Nine-monthly report january-september 1999 Bong Ljungdahl AB

NINE-MONTHLY REPORT JANUARY-SEPTEMBER 1999 BONG LJUNGDAHL AB * EUROPE'S LARGEST ENVELOPE COMPANY FORMED THROUGH MERGER WITH WOLF BAUWENS/R.SCHMIDT GROUP - A STRONG PLATFORM FOR FURTHER EXPANSION IS CREATED * STRUCTURAL MEASURES GENERATE CONTINUED EARNINGS GROWTH * MARKET POSITION IN NORWAY STRENGTHENED BY ACQUISITION OF PDC KONVOLUTTER * PROFIT AFTER NET FINANCIAL ITEMS MORE THAN DOUBLED TO SKr 55 MILLION (22) * EARNINGS PER SHARE AFTER TAX SKr 5.97 (2.39) MERGER WITH BAUWENS A Letter of Intent has been signed in October 1999 for a merger of Bong Ljungdahl and Wolf Bauwens/R. Schmidt Group (Bauwens). The intention is that the merger will be implemented by Bong acquiring Bauwens, whereby Michael Wolf Bauwens, owner of Bauwens, will receive a combination of newly issued shares in Bong and cash for his shares in Bauwens. The new Group will be Europe's largest envelope manufacturer with a total market share of some 16 per cent and a very strong position on the North European market as a whole as well as on several large, individual markets. The merger will also create an exceptionally strong platform for further expansion and growth on the European envelopes market. Turnover is estimated to amount to some SKr 2.5 billion and the number of employees to some 1,800. Bauwens is Europe's second largest envelope manufacturer and supplies an extensive range of products from its facilities in Germany, Ireland, Great Britain, Finland and Belgium. Bauwens is market leader in Germany and also has a strong position in Great Britain, Ireland, Belgium and Holland. The merger is expected to be finalised at the beginning of 2000 subject to the usual due diligence procedures, to a final agreement on the transfer of shares being reached and to an Extraordinary General Meeting of shareholders in Bong Ljungdahl resolving in favour of issuing new shares to the present owner of Bauwens. CONTINUED STRUCTURAL MEASURES A decision was made in September 1999 to transfer the binder production from Kristianstad to the Group's unit in Gdansk, Poland, with the object of adapting the Group's binders business to the prevailing competitive climate and market conditions. Consequently, 55 people at the unit in Kristianstad have been given notice of redundancy. After the changes have been made, the remaining binder activities in Sweden will consist of marketing, logistics and some administration. A decision has also been made to concentrate overprinting operations within Envelopes Sweden in Kristianstad. This will lead to a reduction of some 30 in the work force at the Nybro unit. The measures are one stage in the further streamlining of the business, and are expected to lead to significant savings, mainly as a result of a total reduction of 50-60 in the work force. The change process will begin this autumn/winter and are expected to be completed in the first half of 2000. ACQUISITION OF PDC KONVOLUTTER The acquisition of the Norwegian envelope printing company PDC Konvolutter has now been finalised. The acquisition is part of the Group's strategy of forward integration along the value-added chain. When combined with the existing activities, it will put the Group well ahead of the competition as market leader on the growing Norwegian market for printed envelopes. th PDC Konvolutter, which is consolidated as of September 6 , 1999, has a turnover of some SKr 37 million and 25 employees. THE MARKET Demand on the Group's key markets weakened slightly during the third quarter, but has generally been relatively stable for the first nine months of the year as whole. The increase of foreign suppliers activity onto the Nordic market has caused the competitive situation to tighten slightly. Seen from a European perspective, and based on recent analyses, the previous forecast of a long-term volume increase of 2-3 per cent per year on the envelopes market remains unchanged. Growth is mainly generated by the continued strong growth in product segments related to direct mail advertising. In