Financial Result for 1998

19.02.1999

Profit after financial items FIM 465 million (1997: 570), including a FIM 50 million reservation due to the devaluation of the Brazilian real

Operating profit FIM 678 (726) million

Net sales increased 26 percent to FIM 13.5 billion

Earnings per share FIM 5.26 (8.08)

The Board´s dividend proposal is FIM 3.00(4.00) per share

All business areas except Tractors increased profits compared to 1997

Received orders in the engineering units were at the 1997 level, but the order book decreased by 16 percent

Demand for capital goods is expected to weaken, but internal efficiency measures in the engineering units are expected to be realized during the year.

The year under review, 1998, saw the centenary of Partek’s operations, and many functions and celebrations were held during the year. In honour of the centenary Partek committed itself to taking responsibility for liming the Alisenjärvi lake system in Nokia, which has become acidified, for the next 100 years.

The focal point of the Group’s activities at the end of the period under review was the concentration on the engineering industry business areas and improving their profitability. The need to make operations more efficient was increased by the worldwide deterioration in the demand for capital goods that started in the autumn.

The European single currency was introduced at the beginning of 1999. In 1999 the interim reports and end-of-year accounts will be drawn up and published in euros.

Restructuring and financing arrangements to strengthen the Group The Group is focusing on the engineering industry in line with its strategy. At the same time an independent and stronger profile for the lime operation, Partek Nordkalk, will be created. It was decided in December to make Partek’s insulation operations independent. Partek is negotiating the selling of its majority interest in the insulation operations to the Industri Kapital 1997 fund and the company’s executive management. Partek will continue to be a shareholder in the company with a 40-45 percent interest. It is intended to sign the final agreement during the first half of 1999.

The Group has other holdings with a book value amount of about FIM 600 million that it will developed with the intention to release capital.

In December Partek made an unconditional bid to the minority shareholders of Kalmar Industries AB, who together own 39 percent of the company’s shares and voting rights, to buy their shares at SEK 85 per share. The original bid period, which terminated on February 18, 1999, was extended to March 16, 1999. The bid was accepted by 470 shareholders, and their shareholding corresponded to 5.4 percent of Kalmar shares, so Partek’s holding in Kalmar rose to 66.4 percent. The total price for the shares was FIM 73 million.

In order to strengthen the capital structure and create the prerequisites for acquisitions and other industrial measures, an extraordinary meeting of Partek shareholders decided on December 30, 1998 to issue a convertible capital loan to the value of FIM 322 million. Demand for the loan was god and it was oversubscribed by 84 percent.

At the same time the extraordinary meeting authorised the Board of Directors to raise the share capital by a rights issue based on the shareholders’ pre-emptive right to subscription by a maximum of 4.9 million shares i.e. FIM 49 million of share capital.

Net sales and result

The consolidated net sales increased 26 percent to FIM 13.5 (10.7) billion. Compared with the comparable net sales of 1997 the growth was 8 percent.

The consolidated operating profit fell to FIM 678 (726) million, which is 5.0 percent (6.8) of net sales. The profit in the final third of the year was poorer than in the previous year, reflecting the reversal in the economic trend and, above all, arising from the tractor operations in Brazil. Apart from the tractor operations, all the other business areas improved their operating profit over the previous year. The operating result includes FIM +21 (+ 120) million of non-recurring items.

The operating profit margin of the engineering units was 4.8 (5.3) percent. The consolidated operating profit was encumbered by goodwill write-offs of FIM 75 (44) million entered in the books at the Group level and arising from the acquisitions of Sisu and Kalmar. The synergy benefits estimated for 1998 from the merger between Sisu and Partek were realized as planned.

Associated companies accounted for FIM 43 (12) million of the net result. Of this FIM 44 million came from the 40 percent share of the profit of the precast concrete company Addtek International.

Net financial expenses were FIM 256 (168) million, i.e. 1.9 percent (1.6) of net sales. Exchange rate losses include a provision of FIM 50 million made because of the devaluation of the Brazilian real in January and February 1999. The equity structure of the Brazilian tractor operations was strengthened in September. The balance sheets of the Brazilian subsidiaries have been consolidated in the year-end accounts at the exchange rates on December 31, 1998. The devaluation of the real, therefore, does not appear in the form of a reduction in the equity in the year-end consolidated balance sheet. It has been estimated that the equity will be reduced by about FIM 145 million.

Interest-bearing net debt increased to FIM 2,948 (2,587) million. The consolidated working capital remained almost at the previous year´s level, although sales increased, and was FIM 2,534 (2,381) million at year-end. The aim is to reduce the working capital. The gearing ratio had fallen to 75 percent (68) by the end of the year from 82 percent at end-August, but it has not yet met the target of 50 percent set for it. The equity to total assets ratio was 39.3 percent (38.5). The Group’s target is of a ratio above 40 percent.

