ATLAS COPCO Interim report as per September 30, 2000 (unaudited)
24 okt 2000
Record results in the third quarter
Near-term outlook Overall, the demand for Atlas Copco's products and services is expected to continue to increase, although at a more moderate pace than so far this year. In North America, demand for rental equipment is expected to continue to improve, driven by the outsourcing trend. Demand for sophisticated investment related products from, among others, the automotive and process industries, is also likely to remain strong. The recent signs of lower demand in parts of the U.S. economy are expected to have a negative impact on sales of some equipment. The outlook for Europe is mixed. A continued favorable demand trend is anticipated in some major markets, while the development in Germany and related markets is more uncertain. In Asia, the strong positive demand trend is expected to continue, particularly in China. Nine months results summary Atlas Copco Group The Atlas Copco Group's orders received for the first nine months increased 31 percent, to SEK 34,451 m. (26,324), corresponding to a volume increase of 12 percent for comparable units. Foreign exchange rate fluctuations had a positive translation effect of approximately 4 percentage points. Revenues also increased 31 percent, to SEK 33,686 m. (25,727), corresponding to a volume increase of 12 percent. The Group's operating profit increased to SEK 4,569 m. (3,070). Operating profit includes a net of nonrecurring items of SEK -6 m. (+83), all recorded in the third quarter (see below for specifications). Excluding nonrecurring items, operating profit rose 53 percent to SEK 4,575 m. (2,987), corresponding to a margin of 13.6 percent (11.6). Profit after financial items amounted to SEK 3,318 m. (2,390), which corresponds to an increase of 39 percent and a margin of 9.8 percent (9.3). Operating cash flow before acquisitions and dividends equaled SEK 461 m. (1,345). The negative difference was entirely due to rental fleet investments in the Rental Service Business Area, which are concentrated to the spring and summer period, due to seasonal variations in rental revenues. Third quarter business review Atlas Copco Group Market development In the third quarter, market demand in North America remained at a high robust level. The industrial sector continued to improve, with particularly high activity in the petrochemical segment. Demand for both larger investment equipment and production related products improved. Activity within the construction industry remained high, benefiting rental equipment. Demand for construction related products was affected somewhat in the latter part of the period by the uncertainty of future activity. In Europe, the demand level continued to improve, while the imbalance in the region remained. Southern Europe and Great Britain recorded positive development, while demand in the Nordic region was slow. The level of activity in the German industry is high, but with few investments. The positive development in Asia continued, with a strong expansion in China, and resulted in high demand for Atlas Copco's products and services. Demand for mining equipment remained strong in most mining related countries. Orders and revenues Orders received were up 25 percent compared with the third quarter of 1999, to SEK 11,743 m. (9,424). This corresponds to a volume gain of 11 percent, excluding a positive currency effect of 9 percentage points and a net effect from acquisitions and divestments of 6 percent. The continued solid volume growth in order intake was achieved through a strong general demand for Atlas Copco's products and services in most geographic markets, market share gains in some specific segments and recently introduced, innovative, products. Revenues were SEK 11,795 m. (9,357), up 26 percent, corresponding to a volume gain of 12 percent for comparable units. Earnings and returns Operating profit increased to a record SEK 1,700 m. (1,283) in the third quarter. The operating profit, under Corporate items, includes a refund of SEK 226 m. relating to pensions for Swedish salaried employees and a partly offset cost of SEK 92 m. relating to offers for early retirement in Sweden. The period also includes SEK 140 m. of nonrecurring charges, SEK 127 m. related to the decision to merge the two companies Prime and RSC within the Rental Service Business Area and SEK 13 m. related to production rationalization within Compressor Technique. Excluding the net of nonrecurring items, SEK -6 m. (+83) the operating profit increased 42 percent to SEK 1,706 m. (1,200). This corresponds to a margin of 14.5 percent (12.8). The margin improvement was a result of higher volumes, the effects of rationalization measures, and favorable currency development. Net currency effects between the third quarters of 1999 and 2000 explained about one third of the operating margin improvement. Net financial items amounted to SEK -455 m. (-318), of which net interest items accounted for SEK -454 m. (-316) and financial foreign exchange differences for SEK -1 m. (-2). The higher interest expense compared to last year was due to the RSC acquisition interest (only two months in Q3 1999), higher short-term interest rates, and a substantially higher USD/SEK exchange rate. Profit after financial items rose to SEK 1,245 m. (965). Excluding nonrecurring items, profit increased 42 percent to SEK 1,251 m. (882), corresponding to a margin of 10.6 percent (9.4). Net profit for the quarter totaled SEK 778 m. (635), or SEK 3.71 per share (3.34). Return on capital employed during the 12 months to September 30, 2000, was 14 percent (15) and return on shareholders' equity 13 percent (14). The Group's Weighted Average Cost of Capital (WACC) is approximately 8 percent (7), corresponding to a pretax Cost of Capital of approximately 12 percent. Cash flow and net indebtedness The operating cash surplus after tax for the third quarter reached SEK 1,834 m. (1,136). Working capital decreased SEK 109 m. (increase 178). Working capital efficiency (measured as a turnover ratio) increased compared with last year, mainly due to improvements in supply chain management. Cash flow from operations rose to SEK 1,943 m. (958), corresponding to 16 percent (10) of Group revenues. Net investment in tangible fixed assets was SEK 1,490 m. (870) during the quarter. The increase compared with the previous year was due primarily to higher rental fleet investments in July, a month in which Rental Service Corporation was not included last year, and partly to currency translation effects. Net cash flow after dividends and acquisitions reached SEK 330 m. (-13,628) The Group's net indebtedness (defined as the difference between interest-bearing liabilities and liquid assets) amounted to SEK 23,501 m. (23,429), of which SEK 1,456 m. (1,462) was attributable to pension provisions. The debt/equity ratio (defined as net indebtedness divided by shareholders' equity) was 100 percent (147). Adjusted for exchange rate changes since September 30, 1999, the debt/equity ratio was 88 percent. Investments Gross investments in property, machinery, etc. totaled SEK 183 m. (318). Gross investments in rental equipment amounted to SEK 1,851 m. (855). Due to seasonal variations in rental revenues, the rental fleet investments are concentrated to the spring and summer period, which means they primarily affect the second and third quarter investments in the Group. Total depreciation on these two asset groups was SEK 219 m. (220) and SEK 689 m. (389) respectively, while amortization of intangible assets amounted to SEK 166 m. (135). People At September 30, 2000, the number of employees was 26,592 (25,926). For comparable units, the number of employees increased by 392 compared with September 1999. Distribution of shares Share capital amounted to SEK 1,048 m. (918) at the end of the period, distributed as follows. In October 1999, 26.1 million new shares were issued at a subscription price of SEK 160 per share at a ratio of 1:7. The issue provided the Company with net proceeds of approximately SEK 4.1 billion. Compressor Technique Business Area The Compressor Technique business area consists of five divisions in the following product areas: industrial compressors, portable compressors, generators, and gas and process compressors. Orders received increased 17 percent to SEK 3,693 m. (3,154) in the third quarter, up 15 percent in volume when adjusted for positive currency effects of 5 percentage points. In the third quarter, sales volumes were up for all product areas. The favorable sales trend in North America continued, and high order levels were recorded in South America. In Europe, the modest increase in sales continued. The sharp increase in demand from Asia, notably in China, resulted in good orders for all types of industrial compressors. The large oil-injected compressors that were introduced during the spring, continued to achieve success in the market. An extended, superior range of small and medium sized oil-injected screw compressors was launched late in the quarter. Revenues increased 11 percent to SEK 3,643 m. (3,288), up 10 percent in volume compared with the same quarter last year, Operating profit improved by 21 percent, to a record SEK 698 m. (579), corresponding to an operating margin of 19.2 percent (17.6). Earnings include a nonrecurring cost of SEK 13 m. for closure of a manufacturing plant in France. The net effect of higher volumes, i.e. better fixed-cost absorption, and somewhat higher operating costs, accounted for about half of the margin improvement. The remainder was a result of favorable exchange rate developments, primarily related to the high USD/Euro ratio. Construction and Mining Technique Business Area The Construction and Mining Technique Business Area consists of five divisions in the following product areas: drilling rigs, rock drilling tools, exploration equipment, construction tools, and loading equipment. Orders received during the period were up 16 percent overall in the quarter and 10 percent in volume, to SEK 1,591 m. (1,377). There was a positive currency effect of 5 percent mainly related to the strong development of the US dollar. The solid investment trend from the mining industry continued, with some slowdown in South and North America. Demand for consumables remained strong, and higher market shares for rock tools were noted in some countries. The positive sales trend continued in China and the order level from infrastructure projects increased. Construction industry was less favorable in other regions, particularly in Europe. Revenues were SEK 1,726 m. (1,323), up 30 percent overall, of which volume accounted for 25 percent. Part of the strong volume increase was due to invoicing of bulk orders received in the second quarter. Operating profit for the quarter rose 86 percent to SEK 164 m. (88), corresponding to a margin of 9.5 percent (6.7). All product areas improved their performance compared with the previous year. Higher sales volumes and efficiency improvements explained most of the increase in operating margin while positive currency effects contributed to a lesser extent. Industrial Technique Business Area The Industrial Technique business area consists of four divisions in the following product areas: industrial power tools, professional electric tools, and assembly systems. Order intake