Interim Report Jan-Sept 1998

PRESS RELEASE INTERIM REPORT, JANUARY - SEPTEMBER 1998 (Unaudited) AGA's income after financial items rose by 4 percent in the first nine months of 1998 to SKr 1,288m (1997: 1,241). Sales increased by 5 percent to SKr 11,204m (10,658) and operating income by 11 percent to SKr 1,414m (1,276). The operating margin amounted to 12.6 percent (12.0). Cash flow from operations increased by 17 percent to SKr 2,157m (1,851). Earnings per share after full tax increased to SKr 3.68 (3.23). Investments in new plant and equipment have returned to the earlier level and amounted to SKr 1,515m (2,216), corresponding to 13.5 percent (20.8) of sales. The efficiency improvement programs continue. The number of employees decreased by 605 people to 10,291. Sales and Earnings The Group's sales in January-September amounted to SKr 11,204m (10,658), an increase of 5 percent, of which exchange rate fluctuations accounted for two percentage points. The net effect of new and sold operations was insignificant. The economic crisis in Russia and the turbulence in the financial markets in the third quarter, combined with the continued economic crisis in Asia, have affected the business climate in South America and Eastern Europe and, to some extent, in North America and Western Europe as well. In addition, low oil prices are having a negative effect on the economy in Venezuela, Mexico and other countries. Market growth is hard to assess and will depend on the economic trend, but normally increases by 1.5 to 2 times the increase in industrial production. Volume growth for the most important gases was lower during the period than in 1997 in a number of countries and continued price pressure was noted in Continental Europe. Significant sales increases were achieved in the U.K., Spain, Argentina and Uruguay. In Eastern Europe the rate of increase remained above 20 percent, except in Russia and Ukraine. In these two countries sales decreased by more than 20 percent in the third quarter as a result of the economic crisis. Consolidated operating income improved by 11 percent in January-September to SKr 1,414m (1,276). The effect of exchange rate fluctuations was positive by approximately one percentage point. Major increases in earnings are reported for the companies in Norway, Spain, the U.S. and Mexico, while earnings were lower than in 1997 in Russia and Ukraine as well as in Finland, Germany, Brazil, Venezuela, Chile and Ecuador. The number of employees decreased by 605 people during the period. This figure includes a reduction of 53 people as a result of the sale of operations in California and an addition of 63 people through an acquisition in the U.S. The efficiency improvement programs started at the beginning of 1998 are continuing as a key component in the development of AGA's operations. The costs of these programs and other measures designed to raise productivity will increase by approximately SKr 100m in 1998. This means that earnings in the fourth quarter will be lower than in the third quarter. Improving the efficiency of product supply and distribution will produce results relatively quickly, while the projects for administrative efficiency enhancement will lead to costs in 1998 that are considerably higher than the savings that can be achieved. Operating income for the third quarter amounted to SKr 452m, an increase of 3 percent compared with the same quarter in the previous year. Earnings in Russia and Ukraine decreased and earnings also fell in some countries in South America. AGA is now taking action, in addition to the ongoing efficiency improvement programs, to reverse the trend in Russia and Ukraine. The Group's net financial items comprised an expense of SKr 126m (35). The SKr 91m increase was attributable to lower return on liquid assets than in 1997 and increased interest expenses for financing the capital expenditure program. Income after financial items amounted to SKr 1,288m (1,241), an increase of 4 percent including a positive currency effect of one percentage point. The net profit for the period amounted to SKr 896m (787) after deduction for tax of SKr 389m (451). The tax expense comprised 30 percent of income before tax, which can be