STOCKHOLM, August 18, 2003 (PRIMEZONE) -- Munters announces Interim Report (Other OTC:MUNTF)
* Weak demand within MCS during the second quarter as a result of dry weather
* Good demand in the US AgHort industry partly compensates for the weak demand in AgHort in Europe
* Unfavorable product mix within Dehumidification
* Further cost reduction measures taken
Munters operations
Munters is the world leader in moisture control with products and services for water and fire damage restoration and dehumidification, humidification and air cooling.
Munters' mission is to be a global service and applications driven Niche Company in air treatment from a base in dehumidification and humidification.
Operations are organized into three geographic regions - Europe, the Americas and Asia. In each region, operations are subdivided into the following three divisions: Dehumidification, Moisture Control Services (MCS) and HumiCool. Munters' operations are often project-oriented with extensive collaboration between regions and divisions within sales, production and product development. Manufacturing and sales are carried out through the Group's own companies in 27 countries. The Group had 3,147 employees at the end of the reporting period.
Market trend
Several of the markets in which Munters operates report a continued weak trend for the second quarter of 2003. Industry's will to invest has been affected by the uncertainty about the economic trend as well as by the effects of the war in Iraq and the respiratory disease, SARS. During the second quarter, demand within the water damage restoration sector fell significantly as a result of the very dry weather in all, for Munters, important markets.
The market in Europe suffered a fall in demand within Dehumidification and HumiCool. The very dry weather has led to a decrease in demand in MCS in the second quarter. Within the AgHort industry (Agriculture & Horticulture), demand was affected by reduced competitiveness for the European poultry industry depending on changed exchange rates. The markets in the Middle East have improved for retrofitting existing facilities but the level of new construction remains low. During the year, demand for products for cooling inlet air to gas turbines has re mained weak.
Demand for dehumidification products in America was low. The dry weather resulted in low demand for water damage restoration. Within HumiCool, demand was good for evaporative cooling systems for the AgHort industry, whilst demand for products for cooling inlet air to gas turbines remained low. Within Dehumidification, demand was low in several segments, with a continued fall in demand for Zeol systems, which is largely dependent on investments within the semiconductor industry. Units with combined functions for cooling and dehumidification enjoyed strong demand and sales to fast-food restaurants and schools have increased.
In Asia, demand for HumiCool was weak as a result of SARS and chicken flue in China. Demand for Dehumidification was strong in Japan and China whilst the level of activity in South East Asia remained low.
Group development during the second quarter
Munters' order intake for the second quarter fell by 4 percent to 1,114 MSEK (1,159). When adjusted for exchange rate fluctuations for the current structure, the fall was also 4 percent.
Net sales fell by 3 percent to 1,109 MSEK (1,149). When adjusted for exchange rate fluctuations for the current structure, the fall in sales was 3 percent after zero growth in Region Europe, minus 6 percent in Region Americas, and minus 18 percent in Region Asia.
EBIT fell by 32 percent to 78 MSEK (114), equivalent to an EBIT margin, including goodwill amortization, of 7.0 percent (9.9). When adjusted for exchange rate fluctuations for the current structure, EBIT fell by 21 percent.
Cost reduction program
As a result of the continued weak demand, a new cost cutting program was decided. Costs for this are estimated to 10 MSEK, which will be charged to the third quarter's earnings. The total cost reduction of the first quarter's program and the new program is estimated at 80 MSEK on a yearly basis. For 2003 the cost reduction is calculated to 40 MSEK. The new program will have full effect in the beginning of 2004.
Group development for the first six months of 2003
The first six months of 2003 were weak due to the fact that the positive trend within MCS at the beginning of the year did not continue during the second quarter and because of the continued weak trend within Dehumi dification and HumiCool. During the first six months, order intake fell by 2 percent to 2,248 MSEK (2,303). When adjusted for exchange rate fluctuations for the current structure, order intake fell by 3 percent. At the quarter end, the backlog was 650 MSEK (659). When adjusted for exchange rate fluctuations for the current structure, the increase in the backlog was 3 percent.
Net sales for the Munters Group fell by 3 MSEK to 2,198 MSEK (2,201). When adjusted for exchange rate fluctuations for the current structure, the fall was 1 percent.
