Celsius Interim Report January-March 1999

Celsius Interim Report January - March 1999 * Income after financial income/expenses amounted to SEK 11 (195)1 for the first quarter. Income for the corresponding period in the preceding year was positively affected by non-recurring items amounting to SEK 159 M. * Operating income for the first quarter amounted to SEK 15 M. Operating income for the corresponding period in the preceding year, excl. non-recurring items, amounted to SEK 35 M. * Sales were approximately similar to those for the same period last year, amounting to SEK 2,584 M (2,523). * The level of orders received declined somewhat compared with the same period last year, amounting to SEK 2,631 M (2,891). * The backlog of orders has declined by approximately SEK 100 M since year- end 1998, amounting to SEK 13,885 M (13,962). 1 Figures in parentheses refer to 1998 The first quarter of 1999 has been affected by the considerable uncertainty surrounding the future focus of the Swedish Defence Forces and the consequent scale of Sweden's future defence materiel requirements. This has led to delays and postponements in order inflow, which has had a negative effect on earnings for the period. The low level of orders received will eventually result in poor capacity utilization at some of Celsius' defence units, which will in turn require continued cost efficiencies and rationalization in the Company's joint defence operations. The long drawn-out debate on Swedish defence policy has further complicated and delayed the ongoing international structuring on Celsius' part. Celsius is an integrated industrial concern, with four business areas: Defence, Commercial Aviation Services, Business Development and Niche Companies, each comprising a number of business units, which act as independent profit centres and which report directly to Group management. Since Autumn 1997, the Group has been engaged in comprehensive restructuring with a view to concentrating operations to a number of selected core business areas, in both the defence and commercial sectors. This work continued during the first quarter of 1999, involving acquisitions as well as divestments. During the period, Celsius formed a joint venture company with Grintek Group in South Africa, a company that will be a leading player in the field of electronic warfare, a field that is gaining increasing importance in the context of the high-tech defence forces of the future. Celsius will have a 49- percent holding in this newly formed company, Avitronics, while Grintek will hold the outstanding 51 percent. At the beginning of the year, Celsius and Saab each acquired a 50-percent joint interest in GP&C Sweden AB from the Swedish Space Corporation. The company develops and markets a system which transmits position and identity between ships and aircrafts. With this acquisition, the companies establish a solid platform for continued development, manufacturing and marketing in a segment that is expected to expand sharply over the next few years. Celsius Metech AB, which is part of business unit Celsius Aerotech, is establishing operations in Denmark and Germany by acquiring the calibration division of Danish Aerotech. To secure the most advanced competence in software- and systems development, inside and outside the Group, Celsius formed a new subsidiary during the first quarter, Celsius Consultants. As of March 1 this year, Celsius sold its wholly-owned subsidiary GVA Consultants to British-based British Maritime Technology. This divestment is part of the Celsius Group's consolidation strategy, and will have only a modestly favourable effect on Group earnings. Income after financial income/expenses amounted to SEK 11 (195) for the first three months. Income for the corresponding period in the preceding year was positively affected by non-recurring items amounting to SEK 159 M, resulting in income of SEK 36 M, excluding the aforementioned items. As well as the above named impact of delays on orders received, increased development costs within the Infomatics sector have been charged against income. ORDERS RECEIVED Orders received in the first three months of 1999 declined by more than SEK 200 M, amounting to SEK 2,631 M (2,891). Business area Defence accounted for some 60 percent (72) of the total order inflow, Commercial Aviation Services for approximately 23 percent (17), Business Development for approximately 9 percent (6), and Niche Companies for 8 percent (5). ORDER BACKLOG The Group's order backlog declined by approximately SEK 100 M during the