Deferred tax liability has been calculated mainly on untaxed reserves and depreciation differences previously at the Group level. Now, the calculation has been redefined to cover also other items that cause temporary difference between book figures and taxation. Deferred tax assets and liabilities for previous periods, a net figure of FIM + 183 million, is presented as extraordinary income.

The earnings per share were FIM 5.26 (8.08) and the return on capital employed 11.1 percent (14.8). The return on equity was 8.7 percent (13.1).

Euro

During 1998 a Group project to chart what effects the introduction of the single European currency, the euro, will have on Partek was completed and the necessary adjustment measures were started. At Partek 45 percent of the net sales are generated in the euro area and 52 percent of the personnel are employed there.

The effect of price comparability in the Euro area on the Group’s sales has so far been limited. The impact has been largest in spare parts and component sales, which compete with local producers and importers. The transparency presents opportunities when making purchases. These opportunities are being taken into account within the framework of the Global purchasing project that is under way.

Business areas

Engineering industry
The engineering industry includes the business areas of Container handling (Kalmar), Load handling (Partek Cargotec), Forest Machines (Partek Forest) and Tractors (Valtra). The engineering industry’s net sales increased to FIM 10,705 million, which is the equivalent of 10 percent growth, compared with the comparable proforma net sales for 1997.

The operating profit of the engineering industry’s business areas was at the previous year´s level. Profitability did not reach the operating profit target of 8 percent set for the Group’s engineering units. The economic crisis in Asia reduced the demand for container-handling machines and made price competition tougher, which led to a fall in the Container-handling operations’ profitability. The result was also encumbered by an increase of FIM 14 million in the provision made in 1997 for merger costs. The price competition for forest machines also became tougher. On the other hand, Cargotec’s profitability improved thanks to the internal steps to improve efficiency and the growth in sales in Europe and the United States. Tractors’ profitability was weakened principally by the reduction in demand caused by uncertainty factors in the Brazilian economy and a fall in prices at the end of the year.

The value of orders received by the engineering operations was FIM 10,423 (10,371) million. The volume of orders in hand fell at the year end and was slightly lower than in the previous year, reflecting the general uncertainty in the economic situation mainly in Asia and Latin America.

In order to improve the result of the engineering business operations, coordination between the business areas is being increased. Resources will be focused on improving efficiency and profitability. This will mean changes in the way of operating.

Central in this change will be the development of operating processes and the joint Group projects in progress to increase efficiency. The projects concentrate on more effective purchasing, releasing funds tied up in the working capital, developing financing arrangements for sales and developing production management and other data systems.

The forest cranes operations, i.e. the production and sale of Loglift, Jonsered and Cranab timber cranes will be incorporated into the Forest Cranes unit, and will be part of the Forest Machines business area.

Lime - With the contraction in production by the paper, pulp and steel industries the demand for limestone products dropped in the final third of the year. Net sales went down, but the operating result was improved by a non-recurring profit on disposal of FIM 16 million. The focal point of the operations was the expansion of activities in Poland and Estonia and investment in increasing capacity at several plants.

Insulation - Net sales rose 9 percent compared with the previous year. The growth in sales of Paroc building panels was particularly strong. Profitability remained at the previous year’s level. The final agreement for the sale of the majority holding in the insulation operations to Industri Kapital and the executive management could be concluded during the first half of 1999. Insulation will then be converted into an associated company of the Group and the consolidated net sales and result will decrease correspondingly.

The year 2000

The Group started Partek’s Year 2000 project in 1997. The possible effects on the functioning of production processes, the company’s own products and data systems have been mapped out within the framework of the project. Studies have looked into the risks from breakdowns, faults and delays in the delivery chain. A survey on the preparedness of the main co-partners and subcontractors is under way and alternatives are being looked into. The business areas and units are responsible for implementing the necessary measures.

The aim is to achieve the required state of readiness by June 1999. In the meantime the projects have proceeded mainly as planned. The progress of the projects are being reported, and the Group’s and business areas’ boards of directors are monitoring them. Information about possible deviations in the schedules will be given, if necessary. The measures for the preparations are not expected to have a noticeable effect on the Group’s financial situation, and many of the measures carried out will increase productivity at the same time.

Investment

Gross investment by the Group came to FIM 857 (2,260) million. In the previous year the acquisition of Sisu Corporation accounted for a major part of the investment. The biggest investment item for 1998 was the acquisition in June of a further 10 percent shareholding in Kalmar Industries AB for FIM 211 million. Partek’s holding increased from 51 percent to 61 percent. The diesel engine plant invested in eliminating bottlenecks in production, and Container handling invested a further FIM 58 million in the rental truck fleet.

The lime operations increased their production capacity. Partek Nordkalk built a new lime kiln for the Tytyri plant at Lohja at a cost of FIM 70 million. The kiln was started up in December. Other investment included an increase in the capacity of ground products at Lappeenranta, an increase in the capacity of the lime kiln at Luulaja and new grinding plants at Kokkola, Pargas and also Szczecin in Poland. Other Group investments were targeted mainly on improving production and developing data systems.

The consolidated figure for research and development was FIM 235 (190) million, i.e. 1.7 percent (1.8) of net sales.

