Interim Report January - September 1999
11/1/1999 10:50 AM EST
The first nine months of 1999
*Earnings after financial items amounted to MSEK 127 (238)
*Invoiced sales fell by 7 per cent in a comparable structure and amounted to
MSEK 3 421
*Sweeping rationalisation measures implemented
*The previously submitted earnings forecast for the whole of 1999 of
approximately MSEK 170 remains in place
For further information, please contact:
Börje Andersson, President, telephone int + 46 418 44 92 00
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Interim report 1/1-30/9 1999
The third quarter of 1999
Earnings after financial items amounted to MSEK 37 (81). The decline in
earnings is largely attributable to lower invoicing volume. Demand continued
to be sluggish for the companies in Industrial Components and Systems Division
and in Niche Manufacturing, with the exception of SwePart which largely
supplies to customers in the heavy duty vehicle industry where demand has been
healthy. In total, the lower invoicing volumes have negatively affected
earnings by MSEK 65. The difference in net effect of the synthetic options
between the periods explains a further MSEK 11 of the decline in earnings.
Cost cutting measures, including a reduction in the total workforce, which
were implemented during the year are now gradually having positive effects. In
total, other items including cost reduction items have favourably affected
earnings by MSEK 32 during the third quarter.
Earnings, 3rd quarter 1998 MSEK +81
Decline in invoiced sales in comparable structure, MSEK -65
affecting earnings
Net effect of synthetic options MSEK -11
Other items including cost reductions MSEK +32
Earnings, 3rd quarter 1999 MSEK 37
Invoiced sales amounted to MSEK 1 019 (1 206) a decline of 16 per cent. In a
comparable structure, invoiced sales fell by 12 per cent from MSEK 1 153 to
MSEK 1 019.
The inflow of orders fell to MSEK 1 056 (1 247) a decline of 15 per cent. In a
comparable group structure, the inflow of orders fell by 8 per cent during the
third quarter of 1999 compared with the same quarter of the previous year.
Quarterly Figures 1998 1999
Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q3
Inflow of orders 1 1 1 1 1 1 1
210 210 247 243 222 237 056
Invoiced sales 1 1 1 1 1 1 1
124 242 206 374 207 195 019
Earnings after 63 95 81 74 58 32 37
financial items
Nine months 1999
Group earnings and invoiced sales
Earnings after financial items for the first nine months of 1999 amounted to
MSEK 127.0 (238.0). The earnings for 1999 include capital gains of MSEK 19.4.
The corresponding item for 1998 was somewhat lower and amounted to MSEK 15.0.
The decline in earnings is largely attributable to lower invoicing caused by
weak demand, but also to some degree by a pressure on margins and
restructuring costs in certain companies.
Invoiced sales in the Group amounted to MSEK 3 421 (3 572). The figures are
not entirely comparable because of changes in corporate structure. In a
comparable corporate structure, invoiced sales fell from MSEK 3 676 to MSEK 3
421, a decline of 7 per cent. Cash flow from current operations rose to MSEK
113 (61).
Inflow of orders
Inflow of orders fell by 4 per cent and amounted to MSEK 3 515 (3 667). In a
comparable corporate structure the inflow of orders fell by 7 per cent.
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 economy made an impact and the inflow of orders turned down
steeply. Invoiced sales turned downwards four months later, in January 1999.
The decline in the inflow of orders continued during the first quarter of
1999. During the second and third quarters, the inflow of order rate improved
somewhat, as is apparent from the diagram below. The improvement in the inflow
of orders has not yet favourably affected invoiced sales.
The order inflow rate on a whole year basis was MSEK 4 600 in September 1999,
compared with MSEK 5 020 a year earlier, a decline of 8 per cent. From the
beginning of the year, the order inflow rate has fallen by 2 per cent. All
values are on a whole year basis and relate to a comparable structure.
Total workforce
The failing inflow of orders during the end of 1998 occasioned a sweeping
rationalisation programme, among other things involving a reduction in the
total workforce. In a comparable structure, the total workforce has shrunk by
336 (-9 per cent) as of 30 September 1999, compared with 31 December 1998, and
by 368 (-9 per cent) compared with 30 September 1998. All companies have
reduced their workforce, but the greater part of the reduction took place in
Gislaved Gummi in Sri Lanka and in Moteco in Sweden. The workforce reductions
have begun to have a cost-cutting effect. The full effect of these reductions
will not be felt until the beginning of the year 2000.
