The machinery and plant manufacturer SMS Group looks back on a challenging business year 2020, but gives a positive outlook for the current year.
The challenging business year 2020 – especially in its business with new plants – was mainly due to the effects of the Corona pandemic, but the company’s outlook is positive, as SMS already saw an increasing market recovery in the first half of 2021, which is reflected in a significant increase in incoming orders, as CEO Burkhard Dahmen explained during the presentation of the annual results via video webcast.
Challenging business year 2020 – order intake down 40 %
In 2020 order intake fell by around 40 % to EUR1,885m compared to the previous year. The service business, which is included in this figure, proved considerably more stable, decreasing by only 10 % to EUR665m. The order backlog declined to EUR3,028m. This means that orders remain at a high level, though they no longer ensure full capacity utilization in all product areas. At EUR2,745m, sales were 6.5 % down on the previous year.
Even though the instrument of short-time working was used at a very early stage, the 2020 result was impacted by the consequences of the coronavirus pandemic and by provisions for the restructuring measures in Germany. As a result, SMS closed the business year with a clear loss: the pre-tax result stood at minus EUR165m (2019: plus EUR65m).
Net liquidity, on the other hand, was bolstered by around 4 % to EUR863m. Investments more than doubled compared to the previous year, totaling EUR83m.
Positive outlook – customers are investing in new plant technology
Many customers are currently reviving projects that had been put on hold and investing in new plant technology. SMS Group’s regional focus, which assures greater proximity to markets, has already been bearing fruit. Since the beginning of the year SMS has registered an increasing market recovery, which is reflected in a significant increase in incoming orders in the first half of 2021. Against this background SMS expects a significant rise in order intake and turnover for the entire business year.
Lower capacity utilization requires cost adjustments
For the coming years, SMS expects its core business of metallurgical plant construction to see stable development, though remaining short of its pre-pandemic level. To strengthen the competitiveness of the German sites and adjust the cost structure to the lower level of capacity utilization, personnel costs will have to be cut by approximately another EUR100m. Talks with the trade union IG Metall have already commenced.
Pooling of decarbonization competence
The global steel and non-ferrous metals industry is facing a great transformation challenge. Due to the ambitious environmental and climate targets that have been set in all key steel regions of the world, steel producers are coming under growing pressure to innovate and invest. The complete acquisition of Paul Wurth S.A. by SMS in April 2021 has led to all R&D activities in metallurgy and hydrogen technology being brought together under one roof. The group is now in a position to offer the entire range of technologies relevant to the decarbonization of metallurgical processes.
Dahmen: “With our wide range of ‘bridge’ technologies developed for the decarbonization of the industry, we can support our customers in every phase of the transformation to climate-neutral steel production. This applies to both existing plants and the development of new ones.”
Growth in the service and digitization businesses
For the next years, SMS forecasts a significant recovery in its business, driven in particular by digitization projects and the market launch of the joint ventures Primobius (battery recycling) and Boxbay (port logistics). Dahmen explains: “We see that we have chosen the right growth strategy and that it will continue to be successful as we emerge from the pandemic. We are determined to return to our path of profitable growth in the current business year.”
The technical service businesses too remains a key driver of new orders. There is a growing trend toward integrated service packages, for example in the form of performance-based agreements. In addition, the 2020 business year saw an expansion of the service business via strategic buyouts: the acquisition of Vetta Tecnologia S.A. now enables SMS to offer its customers energy management solutions for the highly complex production chains in the metals industry.