Sandvik AB-Interim Report Nine months ended 30 September 2000

Nine months ended 30 September 2000 Profit after financial income and expenses SEK 3,725 M, up 41%, excluding items affecting comparability Higher profitability in all business areas Restructuring program for Sandvik Steel Continued favorable demand - order intake up 17% New, higher growth objectives Market - business climate Industrial production within the OECD had an annual growth rate of slightly more than 4.5%. The pace in the US was very high, exceeding 5%. Business climate within the EU was favorable as a result of strong exports and rising domestic demand. Industrial production rose sharply in Eastern Europe. Development was favorable in South America, except Argentina. The rate of growth in China, Southeast Asia and South Korea was double digit. The recovery in Japan continued. Activity in such areas as the automotive industry and residential construction declined from a high level. Demand in investment-related areas increased, particularly in the mining and construction industries. Investment willingness in the oil and gas and process industries was low, but increased toward the end of the period. Consumer-oriented industries, particularly the electronics industry, continued to show high capacity utilization. The business trend had a favorable effect on Sandvik and demand was strong within most product segments and all market areas. Sales (see appendix 2) [REMOVED GRAPHICS] Sandvik's order intake during January-September 2000 amounted to SEK 33,630 M (29,700), which at fixed exchange rates for comparable units was 17% higher compared with the corresponding period a year earlier. In the third quarter, order intake was 15% higher than a year earlier. Order intake increased in all markets. Demand in Europe was strong. Activity in Central and Eastern Europe remained high. Order intake rose in NAFTA and the trend was positive also in the third quarter, despite signs of weakened activity in the automotive and construction industries. Demand in South America rose, primarily in Brazil. The favorable trend continued in China and Southeast Asia. Order intake was high in Japan, particularly from the electronics industry. Demand from the engineering, automotive, electronics and consumer-related industries increased sharply during the year and remained high during the third quarter. Order intake from the mining and construction industry was highly favorable during the entire period. Activity in such key customer segments as the oil and gas, chemical and process industries, which was previously weak, increased in the third quarter. Invoiced sales amounted to SEK 31,810 M (29,270), an increase of 12%, at fixed exchange rates for comparable units. In the third quarter, sales were 14% higher than in the preceding year. Earnings (see appendix 1) 1-3 1-3 Change % 1999 2000 Invoiced sales, SEK M 29 270 31 810 9 Operating profit SEK M 4 705 4 775 1 as % of invoiced sales 16 15 Op. profit excl. items aff. 3 105 4 115 33 comparability, SEK M as % of invoiced sales 11 13 Profit after financial items, SEK M 4 235 4 385 4 as % of invoiced sales 14 14 Profit after financial items excl. items 2 635 3 725 41 aff. comp., SEK M as % of invoiced sales 9 12 Net profit, SEK M 2 920 2 722 -7 as % of invoiced sales 10 9 Operating profit for the period January-September 2000 amounted to SEK 4,775 M (4,705). Positive items affecting comparability amounted to SEK 660 M (SEK 1,600 M from divestment of Sandvik Saws and Tools), of which SEK 360 M in SPP funds and SEK 300 M in capital gains. Excluding items affecting comparability, operating profit amounted to SEK 4,115 M (3,105), or 13% (11) of invoicing. The increase compared with January-September 1999 was 33%. All business areas reported a highly favorable development, with sharply increased volumes and productivity. Earnings were affected by positive currency effects amounting to about SEK 60 M for the first three quarters. Operating profit was charged with SEK 435 M (157) in restructuring costs, of which SEK 260 M in the third quarter. Most is related to provisions for restructuring measures within Sandvik Steel. Net financial expense was SEK 390 M (expense: 470). Interest expenses were lower than in the corresponding period of the preceding year, as a result of lower average interest rates and net debt. Profit after net financial income and expenses was SEK 4,385 M (4,235). Excluding restructuring costs as well as items affecting comparability, profit rose 49% compared with a year earlier. [REMOVED GRAPHICS] Net profit amounted to SEK 2,722 M (2,920). Earnings per share were SEK 10.50 (11.30). Earnings per share during the most recent 12 months amounted to SEK 13.20 (14.00 for full-year 1999). Excluding items affecting comparability, net profit amounted to SEK 2,163 M (1,635) and earnings per share during the most recent 12 months to SEK 11.10 (9.00 for full-year 1999). Return on net assets, excluding items affecting comparability, was for the most recent 12 months, 18.0% (15.1% for full-year 1999) and return on shareholders' equity 14.1% (12.4% for full-year 1999). 