YEAR END REPORT January - December 2000

YEAR END REPORT January - December 2000 Operating profit from core operations increased to SEK 806 M (495), increases noted in all business areas See page 3-5 Profit after net financial items: SEK 1,141 M (1,550) Profit after net financial items (excluding non-comparable items) increased to SEK 981 M (974) See page 2 Earnings per share increased to SEK 7.30 (8.60) Earnings per share (excluding non-comparable items) increased to SEK 6.50 (6.35) See page 2 Acquisition of Laird's vehicle component operations (LAC) completed See page 4 Normalization of balance sheet through new buy-back programs continues. Special General Meeting on January 2001 approved synthetic buy-back proposal See page 6 Proposed dividend: SEK 3.75 (3.25) Decision on new dividend policy: 30-50 percent of net profit See page 6 Group full-year 2000 Net sales and earnings Full-year 2000 The Group's net sales for the full year totaled SEK 13,654 M (full-year 1999: 23,345). For comparable units, net sales rose 7 percent. Group operating profit rose to SEK 1,359 M (1,551). The improvement in earnings within all business areas and the newly acquired AVS operations within the Automotive business area increased the earnings of the Group's core operations by SEK 312 M, which more than offset the decrease in earnings resulting from the divestment of units in 1999. The Group's participation (49 percent) in the pretax results of the Trenor Group - Trelleborg's former Distribution Sector operations - amounted to profit of SEK 203 M, compared with operating profit of SEK 451 M for the Distribution Sector as a whole during the corresponding period of 1999. Operating earnings were positively affected during the period in an amount of SEK 367 M (577) by non-comparable items related to gains from Trenor's divestment of Starkki (SEK 106 M) and the repayment of surplus funds from SPP (SEK 272 M). The Group's financial net amounted to an expense of SEK 11 M (expense: 1). In addition, there is the writedown of the preference shares in Boliden Ltd by a total of SEK 207 M to their market value on December 31, 2000, of which SEK 107 M was booked in the final quarter (the market value on February 5, 2001, would have corresponded to a total writedown of SEK 144 M). Profit after financial income and expense amounted to SEK 1,141 M (1,550) and excluding non-comparable items amounted to SEK 981 M (974). Earnings per share for the period totaled SEK 7.30 (8.60) and excluding non-comparable items earnings per share totaled SEK 6.50 (6.35). Return on capital employed excluding goodwill amortization amounted to 14.5 (10.4) percent. Balance sheet, cash flow and investments Full-year 2000 The Group's capital employed amounted to SEK 9,675 M (5,265) at the end of the period. This includes approximately SEK 1,500 M for LAC, acquired at the end of the year. During the year outstanding shares in the Group were repurchased for a total of SEK 1,048 M. Net financial assets totaled SEK 1,720 M (liabilities: 3,499). The Group's liquid funds include the holding of preference shares in Boliden Ltd., with a book value of SEK 317 M. The book value of the Group's shareholding in Trenor Holding is SEK 90 M. The debt/equity ratio was 20 percent at year-end. The equity/assets ratio was 50.9 percent (66.4). Equity per share (101 million shares outstanding) amounted to SEK 84.60 (78.50) at year-end. The return on equity amounted to 9.0 percent (10.0). The Group's cash flow from operations during the period was SEK 763 M (1,077) and investments totaled SEK 543 M (811). Core operations in 2000 In accordance with the strategy established during the first half of 1999, the Trelleborg Group will concentrate its operations to and expand its industrial business, today organized within four business areas: Trelleborg Automotive, Trelleborg Wheel Systems, Trelleborg Engineered Systems and Trelleborg Building Systems. During the autumn, this strategy was further defined and a growth target established. Growth shall be sought primarily within the technology and market areas originating in polymer materials and focusing on functional and system solutions. A significant portion of growth will be driven by acquisitions and will require integration to achieve cost-saving synergies and reach Trelleborg's earnings target. As a balance between strong growth and a responsible follow-up integration program, the annual average growth target was set at 15-20 percent. Net sales for the Group's core operations rose 49 percent during the period to SEK 12,898 M (8,645). Including Group-wide expenses, earnings for core operations during the period rose to SEK 806 M (495) - a 63 percent increase. During the most recent five-year period, both net sales and earnings for core operations have increased by an average of about 30 percent per year. (See table on page 13). Core operations' return on capital employed excluding goodwill amortization amounted to 12.7 (11.1) percent. Restructuring program proceeding according to plan, with SEK 37 M positive effect on earnings in 2000 During 1999, the decision was made to introduce a restructuring program for the Group's industrial operations that resulted in a total of SEK 259 M being charged against 1999 earnings. The implementation of the restructuring program to increase the efficiency of operations within