Interim report January-September 2001
11/2/2001 3:25 AM EST
INTERIM REPORT JANUARY-SEPTEMBER 2001
· NET TURNOVER INCREASED BY 6% TO SKR 1,799 MILLION (1,703).
DELIVERY VOLUMES FOR COMPARABLE UNITS DECLINED BY 9%.
· OPERATING PROFIT (EXCL. ITEMS AFFECTING COMPARABILITY) DECLINED TO
SKR 39 MILLION (136)
· PROFIT AFTER NET FINANCIAL ITEMS (EXCL. ITEMS AFFECTING
COMPARABILITY) DECLINED TO A LOSS OF SKR 12 MILLION (PROFIT OF 87)
· SAVINGS AND CAPACITY ADJUSTMENTS ARE CARRIED OUT, WORK FORCE CUT BY
SOME ADDITIONAL 100. FULL IMPACT DURING Q1, 2002.
·
Bong is a fast growing international envelopes company. The Group has an
annual turnover of some SKr 2.5 billion, approximately 1,800 employees
and an annual production capacity of some 16 billion envelopes at its
factories in Sweden, Denmark, Norway, Finland, Germany, Great Britain,
Ireland, Belgium, Poland and Estonia. In recent years, Bong has played
an active part in the ongoing process of restructuring in the European
envelope industry and sees useful opportunities for further expansion
and development. Bong is a public company and the shares are listed on
Stockholmsbörsen's "O" list.
MARKET
The weakening of the market that characterised the first half of the
year became more accentuated and widespread in geographical terms during
the third quarter. The markets in Great Britain, Norway and Finland,
which experienced a relatively strong start to the year, weakened during
the third quarter. The slowdown in Germany and Sweden has deepened.
Given the current economic situation, customers are adopting a more
cautious approach to new sales campaigns and other marketing activities,
which has had a marked effect on special products in the direct mail
advertising segment. The envelope market in Europe is estimated to have
declined by around 4-5 per cent in volume during the January-September
period in 2001 in relation to the same period in 2000. The weaker market
conditions resulted in a significant shortfall in sales in many of the
Group's businesses. Particularly marked were the sales shortfalls on the
markets in Sweden and Germany, which account for about 16 per cent and
19 per cent respectively of the Group's total turnover.
Apart from the cyclical slowdown, the far-reaching re-structuring
programme carried out during the first half of the year in connection
with the integration of newly acquired units resulted in a sharp
reduction in capacity and lower service levels, which caused the company
to lose market share. Production capacity and service levels are now
back at normal levels.
Market conditions in the immediate future are difficult to foresee,
mainly owing to uncertainty about the coming developments in the global
economy and the effects of the uncertain situation in the world. In the
longer term, previous estimates of sustainable volume growth of 2-3 per
cent a year on the European envelope market remain unchanged.
COST CUTTING AND CAPACITY ADJUSTMENTS
An extensive restructuring programme and a number of capacity reductions
at the Group's units are being carried out with the aim of adapting the
Group to prevailing market conditions. This is involving the shutdown of
a number of envelope machines and cancellation of shifts. The programme
affects virtually all operations and involves a reduction of 100 in the
work force. The cuts have to a large extent been arranged to affect
contract employees, which means that they will have an impact fairly
soon and will enable the company to return to higher capacity at short
notice. The annual effects of the programme are estimated at around SKr
30 million, with full impact from January 2002. The cost of implementing
the changes is provisionally estimated to no more than some SKr 5
million and will be charged against profit for the fourth quarter.
TURNOVER AND RESULT, JANUARY-SEPTEMBER 2001
The consolidated turnover for the January-September 2001 period
increased by 5.6 per cent to SKr 1,799 million (1,703). Of the increase,
some 5 percentage points are attributable to acquired units, 4
percentage points to price increases and 6 percentage points to currency
fluctuations. This means that for comparable units, delivery volumes
declined by some 9 per cent.
The operating profit (excluding items affecting comparability of SKr 5
million) decreased during the January-September 2001 period to SKr 39
million (136). The operating margin was 2.1 per cent (8.0). The result
after net financial items (excluding items affecting comparability) was
a loss of SKr 12 million (profit 87) for the period, and the loss per
share after tax and full dilution (excluding items affecting
comparability) was SKr 1.30 (earnings of SKr 6.18).
As previously announced, the items affecting comparability of SKr 5
million relate to the cost of the cancelled acquisition of the
Stronghold Group and the share issue planned to finance it.
The decline in the result is mainly attributable to considerably lower
capacity utilisation caused by a general slackening in demand and
narrower gross margins owing to last year's extremely large increase in
the price of paper, the Group's most important input material.
