Interim report january - september 1998

INTERIM REPORT JANUARY - SEPTEMBER 1998 [REMOVED GRAPHICS] SEK M January - September 1998 1997 Change Order 11,302 11,217 +1% bookings Invoiced 10,315 9,895 + 4% sales Operating 865 profit excl capital 651 565 +15% gains Profit after net 719 financial items excl capital 484 419 +16% gains Profit after 552 tax excl capital 340 302 +13% gains Profit/share excl capital 7.10 6.30 +13% gains CHIEF EXECUTIVE OFFICER COMMENTS: During the first nine months of 1998, profit rose 16 percent to SEK 484 M, which means that the profit per share for the last 12 months amounts to SEK 12.60. The earnings improvement is attributable mainly to a higher gross margin resulting from increased sales of service and spare parts through Svedala Houses. Service, which combined with wear and replacement parts make up the after- sales market, is the fastest-growing segment. It currently accounts for 44 percent of our total sales and is our most profitable operation, with the best gross margins. Cont'd Cont'd from previous page In addition, the after-market is less sensitive to downturns in the economy. Although major projects may be delayed, our customers must purchase wear services and parts for the equipment currently in operation. We are continuing to focus on this after-market. A logical step in the strategy will be that we will also offer customers service on their equipment supplied by manufacturers other than Svedala. Accordingly, the after-market is developing into an increasingly predominant segment in Svedala's operations, parallel with equipment/machinery and systems with which, in combination with our process know-how and advanced technology, we build the entire chain of equipment for minerals processing. As a result of the major sales increases in the after-market, our production facilities and logistics have been unable to fully meet the demand. This limited the earnings improvement. Capacity and efficiency enhancement investments of SEK 100 M have now been made in Sweden and Brazil. This will increase capacity to a satisfactory extent and provide us the possibility to continue to expand within service and parts. Lindemann, which was acquired last year, shows a loss in earnings of SEK 60 M due to unfavorable development in the recycling industry. Through a restructuring and a focus on the core activity of metals recovery, we expect to report a profit already in the fourth quarter and in the future. The sale of Componenta (foundries) in 1997 contributed SEK 25 M last year. Viewed overall, order bookings remained at the same level as a year earlier. The financial crises, mainly in Asia, have resulted in lower raw material prices. In turn, this weakens the willingness of customers to invest with regards to new projects. Consequently, the volume of project orders declined, while orders for services and parts rose. Considering the global financial uncertainty and the sharp swings in the economies of the crisis countries and their effect on the global economy, it is obviously difficult to assess the future. However, we foresee a positive development for construction operations in Europe and North America, while mineral-processing activities will remain at about the current low level. Viewed overall, services and parts continues to look bright. Other positive aspects are the successful launch of new products, promising company acquisitions and a continued rapid expansion of Svedala Houses. Moreover, we have established Svedala Finance to better meet our customers' need for financing in conjunction with the purchase of our products. In addition, there is our new organization which we will implement at the end of October. It is aimed at increasing proximity to the customer and capitalizing on synergies and our unique expertise in our three core operations: after- market, equipment and systems. Through focusing Svedala's organization to a greater extent on these three core activities, we will gain an increased spread of risk as well as improved profitability. Malmö, October 29, 1998 Thomas Oldér President & CEO JANUARY - SEPTEMBER 1998 ORDER BOOKINGS [REMOVED GRAPHICS] Order bookings for the Group during the first nine months are largely at the same level as a year earlier. The net of acquired/divested companies increases order bookings 4 percent, while the currency movements did not have any effect. The increased sales of products for the after-market more than offset a certain decline in the major projects segment. In Europe, order bookings increased SEK 381 M. Countries in southern and central Europe and Sweden posted the highest increases. Order bookings rose SEK 298 M in North