Report on 1998 operations

Appendix 1 REPORT ON 1998 OPERATIONS * Invoiced sales rose 24%; excluding acquisitions and currency effects sales were up 1%. * Operating profit amounted to SEK 4,595 M (4,370), an increase of 5%. * Another strong year for Sandvik Tooling; weaker for Sandvik Specialty Steels in fourth quarter. * Integration of the strategic acquisitions proceeded as planned. * Profit after financial items was SEK 3,935 M (4,205), down 6%. * Proposed dividend of SEK 7.00, unchanged (7.00). Market conditions After a strong opening, the business climate weakened successively during 1998. The rate of increase in industrial production fell from 3.5% on a annual rate at the beginning of the year to 2% at year-end. The business climates in the EU and NAFTA were favorable, but softened in the fourth quarter. A sharp weakening occurred in South America during the autumn and a crisis situation arose in Russia. Economic activity was low in Asia throughout the year, but certain signs of improvement were detected at the end of 1998. Lower prices for oil, coal and metal raw materials had an adverse impact on some important customer segments. Sales [removed graphics] Order intake in 1998 amounted to SEK 41,700 M (34,603), 21% higher than in the preceding year. At fixed exchange rates and for comparable units, order intake declined for the full year by 2% and in the fourth quarter by 10%. The decline pertained mainly to Sandvik Specialty Steels. Invoiced sales totaled SEK 42,400 M (34,119), an increase of 24%. Sales by comparable Group units at fixed exchange rates increased 1% but declined 5% in the fourth quarter. Group sales in Sweden for the full year were unchanged, but increased within the rest of the EU by 8% at fixed exchange rates and for comparable units. In Central and Eastern Europe, the increase was 5%. The favorable development in the NAFTA region weakened successively during the year and, in addition, was affected strongly in the fourth quarter by reduced invoicing of large projects within Sandvik Specialty Steels and Sandvik Process Systems. Invoiced sales in South America were 10% lower than a year earlier due to the sharp decline in the economy during the autumn. Sales in the Asia, Australia market area rose 19% through acquisition. Excluding the acquisitions, sales declined 12%, or by approximately SEK 600 M. Earnings (see appendix 1) Q1-4 1997 Q1-4 1998 Change % Invoiced sales, SEK M 34 119 42 400 +24 Operating profit, SEK M 4 370 4 595 +5 Appendix 2 as % of invoiced sales 13 % 11 % Profit after financial items, SEK M 4 205 3 935 -6 as % of invoiced sales 12 % 9 % Net profit, SEK M 2 725 2 095 -23 as % of invoiced sales 8 % 5 % Operating profit in 1998 was affected adversely by the weakened business climate and by: * SEK 400 M due to lower prices for nickel and the resulting pressure on steel prices and writedown of inventories. * SEK 400 M for integration and restructuring measures. * SEK 300 M due to declines in invoiced sales in Russia, South America and Asia. As a result of good productivity and volume development, particularly for Sandvik Tooling, operating profit improved by 5% compared with a year earlier to SEK 4,595 M (4,370), despite the aforementioned adverse effects. After the change in the Group's capital structure, net financial items amounted to an expense of SEK 660 M (expense:165). As a result, profit after financial income and expenses declined to SEK 3,935 M (4,205). Net profit amounted to SEK 2,095 M (2,725). It was affected by an unusually high tax charge including nearly SEK 400 M related mainly to rulings in tax cases from the late 1980s. Earnings per share, which excluding the additional tax expense would have been SEK 9.65, amounted to SEK 8.10 (10.15). Return on net assets amounted to 16.8% (17.7). Return on shareholders´ equity was 11.9% (14.3) and excluding the additional tax charge 14.2%. Invoiced sales reported by strategic acquisitions carried out in 1997 were SEK 10,300 M. The operating margin was low after taking into account the costs for integration, restructuring and for goodwill amortization. The effect on net earnings per share was negative in the first year. [removed graphics] Business areas (see appendix 2) Sandvik Tooling's invoiced sales rose 12% to SEK 12,121 M. Business development was strong in Europe and the NAFTA region, but softened in the fourth quarter. Operating profit improved to SEK 2,544 M (2,094), yielding a margin of 21% (19). Sandvik Coromant posted another strong year and increased its market shares. CTT Tools posted very good performance despite the major changes within Precision Twist Drill in the U.S. and lower demand from the aerospace industry. Sandvik Mining and Construction's invoiced sales amounted to SEK 9,379 M, that is 2% lower than in 1997 (pro forma). Demand for machinery