Year-end Report 1999, Svedala Industri AB

YEAR-END REPORT 1999 * Board of Directors´ proposal: Dividend, SEK 6,00 (5,50) * Earnings per share: SEK 11,90 (13,00) * Proposal to purchase own shares SEK M 1999 1998 Change Qr 4 Qr 4 Change 1999 1998 Order bookings 13.195 14.709 -10% 3.365 3.407 -1% Sales 13.996 14.394 -3% 3.928 4.079 -4% Operating profit before 1.224 1.438 -15% 415 488 -15% *) depreciations Operating profit 806 1.053 -23% 293 402 -27% Profit after net financial items 651 821 -21% 231 337 -31% Profit after tax 573 626 -8% 255 286 -11% *) Depreciation -90 -81 -26 -22 of goodwill - Demand from the mineral-processing industry was exceptionally weak during 1999 with regard to metallic minerals, but stable with regard to the civil engineering industry. For the construction industry, demand was favourable, particularly in the US and southern Europe, but weak in other areas of the world. At the beginning of the year, there was considerable uncertainty regarding the business climate, due mainly to the financial crises in Southeast Asia and South America. The low metals prices had a substantial adverse effect on equipment and large projects from customers in the metallic minerals sector. Activity in the aftermarket also declined when customers reduced their inventories as a result of the uncertain market situation. Demand improved successively during the year, but was lower than in 1998 for the full year. Prospects for 2000 are significantly better. Metals prices toward the end of the year increased sharply and the volume of produced material increased as a result of the generally improved world economy. In the first stage, the demand for service, wear and spare parts increases. A great need for efficiency enhancement in the mineral-processing industry is also an indication of rising demand for equipment and systems. Activity is now increasing for large projects, where demand, in principle, stagnated during 1999. In total, our assessment is that the demand for the Group's products and services will increase during 2000. Product development has been a prioritized area in recent years. As a result of our many acquisitions, we gained a wide range of variations of similar machinery. Through applying intensive development work, the technically best properties of each machine in the acquired range has now been incorporated in a new product program, a common Svedala World Class portfolio. It has also led to a sharp reduction in our previous product range. Today's more focused portfolio of products also creates improved potential for more effective production. Other advantages include reduced resource requirements in the form of product support and increased opportunities for more effective product development. A significant portion of ongoing rationalization efforts focuses on capitalizing on these possibilities. 1 As a result of the substantial focus on product development, we recently presented new model series in a number of product areas. This includes pumps, pavers, planers, crushers and screens. A new series of drilling equipment will be launched in 2000. The most important launch during 1999 was the new Svedala 8000 cone crusher, which is significantly more efficient than competing crushers on the market. Fully automatic operation is complemented with integrated systems for optimization of quantity and quality. Introduction of the 8000 crusher was a breakthrough for Svedala in a market segment with very high potential, in terms of new sales and the aftermarket. Some 30 units have already been installed or are being delivered, mainly in South America. Another significant part of our ongoing efforts to improve internal efficiency is our capital rationalization program. Costs are being reduced and, concurrently, the service level is being improved through substantial investments in administrative systems and information technology, including an intranet, and the establishment of central warehouses on each continent. Since the start of the ongoing capital rationalization program, inventories have been reduced by SEK 600 M in nine months. Seasonally adjusted, we also expect to achieve the goals set. During 2000 the Group will have a positive strong cash flow, partly as a result of current revenues, continued capital rationalization and recognition of project orders, and through the expected repayment of pension funds from SPP. Combined, this will provide the Group with additional financial freedom of action. Svedala´s Board has decided to propose that the Annual General Meeting authorize the purchase of the company´s own shares. Malmö, February 17, 2000 Thomas Oldér President & CEO The 1999 Annual Report will be distributed on March 15-17, 2000. The Annual General meeting will be held on April 11, 2000. The Interim Report for the first quarter will be published on April 27, 2000. MARKET TRENDS Total demand from Svedala's customers declined in 1999, compared with the preceding year. Demand was stable in the industrial minerals segment, which is strongly related to the construction and civil engineering industries, while activities declined in the metallic minerals segment. [REMOVED GRAPHICS] Industrial minerals The construction and civil engineering sector of the U.S. market remained strong, showing continued robust growth. Substantial investments in construction projects and the nation's network of highways are the main forces behind growth in the U.S. Continued strong demand was also noted in large parts of Europe. The most glaring exception was the important German market, where demand remained weak. After suffering strong negative effects of financial crises during 1998, Southeast Asia showed signs of recovery, although from a low level. Several countries in South America were affected by financial difficulties in the beginning of 1999, which led to a dramatic decline in civil engineering industry investments. Metallic minerals Uncertainties over economic development and low metal prices led to weak mining activity in the metallic minerals sector. A particularly sharp decline was noted in customer investments in equipment, but customers also 2 reduced their wear and spare part inventories. After an extremely weak start in 1999, demand improved toward year-end. Supported by higher metal prices, which started to rise at mid-year, the favorable trend is expected to