Interim Report Q3 1998

The Gränges Group Interim Report January-September 1998 * Net sales for comparable companies rose 13 percent during the third quarter - for the reporting period an increase by 12 percent to MSEK 7,702 * Operating profit for comparable companies increased by 13 percent during the third quarter - equivalent with the reporting period * Expressed in tonnes, deliveries rose 10 percent for comparable operations during third quarter - equivalent with the reporting period * The Board proposes that a Special General Meeting of Gränges' shareholders, to be held on October 29, vote on a part-ownership program for employees in the Gränges Group Gränges in brief Jan-Sept Jan-Sept Jan-Dec 2 1 1 1998 1997 1997 Net sales, MSEK 7 702 7 276 9 957 Operating profit, MSEK 435 423 613 Profit before tax, MSEK 388 371 546 2 1 Return on capital employed, % 16.9 16.8 18.2 2 1 Return on shareholders' equity, % 16.1 18.0 19.6 Debt ratio, % 47 69 59 Deliveries, tonnes 190 400 179 800 238 900 1 Before allocation of MSEK 146 to restructuring reserve 2 Before nonrecurring capital gain of MSEK 69 For further information, please contact Ulf Berglund, Executive Vice President & CFO, telephone +46 8 459 59 12 or Cecilia Lager, Manager Investor Relations & Communication, telephone +46 8 459 59 41 This report is also available on Gränges web site on the Internet: www.graenges.se SIGNIFICANT EVENTS DURING JANUARY-SEPTEMBER 1998 The agreement reached in January 1998 to sell Gränges Metall was approved by a Special General Meeting of Gränges AB shareholders on February 26, 1998. The divestment of Gränges Metall generated a nonrecurring pre-tax gain of MSEK 69, including the reversal of MSEK 126 of the MSEK 146 allocated to the restructuring reserve in 1997. The takeover became effective retroactively as of January 1, 1998. The Autoplastics business area continued to expand during the first quarter of 1998. The remainder of the formerly 50-percent owned company, Raufoss Plastal Components in Uddevalla, (now Plastal Uddevalla AB), was acquired by Gränges and strengthened the Group's position in sequence deliveries and surface coating of plastic products for the Swedish automotive industry. During the third quarter, Business Area Extrusions secured its largest-ever order through Sapa Sweden. The order, for approximately 3,900 tonnes of aluminium extrusions, was placed by the Danish company, Maersk Container Industri, and will mainly be produced in Sapa's largest press, the P5 in Finspång, Sweden. On October 9, 1998, the Gränges Board decided to propose that a Special General Meeting of the Company's shareholders approve a part-ownership program for employees within the Gränges Group. It is proposed that the offer, which is divided into two programs, be directed partly to all Gränges' employees in Sweden, Denmark and Finland, who will be invited to subscribe for convertible debentures, and partly to employees in Group subsidiaries outside the countries named above, who will be invited to purchase warrants. The Special General Meeting will be held on Thursday, October 29, 1998. SALES AND EARNINGS DURING JANUARY-SEPTEMBER 1998 Sales volumes developed favorably during the first nine months of 1998. Approximately 190,400 (179,800) tonnes of value-added aluminium products were delivered during the period, an increase of more than 6 percent. For comparable operations, the increase was slightly more than 10 percent. The Group's net sales rose by 6 percent to MSEK 7,702 (7,276). For comparable companies, the increase was 12 percent. Before the nonrecurring capital gain, operating profit amounted to MSEK 435 (423). Operating profit improved by about 3 percent in relation to the first nine months of 1997. For comparable companies the operating result increased by 13 percent. The increase was attributable primarily to higher volumes for Extrusions, a changed product mix and, accordingly, a larger proportion of added value in the Strip & Foil business area, plus the fact that earnings for the corresponding period of 1997 were charged with costs related to the divestment of noncore operations. Earnings by Autoplastics were down compared with the preceding year due to the business area's Swedish operations being adversely affected by a number of factors. The disruptions to production are now over and surplus manning is gradually being reduced. Before the nonrecurring capital gain, the Group's tax cost corresponded to about 32 percent. Profit after tax, but before the nonrecurring capital gain, totaled MSEK 265 (246), equivalent to net earnings per share of SEK 7.20 (6.70) and a return on shareholders' equity of 16 (18) percent. The return on capital employed amounted to 16.9 (16.8) percent. Net