Interim Report January - September 2000

INTERIM REPORT JANUARY - SEPTEMBER 2000 [REMOVED GRAPHICS] Orders received in the third quarter amounted to SEK 3,287 M (3,089), an increase of 6% compared with the corresponding period previous year. Adjusted for currency fluctuations and acquisitions, orders received in the first nine months of the year were largely unchanged compared with last year . Market conditions in the mining industry continue to show signs of recovery, compared with the weak development that prevailed in 1999, even if major investment projects to a certain extent are being postponed due to acquisitions and consolidation in the global mining sector. Demand remains at a relatively high level in the European construction industry. Market conditions have also remained strong in North America, with the exception of demand for construction equipment in the U.S., which now shows a declining trend. Profit after financial items for the period amounted to a loss of SEK 86 M (profit: 91 M). The weak development of third-quarter earnings was the result of lower gross margins partly caused by write-offs during the third quarter, continued too high costs in relation to sales, non-recurring costs for the restructuring program and, to some extent, the ongoing process concerning Metso's offer to acquire Svedala. The effects of the measures taken within the framework of the ongoing restructuring program are not adequate to reach satisfactory Group profitability. This, combined with relatively weak organic growth, has resulted in planning being initiated in order to formulate an action plan that will reverse the negative trend and create favorable profitability in Svedala. Profit after financial items will be substantially lower than last year. Malmö, October 26, 2000 Alf Göransson President and CEO METSO'S OFFER FOR SVEDALA On September 18, Metso Corporation announced that it was extending its public offer to Svedala shareholders and holders of convertible debentures, which was offered on June 21 this year and presented in the interim report for the first six months of year 2000. The acceptance period for the offer has now been extended until November 30, 2000. Metso's decision to extend the offer was due to competition authorities requests for additional information before a final decision is rendered. Metso reserves the right to further prolong the acceptance period. ORDERS RECEIVED [REMOVED GRAPHICS] Third quarter Orders received amounted to SEK 3,287 M, an improvement of 6% compared with SEK 3,089 M in the corresponding period last year. Adjusted for currency fluctuations and acquisitions, the increase was slightly more than 1%. Orders received for equipment and projects rose 4%, and the increase in orders for service and parts amounted to 9%. Another significant order was received for bulk handling equipment in the U.S. Valued at SEK 155 M, the order calls for a complete coal terminal for Kansas City Power and Light's plant in Hawthorn, Missouri. Orders received in China, a particularly interesting market for Svedala, are characterized by favorable development and, to meet the growing demand, investments are now being made to build a production plant in China and expand Svedala's marketing organization. Svedala reported favorable business development in regions with significant mining industry operations, such as South America, Canada, Australia and South Africa, and orders received improved compared with last year. Demand in the construction industry remains favorable, although sales of new equipment have declined in certain areas. In North America, a downward trend has been noted in sales of construction equipment. Some countries in Europe, with particular emphasis on the UK, Scandinavia and Germany, were also characterized by lower bookings, primarily in terms of equipment. Svedala's crane business have had a significant effect on orders received, a trading operation based on imports from Japan where the strong JPY has created negative effects on sales in Europe. Some customers in the Rock Handling product group assumed a cautious approach in terms of placing orders for equipment during the third quarter, which may be linked to the acquisition offer to Svedala shareholders. First nine months of 2000 Total orders received amounted to SEK 10,239 M (9,830), an increase of 4% compared with 1999. Acquired companies accounted for 1% of the increase, and currency fluctuations accounted for 2%. Most of the improvement in orders received during the period was attributable to service and parts. INVOICED SALES [REMOVED GRAPHICS] Third quarter During the third quarter invoiced sales totaled SEK 3,425 M (3,378). Approximately SEK 200 M was attributable to currency fluctuations and acquisitions. Sales of service and parts amounted to SEK 1,593 M (1,563), corresponding to 47% of total sales. Sales of equipment and projects during the period amounted to SEK 1,832 M (1,815). Sales increased significantly in South America and Asia/Pacific, while lower sales were reported in Europe, compared with last year. Sales in Africa and the Middle East were down compared with the same period last year due to less activity related to the Iranian projects. First nine months Total sales amounted to SEK 10,390 M (10,068), an increase of 3% over sales during the first nine months of 1999. Effects of currency fluctuations and