Three month report January-March 1999: Good growth and a positive margin trend

Three month report January-March 1999: Good growth and a positive margin trend Revenues amounted to SEK 4,915 M (5,208). For present structure this represented an increase by 10%. Earnings after financial items amounted to SEK 267 M (for comparative period 1998: SEK 424 M incl. non-recurring items). Continued good development for Renal Care Services, Renal Care Products and Blood Component Technology. Stable development in Cardiovascular Care. Major restructuring and efficiency improvement program launched in January 1999. Covers mainly Renal Care Products, where initial actions have included reorganization, manufacturing consolidation and product development initiatives. Positive margin and earnings trend. For further information please contact: Bengt Modéer, Senior Vice President, Corporate Communications, +46-8-613 65 00, +46-70-513 65 33 Lars Granlöf, Vice President, Corporate Finance, +46-8-613 65 00 Anna Augustson, European Investor Relations Manager, +46-8-613 65 00 Tim Schoenberg, Vice President, US Investor Relations Manager, +1-949- 425-2185 THREE MONTH REPORT JANUARY - MARCH 1999 Revenues amounted to SEK 4,915 M (5,208). Revenues for Gambro's present structure, including acquisitions, rose 10% compared to the first three months 1998. Operating earnings before depreciation (EBITDA) amounted to SEK 905 M (for comparative period 1998: SEK 1,188 M incl. non-recurring items). Operating earnings after depreciation (EBIT) amounted to SEK 410 M (for comparative period 1998: SEK 605 M incl. non-recurring items). Earnings after financial items amounted to SEK 267 M (for comparative period 1998: SEK 424 M incl. non-recurring items). Earnings per share amounted to SEK 0.21 (for comparative period 1998: SEK 0.86, of which SEK 0.80 was attributable to non-recurring items). Group revenues (for comparable structure) grew with approximately 10%, currency adjusted. Renal Care Services, Renal Care Products and Blood Component Technology showed good development. For products sales volume on major markets incl. Europe developed positively with good growth both for machines and disposables. The major restructuring program launched in January 1999 has developed as planned. Cardiovascular Care had a decrease in revenues. Group operating margin and group earnings trend was positive, mainly due to lower cost levels and higher manufacturing efficiency. Group key ratios January - April Jan- March 1998 Dec SEK M 1999 1998 -March 1998 1999 Revenues 4,915 5,208 18,441 18,734 Operating earnings (EBIT) 410 605 5,179 5,374 Operating margin, % 8.3 11.5 28.1 28.7 Earnings after financial 267 424 4,834 4,991 items Net debt 4,094 8,367 4,094 2,242 Return on shareholders' 1.6 4.6 11.6 10.7 equity, % 1) Return on total assets, % 5.6 5.8 17.8 14.6 Earnings per share, SEK 1) 0.21 0.862) 6.05 6.70 Shareholders' equity per 53 75 53 52 share, SEK Solidity (equity/assets 56 61 56 54 ratio), % 1) After full tax 2) Pro forma after split A CLARIFIED AND MORE EFFICIENT ORGANIZATION As of January 1999 a more efficient organization has been established covering the two business areas in renal care products and services. The business area Renal Care Services now includes service operations - renal care clinics - worldwide. Previously the product organization in Europe also included a joint responsibility for services. Similarly the US service organization previously included responsibility for products operations in the US. As a consequence of this reorganization, reported sales figures for Renal Care Products business area have been restated. Thus in this report sales figures, including historical figures, have been restated for the Renal Care Products business area. The four business areas of the group are Renal Care Services, Renal Care Products, Blood Component Technology and Cardiopulmonary Care, each with global responsibility. BUSINESS AREAS Renal Care Services Revenues increased to SEK 2,514 M (2,148), an increase of 16%, currency adjusted. At the close of the period the total number of patients worldwide in 554 clinics owned, operated or managed by Gambro was about 40,500. The total number of treatments in clinics consolidated by Gambro was 1,349,000 and the corresponding average revenue per patient (excluding non dialysis clinics) was SEK 1,778 corresponding to USD 222. In the US Gambro owns, operates or manages 465 clinics which serve about 34,200 patients in 33 states and the District of Columbia. As of January 1, 1999 the business area includes responsibility for the European and other international clinics operations. These have been integrated during the first quarter 1999. The Renal Care Services business area had a continued good growth. The ongoing focus on increased quality in care and efficiency in the operations has continued. In the US key functions have been consolidated to fewer locations. The human resources function in