profit, including the nonrecurring capital gain, totaled MSEK 306, corresponding to earnings per share of SEK 8.30. Third quarter The global financial turbulence in the third quarter has during the period marginally affected Gränges, since 93 percent of net sales goes into the European market. Net sales during the third quarter amounted to MSEK 2,435 (2,292). Operating profit totaled MSEK 134 (148). The operating margin, accordingly, was 5.5 percent (6.5). For comparable companies, however, operating profit rose by 13 percent, since Gränges Metall, which was sold in January 1998, made a net contribution of slightly more than MSEK 29 during the third quarter of 1997. Expressed in tonnes, delivery volumes for comparable operations increased by about 10 percent. DEVELOPMENT BY BUSINESS AREA Extrusions Sapa continued to show favorable growth. In total, 109,200 tonnes (101,000) of aluminium extrusions were delivered, an increase of 8 percent. Net sales rose by 11 percent to MSEK 4,170 (3,763). Operating profit improved by about 8 percent to MSEK 317 (294), corresponding to an operating margin of 7.6 percent (7.8). Demand for aluminium extrusions in Europe remained favorable during the first nine months of the year, with continued high capacity utilization. Sapa, one of the largest producers of aluminium extrusions in Europe, increased its volumes in all markets during the period. 98:3 98:2 98:1 97:3 97:2 97:1 1997 Deliveries, 34 300 38 200 36 700 31 400 35 400 34 200 135 000 tonnes Net sales, 1 282 1 463 1 425 1 206 1 349 1 208 5 219 MSEK Operating 107 115 95 98 116 80 403 profit, MSEK Operating 8.4 7.8 6.7 8.1 8.6 6.6 7.7 margin, % Strip & Foil In total, 81,200 tonnes (78,800) of aluminium strip and foil were delivered during the period. Excluding the production of beverage can stock, which was discontinued in June 1997, volumes for comparable operations increased by nearly 14 percent. Deliveries of cladded strip for heat-exchangers continued to grow and showed an increase of more than 30 percent, compared with the corresponding period of 1997. Net sales rose by a total of 11 percent to MSEK 2,151 (1,928). Operating profit improved to MSEK 105 (80). This corresponded to an operating margin of 4.9 percent, compared with 4.2 percent in the corresponding period of 1997. The improvement in profit was attributable to increasing volumes of products with a higher degree of valued-added, namely cladded strip for heat exchangers and special foils for the packaging industry, as well as higher capacity utilization and higher productivity. 98:3 98:2 98:1 97:3 97:2 97:1 1997 Deliveries, 25 500 27 400 28 300 22 900 28 100 27 800 104 000 tonnes Net sales, 668 726 757 603 688 636 2 611 MSEK Operating 31 42 32 20 38 22 106 profit, MSEK Operating 4.6 5.9 4.1 3.4 5.5 3.4 4.1 margin, % Autoplastics Sales volumes of plastic components and systems for the passenger car and truck markets developed favorably during the first three quarters of 1998. Net sales for the business area, including sales by acquired companies, increased by more than 20 percent to MSEK 1,319 (1,096). Operating profit amounted to MSEK 25 (60) and the operating margin thus narrowed to 1.9 percent (5.4). The business area's Swedish operations were negatively affected during the period by model changes, production disruptions at customer plants and temporary surplus labor. A number of measures were implemented to raise productivity. Other operations, particularly Plastal Kungälv AB and the business area's Italian operations, continued to show favorable earnings. 98:3 98:2 98:1 97:3 97:2 97:1 1997 Net sales, 445 444 430 314 417 365 1579 MSEK Operating 0 10 15 7 28 25 68 profit, MSEK Operating n.a. 2.2 3.4 2.2 6.8 6.8 4.3 margin, % Other operations In connection with the sale of Gränges Metall, MSEK 126 of the MSEK 146 allocated earlier to the restructuring reserve was reversed. The divestment generated a nonrecurring capital gain of about MSEK 69, which was included in earnings for the first quarter of 1998. Gränges Metall contributed MSEK 37 to Group earnings during the first three quarters of 1997, including adjustments for inter-company profits. INVESTMENTS Group investments (new and replacement investments) during the period January to September 1998 totaled MSEK 388 (329). The larger investments pertained to Strip & Foil's plant in Shanghai, China, and Autoplastics' plant in Gliwice, Poland. In addition, a number of upgrades and replacements were made to existing production equipment in all business areas. FINANCING AND LIQUIDITY The sale of Gränges Metall had a positive effect on net debt. The Group's debt ratio is down to 47 percent (59 percent at year-end 1997). The interest expenses for the period was lower than during the corresponding period of 1997, mainly as a result of lower net debt. 1) At the end of the third quarter, the Group's cash reserve totaled MSEK 712. The proportion of long-term loans (excluding the non-utilized portion of approved lines of credit), as a percentage of total interest-bearing liabilities, was 48 percent. Cash flow after investments during the period totaled MSEK 255. 