Interim Report January - March 1999

INTERIM REPORT JANUARY - MARCH 1999 (Unaudited) AGA reports a net profit for the first three months of 1999 of SKr 534m (319) and earnings per share after full tax amounted to SKr 2.19 (1.31). This result includes a net capital gain of SKr 328m from the sale of AGA's shareholding in Industrivärden. Sales amounted to SKr 3,683m (3,752), a decrease of 2 percent, and operating income fell 17 percent to SKr 415m (501). The decline in sales and earnings was mainly attributable to the devaluation in Brazil in January. The operating margin amounted to 11.3 percent (13.4). Income before tax and capital gains amounted to SKr 329m (461). Investments in new plant and equipment decreased to SKr 290m (584). Sales In January-March 1999, the Group's sales amounted to SKr 3,683m (3,752), a decrease of 2 percent. The devaluation of the Brazilian Real in January was directly responsible for 3 percentage points of this decline and nearly 1 percentage point was attributable to the sale of the air separation operations in California on March 31 last year. Otherwise, the net effect of new and sold operations was insignificant. In January, AGA's subsidiary in Bolivia was sold to Praxair, which in return sold AGA its operations in Ecuador, which are of a similar size. Changed exchange rates for currencies not devalued had a positive effect on sales of approximately 3 percentage points. The economic situation remained weak in the majority of AGA's markets except in the U.S. where favorable growth continued. The financial unease in Brazil led to reduced growth, which also affected neighboring countries, although the situation has improved somewhat recently. In Western Europe the trend was weak for certain customer groups, including the metalworking industry, and the steel and paper industries which are important to AGA. Sales volumes rose for pipeline deliveries including OSS but fell for most cylinder gases and were largely unchanged for liquid gases. Significant sales increases were achieved in the U.S., Mexico and Chile, and in Eastern Europe the rate of increase was nearly 20 percent, except in Russia and Ukraine where the sales value more than halved as a result of last year's financial crisis. 2 Earnings The Group's operating income amounted to SKr 415m (501), which is 21 percent higher than earnings for the fourth quarter of 1998, but 17 percent lower than in the first quarter of 1998. The main reason for the decline in earnings is the devaluation in Brazil which led to a net decrease in consolidated operating income of approximately SKr 70m or 14 percent, including increased costs for hedging working capital in South America. The inhaled nitric oxide (NO) operations in the U.S., which were acquired in 1998, had a negative impact on earnings of SKr 17m or 3 percent while the effect of changed currency exchange rates was positive by 3 percent. The 1998 closing accounts included a SKr 720m provision for the estimated costs of the efficiency improvement programs which were started in 1998 and will extend to the year 2001. SKr 42m of this provision was used in the first quarter. During the period, the number of employees decreased by 57 persons to 10,146. The Group's net financial items comprised an expense of SKr 86m (40). The increase is explained, among other things, by a lower return on liquid assets. Income before tax amounted to SKr 329m (461), in addition to which a SKr 455m capital gain resulted from the sale of AGA's shareholding in Industrivärden. The tax expense amounted to SKr 256m (141), including tax of SKr 127m on the capital gain. The net profit for the period was SKr 534m (319), including the SKr 328m net capital gain. Earnings per share after full tax amounted to SKr 2.19 (1.31). Financing and Investments The cash flow from operations amounted to SKr 513m (632). The sale of shares in Industrivärden provided SKr 595m after tax. The net cash flow thus increased to SKr 755m (266). During the period AGA invested SKr 290m (584) in new plant and equipment. The extensive capital expenditure program started in 1995 has now been completed and expenditure in the first quarter corresponded to 8 percent (16) of sales. A new air separation plant in Peru and a major capacity extension in the U.S. went into operation, and an air separation plant is under construction in Italy. The Group's financial net debt decreased by SKr 805m to SKr 2,970m during the period. Liquid assets and investments rose by SKr 1,317m to SKr 3,751m and loans increased by SKr 512m to SKr 6,721m. The equity ratio amounted to 47.6 percent compared with 47.2 percent at the beginning of the year and the net debt/equity ratio was 23.4 percent compared with 30.9 percent at year-end 1998. 3 Business areas Manufacturing Industry, which sells cylinder gases and liquid gases primarily for cutting and welding, reports sales of SKr 1,865m (1,913), which accounted for 51 percent of the Group's total sales. This result was 3 percent lower than in the same period in the preceding year. The devaluation in Brazil led to a reduction of approximately 3 percent and an additional percentage point decline was due to the devaluations in Russia and Ukraine in 1998. On the other hand, higher currency exchange rates had a positive effect of approximately 3 percentage points. Sales volumes were below the previous year's level for cylinder gases, primarily oxygen and acetylene, while volumes for liquid gases were largely unchanged. Sales of services developed well. Process Industry with 35 percent of the Group's sales, also had sales that were 3 percent below the previous year, SKr 1,297m (1,336). Approximately 2 percentage points of this decline were due to the devaluation in Brazil, while the currency effect was positive by approximately 3 percent. The Metallurgy segment experienced weak demand, particularly from the steel industry. Sales to new combustion applications, etc., partly compensated for the effect of production cutbacks by several customers. The Chemistry segment was affected by the recession in the pulp and paper industry and increased price competition. The launch of the new product program for specialty gases started in Europe and has been well received. In the Food segment a number of new freezers are now in place which will lead to increased sales of nitrogen. AGA's focus on carbon dioxide in South America led to a number of new contracts with beverage manufacturers and other food companies. Healthcare, with 14 percent of the Group's sales, increased its sales by 4 percent to SKr 521m (503) in spite of the decline of approximately 5 percent due to the devaluation in Brazil. Significant sales increases were achieved in the rest of South America. Home care is the most expansive sector with a sales increase of 22 percent. Pending approval from the pharmaceutical authorities for AGA's treatment method with inhaled nitric oxide, the development and sales organization acquired in the U.S. in 1998 will not provide any significant revenues. A SKr 17m deficit arose there in the first quarter. Next report AGA's six-month report will be published on August 23. Lidingö, April 22, 1999 AGA AB (publ) Lennart Selander President and CEO 4 QUARTERLY DATA Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 SKr million 1997 1997 1997 1997 1998 1998 1998 1998 1999 Sales 3,39 3,67 3,58 3,75 3,75 3,71 3,73 3,88 3,68 5 4 9 0 2 9 3 4 3 Operating income, before 432 509 440 466 501 461 452 344 415 restructuring costs, etc. Operating margin, 12.7 13.9 12.3 12.4 13.4 12.4 12.1 8.9 11.3 percent Net financial items -18 3 -20 -66 -40 -11 -75 -101 -86 Income after 414 512 420 400 461 450 377 243 329 financial items Restructuring -105 - - - - - - -975 - costs, etc. Capital gain - - - - - - - - 455 Earnings per share, after full tax, SKr 0.81 1.38 1.04 1.28 1.31 1.26 1.11 - 2.19 2.16 No. of employees, 11,0 11,0 10,9 10,8 10,7 10,4 10,2 10,2 10,1 end of period 95 86 85 96 20 94 91 03 46 Jan.