HOGANAS, Sweden, July 14, 2005 (PRIMEZONE) -- Hoganas Highlights:
MSEK Q2 Q 1-2
Net sales 1 136 +4% 2 231 +5%
Operating income(a) 120 -24% 282 -9%
Operating margin(a), % 10.6 15.5 12.6 15.9
Income before tax 110 -39% 259 -23%
Income before tax(a) 110 -25% 259 -11%
Income after tax 83 -35% 189 -21%
Earnings per share, SEK/share 2.40 (3.70) 5.50 (7.00)
Equity/assets ratio, % 45 (42) 45 (42)
(a) The SCM copper operation has been excluded compared to
previous year
GROUP
NET SALES
First half-year 2005 Hoganas net sales were MSEK 2 231 in the first half-year, a 15% increase excluding SCM copper operation. Currency effects resulting from, on average, a stronger Swedish krona exerted a 2% negative effect on turnover.
Volumes, excluding the SCM copper operation, grew by 1% year on year. This low volume increase is primarily due to the global market's weaker progress. Sales volumes were also affected to some extent by timing issues, with some customers bringing forward some deliveries in 2004 because of higher price surcharges in 2005.
Car sales in North America reduced, and sales of cars built by U.S. automakers, which include more metal powder products, dropped. This has resulted in the U.S. powder market -- representing 50% of global volumes -- losing ground in 2005.
The market in Western Europe also progressed weakly, with growth in Asia and South America unable to offset these downturns.
Nevertheless, Hoganas' volumes on the American market increased, while progress in Western Europe was negative. Volumes in Eastern Europe and South America remained robust and in Asia, progress varied, with positive progress in Japan and some Southeast Asian countries.
Second quarter 2005
Turnover grew by 12% year on year in the second quarter excluding SCM copper operation. These gains are mainly due to higher prices, caused by higher raw materials costs. Volumes excluding SCM copper operation increased somewhat year on year.
EARNINGS
First half-year 2005 Operating income was MSEK 282 (MSEK 309 excluding SCM copper operation) in the first half-year. Income was adversely affected by approximately MSEK 30, mainly because of bad debt and the re-evaluation of a single raw materials batch in the US. Second-quarter income was also adversely affected by a persistent imbalance between raw materials costs and surcharges. Market prices of scrap fell in the year, while prices of molybdenum particularly continued to rise.
Other operating income and operating expenses amounted to MSEK 104 (102) including items such as earnings from forward contracts. Earnings from forward contracts were MSEK 74 (89). Disregarding these forward contracts, the krona, which has been stronger on average, has exerted a negative impact of approximately MSEK 7 on operating income in 2005.
Income before tax was MSEK 259 (291 excluding the copper operation). Apart from lower operating income, income before tax was also reduced by a deteriorated net financial income and expenses, largely caused by higher interest costs associated with loans and USD hedging.
Income after tax was MSEK 189 (240), or SEK 5.50 (7.00) per share. The effective tax rate was 27.0% (28.6).
Second quarter 2005
Operating income was MSEK 120 (MSEK 157 excluding the divested copper operation). The aforementioned non-recurring items of some MSEK 30 occurred in the second quarter, and accordingly, exerted their full impact on this income figure. Income before tax was MSEK 110 (147 excluding the copper operation). The lower income is due to the aforementioned deteriorated net financial income and expenses and lower operating income.
BUSINESS AREAS
Iron Powder The Iron Powder business area's net sales increased by 14% to MSEK 1,626. Net sales were positively affected by increased surcharges, but negatively by currency effects.
In the first half-year, press powder volumes were in line with the previous year, while volumes for the whole business area grew by some 1%. Volume growth was highest in Eastern Europe and Japan.
In the quarter, operating income was negatively affected by a portion of the aforementioned bad debt and the re-evaluation of raw material. For the first half-year overall, operating income was MSEK 202 (229). Excluding these non-recurring items, the margin was 13.8% (16.0).
High-Alloy Metal Powder
High-Alloy Metal Powder's net sales amounted to MSEK 617 a year-on-year increase of 16% excluding SCM copper operation, divested previously.
In the first half-year, volumes decreased by 7% year on year, excluding the aforementioned divested business. Turnover gains were mainly dependent on price compensation for higher costs of materials. As for Iron Powder, the stronger krona exerted a negative turnover effect.