line with this, there is a trend towards higher value added products in larger formats. SALES AND RESULT The Group's net turnover rose by more than 19 per cent and amounted to SKr 906 million (759). The growth is largely due to the acquisition of the Finnish business. For comparable units, the increase was some 2 per cent. The operating profit for the January-September 1999 period rose by SKr 36 million to SKr 68 million (32). The profit margin was 7.5 per cent (4.2). The main factors behind the improvement in profit are the full effects of the structural measures taken within the Scandinavian envelope operations, and the acquisition of the Finnish business. Within the Binders Sweden Division, increasing pressure on prices, coupled with too low a level of capacity utilisation, especially during the last quarter, has caused a sharp deterioration in the result. The Group's operating profit for the third quarter, traditionally the weakest, rose by 34 per cent to SKr 15 million, which may be compared with SKr 11 million in the corresponding quarter last year. The profit after net financial items for the first nine months of the year amounted to SKr 55 million, which may be compared with SKr 22 million (excluding capital gains of SKr 7 million) for the previous year. The acquisition of the Finnish business has caused an increase of more than SKr 2 million in the Group's interest costs. Envelopes Sweden The unit has continued to make strong progress. The efficiency improvements carried out and stronger market positions have generated a substantial increase in profit. Demand slackened slightly at the end of the third quarter, but from a relatively high level. Turnover amounted to SKr 381 million (360). Envelopes Denmark Continued success in the printing operations, in combination with continuous efficiency improvements, has generated strong growth in earnings, despite lower delivery volumes than in the previous year. Turnover amounted to SKr 135 million (140). Envelopes Norway A tendency towards a general slowdown in trade and growing competitive pressures were noted during the quarter. Cost-reduction measures and certain positive effects due to the acquisition of PDC's envelope printing business will partly offset the weaker sales growth. The result for the first nine months of the year was marginally better than for the corresponding period last year. Turnover amounted to SKr 126 million (139). Envelopes Finland The integration of the Finnish business is continuing and, with the relocation of the stockholding function from Helsinki to Tampere, will be completed in 1999 as planned. The work force, which amounted to 226 people at the date of acquisition (October 1998), has been steadily reduced, and is expected to total some 160 people at the end of 1999. Turnover amounted to SKr 133 million. Envelopes Belgium The gradual rationalisation and development of the Belgian unit is in progress and involves the transfer of some sheet production to Sweden and an upgrading of reel-based capacity. The result is moving in the right direction but it has not yet reached a satisfactory level. Turnover amounted to SKr 123 million (109). Envelopes Poland The Group's Polish envelopes business has continued to develop relatively well. Sales in local currency rose by some 14 per cent, which is judged to be in line with market growth. The result is positive and has increased. The relocation to new premises is in progress, but is slightly behind schedule. Turnover amounted to SKr 21 million (20). LIQUID FUNDS AND FINANCING st Closing liquid funds amounted to SKr 26 million (Dec 31 , 1998: 36) and net interest bearing debt rose by SKr 8 million to SKr 325 million. The equity ratio was 40 per cent (43) and the debt-equity ratio was 0.76 (0.60). The rate of interest cover was 4.9 (3.3). CAPITAL EXPENDITURE The group continued its high level of capital expenditure. Fixed investments during the period amounted to Skr 82 million and were largely concentrated on the modernisation and technical upgrading of the machinery and