Allgon's Half-year Report 1998

INTERIM REPORT JANUARY 1 - JUNE 30, 1998 Invoiced sales + 4 % to SEK 847 million (818) Income before taxes +17 % to SEK 55 million (48) Net income + 20 % to SEK 43 million (36) Market Sales of mobile telephones on the world market continue to develop strongly. A large number of analysts estimate that in 1998 sales of telephones may amount to approximately 140-145 million units (1997:approximately 105 million units). The expansion of the infrastructure of the mobile networks in North America continued at a lower pace than anticipated during the second quarter. Allgon's assessment is that the current market situation will largely continue throughout the year. The European market is developing in step with subscriber growth which remained high, but prices are severely squeezed. The level of activity on the South American market, especially in Brazil, has increased now that the earlier problems with providing licenses to the operators have been solved. The unstable economic situation in Asia creates a divided scenario with regard to the market trend on the Asian markets. However, on the markets which are the most important for Allgon - China, Korea and Japan - the trend has been positive. Group invoicing increased by 4 percent to SEK 847 million (818). Group orders received fell by 1 percent to SEK 874 million (885). During the year, the average time between order and delivery was shortened. Business Area System reduced its invoiced sales by 7 percent to SEK 448 million (482). Invoicing to customers in North America and Europe fell, whereas it increased to customers in Asia. Sales of base station equipment developed weakly which, among other things, is due to the slow expansion of the new mobile networks in the USA. Sales of one of Allgon's previous volume products, the automatically tuned combiner for the AMPS/TDMA systems, were weak and are now at a significantly lower level than in 1997. A number of new products have been developed and others are in course of development. This has increased costs for product development. However, the volumes of these new products have not yet become sufficiently large to enable them to replace the previous volume products. Sales of repeater systems, on the other hand, developed very positively on all markets. Allgon is now able to offer these products at all significant system standards. In this product area, intensive product development towards new applications is also taking place. Likewise, sales of base station antennas enjoyed a relatively positive trend. A brand-new generation of antenna products is on its way to being offered to the market. Allgon's investment on the South American market continues and the setting up of a sales organization has been initiated with the establishment of a sales company in Brazil. Business Area Mobile Communications raised its invoiced sales by 19 percent to SEK 399 million (336). The trend in volume for terminal antennas remained strong and Allgon increased its market shares. Growth in invoiced sales remained significantly lower than volume growth during the second quarter which is due to price reductions and changed product mix towards a larger proportion of fixed antennas. During June, Allgon delivered the 100 millionth terminal antenna since production started at the 1993/94 turn of year. This means that approximately one-third of the telephones manufactured during this time have been equipped with an Allgon antenna. The manufacturing of terminal antennas, which started on a modest scale in the Company's unit in the USA towards the end of the first quarter, has been expanded. Sales of vehicle antennas are at a slightly lower level than in the previous year. Income Allgon's operating income rose by 22 percent to SEK 59 million (49). Income before taxes increased by 17 percent to SEK 55 million (48). Allgon's net exposure to the USD amounts to approximately 39 percent of invoiced sales. The exchange rate affected the half-year income positively by SEK 35 million compared with the previous year. Income before taxes would have been SEK 19 million higher if Allgon had not hedged its currency exposure. The Group's forward exchange contracts covering deliveries in USD which have yet to be made amounted to USD 18 million at an average rate of USD 7.70. The Board of Directors makes decisions regarding hedging of net flows on a continuous basis. For the first six months of 1998, no hedging was made in USD. Research and development expenses increased significantly which is connected with the rapid technology development. These amounted to SEK 106 million (79) equivalent to 12 (10) percent of invoiced sales. The international expansion also led to increased sales and marketing expenses. Financial Position At June 30, 1998 the equity ratio was 61 percent (December 31, 1997: 63 percent). Net liquid assets amounted to SEK 155 million at the end of the period (December 31, 1997: SEK 176 million). Capital expenditure Capital expenditure for real estate, machinery, plant and equipment amounted to SEK 55 million (34) during the period. Second quarter 1998 In the second quarter, Allgon's invoiced sales rose to SEK 435 million (433). Income before taxes increased by 56 