America. Major project orders are declining while sales of service and parts are increasing as a consequence of the continuing establishment of Svedala Houses. Also in South America, where order bookings rose SEK 71 M, the after-market is growing while major project orders from the mining industry declined. Brazil accounted for the greatest increase in the region. Africa/Middle East posted a decline of SEK 553 M. During January - September 1997, project orders totaling SEK 1.3 billion were booked and SEK 0.7 billion was added during the first months of the current year. In the Asia Pacific region order bookings declined by SEK 119 M. [REMOVED GRAPHICS] INVOICED SALES Group invoiced sales amounted to SEK 10.3 billion, an increase of SEK 400 M compared with the year-earlier period. For comparable units, sales were unchanged, while currency movements did not have any effect. Invoicing of service and parts amounted to SEK 4,546 M, up 17 percent compared with the corresponding period a year earlier. Service and parts continue to grow in all regions and now account for 44 percent of total sales. North and South America and Africa/Middle East are the regions posting the highest increases. In Europe and North America, sales rose SEK 368 M and SEK 128 M, respectively. Invoicing in South America has droped SEK 87 M, due mainly to a decrease in demand for large projects in Chile. In the Africa/Middle East region, invoicing rose SEK 232 M. South Africa, Ghana and Turkey posted the largest increases. Sales in the Asia Pacific region declined SEK 188 M. [REMOVED GRAPHICS] PROFIT [REMOVED GRAPHICS] Profit after taxes during the first nine months amounted to SEK 340 M, corresponding to SEK 7.10 per share. During 1997, the corresponding earnings were SEK 302 M (SEK 6.30 per share) or, if the capital gain on the sale of Componenta is included, SEK 552 M (SEK 11.50 per share). Throughout the remainder of this report, all comparable figures for 1997 are excluding this gain, which amounted to SEK 300 M before taxes and SEK 250 M after taxes. Profit after net financial items rose from SEK 419 M to SEK 484 M, or 16 percent. The improvement is attributable mainly to the gross margin rising from 24.4 percent to 27.0 percent. Net financial items was an expense of SEK 167 M compared with an expense of SEK 146 M in the year-earlier period. The change is due mainly to increased borrowing as a result of company acquisitions. Currency movements during the first nine months of the year affected operating profit positively by SEK 67 M. [REMOVED GRAPHICS] ACQUISITIONS As reported earlier, companies were acquired during the first half of the year with total annual sales of SEK 425 M. The purchase price, including loans assumed, amounts to about SEK 100 M: Loro & Parisini Group, Italian crushing and screening equipment company, with subsidiaries in France and Spain. Annual sales amount to SEK 250 M. Jost, formerly agent for Svedala products in the Swiss market. Annual sales of SEK 25 M. O.R.T. - Oberländer Recycling Teknik in Germany, which produces and markets equipment and systems for metals recovery. The company has annual sales of SEK 90 M. Eastern Engineering and Sales Corporation, previously Svedala's dealer for crushing and screening equipment in the US, with annual sales of SEK 60 M. Polk Equipment Inc., the American sales and service company in Florida, was acquired after the end of the reporting period. Polk, which has an annual turnover of SEK 50 M will be re-structured according to the Svedala House concept for the Florida market. INVESTMENTS AND DEPRECIATION Group investments in property, plant and equipment, excluding existing assets of acquired companies, totaled SEK 321 M (328) during the first three quarters of the year. Depreciation amounted to SEK 299 M (255). CASH FLOW AND FINANCING Cash flow before investments during the first nine months of 1998 was a positive SEK 239 M compared with a negative SEK 89 M in the year-earlier period. SEK 80 M of the improvement is attributable to higher operating profit and depreciation while changes in operating capital accounts for the remainder, SEK 248 M. The Group had net borrowing as of September 30, 1998 of SEK 3,699 M, compared with SEK 3,263 M at the beginning of the year and SEK 3,731 M on the same date a year earlier. PERSONNEL The total number of Svedala Group employees at September 30, 1998 was about 11,200, compared with approximately 11,000 at the beginning of the year. THIRD QUARTER The total order bookings during the third quarter amounted to SEK 3,183 M (3,657) and invoiced sales at SEK 3,416 M (3,432). Order bookings in Europe were largely unchanged. Excluding Russia