Semcon: Strengthened Financial Position Despite Difficult First Six Months

Regulatory News:

Semcon AB (STO:SEMC):

Second quarter

• Operating income fell by SEK 300 million, amounting to SEK 602 million (902)
• The operating loss was SEK -63 million (+71), giving an operating margin of -10,5% (+7.9)
• One-off items affected earnings by SEK -39 million (+8)
• The loss after tax was SEK 51 million (+46)
• Earnings per share (EPS) was SEK -2.81 (+2.60)
• The operating cash flow from current activities was SEK 7 million (21)

January - June

• Operating income fell by SEK 518 million, amounting to SEK 1,265 million (1,783) of which income from Volvo Cars and GM fell by SEK 334 million
• The operating loss was SEK 105 million (+145), giving an operating margin of -8,3% (+8.2)
• One-off items concerning around 300 staff redundancies affected earnings by SEK -49 million
• The loss after tax was SEK 82 million (+92)
• Earnings per share (EPS) was SEK -4.54 (+5.18)
• The operating cash flow from current activities was SEK 147 million (-3)

"The first six months have been tough, with reduced business volumes, a low utilization ratio mainly in the automotive and engineering industries as well as greater price pressure, which all impacted negatively on the company’s revenues and results. However, the cash flow was strong due to a lower tied up operating capital. Completed staff redundancies mean cost savings of SEK 220 million on an annual basis. We believe that by the end of the third quarter we will have adapted to the market situation to achieve a balance between the number of employees and market demand.”

Kjell Nilsson, President & CEO

Income and results - Second quarter

Operating income in the second quarter reached SEK 602 million (902) and organic growth was 37%. A large part of the fall in sales was due to a reduction in income of SEK 163 million from Volvo Cars and GM together. Furthermore, Q2 was shorter by two working days than Q2 2008. Reduced business volumes led to staff redundancies in order to adapt the business to the current market condition. Around 240 employees left the company during the second quarter. The operating loss was SEK 63 million (+71), giving an operating margin of -10,5% (+7.9). Lower volumes, a low utilization ratio and increased price pressure all had a negative impact. Results were also affected by one-off costs of SEK 39 million concerning redundancies. The operating profit for last year included revenues attributable to the lower pension contributions due to a discount from Alecta of SEK 8 million. The operating loss, excluding one-off items, was SEK 24 million (+63), giving an operating margin of -4% (7.0). The loss before tax was SEK 68 million (+66). Net financial items amounted to SEK -4 million (-4). The loss after tax was SEK 51 million (+46). EPS was SEK -2.81 (+2.60).

Income and results - January - June

Operating income for the first six months of the year reached SEK 1,265 million (1,783). Organic growth was -33%. A large part of the fall in sales was due to a reduction in income of SEK 334 million from Volvo Cars and GM together. Compared with the end of the second quarter in 2008 the number of employees in Sweden has been reduced by around 800.

The operating loss was SEK 105 million (+145), resulting in an operating margin of -8.3% (+8.2). Low utilization led to staff redundancies, which ha a negative impact of SEK 49 million on earnings. A total of around 300 staff redundancies were carried out during the first half of the year. Additional redundancies of around 50 employees were completed at the start of Q3. Completed redundancies are expected to produce annual savings of around SEK 220 million. The cost of one-off items made in Q3 are estimated at around SEK 20 million. The operating profit for last year included revenues attributable to the lower pension contributions due to a discount from Alecta of SEK 14 million. The operating loss, excluding one-off items, was SEK 56 million (+131), giving an operating margin of -4.4% (+7.4).

The loss before tax was SEK 111 million (+131). Net financial items amounted to SEK -6 million (-14) and include positive one-off items of around SEK 4 million. The loss after tax was SEK 82 million (+92). EPS was SEK -4.54 (+5.18).

Events during the year so far

• The number of Semcon AB’s ordinary shares increased on 12 January 2009 by 330,000 through the conversion of the company’s class C shares. After the conversion there are 18,112,534 ordinary shares.
• Semcon streamlined the business and made around 300 employees redundant in Sweden. A rationalization scheme was meanwhile introduced throughout the whole of the Semcon Group. The rationalization scheme is expected to generate savings of around SEK 15 million in 2009.
• Semcon Project Management acquired a small German company, Triple-Constraint, and strengthened its range of project management services in Europe.
• JCE announced on 5 March 2009 that it now has a share of capital in Semcon equivalent to 30.0 per cent and that the limit for the Mandatory Bid Rule had been passed. JCE was willing to pay SEK 14 in cash for each of Semcon’s shares. A total of 92,510 shares were acquired under the offer and JCE now owns 30.5% of the shares in Semcon.
• Semcon construct and install new electrical and control installations at one of energy company Fortum’s power stations.
• Semcon is investing in the offshore industry and opened a new office in Lidköping. Fifteen specialists have been employed with extensive experience of international offshore projects and expertise of developing accommodation modules on oilrigs.
• Semcon has signed order worth SEK 50 million for a German concept car featuring state-of-the-art technical solutions to meet extreme requirements concerning fuel consumption and carbon emissions.

Staff and organization

The headcount on 30 June was 2,871 (3,622), of whom 1,704 (2,462) in Sweden and 1,167 (1,200) abroad. The average number of employees was 3,085 (3,692). The number of employees in the respective business areas was: Automotive R&D 1,670 (2,369), Design & Development 838 (889) and Informatic 363 (404).

Outlook

Despite the instability on the market for some industries and individual customers, there is still a great need for development services. The long-term trend where the market’s demand to produce more products, models and versions at an ever-increasing rate is continuing, meaning good business opportunities when the market situation improves.

We believe that by the end of the third quarter we will have adapted to the market situation to achieve a balance between the number of employees and market demand The outlook is still very difficult to predict over the short-term, meaning that more cutbacks cannot be discounted.

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