in the mining industry, particular for coal mining, was low virtually worldwide. Nevertheless, demand remained favorable for spare parts and tools. Demand in the construction industry was relatively good, particularly in the U.S. Appendix 3 Operating profit amounted to SEK 340 M, and the margin was 4%. It was affected in the third and fourth quarters by ongoing restructuring measures and lower production volumes. The comprehensive restructuring program decided in the third quarter, which within 2-3 years will yield rationalization and coordination gains of at least SEK 400 M per year, is proceeding as planned. Sandvik Specialty Steels' invoiced sales rose 8% to SEK 11,687 M, mainly due to Kanthal being included for the full year. Sandvik Steel's invoiced sales were largely unchanged despite prices having fallen 5%, mainly due to declining alloy prices. Order intake declined significantly during the second half of the year, primarily for products with a low level of value-added processing. Kanthal's invoiced sales declined 10%, due mainly to the prevailing business climate in Asia. Operating profit amounted to SEK 770 M (921), or 7% of invoiced sales. Lower prices and inventory writedowns as a result of lower nickel prices reduced earnings by SEK 400 M. Earnings in the fourth quarter were reduced by production cutbacks due to lower order intake and by restructuring costs. Provisions of SEK 75 M was allocated for planned personnel reductions. Associated companies posted a loss in the fourth quarter. Sandvik Hard Material's reported increased invoiced sales to SEK 1,455 M (1,361). Sales were strong in the electronics industry, favoring earnings which amounted to SEK 180 M (148), with a margin of 12%. Sales invoiced by Sandvik Saws and Tools declined to SEK 2,694 M (2,787) due to weaker sales in Southeast Asia. Operating profit amounted to SEK 205 M (239) and the margin was 8%. Invoicing by Sandvik Process Systems during the year amounted to SEK 1,892 M, unchanged from 1997 at fixed exchange rates. Invoicing rose sharply in the fourth quarter, due mainly to final delivery of major projects in Japan. Operating profit developed favorably, totaling SEK 132 M (80). The margin was 7%. Group activities include operating expenses for central administration and finance operations and other activities in the Group units not linked to the business areas. Earnings in 1998 are not comparable with 1997 results which included Tamrock as an associated company. Capital expenditures Group investments in property, plant and equipment amounted to SEK 2,811 M (2,353). Acquisitions were carried out totaling SEK 391 M. Structural changes In 1998, Sandvik Coromant acquired all shares outstanding (49%) in Poland's largest company for manufacturing cemented-carbide tools, Sandvik Baildonit S.A. in Katowice. Sandvik Steel acquired the German company Poppe & Potthoff's unit for production of stainless precision tubes, with annual sales of about SEK 160 M. Appendix 4 Sandvik increased its ownership interest in the exchange-listed subsidiary Sandvik Asia Ltd, from 55% to 73%. In India, CTT Tools started a company for production of high-speed steel tools, Titex India. Sandvik Coromant increased production in China, with a plant for cemented-carbide tools in Langfang. Subsidiaries were formed in Slovenia, Greece, Romania and the Ukraine and representative offices were established in Croatia and Azerbajdzjan. Sandvik Mining and Construction formed sales companies in Bolivia and Ghana. In January 1999, Sandvik formed a joint-venture company in Korea with Suh Jun Trading Co. for distribution of rock-drilling machines and tools. Sandvik owns a 70%-interest in the company which is expected to post sales of about SEK 80 M annually. In January 1999, Sandvik's subsidiary Kanthal AB acquired the American company MRL Industries Inc. MRL is one of the world's largest manufacturers of furnace cassettes for the electronics industry. The company has annual sales of SEK 160 M. Financing and liquidity Interest-bearing provisions and liabilities less liquid funds yielded net debt of SEK 8,412 M (7,160 at 31 December 1997). Liquid funds amounted to SEK 1,800 M (2,494) and loans totaled SEK 7,536 M (6,976). Cash flow from operations amounted to SEK 4,595 M and SEK -560 M after dividends and net investments. The number of shares at 31 December 1998 was 258,696,000. Shareholders' equity amounted to SEK 18,621 M and the equity/assets ratio 47% (47). Shareholders' equity per share was SEK 71.70 (67.30). Personnel The number of employees within the Group declined during the year by about 900, amounting at 31 December 1998 to 37,520 (38,406). Further personnel reductions will be made in the first half of 1999 as a result of planned structural measures and alignment to the prevailing business climate. Parent Company