SinterCast AB : Results April-June 2014

Series production remains at record levels

Second Quarter 2014

• Revenue for Period: SEK 10.9 million (SEK 11.8 million)
• Operating Result: SEK 0.7 million (SEK 1.4 million)
• Earnings per Share: SEK 0.3 per share (SEK 0.2 per share)
• Cashflow from Operations: SEK 3.0 million (SEK 5.3 million)
• Series production consolidated at record level of 1.70 million Engine Equivalents
• Ford petrol engine ready for ramp-up in advance of showroom sales before year-end
• Increased development in passenger vehicle, commercial vehicle and industrial power sectors

2014 Year-to-Date

• Revenue: SEK 25.5 million (SEK 23.5 million)
• Operating Result: SEK 3.6 million (SEK 2.9 million)
• Earnings per Share: SEK 0.7 per share (SEK 0.5 per share)
• Cashflow from Operations: SEK 0.9 million (SEK 5.5 million)
• Installed Base: 23 fully automated systems and 16 mini-systems in Europe, Asia and the Americas

Series Production*

See PDF for graph

Series production remained at the record level of 1.70 million Engine Equivalents for the second consecutive quarter. The outlook for series production remains positive as commercial vehicle and pick-up opportunities continue to grow and as the overall market awareness of CGI continues to increase.

* Annualised average production of Engine Equivalents during the quarter (1 Engine Equivalent = 50 kg)

CEO Comments

Series production strong and stable

Annualised series production was 1.70 million Engine Equivalents during the quarter, consolidating the record production achieved during the first quarter of 2014.  Production in June totalled 1.80 million Engine Equivalents, equalling the record production of 1.80 million Engine Equivalents set in October 2013.

Series production benefitted from continued strong production of the Ford 6.7 litre V8 engine used in Super Duty pick-up applications and from the VM Motori 3.0 litre V6 engine used in Ram, Jeep, Chrysler, Lancia and Maserati applications.  Production also benefitted from commercial vehicle engines, following the introduction of Euro 6 emissions legislation on 1 January 2014.  The strong production volume helped buoy the result and to balance the fact that no new installation commitments were secured during the second quarter.  Installation discussions are ongoing and new installation commitments are targeted during the second half of the year. 

The outlook for series production remains positive, including the ramp-up of the Ford 2.7 litre V6 petrol engine in advance of the announced start of model year 2015 F150 pick-up sales before year-end.  Ford has announced that the weight saving in the new F150 will be more than 318 kg and SinterCast is pleased that the weight reduction provided by the downsized CGI cylinder block has contributed to this achievement.  Ford has also recently announced the application of the SinterCast-CGI petrol engine to the Edge crossover vehicle and other vehicle applications are expected.

Increased market development

The market development of CGI increased noticeably during the first half of the year and several programmes in the development pipeline have made positive strides toward series production.  As a result of the increased confidence in some of these programmes, an additional SEK 4.8 million of the carried forward tax losses have been activated, resulting in an increase of SEK 1.0 million in the deferred tax asset.  The increasing awareness in CGI is also evident from the number of new contacts received from OEMs in the passenger vehicle, commercial vehicle and industrial power sectors, to discuss new CGI applications for both diesel and petrol engines.  While many of these enquiries are at the early stages, the increased interest provides medium-term and long-term growth opportunities, and underlines the strength of the core CGI market.

SinterCast continues to provide technical support for product development programmes for passenger vehicle, commercial vehicle and industrial power applications in Europe, Asia and the Americas.  It is estimated that the programmes currently in series production have the potential to provide approximately 2.5 million Engine Equivalents at mature volumes. A similar number of Engine Equivalents may be realised from the current development pipeline.  However, the Board of Directors has decided to refrain from quantitative forward looking statements regarding the total near-term addressable market.

Ductile Iron technology

The recent development of the ductile iron technology has benefitted from the recent recruitment of two new engineers and trials resumed during the second quarter to validate the initial correlations.  Metallurgical development and application programming are underway, with the intention to conduct field trials during the second half of the year.  The SinterCast ductile iron technology is expected to provide additional benefit to customers by reducing magnesium consumption, improving mould yield and reducing casting defects in the foundry, and by improving machinability.

Financial Summary  

Revenue

The revenue for the SinterCast Group relates primarily to income from equipment, series production and engineering service.