continue. [REMOVED GRAPHICS] ORDER BOOKINGS Order bookings amounted to SEK 13,195 M (14,709), a decline of 10 percent compared with 1998. Adjusted for acquisitions and currency changes, the decline was 11 percent. Most of the decline occurred during the first quarter, due to weak demand in the beginning of 1999 and favorable effects of major projects during the corresponding period in 1998, including a large project in Iran, amounting to about SEK 800 M. [REMOVED GRAPHICS] Service and parts Order bookings for service and parts amounted to SEK 6 billion, largely unchanged compared with 1998. Over the past three years, order bookings for service and parts have increased an average of 12 percent annually. In 1999, the aftermarket accounted for 45 percent (41) of Svedala's order bookings. [REMOVED GRAPHICS] [REMOVED GRAPHICS] Equipment and major projects Order bookings for equipment amounted to SEK 6,700 M, a decline of SEK 599 M compared with the preceding year. Major projects declined SEK 871 M to SEK 521 M, due mainly to very weak demand from the mining industry. In parallel with a very sharp decline in volumes of equipment and major projects during 1999, order bookings for service and parts were virtually unchanged from levels in 1998. The focus on the aftermarket was successful. The aftermarket is much less sensitive to economic fluctuation, compared with the market for equipment, and profitability is higher. INVOICED SALES Invoiced sales in 1999 amounted to SEK 13,996 M (14,394), down 3 percent compared with the preceding year, and after adjustments for acquisitions and currency changes. The decline in sales was most notable early in the year, with first-quarter sales down 10 percent, compared with the corresponding period in 1998. Sales of service and parts in the metallic minerals sector were down about SEK 400 M, due mainly to reductions in customer inventories early in the year. The decline was offset by continued strong sales to the construction industry. EARNINGS Svedala's operating profit amounted to SEK 806 M (1,053). Most of the change compared with 1998 was attributed to lower volumes. Prices were stable during the year. Operating profit for service and parts amounted to SEK 731 M, yielding a margin of 12 percent. The corresponding figures for equipment were SEK 200 M and 3 percent, respectively. 3 Net financial items amounted to an expense of SEK 155 M (expense: 232). Net interest items were off SEK 30 M, compared with 1998, due to an increase in average interest-bearing liabilities in 1999, compared with 1998. As a result of the decision to terminate currency hedging on net foreign assets, all contracts related to these hedging operations were closed. As a result an exchange rate gain of SEK 104 M arose in 1999, contributing to an improvement in net financial items. Svedala's profit after net financial items amounted to SEK 651 M (821). Profit after tax totaled SEK 573 M (626), and profit per share amounted to SEK 11.90 (13.00). Profitability Return on assets employed was 9 percent in 1999. Svedala's objective for return on assets is an average of 18 percent annually over a complete business cycle. Return on assets employed has averaged 15 percent annually over the past five years. Tax Tax expenses amounted to SEK 79 M (195), corresponding to a tax rate of 12 percent (24). The low level of taxes was attributable to a change in values of deferred tax receivables taking into account an improved earnings level in the affected subsidiaries. Currency effects on profit The effects of currency rate changes on Svedala's profit yielded a favorable effect of SEK 125 M, compared with 1998. Devaluation in Brazil in the beginning of 1999 was the main source of improvement. The devaluation created favorable effects on exports from Svedala production plants in Brazil. Currency effects are reported in the markets of end- customers. [REMOVED GRAPHICS] As a result of devaluation in Brazil, several countries in South America were affected by sharp reductions in infrastructure investments during 1999, leading to weaker demand for Svedala's products. Calculations of currency movement effects on Svedala's profit (see above) do not include considerations for these negative effects of devaluation. The negative effect of Brazil's devaluation in 1999 is estimated at approximately SEK 100 M. FOURTH QUARTER 1999 The record-low level of raw material prices that prevailed throughout all of 1999 continued to characterize operations in the fourth quarter, and affected sales in all regions. Construction activities remained strong, particularly in the U.S. and Southern Europe, but weak in the rest of the world. Order bookings As a result of overall market conditions, order bookings for both aftermarket and equipment and projects remained largely unchanged, totaling SEK 1,413 M (1,464) and SEK 1,953 M (1,944), respectively. Total order bookings amounted to SEK 3,365 (3,407), virtually unchanged from the fourth quarter of 1998 after adjustments for acquisitions and currency effects. 4 Stronger order bookings in South America compensated for the decline in Europe and North America. Order bookings in Africa/Middle East and Asia/Pacific were unchanged. None of the changes are considered cyclical. Invoiced sales Invoiced sales in the fourth quarter amounted to SEK 3,928 M (4,079), a decline of 3 percent after adjustments for acquisitions and currency effects. Profit Operating profit for the period amounted to SEK 293 M (402). Service and parts accounted for SEK 214 M of consolidated operating profit in 1999, which corresponds to an operating margin of 13 percent. Profit from equipment and projects amounted to SEK 106 M, with an operating margin of 5 percent. In addition to lower volumes, profit was also affected by costs of about SEK 25 M for the rationalization program and lower capacity utilization resulting from ongoing reductions in Group inventories. The value of inventories was reduced by about SEK 270 M during the fourth quarter, and the labor force was reduced by 180 persons as a result of the rationalization program. Information per region in the fourth quarter, and figures for full-year 1999, are presented on pages 11-13. ------------------------------------------------------------ Please visit for further information The following files are available for download: The full report The full report