Interim Report

Interim Report for the first six months 1998 Net sales totalled SEK 8,650 million (8,826). The operating margin, excl. non-recurring items, improved to 3.2% (2.8). The profit before tax, incl. non-recurring items, improved by SEK 215 million to 422 million (207) and excl. non-recurring items by SEK 64 million to SEK 235 million (171). The cooperation and integration with Schenker proceeds according to plan. On- going mergers in respective countries are expected to be in place during the autumn. Restructuring costs will be lower than previously estimated. Sales and results The demand for transport and logistics services has also continued to develop satis-factorily in the second quarter of 1998, due to generally sound economic growth in the Group's main markets. The partnership with the German Schenker Group within the European land transport sector has developed according to plan. The rate of growth has consequently been negatively affected, in that the majority of the partnership changes at the beginning of the financial year led to falls in volumes. This will, how-ever, be compensated for later in the year by new volumes as a result of the Schenker partnership. The Asian crisis has continued to have a negative impact on the air and sea freight volumes in the Wilson Group Division, and the consignment volume trend in the Division fell in comparison with the corresponding period last year. The Group's net sales fell by about 2% to SEK 8,650 million (8,826). Adjusted for units sold, net sales rose by 2%. The operating profit during the second quarter was SEK 157 million, an improvement of SEK 2 million over the corresponding period last year, and of SEK 38 million over the first quarter of the year. Costs of approximately SEK 10 million in respect of the Schenker partnership and SEK 9 million for the adjustment of the computer systems to the EMU and the year 2000 problem, have been charged to the second quarter. The Group's operating profit for the period from January to June rose by SEK 178 million in comparison with last year, and was SEK 463 million. Adjusted for non-recurring items, the operating profit improved by 11% or SEK 27 million. The Group's operating margin, excluding non-recurring items, improved to 3.2% (2.8). The Group's net financial items totalled SEK -41 million (-78). The operating net financial items improved by SEK 41 million to SEK -73 million due to a strong cash flow and lower borrowing costs. Financial assets - mainly comprising the share-holdings in Cofinimmo and SMZ-Industrier/Zeteco - were sold during the period for approximately SEK 300 million, giving a capital gain of SEK 32 million. The Group's profit before tax was SEK 422 million. The tax liability for the period is estimated at SEK 37 million (10) and the minority shares at SEK 6 million (5). The profit for the period improved by SEK 187 million to SEK 379 million (192). Operations' performance The rate of growth in the Group's transport and logistics operations was slightly lower during the second quarter which, in comparison with the first quarter of the financial year, included fewer working days. The levels of activity and capacity utilization were, however, high for the period. The Asian crisis has had a negative impact on the Group's sea and air operations, as have developments in Russia. The operating profit continued to develop satisfactorily, and as of the end of June, the operational operating profit was SEK 271 million (262), whilst on a rolling basis, it was SEK 623 million, including results from companies disposed of. Land Transport Division Volumes at the Scansped network rose by 6.5% in comparison with the corresponding period last year. The combined growth figure was, however, lower due to the partnership changes which took place at the beginning of the year, when the cooperation started with Schenker. These reduced volumes will be compensated for later in the year in the form of new volumes as a result of the Schenker partnership. Problems in the Russian economy have led to a pronounced reduction in the volume of freight shipped to Russia. Both volumes and results continued to develop positively in the Group's Swedish operations, BTL Sweden AB. International transport consignments for the six month period grew by 9.5% and domestic consignments by just over 4%. The operating profit improved and a satisfactory level of profitability was achieved in most of the segments. The profitability of the wholly-owned haulage firms deterio-rated due to an unfavourable cost trend. A reorganisation and restructuring of the haulage operations is currently in progress with the aim of improving both efficiency and profitability. The Division's Finnish operations continued to improve. The domestic operations reported very healthy growth, as did the specialist operations at Huolintakeskus. The international operations reported pleasing improvements in the second quarter and the operating profit in Finland improved in comparison with last year. The operations in Norway and Denmark performed satisfactorily, but were affected by strikes during the second quarter. It is calculated that this led to a fall in profits for the Land Transport Division of around SEK 7 million. The profit performance was extremely good in the Baltic States, and in Estonia