SANDVIK AB - Interim Report - Three months ended 31 March 2000

Interim Report - Three months ended 31 March 2000 * Profit after financial income and expenses nearly doubled to SEK 1,560 M (810). Capital gain of SEK 300 M included. * Continued strong business climate - sharply increased order intake. Market The business climate continued to strengthen in the first quarter of the year. On an annual basis, industrial production within the OECD rose 3.5%. The pace in the US remained high. Concurrently, the economy in Europe gained pace. The crises in the preceding year, for example in South America, appeared to be virtually over, and industrial production in Southeast Asia grew strongly. The recovery in Japan continued. The economic trend had a favorable effect on Sandvik and demand increased sharply within most product segments and now also from the investment- related industries as a result of increased energy and metals prices, among other factors. Sales (see appendix 2) [REMOVED GRAPHICS] Sandvik's order intake during the first quarter amounted to SEK 11,500 M (9,960), which was 15% higher than in the first quarter a year earlier. At fixed exchange rates and for comparable units, order intake increased by 19% compared with the year-earlier period. Invoiced sales amounted to SEK 10,320 M (9,630), an increase of 7%. At fixed exchange rates and for comparable units, sales rose 10% compared with the year-earlier period. Order intake increased in all markets. Demand in Europe strengthened, in the investment-oriented as well as consumer-related customer segments. The trend remained favorable in NAFTA, particularly for Sandvik Tooling and Sandvik Specialty Steels. Demand in Brazil was favorable and the decline from the beginning of 1999 has now been fully recovered. Order intake in Asia and Australia continued to increase. It was strong in Southeast Asia and Korea for Sandvik Tooling and Sandvik Specialty Steels. Demand also increased for Sandvik Mining and Construction in Asia and Australia, due to higher activity within the mining industry. Earnings (see appendix 1) Q1 1999 Q1 2000 Change % Invoiced sales, SEK M 9,630 10,320 7 Operating profit, SEK M 959 1,695 77 as % of invoiced sales 10 16 Operating profit excl. capital gain, 959 1,395 45 SEK M as % of invoiced sales 10 14 Profit after financial items, SEK M 810 1,560 93 as % of invoiced sales 8 15 Profit after financial items, excl. 810 1,260 56 capital gain, SEK M as % of invoiced sales 8 12 Net profit, SEK M 520 1,038 100 as % of invoiced sales 5 10 Operating profit for the quarter amounted to SEK 1,695 M (959), up 77%. This included a capital gain of SEK 300 M from the sale of the Group's captive re-insurance company. Excluding capital gain, operating profit rose 45% compared with the year- earlier period and was 14% of invoiced sales. The improvement was attributable mainly to higher sales volumes combined with rationalization measures and cost reductions. Operating profit improved sharply in all business areas: Sandvik Tooling by 30%, Sandvik Mining and Construction 82% and Sandvik Specialty Steels by 118%. Net financial expense was SEK -135 M (-149). Interest expenses were lower than in the year-earlier period, as a result of lower net debt. Profit after net financial items was SEK 1,560 M (810). [REMOVED GRAPHICS] Net profit amounted to SEK 1,038 M (520). Earnings per share were SEK 4.00 (2.00). Excluding capital gain, net profit amounted to SEK 738 M and earnings per share were SEK 2.90. Earnings per share during the most recent 12 months including capital gains amounted to SEK 16.00 (14.00 for full-year 1999). Return on net assets during the most recent 12 months was 16.4% (15.1% for full-year 1999) and return on shareholders' equity 13.2% (12.4%). Structural changes In the beginning of the year, Sandvik CTT acquired a former agent in the US, Titex Tools Inc., for the purpose of intensifying the marketing of Titex's application tools to advanced US industries. In March 2000 Sandvik Mining and Construction reached an agreement on acquisition of the production of drilling rigs from two Austrian companies that are part of the Neuson Group. Annual sales are estimated at SEK 120 M. A restructuring of the Group's re-insurance activities was initiated. During the quarter, the Group's captive company up to now was divested. Business areas (see appendix 2) Sandvik's operations are concentrated around its three core businesses: Sandvik Tooling, Sandvik Mining and Construction and Sandvik Specialty Steels, areas in which the technology