the different business areas is proceeding according to plan. Several of the restructuring programs identified during the year were completed. The projects have led to workforce reductions involving 210 jobs to date and will continue with cuts affecting a further 90 persons. When fully implemented, the program will generate an annual earnings improvement of SEK 75 M commencing year 2001, whereof SEK 37 M has been reached already in year 2000. Trelleborg Automotive captures world-leading AVS position through acquisitions The antivibration systems (AVS) operations acquired from Invensys in the UK have been included in the business area's earnings as of March 1, 2000. The business area's net sales amounted to SEK 5,822 M (2,008). Excluding newly acquired operations, sales rose by around 9 percent, primarily as a result of the trend of volumes in North America and within noise- suppression applications. The acquired AVS operations developed in line with expectations. Operating profit for the business area rose during the period to SEK 451 M (211). Excluding acquisitions, this corresponded to an increase of about 24 percent. Earnings for the year were affected favorably by the somewhat improved European market and a strong sales trend in the US. However, the American market weakened considerably towards year-end. The car industry cut back production in response to lower demand and excessive inventories. In conjunction with Trelleborg's acquisition of Invensys AVS, an integration and restructuring process was started. The plans for this process were divided into three sub-projects relating to operations in America, Europe and Industrial AVS, of which the European sub-project is decidedly the most extensive. The business area's US units are now fully integrated, which involves a concentration of administrative services and R&D to the head office of Trelleborg's American operations in South Haven, Michigan. A combined sales organization has been established in new joint premises in Detroit. The European integration project includes the introduction of an overall integrated organization of the same type employed by the business area in the US plus a concentration of production. Purchasing, technological development, bid-tendering and sales operations in Europe are being integrated and production in Europe is being concentrated and made more efficient through the closure of the Peterborough plant in the UK and the Neumünster plant in Germany during 2001. The integration of Metalastik and Novibra, now named Trelleborg Industrial AVS, is continuing through the now implemented merger and concentration of the two market organizations. The management function has also been relocated to the main plant in Leicester, UK. The integration measures, for which a restructuring reserve of approximately SEK 500 M has been posted, only marginally affected the business area's operating profit during 2000. The measures are expected to yield an earnings effect in 2001 of slightly more than SEK 50 M, additional SEK 100 M in 2002 and as a minimum additional SEK 25 M during 2003. In total this means a positive effect on earnings as a minimum SEK 175 M from year 2003. The business area has introduced a new electronic purchasing system. The system is expected to reduce the number of external suppliers and increase the overall efficiency of the purchasing process. Trelleborg Automotive secured a number of strategically important orders during the year. A key order secured in a new, attractive segment was for Electronically Controlled Air Suspension (ECAS) components for a model series for a large North American auto producer. The business area also received an attractive order for antivibration systems for the entire steering column in another American model series. The Laminates product area continues to show strong growth, with new orders for auto producers in Asia and strong interest for the noise suppression material Durulam. Towards the end of the year, Trelleborg acquired the UK-based Laird Group Plc's Laird Automotive Component (LAC) unit. LAC has annual sales of about SEK 2.8 billion and slightly more than 3,000 employees at 16 production units in France, Italy, the UK, Spain, Turkey, the Czech Republic and the US. As a result of the acquisition, Trelleborg strengthens its world- leading position in vibration control for the automotive industry. The Group also gains several new positions in such attractive areas as flow systems and noise suppression. In addition, the Group's development resources are reinforced. The acquisition is expected to have an effect on the Group's earnings per share of about SEK 1 already in 2001. The revenue synergies from the acquisition are expected to gain effect within two to three years. Trelleborg Wheel Systems product launches boosted sales and earnings Net sales for the period amounted to SEK 3,024 M, compared with SEK 2,770 M in 1999, an increase of 9 percent. Operating profit for the period amounted to SEK 200 M (171), up 17 percent compared with the year-earlier figure. Nearly all segments of the business area noted strong demand during the period, as is reflected in the increase in net sales. Tractors sold favorably during the period, which led to good sales of tires to tractor manufacturers. On the other hand, demand in the after market, particularly in Europe, was