order bookings rose 4 percent. North America was down SEK 115 M, due mainly to lower sales of equipment to the mining industry. In South America, order bookings declined SEK 70 M and in Africa/Middle East by SEK 532 M. In the corresponding period of 1997, Svedala received major project orders from Iran and Ghana. Sales of equipment, service and parts rose 29 percent in the Africa/Middle East region. Order bookings in the Asia Pacific region, which posted an increase of SEK 248 M, were affected by major project orders from China and Vietnam. Total invoicing of service and parts rose 10 percent during the period and now amount to 44 percent of the total invoiced sales. Profit after net financial items during the third quarter amounted to SEK 133 M, compared with SEK 149 M in the corresponding period of 1997. The reported gross margin continues to be higher than in the preceding year, while the relatively low invoicing volume results in the relation of overhead expenses to invoicing increasing somewhat. [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] KEY RATIOS 1998 1997 1997Oct 1997- 9 mos. 9 mos. 12 mos. Sep1998 Return on assets employed (ROA) ,% 11 17 16 11 non-comparable items excluded 11 11 14 14 Profit after tax, SEK/share 7.10 11.50 14.10 9.70 non-comparable items excluded 7.10 6.30 11.80 12.60 Return on shareholders' equity after tax, % 12 21 19 12 non-comparable items excluded 12 12 16 16 Shareholders' equity, SEK/share 82 78 81 82 Equity ratio, % 32 32 33 32 Debt/equity ratio, multiple 0.9 1.0 0.8 0.9 PROFIT AND LOSS ACCOUNT (SEK M) 1998 1997 1997 Oct 1997- GROUP 9 mos. 9 mos. 12 mos. Sep1998 Net sales 10,315 9,895 13,592 14,012 Cost of goods sold -7,530 -7,482 -10,175 -10,223 Gross profit 2,785 2,413 3,417 3,789 Sales, administration and R&D expenses -2,149 -1,869 -2,499 -2,779 Non-comparable items 0 300 101 -199 Other income and expenses 12 21 64 55 Interest in earnings of associated companies 3 0 0 3 Operating profit 651 865 1,083 869 Interest, net -164 -141 -196 -219 Other financial items -3 -5 -5 -3 Profit after net financial items 484 719 882 647 Taxes -144 -168 -206 -182 Minority interests 0 1 0 -1 NET PROFIT 340 552 676 464 BALANCE SHEET (SEK M) GROUP 98-09-30 97-09-30 97-12-31 Assets Intangible fixed assets 1,286 1,101 1,312 Tangible fixed assets 2,056 1,856 1,952 Long-term interest-bearing receivables 378 342 350 Other financial fixed assets 520 593 415 Stock 4,101 3,493 3,491 Current receivables 3,497 4,058 3,682 Liquid funds 262 288 462 Total assets 12,100 11,731 11,664 Shareholders' equity and liabilities Shareholders' equity 3,915 3,724 3, 874 Minority interests 1 4 2 Interest-bearing liabilities 4,339 4,361 4,075 Non-interest-bearing liabilities 3,845 3,642 3,713 Total shareholders' equity and liabilities 12,100 11,731 11,664 The figures in this report have not been examined by the company's auditors.. CASH FLOW ANALYSIS 1998 1997 1997 Oct-1997 GROUP 9 mos. 9 mos. 12 mos. Sep-1998 Operating profit 651 865 1083 869 Plus: Depreciation 299 255 347 391 Less: Capital gain and provisions for 0 -300 -101 199 restructuring Interest in earnings of associated companies -3 0 0 -3 Financial items -167 -146 -201 -222 Taxes paid -144 -118 -163 -189 Cash flow before changes in working capital and investments 636 556 965 1045 Change in working capital: Stock -538 -303 -270 -505 Non-interest-bearing receivables 182 -280 -135 327 Non-interest-bearring liabilities -41 -62 -397 -376 Cash flow before investments 239 -89 163 491 Gross investments in property, plant and -330 -328 -421 -423 equipm. Divested assets 38 29 76 85 Cash flow after investments -53 -388 -182 153 Dividends -240 -192 -192 -240 Change in minority shareholdings 0 4 2 -2 Change in net borrowing before acquisitions/ divestments and currency translations -293 -576 -372 -89 Companies acquired -103 -1010 -1010 -103 Companies divested 0 115 429 314 Currency translation of net borrowing -40 -56 -106 -90 Increase in net borrowing -436 -1527 -1059 32 Change in long-term interest-bearing -28 -12 -20 -36 receivables Change in interest-bearing liabilities 264 1528 1242 -22 Change in liquid assets -200 -11 163 -26 The year-end report for 1998 will be published on February 11, 1999. The Annual Report for 1998 will be distributed by the turn of month February/March 1999. The Annual General Meeting will be held on March 25, 1999. [REMOVED GRAPHICS] Svedala Industri AB (publ) Information department, P.O. Box 4004, SE-203 11 Malmö, Sweden Phone +46-40-24 58 00. Fax +46-40-24 58 78 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1998/10/29/19981028BIT00480/bit0001.pdf http://www.bit.se/bitonline/1998/10/29/19981028BIT00480/bit0002.doc