Further cutbacks in the workforce have been decided on, encompassing roughly
25 members of the staff. In total, this entails that the workforce in a
comparable structure will have been reduced by approximately 360 employees 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 nine months, six minor supplementary acquisitions were
carried out by Hexagon's subsidiaries and two 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.
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. 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 were conducted. This disinvestment entailed a minor capital loss.
Turnover in Robust amounted to MSEK 97 in 1998 and pre-tax earnings amounted
to MSEK 0.2
In June, Gustaf Fagerberg acquired the operations in the Danish control and
instrument company Mobro Instrumentering, whose turnover amounts to approx.
MSEK 25.
In the same month, Nybro Stålprodukter, a subsidiary of Johnson Industries AB,
acquired
C-B Agenturer AB in Karlskoga. Turnover amounts to approx. MSEK 25.
In August, IP-Industriprodukter, within the AKA Group, acquired two minor
trading companies in Finland, Filtercon and O-Teckno, with a total turnover of
MSEK 15.
Profitability
Return on average shareholders' equity was 9 per cent (18) after earnings were
charged with a 28 per cent standard tax. The return on average capital
employed amounted to 10 per cent (17).
Financial position of the Group
At 30 September 1999, the equity ratio stood at 46% (41). The visible
shareholders' equity amounted to MSEK 1 365 (1 318). Including the excess
value in listed shares, adjusted shareholders' equity amounted to MSEK 1 447
(1 394).
Liquid assets, including unutilised overdraft facilities, amounted to MSEK 320
(365). The corresponding figure at 31 December 1998 was MSEK 452. Pledged
credit is available in the form of syndicated loans of approx. MSEK 789 (611).
Net debt in the Group was MSEK 631 (838) and net indebtedness (interest-
bearing liabilities minus liquid assets divided by shareholders' equity) was
0.46 times (0.64). Interest cover rate was 4.2 times (7.0).
The Group's investments in fixed assets amounted to MSEK 130 (144). In
addition, operations were acquired at a value of MSEK 41 (205) as well as the
acquisition of shares in affiliates at an amount of MSEK 6 (4). Depreciations
amounted to MSEK 142 (134) during the first nine months of 1999. After the end
of the report period, certain changes to to the structure of the Group were
implemented which may substantially reduce the Group's future tax cost.
According to information received, the Swedish Staff Pension Society has
allocated MSEK 90 of its surplus fonds to the companies of the Hexagon Group.
Cash flow
Cash flow before changes in operating capital and investments amounted to MSEK
149 (264).
January - September (MSEK) 1999 1998
Cash flow from current operations 113 61
Cash flow from investment operations - 43 - 240
Cash flow from financial operations - 87 163
Dividend to shareholders - 74 - 74
Change in liquid assets - 91 - 90
Liquid assets at beginning of period 210 226
Liquid assets at end of period 119 136
Invoiced sales and earnings after financial items by business area
January - September (MSEK) Invoiced Earnings
sales
1999 1998 1999 1998
Industrial Components and Systems 1 257 1 456 35.7 79.5
Niche Manufacturing 1 533 1 584 68.9 135.6
Norfoods 608 474 - 0.8 3.7
Other companies 39 72 17.8 16.9
Capital gains, sales Group - - 19.4 - 0.6
companies
Capital gains, other - - - 15.6
Group adjustments and Parent - 16 - 14 - -
company 14.0 12.7
Group 3 421 3 572 127.0 238.0
Industrial Components and Systems
During the first nine months of 1999, invoiced sales in the Industrial
Components and Systems Division amounted to MSEK 1 257 (1 456) a fall of 14
per cent. The inflow of orders fell by
14 per cent, principally as a consequence of the disposal of companies, and
amounted to
MSEK 1 274 (1 482). Earnings after financial items fell to MSEK 35.7 (79.5).
In a comparable structure, the inflow of orders and invoiced sales fell by 7
per cent.
AKA Industriprodukter's invoiced sales fell by 27 per cent to MSEK 490 (669).
The decline in invoiced sales is largely the result of the disposal of the
refrigeration operations, but also the result of smaller volumes. In a
comparable structure, invoiced sales have fallen by 5 per cent. Pre-tax
earnings have been halved compared with the same period for the previous year.
An action programme in Tecalemit and reductions in AKA's central costs have
been initiated and are expected to cut costs by more than MSEK 13 during the
year 2000.