relatively weak. During the period, Trelleborg Agricultural Tires launched a new tractor tire, the TM 600, and is preparing to launch the TM 900, a tire designed for the largest tractors in the market. These two introductions mean that Trelleborg Agricultural Tires can now offer tires within all tractor segments. Demand for forest tires continues to be strong. Demand in the business area's markets for tires for material-processing vehicles was generally strong. In North America, demand during the year for forklift trucks was strong, weakening, however, in the fourth quarter. A delivery center was opened in Houston, Texas in connection with Trelleborg's delivery contract for Mitsubishi CAT. The center enhances Mitsubishi's competitiveness by enabling rapid assembly of wheel rims and pneumatic tires. The European market for industrial tires recovered somewhat. The concept behind the business area's three-year contract with the Singapore Harbor Authority to become sole supplier of complete wheels, has spread. Several other harbors in South-east Asia have indicated an interest. The business area continues to focus on growth markets such as Brazil, South Africa and Southeast Asia. The approved restructuring projects are progressing according to plan. The projects include structural rationalization measures within the business area's European operations, where two Belgian units are being closed and the production of light industrial tires is being concentrated. During the period, the rim-manufacturing unit was relocated to Sävsjö in Sweden. Trelleborg Engineered Systems cost rationalization raised earnings Net sales during the first nine months of the year amounted to SEK 2,941 M (2,874). Operating profit rose 41 percent to SEK 140 M (99), primarily as a result of cost rationalization measures and restructuring. The market for industrial supply products in Europe improved steadily, although a weakening became apparent toward the end of the year in North America. The Scandinavian operations developed favorably during the year, in terms of both earnings and volume. The sales success of laminated polymer operations continued in European markets. After a weak start, the oil and offshore market gradually improved during the year. The improved demand and the launch of new products resulted in larger order and project portfolios and better capacity utilization. Personnel reductions and restructuring of operations also helped improve earnings. As part of the current restructuring of Industrial hose operations, extensive machine and product relocations from the Swedish to the French plant were undertaken during the period. Substantial cost savings were achieved at both units. Major orders were received for protective products in Southeast Asia, and for infrastructure products in South America and Asia. Trelleborg Building Systemsmarketing drives and efficiency enhancements boosted earnings Net sales rose 7 percent to SEK 1,471 M (1,370) and operating profit 14 percent to SEK 162 M (142). All units within the Building Systems business area developed more favorably than during the corresponding period of 1999. Demand was weak in the business area's most important market, Germany, while other important markets such as the Swedish and the Finnish developed more favorably. Attractive penetrations were made in eastern European markets, especially Poland and Hungary, a strategy that is now beginning to bear fruit. The business area also penetrated other geographic markets outside Europe. As a result of increased repair and renovation operations in continental Europe, a change in the trend of demand in the windows market segment has been noted from wooden- to aluminum- and PVC-based window systems. The change favors Trelleborg somewhat, since the business area has a strong position in the expanding segment. An increase in project demand has been noted in the rubber sheeting and roof coverings areas. This, in combination with the successes achieved by the new Elastoseal product system, resulted in stronger sales and earnings for the Rubber Membranes business unit. Continuing efficiency enhancement measures within the business area's production units also contributed to the favorable trend of earnings. In January 2001 an agreement in principle was signed with Rieber & Søn ASA regarding the acquisition of the roof-related portions of Phønix Tag. The operations have net sales of about SEK 450 M and employ 360 persons. The acquisition is expected to make a positive contribution to earnings as early as during 2001. Group-wide activities Surplus funds from SPP SEK 272 M, largely received in the beginning of 2001 The Trelleborg Group was allocated a total of SEK 272 M of the allotted consolidation surplus from the Swedish Staff Pension Society (SPP). SEK 46 M of this amount was paid out during the year. Since the Group has already paid in its Pension Registration Institute (PRI) liability, which exceeds the allocated amount, most of the balance was paid to Trelleborg during January 2001. It is expected that all of the allocated funds will be paid out to the company during the first quarter of 2001. Starkki sold by Trenor Resulted in positive effect on earnings in an amount of SEK 106 M During the period, Trenor Holding, in which Trelleborg has a 49-percent holding, sold the Starkki Oy building materials