Sandvik AB Interim Report Six months ended 30 June 2000

SANDVIK AB - Interim Report Six months ended 30 June 2000 * Profit after financial income and expenses rose to SEK 3,310 M (1,811), including nonrecurring items amounting to a positive SEK 660 M * Increased profitability in all business areas * Continued favorable business climate - order intake up 17% Market Industrial production within the OECD had an annual growth rate of 4%. The production pace in the US remained high. Growth in Europe increased to an annual rate of approximately 3% and leading indicators remain positive. The Japanese economy was strengthened, but from a low level. Growth in China, Korea and Southeast Asia was high. Economic conditions in South America improved, with Brazil as the economic engine. Consumer-oriented industries, particularly the electronics industry, continued to show high capacity utilization. Demand rose in the mining, construction, oil and gas and petrochemical industries. Investment willingness, however, was still low in the latter two areas. The economic trend had a favorable effect on Sandvik and demand was strong within most product segments during the first half of the year. Sales (see appendix 2) [REMOVED GRAPHICS] Sandvik's order intake during the first half of the year amounted to SEK 22,730 M (20,130), which was 13% higher compared with the corresponding period a year earlier. At fixed exchange rates for comparable units, order intake increased by 17%. Order intake increased in all markets. Demand in Europe was strong, and now has also improved in the UK. Activity in Central and Eastern Europe was high. Order intake continued to be favorable in NAFTA for all business areas. Demand in South America rose primarily in Brazil whereas in the other markets in the region the situation was fragmented. Order intake in the Asia, Australia region continued to rise, particularly in China, India and Southeast Asia. In Japan the trend was also highly favorable. Demand from the engineering, automotive, electronics and consumer-related industries increased sharply and remained high during the second quarter. Order intake from the mining and construction industry was very positive. On the other hand, demand from key customer segments such as the chemical and process industries, which generally are positioned later in the business cycle, was relatively weak. Invoiced sales amounted to SEK 21,360 M (19,990) for the period, an increase of 7%. At fixed exchange rates for comparable units, sales rose 11% compared with the year-earlier period. In the second quarter, sales were 11% higher than in the preceding year and 7% higher than in the first quarter this year. Earnings (see appendix 1) Q 1-2 Q 1-2 Change 1999 2000 % Invoiced sales, SEK M 19 21 +7 990 360 Operating profit SEK M 2 101 3 550 +69 as % of invoiced sales 11 17 Op. profit excl. items affecting 2 101 2 890 +38 comparability, SEK M as % of invoiced sales 11 14 Op. profit after financial items, SEK 1 811 3 310 +83 M as % of invoiced sales 9 15 Profit after financial items, 1 811 2 650 +46 excl. items affecting comparability, SEK M as % of invoiced sales 9 12 Net profit, SEK M 1 118 2 096 +87 as % of invoiced sales 6 10 Operating profit for the first six months amounted to SEK 3,550 M (2,101), up 69%. This included items affecting comparability amounting to SEK 660 M. These involved a surplus concerning pension funds held for Sandvik by the SPP insurance company. The net total amounts to SEK 360 M, including provisions for contractual retirements of salaried employees expected to take place during 2000-2001. Also included is a capital gain of SEK 300 M from the sale of the Group's captive insurance company in the first quarter. Excluding items affecting comparability, operating profit rose 38% and for comparable units by 43%. Operating margin amounted to 14% (11) of invoiced sales. The improvement was attributable mainly to higher volumes and productivity in all business areas. Net financial expense was SEK -240 M (-290). Interest expenses were lower than in the corresponding period of the preceding year, as a result of lower net debt. Profit after net financial income and expenses was SEK 3,310 M (1,811). [REMOVED GRAPHICS] Net profit amounted to SEK 2,096 M (1,118). Earnings per share were SEK 8.10 (4.30). Earnings per share during the most recent 12 months amounted to SEK 17.80 (14.00 for full year 1999). Excluding items affecting comparability, net profit amounted to SEK 1,537 M and earnings per share were SEK 10.70 (9.00) for the most recent 12 months. Return on capital employed, before items affecting comparability, was for the most recent 12 months, 17.4% (15.1 for full year 1999), and return on shareholders' equity 14.1% (12.4% for full year 1999). Invoiced sales of the Parent Company were SEK 6,157 M (5,209) and operating profit was SEK 711 M (390). 