SANDVIK AB - Report on 1999 operations

SANDVIK AB - Report on 1999 operations * Strong fourth quarter. * Profit for the year before tax, incl. capital gain, amounted to SEK 5,465 M (3,935). * Continued improvement in business conditions. * New Group structure - focusing on core operations. * Proposal regarding single share class Market The business climate in 1999 improved successively from a weak start. At its lowest, the growth in industrial production within the OECD was about 1%, but rose to 2.5% at year-end. The increase during the autumn was attributable to continued strong economic conditions in the US, improvement within the EU, an upturn in Japan and strong recoveries in Southeast Asia and Korea. The prospects for Russia and South America brightened. However, development within several industrial sectors of importance to Sandvik was considerably weaker than the average. The prices of oil and base metals rose during the year, which will increase the willingness to make investments in these sectors. Sales (see appendix 2) [REMOVED GRAPHICS] Sandvik's order intake for 1999 amounted to SEK 39,650 M (41,700), which was 5% lower than a year earlier. At fixed exchange rates and for comparable units, order intake declined for the full year by 6%. Order intake rose 5% in the fourth quarter compared with a year earlier and the trend was clearly positive. Invoiced sales amounted to SEK 39,300 M (42,400), a decline of 7%. At fixed exchange rates and for comparable units, sales declined by 8%. Sales in the fourth quarter were down 3% from the year-earlier period, but rose significantly compared with the preceding quarter. As a consequence of the divestment of Sandvik Saws and Tools fourth quarter sales declined by about SEK 550 M. Order intake in Europe, particularly Germany, rose considerably in the fourth quarter for Sandvik Specialty Steels and the trend was also positive for Sandvik Tooling. Order intake in the NAFTA region turned upward during the autumn also for Sandvik Mining and Construction and Sandvik Specialty Steels, which had experienced a weak start to the year. Sandvik Coromant continued to develop strongly in the NAFTA region and captured market shares. However, Sandvik CTT's order intake in the US was affected adversely also in the fourth quarter due to the continued effects of restructuring and very low demand from the aerospace industry. The economic crisis in Brazil at the beginning of the year affected demand for Sandvik's products heavily, but recovery has proceeded relatively quickly. Order intake in the Asia/Australia region showed a positive trend and was particularly strong in Southeast Asia and Korea for Sandvik Tooling and Sandvik Specialty Steels. In contrast, demand for Sandvik Mining and Construction was weaker in the region, due to low activity within the coal industry in Australia, among other factors. Earnings (see appendix 1) Q1-4 1998 Q1-4 1999 Change % Invoiced sales, SEK M 42 400 39 300 -7 Operating profit before capital gain, 4 595 4 425 -4 SEK M as % of invoiced sales 11 11 Capital gain on sale of Sandvik Saws 1 625 and Tools Operating profit, SEK M 4 595 6 050 32 as % of invoiced sales 11 15 Profit after financial items, SEK M 3 935 5 465 39 as % of invoiced sales 9 14 Net profit, SEK M 2 095 3 620 73 as % of invoiced sales 5 9 Operating profit for 1999 amounted to SEK 6,050 M (4,595). This included a capital gain of SEK 1,625 M from the sale of Sandvik Saws and Tools. Excluding the capital gain, operating profit was SEK 4,425 M (4,595). Operating profit improved successively during the year and, as in 1998, was 11% of invoiced sales. Lower volumes in all business areas resulted in low capacity utilization during most of the year, which to a large extent was offset by rationalization measures and cost reductions. Lower prices for Sandvik Specialty Steels had a negative effect on earnings of SEK 500 M. Positive currency effects improved earnings by about SEK 300 M. Operating profit in the fourth quarter of SEK 1,320 M (1,039) was improved through higher volumes than earlier in the year, better productivity and higher raw material prices in inventory valuation. Operating margin for Sandvik Tooling remained at slightly more than 20% in the fourth quarter. Sandvik Mining and Construction as well as Sandvik Specialty Steels improved their margins in the fourth quarter. Net financial expense for the full year was SEK 585 M (660). Interest expenses declined significantly in the fourth quarter, due partly to receipt of the payment for Sandvik Saws and Tools. Profit after net financial items was SEK 5,465 M (3,935). [REMOVED GRAPHICS] Net profit amounted to SEK 3,620 M (2,095). Earnings per share were SEK 14.00 (8.10). Excluding capital gain, net profit amounted to SEK 2,340 M (2,095) and earnings per share were SEK 9.00. Excluding capital gain, return on net assets was 15.1% (16.3) and return on shareholders' equity 12.4% (11.9). Structural changes On 30 September, Sandvik concluded the sale of Sandvik Saws and Tools business area to the American company Snap-on Incorporated. The transaction was first announced in April 1999. The invoiced sales of the business area amounted to about SEK 2,700 M annually. The selling price for the operations, cash and debt free, was about SEK 3,300 M. As a result of the divestment, Sandvik's operations are concentrated on its three core businesses of Sandvik Tooling, Sandvik Mining and Construction and Sandvik Specialty Steels, areas in which the technology content is considerable and the Group holds leading global positions in its selected niches. Sandvik Tooling includes Sandvik Coromant, Sandvik CTT and Sandvik Hard Materials. Sandvik Specialty Steels comprises Sandvik Steel, Kanthal and Sandvik Process Systems. As part of the increased focus on core operations and as an important element of the new Group structure, Group Executive Management is being supplemented as of 1 May 2000 with the presidents of the three business areas. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/02/18/20000218BIT00160/bit0001.doc http://www.bit.se/bitonline/2000/02/18/20000218BIT00160/bit0002.pdf