SinterCast Results October-December 2009 and Full Year Results 2009
(Thomson Reuters ONE) - SinterCast Results October-December 2009 Full Year Results 2009· Turnover for period: SEK 5.5 million (SEK 7.4 million). Full Year: SEK20.0 million (SEK 24.8 million)· Operating result: SEK -1.1 million (SEK -1.2 million). Full Year: SEK-6.3 million (SEK -5.7 million)· Result after tax: SEK -1.1 million (SEK -5.0 million). Full Year: SEK-2.7 million (SEK 13.1 million)· Earnings/share: SEK -0.2 per share (SEK -0.9 per share). Full Year: SEK-0.5 per share (SEK 2.4 per share)· Cashflow: SEK -1.9 million (SEK 0.2 million). Full Year: SEK 15.8million (SEK -7.3 million)· First Automobile Works become first Chinese OEM to adopt theSinterCast-CGI technology· System 3000 third generation suite of technologies successfully launched· Cifunsa upgrades existing System 2000 to System 3000 technologySeries production grows by 10% during the quarter, primarily based on increased production of diesel engine cylinder blocks for North America and increased exhaust component production in ChinaCurrent Production and OutlookFollowing a 14-month development campaign, SinterCast launched its thirdgeneration process control technology on 15 December 2009. Branded as theSystem 3000, the new technology is based on state-of-the-art hardware and arugged XP embedded operating system. The System 3000 suite of technologiesincorporates the latest SinterCast process control software configured for bothpressurised pouring furnaces and ladle pouring, and a new Sampling Cup withexpanded thermal analysis measurement capability. The System 3000 was launchedfollowing extensive durability testing corresponding to the production of morethan three million cylinder blocks under typical foundry production conditionsand provides increased levels of flexibility, robustness, accuracy andindependence for SinterCast's foundry customers.During the period, the Cifunsa foundry in Mexico upgraded its existingSinterCast System 2000 to full System 3000 capability. The upgrade was made asa result of intensified product development activity and anticipated increasesin the overall market demand for CGI engine castings.In early January, First Automobile Works (FAW), the largest vehicle manufacturerin China, became the first Chinese OEM to adopt the SinterCast process controltechnology. Under the terms of the agreement, FAW Foundry Co., Ltd., thefoundry research and development branch within the China FAW Group Corporation,will install a SinterCast Mini-System 3000 at the R&D foundry located inChangchun, China. The Mini-System 3000 provides the FAW Group with thecapability to independently conduct CGI product development for FAW passengervehicles, light-duty and heavy-duty commercial vehicles, and busses.During the period, the Navistar ICC foundry located in Indianapolis announcedthat it would cease operation during early 2010. As a result of this change,the SinterCast System 2000 was recovered from the foundry during January 2010.Despite an overall downturn of approximately 40% in the global automotiveindustry during 2009, the start of production of new SinterCast-CGI productsresulted in a series production growth of approximately 35% during thesecond-half of the year, including a 10% growth during the fourth quarter. Thisgrowth was primarily derived from 6.7 litre V8 cylinder block produced at theTupy foundry in Brazil for Ford Super Duty(®) trucks in North America, andincreased production of exhaust manifolds and turbocharger housings at theDashiang Precision foundry in China. At year end, Sampling Cup shipments for2009 (54,600) recovered to a comparable level with 2008 (57,600).Based on the current production programmes and the potential market recoveryduring SinterCast's five year planning horizon, the five year outlook issummarised as follows: Approximate Annual Production Potential and Revenue 31 December 2009 30 September 2009 Activity KEQVS* MSEK/yr** KEQVS* MSEK/yr** Current Series 550 13 500 11 Production[1] Potential Mature 1,200 27 1,300 30 Volume[2] Production Orders 400 9 200 5 Secured[3] Development Pipeline[4] 2,700 62 2,600 60 Near-term Market 4,300 99 4,100 95 Opportunity[5] Notes: 1. Current annualised production rate 2. Annualised potential mature volume of Current Series Production (Item 1 above) when fully ramped-up 3. Annualised mature volume of programmes for which SinterCast's foundry customers have received production orders, but have not yet started series production 4. Annualised mature volume of development programmes that SinterCast is currently supporting, but have not yet been awarded as series production orders 5. Total Near-term Market Opportunity (sum of items 2, 3 and 4) * KEQVS: Thousands of Engine Equivalents ** Assumes 23 SEK/Engine Equivalent on 31 December 2009 and 23 SEK/Engine Equivalent on 30 September 2009Financial SummaryRevenueThe revenue for the SinterCast Group relates primarily to income from equipment(sales and leases), series production and engineering service. Revenue Breakdown October-December January-December 2009 2008 2009 2008-------------------------------------------------------------------------------- Number