Sandvik Materials Technology will adjust capacity and order backlog for steam generator tubing to reflect the current market conditions in the nuclear power industry.
The order backlog will be written down by 1.1 billion SEK, negatively affecting the order intake in the second quarter by the corresponding amount. The overall net effect on the operating profit due to closure of related currency hedges, as well as impairment and restructuring charges as a result of the capacity adjustment, is estimated to be slightly positive.
The capacity adjustment of steam generator tubing will be implemented by phasing out the older installed steam generator tubing mill in Sandviken, Sweden, and concentrating all the production to the new steam generator tubing mill in Sandviken, which commenced commercial production in 2012. The older steam generator tubing mill will be mothballed, thus minimizing costs while creating the option to restart production if demand recovers. The capacity adjustment will take place during the second quarter of 2014, by the time all production of steam generator tubing will be transferred to the new mill.
The adjustment of steam generator tubing capacity will result in redundancies affecting around 110 full time employee equivalents in Sandviken. The redundancy is expected to be handled through reducing third party workforce, natural employee turnover and voluntary agreements. Despite this capacity adjustment, Sandvik will still be able to fulfill its present contractual obligations to its customers. While there remains continued uncertainty in the global nuclear power industry, the current assessment is that the need for further adjustments to order backlog is limited.
In conjunction with the capacity adjustment, Sandvik Materials Technology will close currency and nickel contracts relating to existing hedges of the orders that will be written down. This is estimated to generate a positive effect on the operating profit of approximately 300 million SEK, of which about 200 million SEK will impact cash flow. Impairment testing of total steam generator tubing capacity will be carried out and finalized in June 2013. The net effect on the operating profit from closed hedges, impairment charges and restructuring costs is estimated to be slightly positive and will affect the financial statements for the second quarter.
"The nuclear power industry is a key segment for Sandvik, and we will retain our strong position despite this capacity adjustment. Mothballing the older mill minimizes costs, but it also gives us the option to restart production when the market is ready," says Petra Einarsson, President of Sandvik Materials Technology.
Stockholm, 12 June 2013