Parent Company invoiced sales were SEK 12,491 M (12,318) and operating profit was SEK 1,182 M (1,107). Investments in property, plant and equipment amounted to SEK 841 M and the number of employees at year-end was 8,309. Proposed dividend The Board of Directors proposes an unchanged dividend of SEK 7.00 per share (7.00) or SEK 1,811 M (1,811). The proposed record date is 4 May 1999. Appendix 5 The Annual General Meeting will be held in Sandviken on 29 April 1999, at 3:00 p.m. The annual report will be distributed to the shareholders approximately two weeks prior to the Meeting. Sandviken, 18 February 1999 SANDVIK AB; (publ) Board of Directors Appendices: 1.Group summary 2.Invoicing and operating profit Sandvik Group's result for the first quarter of 1999 will be published in connection with the Company's Annual General Meeting on 29 April. For additional information, please call +46 (0)26-26 10 01. Group summary, SEK M Full-year Full-year Income statement 1997 1998 Invoiced sales 34 119 42 400 Costs of goods sold -22 926 -28 813 Gross profit 11 193 13 587 Selling, general and administrative -7 111 -8 755 expenses Share of profits in associated 300 -4 companies Other operating income expenses -12 -233 Operating income 4 370 4 595 Financial income and expenses, net -165 -660 Profit after financial income and 4 205 3 935 expenses Taxes -1 283 -1 675 Minority interest -197 -165 Net profit 2 725 2 095 Consolidated balance sheet Fixed assets 17 481 19 461 Inventories 10 039 10 350 Current receivables 10 047 9 995 Liquid assets 2 494 1 800 Total assets 40 061 41 606 Shareholders equity capital 17 414 18 621 Minority interests 1 169 872 Interest-bearing provisions and 9 654 10 212 liabilities Non-interest-bearing provisions and 11 824 11 901 liabilities Total provisions, liabilities and 40 061 41 606 shareholders' equity Consolidated funds statement Profit after financial items 4 205 3 935 Reversal of depreciation 1 486 2 099 Other -258 -74 Accrued taxes -905 -1 153 Change in working capital 456 -212 Appendix 6 Net financing from operations 4 984 4 595 Net investments -5 089 -2 956 Dividends -1 930 -2 199 Cash flow -2 035 -560 Key figures Order intake, SEK M 34 603 41 700 Earnings per share, SEK 10.15 8.10 Return on net assets 17.7 % 16.8 % Return on shareholders' equity 14.3 % 11.9 % Invoiced sales by market area, SEK Q4 Full- Q1 Q2 Q3 Q4 Full- Change M year year 1 1997 1997 1998 1998 1998 1998 1998 % % ) EU 3 876 13 799 4 320 4 107 3 806 4 545 16 777 22 8 (exc ludi ng Swed en) Swed 669 2 231 665 701 417 592 2 375 6 0 en Rest 657 1 888 623 634 604 540 2 401 27 5 of Euro pe Euro 5 202 17 918 5 608 5 442 4 827 5 677 21 553 20 6 pe tota l NAFT 2 756 8 195 2 700 2 730 2 627 2 569 10 626 30 -5 A Sout 486 1 703 504 481 555 438 1 978 16 -10 h Amer ica Afri 412 987 486 429 452 548 1 916 94 8 ca, Midd le East 2 Asia 1 823 5 316 1 472 1 397 1 560 1 898 6 327 19 -12 ) , Aust rali a Grou 10 679 34 119 10 770 10 480 10 020 11 130 42 400 24 1 p tota l 1) Change compared with year earlier excluding currency effects and acquisitions. 2) Change excluding acquisitions. Appendix 7 Invoiced sales by business area, SEK M Svk 2 973 10 803 3 154 3 063 2 861 3 043 12 121 12 4 Tooling 3) Svk 1 909 3 582 2 342 2 234 2 389 2 414 9 379 / -2 Mining and Constru 3) ction Svk 3 175 10 780 3 120 3 075 2 570 2 922 11 687 8 -2 Special ty 3 Steels ) Svk 374 1 361 374 343 348 390 1 455 7 3 Hard Materia ls Svk 711 2 787 709 632 661 692 2 694 -3 -5 Saws and Tools Svk 757 1 873 245 332 448 867 1 892 1 0 Process Systems Seco 763 2 889 819 792 737 803 3 151 9 6 Tools Group 17 44 7 9 6 -1 21 / / activit ies Group 10 679 34 119 10 770 10 480 10 020 11 130 42 400 24 1 total Operating profit by business area, SEK M 3) Svk Tooling 457 2 094 653 705 607 579 2 544 Svk Mining and 105 234 110 132 34 64 340 3) Construction Svk Specialty 198 921 300 248 160 62 770 3) Steels Svk Hard 41 148 44 55 23 58 180 Materials Svk Saws and 68 239 69 32 39 65 205 Tools Svk Process 43 80 10 10 16 96 132 Systems Seco Tools 174 575 194 170 135 178 677 Group 64 79 -95 -55 -40 -63 -253 4) activities Group total 1 150 4 370 1 285 1 297 974 1 039 4 595 Operating profit by business area, % of invoicing 3) Svk Tooling 15 19 21 23 21 19 21 3) Svk Mining and Construction 6 7 5 6 1 3 4 3) Svk Specialty Steels 6 9 10 8 6 2 7 Appendix 8 Svk Hard Materials 11 11 12 16 7 15 12 Svk Saws and Tools 10 9 10 5 6 9 8 Svk Process Systems 6 4 4 3 4 11 7 Seco Tools 23 20 24 22 18 22 22 Group total 11 13 12 12 10 9 11 3) Precision Twist Drill included from 1 Sept 1997, Tamrock from 1 Nov. 1997 and Kanthal from 1 July 1997. 4) Including Tamrock, consolidated as an associated company until 31 Oct. 1997. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/18/19990218BIT00250/bit0001.pdf http://www.bit.se/bitonline/1999/02/18/19990218BIT00250/bit0002.doc