Interim Report, first quarter 2002

SANDVIK AB Interim Report, first quarter 2002 · Profit after financial items SEK 1,261 M, 11% of invoicing · Invoicing: SEK 11,800 M, down 2% · Order intake increased from fourth quarter 2001 · Number of employees declined by 450 · Walter Group consolidated from 25 February Key figures Q1 Q1 Change Full-year SEK M 2002 2001 % 2001 Order intake 12 830 12 570 +2 1) 47 900 Invoiced sales 11 800 12 050 -2 2) 48 900 Operating profit 1 421 1 640 -13 6 103 3) % 12 14 12 Profit after financial items 1 261 1 525 -17 5 606 3) % 11 13 11 Earnings per share, SEK4) 14.00 13.80 14.40 Return on net assets, % 16.2 19.6 17.4 1) -6% at fixed exchange rates for comparable units. 2) -12% at fixed exchange rates for comparable units. 3) Including items affecting comparability SEK +340 M for full- year 2001. 4) Most recent 12 months. Short-term market outlook* No significant change in the demand situation is expected for Sandvik in the near future. The process of change under way in the Group is proceeding as planned, which means that higher efficiency and cost savings successively affect profitability positively. The readiness is high to capitalize on a future increase in demand. * Previous short-term market outlook (published 14 February 2002) Demand is expected to remain weak in the near future. An extensive program of change is under way within the Group to further enhance efficiency and reduce cost levels. At the same time, the Group is ready to capitalize on business opportunities in the event of increased demand. First quarter 2002 Sales (see appendix 2) [REMOVED GRAPHICS] Order intake in the first quarter amounted to SEK 12,830 M (12,570), an increase of 2% in total but a decline of 6% at fixed exchange rates for comparable units. For Sandvik Mining and Construction the order intake increased, while it declined for Sandvik Tooling and Sandvik Specialty Steels compared with the first quarter in the preceding year. Acquisitions contributed positively with 6%. Order intake - Development by market area Change* Change* Order intake Share Q1 2001 Q4 2001 Market area SEK M % % % EU 5 346 42 -9 +10 Rest of Europe 887 7 -19 +21 Europe total 6 233 49 -10 +11 NAFTA 2 967 23 -7 +19 South America 598 5 0 +10 Africa/Middle East 660 5 +3 +13 Asia/Australia 2 372 18 -1 +11 Total 12 830 100 -6 +13 * at fixed exchange rates for comparable units. The lower order intake, down 6%, for comparable units in relation to the first quarter a year earlier should be viewed taking into consideration that the global business climate was very strong at the beginning of 2001. Accordingly, a comparison with the fourth quarter of 2001 is more relevant even if a certain seasonal effect should be taken into account. Compared with the fourth quarter of 2001, the increase was 13% at fixed exchange rates for comparable units. All market areas and business areas showed an increase. Sandvik Mining and Construction reported a continued strong development and the trend was now positive also for Sandvik Specialty Steels and Sandvik Tooling. The activity in the general engineering industry remained weak in Europe but increased somewhat in NAFTA compared with the fourth quarter. Total demand in the automotive industry in Europe declined, but varied between markets. In contrast, an increased rate of production was noted in NAFTA within the automotive industry. Activity in the commercial aerospace industry continued to decrease. Demand in the electronics industry showed, after a sharp decline, a tendency toward leveling out. Order intake from the mining and construction industry, offshore and energy industry remained favorable. Invoicing amounted to SEK 11,800 M (12,050), a decrease of 2% in total and 12% at fixed exchange rates for comparable units. The increase from acquisitions was 7%. Higher currency rates affected invoicing positively by 3%. Invoicing declined for all business areas compared with the year- earlier period. The decline was sharpest in NAFTA and Europe. Sales in Africa, China and Australia remained high and were largely unchanged compared with a year earlier. Order intake was slightly more than SEK 1,000 M, or 9%, higher than invoicing in the first quarter. Earnings, cash flow and return (see appendix 1) [REMOVED GRAPHICS] Operating profit in the first quarter amounted to SEK 1,421 M (1,640), 12% of invoicing. This was a decrease of 13% compared with the preceding year. Changes in currency exchange rates had a positive effect of about SEK 150 M. The new accounting principle for capitalizing certain development costs affected earnings positively by about SEK 50 M. Operating profit for Sandvik Mining and Construction rose 13% and was the highest since the business area was formed. Sandvik Specialty Steel's earnings declined by 12%, which should be viewed taking into account lower volumes. Sandvik Tooling reported a 20% decrease in earnings, which was attributable to lower volumes. Net financial expense was SEK 160 M (expense: 115). The increase was due to higher level of debt. Profit after net financial items was down 17% to SEK 1,261 M, 11% of invoicing. The tax