The April-June 2014 revenue amounted to SEK 10.9 million (SEK 11.8 million). The Production Fee revenue increased due to the higher series production level of approximately 1.70 million (1.65 million) annualised Engine Equivalents. However, the total revenue from series production decreased slightly to SEK 10.4 million (SEK 10.7 million), due to the lower shipment of 29,000 (33,200) Sampling Cups. Engineering Service amounted to SEK 0.3 million (SEK 0.6 million). 

The January-June 2014 revenue amounted to SEK 25.5 million (SEK 23.5 million). The revenue from Series Production increased to SEK 22.0 million (SEK 19.7 million) due to a 12% increase in series production revenue and a 6% increase in Sampling Cup shipments. Equipment revenue amounted to SEK 2.6 million (SEK 2.7 million), following the shipment of a complete System 3000 Plus to one of China's largest automotive component conglomerates. Engineering Service amounted to SEK 0.8 million (SEK 0.9 million) following support provided to various customers globally and the sale of test pieces. The revenue from the leased installations is accrued over the lease period.

Results

The business activities of SinterCast are best reflected by the Operating Result. This is because the "Result for the period after tax" and the "Earnings per Share" are influenced by the financial income and costs and by the revaluation of tax assets.

The April-June 2014 Operating Result of SEK 0.7 million (SEK 1.4 million) decreased by SEK 0.7 million, as a result of lower gross results of SEK 0.5 million derived from lower revenue, higher operational expenses of SEK 0.1 million and lower other operating income and costs of SEK 0.1 million. 
The Result for the period after tax amounted to SEK 1.9 million (SEK 1.2 million), primarily related to the decrease in the Operating Result of SEK 0.7 million, the increased financial net of SEK 0.3 million and the increased tax income of SEK 1.1 million, primarily due to the deferred tax adjustment.

The January-June 2014 Operating Result of SEK 3.6 million (SEK 2.9 million), increased as a result of higher gross results of SEK 1.0 million primarily derived from higher revenue, combined with higher operational expenses of SEK 0.4 million and increased operating income (exchange gains) of SEK 0.1 million.

The Result for the period after tax amounted to SEK 5.1 million (SEK 3.6 million), primarily related to the increased operating result of SEK 0.7 million, a SEK 0.5 million increase in the financial net (primarily exchange gains), and increased tax income amounting to SEK 0.3 million, primarily due to the deferred tax adjustment.        

Deferred Tax Asset

Tax amounted to SEK 0.9 million (SEK 0.6 million) during the January-June 2014 period.  The difference is primarily explained by the increase of the deferred tax asset during the quarter by SEK 1.0 million (SEK 0.8 million). The estimated future taxable profit and deferred tax asset calculation is reassessed every quarter. As of 30 June 2014, SEK 133.3 million (SEK 128.5 million) of SinterCast's total carried-forward tax losses have been used as the basis of the updated calculation, resulting in SEK 29.3 million (SEK 28.3 million) being capitalised as a deferred tax asset.

Cashflow, Liquidity and Investments

The April-June 2014 cashflow from operations, before changes in working capital, was SEK 0.8 million (SEK 1.6 million). The decreased cashflow of SEK 0.8 million is primarily explained by the lower operating result. The cashflow from operations after changes in working capital amounted to SEK 3.0 (SEK 5.3 million), primarily related to, compared to the same period last year, lower cashflow from operations before changes in working capital (SEK -0.8 million), increased cashflow from receivables (SEK 0.3 million), decreased cashflow from stock (SEK -0.6 million) and decreased cashflow from operating liabilities (SEK -1.2 million). Following the dividend payment of SEK 8.5 million (SEK 7.0 million), and after investments of SEK 0.2 million (SEK 0.3 million), the total cashflow result amounted to SEK -5.7 million (SEK -2.0 million).

The January-June 2014 cashflow from operations before changes in working capital was SEK 4.0 million (SEK 3.5 million). The increased cashflow is primarily explained by higher operating results of SEK 0.7 million. Cashflow from operations after changes in working capital was SEK 0.9 million (SEK 5.5 million), primarily related to, compared to the same period last year, increased cashflow from operations before changes in working capital of SEK 0.5 million, decreased cashflow from receivables (SEK -0.7 million), decreased cashflow from stock (SEK -1.0 million) and decreased cashflow from operating liabilities (SEK -3.4 million). Following the dividend of SEK 8.5 million (SEK 7.0 million), the total cashflow result for the period was SEK -7.9 million (SEK -1.8 million), resulting in SEK 39.9 million (SEK 33.6 million) in liquidity on 30 June 2014. Investments amounted to SEK 0.3 million (SEK 0.3 million) during the period.