period, amounting to approximately SEK 13.9 billion at the end of the first quarter. Business area Defence accounts for about 90 percent of the order backlog. The other business areas have shorter throughput times and, therefore, lower order backlogs. SALES AND INCOME Group sales in the first three months of the year were on a level with sales for the same period last year, amounting to SEK 2,584 M (2,523). Commercial Aviation Services posted a sales increase of just below SEK 100 M and business areas Defence and Business Development also both noted modest sales increases. Niche Companies reported a decline in sales, however, attributable in part to the sale of GVA Consultants during the year. Operating income for the period amounts to SEK 15 M (194). Income for the same period last year was favourably affected by the settlement of a claim filed against Förvaltnings AB Stattum, concerning earlier pension liabilities amounting to approximately SEK 100 M, and by capital gains totalling SEK 59 M, pertaining mainly to the sale of an accommodation platform and, to a lesser extent, to the divestment of Götaverken Miljö. If these non-recurring items are excluded, the decline in income is limited to SEK 20 M. Business Area Defence reports a somewhat weaker result, while Commercial Aviation Services reports a result approximately on a level with that for the same period last year. Business Area Business Development has invested further in the field of Infomatics, which is the main reason for the decline in consolidated income. Niche Companies report a somewhat weaker earnings trend compared with the same period last year. FINANCIAL POSITION Celsius Group liquid funds, which amounted to SEK 1,636 M at the close of the period, have increased by approximately SEK 202 M since year-end 1998 (1,434). Investments in property, machinery and equipment amounted to SEK 55 M (41) for the period. Depreciation totalled SEK 78 M (99). Total assets have increased by almost SEK 100 M since year-end 1998, amounting to SEK 12,611 M by the close of the report period. Total assets amounted to SEK 12,538 M at year-end 1998. The equity/assets ratio at the close of the period was 27 percent, unchanged compared with year-end 1998. Group equity amounted to SEK 3,383 M at the close of the period, compared with SEK 3,382 M at the start of the year. NUMBER OF EMPLOYEES The number of Group employees declined during the period by some 250 persons, totalling approximately 10,650 persons at the close of the period. This decrease derived in its entirety from business area Defence. COMMENTS BY BUSINESS AREA Business area Defence The inflow of orders for business area Defence declined during the first three months of the year by just over SEK 550 M, amounting to SEK 1,596 M (2,159). Sales increased somewhat during the period, however, rising to SEK 1,725 M (1,683). Consequently, the order backlog decreased by slightly more than SEK 200 M since year-end 1998. Operating income declined somewhat, amounting to SEK 5 M (13). Delays and postponements of procurement orders from the Swedish armed forces have had a negative effect on income. Business area Defence numbered 7,155 employees (8,215) at the close of the period. Large orders received by Celsius during the first quarter of 1999 included orders from the Venezuelan Army to a combined value of approximately SEK 375 M. Business unit Bofors Missiles has signed contracts for deliveries of the RBS 70 man-portable air-defence missile and additional missile equipment. Business unit Bofors Anti Armour Systems has received orders for ammunition for the Carl Gustaf multi-role weapon and the AT4 anti-armour weapon. Furthermore, business unit Kockums Naval Systems received an order for two KBV 201 "multi-role" vessels for the Swedish Coast Guard. The order is worth approximately SEK 240 M, and the vessels will be built in Karlskrona. A new type of multi-role vessel, their primary mission will be year-round surveillance, focused on the protection of Swedish territorial waters. The vessels will also be designed to conduct advanced environmental protection and search-and-rescue missions. Industrial representatives from Denmark, Norway and Sweden signed a Letter of Intent in February concerning cooperation between the three countries, and formed an industrial consortium with a view to collaborating on the Viking submarine project, with the intention of developing the next generation of submarines. The companies that form the Viking Industrial Group are Danyard Aalborg AS (Denmark); Kongsberg Defence & Aerospace AS (Norway) and Celsius, via business unit Kockums Naval Systems. The Project Viking concept is to coordinate the procurement of next-generation submarines for these three Nordic countries, thereby reducing costs for each country. Preliminary and feasibility studies are currently in progress. Since the close of the report period, Celsius has received an order from FMV (Swedish Defence Materiel Administration) for the development and supply of a computerized command and control support system for mechanized battalions. Business unit Bofors Weapon Systems will be acting as primary supplier within the Celsius Group, and the project will be conducted in collaboration with CelsiusTech Systems and Celsius Aerotech. The order is valued at approximately SEK 50 M. Also subsequent to the close of the report period, Bofors Weapon Systems has received an order from FMV for an upgrade of the CV 9040A combat vehicle. The order is worth about SEK 34 M. The first deliveries of upgraded vehicles are scheduled for November of this year, with final deliveries scheduled for the beginning of 2001. In addition to the above, business unit Bofors Missiles received an order from the Norwegian armed forces for spares, support equipment and simulator units for the RBS COND IR night device. The order is worth approximately SEK 19 M. Business area Commercial Aviation Services The aviation market shows signs that the boom has peaked, which has led to a temporary break in the current trend of growth. This has resulted in a somewhat slowed down trend in the good organic growth earlier noted by Celsius Aviation Services. In the asset management sector (i.e. the leasing and sale of, mainly, aero engines), the market situation has become much tougher for Celsius' 1998 acquisition Amtec, resulting in increased price competition. Furthermore, the market is changing its emphasis towards longer-term leasing contracts, thereby distributing earnings over a more extended period. The level of orders received in the first quarter rose to SEK 631 M (517). This figure includes Hawker Pacific in Australia, which was acquired in May last year. Consequently, the level of orders generated by the business area's other activities remained essentially unchanged compared with the same period last year. Approximately the same applies to sales as to orders received. Sales increased to SEK 629 M (532). Operating income was approximately at the same level as for the same period last year, and amounted to SEK 47 M (49). Commercial Aviation Services numbered 1,636 employees (1,080) at the close of the period. Business area Business Development Business area Business Development comprises business units Celsius Infomatics, Nexplo Industries and Celsius Materials Technology. These business units are based on the Group's joint technological competence, but differ widely in terms of products and markets. Orders received in the first three months of the year increased by approximately 50 percent to SEK 254 M (170). This increase derives primarily from Nexplo Industries and Celsius Materials Technology. During the latter part of 1998, Bofors Explosives and Finland's Patria formed a joint venture company - Nexplo Industries. Celsius has a 60-percent holding, Patria the remaining 40 percent, whereby the whole company has been included in Celsius' consolidated accounts as a subsidiary. The merger of the two companies led to the formation of a significantly larger company. At the end of 1998, Celsius Materials Technology acquired the German surface-engineering company Nussbaum GmbH. This company is therefore included in net income for the year, but not for the corresponding period last year. Sales for the first quarter of 1999 rose by approximately 19 percent to SEK 181 M (152), while there was a sharp decline in operating income during the period, which fell to SEK -37 M (1). This decline is mainly attributable to increased investment in development projects by business unit Infomatics. One Infomatics project involves the development of an advanced automotive radar, which is the key component of a "smart" speed control/traffic flow adaptation system. The business area numbered 1,033 (564) employees at the close of the report period. Business area Niche Companies Business area Niche Companies consists of a number of companies with a strictly commercial (non-military) focus. The business area is engaged in the offshore, engineering and shipyard sectors. Orders received during the first quarter increased to SEK 218 M (137). This increase derives mainly from Kockums