Operating income was MSEK 80, against MSEK 80 for the first half of the previous year excluding SCM copper operation. Income was adversely affected by one bad debt loss on the American market. Excluding bad debt, the margin was 14.2% (15.1 excluding the copper operation).
PROFITABILITY
Return on capital employed was 14.5% (16.6), while return on equity was 17.2% (20.6). Returns are calculated on the most recent 12-month period.
FINANCIAL POSITION AND CASH FLOW
At the end of the period, the equity/assets ratio was 45% against 46% at year-end 2004. Shareholders' equity per share was SEK 70 against SEK 64 as of 1 January.
Consolidated financial net debt was MSEK 1 642, an increase of MSEK 306 since year-end. Net financial income and expenses were MSEK -23 (-20). Cash flow from ongoing activities was MSEK -160 (125). Investments in fixed assets were MSEK 134 (126). Working capital excluding IFRS adjustments has increased by just over MSEK 150 excluding currency effects since 1 January. This is primarily due to higher inventory.
HUMAN RESOURCES
Hoganas had 1,554 employees at the end of the period, against 1,577 as of 1 January 2005. First and foremost, the decrease is sourced from divested subsidiary Hoganas Verkstads AB.
PARENT COMPANY
Parent company net sales were MSEK 1,191 (1,094), MSEK 522 of which to group companies. Income after financial items was MSEK 144 (212). Net investments in tangible fixed assets were MSEK 71 (72). Parent company liquid funds were MSEK 55 at the end of the period, compared to MSEK 18 as of 1 January 2005.
Subsidiary Hoganas Verkstads AB was divested in April. External turnover in 2004 was MSEK 11 and total assets were MSEK 20. The capital gain was just over MSEK 0.5.
EFFECTS OF THE ADOPTION OF IFRS, etc.
The stipulations of IAS 39, which governs the accounting of financial instruments, have the biggest impact on Hoganas. The adoption of IFRS means all financial instruments being continuously valued at market price. IAS 39 will be adopted from 1 January 2005, and is exempt from the stipulation regarding the re-calculation of the comparative year. This disclosure increased the opening balance of shareholders' equity per 1 January 2005 by some MSEK 270.
The income statement as of June 2004 was positively affected by MSEK 7, mainly comprising reversed goodwill amortisation.
CO2 emission rights have been accounted as intangible assets, accounted at cost based on their first official quotation. Emissions in the period have been accounted as government grants based on the same valuation. Costs for the period are included in cost of goods sold, while the related income is accounted under other operating income. This means that there was no effect on the operating income. The EU has yet to resolve on how emission rights should be valued. The market value of this intangible asset as of the balance sheet date was some MSEK 34 higher than book value, after adjustment for the emission rights already exercised.
STOCK OPTION PLAN
A stock option plan was implemented in 2000, with the final exercise date of 31 May 2005. In the first half-year, 580 600 options were redeemed for shares, and as a result, shareholders' equity increased by MSEK 107.
OUTLOOK
Forecasts of the world economy have become more uncertain. The automotive industry has made weaker-than-expected progress, exerting further pressure on the customers of powder suppliers. As previously, sustained positive market progress is expected in North America-although on a weaker market. Overall, this means that Hoganas expects to achieve volumes consistent with the previous year, excluding the divested SCM copper operation. This is a revision of the previous forecast, when Hoganas expected to achieve increased volumes in 2005.
Hoganas' income in 2005 has become more complex to forecast because of the trends in the market place and the progress of metal prices. The previous forecast for 2005, with income before tax forecast to be consistent with, or better than, 2004 is being revised to income before tax being consistent with the previous year excluding the divested SCM copper operation.
Alrik Danielson President and CEO
Hoganas, Sweden, 14 July 2005
ACCOUNTING PRINCIPLES
This Report has been prepared pursuant to IFRS (International Financial Reporting Standards), IAS 34. Previous years' figures, key indicators, diagrams and tables have been recalculated.
This Interim Report has not been reviewed by the company's auditors.
FINANCIAL INFORMATION
Hoganas intends to publish the following financial information in 2005:
- Nine-month Interim Report, 17 October - Year End Report for 2005, 14 February 2006
The full report including tables can be downloaded from the following link: http://hugin.info/1095/R/1002397/153728.pdf