acquisitions corresponded to 4% of total invoicing. Sales of service and parts amounted to SEK 4,752 M (4,453), an increase of 7%. For sales of equipment and projects the invoicing totaled SEK 5,638 M (5,615), virtually unchanged compared with the first nine months of 1999. [REMOVED GRAPHICS] PROFIT 2 Third quarter The operating loss amounted to SEK 3 M (profit: 161). Operating profit from sales of service and parts amounted to SEK 124 M (184), with an operating margin of 8% (12). Adjusted for write-offs during the period, the operating margin for service and parts was 10% in the third quarter. Equipment and projects showed a loss amounting to SEK 89 M (profit: 20). The loss during the period was due in part to the high level of fixed costs in relation to current sales levels. Profit for the period was also charged with costs for guarantees, write-offs of inventories and bad debt amounting to SEK 67 M, which arose primarily in the U.S. and Europe. Restructuring costs during the period totaled SEK 37 M (20). Income recognition from the Iranian Projects were lower, compared with the third quarter of 1999, which also created negative effects on quarterly profit comparisons. Financial expenses in the third quarter amounted to SEK 83 M (70). The operating result after financial items amounted to a loss of SEK 86 M, compared with a profit of SEK 91 M previous year. [REMOVED GRAPHICS] First nine months Operating profit for the first nine months of 2000 amounted to SEK 314 M (513). Operating profit attributable to service and parts amounted to SEK 468 M (517), with an operating margin of 10% (12), adjusted for write-offs during the third quarter 11%. Operating profit from equipment and project activities amounted to SEK 4 M (94). The US dollar has become even stronger, which creates overall favorable effects on Svedala's profit, particularly in the long-term perspective. Future hedging contracts signed in past years at lower USD exchange rates are offsetting favorable currency effects at the present time. [REMOVED GRAPHICS] The rationalization programs introduced in 1999 have resulted in non- recurring costs against earnings for the year amounting to SEK 133 M. Personnel cutbacks since the program was started have reduced the number of Group employees by 1,100, including 400 this year. Normal cost increases, lower gross margin, market investments and costs arising as a result of the offer from Metso have neutralized the effects of the rationalization program. The effect on operating profit has not been sufficient to achieve satisfactory profitability and, as a result, a decision has been taken to formulate a comprehensive action plan. During the second quarter SPP refunds totaling SEK 86 M have been recognized as revenue, which created a favorable effect on operating profit. Svedala will receive cash payment for the entire amount before year-end 2000. [REMOVED GRAPHICS] Operating profit after financial items amounted to SEK 77 M (420). Financial expenses totaled SEK 237 M (93). Financial items in 1999 included a nonrecurring currency exchange gain amounting to SEK 104 M. Profit after tax during the first nine months of 2000 amounted to SEK 27 M, corresponding to SEK 0.60 per share, compared with SEK 318 M and SEK 6.60, respectively, in the previous year. Earnings per share in the last 12 months amounted to SEK 5.90. ACQUISITIONS All shares in the formerly partly owned company Mukand-McNally Wellman Ltd in India were acquired during the first quarter. The company is active in 3 the area of bulk handling and has annual sales of slightly more than SEK 30 M, with about 40 employees. During the second quarter, Strachan & Henshaw's bulk material handling division was acquired in Great Britain. The acquired operation has annual sales corresponding to about SEK 180 M and 45 employees. INVESTMENTS AND DEPRECIATION Group investments in property, plant and equipment, not including the existing assets of acquired companies, totaled SEK 369 M (324) during the first nine months of 2000. Depreciation during the period amounted to SEK 338 M (296). CASH FLOW AND FINANCING Cash flow before investments was negative in the amount of SEK 32 M (positive 463) during the first nine months of 2000. Net borrowings at the close of the third quarter totaled SEK 5,249 M, an increase of SEK 897 M since the beginning of the year, due mainly to an increase in working capital. The main reasons for the increase in working capital are the capital requirements for execution of large projects and the stronger USD. The planned action program will include activities designed to reduce the Group's working capital. PERSONNEL The number of Group employees was slightly more than 10,500 as of September 30, 2000. Not including acquisitions, the number of employees has been reduced by about 400 since year-end 1999. ORDERS RECEIVED AND PROFIT PER REGION [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] The figures in this report are unaudited. The year-end report on 2000 will be released on February 15, 2001 The 2000 Annual Report will be distributed in the beginning of March 2001 The Annual General Meeting will be held on April 3, 2001 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 www. svedala.com ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/10/26/20001025BIT01460/bit0001.doc http://www.bit.se/bitonline/2000/10/26/20001025BIT01460/bit0002.PDF