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| SANDVIK AB. INTERIM REPORT - SIX MONTHS ENDED 30 JUNE 1997
Summary
- Considerable increase in order intake and invoiced sales in second quarter.
- Profit after financial income and expenses amounted to SEK 2,105 M (2,555); 24% higher in second quarter than in the first.
- Kanthal Group acquired.
- Share redemption of SEK 4,000 M carried out.
- Unchanged full-year forecast. Earnings in 1997 largely as in 1996 despite change tonegative net financial items.
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| * Rolling 12 months.
** Liquid assets less interest-bearing liabilities.
Figures for the first half year do not include Kanthal’s invoiced sales, while Sandvik’s share of profit (about 47% Q1-2) in Kanthal as an associated company is included. Balance sheet items are included as of 30 June. Kanthal’s sales and earnings will be consolidated in the Sandvik Group as from the second half of 1997.
After the redemption of shares carried out by Sandvik AB in June, the Group now has a changed financial structure and a more normal debt position. This has directly affected such key figures as the equity ratio and net cash balance but the effect on such key ratios as earnings per share and return figures are subject to a certain time lag since these are measured on a rolling basis for the preceding 12 months. Based on an assumption that the redemption was implemented a year ago, the pro forma calculation for these key figures in Q1-2 1997 would be:
Earnings per share, SEK* 10.05
Return on net assets* 20.6 %
Return on equity capital* 16.3 %
Market
A significant improvement in the business climate was noted in Europe during the second quarter. Concurrently, growth in the NAFTA region entered its seventh year. The recovery in South America and in Japan continued. In the rest of Asia, the business climate was favorable in China but weak in India. Overall, it appears that the world economy improved again after a weak trend, mainly in Europe in the past year.
Foreign exchange
Mainly three currencies appreciated during the six-month period, the U.S. dollar, the pound and the yen. Since year-end, the Swedish krona has weakened more than 10% against these currencies. In comparing the first half of 1997 with the year-earlier period in 1996, Sandvik’s invoiced sales rose 6% due to the average weakening of the Swedish krona. Currency movements will not affect earnings favorably until the third quarter since Sandvik continually hedges rates for exports from Sweden.
Order intake and invoicing
Order intake and invoiced sales rose considerably in the second quarter.
The order intake during the first half year was SEK 16,158 M (14,383), a 12% increase compared with the year-earlier period. At fixed exchange rates, the increase was 6% for comparable units, of which 2% in the first quarter and 12% in the second.
Invoiced sales amounted to SEK 15,482 M, up 6% compared with the first half of 1996 (14,589). At fixed exchange rates, sales rose 1% for comparable units but the change was -4% in the first quarter and +6 % in the second. Invoiced sales in the quarter were the highest ever reported. |
| Since the quarterly levels varied substantially, the changes from the preceding year are shown for both the half year and the second quarter. |
 | | | | | Change |
| Q1-2 1997 | Share | Q1-2 1996 | Q1-2 | | (Q2) |
| Invoiced sales by market area | SEK M | % | SEK M | % | * | (*) |
| Sweden | 1 109 | 7 | 1 147 | -3 | -3 | (+10) |
| EU, excluding Sweden | 6 720 | 44 | 6 755 | -1 | -4 | (+1) |
| Rest of Europe | 826 | 5 | 762 | +8 | +5 | (+13) |
| Europe, total | 8 655 | 56 | 8 664 | 0 | -3 | (+4) |
| NAFTA | 3 433 | 22 | 2 899 | +18 | +5 | (+3) |
| South America | 773 | 5 | 633 | +22 | +10 | (+8) |
| Africa, Middle East | 378 | 2 | 358 | +6 | +6 | (+10) |
| Asia, Australia | 2 243 | 15 | 2 035 | +10 | +4 | (+13) |
| Group total | 15 482 | 100 | 14 589 | +6 | +1 | (+6) |
| * Change excluding currency effect and company acquisitions.
