Interim Report for Second Quarter 2014

Read CEO Tom Erixon's comments on Ovako's Interim Report for Second Quarter 2014 and get the financial report.

Second quarter 2014

• Sales volumes were on the same level as in the previous year. Revenue decreased by 3 percent to EUR 233 (240) million, primarily as a result of reduced scrap and alloy surcharges
• Operating profit before depreciation and amortisation (EBITDA) improved by 47 percent to EUR 28 (19) million, mainly thanks to an improved product mix and high production rate
• Order intake was unchanged compared with the corresponding period last year
• Operating profit (EBIT) amounted to EUR 16 (6) million
• Cash flow from operating activities amounted to EUR 1 (8) million.
• Refinancing was conducted in May. EUR 300 million in senior secured notes with a fixed interest of 6.50 percent until 2019 were issued
  
  

January – June 2014

• Sales volumes increased by 9 percent compared with the same period last year, and revenue by 4 percent. The lower growth in revenue relative to volume is primarily due to reduced scrap and alloy surcharges
• Operating profit before depreciation and amortisation (EBITDA) amounted to EUR 58 (33) million. Higher volumes and a better product mix are the main reasons for the improvement in earnings
• Production volume increased by 21 percent compared to the same period last year
• Operating profit (EBIT) amounted to EUR 34 (10) million
• Cash flow from operating activities amounted to EUR 6 (-6) million.

Amounts in brackets in this report refer to the corresponding period in the previous year.

Group key figures

Comments from the CEO

“The positive earnings trend that began in the autumn of 2013 continued during the second quarter. The efficiency programme for 2014 is on track, and productivity has increased significantly in the first half. The phasing out of production in the chrome-plated steel unit in Mora has begun and is expected to be completed by the end of the year. An enhanced purchasing organisation and better coordination within the group have also contributed to the earnings improvement, mainly in direct materials and logistics. A better currency situation and lower energy prices are also making a positive contribution to earnings.

Capacity utilisation in the steel mills has been high during the quarter. At the same time, delivery precision was negatively affected by capacity constraints in post-treatment, and is now just below the group's target of 90 percent. The installation of a new heat treatment furnace in Imatra during autumn will improve the situation. We have planned inventory accumulation in Smedjebacken to prepare for this summer's major rebuild of the continuous caster. Customer service is expected to be unaffected by the extended summer shutdown at the steel mill.

Market development during the quarter was mixed, with a stable start and a somewhat weaker finish ahead of the summer. Both revenue and order intake were in line with the second quarter of 2013. Weak demand in the heavy vehicle and mining sectors was offset by increased revenue in other areas. The order book remains slightly higher than the same period last year.

The building of Ovako's product management and development organisation is now beginning to yield results. After the re-launch of M-Steel® last year, a number of customer trials have confirmed significant cost savings in machining. In the cured state the material properties are even more unique, opening up new opportunities for M-Steel. A number of new deals have been signed during the quarter, particularly in the energy sector. IQ-Steel® continues to strengthen its position in applications where components are under high load, and where weight reduction is essential. IQ-Steel's unique properties have led to new business in this type of application, such as for transmissions. New product launches will follow in the autumn.

Refinancing of the group was conducted during the quarter. The previous bank financing was replaced with a European bond of EUR 300 million. The bond was well received by the market and has a duration of five years at a fixed interest of 6.50 percent.

Short-term outlook

Economic conditions in Europe and demand for engineering steel are expected to remain stable for the rest of the year. Ovako’s delivery volumes for the third quarter are expected to remain at approximately the same level as in the third quarter of 2013. Earnings will be affected by the seasonal maintenance shutdown during July, with an extended shutdown at the steel mill in Smedjebacken."

Tom Erixon
President and CEO

Stockholm, July 28, 2014

You will find the Interim report for the second quarter on the website:
http://www.ovako.com/Financial-information/

Further information can be obtained from:
Viktoria Karsberg, Head of Group Communications,  +46 8 622 13 40

Ovako is a leading European producer of engineering steel for customers in the bearing, transportation and manufacturing industries. Our production is based on recycled steel and includes steel in the form of bars,tubes, rings and pre-components. Ovako is represented in more than 30 countries and has sales offices in Europe, North America and Asia. Sales in 2013 amounted to EUR 850 million and the company had 2,995 employees. For further information please visit us at www.ovako.com

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