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. In the second quarter, Sandvik's Mining and Construction business area concluded its 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. Since March, Sandvik has been a joint-owner of a new venture-capital company, b-business partners, together with the principal shareholders 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 Group's captive insurance company was divested during the period. 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 7,650 M (6,709), an increase of 9% at fixed exchange rates for comparable units. Demand from the engineering and automotive industries was favorable, as was demand in such customer areas as medical technology, die and mould and electronics. Order intake was SEK 7,952 M, 12% higher for comparable units than in the preceding year, primarily due to strengthened market positions with increased market shares. The highly favorable trend in all markets, particularly in the US, Asia, Germany and Brazil, continued in the second quarter. Order intake included SEK 392 M and sales included SEK 364 M from the remaining activities in Sandvik Saws and Tools. Operating profit in the first half of the year amounted to SEK 1,570 M (1,279), corresponding to 21% of invoiced sales. The improvement was due mainly to favorable volume development and productivity increases. Sandvik Coromant continued to expand its marketing activities substantially by reinforcing its sales organization, including investments in e-business on the Internet. Sandvik Mining and Construction's invoiced sales amounted to SEK 4,914 M (4,336), up 12% at fixed exchange rates for comparable units. The order intake improved considerably and was SEK 5,352 M, 20% higher than a year earlier. Demand from the mining and construction industries remained favorable. Many projects that have been in the planning stage for some period are now being realized, particularly in Eastern Europe, South America and Australia. Operating profit for the half-year period amounted to SEK 496 M (293), corresponding to 10% of invoiced sales. Operating profit for the second quarter amounted to SEK 287 M (178) - or 11% (8). The sharp improvement is due to higher capacity utilization, combined with the effects of the completed restructuring program. Sandvik Specialty Steel's invoiced sales amounted to SEK 6,902 M (6,011). The increase at fixed exchange rates for comparable units was 14%, of which 6% is price-related and mainly attributable to a higher alloy surcharge. The positive trend in demand continued and order intake was SEK 7,511 M, or 27% higher than in the preceding year. As earlier, sales were most favorable for products for consumer-related and maintenance- oriented areas, as well as for applications in the electronics industry. Total operating profit amounted to SEK 588 M (288), 9% of invoiced sales. In the second quarter, operating profit was SEK 321 M (165), 9% (5). All business sectors increased their profits through higher volumes and productivity. Changes in nickel prices affected inventory valuation favorably, by approximately SEK 60 M. Capital expenditures Group investments in property, plant and equipment amounted to SEK 823 M (897). Acquisition of companies and operations amounted to SEK 369 M. Financing and liquidity Interest-bearing liabilities and provisions less liquid funds yielded net debt of SEK 8,164 M (6,014 at 31 December 1999). Liquid funds amounted to SEK 1,858 M (2,369) and loans totaled SEK 7,315 M (5,611). Cash flow from operating activities amounted to SEK 1,460 M. After capital expenditures cash flow was SEK 92 M. The number of shares at 30 June 2000 was 258,696,000. Shareholders' equity per share was SEK 77.60 (77.70 at 31 December 1999) and the equity/assets ratio 50% (52). 