Figures in parentheses refer only to the second quarter.
After a weak trend during a number of quarters, an upturn occurred in the second quarter in Sweden and many other EU markets. Invoiced sales in eastern Europe improved. The increase in the NAFTA region continued, although at a slightly lower pace. Invoicing continued to improve in Japan and recovered after a decline in the rest of Asia and Australia. Sales rose strongly in China. |
| | | | Change |
| Q1-2 1997 | Q1-2 1996 | Q1-2 | | (Q2 ) |
| Invoiced sales by business area | SEK M | SEK M | % | * | (*) |
| Sandvik Tooling | 5 215 | 4 773 | +9 | +4 | (+9) |
| Sandvik Rock Tools | 1 076 | 1 026 | +5 | -1 | (0) |
| Sandvik Hard Materials | 676 | 631 | +7 | +3 | (+3) |
| Sandvik Steel | 5 008 | 4 850 | +3 | -3 | (+3) |
| Sandvik Saws and Tools | 1 383 | 1 257 | +10 | +5 | (+11) |
| Sandvik Process Systems | 676 | 747 | -10 | -15 | (-7) |
| Seco Tools | 1 428 | 1 289 | +11 | +6 | (+10) |
| Group activities | 20 | 16 | / | | |
| Group total | 15 482 | 14 589 | +6 | +1 | (+6) |
| * Change excluding currency effect and company acquisitions.
Figures in parentheses refer only to the second quarter.
Sandvik Tooling’s sales turned sharply upward in the quarter. Such major markets as Great Britain, France, Germany, the U.S. and Japan posted favorable increases. Sandvik Rock Tools’ invoiced sales were high in mining markets, including South Africa and Australia, but declined in certain markets in Europe and Asia.
Invoiced sales of Sandvik Steel during the second quarter were higher in 1997 than in 1996 despite prices still being approximately 8% lower. Prices are now considered to have reached their lowest level. Sales in the U.S. were weaker in the second quarter and demand in Asia remained low.
Sandvik Saws and Tools achieved favorable growth during the second quarter in the Nordic region, the U.S. and Asia. Sandvik Process System’s invoiced sales were low due to low order intake in 1996. Order intake has now increased and a backlog has been built up.
Invoiced sales of the Parent Company amounted during the first half year to SEK 6,245 M (6,475).
Earnings |
| Operating income improved in the second quarter and was higher than in the corresponding quarter in the preceding year. However, this could not offset the decline in the first quarter and for the six-month period operating income was SEK 2,082 M, about SEK 240 M lower than a year earlier. The factors having an adverse effect were mainly that the hedged currency rates for exports from Sweden were significantly lower than in the first half of 1996 (effect of about SEK 300 M) and that prices for the Sandvik Steel business area were substantially lower than in 1996 (effect of about SEK 300 M). Positive effects included an increase in profits of associated companies as well as volume and productivity gains in the second quarter.
Profit after financial income and expenses in the first half of the year was SEK 2,105 M (2,555), a decline of 18% compared with profit in the corresponding period of 1996. In addition to the aforementioned factors, the reason for the decline was that net financial items declined by SEK
200 M due to lower liquidity and interest rates. However, compared with the second half of 1996, profit rose by 11%. The increase between the first and second quarter 1997 was 24%.
