Hexagon Interim Report January - June 1999

8/6/1999 8:01 AM EST

Interim Report January - June 1999

The First Half of 1999

Earnings after financial items amounted to MSEK 90 (158)
Reduced invoiced sales during the period
Extensive staff cutbacks completed
Rising inflow of orders at the end of the period

The Second Quarter of 1999

Earnings after financial items amounted to MSEK 32 (95)
Two minor business operations acquired, one subsidiary disposed of
Markedly improved inflow of orders

For further information, please contact:
Börje Andersson, President, telephone int + 46 418 44 92 00

Hexagon AB (publ) Tel +46 418 44 92 00
Kronobryggan Fax +46 418 44 92 08
261 31 LANDSKRONA www.hexagon.se
Sweden  


im report 1 January - 30 June 1999
econd Quarter of 1999
The Group's earnings after financial items amounted to MSEK 32 (95). This
decline in earnings is largely attributable (57 per cent) to lower volumes in
a comparable structure. Demand has been sluggish for the companies in
Industrial Components and Systems and Niche Manufacturing, with the exception
of SwePart which largely delivers to the heavy duty vehicle industry where
demand has been healthy. The difference in capital gains between the periods
explains a further 26 per cent of the decline in earnings and the remainder,
approximately 17 per cent, is attributable to lower gross margins, etc.

Earnings, 2nd quarter 1998 MSEK 95
Decline in invoiced sales in comparable MSEK -36
structure, affecting earnings
Difference in capital gains MSEK -16
Other items including lower gross margins MSEK -11
Earnings, 2nd quarter 1999 MSEK 32

Invoiced sales amounted to MSEK 1 195 (1 242). In a comparable structure,
invoiced sales fell, however, by 7 per cent from MSEK 1 279 to MSEK 1 195.

The inflow of orders rose to MSEK 1 237 (1 210). In a comparable group
structure, the inflow of orders fell by 5 per cent during the second quarter
of 1999 compared with the same quarter of the previous year. During the last
three months, the inflow of orders has however gradually improved, please see
further the Table on the following page.

Quarterly figures 1998 1999
Q 1 Q 2 Q 3 Q 4 Q 1 Q 2
Inflow of orders 1 1 1 1 1 1
210 210 247 243 222 237
Invoiced sales 1 1 1 1 1 1
124 242 206 374 207 195
Earnings after 63 95 81 74 58 32
financial items

Half Year 1999Group Earnings and Invoiced Sales
The Group's earnings after financial items for the first half year of 1999
amounted to MSEK 90.0 (157.5). The earnings for 1999 include capital gains at
an amount of MSEK 19.4. The corresponding item in 1998 was slightly lower and
amounted to MSEK 15.0. The decline in earnings is substantially because of
lower levels of invoicing caused by sluggish demand, but also to some degree
by a pressure on margins and restructuring work in certain companies.

Group invoiced sales amounted to MSEK 2 402 (2 366). The figures are not
strictly comparable because of changes in the group structure. In a comparable
group structure, invoiced sales fell from MSEK 2 541 to MSEK 2 402, a decline
of 5 per cent.

Trends during the first half of 1999
Inflow of Orders
In a comparable group structure, the inflow of orders fell by 8 per cent.
Because of corporate acquisitions made during 1998 and 1999, the inflow of
orders rose by 2 per cent and amounted to MSEK 2 459 (2 420).

Hexagon monitors the order inflow trend in a comparable structure and at
seasonally adjusted whole year rate which is based on the outcome of the
latest three months. During the second half of 1998, the slowdown in the
industrial climate had an impact and the inflow of orders underwent a dramatic
downturn. Invoiced sales turned down four months later, in January 1999. The
decline in the inflow of orders continued during the first quarter of 1999.
During the second quarter, the inflow of orders has improved as will be
apparent from the diagram below. The improvement in inflow of orders has not
yet favourably affected invoicing.
The inflow rate on a whole year basis was MSEK 4 730 in June 1999, compared
with MSEK
4 900 a year earlier, a decline of 3 per cent. From the beginning of the year,
the order inflow rate has risen by one per cent. All values are on a whole
year basis and relate to a comparable corporate structure.


