Svedala Interim Report January-March 2000

INTERIM REPORT JANUARY - MARCH 2000 Following a very weak 1999, order bookings have risen sharply since December. December 1999 and January and March 2000 have been the best months in the history of the Group. Order bookings rose 18% during the January-March period and exceeded invoiced sales by slightly more than SEK 650 M. The restructuring program announced during autumn 1999 is continuing as planned and SEK 70 M was charged against operating profit for related costs, mainly for severance pay. Excluding these costs, operating profit rose from SEK 96 M to SEK 111 M. Net financial items amounted to an expense of SEK 66 M, compared with income of SEK 41 M in the year-earlier period, which included nonrecurring revenue of SEK 104 M. Accordingly, earnings reported after financial items amounts to be a loss of SEK 25 M (income: 137). The order backlog corresponds to four months of sales. To date, the increase in order bookings has had only a marginal impact on sales and thus earnings. Due to a generally favorable global economy and increased demand, we expect order bookings to remain favorable and thus lead to higher sales which, combined with the effects of the restructuring program, will result in improved earnings. MARKET The economic outlook is favorable for virtually the entire world, which will lead to increased consumption of minerals and rising raw materials prices. This factor, combined with considered demand for efficiency measures, indicates that demand for Svedala products from the global mining industry will increase. In the construction industry, demand is expected to increase in Europe and further strengthen in North America. These are Svedala's principal markets in the building and construction industry. In South America and Asia, stronger market conditions are expected, following a weak 1999. Increased volumes are also expected in the service and spare parts market, at the same time as Svedala's focus on the after-market will result in larger market shares. In the project sector, the level of activity is currently much higher than during the preceding year, which will boost order bookings. ORDER BOOKINGS Order bookings during the first quarter of 2000 rose by 18% to SEK 3,753 M (3,194). Exchange-rate changes and acquired companies led to a 4% improvement in order bookings. Equipment, on the one hand, and service and spare parts, on the other, accounted for approximately equal amounts of the increase in order bookings. The improvement in order bookings derived from both the construction industry, particularly in Europe and North America, and the mining industry, mainly in North and South America. INVOICED SALES Invoiced sales rose 6% during the period to SEK 3,092 M (2,905). Invoiced sales of service and spare parts amounted to SEK 1,452 M (1,348). Excluding acquisitions and exchange-rate movements, the total increase was 2%. Svedala's order backlog corresponds to an average of four months of sales, while the backlog for service and spare parts amounts to three months of sales. In other words, the increase in order bookings has yet to impact on invoiced sales. Invoiced sales in Africa/Middle East rose, due to outstanding portions of previously initiated large-scale projects, while sales in North America declined during the period, because of a lack of orders for metallic minerals in 1999. EARNINGS Operating profit during the first quarter amounted to SEK 41 M (96). Operating profit included restructuring costs of SEK 70 M, due to the rationalization program presented at the end of 1999. Most of the restructuring costs consist of severance pay and other compensation to personnel who have left, or will leave, the Group. These costs are expensed on a current account basis, when an agreement regarding severance pay has been reached. Normal compensation to personnel who continue to work during the period of notice is not regarded as a restructuring cost. In other words, the favorable effects of the rationalization program will not become noticeable until the end of the period of notice. Operating profit from sales of service and spare parts amounted to SEK 147 M (145), which corresponds to an operating margin of 10%, while sales of equipment resulted in an operating loss of SEK 10 M (loss: 20). Exchange-rate movements had a positive impact of SEK 12 M on operating profit, mainly as a result of a sharp appreciation of the USD against the SEK. From Svedala's viewpoint, the depreciation of the euro was of lesser importance. The allocation of surplus pension funds from SPP, which will result in a refund of approximately SEK 100 M to Svedala, has yet to be credited to income, pending a decision regarding the method of allocation. Such a decision from SPP is expected at the end of April. Svedala reported a loss for the period of SEK 25 M after net financial items (profit: 137). Net financial items amounted to an expense of SEK 66 M (income: 41). Net financial items in the year-earlier period included nonrecurring revenues of SEK 104 M from exchange-rate differences. Increased borrowing had a negative impact of SEK 4 M on net interest expense. A loss of SEK 43 M was reported after taxes (profit: 101). RATIONALIZATION PROGRAMS The rationalization programs presented during 1999 with the aim of reducing annual costs by SEK 425 M as of 2001 are continuing as planned. The total cost of the programs during 2000 is estimated at SEK 145 M, of which SEK 70 M was expensed during the first quarter. Since the programs were introduced, the number of employees has been reduced by approximately 780, including 120 during the first quarter of 2000. The savings expected during 2000, which will affect gross profit and operating profit, amount to SEK 320 M, in relation to the cost level prevailing prior to the programs' initiation. The cost reductions are keeping pace with the established plan. ACQUISITIONS During the period, Svedala acquired all of the shares in Mukand-McNally Ltd., an Indian company that was previously jointly owned by Svedala. The company, which is active in the bulk handling segment, has annual sales of slightly more than SEK 30 M, with approximately 40 employees. INVESTMENT AND DEPRECIATION Group investments in plant during the first quarter of 2000, excluding existing facilities in acquired companies, amounted to SEK 122 M (95). Depreciation during the same period amounted to SEK 106 M (107). FINANCING AND CASH FLOW Net borrowing at the end of the first quarter of 2000 amounted to SEK 4,815 M, up SEK 463 M compared with the beginning of the year. The rise in net borrowing was mainly attributable to an increase in operating capital. Capital tied up in inventories has increased by SEK 344 M since the beginning of the year. The increase was due to normal seasonal variations, which were compounded by the SEK 800 M increase in order bookings since December 1999. The previously announced objective of reducing capital tied up in inventories by SEK 1,000 M compared with the level prevailing after the first quarter of 1999, stands firm. PERSONNEL The total number of Svedala Group employees at March 31, 2000 was approximately 10,800. Excluding acquisitions, the number of employees has decreased by about 90 since the end of 1999. The personnel-reduction process will continue within the framework of the ongoing rationalization program. The figures in this report are unaudited. Malmö, April 27, 2000 Thomas Oldér President and CEO The six-month interim report will be published on August 10, 2000 Svedala Industri AB (publ), Informationsavdelningen, Box 4004, 203 11 Malmö Tel 040-24 58 00. Fax 040-24 58 78 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/04/27/20000426BIT01830/bit0001.doc http://www.bit.se/bitonline/2000/04/27/20000426BIT01830/bit0002.PDF