content is considerable and the Group occupies leading global positions in its selected niches. Sandvik Tooling includes Sandvik Coromant, Sandvik CTT and Sandvik Hard Materials and a small remaining distribution activity for Saws and Tools products on certain markets. Sandvik Specialty Steels comprises Sandvik Steel, Kanthal and Sandvik Process Systems. Sandvik Tooling's invoiced sales amounted to SEK 3,818 M (3,326), an increase of 9% at fixed exchange rates and for comparable units . Sales to the engineering and automotive industries rose. Demand also increased in such customer areas as medical technology, die and mould and electronics. Order intake was SEK 4,057 M, 11% higher than in the preceding year. The trend was highly favorable in all markets, particularly in Germany, the US, Brazil and Asia. Sandvik Coromant posted record-high sales in the US. Order intake included SEK 196 M and sales included SEK 175 M from the remaining activities of the former Saws and Tools area. Operating profit amounted to SEK 800 M (614), corresponding to 21% of invoiced sales, which was an increase compared with 1999. The improvement was due mainly to higher volumes as well as the cost reductions implemented. Sandvik Mining and Construction's invoiced sales amounted to SEK 2,248 M (2,101), up 4% at fixed exchange rates. The order intake improved considerably more and was SEK 2,722 M, 19% higher than a year earlier. The demand for machinery increased strongly and remained high for tools and spare parts. Activity in the mining industry increased and many former dormant projects were restarted, particularly in Eastern Europe, NAFTA, South America and Australia. The construction industry showed high activity while demand from the coal mining industry remained weak. Operating profit amounted to SEK 209 M (115), corresponding to 9% of invoiced sales. The sharp improvement compared with the year-earlier quarter was due to higher capacity utilization and the effects of the ongoing restructuring program. Sandvik Specialty Steel's invoiced sales amounted to SEK 3,319 M (2,733). The increase at fixed exchange rates for comparable units was 14%, of which 5% is attributable to higher alloy price additions. The positive trend in demand from the end of 1999 continued in the quarter and order intake was SEK 3,774 M, or 29% higher than in the preceding year and now also included investment-related tube products for the oil/gas, chemical and petrochemical industries. Demand remained favorable for consumer- related steel products. Demand for Kanthal's products from, among others, the electronics industry rose sharply. Prices for Sandvik Steel had still not recovered fully, but the trend continued to be positive. Operating profit in the quarter amounted to SEK 267 M (123), 8% of invoiced sales. The improvement was achieved through higher sales volumes and the effects of the ongoing rationalization program. Capital expenditures Group investments in property, plant and equipment amounted to SEK 360 M (438). Company acquisitions amounted to SEK 203 M. Strong position in IT The Group's business areas in recent years have established advanced web solutions for customer relationship marketing and e-commerce. For example, Sandvik Coromant Norden introduced trading on the Internet in the mid-1999 and today conducts 20% of its sales in Sweden and Denmark via the Internet. During the first quarter this year, Sandvik Coromant, as a complement to the already high sales via EDI, introduced e-commerce on the US market. This concept will be successively introduced in other countries. At the end of March it was announced that Sandvik will become a part- owner in a new venture-capital company, b-business partners. In addition to the main interests, ABB and Investor, the owners are a number of large Swedish industrial companies. The new company will invest in and develop companies in Europe that focus on e-business between companies. Through participation in b-business partners, Sandvik gains the opportunity to be actively involved in this expanding area. Financing and liquidity Interest-bearing liabilities and provisions less liquid funds yielded net debt of SEK 6,133 M (6,014 at 31 December 1999). Liquid funds amounted to SEK 2,209 M (2,369) and loans totaled SEK 5,569 M (5,611). Cash flow from operating activities amounted to SEK 711 M. After capital expenditures, cash flow was a negative SEK 113 M. The number of shares was 258,696,000. Shareholders' equity per share was SEK 81.10 (77.70 at 31 December 1999) and the equity/assets