- Jan.- Full March March year SALES BY BUSINESS AREA 1999 1998 1998 SKr million Manufacturing Industry 1,865 1,913 7,611 Process Industry 1,297 1,336 5,439 Healthcare 521 503 2,038 Total 3,683 3,752 15,088 SALES BY REGION SKr million Western Europe 2,135 2,096 8,460 Eastern Europe 173 181 751 North America 835 848 3,277 South America 540 627 2,600 Total 3,683 3,752 15,088 OPERATING INCOME BY REGION SKr million, before restructuring costs Western Europe 366 380 1,348 Eastern Europe 2 -8 -26 North America 31 70 244 South America 16 59 192 Total 415 501 1,758 OPERATING MARGIN BY REGION Percent Western Europe 17.1 18.1 15.9 Eastern Europe 1.2 -4.4 -3.5 North America 3.7 8.3 7.4 South America 3.0 9.4 7.4 Total 11.3 13.4 11.7 5 CONSOLIDATED INCOME STATEMENT SKr million Jan.- Jan.- Full March March year 1999 1998 1998 Sales 3,683 3,752 15,088 Cost of sales -2,272 -2,279 -9,176 Gross income 1,411 1,473 5,912 Selling, R & D, and administrative -1,062 -1,019 -4,352 expenses Restructuring costs, etc. - - -975 Other operating earnings, net 59 39 169 Share of income in associate 7 8 29 companies * Operating income 415 501 783 Net financial items -86 -40 -227 Capital gain on sale of shares in 455 - - Industrivärden Income before tax 784 461 556 ** Tax -256 -141 -184 Minority interests 6 -1 -2 Net income 534 319 370 Earnings per share, SKr After full tax, before 2.19 1.31 4.46 restructuring costs, etc. * Depreciation charged to 470 445 1,822 operating income ** Paid tax 212 109 330 6 CONSOLIDATED BALANCE SHEET SKr million 31 March 31 Dec. 1999 1998 ASSETS Goodwill 1,134 1,046 Plant and equipment 17,336 17,804 Shareholdings 271 544 Long-term operating receivables 199 157 Total fixed assets 18,940 19,551 Inventories 941 939 Current receivables 3,123 3,135 Liquid assets and investments 3,751 2,434 Total current assets 7,815 6,508 TOTAL ASSETS 26,755 26,059 SHAREHOLDERS' EQUITY AND LIABILITIES Share capital 1,217 1,217 Restricted and free reserves 10,949 10,629 Net income 534 370 Total shareholders' equity 12,700 12,216 Minority interests 77 87 Provisions for pensions 1,132 1,141 Provisions for deferred tax 2,295 2,269 Provisions for restructuring 678 720 Total provisions 4,105 4,130 Long-term loans 2,612 2,628 Short-term loans 4,109 3,581 Total loans 6,721 6,209 Other long-term liabilities 492 476 Other current liabilities 2,660 2,941 Total other liabilities 3,152 3,417 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 26,755 26,059 Net debt 2,970 3,775 Net debt/equity ratio, percent 23.4 30.9 Equity ratio, percent 47.6 47.2 7 CONSOLIDATED FUNDS STATEMENT SKr million Jan.- Jan.- Full March March year 1999 1998 1998 OPERATIONS Operating income 415 501 783 Reversal of depreciation 470 445 1,822 Utilized restructuring reserve, -102 - 975 etc. Net financial items -86 -40 -227 Paid tax -85 -109 -330 Adjustment for associate companies -4 -5 -7 Cash flow-related operating surplus 608 792 3,016 Change in working capital Inventories -6 10 3 Accounts receivable, trade -105 -126 -119 Other current receivables 76 48 -64 Current operating liabilities * -228 -140 -103 Long-term operating items 168 48 11 Total change in working capital -95 -160 -272 CASH FLOW FROM OPERATIONS 513 632 2,744 INVESTMENTS New plant and equipment -290 -584 -2,002 Plant and goodwill from -66 - -297 acquisitions Sales, disposals, etc. 9 218 305 Shares, net -6 - -34 CASH FLOW FROM INVESTMENTS -353 -366 -2,028 Sale of shares in Industrivärden 595 - - Dividends to shareholders - - -730 NET CASH FLOW 755 266 -14 NET DEBT Net debt at the beginning of the 3,775 3,423 3,423 period Net cash flow -755 -266 14 Currency effect -50 21 338 Net debt at the end of the period 2,970 3,178 3,775 * Including liabilities and exchange rate differences for equity hedging, previously reported separately. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/22/19990422BIT00650/bit0001.doc http://www.bit.se/bitonline/1999/04/22/19990422BIT00650/bit0002.pdf