Risks and Uncertainty Factors

The main uncertainty factor for SinterCast continues to be the timing of the CGI market ramp-up. This primarily depends on OEM decisions for new CGI engines and other components, the global economy for new vehicle sales, and the individual sales success of vehicles equipped with SinterCast-CGI components.

The global economy has developed differently in Europe, Asia and the Americas over the last few years. The Asian and European economies continue to be uncertain and this may impact passenger vehicle and commercial vehicle sales in these regions. However consumer confidence has recently increased in North America and SinterCast has benefitted from increased vehicle sales. SinterCast's geographical diversification helps to mitigate changing macroeconomic conditions in the different regions.

SinterCast enjoys global brand recognition and respect as the CGI technology leader and is welcomed by the industry as a reliable and trustworthy partner. However, virtually every company encounters competition, and SinterCast is no exception.  SinterCast judges that its technology and engineering know-how provides the most reliable and cost-effective solution for series production of high quality CGI. 
         
New powertrain technologies, such as vehicle electrification (hybrid and plug-in vehicles) and fuel cells attract significant media attention; however, the development and implementation of these technologies remain a long-term prospect and SinterCast does not expect these technologies to have a significant effect on the Company's competitive position for the foreseeable future.    

For full risk and uncertainty factor information, please see note 26 on p.46 in SinterCast's Annual Report 2013

Organisation

With successful high volume CGI production in foundries located in Europe, Asia and the Americas, SinterCast has established a global organisation with employees and offices in Sweden, the United Kingdom, the United States, China and Korea. As of 30 June 2014, the Group had 18 (18) employees.  Three (three) of the employees are female. A new Senior Research Engineer joined the Company during the period. The Company is well positioned to support global market activities and to drive SinterCast's future growth.

Parent Company

SinterCast AB (publ) is the Parent Company of the SinterCast Group, with its registered office located in Stockholm, Sweden. The Parent Company has 13 (12) employees. The majority of the operations are managed by the Parent Company while local operations in the UK, USA, Korea and China are managed by the local companies.  The information given for the Group in this report corresponds in all material respects to the Parent Company.

Accounting Principles        

The information provided on behalf of the Group in this interim report has been prepared in accordance with Sweden's Annual Accounts Act and IAS 34 Interim Financial Reporting. The reporting for the Parent Company has been prepared in accordance with Sweden's Annual Accounts Act and RFR 2. The accounting policies that have been applied for the Group and the Parent Company are in agreement with the accounting policies used in preparation of the Company's latest annual report.

No material transactions have taken place between SinterCast and the Board or the Management during the period.

Events after the Balance Sheet Date

There have been no significant events since the balance sheet date of 30 June 2014 that could materially change these financial statements. 

Information

The Interim Report July-September 2014 will be published on 5 November 2014
The Interim Report October-December 2014 and Full Year Results 2014 will be published on 11 February 2015
The Interim Report January-March 2015 will be published on 29 April 2015
The Interim Report April-June 2015 will be published on 29 July 2015

Beginning with the July-September 2014 report, all Interim Reports will be published at 08:00 CET

This report has not been reviewed by the Company's Auditors.

The Board of Directors and the CEO certify that the half-yearly financial report provides a true and fair overview of the operations, outlook, financial position and results of the Company and the Group, and describes the material risks and uncertainties that the Company and the companies in the Group face.

Stockholm 20 August 2014

SinterCast is the world's leading supplier of process control technology for the reliable high volume production of Compacted Graphite Iron (CGI). With at least 75% higher tensile strength, 45% higher stiffness and approximately double the fatigue strength of conventional grey cast iron and aluminium, CGI allows engine designers to improve performance, fuel economy and durability while reducing engine size, weight, noise and emissions. The SinterCast technology, with 39 installations in 12 countries, is primarily used for the production of petrol and diesel engine cylinder blocks and exhaust components for passenger vehicles, medium-duty and heavy-duty cylinder blocks and heads for commercial vehicles, and industrial power engine components for marine, rail, off-road and stationary engine applications. SinterCast's series production components range from 2 kg to 9 tonnes, all using the same proven process control technology.  The SinterCast share is quoted on the Small Cap segment of the Stockholm NASDAQ OMX stock exchange (Stockholmsbörsen: SINT). For more information: www.sintercast.com:
http://www.sintercast.com

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