SinterCast Results April-June 2016

Series production at record level, installation outlook positive

Second Quarter 2016

• Revenue for Period: SEK 18.3 million (SEK 15.8 million)
• Operating Result: SEK 5.8 million (SEK 2.9 million)
• Earnings per Share: SEK 0.8 per share (SEK 0.5 per share)
• Cashflow from Operations: SEK 4.4 million (SEK 4.8 million)
• Series production equals record high of 2.2 million Engine Equivalents
• US Automotive Science Group^TM awards Ford F-150 with CGI engine "Best Environmental Performance"
• Ladle Tracker^TM technology launched; first installation in operation
• Teksid System 3000 Plus installation shipped to Brazil in July

2016 Year-to-Date

• Revenue for Period: SEK 34.4 million (SEK 34.6 million)
• Operating Result: SEK 10.4 million (SEK 8.8 million)
• Earnings per Share: SEK 1.5 per share (SEK 1.3 per share)
• Cashflow from Operations: SEK 7.4 million (SEK 9.3 million)
• Installed Base: 24 fully automated systems and 20 mini-systems in Europe, Asia and the Americas

Series Production*   

See PDF for graph

Annualised series production increased to 2.2 million Engine Equivalents, equalling the all-time high.

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

CEO Comments

Strong series production provides stable platform

Following the ramp-up of several new programmes, series production in the second quarter remained strong and stable, providing six consecutive quarters above the two million Engine Equivalent threshold, and equalling the all-time high production of 2.2 million Engine Equivalents.  Sampling Cup shipments were also at an all-time record high of 82,900 units in the first-half of 2016, 10% above the previous half-year high established in 2015.  While most of the series production programmes provided stable or increased volumes, a small number of programmes have reported reductions during the first half of 2016.  These reductions were offset by gains in the remaining programmes, resulting in a run-rate that was 3% higher than the 2015 full-year volume.  Passenger vehicles showed the largest gain due to strong vehicle sales in Europe and North America, plus the contribution from the ramp-up of the Cummins 5.0 litre V8 for Nissan.  The commercial vehicle volume was also higher, primarily owing to a total market increase of more than 10% in year-on-year commercial vehicle sales in Western Europe.  The overall outlook remains positive, with a stable platform and the potential for the start of production of new engine programmes for both passenger vehicle and commercial vehicle applications.

The installation outlook also remains positive.  Installation revenue thus far in 2016 is behind the pace of 2015, due to order timing.  During the second quarter, a capacity upgrade was commissioned for a North American customer, and several other capacity upgrades, functionality expansions and new installations are under discussion for the second half of 2016.  Following approvals issued by Brazilian customs, the Teksid do Brazil System 3000 Plus was shipped during July and the revenue will therefore be recognised in the third quarter results.  Commissioning of the Teksid installation is scheduled during the autumn.

In the United States, the Automotive Science Group^TM awarded the Ford F-150, equipped with the SinterCast-CGI 2.7 litre petrol engine, "best environmental performance" in the full size truck category.  This reinforces the environmental contribution of SinterCast-CGI in downsized engines and complements earlier awards for North America's best-selling vehicle, including the 2016 Green Truck of the Year award.  This marks two consecutive years with SinterCast-CGI engines winning the Green Truck of the Year award.

Launched at the SinterCast AGM on 19 May, the new Ladle Tracker^TM technology provides opportunities for additional installation revenue.  The product marketing was reinforced by a joint Tupy-SinterCast presentation of the Ladle Tracker^TM technology at the Mexican Foundry Congress in June.  The publication associated with the presentation is expected to be published in the September edition of the Mexican foundry journal, Fundidores.  Following the initial installation at the Tupy Saltillo foundry, Tupy has ordered an extended Ladle Tracker^TM measurement station that is planned to be installed during the third quarter.  A 'stand-alone' version of the Ladle Tracker^TM technology is currently being developed to enable the technology to be sold as an independent product, without the need for a pre-existing SinterCast-CGI installation.  The stand-alone version is expected to be available before the end of 2016.  While the focus of the R&D activity remains on the core CGI technology, SinterCast continually investigates the development of other unique technologies - within and beyond the scope of thermal analysis - to improve quality and production efficiency in the cast iron foundry industry.

Financial Summary  

Revenue

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

                                                                                                                                             
The April-June 2016 revenue amounted to SEK 18.3 million (SEK 15.8 million). Revenue from series production increased by 10% to SEK 16.9 million (SEK 15.4 million), due to the increased shipment of 46,800 (34,900) Sampling Cups. The annualised production amounted to approximately 2.2 million (2.2 million) Engine Equivalents. Equipment revenue amounted to SEK 0.7 million (SEK 0.2 million) following the sale of equipment to an existing North American customer to increase production capacity. Engineering Service amounted to SEK 0.7 million (SEK 0.2 million) following support provided to various customers globally and the sale of test pieces.  