In addition, the very extensive structuring programme carried out during
the first half of the year in connection with the integration of newly
acquired units caused serious disturbances to production. The programme
has affected most of the Group's units and involved the closure of four
factories and the relocation of one-third of the Group's machines. All
in all, these measures have had a significantly adverse effect on the
Group's productivity and efficiency during the period of adjustment. The
integration process is, however, now complete. The planned structure has
been achieved and efficiency and productivity are now close to intended
levels. It has been possible to reduce the number of employees by the
planned 120 or so as a result of the project.
The overheating that characterised the market for fine paper during the
previous year, and which led to several sharp price increases, has now
reverted to a more balanced situation. Paper prices stabilised during
the first half of the year and are now showing a slightly downward
trend. It is, however, difficult to assess how they will move in the
future.
TURNOVER AND RESULT, THIRD QUARTER 2001
The turnover for the third quarter increased by 4 per cent to SKr 548
million (526), which, after adjustment for acquisitions, price changes
and currency fluctuations, corresponds to a decline of some 12 per cent
in delivery volumes for comparable units. The weak development in sales
is largely an effect of generally slackening conditions. The operating
result for the third quarter, traditionally the weakest of the year,
declined to a loss of SKr 5 million (35 excluding items affecting
comparability). The result after net financial items was a loss of SKr
22 million (18 excluding items affecting comparability).
EVENTS IN THE THIRD QUARTER 2001
Envelop-e®, the Group's new e-business system, was successfully launched
for customers in Sweden and Norway during the third quarter. The system
is seen as user-friendly and cost-effective, and we expect more
customers to sign up and increased use. Preparations are being made to
launch the system in the Group's other businesses.
A 50 per cent owned associate company in England, Eurotrade Business
Products Ltd, has hitherto handled the marketing of the TYVEK® envelope,
a product with special protective features. Bong has notified Eurotrade
that it intends to cease this arrangement and intends to canvass the
market direct and on own account as of March 31st, 2002. The market for
TYVEK® envelopes in Europe is estimated to be worth around SKr 200
million with annual growth of some 5-10 per cent.
LIQUID FUNDS, CASH FLOW AND FINANCING
The Group's closing liquid funds amounted to SKr 49 million (Dec 31st
2000: 70), excluding unutilised credit facilities of some SKr 225
million. The negative cash flow absorbed by current operations during
the reporting period was SKr 11 million (positive 77), which is mainly
attributable to the poorer result and to the liquidity effects of the
now completed structuring measures and the supplementary payment of tax
for 2000. The negative cash flow absorbed by current operations during
the third quarter was SKr -5 million (negative 6).
The net financial debt amounted to SKr 1,207 million at September 30th
2001 (Dec. 31, 2000: 1,017). Net debt increased by SKr 96 million as a
result of the weakening of the Swedish krona.
Closing equity amounted to SKr 681 million (Dec. 31st 2000: 675). The
closing equity ratio was 27.0 per cent (Dec. 31st 2000: 28.8) and the
net debt/equity ratio was 1.79 (Dec. 31st 2000: 1.51).
FIXED CAPITAL EXPENDITURE
Excluding company acquisitions, capital expenditure during the period
amounted to SKr 60 million, of which SKr 14 million was charged during
the third quarter (SKr 83 million and SKr 12 million during the
corresponding periods last year, excluding property sales of SKr 130
million). Investments during the period were mainly in machinery at the
envelope factories. Capital expenditure is now being minimised as far as
possible and will decline during the coming quarters.
EMPLOYEES
The average number of employees for the period was 1,864 (1,882), with
acquired units accounting for an increase of some 125. The number of
employees at the close of the period was 1,833, a reduction by 177 when
compared with the same time last year.
PROSPECTS
The recession is deepening and spreading. The weak market conditions,
coupled with loss of market share and disturbances in connection with
the restructuring programme, have caused a sharp deterioration in the
consolidated result.
Completed and planned cost reductions, lower paper prices and improved
production will to some extent offset the weak demand. The previous
forecast of a considerably poorer result than for last year remains
unchanged.
The Group's strong position on the European envelope market, the effects
of the now completed restructuring measures, and the potential provided
by the further consolidation of the European envelope industry, mean,
when seen overall, that Bong's prospects of achieving long-term growth
in its sales and earnings are bright.
Kristianstad, November 2nd 2001
Lennart Pihl
Managing Director and Group CEO
This interim report is made up in accordance with the Swedish Financial
Accounting Standards Council's Recommendation RR20 Interim reports. The
same accounting principles have been applied as for the latest final
accounts.
The nine-monthly report has not been subject to specific examination by
the company's auditors.
Further information may be obtained from Bong Ljungdahl AB's MD and CEO,
Lennart Pihl on
+46 44 20 70 00 (switchboard), +46 44 20 70 50 (direct), or +46 70 594
68 66, (mobile)
Next financial report
Year-end release February 26th 2002