Total workforce
The decline in the inflow of orders towards the end of 1998 triggered an
extensive rationalisation programme which, among other things, entailed a
cutback in the workforce. In a comparable structure, the total workforce has
declined in number by 324 (-8%), at 30 June 1999 compared with 31 December
1998, and by 95 (-3%) compared with 30 June 1998. All companies have reduced
staff, but the greater part of this reduction took place in Gislaved Gummi in
Sri Lanka and in Moteco Sweden. The reduction in staff took place during the
spring, and as a result the average total workforce remained largely unchanged
during the first half of 1999, compared with the first half of 1998. The full
effect of the staff cutbacks will therefore not be tangible until during the
autumn of 1999.

Further staff cutbacks have been decided on, comprising roughly 50 members of
the workforce. In total, this entails that the workforce in a comparable
corporate structure will have been reduced by approximately 375 staff members,
or 9 per cent at the end of the year, compared with the position at the
beginning of the year.

Acquisitions and disinvestments
During the first half of the year, four minor complementary acquisitions were
carried out by Hexagon's subsidiaries and two major operations have been
disposed of.

In January, Dacke Hydraulik acquired Östermo Mekaniska AB in Vaggeryd.
Operations, which turn over MSEK 40, have been coordinated with Dacke's other
local company, Vaggeryds Hydraulik. Both companies manufacture hydraulic
cylinders and the acquisition of Östermo involves coordination advantages
within several areas.

In February, EIE Maskin, which is a subsidiary of AKA Industriprodukter,
acquired Precisions-Produkter AB, whose turnover amounts to just under MSEK
15. The acquisition strengthens EIE's positions in linear transmissions.


In March, AKA Industriprodukter's refrigeration operations - with a turnover
amounting to MSEK 314 during 1998 - were disposed of. The reason for this
disinvestment was to streamline AKA's operations, with greater focus on
efforts within AKA's top priority product areas. The capital gains amounted to
MSEK 22.3 after tax. The purchase price and settlement of loans released a
total of MSEK 152.

In May, Hexagon sold Robust Ståldörrar RSD AB, as well as the property where
operations are conducted. This disinvestment entailed a minor capital loss.
Turnover in Robust amounted to MSEK 97 in 1998 and pretax earnings amounted to
MSEK 0.2.

In June, two operations were acquired.

Gustaf Fagerberg acquired the operations in the Danish control and instrument
company Mobro Instrumentering, whose turnover amounts to approx. MSEK 25.

Nybro Stålprodukter, a subsidiary of Johnson Stål & Metall AB, acquired C-B
Agenturer AB in Karlskoga. Turnover amounts to approx. MSEK 25.

Profitability
Return on average shareholders' equity was 10% (18) after earnings were
charged with a 28% standard tax. The return on average capital employed
amounted to 11% (18).

Financial position of the Group
At 30 June 1999, the equity ratio stood at 45% (42%). The visible
shareholders' equity amounted to MSEK 1 344 (1 253). Including the excess
value in listed shares, adjusted shareholders' equity amounted to MSEK 1 417
(1 359).

Liquid assets, including unutilised overdraft facilities, amounted to MSEK 359
(374). The corresponding figure at 31 December 1998 was MSEK 452. Pledged
credit is available in the form of syndicated loans of approx. MSEK 826 (744).
Net debt in the Group was MSEK 649 (630) and net indebtedness (interest-
bearing liabilities minus liquid assets divided by shareholders' equity) was
0.48 times (0.50). Interest cover rate was 4.3 times (7.7).

The Group's investments in fixed assets amounted to MSEK 79 (110). In
addition, business operations were acquired at a value of MSEK 36 (81) as well
as the acquisition of shares in affiliates at an amount of MSEK 3 (-).
Depreciations amounted to MSEK 96 (88) during the first half of 1999.

Cash flow
Cash flow before changes in operating capital and investments amounted to MSEK
86 (160).