Return on net assets during the most recent 12 months was 17.3% (20.2% for full-year 1996). Return on equity capital amounted to 13.9% (16.2% for full-year 1996). Calculated pro forma, as if the redemption had been effected a year earlier, return on net assets was 20.6% and on equity capital 16.3%. |
| Q1-2 1997 | Q1-2 1996 | Change | Full-year 1996 |
| Condensed consolidated income statement* | SEK M | SEK M | % | SEK M |
| | | | |
| Invoiced sales | 15 482 | 14 589 | +6 | 28 265 |
| Costs of goods sold | -10 294 | -9 316 | +10 | -18 465 |
| Gross profit | 5 188 | 5 273 | -2 | 9 800 |
| as % of invoicing | 34 | 36 | | 35 |
| | | | |
| Selling, general and administrative expenses | -3 273 | -3 073 | +7 | -5 935 |
| Share in profits in associated companies | 221 | 73 | | 172 |
| Other operating income and expenses | -54 | 52 | | 72 |
| Operating income | 2 082 | 2 325 | -10 | 4 109 |
| as % of invoicing | 13 | 16 | | 15 |
| | | | |
| Financial income and expenses, net | 23 | 230 | | 344 |
| Profit after financial income and expenses | 2 105 | 2 555 | -18 | 4 453 |
| as % of invoicing | 14 | 18 | | 16 |
| | | | |
| Taxes | -620 | -709 | | -1 204 |
| Profit after taxes | 1 485 | 1 846 | -20 | 3 249 |
| | | | |
| Minority interest | -78 | -74 | | -135 |
| Net profit | 1 407 | 1 772 | -21 | 3 114 |
| as % of invoicing | 9 | 12 | | 11 |
| * Revised in accordance with new Annual Accounts
Act. Scheduled depreciation Q1-2 1997 was SEK 669 M.
Net profit in the first six months amounted to SEK 1,407 M (1,772). Earnings per share for the six month period were SEK 5.10 (6.40). Earnings per share for the most recent 12 months were SEK 9.90 (SEK 11.20 for full-year 1996). Based on an assumption that the redemption was implemented a year ago, the pro forma calculation for this profit figure would be SEK 10.05. |
| Operating income by business area* | Q1-2 1997 | | Q1-2 1996 | | Full-year 1996 | |
| SEK M | % of inv. | SEK M | % of inv. | SEK M | % of inv. |
| Sandvik Tooling | 1 100 | 21 | 1 087 | 23 | 2 031 | 22 |
| Sandvik Rock Tools | 83 | 8 | 134 | 13 | 220 | 11 |
| Sandvik Hard Materials | 71 | 11 | 87 | 14 | 133 | 11 |
| Sandvik Steel | 504 | 10 | 728 | 15 | 1 203 | 13 |
| Sandvik Saws and Tools | 109 | 8 | 84 | 7 | 161 | 6 |
| Sandvik Process Systems | 20 | 3 | 14 | 2 | -24 | -1 |
| Seco Tools | 263 | 18 | 235 | 18 | 402 | 16 |
| Group activities | -68 | / | -44 | / | -17 | / |
| Operating income | 2 082 | 13 | 2 325 | 16 | 4 109 | 15 |
| Financial income and expenses | 23 | | 230 | | 344 | |
| Profit after financial income | | | | | | |
| and expenses | 2 105 | 14 | 2 555 | 18 | 4 453 | 16 |
| * Same as previous "profit after depreciation."
Sandvik Tooling posted somewhat higher earnings compared with the first six months in the preceding year and significantly more compared with the second half of 1996. Earnings in Sandvik Steel continued to be affected by a low price level. Earnings for Sandvik Rock Tools were low due to unchanged volume, higher costs in Asia and start of the shift in production within the NAFTA region.
Through the majority holding in Seco Tools, this company, which is also listed on the stock exchange, is consolidated by Sandvik. Comments on sales and earnings are provided in this company’s six-month report on operations.