1) Cash + short-term investments - short-term loans + total outstanding lines of credit. PERSONNEL The average number of employees in the Gränges Group as at September 30, 1998 was 6,468 (1997: 6,885). Gränges AB (publ) Stockholm October 29, 1998 LARS WESTERBERG President and Chief Executive Officer PRO FORMA ACCOUNTING The pro forma accounts for 1997 do not include the allocation of MSEK 146 to a restructuring reserve in the second quarter for the disposal of Gränges Metall AB. The pro forma accounts for 1998 do not include the nonrecurring effects achieved following the sale of Gränges Metall AB as per January 1, 1998. This interim report has been reviewed by the Company's auditors GRÄNGES GROUP Income Statement Pro forma Pro forma Pro forma 1 MSEK Jan-Sept Jan-Sept 1997 Jan-Sept Jan-Dec 2 1 1998 1998 1997 Net sales 7 702.1 7 276.1 7 702.1 9 956.9 Cost of sold goods -6 279.9 -5 683.4 -6 279.9 -7 835.4 Gross profit 1 422.2 1 592.7 1 422.2 2 121.5 Selling and administrative -994.7 -1 178.2 -994.7 -1 532.1 expenses Other operating revenues 7.9 8.6 77.0 23.4 Operating profit 435.4 423.1 504.5 612.8 Financial items -47.8 -52.5 -47.8 -66.6 Profit after financial 387.6 370.6 456.7 546.2 items Taxes -124.0 -125.5 --152.8 -178.8 Minority share in net 1.6 0.6 1.6 0.4 profit Net profit 265.2 245.7 305.5 367.8 1 Before allocation of MSEK 146 to restructuring reserve 2 Before nonrecurring capital gain of MSEK 69 Balance sheet MSEK 30 Sept 1998 30 Sept 1997 31 Dec 1997 Intangible assets 77.3 63.7 67.1 Tangible fixed assets 2 443.7 2 207.6 2 406.4 Financial fixed assets 12.8 14.5 14.7 Inventories 1 447.6 1 416.9 1 457.4 Current receivables 2 097.7 1 989.9 1 861.9 Liquid funds 297.0 393.7 311.8 Total assets 6 376.1 6 086.3 6 119.3 Shareholders' equity 2 367.3 1 927.0 2 095.2 Interest-bearing 1 421.4 1 719.4 1 558.7 liabilities Provisions and interest- 2 587.4 2 439.9 2 465.4 free liabilities Total equity and 6 376.1 6 086.3 6 119.3 liabilities Key figures and other Pro forma Pro forma Pro forma information Jan-Sept Jan-Sept Jan-Sept Jan-Dec 1998 1997 1998 1997 2 1 1 Return on shareholders' 16.1 18.0 18.3 19.6 equity, % Number of shares, 000s 36 617 36 617 36 617 36 617 2 1 1 Net earnings per share, SEK 7.20 6.70 8.30 10.00 Shareholders' equity per 64.70 52.60 64.70 57.20 share, SEK 2 1 1 Return on capital employed, 16.9 16.8 19.8 18.2 % 2 1 1 Operating margin, % 5.7 5.8 6.6 6.2 2 1 1 Capital turnover rate, 3.0 2.9 3.0 3.0 multiple Equity ratio, % 37 32 37 34 Debt ratio, % 47 69 47 59 Net debt, MSEK 1 124 1 326 1 124 1 227 New and replacement 388 329 388 598 investments, MSEK Average number of employees 6 468 6 869 6 468 6 885 1 Before allocation of MSEK 146 to restructuring reserve 2 Before nonrecurring capital gain of MSEK 69 Financial information by Jan-Sept 1998 Jan-Sept 1997 Jan-Dec business area 1997 MSEK Extrusions Net sales 4 169.6 3 763.4 5 219 Operating profit 317.4 294.5 403 Strip & Foil Net sales 2 151.3 1 927.8 2 611 Operating profit 105.4 79.4 106 Autoplastics Net sales 1 318.9 1 096.0 1 579 Operating profit 24.7 60.0 68 Other operations Gränges Metall Net sales - 1 084.5 1 451 Operating profit - 59.9 102 Adjustment for inter-company - -22.9 -14 profit Other companies and group items 290.0 654.1 765 Net sales -227.7 -1 249.7 -1 668 2 1 1 Inter-company sales -12.1 --47.8 -52 Operating profit Group Net sales 7 702.1 7 276.1 9 957 Operating profit 435.4 423.1 613 1 Before allocation of MSEK 146 to restructuring reserve 2 Before nonrecurring capital gain of MSEK 69 Cash flow Jan-Sept Jan-Dec MSEK 1998 1997 2 1 Operating profit 435.4 612.8 Depreciations etc 262.1 375.2 Financial items -47.8 -66.6 Taxes paid -116.5 -153.4 Change in working capital 43.9 135.9 Cash flow from operating 577.1 903.9 activities New and replacement investments -387.7 -598.2 Plants in acquired companies, etc -12.1 -15.5 Other changes in fixed assets 77.7 51.3 Cash flow after investments 255.0 341.5 Dividend -91.5 - Cash flow after dividend 163.5 341.5 1 Before allocation of MSEK 146 to restructuring reserve 2 Before nonrecurring capital gain of MSEK 69 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are ready for download: http://www.bit.se/bitonline/1998/10/29/19981029BIT00020/bit0001.doc http://www.bit.se/bitonline/1998/10/29/19981029BIT00020/bit0002.pdf Hela rapporten