1999 1998
Cash flow from current 75 40
operations
Cash flow from investment - 7 - 88
operations
Cash flow from financial - 68 78
operations
Dividend to shareholders - 74 - 74
Change in liquid assets - 74 - 44

Liquid assets at beginning of 210 226
period
Liquid assets at end of period 136 182

Invoiced sales and earnings after financial items by business area (January-
June)

Invoiced Earnings
sales
1999 1998 1999 1998

Industrial Components and 878 973 19.7 50.0
Systems
Niche manufacturing 1 1 51.4 97.8
090 076
Norfoods 406 275 - 2.2
2.3
Other companies 39 51 13.2 11.4
Capital gains outcome sale - - 19.4 -
group companies 0.6
Capital gains outcome other - - - 15.6
Group adjustments and Parent - 11 - 9 - -
company 11.4 18.9
Group 2 2 90.0157.
402 366 5


Industrial Components and SystemsDuring the first half of the year, invoiced
sales in the Industrial Components and Systems Division amounted to MSEK 878
(973), a fall of 10 per cent. The inflow of orders fell by 13 per cent and was
MSEK 908 (1 043). Earnings after financial items fell to MSEK 19.7 (50.0). In
a comparable structure, the inflow of orders fell by 10 per cent and invoicing
by 7 per cent.

AKA Industriprodukter's invoiced sales fell by 21 per cent to MSEK 354 (450).
The greater part of this decline in invoiced sales relates to the disposal of
the refrigeration operations but also to lower volumes. In a comparable
structure, invoiced sales fell by 7 per cent. Earnings have declined and
amounted to MSEK 4.8 (19.8). Lower margins in AKA's largest company Tecalemit
and the sale of the refrigeration operations have negatively affected
earnings. A considerable proportion of the decline in earnings because of the
sale of the refrigeration operations has benefited Hexagon in the form of
interest and a reduction in goodwill depreciations. A programme of action in
Tecalemit, together with reductions in AKA's cardinal costs have been
initiated and are expected to cut costs by approximately MSEK 10 during the
year 2000.

Dacke Hydraulik's invoiced sales fell somewhat to MSEK 265 (267). In a
comparable structure, invoiced sales fell by 8 per cent and the lower volumes
have negatively affected earnings to a considerable degree. Earnings amounted
to MSEK 12.1 compared with MSEK 24.1 for the same period of the previous year.
Over the last four months, Dacke's inflow of orders has improved, which has
only slightly affected invoiced sales and earnings during the period.

Invoiced sales in Gustaf Fagerberg rose slightly to MSEK 260 (255). The
increase derives from acquisitions carried out during the last year. In a
comparable structure, invoiced sales fell by 4 per cent. The inflow of orders
has been very sluggish during the first half of the year, and fell by 19 per
cent compared with the first half of 1998. Earnings amounted to MSEK 7.8
(12.5) because of the lower volumes in a comparable structure. An extensive
programme of action has been implemented in several areas and further cost
cuts are to be put into effect during the autumn.

Niche Manufacturing
Invoiced sales within the Niche Manufacturing Division rose slightly to MSEK 1
090 (1 076) and the inflow of orders rose by 2 per cent. In May 1998, Nordic
Brass AB was acquired and SwePart Plast AB was disposed of, with the result
that the figures are not strictly comparable. In a comparable structure, the
invoiced sales fell by 6 per cent and the inflow of orders fell by 10 per
cent. Earnings after financial items fell to MSEK 51.4 (97.8).

Gislaved Gummi's invoiced sales remained largely unchanged compared with the
first half of 1998. EEC in Sri Lanka is included in the invoicing statistics
for 1999 but was not included in the first half of 1998. In a comparable
structure, invoiced sales fell by 8 per cent and the lower volumes have
negatively affected earnings to a considerable extent. The earnings outcome,
which has also been affected by depressed prices and consequential lower gross
margins, amounted to MSEK 19.8 (27.3). The inflow of orders in a comparable

structure fell by 2 per cent, but the company has enjoyed a favourable inflow
of orders in recent months.

