Three months ended 31 March 1999

SANDVIK AB Three months ended 31 March 1999 Improved order intake but lower invoiced sales than in fourth quarter of 1998. Profit after financial items was SEK 810 M (1,140). Cash flow from operations remained strong. Major structural changes: Saws and Tools and Sorting Systems divested. Market The business climate has been weakening within the EU during the quarter and slowed in the US. The situation in South America remained weak after the currency uncertainty in the autumn and Brazil's devaluation. The economies in South Korea and Southeast Asia have begun to stabilize, while Japan remains in a recession. The rate of increase in industrial production in OECD countries, calculated as annual growth, slowed to 1%. As a result of the generally weak willingness to invest and low raw material prices, activity in such important customer segments as oil and gas recovery, mining industry and process industries was low. However, vehicle manufacturers showed a continuing relatively favorable trend. Sales [REMOVED GRAPHICS] Order intake amounted to SEK 9,960 M (11,400) in the first quarter, corresponding to a decline of 13% compared with the very high level in the year-earlier period. In contrast, order intake for comparable units rose 2% from the fourth quarter. Order intake was SEK 330 M higher than invoiced sales in the quarter. Invoiced sales totaled SEK 9,630 M (10,770), 12% lower than in the first quarter of 1998 and 8% lower than in the fourth quarter for comparable units. The decline was attributable to the low order intake during the second half of 1998. The increase in order intake in the first quarter compared with the fourth quarter was mainly attributable to the European market. Invoicing in Europe declined 8%, mostly for investment-related products. Sales in the NAFTA region were affected by lower demand from the oil and gas, mining and aerospace industries. Sales in South America declined more than 30% due mainly to the financial crisis in Brazil. The decline in Asia/Australia was about 8%, primarily as a result of significantly lower invoicing in Japan. Earnings (see appendix 1) Q1 1998 Q1 1999 Change % Invoiced sales, SEK M 10 770 9 630 -11 Operating profit, SEK M 1 285 959 -25 % of invoiced sales 12 10 Profit after financial 1 140 810 -29 items, SEK M as % of invoiced sales 11 8 Net profit, SEK M 724 520 -28 % of invoiced sales 7 5 Operating profit in the quarter amounted to SEK 959 M (1,285). The decline compared with the preceding year is due mainly to lower invoicing in all business areas, lower selling prices for Sandvik Specialty Steels and weaker earnings in South America. The Group's earnings level has been largely unchanged during three quarters. Profit after financial income and expenses amounted to SEK 810 M (1,140). Net profit for the first quarter amounted to SEK 520 M (724). Earnings per share was SEK 2.00 (2.80). Earnings per share for the most recent 12 months was SEK 8.85 (SEK 9.65 for full-year 1998), excluding the nonrecurring tax expense charged against 1998 and which amounted to SEK 1.55 per share. Return on net assets during the most recent 12 months amounted to 14.9% (16.3% for full-year 1998). Return on shareholders' equity was 10.5% (11.9% for full- year 1998). [REMOVED GRAPHICS] Business areas (see appendix 2) Sandvik Tooling's invoiced sales declined 6% to SEK 2,972 M (3,154). Order intake was SEK 3,045 M, 6% lower than in the first quarter of 1998 but 4% higher than in the fourth quarter. Demand in Europe and Southeast Asia, among other regions, increased. Overall, the trend in NAFTA is also positive despite low demand in the aerospace industry. Operating profit amounted to SEK 553 M (653), that is, 19% of invoiced sales. The decline was due to lower volumes. The operating margin for Sandvik Coromant and CTT Tools was stable. Sandvik Mining and Construction's invoiced sales amounted to SEK 2,101 M (2,342) in the first quarter, down 10%. Order intake was SEK 2,215 M, 6% lower than in the first quarter in the preceding year but 4% higher