SOURCE: Hoganas

April 16, 2008 04:11 ET

HÖGANÄS AB (publ) : Interim Report, January-March 2008

HOGANAS, SWEDEN--(Marketwire - April 16, 2008) -


Highlights


+-------------------------------------------------------------------+
| MSEK                                             |      Q 1       |
|--------------------------------------------------+----------------|
| Net sales                                        | 1 583 | +12%   |
|--------------------------------------------------+-------+--------|
| Operating income                                 |   196 |    +4% |
| Operating margin, %                              |  12.4 | (13.3) |
|--------------------------------------------------+-------+--------|
| Income before tax                                |   191 |   +11% |
|--------------------------------------------------+-------+--------|
| Income after tax                                 |   145 |   +15% |
|--------------------------------------------------+-------+--------|
| Earnings per share before and after after        |  4.15 |   3.62 |
| dilution, SEK                                    |       |        |
|--------------------------------------------------+-------+--------|
|                                                  |  55.8 | (51.8) |
| Equity/assets ratio, %                           |       |        |
+-------------------------------------------------------------------+




  * Strong start to 2008 with 5% volume growth in the first quarter.
    Sustained very positive volume growth in Asia, as well as North
    and South America.
  * Gross income was up 8% year on year. Price increases conducted on
    all markets in the first quarter. Unfavourable effect of a weaker
    USD, and lower metal inventory gains compared to Q1 2007.
  * Operating income was MSEK 196 (188), up 4% year on year, with a
    negative influence of currency-related other operating items.
  * Income before tax was MSEK 191 (172), up 11% year on year.
  * Cash flow from operating activities was MSEK 197 (-9). Working
    capital increased MSEK 30, but reduced in relation to net sales.

CONSOLIDATED NET SALES

Net sales were MSEK 1 583 (1 413), a 12% increase of which the volume growth was 5%. Apart from volume growth, the higher turnover was due to price increases over and above metal price-related price adjustments. Höganäs' volume growth remained robust in Asia, North and South America. Demand was healthy apart from the North American automotive market. Höganäs continued to win market shares in North America. A slowdown was apparent on the European market, where Höganäs' customers are now being increasingly hurt by a higher EUR exchange rate. In combination with price increases, this put some pressure on Höganäs' sales volumes in Europe in the first quarter.

CONSOLIDATED EARNINGS

Operating income in the quarter was MSEK 196 (188), which benefited from improved gross income. However, other operating income and expenses were significantly more positive in Q1 2007 compared to 2008.

Gross income was MSEK 326 (301), affected positively mainly by increased sales volumes and price increases on all markets, and to a limited extent, by a stronger JPY exchange rate and by a high nickel price surcharge in Japan. Gross income was adversely affected by USD depreciation and higher costs for scrap and energy. More stable metal prices in the first quarter 2008 meant that metal inventory gains were MSEK 10 down on the corresponding period of 2007, when nickel and copper prices rose sharply. Moreover, metal hedges maturing in the first quarter 2008, generated MSEK -20, which were MSEK 14 in the corresponding quarter 2007. USD exposure was largely hedged, although not at the same level as in the previous year.

Research and development expenses were lower in the period year-on-year, mainly because MSEK 4 was capitalized.

Other operating income and other operating expenses were MSEK 6 (26), including earnings of MSEK 13 (17) on currency forward contracts, exchange rate differences of MSEK -10 and a MSEK 3 from the sale of the facility in Jacarei, Brazil. Apart from MSEK 17 of earnings on currency forward contracts and exchange rate differences of MSEK +7, sales of CO2 emission rights of MSEK 2 also affected the previous year's other operating income and other operating expenses.

Income before tax was MSEK 191 (172). Income after tax was MSEK 145 (126) or SEK 4.15 per share (3.62). The effective tax rate was 24.1% (26.7).