compared with 33 percent for the full year 1997. Earnings per share after full tax rose by 14 percent to SKr 3.68 (3.23). Financing and Investments As can be seen in the funds statement, the cash surplus from operations improved by 17 percent to SKr 2,157m (1,851). Investments and equity hedging amounted to SKr 1,573m (2,401) and dividends to shareholders to SKr 730m (657). The Group's financial net debt increased by SKr 312 m in the period January- September to SKr 3,735m. Liquid assets and investments decreased by SKr 271m to SKr 2,552m and loans increased by SKr 41m to SKr 6,287m. The equity ratio amounted to 49.4 percent compared with 49.1 percent at year-end 1997 and the net debt/equity ratio was 29.7 percent (27.9). In the third quarter, AGA invested SKr 1,515m (2,216) in new plant and equipment. The extensive investment program started in 1995 is now largely completed and the Group's investments have returned to a normal level for the industry. In 1998, new air separation plants went into operation in Sweden, Brazil, Argentina and Finland. An air separation plant in Peru will be ready at the end of the year and a plant in Italy and an extension in the U.S. will be completed in 1999. Production facilities for carbon dioxide are under construction in some countries as well as on-site units for the production of oxygen and nitrogen (OSS). Business Areas Manufacturing Industry, which sells cylinder gases and liquid gases primarily for cutting and welding as well as for other applications, reports sales of SKr 5,656m, which accounted for 51 percent of the Group's total sales. The largest increases were noted in Eastern Europe, excluding Russia and Ukraine, and in the U.S. and Mexico. Volumes for liquid gases and shielding gases for cutting and welding as well as carbon dioxide, increased in the majority of markets, while the trend was weaker for acetylene and oxygen in cylinders. Average prices were slightly below the 1997 level, due to continued price competition. Volume increases mostly applied to new markets with lower price levels, such as Eastern Europe. Process Industry, which accounted for 36 percent of the Group's total sales, reports sales of SKr 4,045m. Pipeline deliveries of air gases rose substantially in Sweden, Austria and Brazil, where new plants went into operation. Sales increased for all three product segments: metallurgy, chemistry, and food. The metallurgy segment is sensitive to developments in the steel industry and some decline is expected at the end of the year. AGA recently concluded an agreement with the Austrian company Voest-Alpine on global cooperation to market a new process for waste combustion. In Sweden, AGA signed a long-term agreement with Sandvik Steel in October on supplying the plant in Sandviken with air gases via pipelines. ® The chemistry segment noted considerable success for its products CIRRUS and ® CUMULUS which use the cooling properties of liquid nitrogen in various processes. AGA also signed contracts for large deliveries of specialty gases to petrochemical companies in Argentina and Chile. The food segment noted a substantial increase in demand for gas freezers for ready-made food, meat products, fish and shellfish. Healthcare, with 13 percent of the Group's sales, reports sales of SKr 1,503m. Significant sales increases were achieved in Sweden, Spain, Argentina, Colombia and Venezuela as well as in the U.S., taking into account the fact that the operations in California were sold in the first quarter. Home therapy is the most expansive sector with a sales increase of 10-15 percent. In July, AGA acquired the rights to sell inhaled nitric oxide (iNO) under license in the U.S. and Canada as well as the NO operations in the U.S. previously conducted by BOC's subsidiary Ohmeda. These operations utilize a discovery that was awarded the 1998 Nobel Prize in Medicine. The acquisition includes a development and sales organization in New Jersey and a production plant in Louisiana with a total of 63 employees. The acquisition will not have any appreciable effect on earnings in 1998. Next Report AGA's full-year report will be published on February 24, 1999. Lidingö, October 29, 1998 AGA AB (publ) Lennart Selander President