Interim Report January - September 1999

INTERIM REPORT JANUARY - SEPTEMBER 1999 (Unaudited) @Income before tax income increased by 15 percent to SKr 1,478m (1,288). Earnings per share after full tax rose to SKr 4.34 (3.68). @Sales amounted to SKr 11,157m (11,204). This level could be maintained despite a recession in South America and weak market growth in Europe. Healthcare's sales rose by 8 percent. @Operating income increased to SKr 1,446m (1,414) and the operating margin was 13.0 percent (12.6). @Net cash flow from operations improved to SKr 509m (-146). @Peter Sjöstrand is AGA's new chairman from October 26. @Linde now owns more than 98 percent of the shares in AGA. Sales Economic growth was relatively weak in most markets in Europe and the majority of countries in South America are in recession. The recent improvement in the business climate in Western Europe has not yet had any appreciable impact on AGA, since growth has largely occurred in the service and IT sectors and not in the industrial sectors in which AGA has its customers. In North America, growth declined slightly in the third quarter. In South America, the value of Brazilian real decreased still further. In January-September 1999, the Group's sales amounted to SKr 11,157m (11,204). The net effect of acquired and sold operations was insignificant, while changed exchange rates had a negative effect of approximately 1 percent. The devaluations in Brazil in 1999 and in Russia in 1998 were largely compensated by higher rates for non-devalued currencies. Sales of industrial gases decreased by 2 percent to SKr 9,537m (9,701). Sales volumes increased for pipeline deliveries and On-Site-Supply and, to some extent, for liquid air gases. Volumes also increased for carbon dioxide and shielding gases, while volumes for oxygen and acetylene in cylinders fell. The lower level of activity in the offshore industry had a negative impact on volume, particularly for AGA's Norwegian subsidiary. Prices remained under pressure in many markets, including the market for liquid air gases in Western Europe. Sales revenues fell 3 percent in the third quarter. 2 Healthcare achieved a sales increase of 8 percent to SKr 1,620m (1,503), despite a substantial fall in sales in Brazil due to the devaluation. During the period, the division acquired complementary small companies in the home care sector in Sweden, Norway, the Czech Republic and Slovakia. A company in Spain was acquired in October. AGA's product for treatment of infants with severe respiratory problems, inhaled nitric oxide (INO), is expected to receive marketing authorization in the U.S. in the near future. Earnings The Group's operating income amounted to SKr 1,446m (1.414). The net effect of changed exchange rates was insignificant. The sale of AGA's subsidiary in the U.K. provided, after an adjustment in the third quarter, a capital gain of SKr 125m. The INO operations in the U.S., however, had a negative earnings impact of SKr 76m. The operating margin improved to 13.0 percent (12.6). Excluding the capital gain from the sale of the U.K. subsidiary and excluding the INO costs, the margin was 12.5 percent. A build-up of resources within Healthcare had a negative impact on the margin in the third quarter. This is intended to raise quality in production and distribution of medical gases. The 1998 operating income was charged with 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 216m of this provision has been utilized in 1999 thus far. In the first nine months of 1999, the number of employees decreased by 521 to 9,682. The Group's net financial items deteriorated to SKr 423m (126). The change is essentially due to a lower return on liquid assets and the financing of AGA's redemption of shares at the end of June. In addition, more than SKr 100m is attributable to exchange losses in translation to Swedish kronor, which mainly pertain to the accounts of the Brazilian subsidiary. Income before tax amounted to SKr 1.478m (1,288), including a SKr 455m capital gain from the sale of AGA's shareholding in Industrivärden and SKr 125m from the sale of AGA's U.K. subsidiary. The tax expense amounted to SKr 454m (389), including capital gains tax of SKr 127m. Net income for the period amounted to SKr 1,021m (896) and earnings per share after full tax amounted to SKr 4.34 (3.68). Investments and financing The extensive investment program started in 1995 has now been completed. In January-September, AGA invested SKr 1.068m (1,515) in new plant and equipment, which corresponded to 10 percent (14) of sales. A further SKr 206m (100) was invested in complementary company acquisitions, mainly gas and welding operations and the home care companies mentioned above. A new air separation plant in Peru and a capacity extension in the U.S. went into operation, and an air separation plant is starting up in Italy. 3 Net cash flow from operations amounted to SKr 509m (-146) after dividends to shareholders amounting to SKr 730m (730). Cash outflow from investing activities fell to SKr 190m (1,392), since SKr 595m was provided by the sale of shares in Industrivärden and SKr 435m by the sale of subsidiaries. The Group's financial net debt, i.e. loans minus liquid assets and investments, increased during the period by SKr 2.457m to SKr 6.232m. The redemption of every tenth share for SKr 140 per share for a total of SKr 3,408m decided by the Annual General Meeting was carried out in June. This increase in net debt was partly compensated by the positive cash flow from operations. Liquid assets decreased by SKr 750m to SKr 1,684m and loans increased by SKr 2,015m to SKr 8,224m. The net debt/equity ratio therefore increased to 72 percent from 31 percent at the beginning of the year. The Group's equity ratio amounted to 37 percent at September 30 compared with 47 percent at the beginning of the year. Linde's acquisition of AGA Following a public offer to AGA's shareholders on September 15, Linde AG has now acquired more than 98 percent of the shares and voting rights in AGA AB. An application for approval of this acquisition was submitted to the relevant competition authorities on September 1. At the beginning of October, the EU Commission decided to extend the period for examination of this matter by four months, i.e. until the beginning of February 2000. Lidingö, October 27, 1999 AGA AB (publ) Lennart Selander President and CEO 4 CONSOLIDATED INCOME STATEMENT SKr million Jan.