GROUP HIGHLIGHTS

New managers for Asia and India

Per Engdahl became head of Höganäs Asia, including the Japanese, Chinese, Taiwanese, South Korean subsidiaries and the South-East Asian markets, on 1 January 2008. Per Engdahl was previously Vice President of Sales & Business Development of the Höganäs group. Before that, he held executive positions at various levels, mainly in Sales & Marketing and Research & Development.

Srini V. Srinivasan took up his position as Managing Director of Höganäs India Ltd. on 2 January 2008. Mr. Srinivasan has extensive experience of sales, manufacturing and management within and outside the metal powder industry. He joins Höganäs from GKN Sintermetals Ltd. India, where he was Managing Director.

Consolidation of Brazilian operation

In February 2008, Höganäs sold its facility at Jacarei, São Paulo, and will be concentrating all its Brazilian operations on Mogi das Cruzes. Its production, technical support centre and sales office will be relocated in October 2008. This will result in enhanced efficiency, reduced costs and reduced capital employed.

BUSINESS AREAS

Höganäs has two business areas: Components and Consumables. Components encompasses all powder where value is added to create components. Consumables covers those powders used in processes such as preparing metals, as supplements to chemical processes, surface coatings and food additives.

Components

The net sales of the Components business area were MSEK 1 190 (1 016), a 17% increase year on year.

Volumes grew by 7%. Market progress was positive in Japan, the rest of Asia and South America. However, as expected, the market was weaker in North America and Europe. A strong currency deteriorated the competitive position for the European customers of Höganäs. Furthermore, Höganäs achieved very high volume growth in Europe in the first quarter 2007, 14% on 2006, implying very high comparative figures for the first quarter 2008. In North America, Höganäs won market share on a continued declining market. In Korea, Höganäs' sales volumes were negatively affected by inventory adjustments by major customers and by some price competition.

Operating income was MSEK 142 (102), a 39% improvement. Operating margins were 11.9% (10.0), an increase of 3.8 percentage points on the fourth quarter 2007, mainly the result of price increases. Profits were also affected positively year on year by an appreciated JPY, but negatively by USD depreciation and by higher scrap and energy costs. The first quarter 2007 also gained a significant positive revaluation effect on EUR-related balance sheet items.

Consumables

Net sales were MSEK 393 (397), a -1% reduction on the previous year. Volumes reduced by -1% year on year, explained partly by very sharp volume gains in the fourth quarter 2007 in Europe and Asia of 17%, resulting in a somewhat weaker start to 2008 on most markets. Höganäs expects this to even out in forthcoming quarters. Partly, sales volumes reduced in some segments, such as textile filtration due to price increases implemented. Accordingly, Höganäs decided to prioritise profitability before volume growth. Moreover, substantial quantities of scrap were sold in the first quarter 2007, which was not the case in 2008. Operating income was MSEK 41 (69) in the quarter. Comparisons are distorted by the outcome of metal hedging and significant metal inventory gains in the first quarter 2007. Income benefited from an appreciated JPY, although this was offset by USD depreciation.

Operating margins were 10.4% (17.4), significantly stronger than the 8.7% in the second half-year 2007.

PROFITABILITY

Return on capital employed was 16.3% (15.9) in the quarter and return on equity was 16.2% (15.5).

FINANCIAL POSITION AND CASH FLOW

The equity/assets ratio was 55.8% at the end of the period, against 53.3% at year-end 2007. Shareholders' equity per share was SEK 81.30, against SEK 79.50 at the beginning of the financial year.

Consolidated financial net debt was MSEK 723 at the end of the period, down MSEK 194 since the previous year-end. Net financial income and expenses were MSEK -5 (-16). Reduced utilization of credit facilities, lower interest rates in the US, earnings on interest swaps and interest income on short-term investments, affected net financial income and expenses positively in the first quarter 2008.

Cash flow from operating activities was MSEK 197 (-9). The change in working capital reduced cash flow in the period by MSEK 30. Investments in fixed assets were MSEK 57 (37). Financing activities affected cash flow by MSEK -220 (14) due to amortization of borrowings.

