Interim report

ADMINISTRATION Consolidated result Net turnover for the first six months of 1999 amounted to MSEK 3,527 (3,338). Korsnäs Holding AB's turnover amounted to MSEK 2,459 (2,625). The net turnover of other subsidiaries amounted to MSEK 1,070 (713). Operating income amounted to MSEK 139 (950). Income from corporate development amounted to MSEK 42 (696). Kinnevik's interest in the earnings of affiliated companies amounted to a net loss of MSEK 576 (loss 442), of which the interest in losses incurred by Millicom International Cellular S.A. (MIC) amounted to MSEK 235 and in those of Société Européenne de Communication S.A. (SEC) to MSEK 319. Financial revenue and expense amounted to net expense of MSEK 80 (expense 156). Income after financial revenue and expense amounted to a loss of MSEK 517 (income of 352). The net loss for the period amounted to MSEK 539 (income of 301). The loss per share for the period was SEK 8.56, (earnings 4.78) per share. The comparative figures for the first six months of 1998 are proforma and relate to the Kinnevik Group and the companies now belonging to the Group. MELLERSTA SVERIGES LANTBRUKS AB The heavy rain in Western Sweden has had a serious effect on the spring-sown crops. The autumn crops look far healthier. As the late arrival of autumn last year prevented sowing of the planned acreage in the autumn, the volume of autumn grain will probably not be sufficient to offset any shortfall in the harvest amongst the spring crops. Large stocks of animal fodder in Sweden and Europe have had a moderating effect on prices. Initially, other kinds of grain usually follow the same pattern. It is to be hoped that the generally low share of autumn crops will cause the prices of these volumes to rise later this winter. Net turnover amounted to MSEK 8 (9) and the operating income amounted to MSEK 4 (5). KORSNÄS HOLDING AB Korsnäs Holding AB is the parent company of Korsnäs AB, which, together with its subsidiaries makes up the Korsnäs Group. Korsnäs Group Demand for most of the group's products has been slightly down, and the overall level of prices was markedly below the level for the corresponding period last year which explain the lower result. The volume of production during the first six months was 4 per cent lower than last year's level. Net turnover for the first six months of the year amounted to MSEK 2,459 (2,625). Operating income amounted to MSEK 169 (434). The profit margin was 7 per cent (17). Income after financial net amounted to MSEK 205 (465). Korsnäs Skog Pulpwood prices were reduced by SEK 20 per m3 at the beginning of 1999, and generally slacker supply of wood is to be expected. However, favourable harvesting conditions and active purchasing at the local level, mainly by sawmills, offset the expected effects of the price reduction. Moreover, the level of felling activity among private forest owners was quite healthy during the first six months of the year. Korsnäs's own felling activities were largely in line with plans. Raw material stocks in Sweden are at the normal seasonal level. Korsnäs's own wood stocks were running at the planned level at the end of June. Korsnäs's deliveries of saw timber to sawmills outside the group were high during the first half of the year and are expected to remain so throughout the remainder of 1999. The joint raw material procurement activities carried on by Korsnäs, MoDo and Stora-Enso through Industriskog AB will be discontinued on August 1, 1999. Korsnäs Skog's net turnover for the first half of the year amounted to MSEK 727 (785), and its operating income amounted to MSEK 108 (115). This figure includes capital gains of MSEK 4 (7) on sales of land. Korsnäs Timber The sawn timber market remained weak during the first half of the year. Demand for Korsnäs's sawn timber products is stable, especially in the case of customised products for the Scandinavian market. As far as Korsnäs is concerned, order books are stable, and market prospects for the second half- year are regarded as favourable, above all for the fourth quarter. Production declined by 1 per cent in relation to the corresponding period in the previous year, deliveries fell by 11 per cent, and on average prices decreased by 6 per cent. Korsnäs Timber's net turnover amounted to MSEK 145 (169) and its operating result was a loss of MSEK 2, which may be compared with income of MSEK 5 in the previous year. Korsnäs Industrial Thanks to a stronger order intake, deliveries rose by 8 per cent during the second quarter in relation to the same period in 1998. Much of the increase in volume was achieved on various segments of the paperboard. Deliveries of paper are, however, slightly lower as the group's sack factory in Yugoslavia was out of production. Deliveries for the entire January-June period were 2 per cent up on the corresponding period in 1998, whereas production was 4 per cent down. The price structure during the past twelve months was adversely affected by excess capacity and stiff competition, as well as by unfavourable currency fluctuations. All in all, these factors resulted in the average price of the group's products being nine per cent less during the first half of 1999 than in the corresponding period of 1998. However, the prices of fluff pulp were successively raised during the second quarter. Further measures intended to raise prices are to be expected during the coming six months. These measures will also be extended to include the paper segment, Net turnover and operating income declined to MSEK 1,653 (1,796), and MSEK 64 (273) respectively, largely as a result of the lower price level. Korsnäs Packaging The whole of the first half-year was characterised by slacker demand throughout Europe than during the corresponding period last year. The weak demand, combined with excess