equipment at the envelope units. As a result of the completed and ongoing process of structural change, old equipment has been retired and sold for Skr 19 million. It is expected that the level of capital expenditure within the existing structure will be considerably less during the next few years. EMPLOYEES The average number of employees amounted to 1,126 (1,021). The increase is attributable to the acquisition of the Finnish business in 1998. The average number of employees in the Group has decreased by 114 since the end of 1998. SURPLUS FUNDS FROM SPP Some SKr 13 million of the excess insurance funds held by SPP have been allocated to companies within the Bong Ljungdahl Group. As the date when and the conditions on which these funds will be made available has not yet been decided, their effect has therefore not been taken into the consolidated accounts. OUTLOOK The Group's result improved again during the third quarter. The previous forecast that the full-year result would be markedly better than in 1998 therefore remains unchanged. th Kristianstad, October 28 , 1999 BONG LJUNGDAHL AB (publ.) Lennart Pihl Managing Director This report has not been subject to specific examination by the company's auditors. Further information may be obtained from Lennart Pihl, MD and CEO of Bong Ljungdahl AB. Telephone (direct) +46 (44) 20 70 50, (mobile) 0705 94 68 66 th INTERIM REPORT BONG LJUNGDAHL GROUP 30 September, 1999 SUMMARY PROFIT AND LOSS Jan-Sept 1999 Jan-Sept 1998 Jan-Dec 1998 ACCOUNT (SKr million) Net turnover 906,3 759,0 1095.4 Operating costs -838,7 -727,0 -1039.2 Operating profit 67,6 32,0 56.2 Capital gain on sale of - 7,0 7.0 subsidiary Net financial items -12,6 -10,1 -15,4 Profit after net financial 55,0 28,9 47.8 items Tax -12,2 -5,1 -7.5 Net profit after tax 42,8 23,8 40.3 th st SUMMARY BALANCE SHEET Sept 30 1999 December 31 , 1998 (SKr million) Fixed assets 664,0 628.3 Receivables 214,5 198.4 Stocks 177,3 200.7 Liquid funds 25,7 36.1 Total assets 1 081,5 1063.5 Equity 427,7 405.2 Interest-bearing provisions 77,1 78.2 Interest-free provisions 76,9 77.6 Interest-bearing liabilities 281,4 282.5 Interest-free liabilities 218,4 220.0 Total equity and liabilities 1 081,5 1063.5 FINANCIAL RATIOS Jan-Sept 1999 Jan-Sept 1998 Jan-Dec 1998 KRONOR PER SHARE Earnings after standard tax 5,53 2,24/2,96 1) 4.16/4.87 1) Ditto after full tax 5,97 2,39/3,38 1) 4.32/5.70 1) Equity 61,94 56,25 58.80 RATIOS Operating margin 7,5% 4,2% 5.1% Profit margin 6,1% 2,9%/3,8% 1) 3.7%/4.4% 1) Return on equity 12% 6%/7% 1) 7%/9% 1) Return on capital employed 12% 7% 9% Debt-equity ratio 0,76 0,60 0.78 Equity ratio 40% 43% 38% Interest cover 4,9 3,3 3,2 Capital employed, SKr 786,2 640,1 765.9 million Net interest-bearing debt, 325,0 232,4 317.3 SKr million Average number of shares 7,164,840 7,033,655 7,066,721 (after full conversion) Including capital gain on sale of the Labels division (Nova Print) QUARTERLY COMPARISONS GROUP (SKr million) Q 3/99Q 2/99 Q 1/99Q 4/98Q 3/98Q 2/98Q 1/98Q 4/97*Q 3/97*Q 2/97 Net 265,5 302,6 338.2 336.4 228.4 255.3 275.3 272.8 225.9 268. turnover Operating -251,0-280,0 -307.7-312.2-217.6-247.0-262.4 -265.3 -220.6 -268. costs Operating 14,5 22,6 30.5 24.2 10.8 8.3 12.9 7.5 5.3 -0. profit/los s Capital gain on - - - - - - 7.0 - - sale of subsidiary company Net -3,7 -4,2 -4.7 -5.3 -3.6 -2.6 -3.9 -3.4 -3.2 -3. financial items Result after net 10,8 18,4 25.8 18.9 7.2 5.7 16.0 4.1 2.1 -3. financial items *) Pro forma including Ljungdahls and excluding Labels division CASH FLOW ANALYSIS: GROUP (SKr million) Jan.-Sept. 1999 Jan.-Sept. 1998 Operating profit 67,6 32,0 Net financial items -12,7 -10,1 Tax paid -12,9 -4,1 Depreciation 48,2 41,4 90,2 59,2 Change in working capital 8,0 -32,0 Cash flow from current operations 98,2 27,2 Capital expenditure, etc -72,7 -45,0 Acquisitions/divestments, etc -14,2 31,4 Cash flow after investments, etc 11,3 13,6 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/10/28/20000315BIT00080/bit0001.doc http://www.bit.se/bitonline/1999/10/28/20000315BIT00080/bit0002.pdf