Norcross, Georgia has been closed and relocated to and integrated with the corresponding function in Lakewood, Colorado. Approximately 50 employees have been affected by the relocation. Lakewood serves as the US headquarters with Nashville, Tennessee and Aliso Viejo, California as support locations. In the care provided by Gambro special emphasis is put on quality, and a number of quality indicators for all dialysis patients are highlighted and used as guidance. These quality indicators include adequate dialysis, anemia, nutrition and mortality. A special program for anemia management has been initiated. The use of single use dialyzers is a major component in the strategic drive towards higher quality care and labor efficiency. Single use dialyzers are used by 25% of Gambro's own clinics and is an important part of a total system approach whereby the entire process in the dialysis clinics is reengineered to improve the long term efficiency. The implementation of this industry unique initiative was substantially strengthened by the establishment of a dialyzer manufacturing joint venture in the US. This will generate annual savings of more than SEK 50 M in the dialysis clinics when the new dialyzers have been fully implemented early next year. The future strategy includes a further substantial increased usage of single use dialyzers. In January Gambro acquired three dialysis clinics and an acute dialysis program in the state of California. The clinics serve a total of 170 patients in the Sacramento area. In February Gambro continued its Southern California expansion by acquiring a downtown Los Angeles clinic with about 135 patients. During the period two clinics with 60 patients in total have been acquired in Europe. Renal Care Products Revenues increased to SEK 1,922 M (1,821), an increase of 3%, currency adjusted. Volume sales in the major markets, mainly Europe, developed positively and largely in line with overall market trends. Also sales on some markets in Asia and other regions have developed well. In Europe sales for the two brands, Hospal and Gambro, have continued to develop well, both overall and on major markets like Germany, France, Italy and Spain. For dialysis machines as well as for disposables sales developed favorably. Good growth is reported for the BiCart bicarbonate cartridge, however with continued price pressure on some markets. Operations has proceeded with high efficiency in manufacturing and no disruptions. Mid January 1999 a global restructuring and efficiency improvement program covering the entire business area was launched with the aim of benefiting of being one company and by leveraging on the existing strong Hospal and Gambro brands. The program includes the creation of a more strengthened and focused sales, service and market organization as well as a more streamlined and effective manufacturing and logistics structure. Thus the new sales and marketing organization was established during the first two months of the year. As a part of the strengthening of the sales organization, a sales distribution company for emergency renal care products of the Hospal brand on the Nordic market was acquired in March 1999. In operations major actions and initiatives have been initiated. For the four main product areas a "center of excellence" strategy has been established. Thus the global responsibility for product and manufacturing development for dialysis machines has been located to Lund, Sweden; for dialyzers to Hechingen, Germany; for blood lines to Mirandola, Italy; and for solutions to Lund, Sweden. A consolidation of manufacturing has started whereby manufacturing and development of dialysis machines located in Lakewood, Colorado will be transferred and consolidated with existing units in Europe. This will affect about 250 employees and will be completed by the end of next year. In January 1999 a decision was also taken to transfer the manufacturing of disposables in Newport News, Virginia to corresponding units in Tijuana, Mexico and Lund, Sweden. This affects about 200 employees and was expected to be completed by the end of the year. This process has been accelerated and will be completed by July this year. In February 1999 an agreement was reached covering the divestiture of an Oklahoma based manufacturing operation for sorbent dialysis cartridges. The operations included about 30 employees and had a turnover of about SEK 50 M. As mentioned above, an important dialyzer manufacturing joint venture has been established in the US, whereby an Arkansas based manufacturing company, jointly owned and managed by Gambro and Baxter, will allow Gambro to quickly establish manufacturing of dialyzers in the US. The combined manufacturing volumes will be leveraged with significant cost benefits for both companies. In Logistics the restructuring continues with among other things the establishment of a major distribution center based in Northern Italy, completing a pan-European