capacity, brought prices under pressure on the sack market, as a result of which margins were narrower than in the previous year. Deliveries decreased by five per cent on the previous year. Korsnäs Packaging's market share remains unchanged. Korsnäs Packaging's turnover amounted to MSEK 628 (665), and its operating income was MSEK 2 (41). OTHER SUBSIDIARIES Other subsidiaries mainly include the operative subsidiary companies Transcom AB, Credit International Services AB (CIS), Fagersta Australia, TV1000 and AirTime. Transcom, the customer services company, has continued to expand. During the first half of the year, turnover rose to MSEK 274 , or by 108 per cent. The company is active in Sweden, Norway and Denmark, and will commence operations in Finland in July. Transcom had 1,718 employees. CIS's business, which includes financial and credit management services, experienced steady growth during the first half of the year, and the company is now active in Norway, Denmark and Luxembourg, as well as in Sweden. Fagersta Australia's sales and margins improved during the first six months of the year, thanks to strong domestic demand in the building industry. TV1000 has been expanding strongly ever since June 1998. The number of subscribers had risen by 33 per cent to 336,000 (253,000). Under the terms of an agreement between Kinnevik and Modern Times Group MTG AB (MTG), MTG distributes the premium channels TV1000 and TV1000 Cinema. In 1999, Kinnevik will cover TV1000's losses up to MSEK 30, with MTG assuming liability for any loss beyond that. AirTime has further improved its result thanks to a combination of an expanding market and cost reductions. On July 6, 1999, Kinnevik sold SMA Maskin AB to Machinium Oy for a capital gain of MSEK 14, which will be taken into account in the third quarter, and will have a positive effect of MSEK 216 on the Kinnevik Group's cash position. The net turnover other subsidiaries amounted to MSEK 1,070, which may be compared with MSEK 713 for the same period in the previous year. The operating result was a profit of MSEK 15 compared with a loss of MSEK 14 for the corresponding period in the previous year. AFFILIATED COMPANIES Kinnevik's principal affiliated companies are Millicom International Cellular S.A. (MIC) (34 % interest), Société Européenne de Communication S.A. (SEC) (45 % interest), and MTV Production AB (MTV) (44 % interest). As of June 30, 1999, MIC had 1,740,837 subscribers, which gives a growth of 72 %. On a proportional basis of MIC's ownership, the number of subscribers was 1,078,671, an increase of 84 %. The subscriber base of MIC's minority ownership in NetCom is not included in the above figures. In April 1999, SENTEL (GSM 900 license), a company in which MIC has a 75 per cent interest, commenced operations in Senegal. MIC currently has equity stakes in 30 companies in 19 countries, where the total market amounts to 455 million people. Turnover amounted to MUSD 253 (212). Operating income before depreciation amounted to MUSD 63 (63). At June 30, 1999, the market value of Kinnevik's holding in MIC was MSEK 4,225. On August 16, 1999, the market value was MSEK 3,502. SEC consists principally of Tele2 Europe, which is engaged in the provision of national and international fixed telecommunication services. Tele2 Europe began the year with operations in Germany, Holland and Switzerland. In March 1999, operations commenced in Austria and France, as well as in Italy at the beginning of April. The company also has licenses in Luxembourg and Ireland. By June 30, 1999, the number of subscribers had reached 1,590,887. SEC also includes 3C Communications, Transcom International, Transcom Europe, and Tango, a cellular telephone company in Luxembourg. Tango had 53,402 subscribers at June 30, 1999. Turnover amounted to MDEM 212, while the operating result before depreciation was a loss of MDEM 123. The market value of Kinnevik's interest in SEC on June 30, 1999 was MSEK 3,125. On August 16, 1999, the market value of this holding was MSEK 3,125. RETURN During the last fifteen years, Kinnevik shares have generated an average effective yield of 30 per cent per year as a result of rising prices and dividends, including the value of offers to subscribe to shares. FINANCIAL POSITION The Group's liquid funds, including short-term placements and undrawn credit facilities, amounted to MSEK 3,172 (4,199) at June 30, 1999. The Group's net interest-bearing debt amounted to MSEK 5,708 (4,969). The average cost of interest for the period was 4.2 % (5.4) (calculated as interest expense in relation to average interest-bearing debt excluding pension liabilities and convertible loans). The Group's fixed capital expenditure (excluding purchases of shares) during the period amounted to MSEK 363 (388). In March 1999, Kinnevik and MIC each subscribed MDEM 100 to a convertible debenture loan issued by SEC. The closing equity ratio was 31 per cent (38). The net effect of the Group's in- and outflows in foreign currencies amounts, on an annual basis, to net inflow of approximately MSEK 1,200. PARENT COMPANY The parent company's result after financial net was a loss of MSEK 45 (income 296). The parent company's capital expenditure during the period amounted to MSEK 0 (1). Liquid funds, including short-term placements and undrawn credit facilities, amounted to MSEK 1,924 (2,471) on June 30, 1999. NEXT FINANCIAL REPORT The interim report for the period January-September 1999 will be published on November 23, 1999. Stockholm August 17, 1999 Board This interim report has not been subject to specific examination by the company's auditors. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/08/17/19990817BIT00440/bit0001.doc The full report http://www.bit.se/bitonline/1999/08/17/19990817BIT00440/bit0002.pdf The full report