Interim Report January - March 1999

INTERIM REPORT JANUARY - MARCH 1999 SEK M January - March Change Latest 1999 1998 % 12 months Order bookings 3 194 4 501 - 29 13 402 Invoiced sales 2 905 3 204 - 9 14 095 Operating 96 185 - 48 964 profit Profit after 137 137 0 821 net financial items Profit after 101 99 +2 628 tax Profit per 2.10 2.10 0 13.10 share Svedala's operating profit in the first quarter of 1999 amounted to SEK 96 M, compared with SEK 185 M in the corresponding period a year earlier. The decline in operating profit is due to lower invoicing, primarily during the first two months of the year. Profit after net financial items was unchanged compared with the first quarter of 1998 and amounted to SEK 137 M. The improvement in net financial items includes a positive currency difference of SEK 104 M as a result of the earlier decision to discontinue hedging of foreign net assets. Order bookings during the first quarter of 1999 were significantly lower than in the corresponding period in the preceding year. This is mainly attributable to major projects, including Iran, being reported in the first quarter of 1998. The order bookings in December 1998 for service, parts and equipment was record high, but fell sharply during the first two months of this year and returned to a normal level in March. The after-market accounted for 43 percent of invoiced sales, measured over the past 12-month period. The total world production of minerals is projected to increase somewhat during 1999 and, consequently, the need for service and parts. As a result, the market for Svedala's products and services is expected to grow. Measured over the last 12-month period, equipment for processing of industrial minerals accounted for 51 percent of the Group's invoiced sales. The construction industry accounted for most of the demand. In the U.S., the civil engineering sector is developing positively, which is expected to result in rising demand for Svedala's equipment. In Europe, a weak increase is expected. The decline continues in South America, while other regions are expected 1 to remain unchanged. Growth in North America and Europe is expected to offset the decline in South America. The investment level in the metallic minerals area remains low and weakened further during the period on markets in South America, North America and Australia. However, invoicing of project orders will increase toward the end of the year due to the order backlog in hand. Equipment for processing of metallic minerals accounted for 6 percent of the Svedala Group's invoicing during the past 12 months. A number of measures have been taken to increase efficiency within the Svedala Group. During the period, an organizational change was implemented to further increase focus on the after-market. Cost alignment measures have been implemented or planned in the form of personnel reductions in several countries and involves about 400 employees. The after-market represents a significant growth potential for Svedala. During the period a comprehensive program was initiated aimed at positioning Svedala, internally and externally, as a service and solutions company. Our services are being combined with an increased customer focus, with many new service and maintenance products scheduled to be launched globally during the year. The service organization is being strengthened and given a more distinct profile, which will result in more rapid growth. Malmö, April 28, 1999 Thomas Oldér President ORDER BOOKINGS Order bookings for the Group declined by slightly more than SEK 1.3 billion to SEK 3,194 M during the first quarter of 1999 (4,501). The decline is attributable mainly to several major projects, totaling about SEK 800 M, being reported in the first quarter of 1998. To date, no major project orders have been signed. After a strong fourth quarter for service and equipment, order bookings declined during the first two months of the year and recovered to normal levels in March. SALES Invoiced sales declined 9 percent to SEK 2,905 M (3,204) during the first quarter of 1999. Acquisitions and exchange rate movements had an insignificant effect on total invoicing. Invoicing of service and parts amounted to SEK 1,348 M during the first quarter of 1999, a decline of 5 percent compared with the corresponding period a year earlier(1,419). A new accounting system has been implemented which facilitates separate reporting of the results for sales of 2 service and spare parts and equipment. As a result, the following adjustments were made in historical values: For full-year 1998, service and parts accounted for 42 percent. Sales of equipment for industrial minerals accounted for 50 percent and sales of equipment for metallic minerals for 8 percent. PROFIT Profit after tax amounted to SEK 101 M during the first quarter of 1999, corresponding to SEK 2.10 per share, compared with SEK 99 M and SEK 2.10 in the year-earlier period. Profit after net financial items amounted to SEK 137 M, the same as in the corresponding period in 1998. Net financial items amounted to income of SEK 41 M (expense: 48). The improvement in net financial items includes a positive exchange rate difference of SEK 104 M as a result of the earlier decision to discontinue hedging of foreign net assets. Interest expenses rose due to increased borrowing. Operating profit from the sales of service and parts amounted to SEK 145 M in the first quarter of 1999, corresponding to an operating margin of 11 percent. Sales of equipment resulted in an operating loss of SEK 20 M. Exchange rate movements affected operating profit positively by SEK 38 M, of which most is attributable to the positive effects of exports from Brazil as a result of the devaluation of the real. ACQUISITIONS During the first quarter of 1999, Svedala acquired the American company Ludlow-Saylor. The purchase price was SEK 72 M. Ludlow-Saylor manufactures wear parts for screens and has distribution centers in the U.S. and Canada. The company reported annual sales in 1998 of SEK 100 M, with 101 employees. INVESTMENTS AND DEPRECIATION Group investments in property, plant and equipment, excluding existing assets of acquired companies, totaled SEK 95 M (93) during the first quarter of the year. Depreciation amounted to SEK 107 M (107) during the same period. CASH FLOW AND FINANCING Net borrowing at the end of the first quarter of 1999 amounted to SEK 4,444 M, an increase of SEK 243 M since the beginning of the year. The Group had net borrowing as of March 31, 1998 of SEK 3,482 M. The increase in net borrowing is attributable to an increase in working capital. The value of inventories increased by SEK 371 M during the first quarter of 1999, of which slightly less than half is due to acquisitions and project development and the remainder to seasonal variations. The previously announced capital 3 rationalization program has been started and the goal remains to reduce the average inventory level by about SEK 500 M within 12 months. PERSONNEL The total number of Svedala Group employees at March 31, 1998 was slightly more than 11,000. The number of personnel has increased somewhat as a result of acquisitions. Concurrently, personnel reduction were carried or are planned in several markets. A total of about 400 persons will be affected, of whom one third are salaried employees. PROFIT AND ORDER BOOKINGS BY REGION Order bookings for industrial minerals, mainly for the construction industry, continued to be favorable in Europe and North America, but declined in South America. Order bookings in North and South America as well as Australia were affected by a lower investment level for metallic minerals. The decline in order bookings in the Africa/Middle East region is attributable mainly to a project order from Iran that was booked during the corresponding period a year earlier where the order amount exceeded SEK 700 M. The profit changes in the regions is a direct result of changes in the volume of invoicing. The figures in this interim report are unaudited The six-month interim report will be published on August 9, 1999 Svedala Industri AB (publ), Informationsavdelningen, Box 4004, SE-203 11 Malmö Tel 040-24 58 00. Fax 040-24 58 78 4 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/28/19990428BIT00020/bit0001.doc