Industrier, which at the start of the year received an order for 120 heavy goods wagons from Swedish State Railways (SJ). Including an option for a further 60 goods wagons, the total order is worth SEK 130 M. The new heavy goods wagons will be used by SJ and the Swedish forest company StoraEnso to transport reels of paper. Kockums Industrier has also received an order from the Swedish National Rail Administration for 12 rail-borne service vehicles. The order is worth approximately SEK 64 M. A contract for an option on a further 14 vehicles, worth SEK 75 M, was signed at the same time. Sales for the period amounted to SEK 133 M (208). This decline is partly attributable to the sale of GVA Consultants in the first quarter of the year. Operating income amounted to SEK -10 M (53). The result for the corresponding period in 1998 included non-recurring capital gains totalling SEK 59 M, mainly attributable to the sale of the accommodation platform, Safe Jasminia. The business area numbered a total of 698 (705) employees at the close of the period. THE MILLENNIUM CHANGEOVER The extensive programme to ensure that intra-Group systems, as well as those supplied to customers, will continue to operate reliably through and beyond the millennium changeover in the year 2000 continues as planned. Necessary modification and verification of priority areas of operation will be completed by the end of June, 1999. Operationally, the work will be conducted by the individual business units, under the supervision of specially appointed "millennium" managers. These will report to a central working committee, under the direction of an IT board, at Group level. FORECAST FOR THE CURRENT YEAR Operating income for the full twelve months, excluding non-recurring items, is expected to be lower than last year. As in 1998, the majority of income will be generated towards the end of the year. The market situation in which our defence sector acitivities find themselves means considerable uncertainty. NEXT FINANCIAL REPORT The interim report for the period January-June 1999 will be published on August 12th, 1999. Stockholm May 5th 1999 Lars G. Josefsson President and CEO Jan-March Jan-March Full year Key indicators SEK M 1999 1998 1998 Sales 2,584 2,523 14,293 Operating income 15 194 580 Income after financial 11 195 595 items Total assets 12,611 12,015 12,538 Liquid funds 1,636 2,013 1,434 Equity 3,383 3,126 3,382 Return on average capital - 1) - 1) 12 employed ( %) Return on average equity - 1) - 1) 16 after taxes (%) Equity/assets ratio (%) 27 26 27 No. of employees on closing 10,654 10,619 10,902 day Sales by business area SEK M Defence 1,725 1,683 9,513 Commercial Aviation 629 532 2,829 Services Business Development 181 152 685 Niche Companies 133 208 1,653 Eliminations -84 -52 -387 Group 2,584 2,523 14,293 Operating income, by business area SEK M Defence 5 13 376 Commercial Aviation 47 49 209 Services Business Development -37 1 -53 Niche Companies -10 53 2) 116 Joint Group income/expenses 10 78 3) -68 4) and eliminations Group 15 194 580 1) reported for full year only. 2) of which a capital gain of SEK 59 M. 3) of which compensation amounting to approximately SEK 100 M in settlement of a claim against Förvaltnings AB Stattum concerning pension obligations. 4) of which compensation amounting to approximately SEK 100 M in settlement of a claim against Förvaltnings AB Stattum concerning pension obligations, as well as a capital gain of approximately SEK 35 M on the sale of shares in BPA. Jan-March Jan-March Funds statement SEK M 1999 1998 Income after tax -9 175 Depreciation added back 109 126 Other items not affecting liquidity -25 -258 Change in working capital 432 130 Funds generated by operations 507 173 Investments, net -530 -206 Funds generated after investments -23 -33 Financing 215 23 Dividend to shareholders - - Change in liquid funds, excluding translation differences 192 -10 Translation differences 10 14 Change in liquid funds 202 4 Consolidated income Jan-March Jan-March Full year statement SEK M 1999 1998 1998 Sales 2,584 2,523 14,293 Cost of sales -2,111 -2,041 -11,898 Gross profit 473 482 2,395 Selling, administrative expenses and R&D -480 -427 -2,022 costs Other operating income/expenses, net 34 83 136 Share of income in associated companies -12 56 71 Operating income 15 194 580 Financial income and expenses, net -4 1 15 Income after financial items 11 195 595 Minority participations in net income -1 0 -5 Income before taxes 10 195 590 Taxes -19 -20 -78 Net income -9 175 512 Consolidated March 31, Dec 31, balance