Distributed by region, net sales increased by 8 percent in Europe, fell by 7 percent in the Americas and fell by 24 percent in Asia. When adjusted for exchange rate fluctuations for the current structure, sales increased marginally both in the Americas and in Europe, whilst sales fell in Asia.
EBIT, after amortization of goodwill and surplus values of 22 MSEK (12), amounted to 145 MSEK (200). When adjusting for exchange rate fluctua tions for the current structure, EBIT fell by 21 MSEK. The fall in earnings is due to reduced sales in operations with a high margin (negative product mix change) and because costs could not be reduced in step with the downturn in the market. Munters' highest margins are in products that have suffered the largest negative currency effects. The translation into SEK of earnings in different currencies has, therefore, also contributed to a reduced margin. During the period, the EBIT margin amounted to 6.6 percent (9.1). When adjusted for exchange rate fluctuations for the current structure, the EBIT margin was 7.9 percent last year.
Consolidated earnings before taxes amounted to 133 MSEK (187). Net earnings for the period fell by 36 percent to 73 MSEK (114) after an effective tax rate of 45 percent (39). The tax rate was 39 percent when adjusted for non-deductible goodwill amortization and surplus values. Earnings per share amounted to 3.00 SEK (4.66).
Net sales increased through acquisitions implemented during the previous year and increased delivery volume within MCS. At the same time, net sales were affected by weak demand and by negative effects due to exchange rate fluctuations.
Region Europe
During the reporting period, order intake in Region Europe increased by 7 percent to 1,385 MSEK (1,290). Net Sales rose by 8 percent to 1,340 MSEK (1,235). When adjusted for exchange rate fluctuations for the current structure, this represented a marginal increase. Operating earnings (earnings before amortization of goodwill and surplus values) fell by 16 percent and amounted to 82 MSEK (97). Operating earnings were affected due to exchange rate fluctuations of 1 MSEK, reduced sales for Dehumidification and HumiCool, and the quick decrease in demand within MCS during the second quarter.
After a weak start to the year, the Dehumidification division reported an increased order intake compared to the previous year. However, sales have reduced as a result of the fact that fewer large projects were delivered during the reporting period and operating earnings are significantly lower than in the previous year. Market activities in the food and pharmaceutical industries remain at a high level, but procurement periods have been extended.
The MCS division reported a positive trend despite the mild and dry spring leading to a weakening during the second quarter. Order intake, sales and operating earnings improved compared with the previous year. Munters did not have any demand due to floods or other disaster-related operations during the period.
The HumiCool division reported significantly reduced order intake and sales and substantially lower operating earnings compared with the corre sponding period in the previous year. The division has been affected by a dramatic fall in demand for new cooling systems for the AgHort industry in the Middle East and a fall in the competitiveness of the European poultry industry. Demand for products for cooling inlet air to gas turbines remained low and demand for products for the HVAC industry (Heating Ventilation Air Conditioning) also developed negatively as a result of weak demand within the construction industry.
Region Americas
During the reporting period, order intake in the Americas fell by 11 percent to 721 MSEK (813). When adjusted for exchange rate fluctuations for the current structure, order intake fell by 4 percent. Sales fell by 7 percent to 725 MSEK (783). When adjusted for exchange rate fluctuations for the current structure, sales increased by 1 percent. Operating earnings for the period amounted to 82 MSEK (99). Operating earnings were negatively affected by exchange rate fluctuations of 19 MSEK.
The Dehumidification division reported lower order intake, sales and operating earnings, mainly due to a further fall for the Zeol operation and the lack of large projects for industrial dehumidifiers. During the period, order intake for Zeol was 19 MSEK lower than in the previous year and sales were down 33 MSEK. Order intake for, and sales of, dehumidification units for department stores continued to increase. The new dehumidification program, launched during the previous year with com bined functions for dehumidification and cooling, has developed successfully. Low energy consumption means that the products can be electrically operated instead of using gas as the source of energy. This leads to an increased market potential.
The MCS division reported a 13 percent increase in order intake and sales in local currency, but a fall in operating earnings due to low margin projects in connection with floods. In addition, as for the MCS operation in Europe, the unusually dry weather has affected the demand for Munters' services.
The HumiCool division enjoyed a positive development in terms of order intake, sales and operating earnings. The development within cooling sys tems for the AgHort industry was good through the acquisitions of Aerotech and Glacier-Cor made the previous year. As for the European operation, demand was low for products for cooling inlet air to gas turbines.