and CEO QUARTERLY DATA SKr million Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 1997 1997 1997 1997 1998 1998 1998 Sales 3,395 3,674 3,589 3,750 3,752 3,719 3,733 Operating income, 432 509 440 466 501 461 452 before restruct. - as a percentage of 12.7 13.9 12.3 12.4 13.4 12.4 12.1 sales Restructuring costs, -105 - - - - - - 1997 Net financial items -18 3 -20 -66 -40 -11 -75 Income after financial 309 512 420 400 461 450 377 items Earnings per share, SKr 0.81 1.38 1.04 1.28 1.31 1.26 1.11 (after full tax) No. of employees, end 11,095 11,086 10,985 10,896 10,720 10,494 10,291 of period CONSOLIDATED INCOME STATEMENT SKr million Jan.- Jan.- Full Sept. Sept. year 1998 1997 1997 Sales 11,204 10,658 14,408 Cost of sales -6,826 -6,312 -8,658 Gross income 4,378 4,346 5,750 Selling, development and administrative expenses -3,085 -3,079 -4,091 Restructuring costs, 1997 - -105 -105 Other operating earnings, net 99 96 158 Share of income in associate 22 18 30 companies Operating income * 1,414 1,276 1,742 Net financial items -126 -35 -101 Income after financial items 1,288 1,241 1,641 Tax ** -389 -451 -537 Minority interests -3 -3 -5 Net income 896 787 1,099 Earnings per share after full 3.68 3.23 4.51 tax, SKr * Depreciation charged to 1,352 1,239 1,644 operating income ** Paid tax 299 338 439 Sales by region Western Europe 6,200 6,020 8,170 Eastern Europe 562 486 671 North America 2,470 2,294 3,102 South America 1,972 1,858 2,465 Total 11,204 10,658 14,408 Operating income by region Before restructuring costs, 1997 Western Europe 1,055 1,079 1,489 Eastern Europe -13 -25 -46 North America 215 167 245 South America 157 160 159 Total 1,414 1,381 1,847 Sales by business area Manufacturing Industry 5,656 * 7,258 Process Industry 4,045 5,212 Healthcare 1,503 1,938 Total 11,204 14,408 * A comparison with the previous year cannot be made. CONSOLIDATED BALANCE SHEET SKr million Sept. 30 Dec. 31 1998 1997 ASSETS Goodwill 1,041 1,075 Plant and equipment 17,349 16,803 Shares 521 481 Long-term receivables 160 195 Total fixed assets 19,071 18,554 Inventories 919 907 Accounts receivable, trade 2,658 2,437 Other current receivables 361 441 Liquid assets and investments 2,552 2,823 Total current assets 6,490 6,608 TOTAL ASSETS 25,561 25,162 SHAREHOLDERS' EQUITY AND LIABILITIES Share capital 1,217 1,217 Reserves 10,445 9,959 Net income 896 1,099 Total shareholders' equity 12,558 12,275 Minority interests 81 79 Provisions for pensions 1,145 1,080 Provisions for deferred tax 2,472 2,339 Total provisions 3,617 3,419 Long-term loans 2,418 2,731 Short-term loans 3,869 3,515 Total loans 6,287 6,246 Other long-term liabilities 518 473 Other current liabilities 2,500 2,670 Total other liabilities 3,018 3,143 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 25,561 25,162 Net debt 3,735 3,423 Net debt/equity ratio, percent 29.7 27.9 Equity ratio, percent 49.4 49.1 CONSOLIDATED FUNDS STATEMENT SKr million Jan.- Jan.- Full Sept. Sept. year 1998 1997 1997 OPERATIONS Operating income 1,414 1,276 1,742 Reversal of depreciation 1,352 1,239 1,644 Net financial items -126 -35 -101 Paid tax -299 -338 -439 Adjustment for associate -4 - -9 companies Cash flow-related operating 2,337 2,142 2,837 surplus Change in working capital Inventories 3 -70 -40 Accounts receivable, trade -160 -150 -62 Other current receivables 89 193 142 Current operating liabilities -207 -355 -312 Long-term operating items 95 91 -10 Total change in working capital -180 -291 -282 CASH FLOW FROM OPERATIONS 2,157 1,851 2,555 INVESTMENTS New plant and equipment -1,515 -2,216 -2,859 Plant and equipment from -67 -81 -102 acquisitions Goodwill from acquisitions -33 -210 -244 Sales, disposals, etc. 223 125 227 CASH FLOW FROM INVESTMENTS -1,392 -2,382 -2,978 Effect on liquid assets of equity -181 -19 6 hedging Dividends to shareholders -730 -657 -657 NET CASH FLOW -146 -1,207 -1,074 NET DEBT Net debt at the beginning of the 3,423 1,879 1,879 period Net cash flow 146 1,207 1,074 Currency effect 166 268 470 Net debt at the end of the period 3,735 3,354 3,423 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1998/10/29/19981029BIT00060/bit0001.doc http://www.bit.se/bitonline/1998/10/29/19981029BIT00060/bit0002.pdf Whole report