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 June 2000 was 34,029 (33,870 at 31 December 1999), a slight decline for comparable units since year- end 1999. Market outlook The favorable business climate during the first six months is expected to continue for the remainder of 2000. Sandviken, 9 August 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 half of 2000 is unaudited. The next interim report will be released on 2 November 2000 for the first three quarters of 2000. For additional information, please call +46 (0)26-26 10 01 Group in summary, SEK M Q1-2 Full- Q1-2 year Income statement 1999 1999 2000 Invoiced sales 19 39 300 21 360 990 Cost of goods sold -13 -26 297 -14 155 601 Gross profit 6 389 13 003 7 205 Selling, general and administrative -4 -8 485 -4 372 expenses 255 Other operating income and expenses -33 -93 57 Items affecting comparability 0 1 625 660 Operating profit 2 101 6 050 3 550 Financial income and expenses, net -290 -585 -240 Profit after financial items 1 811 5 465 3 310 Taxes -614 -1 688 -1 098 Minority interests -79 -157 -116 Net profit 1 118 3 620 2 096 Consolidated balance sheet Fixed assets 19 18 318 18 251 353 Inventories 10 10 040 10 682 433 Current receivables 10 9 469 11 314 520 Liquid assets 1 807 2 369 1 858 Total assets 42 40 196 42 105 113 Shareholders' equity 17 20 109 20 084 632 Minority interests 821 888 820 Interest-bearing provisions and 12 8 382 10 022 liabilities 633 Non-interest-bearing provisions and 11 10 817 11 179 liabilities 027 Total provisions, liabilities and 42 40 196 42 105 shareholders' equity 113 Summary cash-flow statement Profit after financial items 1 811 5 465 3 310 Items not affecting cash flow -2 -1 892 -472 Reversal of depreciation 1 069 2 273 1 111 Taxes paid -1 -1 524 -1 005 210 Change in working capital -924 -928 -1 484 Cash flow from operating activities 744 3 394 1 460 Investments, acquisitions and -1 1 316 -1 368 divestments 079 Cash used in financial activities, 355 -4 133 -605 changes in loans, dividends Net cash flow 20 577 -513 Key figures Order intake, SEK M 20 39 650 22 730 130 Earnings per share excl. items 8.15 9.00 10.70 affecting comparability, SEK* Earnings per share incl. items 8.15 14.00 17.80 affecting comparability, SEK* Return on net assets excl. items 14.3% 15.1% 17.4% affecting comparability* Return on shareholders' equity excl. 11.8% 12.4% 14.1% items affecting comp. * *Rolling 12 months Invoiced sales by market area, SEK M Q2 Q1-2 Q3 Q4 Full Q1 Q2 Q1-2 Change - year 1999 1999 1999 1999 1999 2000 2000 2000 % % 1) EU (excl. Sweden) 4 8 3 3 15 3 3 7 -5 7 086 164 387 720 271 825 951 776 Sweden 637 1 461 597 2 623 616 1 4 15 191 249 239 Rest of Europe 613 1 500 499 2 628 639 1 10 9 147 146 267 Europe total 5 10 4 4 19 5 5 10 -2 8 336 502 348 816 666 076 206 282 NAFTA 2 5 2 2 9 2 2 5 10 8 645 018 493 441 952 722 817 539 South America 431 761 421 366 1 419 490 909 19 27 548 Africa, Middle 357 763 406 437 1 391 420 811 6 15 East 606 Asia, Australia 1 2 1 1 6 1 2 3 30 23 591 946 612 970 528 712 107 819 Group total 10 19 9 10 39 10 11 21 7 11 360 990 280 030 300 320 040 360 Invoiced sales by business area, SEK M Svk Tooling 3 6 3 3 13 3 3 7 14 9 383 709 075 393 177 818 832 650 Svk Mining and 2 4 2 2 8 2 2 4 13 12 Construction 235 336 229 243 808 248 666 914 Svk Specialty 3 6 2 3 11 3 3 6 15 14 Steels 278 011 618 342 971 319 583 902 Svk Saws and Tools 666 1 647 171 2 / / / / / 335 153 2) Seco Tools 791 1 708 835 3 916 946 1 17 10 585 128 862 Group activities 7 14 3 46 63 19 13 32 / / Group total 10 19 9 10 39 10 11 21 7 11 360 990 280 030 300 320 040 360 Operating profit by business area, SEK M Svk Tooling 665 1 634 684 2 800 770 1 279 597 570 Svk Mining and 178 293 168 213 674 209 287 496 Construction Svk Specialty 165 288 105 240 633 267 321 588 Steels Svk Saws and Tools 38 102 42 9 153 / / / 2) Seco Tools 143 283 94 195 572 197 190 387 Group activities -47 -144 -39 -21 -204 -78 -73 -151 Op. profit excl. items affecting 1 2 1 1 4 1 1 2 comparability 142 101 004 320 425 395 495 890 Items affecting - - 1 25 1 300 360 660 comparability 600 625 Op. profit incl. items affecting 1 2 2 1 6 1 1 3 comparability 142 101 604 345 050 695 855 550 Operating profit by business area, % of invoicing Svk Tooling 20 19 21 20 20 21 20 21 Svk Mining and 8 7 8 9 8 9 11 10 Construction Svk Specialty 5 5 4 7 5 8 9 9 Steels Svk Saws and Tools 6 8 6 5 7 / / / 2) Seco Tools 18 18 13 23 18 22 20 21 Op. profit excl. items affecting 11 11 11 13 11 14 14 14 comparability Op. profit incl. items affecting 11 11 28 13 15 16 17 17 comparability 1) Change compared with year earlier at fixed exchanged 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 six months ended 30 June 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/2000/08/09/20000809BIT00080/bit0001.doc http://www.bit.se/bitonline/2000/08/09/20000809BIT00080/bit0002.pdf