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 marketing of Titex's application tools to advanced US industries. Sandvik Mining and Construction concluded its acquisition of the production of drilling rigs from two Austrian companies that were part of the Neuson Group. Annual sales are estimated at about SEK 120 M, with 30 employees. In August, Sandvik Coromant acquired the French company ARAF SA, which is a leading niche company in the production of cemented-carbide tools for the die and mould industry. Annual sales amount to about SEK 30 M, with 30 employees. At the beginning of October, Sandvik Process Systems acquired the German company Hindrichs-Auffermann Metallverarbeitungs GmbH. The company produces textured pressing plates and press belts of steel that are used in the production of laminate and in laminating of wood-based panels. Annual sales amount to about SEK 120 M, with 70 employees. Since March, Sandvik has been a joint-owner of a new venture-capital company, b-business partners, together with principal stakeholders ABB and Investor and a number of large Swedish industrial companies. b- business partners invests in and develops European companies focusing on e-commerce. The sale of the Group's captive insurance company was concluded during the first quarter. Business areas (see appendix 2) Sandvik's operations are concentrated around its three core business areas: Sandvik Tooling, Sandvik Mining and Construction, and Sandvik Specialty Steels, areas in which the technology content is considerable and where 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 operation for Saws and Tools' products in certain markets. Sandvik Specialty Steels comprises Sandvik Steel, Kanthal and Sandvik Process Systems. Sandvik Tooling's invoiced sales amounted to SEK 11,303 M (9,784), an increase of 9% compared with a year earlier at fixed exchange rates for comparable units. Invoicing was high to the engineering and automotive industries and very high in such areas as medical technology, die and mould and electronics. Development was favorable in all markets and Sandvik Coromant's sales in the NAFTA region continued to increase. Order intake was SEK 11,595 M, 11% higher compared with a year earlier at fixed exchange rates for comparable units. Order intake included SEK 520 M and sales included SEK 504 M from the remaining activities in Saws and Tools. Operating profit amounted to SEK 2,305 M (1,913), corresponding to 20% of invoiced sales. The improvement in earnings was due mainly to favorable volume development and productivity increase. Sandvik Tooling has expanded its marketing activities significantly, including a large number of new product launches, expansion of the sales organization and development of e-business. In September, it was announced that Sandvik Coromant is investing about SEK 100 M in expansion of tool production at the plant in Mebane, North Carolina, in the US. This will result in a doubling of capacity and a further strengthened market position. In addition, a decision was made for expansion of the R&D center for material and process development in Stockholm, Sweden. Sandvik Mining and Construction's invoiced sales amounted to SEK 7,516 M (6,565), up 12% at fixed exchange rates for comparable units. Order intake continued to improve sharply compared with a year earlier and amounted to SEK 8,147 M for the period January-September, 18% higher than a year earlier. Order intake from the mining and construction industries remained favorable, particularly in Southern and Eastern Europe, Africa and Australia. In August, three major orders were received for machinery, tools and material handling equipment for mining and construction from customers in Australia and Indonesia. The total order value amounted to about SEK 420 M. Operating profit amounted to SEK 782 M (461), corresponding to 10% (7) of invoiced