logistics network during the year 2000 with significant cost savings. In procurement a cost savings program has been initiated covering the SEK 4.5 billion purchase volume in the business area. The restructuring program also includes major efforts in product development as well as in the research area. In product development, platform based development projects have started. Blood Component Technology The Blood Component Technology business area continued to show favorable development. Revenues grew by 10%, currency adjusted, to SEK 310 M (280) leveraged by good sales for both machines and disposables. Sales development was favorable in the European and US markets. Sales performance in Japan is recovering, with stronger performance than last year. Sales of the COBE Spectra blood component separation system and related disposable products developed positively. On the international market products for leuko-reduction have shown a good sales development. The introduction of the COBE Trima automated blood collection system on the US market has continued. The Lakewood, Colorado based production facility of disposables is under expansion. Cardiopulmonary Care Revenues for the Cardiopulmonary Care business area amounted to SEK 261 M (290), a decrease of 10%, currency adjusted. The development on the US market remained relatively stable. Market trends have been relatively weak, both in the European and the US market. Thus operations have been subject to continued price pressure. New products such as a hollow fiber oxygenator, a rinseless hemoconcentrator, and a biocompatible blood line system are being introduced on the market. During 1998 the business area has been comprehensively reorganized in order to adjust to the changing and much tougher market conditions. In November 1998 an agreement was reached covering the divestiture of the business area to the Italian company Sorin Biomedica. The transaction is awaiting authority approval. During the period activities have been affected by an extensive and time-consuming preparation work for this divestiture. THE RESTRUCTURING PROGRAM The restructuring program initiated mid January 1999 has proceeded according to plan. The program covers 24 months and mainly includes the Renal Care Products business area, but also some actions in Renal Care Services. The objectives are to reinforce Gambro's commitment to quality renal care, secure continued good growth, improve profitability and to restore group operating (EBITDA) margins which, at the close of the initial 24 month period of the program, should reach 20%. Beyond this initial period the program will continue to have positive effects on the competitiveness and form the basis for a continued profitable growth. The program will involve a reduction of more than 1,000 employees and is expected to involve costs of approx. SEK 1,100 M which entirely was charged as a provision against operating income for the fourth quarter 1998. Actions and initiatives taken have been described above. As of March 31, 1999 about 67 employees had left the group through cutbacks, reorganization and divestitures of operations. Approximately SEK 100 M has been utilized of the provision that was made during the fourth quarter 1998. THE YEAR 2000 The group's Y2K project continues according to plan without any major issues arising since year end 1998. Y2K information can be found on Gambro's Internet site (see below). INVESTMENTS Group investments during the period amounted to SEK 364 M (390). ACQUISITIONS Group acquisitions during the period amounted to SEK 123 M (36). Among others, acquisitions included clinics in the US and Europe as well as the acquisition of a Nordic sales distribution company. FINANCIAL POSITION Net debt (loans and accruals for pension less cash and short-term investments) amounted to SEK 4,094 M at the close of the period. The equity/assets ratio at the close of the period was 56%. To avoid currency exposure in the parent company, liquid assets have been swapped from SEK to USD, resulting in an interest expense of SEK 34 M (representing the interest differential between USD and SEK) in the first quarter 1999. Measures have been taken late February 1999 to reduce these interest expenses. During the period a tax dispute in the US has been settled, resulting in an interest charge on the payment of USD 2 M (included in the financial net). PERSONNEL The number of employees in the Gambro group decreased by 54 during the period. The total number of employees by the end of the period was 17,742. Stockholm, April 23, 1999 Mikael Lilius President This report has not been subject to examination by the Company's auditors. For further information: Bengt Modéer, Senior Vice President, Corporate Communications, +46-8-613 65 00, +46-70-513 65 33 Lars Granlöf, Vice President, Corporate Finance, +46-8-613 65 00 Anna Augustson, European Investor Relations Manager, +46-8-613 65 00 Tim Schoenberg, Vice President, US Investor