Personnel

During the period under review the Group employed an average of 12,062 (10,464) people. The number of personnel at the beginning of the period was 11,749 and at the end 11,827. The number of personnel was reduced in the engineering business operations, but it increased in Lime and Insulation with the expansion of operations in the Baltic region and Poland. Cargotec decreased the number of personnel according to plan in U.K and Sweden. The number of personnel at the Brazilian tractor plant has been reduced by over one hundred since August. The reductions will continue in 1999. It has been decided to terminate operations at Kalmar’s truck plant at Härnösand, which means a reduction of approximately 100 people.

At the end of the period under review 5,165 (4,992) people were employed by the Group in Finland, of which 72 (61) by the parent company.

Board of Directors, auditors and management

The number of the members of the Board of Directors was confirmed at nine at the annual general meeting on April 7, 1998. Jan Ekberg, Caj-Gunnar Lindström and Paavo Pitkänen, members who retired by rote, were re-elected. Björn Mattsson has been acting as Chairman of the Board and Risto Virrankoski as Vice-Chairman. At an extraordinary meeting of shareholders on December 30, 1998 Markku Tapio resigned from the Board, and Arto Honkaniemi took his place for the term of office remaining. At the next AGM, the term for Björn Mattsson, Arto Honkaniemi and Christoffer Taxell ends.

Eric Haglund, APA, and Thor Nyroos, APA, were re-elected auditors, and the firm of authorized public accountants KPMG- Wideri Oy Ab was re-elected deputy auditors.

Christer Granskog was appointed President of Kalmar Industries AB, starting December 4, 1998. At the same time he gave up the duties of being Senior Executive Vice President and President of Partek Cargotec. Olof Elenius was appointed the President of Partek Cargotec.

Shares and shareholders

The share capital was increased by FIM 3,164,860 during 1998. The number of shares went up by 316,486. Of this figure FIM 3,156,090 and 315,609 shares resulted from subscriptions that were made through bonds with option rights that were directed at the management and matured in 1998. The subscription price was FIM 77.07 per share. The rest of the increase in the amount of share capital and number of shares arose from the conversion of convertible subordinated bonds into shares. The share capital at the end of accounting period was FIM 488,166,110 and the number of shares 48,816,611. There were 11,925 (10,743) shareholders at the year-end.

Convertible capital loan

In January 1999 Partek issued a convertible capital loan of FIM 322 million. The issue price was 100 percent. The loan can be converted into Partek shares, in which case the number of Partek shares will rise by a maximum of 4.6 million shares. The computational conversion price for one share obtained in conversion is FIM 70. The time for converting the loan begins on June 1, 1999 and ends on May 31, 2004. The conversion period lasts from January 2 to November 30 each year.

Board of Director’s authorization to increase share capital

On December 30, 1998 an extraordinary meeting of company shareholders authorized the Board of Directors to decide on increasing the share capital in one or several instalments through a rights issue based on the shareholders’ pre-emptive right to subscription so that the share capital can be increased altogether by a maximum of FIM 49 million and a maximum of 4.9 million shares. The authorization is valid until May 31, 1999. There are no other authorizations for increasing the share capital.

Dividend

When making a dividend proposal, the Board of Directors takes into account the trend in the Group’s result, financial structure and growth expectations. The aim is to distribute to shareholders at least a third of the annual result calculated before extraordinary items and after the minority interest and computational taxation.

The Board of Directors proposes to the annual general meeting that a dividend of FIM 3.00 (4.00) per share be paid for 1998, i.e. 57 percent of the result. The proposal means that a total of FIM 146 million is used for dividends.

Prospects for 1999

The economic downturn in the end of 1998 is expected to continue at least during the first half of the year. Prospects are weakened by uncertainty in the economic situation both in Asia and Latin America and their effects on the world economy and Europe. The demand for capital goods is expected to weaken. The introduction of the euro is, however, expected to increase economic stability in the euro area. Effects of internal efficiency measures in the engineering units are expected to be realised during the year.

Pargas, February 18, 1999
The Board of Directors
Audited Partek Corporation

For further information:
Kari Heinistö, Chief Financial Officer, tel +358-204 55 4542
Kaisa Vikkula, Senior VP Corporate Communications, tel + 358-204 55 4292
Paul Lönnfors, IR Manager, tel +358-204 55 4842

Partek is the leading supplier of logistic solutions to ports and land terminals and cargo handling equipment for vehicles, and it is also the leading producer of advanced forest machines and tractors. Partek still owns the Baltic Sea region’s leading limestone business. The Group´s net sales total FIM 13,5 billion (USD 2.8 billion). Partek employs 12 000 people.

Press conference on the financial result for 1998

Partek will hold a press conference on the financial result for 1998 on February 19 at 11:00 a.m. A separate session will be held for analysts on the same day at 1:00 p.m. Both meetings will be held in Partek´s auditorium at Sörnäisten rantatie 23, Helsinki.

 

 

Back