Finnveden Announces Interim Report, January 1 - June 30, 2001
STOCKHOLM, Sweden--Aug. 14, 2001--Finnveden:| -- | Loss after net financial items amounted to SEK 38 M (income: 132), including items affecting comparability |
| -- | Earnings per share, excluding items affecting comparability, rolling 12 months, is loss of SEK 0.45 (2000 full year: profit 8.47) |
| -- | Strengthened market positions in a weak market |
| -- | Additional restructuring measures are planned |
| -- | Board intends to decide on new share issue for approval by General Meeting of shareholders |
Group in summary April-June Jan-June Full-year
2001 2000 2001 2000(a) 2000(a)
Order bookings, SEK M 1 123 874 2 214 1 587 3 219
Net sales, SEK M 1 086 820 2 280 1 540 3 093
Operating income before
depreciation
(EBITDA), SEK M 40 142 149 234 381
Operating margin (EBIT),
SEK M -27 98 15 150 212
Income after net
financial items, SEK M -53 89 -38 132 166
Earnings per share,
rolling 12 months, SEK -0.56 29.23 -0.56 29.23 11.35
- excluding items
affecting
comparability, SEK -0.45 10.06 -0.45 10.06 8.47
(a) Income for 2000 includes about SEK 40 M in items affecting
comparability.
Market situation
The truck industry is one of Finnveden's most important customer groups. Finnveden's products are used in heavy and medium-heavy trucks. The market for these products was record high during 2000. During the second half of 2000, the market in the US fell sharply in volume. The decline was about 40%. Demand in the US continued to be weak during the first half of 2001, but has now stabilized and is expected to grow. Demand in Europe was very high during most of 2000, but has declined by 15-20%, however, during the current year. This low demand is expected to remain during 2001 and to increase during 2002. The market in South America developed negatively, while other markets showed a positive trend. Finnveden is highly dependent on the market trend in Europe and other markets than the US. However, the delivery plans we have received from customers indicate a more positive development than the market as a whole.
The passenger car market in Europe during the first half of the year declined by 3-4%. Finnveden has a larger share of sales to prestige cars, which have developed somewhat more favorably. The market for cars is expected to continue to decline during the second half of the year. However, Finnveden's sales are expected to increase due to favorable trends for Finnveden's key customers.
The telecom market has experienced a highly adverse development during the past year. Sales to the telecom sector fell 50%. Demand has stabilized at a low level and is expected to gradually increase.
The market for the general engineering industry has been stable, but at a low level during the second quarter of 2001. Demand is expected to decline during the second half of 2001.
Trend in 2001
Demand from Finnveden's most important customer groups declined significantly during the reporting period. The automotive industry, particularly the trucks industry, which is Finnveden's most important customer group, reported a decline in order bookings as well as deliveries. For Finnveden, this resulted in a weakening in order bookings during the first quarter and an impact on invoicing in the second quarter. For comparable units, invoicing declined 9% since the first quarter and by 2.5% compared with the year-earlier period. Operating margin declined to 0.7% (9.8) during the reporting period. Operating margin in the second quarter was a minus 2.5%, compared with a positive 3.5% in the first quarter. Return on capital employed fell to 1.3% (17.0). The margin and profitability decline is largely attributable to the volume decline and the resulting lower capacity utilization as well as costs for the personnel reductions, writedowns on inventories and accounts receivable amounting to a total of SEK 30 M. Several of the acquisitions in recent years report losses, resulting in a charge against earnings. Measures implemented to align costs and the capital structure to the prevailing market situation are expected to yield a result during the second half of the year.
Structural changes
During the reporting period, Finnveden reached an agreement with Volvo Cars covering acquisition of additional operations at the North plant in Olofstrom. Takeover occurred on July 1, 2001 and operations are included in Finnveden Sheet Metal Components as of this date. The acquired operations have sales of SEK 130 M, with slightly more than 100 employees. The acquisition strengthens Finnveden's position as a supplier of sheet metal components to the automotive industry, broadens the product range and contributes a new technology segment. Concurrently, this means a greater undertaking in the form of more sophisticated and assembled products. A stronger production unit is also created for Finnveden in Olofstrom.
Within Powertrain Components, restructuring of companies and production units is under way, with the aim of streamlining operations and focusing further on the business area's core operations, namely sophisticated and technically intensive parts, components and systems for engines and drivelines for commercial vehicles as well as passenger cars. Gjutal, Finnveden Precision and Finnveden Engineering have been moved out of Powertrain Components. Production, business activities and customers differ between these companies and the other operations of Powertrain Components. The assessment is that there is greater potential to develope these companies in a separate unit instead of in an integrated business area.
Structural measures
The consolidation in recent years within the automotive industry, in which Finnveden has most of its customers, combined with the industry's continuing demand for increased content in the products and services provided and for annual price reductions, has resulted in very heavy demands on the company.
For Finnveden to be able to sustain satisfactory profitability in the prevailing business climate with weakening volumes, additional strong measures are planned to coordinate and structure the many acquisitions carried out by Finnveden in recent years.
Consequently, Finnveden plans to carry out extensive changes in the current structure within all business area, with the aim of creating an efficient and adapted organization. These planned measures include increased outsourcing - particularly to the Baltic States - of labor- intensive finishing operations and simpler machining, creation of efficient and cost-effective production units involving the shutdown of a number of plants, divestment of certain areas of operations and coordination of inventory management.