rate was 35% and net profit amounted to SEK 768 M (901). Earnings per share were SEK 3.10 (3.50) in the quarter and SEK 14.00 in the past 12 months (SEK 14.40 for full-year 2001). Investments in fixed assets amounted to SEK 390 M and acquisitions to SEK 811 M. Cash flow from operations amounted to SEK 1,289 M, an increase of SEK 320 M compared with a year earlier. The change was due mainly to a positive trend in development of working capital. Cash flow after investment activities was SEK 265 M. The return on capital employed during the past 12 months amounted to 16.2% (17.4% for full-year 2001) and the return on equity amounted to 14.8% (15.5). Interest-bearing liabilities and provisions less liquid funds resulted in a net debt of SEK 10,545 M (SEK 9,964 M at 31 December 2001). Liquid funds amounted to SEK 2,018 M (2,258) and loans to SEK 10,440 M (10,183). The number of shares outstanding was 250,501,850. Equity per share was SEK 95.60 (95.50) and the equity/assets ratio was 50% (50). Net debt/equity ratio was 0.4 (0.4). The number of employees amounted to 36,323 (34,848) at the end of the period including Walter. For comparable units, the number of employees declined by 450 during the quarter. Q1 Q1 Full-year Key figures 2002 2001 2001 No. of shares at end of period ('000) 250 502 258 696 251 025 Earnings per share, SEK* 14.00 13.80 14.40 After full dilution** 13.80 13.60 14.30 Return on capital employed 16.2% 19.6% 17.4% Return on shareholders' equity 14.8% 16.0% 15.5% Net debt/equity ratio 0.4 0.3 0.4 * most recent 12 months: Earnings divided by average number of outstanding shares 253,875,400. ** average no. of shares after full dilution by outstanding convertible and option programs amounts to 258,796,400. Accounting principles This report has been prepared in accordance with the Swedish Financial Accounting Standards Council's recommendation RR20. As of 2002, an additional number of recommendations from the Swedish Financial Accounting Standards Council became effective, of which only RR15 Intangible Assets has had any effect on earnings for the year. Buy-back of shares At 31 March 2002, Sandvik's holding of own shares (treasury stock) totaled 8,197,000, corresponding to 3.2% of the total number of shares (258,698,850). The amount paid was SEK 1,784 M. In accordance with the decision at the Annual General Meeting in May 2001, Sandvik is authorized to repurchase a total of 12,934,800 shares, corresponding to 5% of the total number of shares. The authorization is valid for the period up to the date of the next Annual General Meeting. Business areas (see appendix 2) - First quarter 2002 Sandvik Tooling Q1 Q1 Change Full-year SEK M 2002 2001 % 2001 Order intake 4 274 4 425 -11 * 16 355 Invoiced sales 4 107 4 258 -12 * 16 561 Operating profit 701 878 -20 2 964 % 17 21 18 * at fixed exchange rates for comparable units. Sandvik Tooling's order intake amounted to SEK 4,274 M (4,425), an 11% decrease compared with a year earlier at fixed exchange rates for comparable units. The development was most negative for high-speed steel tools and cemented-carbide blanks. The decline compared with a year earlier applied mainly to NAFTA, South America and the EU. However, order intake remained strong in Eastern Europe and Asia/Australia, particularly in China as well as in Southeast Asia. Since the fourth quarter 2001, order intake increased by 7% at fixed exchange rates for comparable units. Demand increased in Eastern Europe, Asia/Australia as well as in NAFTA. Order intake in EU declined somewhat. Invoicing amounted to SEK 4,107 M (4,258), which was a drop of 12% compared with the first quarter of 2001 at fixed exchange rates for comparable units. Operating profit declined compared with a year earlier by 20% and amounted to SEK 701 M (878), or 17% of invoicing. The decrease was attributable to lower sales volume and rate of production. The operating margin increased compared with the preceding quarter, even after taking into account items of a nonrecurring nature that were charged against earnings in the fourth quarter of 2001. The restructuring program announced in November 2001 is proceeding as planned. A concentration of the number of production and logistics units is expected to result in a reduction in the number of employees by about 1,000. The goal is to achieve an annual earnings improvement of slightly more than SEK 500 M from the end of 2002. Among other areas, consolidation of production units is under way in the UK, Germany and France. In the US, it was decided to consolidate operations within Precision Twist Drill, which will result in a reduction of 250 employees. During the quarter, the number of employees declined by 250 for comparable units. In addition, a decision has been made on a reduction of 210 persons at Sandvik Coromant in Gimo, Sweden, which will have full effect during the third quarter. Walter, the acquired German group, was consolidated as of 25 February and was included in the amount of SEK 227 M in order intake and SEK 198 M in sales. The net positive effect on Sandvik Tooling's operating profit was SEK 10 M. Sandvik Mining and