of Sampling Cups shipped 18,600 13,600 54,600 57,600 Equipment [1] 0.3 3.3 2.6 5.7 Series Production [2] 4.7 3.8 15.6 17.2 Engineering Service [3] 0.4 0.3 1.7 1.8 Other( ) 0.1 0.0 0.1 0.1-------------------------------------------------------------------------------- Total 5.5 7.4 20.0 24.8-------------------------------------------------------------------------------- (Amounts in SEK million if not otherwise stated) Notes: 1. Includes revenue from System sales and leases, sales of the Mini-Systems and spare parts 2. Includes revenue from production fees, consumables and software licence fees 3. Includes revenue from technical support, on-site trials and sales of test piecesDuring October-December 2009, revenue amounted to SEK 5.5 million (SEK 7.4million). The decreased revenue for the period results primarily from lowerequipment revenue. The equipment revenue for the period was SEK 3.0 millionlower compared to the same period during 2008, when revenues were realised forthe sale of System 2000 back-up modules to Dashiang and for rental fees receivedfor a System 2000 installed in support of an extended production trial. It isalso noted that revenue from series production increased to SEK 4.7 million (SEK3.8 million), mainly due to the shipment of 18,600 (13,600) Sampling Cups,providing a compensating effect on the October-December 2009 revenue decrease.DuringJanuary-December 2009, revenue amounted to SEK 20.0 million, representing80% of the corresponding period in 2008 (SEK 24.8 million). The decreasedrevenue for the period results mainly from the decreased equipment revenue.Equipment revenue for the period was SEK 2.6 million (SEK 5.7 million) and isprimarily related to the Mini-System 2000 installation at the Luitpoldh?foundry in Germany and to the hardware upgrade/expansion at the Tupy foundry inBrazil. Series production revenue amounted to SEK 15.6 million (SEK 17.2million), representing 90% of series production revenues during 2008. A total of54,600 (57,600) Sampling Cups were sold during the period.Results Results Summary October-December January-December 2009 2008 2009 2008-------------------------------------------------------------------------------- Operating Result -1.1 -1.2 -6.3 -5.7 Result for the period -1.1 -5.0 -2.7 13.1 Result after tax per share (SEK) -0.2 -0.9 -0.5 2.4-------------------------------------------------------------------------------- (Amounts in SEK million if not otherwise stated)The October-December 2009 operating result of SEK -1.1 million (SEK -1.2)million was primarily affected by lower gross margin of SEK -0.3 million andlower costs of SEK 0.3 million. The result after tax for the October-December2009 period amounted to SEK -1.1 million (SEK -5.0 million), primarily relatedto the revaluation of the deferred tax asset, as described in the sectionentitled "Deferred Tax Asset".The operating result for theJanuary-December 2009 period amounted to SEK -6.3million and is SEK 0.6 million lower than the same period 2008. The lowerresult for the year-to-date period is likewise primarily affected by lower grossmargin of SEK -2.4 million and lower costs of SEK 1.8 million. The lower costswere affected by income amounting to SEK 0.8 million referring to the activationof Pressurised Pouring Furnace and System 3000 development projects. The resultafter tax for the year-to-date period amounted to SEK -2.7 million (SEK 13.1million), primarily related to revaluation differences of the deferred taxasset. The difference that affects the tax results amounts to SEK 15.8 million,as described in the "Deferred Tax Asset" section.Deferred Tax AssetSinterCast calculates its estimated future taxable profit from securedproduction orders on a quarterly basis in order to determine the valuation ofits deferred tax asset. Deferred Tax Asset October-December January-December 2009 2008 2009 2008-------------------------------------------------------------------------------- Estimated future taxable profit 80.3 70.0 80.3 70.0 Change in carry-forward tax loss taken into 0.0 -9.9 10.3 70.0 consideration Deferred tax asset 21.2 18.5 21.2 18.5 Tax result 0.0 -3.9 2.7 18.5-------------------------------------------------------------------------------- (Amounts in SEK million if not otherwise stated), (FY: Full Year)SinterCast has reassessed the estimated future taxable profit and deferred taxasset calculation from secured orders to reflect the current expectation ofprogramme longevity and the typical lifecycle for engine programmes in theautomotive industry. This reassessment reflects the Company's current judgementthat the underlying automotive demand has stabilised. As of 30 September 2009,SEK 80.3 million (13.5%) of SinterCast's total carried-forward tax losses havebeen used as the basis of the updated calculation, resulting in SEK 21.2 millionbeing capitalised as a deferred tax asset. The assessment as of 31 December2009 resulted in an unchanged valuation of the deferred tax assetEmployee Stock Option ProgrammeAs of 31 December 2009, the cost of the existing employee stock option programme2006-2010 was calculated at a total