SIGNIFICANT EVENTS AFTER THE END OF THE REPORTING PERIOD

In early April, Höganäs sold CO2 emission rights with a value of MSEK 35. This corresponds to the number of emission rights Höganäs considers that it will not need to utilize through the next three years, considering its current plans.

SIGNIFICANT RISKS AND UNCERTAINTY FACTORS

The group's and parent company's significant risk and uncertainty factors include business risks in the form of high exposure to the automotive industry. Financial risks, primarily currency risks and metal price risks, are additional. No other significant risks are considered to have arisen in addition to those reviewed in Höganäs' Annual Report 2007, with Note 31 offering a detailed review of the group's and parent company's risk exposure and risk management.

HUMAN RESOURCES

Höganäs had 1 580 employees at the end of the period, against 1 591 as of 1 January.

OUTLOOK 2008

The financial turbulence that began in summer 2007 and has continued in 2008 renders forecasts for the immediate future highly uncertain. One likely scenario is that weaker market progress in North America will persist in 2008. The trend towards smaller and more fuel-efficient cars in North America will continue to restrain the growth of press powder. Positive progress of the European and South American powder market will slow somewhat. Growth in Asia will continue.

Metal prices and exchange rates are expected to remain volatile in 2008, which may have a short-term effect on profit performance.

PARENT COMPANY

Net sales and earnings

Parent company net sales were MSEK 923 (817), a 13% increase. Sales to group companies were MSEK 408 (356). Higher turnover was due to increased sales volumes and price increases.

Operating income was MSEK 93 (104) in the year. Excluding earnings from currency forward contracts, income was MSEK 80 (87). Parent company income was positively affected by volume expansion and price increases, and negatively affected by volatile metal prices and currency fluctuations in USD.

Financial position

Investments in fixed assets were MSEK 27 (24). Parent company liquid funds were MSEK 49 at the end of the period, against MSEK 35 at the beginning of the financial year.

Significant transactions with related parties

The parent company exerts a controlling influence over its subsidiaries. The supply of services and products between group companies is subject to business terms and market prices. There were MSEK 408 (356) of sales of goods to related parties, while purchases of goods from related parties were MSEK 20 (29).

Outstanding receivables from related parties are MSEK 1 379 (1 536), and liabilities to related parties were MSEK 460 (336). The parent company has guarantees of MSEK 189 (103) in favour of subsidiaries. MSEK 20 (10) of dividends was received from subsidiaries

Alrik Danielson
CEO and President
Höganäs, Sweden, 16 April 2008

ACCOUNTING PRINCIPLES

This Report has been prepared pursuant to IFRS (International Financial Reporting Standards) as endorsed by the EU Commission for adoption in the EU. The Interim Report has been prepared pursuant to IAS 34, Interim Financial Reporting, which is consistent with the stipulations of RR 31, Interim Reporting for Groups (issued by Redovisningsrådet, the Swedish Financial Accounting Standards Council). The accounting principles applied are unchanged compared to the previous year. For a review of the group's accounting principles and definitions of certain terms, the reader is referred to the accounting principles section of the Annual Report for 2007. This Report has not been subject to limited review by the company's auditors.



FINANCIAL INFORMATION

Höganäs intends to publish the following financial information in 2008:

  * The AGM will be held on 21 April
  * Second-quarter Interim Report, 16 July
  * Third-quarter Interim Report, 23 October

Höganäs AB (publ), SE-263 83 Höganäs, Sweden
tel +46 (0)42 33 80 00 fax +46 (0)42 33 83 60
www.hoganas.com

   This information is mandatory for Höganäs AB (publ) to publish
                       pursuant to the Swedish
 Securities Exchange and Clearing Operations Act and/or the Swedish
                        Financial Instruments
Trading Act. The information was submitted for publication at 9:00 am
                          on 16 April 2008.

The full report with tables can be downloaded from the following link:

http://hugin.info/1095/R/1209757/250111.pdf



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