Construction Q1 Q1 Change Full-year SEK M 2002 2001 % 2001 Order intake 3 936 3 171 +7 * 13 407 Invoiced sales 3 464 2 984 -3 * 13 501 Operating profit 355 315 +13 1 348 % 10 11 10 * at fixed exchange rates for comparable units. Sandvik Mining and Construction's order intake amounted to SEK 3,936 M (3,171), which was an increase of 7% at fixed exchange rates for comparable units and of 24% at current exchange rates and including acquisitions. Demand remained favorable, particularly in the mining industry in Africa and Australia despite declining activity in the coal area. Demand in the civil engineering industry varied, with an increase in NAFTA and certain countries in Asia. It was largely unchanged in Europe. Sandvik Rock Processing reported a strong development, with several major orders for crushers in Chile, among other markets. Since the fourth quarter, order intake increased by 22% at fixed exchange rates for comparable units. Invoicing amounted to SEK 3,464 M (2,984), a decline of 3% compared with the first quarter of 2001 at fixed exchange rates for comparable units. Operating profit amounted to SEK 355 M (315), or 10% of invoicing, an increase of 13%. The earnings improvement was due to a positive volume development, higher productivity and a continued adjustment of the cost level. Sandvik Specialty Steels Q1 Q1 Change Full-year SEK M 2002 2001 % 2001 Order intake 3 562 3 842 -10 * 13 843 Invoiced sales 3 200 3 690 -16 * 14 528 Operating profit 278 317 -12 1 281 % 9 9 9 * at fixed exchange rates for comparable units. Sandvik Specialty Steels' order intake in the first quarter amounted to SEK 3,562 M (3,842), a decline compared with a year earlier of 10% at fixed exchange rates for comparable units. The market situation improved somewhat during the quarter and the corresponding increase was 15% compared with the fourth quarter of 2001. Demand in the consumer-related customer segment, such as the automotive and electronics industries, leveled out, and demand remained favorable for products to the oil/gas and energy industry. Since the fourth quarter of 2001, order intake increased within the EU as well as in NAFTA and Asia/Australia. Invoicing amounted to SEK 3,200 M (3,690). The decline at fixed exchange rates for comparable units was 16%. Operating profit amounted to SEK 278 M (317), or 9% of invoiced sales. The drop in earnings compared with a year earlier was attributable to lower volumes. As a result of a better product mix, cost savings and continued personnel reductions, however, the operating margin was unchanged at 9%. The effect on earnings of higher prices for nickel in inventories was marginal. During the quarter, the number of employees decreased by about 130. Structural changes · In mid-February, an alignment of wire production capacity within Sandvik Steel was announced. Profitability for the Wire Division is clearly unsatisfactory, which is due mainly to total production capacity being too high. A review shows that the current five production units should be reduced to four to increase efficiency, reduce costs and increase profitability. · Sandvik reached an agreement in February with the principal owners of Walter AG to complete the acquisition. This meant that Sandvik is consolidating the Walter Group as of 25 February. At 30 March, Sandvik's ownership interest was 77%. · Sandvik's interest in the associated company Avesta Sandvik Tube AB was reduced from 25% to 17%. The company has changed name to AvestaPolarit Stainless Tube AB. · At the end of April, a consolidation of operations in Precision Twist Drill in the US was announced. One of the major actions is that production in Rhinelander, Wisconsin, is being transferred to Crystal Lake, Illinois, which will result in a reduction of about 250 employees. New President On 16 January 2002, the Board of Directors announced that Clas Åke Hedström, President and CEO of Sandvik AB, will leave his position in conjunction with the Annual General Meeting on 7 May 2002. Clas Åke Hedström will be 63 in July and has been employed with the company for 37 years, of which eight as President. The Board of Directors has appointed Lars Pettersson, 47, as new President and CEO, as of 7 May 2002. Pettersson is currently Executive Vice President of the Group, President of Sandvik Specialty Steels Business Area and President of the Business Sector Sandvik Steel. Peter Gossas, Executive Vice President of Sandvik Steel and head of the company's Tube Division has been appointed the new President of Sandvik Steel, effective 7 May 2002. Sandviken, 7 May 2002 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 2002 has not been audited by the Company's auditors. The next interim report will be published on 7 August 2002 covering the first six months of 2002. For additional information, please call +46 (0)26-26 10 01 A telephone conference will be held on 7 May, 5:00 p.m. For further information visit www.sandvik.com. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/05/07/20020507BIT00650/wkr0001.doc The Full Report http://www.waymaker.net/bitonline/2002/05/07/20020507BIT00650/wkr0002.pdf The Full Report