The January-June 2016 revenue amounted to SEK 34.4 million (SEK 34.6 million). The lower revenue is primarily due to installation timing, where no new installations were shipped during the first half of 2016.  In comparison, to two Mini-System 3000 installations were shipped during the same period last year. Equipment revenue amounted to SEK 0.8 million (SEK 2.3 million).  Revenue from series production increased by 3% to SEK 32.7 million (SEK 31.7 million), due to higher series production and the increased shipment of 82,900 (75,100) Sampling Cups. Engineering Service amounted to SEK 0.9 million (SEK 0.5 million) following support provided to various customers globally.

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 2016 operating result of SEK 5.8 million (SEK 2.9 million) increased by SEK 2.9 million as a result of higher gross results of SEK 1.4 million primarily derived from higher revenue, combined with increased other operating income (exchange gains) of SEK 0.6 million and decreased other operating costs (exchange losses) of SEK 0.9 million. The result for the period after tax amounted to SEK 6.0 million (SEK 3.5 million). The increase of SEK 2.5 million is primarily related to the increased operating result of SEK 2.9 million and the decreased financial net of SEK 0.4 million (primarily unrealised revaluation losses derived from outstanding hedge contracts). Tax income amounted to SEK 1.0 million (SEK 1.0 million), following revaluation of the deferred tax asset.

The January-June 2016 Operating Result of SEK 10.4 million (SEK 8.8 million), increased by SEK 1.6 million as a result of higher gross results of SEK 0.1 million primarily derived from lower revenue, combined with increased other operating income (exchange gains) of SEK 0.6 million and decreased other operating costs (exchange losses) of SEK 0.9 million.

The Result for the period after tax amounted to SEK 10.7 million (SEK 9.3 million), increased by SEK 1.4 million, primarily related to the increased operating result of SEK 1.6 million and a SEK 0.2 million decrease in the financial net (primarily unrealised revaluation losses derived from outstanding hedge contracts).

Deferred Tax Asset

Tax for the April-June 2016 period amounted to SEK 1.0 million (SEK 1.0 million). The estimated future taxable profit and deferred tax asset calculation is reassessed every quarter. As of 30 June 2016, SEK 142.3 million (SEK 137.8 million) of SinterCast's total carried-forward tax losses have been used as the basis of the updated calculation, resulting in SEK 31.3 million (SEK 30.3 million) being capitalised as a deferred tax asset.

Cashflow, Liquidity and Investments

The January-June 2016 cashflow from operations decreased by SEK 1.9 million compared to the same period in 2015.  This was primarily due to the net effect of an increase of SEK 2.1 million in cashflow from operations before changes in working capital, plus changes in working capital (SEK -4.0 million), derived from changed cashflow from inventory (SEK 0.4 million), receivables (SEK -1.2 million) and operating liabilities (SEK -3.2 million).

The total cashflow decreased by SEK 11.1 million following the dividend of SEK 24.8 million (SEK 15.6 million). Total investments amounted to SEK 1.0 million, primarily related to the activation of products under development (SEK 0.4 million), patent investments (SEK 0.2 million) and production equipment (SEK 0.4 million). The total cashflow amounted to SEK -18.4 million (SEK -7.3 million). Liquidity on 30 June 2016 was SEK 29.6 million (SEK 37.6 million). SinterCast has no loans.

Risks and Uncertainty Factors

Uncertainty factors for SinterCast include the timing of 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 economies have developed differently in Europe, Asia and the Americas over the last several years.  The European passenger vehicle, commercial vehicle, and construction equipment markets have recovered, but uncertainty remains in the market.  In Asia, the dominant Chinese market is characterised by overcapacity in the commercial vehicle and construction equipment sectors, which represent the primary opportunity for CGI.  This overcapacity, coupled with the current economic uncertainty in China, influences product development cycles and production volumes. In contrast, consumer confidence has 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. 

For full risk and uncertainty factor information, see Note 26 on pages 46 and 47 in SinterCast's Annual Report 2015

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 2016, the Group had 20 (19) employees, four (four) of whom are female. 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. On 30 June 2016, the Parent Company had 15 (14) employees. The majority of the operations are managed by the Parent Company while local operations in the United Kingdom, United States, 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. However, the result for the period may differ between the Group and the Parent Company due to intercompany transactions between the Parent Company and its subsidiaries.

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 the preparation of the company's latest Annual Report. The implementation date of IFRS 15 has been changed from 1 January 2017 to 1 January 2018.

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 2016 that could materially change these financial statements.

Information

The Interim Report July-September 2016 will be published on 23 November 2016
The Interim Report October-December and Full Year Results 2016 will be published on 22 February 2017
The Interim Report January-March 2017 will be published on 26 April 2017
The Interim Report April-June 2017 will be published on 23 August 2017

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 24 August 2016

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 44 installations in 13 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

END