chain to the Danske Traelast Group, which resulted in the Trelleborg Group's earnings being positively affected in an amount of SEK 106 M. The divestment means that the long-term loan made to Trenor Holding has been repaid. Proposed dividend The Board of Directors proposes a dividend of SEK 3:75 per share, and a new dividend policy The Board of Directors and the president propose that a cash dividend of SEK 3:75 per share be distributed to shareholders. The dividend policy has also been modified such that future dividends over the long term will amount to 30-50 percent of net profit for the year. The earlier dividend policy stipulated one-third of net profit as a long-term dividend level. Share buy-back plan Special General Meeting approved proposal regarding synthetic buy-back of own shares To normalize the balance sheet and achieve the return on shareholders' equity goal, Trelleborg will need a different financial structure. Accordingly, the Board has carried out and plans extensive repurchasing of the Company's own shares. The Annual General Meeting on April 13, 2000 authorized the Board of Directors of Trelleborg to buy back up to 10 percent of the outstanding shares. These purchases were carried out. At a Special General Meeting of Trelleborg AB shareholders on June 27, the decision was made to reduce the Company's share capital through the cancellation of the Trelleborg shares repurchased by the Company (11,734,152 shares, corresponding to 10 percent of the total number of shares outstanding) and to effect a SEK 775,000,000 reduction in the Company's statutory reserve. The registration of the decision regarding the reduction was received at the beginning of November. The Special General Meeting also authorized that, when the reduction in share capital is completed, the Board would repurchase a further 10 percent of the outstanding shares in the Company during the period up to the Annual General Meeting, and decide on the sale of the Company's own shares in connection with acquisitions. The new share buy-back program was introduced at the end of 2000, and by January 4, 7,042,600 (7 percent), of the Company's own shares had been repurchased. A Special General Meeting held in the beginning of 2001 also authorized the Board to carry out a synthetic share buy-back program for a maximum of 20 million shares. Accordingly, the consequences of the above-named activities should lead to a net debt/equity ratio during 2001 that is in line with that of Sweden's engineering industry as a whole (currently averaging 45 percent), while substantial financial scope remains for the continued expansion of the Group's core operations. Trelleborg's long-term net debt/equity ratio goal continues to be 75-125 percent. Options to senior executives Continuation in 2001 proposed The Board plans to propose that the Annual General Meeting authorize the continuation of the multi-year program of issuing call options to senior executives that was introduced last year. The scope and the terms of the program, which are in line with last year's program, will be presented to the Annual General Meeting on April 26. Prospects Earnings contribution from acquisitions offsets weaker trend in North America The net sales of the Automotive business area, amounting to approximately SEK 9 billion, are distributed as follows: SEK 5 billion in Europe, SEK 1 billion in Asia and Latin America, and SEK 3 billion in the U.S. In Europe, we are expecting the market to remain unchanged in 2001, while we foresee strong growth in Asia and Latin America. The operations in the U.S. are facing weaker demand in 2001. The year 2000 was a strong year for car sales, with a total sales of about 17.4 million vehicles. The most recent estimates indicate that sales in 2001 will be on the more normal level of about 15.5 million vehicles. However, the larger vehicle manufacturers in the U.S. are entering 2001 with surplus inventories. It is reasonable to assume that an adaptation of the inventory situation will take place during the first half of 2001, and possibly parts of the third quarter. The total earnings effect of weaker demand and inventory adaptations in North America is expected to be negative - which, however, should be offset by the earnings contribution resulting from the acquisition of LAC and the integration effects in Europe. A stable trend is expected in the Group's remaining business areas, despite somewhat lower GDP growth, particularly in the U.S. We are paying especially close attention to economic trends in our key markets, and are well prepared to adapt to new developments. Trelleborg, February 6, 2001 Fredrik Arp President For further information, please contact Trelleborg's Senior Vice President and Chief Financial Officer Jan Björck, telephone: +46 410-670 28, or Vice President Corporate Communications Mikael Byström, telephone: +46 410-670 37, mobile phone: +46 708 55 21 69. This report and other information about the Trelleborg Group, including the magazine T-TIME, are also available on the Internet at the following address: www.trelleborg.com The interim report on the first quarter in 2001 will be published on April 26, 2001. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/02/06/20010206BIT00770/bit0001.doc The full report http://www.bit.se/bitonline/2001/02/06/20010206BIT00770/bit0002.pdf The full report