Dacke Hydraulik's invoiced sales remained unchanged in absolute terms. In a
comparable structure, invoiced sales fell by 7 per cent and the smaller
volumes have had a negative effect on earnings to a substantial degree. During
recent months, Dacke's inflow of orders has improved, which has hitherto had
only a limited effect on invoiced sales and earnings.
Invoiced sales in Gustaf Fagerberg fell to MSEK 382 (402). In a comparable
structure, invoiced sales fell by 10 per cent and the inflow of orders, which
has been very sluggish during the first nine months of 1999, fell by 13 per
cent compared with the same period in 1998. Earnings were halved, principally
because of smaller volumes in a comparable structure. A sweeping action
programme has been completed by several of the companies, which has resulted
in cost savings which are now beginning to bear fruit.
Niche Manufacturing
Invoiced sales in the Niche Manufacturing Division fell somewhat to MSEK 1 533
(1 584) and the inflow of orders fell by 4 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 entirely comparable. In a comparable structure, invoiced sales
fell by 9 per cent and the inflow of orders by 10 per cent. Earnings after
financial items fell to MSEK 68.9 (135.6).
Gislaved Gummi's invoiced sales remained largely unchanged compared with the
first nine months of 1998. EEC in Sri Lanka is included in the invoiced sales
figures 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 smaller
volumes have negatively affected earnings. Earnings have progressively
improved during the year and the third quarter performed better than the third
quarter of 1998. The inflow of orders in a comparable structure fell by 4 per
cent.
Moteco saw a decline in the inflow of orders by 15 per cent compared with the
same period in 1998. Invoiced sales fell by 4 per cent. Earnings declines as a
result of smaller volumes than planned, an unfavourable product mix, pressure
on prices and problems in automation investments which have, among other
things, involved higher human resources costs than planned. As of the last day
of September, the total workforce has, however, been reduced by 31 per cent
compared with the position at the beginning of 1999. A new CEO was appointed
during the third quarter. Operations in China, which came on stream in
September 1998, are developing well and are displaying a positive result.
During the third quarter, key order volumes were taken with the company's main
customer and two delivery contracts with considerable potential have been
signed with new customers in China for the year 2000.
Johnson Industries (formerly Johnson Stål & Metall) is the single area of
operations which has been hardest hit by the economic downturn. After having
fallen steeply for a year, the inflow of orders improved somewhat in the last
quarter. In a comparable structure, the inflow of orders fell by 18 per cent
and invoiced sales by 16 per cent. However, the acquisition of Nordic Brass in
the spring of 1998 entailed that invoiced sales in reported figures remained
unchanged. Earnings declined steeply compared with the same period last year.
The decline in earnings may be explained by the sluggish economic climate and
consequential small volumes. Pressure on prices from OEM customers has
negatively affected gross margins. Cost-adaptation moves have been carried out
in several companies.
SwePart's invoiced fell to MSEK 405 (456) which is because of the sale of
SwePart Plast in 1998. In a comparable structure, invoiced sales rose by 3 per
cent and the inflow of orders by 5 per cent.
The inflow of orders has continued to improve during the third quarter. Pre-
tax earnings have improved. SwePart Verktyg has recently been awarded several
major orders to the white goods and automotive industries in Germany, Sweden
and the UK, and as a result has made a breakthrough on several key export
markets.
Norfoods
Norfoods' invoiced sales rose to MSEK 608 (474). This increase derives
entirely from the acquisition of Bech & Kjeldahl in Denmark. In a comparable
structure, invoiced sales remained largely unchanged, while the inflow of
orders rose by 2 per cent during the first nine months of 1999. Earnings
declined, which is largely explained by negative earnings outcome in Bech &
Kjeldahl's operations in Poland. The Polish operations are now showing a zero
earnings outcome and are in the process of being phased out.
Other Companies
The affiliate company VBG AB contributes to Hexagons' earnings in accordance
with the capital share method of MSEK 19.4 (15.9).
Per share data
Earnings per share after 28 per cent standard tax amounted to SEK 6.12
(11.53). Earnings per share after full tax amounted to SEK 6.21 (11.02). Cash
flow per share was SEK 10.08 (17.84).
Visible shareholders' equity per share stood at SEK 92 (89) at 30 September
1999, and the market price stood at SEK 135 (180). The number of shares at the
end of the period was 14 793 182, representing no change compared with the
number of the previous year.
Parent Company
The Parent Company's earnings after financial items stood at MSEK 43.9 (40.2).