increased 10 percent overall and 5 percent in volume, to SEK 2,915 m. (2,653). The positive net effect of currencies and the divestment of Atlas Copco Controls was 5 percent. Order intake for computer controlled tightening tools and systems continued to increase both in the U.S. and in Europe. The main gain was noted for orders from the automotive industry, but other segments also contributed. Orders for standard products from the general industry were flat overall in the quarter. The demand for professional electric tools continued to rise in North America. However, a slowdown was noted in the end of the quarter, caused by the anticipated lower activity in the residential construction sector. In Europe, an improvement in sales volume continued in the quarter. Revenues were SEK 2,869 m. (2,522), up 14 percent compared with the third quarter of 1999. The increase corresponds to a volume increase of 9 percent. Operating profit increased to SEK 298 m. (288). Last year's profit included a net of nonrecurring items of SEK +83 m. mainly related to the sale of Atlas Copco Controls. Excluding this nonrecurring item, operating profit increased 45 percent, with a profit margin of 10.4 percent (8.1). The margin improvement was mainly due to the higher volume and a more favorable revenue mix with substantially higher sales of sophisticated industrial power tools. Rental Service Business Area The Rental Service business area consists of two divisions in the equipment rental industry in North America, providing services to construction and industrial markets. During the third quarter, revenues increased 61 percent to SEK 3,751 m. (2,335), including only two months of revenues for RSC in 1999. The volume gain was 16 percent for comparable units. Currency translation and prices had a net effect of 14 percent. On average, rental rates were 2 percent below last year's level, but with a flattening tendency. Rental revenues accounted for 75 percent of total revenues with a volume growth slightly higher than the average 16 percent. Sales of equipment, parts and merchandise represented 17 percent of revenues, while sales of used equipment accounted for 8 percent. The equipment rental business continues to grow at a higher pace than the industries it serves, because of the outsourcing trend. The construction industry, where non-residential building is the important customer segment, remained solid in the period. The industrial side of the business, chiefly related to the petrochemical industry, continued to strengthen. Both the Canadian and Mexican rental operations contributed well in the quarter. In order to focus resources on growing all segments of the rental business and explore further operational synergies, Prime and RSC will merge into one company. The new legal unit will be effective January 1, 2001, and operate under two brands: ???Prime??? will focus on industrial customers and ???RSC??? will further enhance penetration of the construction sector. Earlier this year an internal service provider was established to develop synergies in the administrative area. A nonrecurring cost for the merger of SEK 127 m. is included in the operating profit for the quarter. Operating profit, including goodwill amortization and the above-mentioned one-time provision, was SEK 469 m. (359). Excluding this nonrecurring item, profit was SEK 596 m., up 66 percent and corresponding to a margin of 15.9 percent (15.4). One month more of RSC contribution, a larger fleet, and a higher fleet utilization explained most of the profit increase compared with last year. Stockholm, October 24, 2000 Giulio Mazzalupi President and Chief Executive Officer Financial targets The overall objective for the Atlas Copco Group is to achieve a return on capital employed that will always exceed the Group's total cost of capital. The targets over the next business cycle are to have an annual revenue growth of 8 percent, to have an average operating margin of 15 percent, and to continuously challenge the operating capital efficiency in terms of stock, receivables, and hire fleet utilization. Overall, this will ensure that shareholder value is created and continuously increased. The strategy to reach the objectives should follow the proven development process for all operational units in the Group of stability first, then profitability, and finally growth. Forward looking statement: Some statements herein are forward-looking and the actual outcome could be materially different. In addition to the factors explicitly commented upon, the actual outcome could be materially effected by other factors like for example, the effect of economic conditions, exchange-rate and interest-rate movements, political risks, impact of competing products and their pricing, product development, commercialization and technological difficulties, supply disturbances, and the major customer credit losses. For further information: Media Annika Berglund, Senior Vice President Group Communications Phone: +46 8 743 8070, Mobile: +46 70 322 8070, [email protected] Analysts Mattias Olsson, Investor Relations Manager Phone: +46 8 743 8291, Mobile: +46 70 518 8291, [email protected] Overhead presentations from Atlas Copco For your convenience, an overhead presentation of Atlas Copco's third quarter result will be published on Atlas Copco's Internet site. Please go to www.atlascopco-group.com > Investor > Presentations New Internet site for the Atlas Copco Group More information is available at www.atlascopco-group.com . Please note the possibility to register yourself as a subscriber under My Profile. Preliminary report as per December 31, 2000 The preliminary report will be published on February 12, 2001.