Moteco increased its inflow of orders by 1 per cent compared with the same
period in 1998. Invoiced sales rose by 22 per cent. The earnings outcome
deteriorated as a result of lower volumes than planned, an unfavourable
product mix, depressed prices and delays in automation investments which,
among other things, involved higher staff costs than envisaged. As of the last
of June, the total workforce has been reduced however by 21 per cent compared
with the position at the beginning of 1999. Earnings after financial items
amounted to MSEK 1.0 (16.3). Trends during the rest of the year are largely
dependent upon the main customers' sales volumes of newly launched telephones.
A new CEO has been employed effective as of August 1999. Operations in China
which came on stream in September 1998 are developing well and display a
favourable earnings outcome.

Johnson Stål & Metall is the individual operational unit which has been
hardest hit by the weak economic climate. The inflow of orders has fallen
steeply over a year's time, and despite a slight upturn in June, it is still
too early to note a turnaround in the economic climate for the company. In a
comparable structure, the inflow of orders fell by 22 per cent and invoiced
sales by 16 per cent. The acquisition of Nordic Brass in the spring of 1998
however entailed that invoiced sales rose to MSEK 473 (439). Earnings declined
by 67 per cent compared with the same period in the previous year and amounted
to MSEK 15.7 (48.0). The decline in earnings may be explained by the weak
economic climate and consequential lower volumes. The sluggish demand has also
negatively affected gross margins as a result of lower prices to customers.
Johnson Metall, which provides the Nordic industry with bronze products, has
principally been hit by sluggish demand in Sweden. Johnson Metal Bearing
Components, which supplies cage rings of brass for the ball bearing industry,
has cut back the workforce by 20 staff members in the United States, and
issued redundancy notices to a further 20 staff members in Norway. The cost
effect of these cutbacks is expected to be felt during the autumn of 1999.
Nordic Brass has reduced its turnover by 27 per cent. The demand for the
company's products has been sluggish and lower metal prices have negatively
affected turnover and earnings.

SwePart's invoiced sales fell to MSEK 289 (336), which is largely because of
the sale of SwePart Plast in 1998. In a comparable structure, invoiced sales
rose by 5 per cent and the inflow of orders by 2 per cent. The inflow of
orders has improved considerably during the second quarter. Earnings after
financial items rose to MSEK 20.3 (13.7) which may principally be explained by
the earnings improvement in the subsidiary EBP. EBP manufactures and delivers
original parts for the automotive industry. The Tools Group also reports an
improved earnings outcome compared with the same period in the preceding year.

Norfoods
Norfoods' invoiced sales rose to MSEK 406 (275). The increase is wholly
attributable to the acquisition of Bech & Kjeldahl in Denmark. In a comparable
structure, invoiced sales remained largely unchanged, while the inflow of
orders rose by 7 per cent during the first half of the year. Earnings
deteriorated to MSEK -2.3 (2.2). The decline in earnings is explained largely
by Bech & Kjeldahl's operations in Poland during the first quarter of 1999.
These operations in Poland now report a zero outcome and are in the process of
being phased-out.

Other Companies
The affiliated company VBG AB contributes to Hexagon's earnings in accordance
with the capital share method by MSEK 14.9 (10.1). Robust Ståldörrar, disposed
of in May, reported an earnings outcome of MSEK -0.9 (0.6) during the first
five months of the year.

Per share data
Earnings per share after 28% standard tax amounted to SEK 4.33 (7.63).
Earnings per share after full tax amounted to SEK 4.38 (7.30). Cash flow per
share was SEK 5.84 (10.82).
Visible shareholders' equity per share stood at SEK 91 (85) at 30 June 1999,
and the market price stood at SEK 155 (244). The number of shares at the end

of the period was 14 793 182, which is the same figure as compared with the
previous year.