ratio 53% (52). Personnel The number of employees in the Group at 31 March 2000 was 33,695 (33,870 at 31 December 1999), corresponding to a decline for comparable units of 175 since year-end 1999. Market outlook The business climate is expected to remain strong throughout the rest of 2000. Sandviken, 4 May 2000 SANDVIK AB; (publ) Clas Åke Hedström President and CEO Appendices: 1. Group summary 2. Invoicing and operating profit The interim report for the first quarter of 2000 is unaudited. The next interim report will be released on 9 August 2000 for the first six months of 2000. For additional information, please call +46 (0)26-26 10 01 Group in summary, SEK M Q1 Full- Q1 year Income statement 1999 1999 2000 Invoiced sales 9 630 39 300 10 320 Cost of goods sold -6 356 -26 297 -6 714 Gross profit 3 274 13 003 3 606 Selling, general and administrative -2 313 -8 485 -2 197 expenses Other operating income and expenses -2 -93 -14 Capital gain 0 1 625 300 Operating profit 959 6 050 1 695 Financial income and expenses, net -149 -585 -135 Profit after financial income and 810 5 465 1 560 expenses Taxes -252 -1 688 -466 Minority interest -38 -157 -56 Net profit 520 3 620 1 038 Consolidated balance sheet Fixed assets 19 603 18 318 18 145 Inventories 10 261 10 040 10 265 Current receivables 9 901 9 469 10 461 Liquid assets 1 747 2 369 2 209 Total assets 41 512 40 196 41 080 Shareholders' equity 18 794 20 109 20 980 Minority interests 890 888 949 Interest-bearing provisions and 9 930 8 382 8 340 liabilities Non-interest-bearing provisions and 11 898 10 817 10 811 liabilities Total provisions, liabilities and 41 512 40 196 41 080 shareholders' equity Summary cash-flow statement Profit after financial items 810 5 465 1 560 Items not affecting cash flow -3 -1 892 -138 Reversal of depreciation 499 2 273 556 Taxes paid -241 -1 524 -527 Change in working capital -224 -928 -740 Cash flow from operations 841 3 394 711 Investments, acquisitions and -648 1 316 -824 divestments Cash used in financial activities, -231 -4 133 -41 change of loans, dividends Net cash flow -38 577 -154 Key figures Order intake, SEK M 9 960 39 650 11 500 Earnings per share excluding capital 7.30 9.00 9.90 gain, SEK* Earnings per share including capital 7.30 14.00 16.00 gain SEK* Return on net assets excluding 14.9 % 15.1 % 16.4 % capital gain* Return on shareholders' equity 10.5 % 12.4 % 13.2 % including capital gain* *Rolling 12 months Invoiced sales by market area, SEK M Q1 Q2 Q3 Q4 Full- Q1 Change year 1999 1999 1999 1999 1999 2000 % % 1) EU (excl. Sweden) 4 078 4 086 3 387 3 720 15 271 3 825 -6 5 Sweden 554 637 461 597 2 249 623 12 25 Rest of Europe 534 613 500 499 2 146 628 18 14 Europe total 5 166 5 336 4 348 4 816 19 666 5 076 -2 9 NAFTA 2 373 2 645 2 493 2 441 9 952 2 722 15 11 South America 330 431 421 366 1 548 419 27 35 Africa, Middle 406 357 406 437 1 606 391 -4 3 East Asia, Australia 1 355 1 591 1 612 1 970 6 528 1 712 26 16 Group total 9 630 10 360 9 280 10 030 39 300 10 320 7 10 1) Change compared with year earlier excluding currency effects and structural changes. Invoiced sales by business area, SEK M Svk Tooling 3 326 3 383 3 075 3 393 13 177 3 818 15 9 Svk Mining and 2 101 2 235 2 229 2 243 8 808 2 248 7 4 Construction Svk Specialty Steels 2 733 3 278 2 618 3 342 11 971 3 319 21 14 Svk Saws and Tools 669 666 647 171 2 153 / / / 2) Seco Tools 794 791 708 835 3 128 916 15 9 Group activities 7 7 3 46 63 19 / / Group total 9 630 10 360 9 280 10 030 39 300 10 320 7 10 Operating profit by business area, SEK M Svk Tooling 614 665 634 684 2 597 800 Svk Mining and 115 178 168 213 674 209 Construction Svk Specialty Steels 123 165 105 240 633 267 Svk Saws and Tools 64 38 42 9 153 / 2) Seco Tools 140 143 94 195 572 197 Group total -97 -47 -39 -21 -204 -78 Op. profit excl. 959 1 142 1 004 1 320 4 425 1 395 capital gain Capital gain - - 1 600 25 1 625 300 Op. profit incl. 959 1 142 2 604 1 345 6 050 1 695 capital gain Operating profit by business area, % of invoicing Svk Tooling 18 20 21 20 20 21 Svk Mining and 5 8 8 9 8 9 Construction Svk Specialty Steels 5 5 4 7 5 8 Svk Saws and Tools 10 6 6 5 7 / 2) Seco Tools 18 18 13 23 18 22 Op. profit excl. 10 11 11 13 11 14 capital gain Op. profit incl. 10 11 28 13 15 16 capital gain 2) As a result of the majority holding in Seco Tools, Sandvik consolidates this company. For comments, refer to the company's interim report. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/05/04/20000504BIT00580/bit0001.doc http://www.bit.se/bitonline/2000/05/04/20000504BIT00580/bit0002.pdf