CEO's comments

Scana posted a record high sales figure and operating result in 2008. Key customers that set us stringent requirements have, along with a good product composition and hard work in all subsidiaries, led to continued growth and high added value.

However, the consequences of the financial crisis are manifesting themselves in a reduced order intake. We are therefore adapting our operations by making changes to our product mix and implementing efficiency measures. We have also reduced the number of employees in some of the businesses in order to adjust the workforce to the current level of activity. This is proving challenging for those involved, but is nonetheless necessary. I am certain that these measures are strengthening the group and will put us in an even better position when the market turns.

We secured a number of strategically important contracts in the steel area in 2008. This confirms Scana as one of the world leaders within steel and steel components in our market segment. We supply advanced products for both wind power and hydropower developments and also marine, oil and gas businesses all over the world.

We have strengthened our position as a world leader in the production of large arms for forklift trucks and supply rolls to the state-owned Chinese companies that produce railway tracks and other products for major initiatives in new infrastructure in China. Scana has extensive expertise in steel and has been able to carve out interesting niches in which to progress as market leader.

One of Scana's major collaborating partners within the oil and gas business area filed for bankruptcy early in 2009. Consequently, Scana had to recognise a larger loss provision in the 2008 financial statements. We expect a new owner to take over the ship and that our equipment will be put to use in due course. We aim to expand our customer base and product range within the oil and gas business area. This will make us more robust and put us in a better position to achieve our targeted profit performance.

Our marine companies have implemented extensive adaptation measures in recent years. The transition to more advanced systems combined with a greater focus on service and after-sales has led to a solid improvement in profits. Through the acquisition of ABB’s marine business in Poland (Scana Zamech) we have a more extensive product range, which increases the market potential. While we are expecting 2009 to be a good year, 2010 and 2011 are expected to be more demanding due to fewer contracts on new ships. However, we have strengthened our competitive position and aim to make use of this in the coming years.

In 2008 the decision was made to invest in a number of projects aimed at making the group more robust. We established Scana Offshore Services Inc. in Houston, USA, through an acquisition. This will provide a foothold in a strategically important market and facilitate further development of the oil and gas market segment.

The acquisition of Scana Zamech in Poland, which took place in 2009, provides the group with access to vital expertise within the development and design of propulsion systems. We have invested NOK 100 million in the Swedish steel companies in order to increase capacity and reduce risk and costs; in addition, we are involved in the expansion of Jørpeland Kraft, which is an attractive investment both in financial and operational terms. Combined with other investments in our business areas, this will provide an exciting base for Scana in the years ahead.

I am wholly committed to delivery precision and quality. Scana has made vast improvements since the unsatisfactory delivery precision results seen at the end of 2006. We supply quality products all over the world. However, we will continue to improve and thereby increase our ability to compete. In order to ensure effective operations, our managers are closely involved in their respective business areas, are passionate about production, and work closely with customers in order to understand their needs and actively contribute to meeting their challenges. Scana needs managers who cultivate cooperation and nurture business opportunities both with customers and internally within the Scana group. I believe we are on the right track to achieve this.

Scana is a green company which produces some of the cleanest steel available, which is used in our own products and also by our customers. The company aims to have a minimal impact on the environment through its production activities, regardless of where in the world we are.

I believe that Scana is well equipped to meet the challenges and not least the opportunities that lie ahead. Competent and adaptable employees, effective operations management and quick decision-making will all ensure that Scana will continue to produce results that satisfy the owners, customers and employees alike. We don’t just sit back and wait – we roll up our sleeves and make things happen so that we are always ahead of the game.

I want to thank all the employees for their considerable efforts in 2008, especially in meeting the new challenges. A sickness absence rate of just 3 per cent is testament to the dedication of Scana's employees and the excellent working environment within the group. This is as vital now as it will be in the future.

Scana anticipates a weak international market in 2009, and expects 2010 to be a challenging year for industrial companies all over the world. We predict a reduced operating result in 2009 and 2010, as compared with 2008. Through our efforts to adapt in line with the market, organisation and production, we believe that we can reduce the negative impact of the weakened market. It also places us in an excellent position from which to take on exciting future challenges when the market turns.

Rolf Roverud
Group CEO