sheet SEK M 1999 1998 Assets Intangible assets 551 572 Property, plant and equipment 2,903 2,509 Financial assets, interest bearing 1,153 1,293 non interest bearing 790 718 Inventories 2,878 2,668 Current receivables, interest bearing 177 179 non interest bearing 2,523 3,165 Financial current assets 1,636 1,434 Total assets 12,611 12,538 Sharholders' equity and liabilities Shareholders' equity 3,383 3,382 Minority participations 89 22 Provisions, interest bearing 1,757 1,825 non interest bearing 788 825 Long-term liabilities, interest bearing 1,638 994 non interest bearing 92 89 Customer advances, net 2,136 1,968 Other current liabilities, interest bearing 243 775 non interest bearing 2,485 2,658 Shareholders' equity and total liabilities 12,611 12,538 March 31, Dec 31, Key share data 1999 1998 Number of shares (thousands) 28,066 28,066 Profit per share after taxes (SEK) neg 18.20 - of which non-recurring items - 6.90 Equity per share (SEK) 120 120 Dividend per share (SEK) - 5.00 THE CELSIUS GROUP Celsius is an international advanced- technology and knowledge based corporation, which in close interaction with its customers develops, manufactures and maintains advanced systems, products and services within core areas Defence and Aviation Services. Based on a platform of comprehensive competence, new businesses with strong growth potential are developed for the military and commercial markets. Celsius, with sales of about SEK 14 billion, has some 11 000 employees. The Celsius "B" share has been listed on the Stockholm Stock Exchange since June 1993. In December 1998, the Company had about 13,500 shareholders. PRESS INFORMATION May 5 1999 Celsius interim report, January-March 1999 Celsius President and CEO Lars G. Josefsson comments: Celsius' reports consolidated income after financial income/expenses of SEK 11 (195) for the first quarter of 1999. Income for the corresponding period in the preceding year was positively affected by non-recurring items amounting to SEK 159 M. Operating income amounted to SEK 15 M. Operating income for the corresponding period last year, excl. non-recurring items, amounted to SEK 35 M. Sales were approximately similar to those for the same period last year, while there was a modest decline in the level of orders received. "The first quarter of 1999 has been affected by the considerable uncertainty surrounding the future focus of the Swedish Defence Forces and the consequent scale of Sweden's future defence materiel requirements. This has led to delays and postponements in order inflow, which has had a negative effect on earnings for the period," says Celsius President and CEO Lars G. Josefsson. "The long drawn-out debate on Swedish defence policy has also complicated and delayed discussions concerning our plans for international collaboration." "In the light of recent positive signals and the decision to increase defence allocations for Sweden´s armed forces, we now see opportunities for securing our competence in advanced technology. Nevertheless, we must continue to implement efficiencies and structural measures within our defence sector activities, to ensure continuing adjustment of our production capacity to market demand." "Increased costs in certain military development projects in the Infomatics sector have been charged against first-quarter income. Several commercial projects in this field, mainly in the Automotive sector, i.e. automotive electronics and systems, are thought to have considerable growth potential, with an anticipated market breakthrough and profit generation as from 2001." "The recent attention focused on defence issues has partially obscured our st long-term investments in the commercial sector. Some years into the 21 century, we are determined that Celsius' business operations shall comprise military and commercial production in equal amounts," concludes Lars G. Josefsson. For those requiring further information, a telephone conference will be held th on May 6 at 17.00 hours CET (Central European Time). Celsius' CEO Lars G. Josefsson and Celsius' CFO Nils-Ove Andersson, will be able to answer questions. To participate in the conference from Europe call +44 181 781 0596 from North America call 334 323 4002 The full interim report, with a selection of presentation materials will be available on Celsius' website: www.celsius.se Celsius AB, Investor Relations, Poti Mossberg, tel +46 8 463 00 11. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/05/05/19990505BIT00580/bit0001.pdf http://www.bit.se/bitonline/1999/05/05/19990505BIT00580/bit0002.doc