in particular. In the Netherlands, Belgium as well as in the UK and Poland, the operations developed according to plan. In Germany, Switzerland and France, improved operating profits were reported, but the figures are still negative. The Division's net sales rose by just over 3% to SEK 6,510 million (6,311). Net sales were affected positively by good volume development and the price increases implemented, and negatively by the effects of the above-mentioned partnership changes and, to a degree, by the integration with Schenker already implemented in certain countries. The Division's operating profit rose by 11% to SEK 240 million (216). Approximately SEK 10 million for the Schenker partnership and approximately SEK 6 million for the adjustment of the computer systems to handle the year 2000 problem have been charged to the results. The operating margin for the period was 3.7% (3.4), and just over 3.9% for the past 12-month period. The Schenker partnership The partnership with Schenker within European land transport has continued to develop according to plan. The currently ongoing integration and merger process will be completed during the third quarter, at which point BTL will acquire Schenker's land transport operations in Sweden, Norway, Denmark, Finland, the three Baltic states, Russia, Poland, Belgium, the Netherlands and UK/Ireland. BTL's operations in Germany, Switzerland and France will be transferred to Schenker. In the Czech Republic and Hungary both BTL and Schenker will own the operating companies and BTL will reduce its ownership in these companies. In Italy BTL will operate and wholly own the subsidiary Castelletti. A comprehensive process of development within the context of the joint Schenker-BTL network is in progress and several crucial steps have been taken towards the creation of joint products and traffic and IT systems, together with combined solutions for pan-European marketing and sales. The consolidation of the Schenker units acquired, together with the deconsolidation of the Scansped companies sold to Schenker, will be implemented in the third quarter. The net purchase price involved in the commercial agreements entered into with Schenker is around SEK 300 million. A more detailed calculation of the structural costs of the Schenker cooperation indicates a figure in the region of SEK 150 million. Approximately SEK 115 million of this sum will be charged to the 1998 financial year, and the remainder will be booked as goodwill. It is calculated that the subsequent combined goodwill sum will be around SEK 250 million, which will be depreciated over 10 years. The business agreement has been examined by independent advisors, following which a so called clean opinion of fairness has been issued for the transfer in its entirety with the exception of France, where negotiations are still continuing about the final structure. Substantial positive effects are expected to arise as a result of the deal. This has been calculated at between 0.7% and 1.0% of the business area's net sales, and will take between one and two years to realise. The Wilson Group Division The increasingly negative trend in the Asian economies has meant reduced sea and air freight volumes for the Wilson Group. The volume of goods transported during the period from January to June fell by just over 4% in comparison with the corresponding period last year. The political and financial turbulence in Russia has lead to reduced import volumes to Russia, which has had a negative impact on the profit performance, particularly for the Division's Finnish operations. Net sales in the Division totalled SEK 1,796 million (1,883) for the period. The operating profit fell by SEK 7 million to SEK 23 million (30). The operating margin was 1.3% (1.6). Operations performed satisfactorily in Sweden and Norway. The operating profit fell in Wilson Finland, but profitability was still good. The results from the Hong Kong/China operations, as well as the Danish operations continued to improve. Operations in the US showed some improvement, but they were still operating at a loss. A comprehensive remedial programme is being implemented in the UK with the aim of reversing the current loss-making trend. Multifreight International BV in the Netherlands was acquired during the period, as were all shares in Wilson Singapore and Wilson Thailand, which are now wholly-owned Wilson companies. Additional acquisition-related negotiations are in progress with the aim of reinforcing both the Wilson network and profitability in the Division. Other operations After the sale of the majority of specialist companies, Scandinavian Rail Cargo (SRC) and the Danish thermo company, Thermo Scandia, are reported under other operations. Both companies reported a positive trend and a satisfactory level of profit per-formance. During the period SRC has expanded its operations by establishing offices in Poland and Italy. Other All of the remaining shareholdings in the Belgian property company, Cofinimmo, and in SMZ Industrier/Zeteco, were sold during the period, giving a combined surplus of SEK 32 million. BTL has also acquired all of the shares in the associated company, Castelletti. Castelletti's net sales in 1997 totalled SEK 2.7 billion. The number of employees is just over 800. The company has subsidiaries