Relations Manager, +1-949- 425-2185 Gambro's financial information is also available on the Internet: http://www.gambro.com Reports to be issued during 1999 are: Six month report January-June: July 21 Nine month report January-September: October 21 Revenues by business area 1) January - March Change Full 2) year SEK M 1999 1998 % 1998 1) Renal Care Services 2,514 2,148 16 9,087 Renal Care Products 1,922 1,821 3 3 7,771 3 ) ) Intra-Group -92 -92 3 -488 3 ) ) Total, Renal Care 4,344 3,877 11 16,370 Blood Component 310 280 10 1,212 Technology Cardiopulmonary Care 261 290 -10 1,152 Total, present 4,915 4,447 10 18,734 structure Divestitures - 761 Total 4,915 5,208 -6 18,734 1) For present structure 2) Corrected for exchange effects 3) Restated Revenues by market 1) January - March SEK M 1999 1998 +/- % Europe 1,624 1,553 +5 Americas 2,934 2,630 +12 Asia, Pacific, RoW 357 264 +35 Total 4,915 4,447 +11 1) For present structure Operating earnings 1) January - Full year March SEK M 1999 % 2) 1998 % 2) 1998 % 2) 3) 3) Operating earnings 410 8.3 431 9.7 1,509 8.1 (EBIT) Divestitures 27 Group: Depreciation and -146 -293 amortization Other 19 -21 Non-recurring items 274 4,179 Total 410 8.3 605 11.5 5,374 28.7 1) After depreciation 2) Operating margin 3) For present structure GAMBRO GROUP INCOME STATEMENT January - April Full March 1998 year SEK M 1999 1998 - March 1998 1999 Revenues 4,915 5,208 18,441 18,734 Operating expenses 1), 2) -4,505 -4,603 -13,262 -13,360 Operating earnings (EBIT) 410 605 5,179 5,374 Financial items, net 3) -143 -181 -345 -383 Earnings after financial 267 424 4,834 4,991 items (EBT) Taxes -180 -123 -2,692 -2,635 Minority interest -14 -8 -54 -48 Net income 73 293 2,088 2,308 1) Earnings before 905 1,188 7,169 7,452 depreciation and amortization (EBITDA) 2) Of which, non- recurring items result from - 274 5,005 5,279 divestitures restructuring - 0 -1,100 -1,100 reserve 274 3,905 4,179 amortization, -210 -339 -948 -1,077 goodwill depreciation, -285 -244 -1,042 -1,001 other assets 3) Of which 84 84 earnings in companies divested during the year Of which dividends from 259* 259* associated companies * (April-June 1998) QUARTERLY DATA (Present Group structure) 1999 199 8 SEK M Q1 Q 1 Q 2 Q 3 Q 4 Tota l Operations Revenues 4,91 4,4 4,56 4,6 5,07 18,7 5 47 0 50 7 34 Operating earnings 905 858 823 826 787 3,29 - before depr. 4 (EBITDA) (EBITDA) Operating 18.4 19. 18.0 17. 15.5 17.6 margin % 3 8 Operating earnings 410 431 387 377 314 1,50 - after depr. 9 (EBIT) Do. margin % 8.3 9.7 8.5 8.1 6.2 8.1 Group Overhead costs - 19 -40 - - -21 Non-recurring - 274 601 4,4 - 4,17 04 1,10 9 0 Depreciation - - -147 - - -293 146 Financial net Associated companies/ - - 259 - - 259 /dividends Income in divested - - - 84 - 84 companies Interest net -128 - -199 - -111 -665 162 193 Other -15 -19 -14 -1 -27 -61 financial items Financial net -143 - 46 - -138 -383 181 110 GAMBRO GROUP BALANCE SHEET SEK M March 31, March 31, Dec 31, 99 98 98 ASSETS Fixed assets Intangible assets 15,775 25,375 15,593 Property, plant and equipment 5,550 4,487 5,340 Shares and participations 244 2,716 244 Long-term receivables 512 367 638 Total fixed assets 22,081 32,945 21,815 Current assets Inventories 2,340 2,775 2,282 Trade receivables, etc. 7,989 6,411 8,140 Liquid assets 274 623 1,169 Total current assets 10,603 9,809 11,591 TOTAL ASSETS 32,684 42,754 33,406 SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity 1) 18,041 25,500 17,850 Minority interests 146 115 149 Accruals 3,537 558 3,681 Long-term liabilities 668 5,160 1,182 Current liabilities 10,292 11,421 10,544 32,684 442 TOTAL SHAREHOLDERS' EQUITY 32,684 42,754 33,406 AND LIABILITIES NET DEBT 4,094 8,367 2,242 1) Total number of shares outstanding 344,653,288 (of which, Series A: 250,574,090, Series B: 94,079,198) STATEMENT OF CHANGES IN FINANCIAL POSITION January - March Full year SEK M 1999 1998 1998 Operating activities Earnings after financial items 267 424 4,991 Non-cash items 186 418 1,800 453 842 6,791 Taxes paid -101 -145 -2,750 352 697 4,041 Changes in operating capital: Inventories -58 -56 -180 Receivables 277 396 -1,551 Liabilities -1,946 -1,110 3,670 Cash flow from operating -1,375 -73 5,980 activities Investment activities Capital expenditure -364 -321 -1,095 Acquisitions/Divestitures, net -123 -212 985 Cash flow from investment -487 -533 -110 activities Financing activities New issue 0 0 342 Change in short term loans 1,475 -1,046 -2,694 Change in long term loans -514 -4,904 -8,882 Change in accruals for pensions -4 -95 -48 Dividend paid 0 0 -684 Change in financing activities 957 -6,045 -11,966 Cash flow this period -905 -6,651 -6,096 Liquid assets opening balance 1,169 7,249 7,249 Currency effect in liquid assets 10 25 16 Liquid assets closing balance 274 623 1,169 ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.bit.se/bitonline/2001/07/12/20010712BIT00160/bit0002.doc http://www.bit.se/bitonline/2001/07/12/20010712BIT00160/bit0002.pdf