30 % (28 %) Marko Somerma

  49. Quarterly net sales, Group total 878 846 822 770 736 667 Comparable figures with Q4/05 Years 2000 – 2003 according to FAS and from 2004 according to IFRS. Marko Somerma

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