Comments from the CEO
We expected also 2011 to become a demanding year. Continued tremors in the world economy, combined with a strong Norwegian and Swedish Krone compared to other currencies, would render extra challenges. Improved order influx towards the end of 2010 and entering 2011, would however have an effect on operation profit throughout second half of 2011.
The development of 2011 turned in a fair way out as described at the outset of the year. However, the road back to positive results has become windier than expected. We did not base our prognoses on the fact that a new European debt crisis was to relieve a deep, global financial crisis.
Our main focus in 2012 is to re-obtain profit!
Our starting point is that Scana’s traditional market is severely reduced due to the global unrest we are experiencing. We do see, however, small signs of improvement, first and foremost from positive news from the US and perhaps we also may see Europe’s unrest flattening out. With approximately 70 % direct export leaving Scandinavia, a reduced unrest in the world economy is important for Scana’s road towards a stable profit.
The global crisis has lead to increased competition in the markets we operate in. This is due to the fact that everybody is fighting hard to secure contracts in a weak market. In addition, large steel companies in Europe have lost their home market, giving increased competition in other countries where contracts are to be won.
We operate with a large part of our costs in Sweden and Norway. Both countries have strong currencies, while much of our income is in euros, pounds and dollars. Our competitors mainly operate in countries where said currencies are used. This presents us with particular challenges. Compared to a more “neutral” exchange rate, we today see a negative effect on the operating result of a total of MNOK 150. This effect is important to consider when end results are analysed. A normalisation globally and a dwindling European crisis is expected to render a more normalized Krone, having a large positive effect on Scana’s competitive power and results.
We are not low cost producers, and in light of our currency disadvantage, we need to have a strong focus on our strengths: our materials knowledge, precision of deliveries and quality, as well as closeness to our customers. We are small and flexible, having employees that put in a great effort every day. These advantages
will be put to use.
Today, our companies are leading in their niches and we have world-leading customers. This is a great starting point for oncoming work. However, we cannot take our customers good favours for granted. We must do well with every delivery, something we sadly do not always do. Through in-depth self-examination combined with an open and honest dialogue with the customers, we must rise to the challenges and make changes that will win back the trust of our customers.
Scana is acknowledged as a supplier of high quality steel. We have gradually manufactured more complete products and systems during the recent years. We are not competing to deliver a rod of steel with other steel works across the globe. Our competitive power lies in the drive to add value for the customer – when we turn high quality steel into more complete products in a way that few others can. This strategy makes us unique globally and is something that we are poised to reap the benefits of in the future. Our firm basis is a very strong knowledge and competence in materials technology.
Scana is an environmental business and manufactures some of the purest and eco-friendly steel that can be obtained, steel that is utilized in our own products and by our customers.
Our starting point is scrap metal, which, through our processes, is turned into high-quality products. It is our goal to have the smallest possible impact on our environment, irrespective of where in the world the production takes place.
We have a firm basis in our employees’ competence and attitude. When Scana succeeds with our changeovers, it is because everybody sees that change is necessary, but not at least because everyone wishes to keep the business running and the workplaces intact. This team spirit, combined with a very low absence due to illness, contributes to our competitive power and will give positive results. I wish to thank all our employees for their great efforts and positive attitude also through 2011!
What about our further development? We are going through demanding changes to strengthen our future competitive position. We are in a process towards delivering more advanced products, components and systems, cooperating closely with our core customers for a cost efficient value chain. This is a demanding journey, but over time it will secure Scana a more solid foundation and increase competitive power. We have taken over parts of the value chain from several of our key customers throughout the recent year. This has spoken for large production and competence changes in our organisation. In the long run this strengthens our position considerably and is also favourable for our customers. It is important to us to go through with these changes without turning competition against our own customers. We must seek to complement them.
Additionally, we are moving from an investment-based customer group, to more of a service based customer. Service and maintenance is less vulnerable to economic turnarounds than new sales. Within Scana Propulsion we have had a sharp increase in service and maintenance the last three to four years. This makes it possible for us to create results within the business area, even if new sales are low due to a reduced global construction activity. We see the same trend in oil and gas – and in both areas we have a firm basis for growth in the coming years.
We will continue to maintain a point of contact close to our customers in selected areas. This must happen without increasing costs disproportionally. The foundations we have in Europe/The North Sea, North America/the Mexico Gulf, Brazil, and Southeast Asia with Singapore, China and South Korea are important to us. We have no plans of spreading ourselves more. Still, we are glad to sell to customers in other areas, but without
a specific presence in the area.
An important ongoing change is to turn the group more and more towards energy/offshore. Many of our companies are already strong in this area and have good qualifications for success. In addition, the world’s need for energy will increase in the coming decades. A stronger position towards energy related activities are therefore interesting for us. This change is demanding. To supply customers in this area is more challenging than in other markets. But in the long term it is right – and that means that we have to make the move.
2012 will also be a demanding year for Scana, but we are expecting the market to gradually improve towards 2013. Our companies are poised for delivering good results when the market recovers. Small events could however manifest themselves in our operation profit more clearly than before. An event, that in a period of strong economic expansion would hardly be visible, will in this situation be noticeable. Still, for us there is but one theme – to re-obtain profit!
Yours sincerely,
Rolf Roverud
Group CEO