Hexagon's programme with synthetic options has positively affected earnings by
MSEK 2.8 (7.9), which in turn is linked to the market trends of the Hexagon
share. The equity ratio in the Parent Company at was 59 per cent (50). Visible
shareholders' equity including capital proportion of untaxed reserves amounted
to MSEK 1 167 (967). Liquid assets, including unutilised overdraft facilities,
amounted to MSEK 155 (161). The corresponding figure at 31 December 1998 was
MSEK 220. During the period, the Parent Company has acquired shares in
affiliates for a total of MSEK 6 (4).
Reports during the year
Report on Operations 1999 14 February
2000
1st quarter 2000, AGM 4 May 2000
2nd quarter 2000 1 August
2000
3rd quarter 2000 1 November
2000
Forecast for the whole of 1999
The previously submitted earnings forecast for the whole of 1999 of
approximately MSEK 170 remains in place.
Landskrona, Sweden, 1 November 1999
HEXAGON AB (publ)
Börje Andersson
President and CEO
Consolidated income statement in brief
(MSEK) 1999 1998 Outcome 1998 1997
last
Jan- Jan- 12 Whole Whole
Sep Sep month year year
period
Net invoiced sales 3 3 4 794.7 4 4
420.7 572.4 946.4 218.0
Gross earnings 694.8 807.4 1 004.0 1 999.4
116.6
Selling expenses - - - 454.5 - -
324.2 329.2 459.5 400.8
Administration expenses - - - 324.3 - -
233.6 219.0 309.7 279.9
Research and development - - - 42.1 - 36.2 - 19.8
expenses 31.9 26.0
Other operating incomes and 7.7 1.4 7.6 1.3 - 0.6
earnings
Share of earnings in 19.5 16.4 23.5 20.4 27.1
affiliated companies
Capital gains earnings, 19.4 - 0.6 19.6 - 0.4 13.5
sale Group company
Operating earnings 151.7 205.4 233.8 332.5 338.9
Financial incomes and - - - 32.2 - 19.9 - 34.8
expenses 24.7 12.4
Capital gains in connection - - - - 83.8
with the OTC listing of
Svedbergs
Earnings after financial 127.0 238.0 201.6 312.6 387.9
items
Tax - -73.7 - 66.3 - -
33.8 106.2 105.0
Minority interest - 1.3 - 1.2 - 2.0 - 1.9 - 0.5
Net income 91.9 163.1 133.3 204.5 282.4
This earnings include - - - 188.8 - -
depreciations of 142.2 134.0 180.6 162.0
Key ratios
1999 1998 1998 1997*
Jan- Jan- Whole Whole
Sep Sep year year
Earnings per share after 6.12 11.53 15.12 14.80 (18.
standard tax (SEK) 85)
Earnings per share after full 6.21 11.02 13.83 13.80 (19.
tax (SEK) 09)
Cash flow per share (SEK) 10.08 17.84 24.60 22.78
Return on shareholders' equity 9 18 17 20 (25)
after standard tax (%)
Return on capital employed (%) 10 17 17 18 (23)
Equity ratio (%) 46 41 42 43
Visible shareholders' equity 92 89 92 82
per share (SEK)
Market price (SEK) 135 180 167 218
Average number of share 14 14 14 793 14 793
(thousands) 793 793
* The figures in brackets are calculated including capital gains Svedbergs
Consolidated balance sheet in brief
(MSEK) 1999.09. 1998.09 1998.12
30 .30 .31
Goodwill 339.5 392.9 383.9
Other fixed assets 1 080.9 1 029.2 1 084.3
Total fixed assets 1 420.4 1 422.1 1 468.2
Other current assets 1 419.3 1 679.6 1 616.3
Cash and bank balances 118.6 135.4 209.9
Total current assets 1 537.9 1 815.0 1 826.2
TOTAL ASSETS 2 958.3 3 237.1 3 294.4
Shareholders' equity 1 272.9 1 154.5 1 153.1
Net income 91.9 163.1 204.5
Total shareholders' equity 1 364.8 1 317.6 1 357.6
Minority interest 9.5 14.3 9.3
Interest-bearing liabilities 750.0 973.2 957.9
Noninterest-bearing liabilities 834.0 932.0 969.6
Total liabilities 1 584.0 1 905.2 1 927.5
TOTAL SHAREHOLDERS' EQUITY AND 2 958.3 3 237.1 3 294.4
LIABILITIES
This interim report has not been subjected to special examination by the
Company's auditors