Parent Company
The Parent Company's earnings after financial items stood at MSEK 105.3
(39.9). Hexagon's programme with synthetic options (warrants) has favourably
influenced earnings by MSEK 1.4
(-4.3) which in turn is linked to the price trend of the Hexagon share. The
equity ratio in the Parent Company was 61% (53). Visible shareholders' equity
including capital proportion of untaxed reserves amounted to MSEK 1 225 (962).
Liquid assets, including unutilised overdraft facilities, amounted to MSEK 172
(160). The corresponding figure at 31 December 1998 was MSEK 220. During the
period, the Parent Company has acquired shares in affiliates for
MSEK 3 (-)

Reports published for 1999
3rd quarter 1999 1 November 1999
Report on Operations 14 February 2000
1999


Forecast for the Whole of 1999
Against the background of an expected improvement in operating earnings during
the second
half-year, it is assessed that the earnings for the whole of 1999 will be
about MSEK 170.

Landskrona, Sweden, 6 August 1999

HEXAGON (publ)

Börje Andersson
President and CEO

Consolidated income statement in brief
(MSEK) 1999 1998 Outcome 1998 1997
last
Jan-Jun Jan-Jun 12 Whole Whole
month year year
period
Net invoiced sales 2 401.9 2 365.7 4 982.6 4 4
946.4 218.0
Gross earnings 486.6 540.0 1 063.2 1 999.4
116.6
Selling expenses - 225.6 - 217.8 - 467.3 - -
459.5 400.8
Administration expenses - 164.8 - 156.7 - 317.8 - -
309.7 279.9
Research and - 22.4 - 17.6 - 41.0 - 36.2 - 19.8
development expenses
Other operating incomes 1.9 1.3 1.9 1.3 - 0.6
and earnings
Share of earnings in 15.0 10.4 25.0 20.4 27.1
affiliated companies
Capital gains earnings, 19.4 - 0.6 19.6 - 0.4 13.5
sale Group company
Operating earnings 110.1 159.0 283.6 332.5 338.9
Financial incomes and - 20.1 - 1.5 - 38.5 - 19.9 - 34.8
expenses
Capital gains in - - - - 83.8
connection with the OTC
listing of Svedbergs
Earnings after 90.0 157.5 245.1 312.6 387.9
financial items
Tax - 24.2 - 48.8 - 81.6 - -
106.2 105.0
Minority interest - 1.1 - 0.7 - 2.3 - 1.9 - 0.5
Net income 64.7 108.0 161.2 204.5 282.4

This earnings include - 96.0 - 87.6 - 189,0 - -
depreciations of 180.6 162.0


Key ratios
1999 1998 1998 1997*
Jan- Jan- Whole Whole
Jun Jun year year
Earnings per share after 4.33 7.63 15.12 14.80(18.
standard tax (SEK) 85)
Earnings per share after 4.38 7.30 13.83 13.80(19.
full tax (SEK) 09)
Cash flow per share (SEK) 5.84 10.82 24.60 22.78
Return on shareholders' 10 18 17 20 (25)
equity after standard tax
(%)
Return on capital employed 11 18 17 18 (23)
(%)
Equity ratio (%) 45 42 42 43
Visible shareholders' equity 91 85 92 82
per share (SEK)
Market price (SEK) 155 244 167 218
Average number of share 14 793 14 793 14 793 14 793
(thousands)
* The figures in brackets are calculated including capital gains Svedbergs

Consolidated balance sheet in brief
(MSEK) 1999.06.30 1998.06.301998.12.3
1
Goodwill 347.8 356.9 383.9
Other fixed assets 1 083.4 955.8 1 084.3
Total fixed assets 1 431.2 1 312.7 1 468.2
Other current assets 1 442.6 1 534.4 1 616.3
Cash and bank balances 135.8 181.7 209.9
Total current assets 1 578.4 1 716.1 1 826.2
TOTAL ASSETS 3 009.6 3 028.8 3 294.4
Shareholders' equity 1 279.5 1 145.3 1 153.1
Net income 64.7 108.0 204.5
Total shareholders' equity 1 344.2 1 253.3 1 357.6
Minority interest 9.2 13.9 9.3
Interest-bearing liabilities 784.7 811.3 957.9
Noninterest-bearing 871.5 950.3 969.6
liabilities
Total liabilities 1 656.2 1 761.6 1 927.5
TOTAL SHAREHOLDERS' EQUITY AND 3 009.6 3 028.8 3 294.4
LIABILITIES
This interim report has not been subjected to special examination by the
Company's auditors