sales. Operating profit for the third quarter amounted to SEK 286 M (168) - that is, 11% (8). The sharp improvement was due to high capacity utilization and the effects of the restructuring program implemented last year. According to plan, tools, spare parts and service continue to increase their share of sales. Sandvik Specialty Steels' invoiced sales amounted to SEK 10,188 M (8,629). The increase at fixed exchange rates for comparable units was 16%, of which 8% is attributable to higher alloy surcharges. The positive trend in demand continued and order intake was SEK 11,039 M, or 25% higher than in the preceding year. Sales were strong for consumer- related, service- and maintenance-oriented products, as well as for products to the electronics industry. Demand in such investment-related customer segments as the oil and gas and process industries, which was previously very weak, increased in the third quarter. Total operating profit amounted to SEK 674 M (393), 7% (5) of invoiced sales. Changes in nickel prices affected inventory valuation favorably, by approximately SEK 100 M. In the third quarter, operating profit was SEK 86 M (105), which was 3% (4) of invoiced sales. Earnings were charged with nonrecurring expenses amounting to SEK 210 M, which were allocated to provisions for future restructuring measures in Sandvik Steel. A large program of change is under way to raise the level of earnings and secure a sustainable, satisfactory return. The program includes measures to enhance efficiency and adjust production capacity. This means that shut down of some production and a reduction in personnel will occur. The changes affect operations both within and outside Sweden and will be implemented during the next 12-18 months. The measures will result in a reduction of personnel by about 600-700 and are expected at full implementation to yield an annual earnings improvement in the range of SEK 200 M. Capital expenditures Group investments in property, plant and equipment amounted to SEK 1,379 M (1,375). Acquistion of companies amounted to SEK 398 M. Financing and liquidity Interest-bearing liabilities and provisions less liquid funds yielded net debt of SEK 6,645 M (6,014 at 31 December 1999). Liquid funds amounted to SEK 2,588 M (2,369) and loans totaled SEK 6,646 M (5,611). Cash flow from operating activities amounted to SEK 3,412 M. After capital expenditures, cash flow was SEK 1,549 M. The number of shares at 30 September 2000 was 258,696,000. Shareholders' equity per share was SEK 82.60 (77.70 at 31 December 1999) and the equity/assets ratio 51% (52).The net debt/equity ratio was 0.3 (0.3). The Annual General Meeting held on 4 May 2000 voted to change the Articles of Association to permit only one class of share. Personnel The number of employees in the Group at 30 September 2000 was 34,090 (33,870 at 31 December 1999), corresponding to a slight decline for comparable units since year-end 1999. New, higher growth objectives In August, new, higher growth objectives were presented for the period 2000-2003. Organic sales growth shall amount to 6% annually on average compared with the previous goal of 4%. In addition, there is the volume growth from acquisitions. Prioritized growth markets are Asia, NAFTA and Eastern Europe. Return on net assets shall amount to 20% per year. The goal of a high dividend share of at least 50% of earnings per share is retained and has been complemented with a goal of a net debt/equity ratio that shall increase from 0.3 to the interval 0.6-0.8 not later than year- end 2003. A program covering the buyback of own shares will be proposed to the Annual General Meeting 2001. Market outlook A continued favorable trend is foreseen for Sandvik in the near future based on the Group's global presence and focus on different customer and product areas with varying demand patterns. Through strong investments in the sales and marketing organization, the Group is well-positioned to capture additional market shares. Sandviken, 2 November 2000 SANDVIK AB; (publ) Clas Åke Hedström President and CEO Appendices: 1. Group summary 2. Invoicing and operating profit The interim report for the third quarter of 2000 is unaudited. The next financial report will be released on 16 February 2001 for full-year 2000. For additional information, please call +46 (0)26-26 10 01. A combined presentation and telephone conference will be held at Operaterrassen in Stockholm on 2 November at 10.00 a.m. For additional information, refer to www.sandvik.com/Investor