than in the fourth quarter. Order intake in the mining industry is low, particular for drilling rigs, while order intake from the construction industry in Europe and NAFTA is relatively favorable. Operating profit amounted to SEK 115 M (110), corresponding to 5.5% of invoiced sales. Operating profit was affected positively by an increased percentage of sales of tools, spare parts and service as well as the structural measures which are proceeding according to plan. Sandvik Specialty Steel's invoiced sales amounted to SEK 2,733 M (3,120). The decline in volume and price for comparable units was 18% and pertained mainly to investment-related products. Order intake was SEK 2,790 M, or 24% lower than in the first quarter a year earlier, but only 1% lower than in the fourth. Operating profit declined to SEK 123 M (300) due to lower invoicing. The measures initiated in the autumn to reduce expenses in production and sales are now gradually gaining effect. Nickel prices rose sharply during the quarter, but from a low level, and had no significant impact on inventory valuation. Effective as of the first quarter of 1999, Sandvik Process Systems, whose invoiced sales amounted to SEK 124 M, is included in Sandvik Specialty Steels. Despite lower invoicing, Sandvik Hard Materials reported improved operating profit as a result of a greater portion of highly profitable products. Although volumes were lower, operating profit of Sandvik Saws and Tools was largely unchanged which was a result of measures implemented. Capital expenditures Group investments in property, plant and equipment amounted to SEK 438 M (532). Structural changes In January 1999, Sandvik's business sector Kanthal acquired the American company MRL Industries Inc., the world's largest manufacturer of furnace cassettes for the electronics industry. The company has annual sales of about SEK 160 M. In February 1999, Sandvik reached an agreement with the American investment company Advent International Corp., Boston, Massachusetts, covering the sale of operations within Sorting Systems, with sales of about SEK 1,200 M and some 400 employees. The remaining operations of Sandvik Process Systems were transferred to Sandvik Specialty Steels as a separate business sector. On 22 April, Sandvik reached an agreement with the American company Snap-on Incorporated, Kenosha, Wisconsin, covering the sale of the Sandvik Saws and Tools business area for about SEK 3,300 M, cash and debt-free. The capital gain is estimated at about SEK 1,600 M. The sale is conditional upon a decision by a Special General Meeting of shareholders in Sandvik and approval of the transactions by the authorities involved. Financing and liquidity Interest-bearing provisions and liabilities less liquid funds yielded net debt of SEK 8,183 M (8,412 at 31 December 1998). Liquid funds amounted to SEK 1,747 M (1,800) and loans totaled SEK 7,476 M (7,529). Cash flow from operations, adjusted for exchange-rate effects, amounted to SEK 841 M and net cash-flow was SEK -38 M. The number of shares at 31 March 1999 was 258,696,000. Shareholders' equity per share was SEK 72.60 (72.00 at 31 December 1998) and the equity/assets ratio 47% (47). Personnel The number of employees at 31 March 1999 was 36,507 (37,520 at 31 December 1998), corresponding to a decline for comparable units of about 700. Market outlook The downturn in the business climate during the autumn of 1998 continued in the beginning of 1999. Some signs indicate that the business climate has now stabilized, but uncertainty is great and the trend in various markets and customer segments differs. Demand for products for industrial consumption is expected to remain higher than for investments. Sandviken, 29 April 1999 SANDVIK AB; (publ) Clas Åke Hedström President and CEO Appendices: 1. Group summary 2. Invoicing and operating profit This interim report is unaudited. The next interim report, covering the first six months of 1999, will be released on 11 August, 1999. For additional information, please call +46 (0)26-26 10 01Group summary, SEK M Q 1 Full- Q 