The costs for implementing the planned restructuring measures are estimated at SEK 175 M. This cost will be charged against Finnveden's earnings in the third quarter. The measures are expected for the most part to be completed at year-end 2002. However, the pace of implementation will depend on the rights issue mentioned below. After full implementation, the annual earnings improvement is estimated at SEK 70 M.
Rights issue of shares
As a result of the acquisitions carried out and the loss in the first six months, combined with the costs of the aforementioned restructuring measures, Finnveden's financial position needs to be strengthened. With the aim of strengthening the company's financial position, the Board intends to decide in the near future on a new issue of shares to be presented to a General Meeting of shareholders for approval. The issue, which will be carried out with preferential rights to the company's shareholders, is planned to amount to SEK 350-400 M. Finnveden's main owner, Sparta Holding AB, with 25% of the capital in Finnveden, has undertaken to subscribe for its share. In addition, shareholders representing approximately 24% have declared that they favor the new issue.
Order bookings and net sales
Order bookings for the Group amounted during the reporting period to SEK 2,214 M (1,587), corresponding to an increase of 40% compared with the year-earlier period. The acquisition-related growth, largely the acquisition of Bulten, was about 49%. Order bookings for comparable units declined 9% during the reporting period. The weakening economic activity affected Finnveden's order bookings adversely and all business areas report lower order bookings compared with the year-earlier period. In relation to the preceding quarter, order bookings rose 2.9%. Higher order bookings within business area Fasteners was due to increased undertakings for Volvo Trucks. The other business areas report reduced order bookings.
The total order backlog for the Group amounted to SEK 1,510 M at the end of the period. This corresponds to an increase of about 2.3% in relation to order backlog at March 31, 2001. Order backlog corresponds to about 4.2 months of sales, compared with 3.6 months at in the preceding quarter and 4 at year-end 2000.
Net sales during the reporting period amounted to SEK 2,280 M (1,540), an increase of about 48% compared with a year-earlier. Through acquisitions, net sales increased by SEK 775 M, corresponding to growth of about 67%. The acquired growth is mostly attributable to the acquisition of Bulten by Fasteners. For a comparable Group structure, net sales declined 2.5%. Net sales in the second quarter amounted to SEK 1,086 M, corresponding to a decline of 9% compared with the year-earlier quarter. Exports from Sweden and sales by the Group's foreign companies accounted for 41% (34) of net sales.
Earnings and profitability
Gross profit amounted to SEK 343 M (287), corresponding to a gross margin of 15.0% (18.6). The lower margin is due to unutilized capacity as a result of lower demand, continued prices pressure, increased material prices and currency effects. In addition, the acquisition of Bulten contributed to the decline in gross profit margin.
Operating income before depreciation (EBITDA) amounted to SEK 149.3 M (233.8), corresponding to an EBITDA margin of 6.5% (15.2). Operating income (EBIT) amounted to SEK 14.9 M (150.1), corresponding to an operating margin of 0.7% (9.8). In addition to the aforementioned earnings effects, results were charged with costs for personnel reductions, write down of inventories and doubtful accounts receivable. Costs for these items amount to SEK 30 M, of which SEK 20 M was charged in the second quarter.
Net financial items amounted to an expense of SEK 53 M (expense: 18) and, accordingly, the loss before tax was SEK 38 M (profit: 132). The decline in net financial items was due to increased debt as a result of the acquisition of Bulten.
The loss after estimated tax amounted to SEK 36 M (profit: 90), corresponding to a loss per share of SEK 3.38 (profit: 8.53), including items affecting comparability.
Return on capital employed for the reporting period was 1.3% (17.0) and 3.2% before items affecting comparability for the most recent 12 months. The return on equity for the reporting period was a negative 6.8% (positive: 17.9) and a negative 0.6% for the most recent 12-month period.
Financial position
Cash flow before changes in operating capital and investments amounted to SEK 99 M (147), corresponding to 4.3% (9.5) of net sales. Accounts receivable rose SEK 52 M due largely to extended credit periods to Finnveden's customers. However, this was offset by reduced inventories and increased operating liabilities. Cash flow from operating activities amounted to SEK 107 M (88).
Investment accounted for SEK 124 M (165). Investments in tangible fixed assets amounted to SEK 109 M (165) during the reporting period. The balance, SEK 15 M, was for the purchase of shares in Bulten. Investments were mainly the form of capacity investments within Fasteners and Powertrain Components. The investments in capacity in Powertrain Components pertain to equipment for production of valve mechanisms and connecting rods to new diesel engines.
Change in net debt during the period, SEK M 2001 2000 Net debt at end of period 1 960 648 New borrowing and amortization -6 100 Translation differences 5 - Reduction in cash and bank balances 41 24 Net debt at end of the period 2 000 772
The debt/equity ratio at the end of the period was 1.96 (0.73). Interest coverage was a multiple of 0.3 (6.4).
The Group's liquid funds at the end of the period amounted to SEK 40 M (87). In addition, there are approved but unutilized overdraft facilities), whereby the Group's available liquid funds amounted to SEK 247 M (318). Disposable liquid funds amounted to SEK 287 M (427).
Consolidated shareholders' equity at the end of the period amounted to SEK 1,019 M, compared with SEK 1,090 M at the beginning of the period. Approved dividends of SEK 48 M were paid during the period. Equity per share amounted to SEK 96.04 (99.64).
The consolidated equity/assets ratio amounted to 25.4% (26.7), and 60.8% (63.7) in the Parent Company.