Operating income of the Parent Company amounted to SEK 655 M (1,022). |
| 30 June 1997 | 31 Dec. 1996 |
| Condensed consolidated balance sheet | SEK M | SEK M |
| Fixed assets | 15 333 | 12 694 |
| Inventories | 8 281 | 7 306 |
| Current receivables | 8 609 | 7 217 |
| Liquid assets | 1 745 | 5 557 |
| Total assets | 33 968 | 32 774 |
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| Equity capital | 16 282 | 20 035 |
| Minority interest in equity capital | 1 104 | 1 076 |
| Interest-bearing liabilities | 7 123 | 3 459 |
| Non-interest-bearing liabilities | 9 459 | 8 204 |
| Total liabilities and equity capital | 33 968 | 32 774 |
| The balance sheet is affected by the redemption of shares in the amount of SEK 4,000 M in June and by the inclusion of the Kanthal Group as of 30 June 1997. After the redemption of shares, the number of shares outstanding at 30 June 1997 was 258,696,000. Equity capital per share was SEK 63.00 (SEK 72.00 at 31 December 1996) and the equity/assets ratio was 51% (64).
Financing and liquidity
After the redemption of shares carried out in June, Sandvik now has a changed financial structure and a more normal debt position. The Group’s liquid funds at 30 June were SEK 1,745 M and loans SEK 4,860 M. After deduction of all interest-bearing liabilities, net debt was SEK 5,378 M, compared with a net cash balance of SEK 2,098 M at 31 December 1996. Net debt was affected by the redemption of shares, dividends, and the acquisition and consolidation of the Kanthal Group.
Sandvik raised a seven-year syndicated credit facility in June amounting to USD 650 M.
Personnel
The number of employees at 30 June was 31,941, an increase of 1,579 since year-end. For comparable units, the number of employees declined by 399. The number of employees in the Parent Company was 8,092, compared with 8,076 at year-end.
Capital expenditures
Investments in property, plant and equipment amounted to SEK 922 M (1,060), of which Parent Company accounted for SEK 366 M.
The amount paid for company acquisitions was SEK 1,411 M.
Special General Meeting - Redemption of shares
At the Special General Meeting in Sandvik AB held 9 June 1997 a decision was made to reduce share capital through the redemption of 20,288,090 shares. The amount which was thereby paid to the shareholders was SEK 4,000 M and the company’s share capital was reduced by SEK 101 M. In order to re-establish the amount of share capital, a combined new and bonus issue was implemented.
Structural changes
At year-end 1996, Sandvik owned 47.3% of the number of shares and 33.4% of the number of votes in Kanthal AB after an open offer to the stock market in 1996. In June 1997, additional shares were acquired from a number of institutional owners. After an offer, all shares and warrants in Kanthal AB held by the former majority owner Trustor AB were acquired. After additional purchases in the market, Sandvik’s current holding amounts to 98.3% of the shares. The Board of Directors of Sandvik AB today decided to request compulsory redemption of the shares outstanding.
Through an acquisition of shares, Sandvik achieved a majority holding (51%) in the jointly owned Polish cemented-carbide company Sandvik Baildonit S.A. in Katowice.
Sandvik has reached an agreement covering the acquisition of the American company Precision Twist Drill Co. which is the world’s leading manufacturer of twist drills in high-speed steel. The company will be organized within CTT Tools, within the Sandvik Tooling business area. Precision Twists Drill has annual sales of nearly SEK 1 billion and has 1,600 employees in two production units in the U.S.
Sandvik reached an agreement during the second quarter this year on the sale of certain steel units in the Czech Republic, the U.S. and Brazil, which affects a total of 250 persons. The operations of these units are not part of Sandvik Steel´s core area.
Outlook for 1997
The Sandvik Group’s favorable sales trend is expected to continue during the second half of the year. Operating income is estimated to be higher in 1997 than in 1996. However, as a result of negative net financial items during the second half of the year, due mainly to the share redemption, profit after financial income and expenses in 1997 is estimated to be largely unchanged compared with 1996.
Sandviken, 12 August 1997
Sandvik AB; (publ)
Clas Åke Hedström
President and Group CEO
This report on the first six months of 1997 has not been the subject of any specific examination by the Company’s auditors. The next report will be released on 5 November 1997 and will cover the first nine months of the year.
For additional information, please call +46 (0)26-26 10 01. |
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