in Italy, Switzerland, Germany and the US. On the Italian domestic market, Castelletti has 25 branches. Castelletti will be consolidated as of the third quarter of 1998. The Group's net debt at the end of June was SEK 2,638 million - a fall of SEK 637 million in comparison with the figure at the turn of 1997/98. The relatively large reduction in the burden of debt was made possible by a healthy operational cash flow and the remittance from the sale of assets. Parent Company The company's net sales for the first six months were SEK 0 million (3) and the loss after financial items was SEK 32 million (+ 6). During the period investments amounted to SEK 1 million (3). Outlook for the full year In spite of the impact of the crises in Asia and Russia, the earlier estimate of an improved Group profit, excluding capital gains and restructuring costs, remains unchanged. The profitability is expected to strengthen from what is an already satisfactory level, in comparison with the industry in general. The profit before tax for the whole of 1998 is estimated to improve considerably compared to last year. The third quarterly report will be published on 9 November 1998. Göteborg, 20 August 1998 Håkan Larsson Managing Director and Group Chief Executive This Report has not been the subject of a special examination by the Company's Auditors. The Interim Report is also available on the Internet: www. btl. se Net Operating Income and Profit by Business Area, SEK M Net Operating Operating Profit Income January-Whol January-Whol June e of June e of 1998 1997 1997 1998 1997 1997 Land Transport Division 6,51 6,31 12,8 240 216 490 0 1 49 Wilson Group Division 1,79 1,88 3,87 23 30 69 6 3 9 Other companies 383 700 1,50 8 16 55 6 Intra Group sales -53 -93 -139 - - - Total 8,63 8,80 18,0 271 262 614 6 1 95 Non-recurring items - - - 187 36 37 Parent company and other 193 196 386 5 -13 -46 operations Intra Group sales -179 -171 -343 - - - Group total 8,65 8,82 18,1 463 285 605 0 6 38 Summary of the Consolidated Income Statement, SEK M January-June Whole of 1998 1997 1997 Sales 11,089 11,546 23,659 Net sales (excl. VAT on imports and 8,650 8,826 18,138 customs duties) Non-recurring items 187 36 37 Operating expenses -8,192 -8,414 -17,238 Depreciation -199 -192 -392 Shares in the profit of associates 17 29 60 Operating profit 463 285 605 Financial items Financial income and expenses -73 -114 -223 Capital gain on sales 32 36 58 Profit before tax 422 207 440 Tax -37 -10 -57 Minority shares -6 -5 -13 Profit for the period 379 192 370 Summary of the Consolidated Balance Sheet, SEK M Assets 30 June 31 Dec. 1998 1997 Intangible fixed assets 794 827 Tangible fixed assets 3,566 3,632 Financial fixed assets 1,002 1,280 Other current assets 2,854 2,933 Cash, bank balances and short- term investments 431 264 Total assets 8,647 8,936 Equity and liabilities Equity 2,281 2,011 Minority interests 33 33 Interest bearing liabilities and 3,188 3,652 provisions Non-interest bearing liabilities 3,145 3,240 and provisions Total equity and liabilities 8,647 8,936 Summary of the Consolidated Cash Flow Analysis, SEK M January-June Whole of 1998 1997 Gross cash flow from 365 1,030 operations Investments -196 -283 Sales of fixed assets 666 361 Net pre-tax cash flow from 835 1,108 operations Financing excl. loans -55 -190 Other changes -77 -57 Cash flow before share issues, dividends 703 861 and changes to loans Dividends to shareholders -112 - Changes to loans and other interest -423 -969 bearing liabilities Key figures January-June Whole of 1998 1997 1997 Operating margin excl. non- % 3.2 2.8 3.1 recurring items Operating margin incl. non- % 5.4 3.2 3.3 recurring items Earnings per share after tax SEK 3.40 1.70 3.30 Return on capital employed excl. non-recurring items % 13.1 10.7 11.8 Return on capital employed incl. non-recurring items % 19.8 11.8 12.4 Equity/assets ratio % 27 20 23 Net debt SEK M 2,638 3,220 3,275 Investments incl. financial SEK M 300 182 415 leasing Liquidity at end of period SEK M 431 329 264 Average number of employees 10,277 11,088 10,955 of which outside Sweden 5,219 5,609 5,629 Number of shares at end of period 112,423 112,423 112,423 ,973 ,973 ,973 1) Quarterly figures , SEK M Whole of Rolling 1997 12 month Q2/98 Q1/98 Q4/97 Q3/97 Q2/97 BTL Group Net sales 17,96 4,282 4,368 4,667 4,645 4,56418,13 2 8 Operating expenses - - - - - - - 2) 17,41 4,132 4,259 4,533 4,491 4,43617,63 5 0 Shares in the profit of 48 7 10 9 22 27 60 associates Operating profit 595 157 119 143 176 155 568 Financial income and -182 -30 -43 -58 -51 -48 -223 expenses Capital gain on 54 12 20 3 19 - 58 sales Profit after 467 139 96 88 144 107 403 financial net Non-recurring items 188 - 187 1 - - 37 Profit before tax 655 139 283 89 144 107 440 Divisions Land Transport Net sales 13,04 3,203 3,307 3,295 3,243 3,29012,84 8 9 Operating profit 514 140 100 135 139 149 490 Wilson Group Net sales 3,792 906 890 1,008 988 975 3,879 Operating profit 62 10 13 19 20 18 69 Other companies Net sales 1,189 190 193 386 420 350 1,506 Operating profit 47 4 4 4 35 -2 55 Total Net sales 17,93 4,275 4,361 4,658 4,636 4,55418,09 0 5 Operating profit 623 154 117 158 194 165 614 1) To simplify the comparison between the quarters, non-recurring items are shown after the profit after financial net. 2) Including depreciation.