SKF Cuts Ovako Workforce by 8%

SKF AB (Sweden), the world's largest bearing manufacturer, will cut its Ovako Steel division workforce by 8%, or 165 people. Ovako is the world's largest manufacturer of hot-rolled and cold-rolled high carbon steels used to manufacture ball and roller bearings. The company specializes in tube, bar stock, wire and rolled rings, but also offers component preprocessing to customer specifications. Low alloy construction steel is also available. Ovako has four manufacturing locations: Hallefors, Hofors and Karlskoga in Sweden, and Carignan in France. The cutback and its related costs were already hinted and included in SKF's fourth quarter 2003 financials, released in October 2003. At the time, SKF indicated most of the cuts would be in Hofors, but did not elaborate in the latest announcement. In its third quarter report, SKF said, "In October, as a result of the review of the steel operations, a restructuring programme was initiated at Ovako Steel. Higher prices for both raw materials -- mainly scrap -- and energy as well as the strong negative impact of the currency development has created a need to substantially reduce costs. In addition to the programme for Ovako Steel, some further restructuring activities affecting other Group facilities will be implemented to reduce the total cost and improve the Group's productivity. These activities are now in the planning phase and will be announced during the fourth quarter and charged to the result in the same quarter with some MSEK 300. In addition, there will be a need for impairment of capital assets preliminarily estimated to MSEK 200, mainly related to Ovako Steel, which will also be charged to the fourth quarter. During the implementation of these programmes there will be further operational costs, not possible to accrue for now, of some MSEK 250 that will be taken mainly during 2004. The total number of employees affected by the restructuring programmes will be around 1,400. The yearly savings resulting from these programmes amount to MSEK 500." In third quarter 2003, Ovako lost MSEK 17 on sales of MSEK 623, down from a profit of MSEK 1 on sales of MSEK 649 in 2002. Ovako was formed in 1986 by the merger of SKF Steel AB and Ovako Oy AB. Plagued by many of the same overexpansion and cost issues faced by other steel manufacturers, the company split in 1991 back into two operations. SKF took over the specialty steel business, eliminated 2/3 of the grades, and dramatically cut back non-core operations and employment. By 1993, Ovako was producing only 100 grades of steel in four locations. Later, the hard chroming operations were sold off, as were the forging operations in Arvika. A seamless tube line was added in 2002. In early 2003, Ovako successfully obtained the automaker-specific QS9000 certification, adding to its quality and environmental approvals and making it eligible to supply the auto industry to build a wider customer base. In 2002, the company divested Ovako Ajax, its ring manufacturing operation in the United States. From April 1999 through early 2001, SKF had been trying to sell off the Ovako operation, but never found a qualified buyer with enough funding to make a deal possible. Timken (USA) was the last to abandon negotiations for Ovako, in September 2000. Timken's Bill Bowling said, "SKF has too high expectations about the price. Moreover, Ovako's dependence on SKF is too big." SKF said Ovako's production capacity will not be affected by this round of employment cutbacks and did not indicate that any facility closings would be involved.