1 year Income statement 1998 1998 1999 Invoiced sales 10 770 42 400 9 630 Costs of goods sold -7 025 -28 -6 356 813 Gross profit 3 745 13 587 3 274 Selling, general and administrative -2 407 -8 755 -2 263 expenses Share of profits in associated companies 11 -4 3 Other operating income and expenses -64 -233 -55 Operating income 1 285 4 595 959 Financial income and expenses, net -145 -660 -149 Profit after financial income and 1 140 3 935 810 expenses Taxes -356 -1 675 -252 Minority interest -60 -165 -38 Net profit 724 2 095 520 Consolidated balance sheet Fixed assets 17 767 19 461 19 603 Inventories 10 269 10 350 10 261 Current receivables 11 014 9 995 9 901 Liquid assets 1 881 1 800 1 747 Total assets 40 931 41 606 41 512 Shareholders equity capital 18 077 18 621 18 794 Minority interests 1 205 872 890 Interest-bearing provisions and 9 734 10 212 9 930 liabilities Non-interest-bearing provisions and 11 915 11 901 11 898 liabilities Total provisions, liabilities and 40 931 41 606 41 512 shareholders' equity Summary cash-flow statement** Profit after financial items 3 935 810 Depreciation added back 2 099 499 Taxes paid -759 -241 Change in working capital -1 356 -227 Cash flow from operations 3 919 841 Net investments -2 956 -648 Cash used in financing activities, -1 754 -231 change of loans, dividends Cash flow -791 -38 Key figures Order intake, SEK M 11 400 41 700 9 960 Earnings per share* excl. nonrecurring 10.60 9.65 8.85 effects, SEK Earnings per share* incl. nonrecurring 10.60 8.10 7.30 effects, SEK Return on net assets* 18.3% 16.3 % 14.9% Return on shareholders' equity* 15.1% 11.9 % 10.5% * Rolling 12 months. **In accordance with new recommendations from the Swedish Financial Accounting Standards Council 1998 Invoiced sales by market area, SEK M Q 1 Q 2 Q 3 Q 4 Full Q 1Sha Change year re 1 1998 1998 1998 1998 1998 1999 % % % ) EU (excl. Sweden) 4 4 3 4 16 4 42 -6 -8 320 107 806 545 777 078 Sweden 665 701 417 592 2 554 6 - - 375 17 19 Rest of Europe 623 634 604 540 2 534 6 - - 401 14 14 Europe total 5 5 4 5 21 5 54 -8 - 608 442 827 677 553 166 10 NAFTA 2 2 2 2 10 2 25 - - 700 730 627 569 626 373 12 11 South America 504 481 555 438 1 330 3 - - 978 35 34 Africa, Middle East 486 429 452 548 1 406 4 - -8 916 16 2 Asia, Australia 1 1 1 1 6 1 14 -8 -8 ) 472 397 560 898 327 355 Group total 10 10 10 11 42 9 100 - - 770 480 020 130 400 630 11 12 Change compared with year earlier excluding currency effects and structural changes. Change excluding structural changes. Invoiced sales by business area, SEK M Svk Tooling 3 3 2 3 12 2 -6 -7 154 063 861 043 121 972 Svk Mining and 2 2 2 2 9 2 - -8 Construction 342 234 389 414 379 101 10 Svk Specialty 3 3 2 2 11 2 - - 3) Steels 120 075 570 922 687 733 12 18 Svk Hard Materials 374 343 348 390 1 354 -5 - 455 11 Svk Saws and Tools 709 632 661 692 2 669 -6 -8 694 Svk Process 245 332 448 867 1 / / / 3) Systems 892 Seco Tools 819 792 737 803 3 794 -3 -5 151 Group activities 7 9 6 -1 21 7 / / Group total 10 10 10 11 42 9 - - 770 480 020 130 400 630 11 12 Operating profit by business area, SEK M Svk Tooling 653 705 607 579 2 553 544 Svk Mining and 110 132 34 64 340 115 Construction Svk Specialty 300 248 160 62 770 123 3) Steels Svk Hard Materials 44 55 23 58 180 61 Svk Saws and Tools 69 32 39 65 205 64 Svk Process 10 10 16 96 132 / 3) Systems Seco Tools 194 170 135 178 677 140 Group activities -95 -55 -40 -63 -253 -97 Group total 1 1 974 1 4 959 285 297 039 595 Operating profit by business area, % of invoicing Svk Tooling 21 23 21 19 21 19 Svk Mining and 5 6 1 3 4 5 Construction Svk Specialty 10 8 6 2 7 5 3) Steels Svk Hard Materials 12 16 7 15 12 17 Svk Saws and Tools 10 5 6 9 8 10 Svk Process 4 3 4 11 7 / 3) Systems Seco Tools 24 22 18 22 22 18 Group total 12 12 10 9 11 10 As of the first quarter of 1999, Sandvik Process Systems is reported as a business sector within Sandvik Specialty Steels. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/29/19990429BIT00480/bit0001.doc The full report http://www.bit.se/bitonline/1999/04/29/19990429BIT00480/bit0002.pdf The full report