Relations. Consolidated Financial Information, SEK M Q1-3 Full- Q1-3 year Income statement 1999 1999 2000 Invoiced sales 29 39 300 31 810 270 Cost of goods sold -19 -26 297 -21 386 870 Gross profit 9 400 13 003 10 424 Selling and administrative expenses -6 -8 485 -6 442 248 Other operating income and expenses -47 -93 133 Items affecting comparability 1 600 1 625 660 Operating income 4 705 6 050 4 775 Financial income and expenses, net -470 -585 -390 Profit after financial items 4 235 5 465 4 385 Taxes -1 -1 688 -1 503 211 Minority interests -104 -157 -160 Net profit 2 920 3 620 2 722 Balance sheet Fixed assets 18 18 318 18 871 231 Inventories 9 563 10 040 11 183 Current receivables 9 591 9 469 10 933 Liquid assets 3 698 2 369 2 588 Total assets 41 40 196 43 575 083 Shareholders' equity 19 20 109 21 372 259 Minority interests 829 888 902 Interest-bearing provisions and 9 866 8 382 9 233 liabilities Non-interest-bearing provisions and 11 10 817 12 068 liabilities 129 Total provisions, liabilities and 41 40 196 43 575 shareholders' equity 083 Cash-flow statement Profit after financial items 4 235 5 465 4 385 Items not affecting cash flow -1 -1 892 -735 782 Reversal of depreciation 1 674 2 273 1 696 Taxes paid -1 -1 524 -1 204 387 Change in working capital -470 -928 -730 Cash flow from operating activities 2 270 3 394 3 412 Investments, acquisitions and 1 706 1 316 -1 863 divestments Cash used in financial activities, -2 -4 133 -1 392 changes in loans, dividends 048 Net cash flow 1 928 577 157 Key figures Order intake, SEK M 29 39 650 33 630 700 Earnings per share excl. items 8.05 9.00 11.10 affecting comparability, SEK* Earnings per share incl. items 13.05 14.00 13.20 affecting comparability, SEK* Return on net assets excl. items 14.2% 15.1% 18.0% affecting comparability* Return on shareholders' equity excl. 11.3% 12.4% 14.1% items affecting comp.* Net debt/equity ratio 0.3 0.3 0.3 *Rolling 12 months Invoiced sales by market area, SEK M Q3 Q1-3 Q4Full Q1 Q2 Q3 Q1-3 Change - year 1 1999 1999 1999 1999 2000 2000 2000 2000 % % ) EU (excl. Sweden) 3 11 3 15 3 3 3 11 -2 10 387 551 720 271 825 951 527 303 Sweden 461 1 597 2 623 616 502 1 5 17 652 249 741 Rest of Europe 500 1 499 2 628 639 643 1 16 12 647 146 910 Europe total 4 14 4 19 5 5 4 14 1 11 348 850 816 666 076 206 672 954 NAFTA 2 7 2 9 2 2 2 8 10 7 493 511 441 952 722 817 760 299 South America 421 1 366 1 419 490 491 1 18 21 182 548 400 Africa, Middle 406 1 437 1 391 420 550 1 16 27 East 169 606 361 Asia, Australia 1 4 1 6 1 2 1 5 27 20 612 558 970 528 712 107 977 796 Group total 9 29 10 39 10 11 10 31 9 12 280 270 030 300 320 040 450 810 Invoiced sales by business area, SEK M Svk Tooling 3 9 3 13 3 3 3 11 16 9 075 784 393 177 818 832 653 303 Svk Mining and 2 6 2 8 2 2 2 7 14 12 Construction 229 565 243 808 248 666 602 516 Svk Specialty 2 8 3 11 3 3 3 10 18 16 Steels 618 629 342 971 319 583 286 188 Svk Saws and Tools 647 1 171 2 / / / / / / 982 153 2) Seco Tools 708 2 835 3 916 946 895 2 20 11 293 128 757 Group activities 3 17 46 63 19 13 14 46 / / Group total 9 29 10 39 10 11 10 31 9 12 280 270 030 300 320 040 450 810 Operating profit by business area, SEK M Svk Tooling 634 1 684 2 800 770 735 2 913 597 305 Svk Mining and 168 461 213 674 209 287 286 782 Construction Svk Specialty 105 393 240 633 267 321 86 674 Steels Svk Saws and Tools 42 144 9 153 / / / / 2) Seco Tools 94 377 195 572 197 190 156 543 Group activities -39 -183 -21 -204 -78 -73 -38 -189 Op. profit excl. items affecting 1 3 1 4 1 1 1 4 comparability 004 105 320 425 395 495 225 115 Items affecting 1 1 25 1 300 360 0 660 comparability 600 600 625 Op. profit incl. items affecting 2 4 1 6 1 1 1 4 comparability 604 705 345 050 695 855 225 775 Operating profit by business area, % of invoicing Svk Tooling 21 20 20 20 21 20 20 20 Svk Mining and 8 7 9 8 9 11 11 10 Construction Svk Specialty 4 5 7 5 8 9 3 7 Steels Svk Saws and Tools 6 7 5 7 / / / / 2) Seco Tools 13 16 23 18 22 20 17 20 Op. profit excl. items affecting 11 11 13 11 14 14 12 13 comparability Op. profit incl. items affecting 28 16 13 15 16 17 12 15 comparability 1) Change compared with year earlier at fixed exchange rates for comparable units. 2) As a result of the majority holding in Seco Tools, Sandvik consolidates this company. For comments, refer to the company's interim report for the nine months ended 30 September 2000. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/11/02/20001102BIT00030/bit0001.doc http://www.bit.se/bitonline/2000/11/02/20001102BIT00030/bit0002.pdf