Region Asia
Munters' operations in Region Asia have been affected by the effects of SARS and the war in Iraq, which has led to the postponement of investment decisions by customers. Order intake, sales and operating earnings were all lower than in the previous year. During the period, order intake fell by 24 percent to 180 MSEK (237). Sales fell by 24 percent to 168 MSEK (221). When adjusted for foreign exchange fluctu ations, the fall was 14 percent. During the period, operating earnings amounted to 17 MSEK (23). Foreign exchange fluctuations affected earnings by -3 MSEK.
The Dehumidification division reported increased order intake, reduced sales but improved operating earnings. Earnings were positively affected by improved margins in both the Japanese and the Chinese operations.
The MCS division, which represents a small part of Region Asia, reported lower sales and operating earnings than in the previous year. During the first quarter, a new management took over the Australian operation, which represents the region's largest MCS operation. The new management has implemented an extensive structural change aimed at improving the profitability.
The HumiCool division reported lower order intake, sales and operating earnings. The operations in Australia and Thailand developed strongly, mainly through sales of evaporative cooling systems for the AgHort industry. This compensated partly for the continued downturn in Japan. The profitability in Thailand was affected by the move of production into new premises. The move has now been completed and the production process functions according to plan.
Capital expenditure
The Group's total capital expenditure in tangible assets amounted to 67 MSEK (93) during the period. The majority relates to investment in MCS, production and IT equipment. Depreciation amounted to 89 MSEK (74), of which goodwill amortization and depreciation of surplus values accounted for 22 MSEK (12).
Financial position
The equity ratio fell marginally during the quarter and amounted to 41 percent (42) at the end of the period. On the same date, liquid funds were 120 MSEK (65) and interest-bearing liabilities (including PRI pensions) were 576 MSEK (446). During the year, the net debt has increased by 91 MSEK to 456 MSEK. During the period, 86 MSEK was paid in dividend to the shareholders and 22 MSEK as supplementary purchase prices relating to previously implemented acquisitions. The Group has unutilized loan facilities of approximately 148 MSEK.
Personnel
At the end of the reporting period, the number of staff was 3,147, an increase of 104 since the corresponding period in the previous year. Within Region Europe, the number increased by 53; within Region Americas by 64; and within Region Asia the number decreased by 13. The increases are attributable to the acquisitions of Aerotech and Svt.
In accordance with the decision by the Annual General Meeting on May 7, 2003, senior executives have been offered to subscribe for warrants in Munters AB at a market price of 15.80 SEK. In total, 33 employees subscribed for 63,600 warrants. The exercise price was set at 226 SEK per share, equivalent to 140 percent of the highest and lowest average price paid for the Munters share on the Stockholmsborsen (Stockholm Stock Exchange) during the period May 12-16, 2003. The warrants can be exercised for the purchase of shares in Munters AB during the period September 1, 2006 - March 30, 2007. Munters is subsidizing the price of the warrants by 40 percent on condition that the terms of employment remain during the period of exercise for the warrant.
Parent company
The parent company's earnings after financial income and expenses amounted to -7 MSEK (14). Dividends of 0 (19) MSEK received from subsi diaries are included. There were no net sales outside the Group. At the period end, liquid funds amounted to 0 MSEK (0) and the net debt to 172 MSEK (383). Capital expenditure amounted to 0 MSEK (1) during the period and the number of employees was 20 (20).
Comments on the accounts
The applied accounting principles and calculation methods correspond with the latest Annual Report.
This Interim Report has not been reviewed by the company's auditors.
Future information dates
2003 October 27 Interim Report January-September
2004 February 19 Year-End Report
2003 April 27 Annual General Meeting
April 27 Interim Report January-March
August 16 Interim Report January-June
October 28 Interim Report January- September
Sollentuna, August 18, 2003
Lennart Evrell President
For further information, please contact:
Lennart Evrell, Chief Executive Officer,
phone +46 8 626 63 03, lennart.evrell@munters.se.
Bernt Ingman, Chief Financial Officer,
phone +46 8 626 63 06, bernt.ingman@munters.se.
Munters AB (publ)
Box 430 SE-191 24
Sollentuna, Sweden
Phone +46 8 626 63 00
Fax +46 8 754 68 96
info@munters.se
www.munters.com
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