Tough conditions see profits drop at Union Electric Steel UK

Challenging trading conditions led to a major drop in profits for Gateshead manufacturer, Union Electric Steel UK

Union Electric Steel UK
Union Electric Steel UK

Challenging trading conditions led to a major drop in profits for Gateshead manufacturer, Union Electric Steel UK.

The company, which makes and sells rolling mill rolls, saw operating profit drop 83% in the year ended December 31, 2012, going from £2.6m to £448,000, while final profit went from £1.7m to £87,000.

Turnover also dropped around 25%, going from £51.8m to £38.8m, newly published financial statements show.

An accompanying directors’ report said: “The decline in sales is attributable to lower demand for our product in Europe as result of low operating levels and restructuring of the European steel industry.

“In addition, sales to India and Asia continue to be impacted as the production capacity and quality of indigenous roll supply in those regions improve.

“The fall in volume of sales and output, together with a reduction in selling prices caused by competitive pressures within the roll industry adversely affected operating profit for 2012.”

The value of the company’s order backlog on December 31, 2012, was £24m, down 42.9% on the previous year.

Order intake was inconsistent and, with current market conditions remaining difficult, it is expected that the level of shipments for 2013 will be lower than that of 2012.

Cash reserves, meanwhile, increased by £4.6m during 2012.

“Cash flows were positive as a result of a reduction in inventory levels, monitoring of credit and improved cash collections,” the report said.

“This resulted in creating much improved cash reserved despite a further £2.1m being invested in fixed assets.

“The company has cash available and no external borrowings as of the end of the year.”

Union Electric Steel UK continued to operate in a “mature” industry and expenditures relating to the development of new products, identification of products or process alternatives, and modifications and improvements to existing products and processes were approximately £100,000 in 2012.

The company, which employs around 270 people, intended to continue R&D expenditure as “a further commitment to maintaining its position as leader in the market place”.

Risk-wise, the market was exposed to changes in foreign currency exchange rates and commodity prices. However, systems were in place to manage this as far as possible.

“The company views its primary market risk exposure to relate to the lack of demand in the global steel industry, which can be periodically impacted by economic or cyclical downturns,” the report continued.

“Such downturns, the timing and length of which are difficult to predict, may reduce the demand for cast steel rolls, both domestically and abroad as the year 2012 demonstrated.

“Lower demand for rolls may also adversely impact profitability as other roll producers, which complete with the company, reduce selling prices in the market place in order to fill their manufacturing capacity.”

However, the directors had a “reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future.”

Company director Chris Hersey was unavailable for comment.

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