Facts and Figures as of December 31, 2020
The entire global economy was impacted by the Covid-19 pandemic in 2020. In metallurgical machinery and plant engineering, Covid-19 has accelerated the structural changes in the market.
Our first priority was the protection of our employees. As early as February 2020, an internal crisis team was set up to evacuate staff working in Wuhan. By introducing a comprehensive package of measures throughout the company, we were able to avoid chains of infection and plant closures.
At the same time, we pursued the goal of minimizing the financial impact of the pandemic as far as possible. With this in mind, we have largely postponed replacement investments, introduced short-time working in accordance with the respective national regulations, reduced overtime, offered working from home solutions, and cut back on staff capacity at various locations.
After the record high in 2018, the price level for steel products fell for the second year in succession. Global crude steel production in 2020 fell to 4.2% below the previous year’s level. China, the largest single market, recorded growth of approximately 2.0% in 2020, but this only compensated to a limited extent for the major slumps in India (–13.2%), the USA (–18.7%), Europe (–18.1%) and many other regions. Due to the decline in production, the capacity utilization of steel producers deteriorated, which in turn had a negative impact on their investment activity.
Global primary aluminum production was unaffected by the developments of the Covid-19 pandemic. At 65.3 million tonnes, it was up slightly on the previous year’s level (63.7 million tonnes). Declining production trends in Europe (–1.6%) and the rest of Asia (–5.9%) were more than compensated for by an increase in production in North America (+4.4%) and China (+4.4%), which accounted for more than half of the total production volume.
Against the backdrop of the ongoing Covid-19 crisis, steel producers and processors invested less in 2020. It is modernizations that are dominating the order books. At the same time, growing concern for the environment worldwide is driving forward the implementation of resource-saving and environmentally friendly methods and processes. System solutions for avoiding CO2 emissions, boosting efficiency and reducing costs form the basis for new investments. Digitalization is another factor that can make our customers’ production processes more cost-effective and environmentally friendly.
Trends in the metal industry
Structural change in the steel industry is progressing rapidly. While major investments in additional capacity and greenfield plants are becoming rarer, modernizations and services are growing in importance.
The metal industry is currently focused on the following issues in particular
- Green steelmaking and decarbonization of the steel industry
- Digitalization and automation
- 3D printing as a new manufacturing process
- Optimizing production capacity
These issues are also central to our own development work. In the 2020 financial year, we spent €89 million on general developments and on design enhancements to our products, which equates to 3.2% of our sales.
Sales of €2,745 million in the past financial year represented a drop of €190 million compared to the previous year (€2,935 million). We were unable to fully achieve our forecast of virtually unchanged sales, particularly as a result of the Covid-19 pandemic.
In the metallurgical plant engineering business, sales in the 2020 financial year were down year-on-year at €2,516 million (€2,669 million). Sales in the service business were also down, totaling €645 million (previous year: €713 million).
In the past financial year, our participation elexis reported sales of €179 million (previous year: €206 million), and our participation Elotherm reported sales of €56 million (previous year: €65 million).
The 2020 result was impacted by the Covid-19 pandemic and the provisions for the restructuring in Germany. As a result, SMS group closed with a distinct loss: earnings before taxes on income (EBT) totaled –€165 million (previous year: €64 million). We were unable to confirm our forecast of virtually unchanged earnings before taxes at the level we experienced the previous year.
Securing liquidity remains a top priority. We achieved significant improvements in working capital, particularly in trade accounts receivable. Cash flow from operating activities increased from €68 million in the previous year to €106 million.
Although our Group is largely self-financed, we have established a credit line as a precautionary measure in response to the Covid-19 situation. Independently of this, cash and cash equivalents increased by €46 million year-on-year to €742 million (previous year: €695 million). The advance payments received, which are customary in the industry, are secured by bank guarantees. The proportion of guarantee and credit lines used is around 37%.
In the past financial year, orders received fell to €1,885 million (previous year €3,154 million) as a result of Covid-19, a decrease of €1,269 million. Since this figure is lower than our sales, the orders on our books decreased to €3,028 million at the end of the year. In terms of order development, the growth area of Technical Service proved more robust than the other areas of business and investments. The service share of total order volume increased to 35% (previous year: 23.5%). We are expanding our range of services in order to achieve continued growth in the robust service business. Our technical expertise also gives us a competitive advantage over pure software providers in the digitalization of industrial plant, which is indispensable for many services in this sector. At the same time, we are increasingly agreeing performance-based contracts with customers. In this business model, our results-based payment reflects the value of the additional performance achieved by the customer.
In order to contain the negative impacts of the Covid-19 pandemic, we made the decision to reduce replacement investments during the past financial year. At the same time, we took advantage of opportunities for strategic acquisitions and shareholdings. This meant that the cash outflow from investment activity increased to €83 million. The volume of investment in tangible and intangible assets amounted to €58 million (previous year: €39 million). This increase is related to the construction of the new campus at the Mönchengladbach site and the new corporate headquarters of group company BST Eltromat International GmbH. Additionally, we have invested in extra network and server capacities and also IT equipment to provide for working from home.
We invested €32 million in other participations and securities held as long-term investments (previous year: €23 million). This compares with proceeds from the disposal of financial assets amounting to €28 million (previous year: €17 million).
We also use targeted acquisitions to strengthen our position in mechanical and plant engineering. For example, we have expanded our product range in extrusion lines and forging presses by acquiring the Italian company Hydromec S.r.l. as well as increasing our shareholding in OMAV S.p.A., Italy. Both companies are able to market their product portfolios through SMS group’s global network.
By acquiring the Brazilian company Vetta Tecnologia S. A., we have expanded our digitalization business to include energy and sustainability. This sector is vital for the entire steel and metals industry, as it has a significant impact on profitability and is an important lever for reducing the industry’s carbon footprint.
We also increased our shareholding in Esmech Equipment Private Limited, India.
On average, SMS group had a workforce of 14,258 in the 2020 financial year (previous year: 13,793). This moderate increase is mainly due to the acquisition of Vetta Tecnologia S. A. and the targeted acquisitions in the forging sector.
At elexis and Elotherm, the number of employees decreased slightly to 1,530 (previous year: 1,563).