-Sep. Jan.- Full Sep. Year 1999 1998 1998 Sales 11,15711,204 15,088 Cost of sales -6,763-6,826 -9,176 Gross income 4,394 4,378 5,912 Selling, R & D, and -3,229-3,085 -4,352 administrative expenses Restructuring costs, etc. - - -975 Other operating earnings, 271 99 169 net Share of income in associate 10 22 29 companies * Operating income 1,446 1,414 783 Net financial items -423 -126 -227 Capital gain on sale of shares in 455 - - Industrivärden Income before tax 1,478 1,288 556 ** Tax -454 -389 -184 Minority interests -3 -3 -2 Net income 1,021 896 370 Earnings per share after full tax SKr, 1998 before 4.34 3.68 4.46 restructuring costs * Depreciation charged to operating 1,398 1,352 1,822 income ** Paid tax 291 299 330 5 QUARTERLY DATA SKr million Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 1998 1998 1998 1998 1999 1999 1999 Sales 3,752 3,719 3,733 3,884 3,683 3,800 3,674 Operating income, excl. restructuring, INO costs 501 461 452 344 492 500 405 and capital gains Operating margin, percent 13,4 12,4 12,1 8,9 13,4 13,2 11,0 Net financial items -40 -11 -75 -101 -162 -128 -133 Income after financial items, excl. restructuring, INO costs 461 450 377 243 313 343 242 and capital gains Restructuring costs, etc. - - - -975 -17 -29 -30 Capital gains - - - - 455 70 55 Net income 319 306 271 -526 518 313 190 Earnings per share, SKr 1.31 1.26 1.11 -2.16 2.13 1.28 0.93 after full tax No. of employees, end of 10,720 10,494 10,291 10,203 10,146 9,881 9,682 period PER GEOGRAPHIC MARKET Jan.- Jan.- Full Year Sep. Sep. Sales 1999 1998 1998 SKr million Western Europe 6,21 6,200 8,460 7 Eastern Europe 541 562 751 North America 2,62 2,470 3,277 5 South America 1,77 1,972 2,600 4 Total 11,157 11,204 15,088 Of which Industrial Gases 9,53 9,701 13,050 7 Of which Healthcare 1,62 1,503 2,038 0 Operating Income SKr million, excl. restructuring costs Western Europe, excl. 951 1,055 1,348 capital gain - Capital gain 125 - - Eastern Europe 26 -13 -26 North America, excl. INO 187 215 244 costs - INO costs -76 - - South America 233 157 192 Total 1,44 1,414 1,758 6 Operating Margin Percent Western Europe, excl. 15.3 17.0 15.9 capital gain Eastern Europe 4.8 -2.3 -3.5 North America, excl. INO 7.1 8.7 7.4 costs South America 13.1 8.0 7.4 Total 13.0 12.6 11.7 6 CONSOLIDATED BALANCE SHEET SKr million Sep. 30 Dec.31 1999 1998 ASSETS Goodwill 1,097 1,046 Plant and equipment 16,076 17,804 Shareholdings 259 544 Long-term investments 308 - Long-term operating receivables 186 157 Total fixed assets 17,926 19,551 Inventories 981 939 Current receivables 3,235 3,135 Liquid assets and investments 1,684 2,434 Total current assets 5,900 6,508 TOTAL ASSETS 23,826 26,059 SHAREHOLDERS' EQUITY AND LIABILITIES Share capital 1,218 1,217 Restricted and free reserves 6,403 10,629 Net income 1,021 370 Total shareholders' equity 8,642 12,216 Minority interests 80 87 Provisions for pensions 1,167 1,141 Provisions for deferred tax 2,303 2,269 Provisions for restructuring 504 720 Total provisions 3,974 4,130 Long-term loans 6,144 2,628 Short-term loans 2,080 3,581 Total loans 8,224 6,209 Other long-term liabilities 486 476 Other current liabilities 2,420 2,941 Total other liabilities 2,906 3,417 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 23,826 26,059 Net debt 6.232 3.775 Net debt/equity ratio, percent 72.1 30.9 Equity ratio, percent 36.6 47.2 7 CONSOLIDATED STATEMENT OF CASH FLOWS SKr million Jan.- Jan.- Full Sep. Sep. Year 1999 1998 1998 OPERATING ACTIVITIES Operating income 1,446 1,414 783 Reversal of depreciation 1,398 1,352 1,822 Reversal of restructuring reserve, -276 - 975 etc. Reversal of capital gains -129 - - Adjustment for associate companies - -12 -18 Net financial expense -423 -126 -227 Paid tax -154 -291 -319 Cash flow before change in working 1,862 2,337 3,016 capital Change in working capital -433 -361 -272 Dividends to shareholders -730 -730 -730 Cash flow from operating activities 699 1,246 2,014 INVESTING ACTIVITIES New plant and equipment -1,068 -1,515 -2,002 Sale of plant and equipment, etc. 54 223 305 Acquisitions, etc. -206 -100 -331 Sale of subsidiaries 435 - - Sale of shares in Industrivärden 595 - - Cash flow from investing activities -190 -1,392 -2,028 NET CASH FLOW FROM OPERATIONS 509 -146 -14 FINANCING ACTIVITIES Redemption of shares -3,408 - - New issue of shares 147 - - Change in loans 2,348 -138 -401 Change in long-term investments -308 - - Cash flow from financing activities -1,221 -138 -401 NET CASH FLOW -712 -284 -415 LIQUID ASSETS Liquid assets at beginning of the 2,434 2,823 2,823 year Net cash flow for the period -712 -284 -415 Exchange rate adjustment -38 13 26 Liquid assets at the end of the 1,684 2,552 2,434 period ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/10/27/19991027BIT00050/bit0001.pdf The full Report http://www.bit.se/bitonline/1999/10/27/19991027BIT00050/bit0002.doc The full Report