percent to SEK 30 million (20). Upcoming information dates October 13, 1998 - Nine-Month Interim Report January 19, 1999 - Preliminary Accounts Report for 1998 March 16, 1999 - Annual General Meeting Allgon's operations We develop, market and produce radio-based solutions and other products for wireless telephony and data communications. Our product range comprises systems and components for base stations, repeaters and transmission, as well as antenna solutions. Our customers are system operators and manufacturers, terminal manufacturers, vehicle manufacturers and distributors. Operations are divided into two Business Areas: System (base station equipment, base station antennas and repeaters) Mobile Communications (antennas and antenna products for terminal and vehicle applications) Åkersberga, July 14, 1998 Allgon AB Board of Directors For further information, please contact Torsten Körsell, President Tel. +46-08-540 822 31 Claes Silfverstolpe, Chief Financial Officer Tel. +46-08-540 822 32 This Interim Report has not been the subject of a special examination by Allgon's Auditors. 1998 1997 1996 1997 Jan-June Jan-June Jan-June Jan-Dec Condensed Consolidated Statement of Income (SEK million) Net sales 847 818 631 1,639 Cost of goods sold -526 -525 -440 -1,046 Gross income 321 293 191 593 Sales expenses -94 -72 -65 -141 Administrative expenses -49 -41 -42 -81 Research and development expenses -106 -79 -59 -162 Other operating income/expenses -13 -52 7 -74 Operating income 59 49 32 135 Net financial items -4 -1 1 -3 Income after financial items 55 48 33 132 Taxes -11 -11 -7 -20 Minority share of net income -1 -1 -0 -1 Net income 43 36 26 111 Condensed Consolidated Balance Sheet (SEK 1998 1997 1996 1997 million) June 30 June 30 June 30 Dec 31 Assets Fixed assets 157 113 115 137 Current assets 689 613 492 643 Total assets 846 726 607 780 Equity and liabilities Equity 515 416 333 491 Minority interests 4 2 0 2 Provisions 34 33 33 29 Long-term liabilities 4 - 8 5 Current liabilities 289 275 233 253 Total liabilities and equity 846 726 607 780 Key financial ratios 1998 1997 1996 1997 (SEK million) Jan-June Jan-June Jan-June Jan-Dec Orders received 874 885 663 1,659 Operating margin (%) 7 6 5 8 Profit margin (%) 7 6 5 8 Return on capital employed (%) 28 26 22 37 Return on equity (%) 17 18 16 25 Equity/assets ratio (%) 61 58 55 63 Average number of full-time employees 810 704 647 764 Capital expenditures for - real estate 3 - - - - machinery, plant and equipment 52 34 18 72 Number of shares at end of period 28,800 28,800 14,400 28,800 (thousands) Earnings per share (SEK)* 1.50 1.25 0.90 3.84 Equity per share (SEK)* 18 14 12 17 *Adjusted for new share issue Invoiced sales 1998 1997 Change 1997 (SEK million) Jan-June Jan-June % Jan-Dec System 448 482 -7 963 Mobile Communications 399 336 +19 676 Total 847 818 +4 1,639 Europe 260 287 -9 573 North & South America 354 360 -2 763 Rest of world 233 171 +36 303 Total 847 818 +4 1,639 QUARTERLY FIGURES Condensed Consolidated 1997 1997 1997 1997 1998 1998 Statement (SEK million) Jan- Apr-June July- Oct- Jan-Mar Apr- Mar Sep Dec June Net sales 385 433 418 403 412 435 Cost of goods sold -243 -282 -261 -260 -259 -267 Gross income 142 151 157 143 153 168 Sales expenses -39 -33 -34 -35 -42 -52 Administrative expenses -19 -22 -23 -17 -28 -21 Research and development -39 -40 -38 -45 -50 -56 expenses Other operating -19 -33 -21 -1 -3 -10 income/expenses Operating income 26 23 41 45 30 29 Net financial items 2 -3 -4 2 -5 1 Income after financial 28 20 37 47 25 30 items Taxes -7 -4 -9 0 -3 -8 Minority share of net 0 -1 0 0 -1 -0 income Net income of the quarter 21 15 28 47 21 22 Condensed Consolidated 1997 1997 1997 1997 1998 1998 Balance Sheet Mar 31 June 30 Sep 30 Dec 31 Mar 31 June 30 (SEK million) Assets Fixed assets 107 113 112 137 147 157 Current assets 583 613 649 643 683 689 Total assets 690 726 761 780 830 846 Equity and liabilities Equity 416 416 444 491 512 515 Minority interests 1 2 2 2 3 4 Provisions 31 33 35 29 34 34 Long-term liabilities - - - 5 4 4 Current liabilities 242 275 280 253 277 289 Total liabilities and 690 726 761 780 830 846 equity Key financial ratios 1997 1997 1997 1997 1998 1998 (SEK million) Jan- Apr-June July- Oct- Jan-Mar Apr- Mar Sep Dec June Orders received 421 464 407 367 433 441 Operating margin (%) 7 5 10 11 7 7 Profit margin (%) 7 5 9 12 6 7 Return on capital employed 30 22 39 45 28 27 (%) Return on equity (%) 21 14 26 40 17 17 Equity/assets ratio (%) 60 58 59 63 62 61 Average number of full-time 706 705 848 773 801 819 employees Capital expenditures for - real estate - - - - - 3 - machinery, plant and 16 18 15 23 27 25 equipment Number of shares at end of 14,400 28,800 28,800 28,800 28,800 28,800 period (thousands) Earnings per share (SEK)* 0.73 0.51 0.97 1.62 0.73 0.77 Equity per share (SEK)* 14 14 15 17 18 18 *Adjusted for new share issue Invoiced sales 1997 1997 1997 1997 1998 1998 (SEK million) Jan- Apr-June July- Oct- Jan-Mar Apr- Mar Sep Dec June System 228 254 258 223 222 226 Mobile Communications 157 179 160 180 190 209 Total 385 433 418 403 412 435 Europe 135 152 137 149 116 144 North & South America 180 180 220 183 177 177 Rest of world 70 101 61 71 119 114 Total 385 433 418 403 412 435