amount of SEK 3.2 million (SEK 3.2 millionas of 31 December 2008), based on a closing share price of SEK 50.5 on 31December 2009 (SEK 32.5). During 2009, SEK 0.7 million (SEK 0.1 million) wasaccounted for as costs related to the option programme. No additional costs willbe accounted for the option programme 2006-2010, as the programme has expired.The Extraordinary General Meeting of the shareholders approved a new 2009-2013employee stock option programme on 20 August 2009, to begin during 4Q 2009. Thenumber of stock options allotted to the employees was 285,000. According to theIFRS 2 accounting standard, the employee stock options should be expensed as apersonnel cost during the period and reported directly against equity capital.The recorded IFRS 2 cost for employee stock options will amount to approximatelySEK 1.8 million during the period 2009-2013. Assuming that all options willberealised at the maximum ceiling of SEK 50, the social security costs areexpected to amount to approximately SEK 3.0 million, expensed continuouslyduring the period in which they are incurred. Costs for the option programme2009-2013 will be accounted for from 1Q 2010 and onwards.Cashflow, Liquidity and InvestmentsThe October-December 2009 cashflow result was SEK -1.9 million (SEK 0.2million), providing a Group liquidity of SEK 24.8 million on 31 December 2009(SEK 9.0 million). The January-December 2009 cashflow result was SEK 15.8million (SEK -7.3 million). The S?and Sparbank loan in the amount of SEK 3.0million was reviewed during December 2009 and extended until the next annualreview in December 2010. Investments during the period amounted to SEK 1.3million (SEK 0.3 million), of which SEK 0.8 million refers to the activation ofthe Pressurised Pouring Furnace and System 3000 development projects. Cashflow Summary October-December January-December 2009 2008 2009 2008----------------------------------------------------------------------- Cashflow from operating activities 0.8 -0.5 -3.2 -3.3 Cashflow from working capital -2.3 1.0 -1.7 -3.7 Cashflow from investment activities -0.1 -0.3 -0.6 -0.3 Cashflow from financing activities -0.3 - 21.3 ------------------------------------------------------------------------ Cashflow total -1.9 0.2 15.8 -7.3 Liquidity 24.8 9.0 24.8 9.0 Investments 1.3 0.3 1.3 0.3----------------------------------------------------------------------- (Amounts in SEK million if not otherwise stated)The new rights issue provided a net cash injection of SEK 18.3 million. Currentliquidity is SEK 24.8 million, with the prospect of an additional SEK 11.6million being raised during September 2010 from the warrants related to the newrights issue.Risks and Uncertainty FactorsMarket DevelopmentThe main uncertainty factor for SinterCast is the timing of the CGI marketramp-up, which primarily depends on the global economy for new vehicle sales andon the individual sales success of the vehicles equipped with SinterCast-CGIcomponents. The economic conditions facing the global foundry and automotiveindustries have resulted in significant reductions in demand in both thepassenger vehicle and commercial vehicle sectors, causing automotive OEMs toreduce production and, in some cases, delay production launches. The overalldecline in the automotive market has resulted in a reduction of SinterCast'snear-term market opportunity calculation from a peak of 5.7 million EngineEquivalents on 30 June 2008 to the current value of 4.3 million EngineEquivalents. This reduction of approximately 25% is better than the overallautomotive market decline of 40~60% during the same period, primarily becausethe launch of new SinterCast-CGI components has provided incremental volumes.It is also noted that SinterCast's production of components other thanautomotive cylinder blocks and heads has not decreased as significantly as thecore cylinder block and head sector, thus providing a compensating effect on theoverall series production volume. While SinterCast continues to support newproduct development activities, and anticipates new production launches andinstallation revenue, the Board believes that it is still not possible todetermine the ultimate effect of the global economic recession or the timing andrate of the overall market recovery.LiquidityDuring the period, SinterCast regularly monitored its cash position withreference to market forecasts and expense budgets, and implemented a pro-activeliquidity protection plan that included personnel reductions. While the Companybelieves that new installation opportunities can provide cash injections tofurther reinforce the liquidity, and that new series production launches canprovide a positive contribution to production volumes and revenues, the timingof the overall recovery in the automotive and foundry industries remainsuncertain. The current series production volume of approximately 550,000 EngineEquivalents is insufficient to provide positive cashflow. In consideration ofall factors, the Board of Directors determined that it was in the best interestof the shareholders to proceed with a new rights issue, which was approved by anExtraordinary General Meeting of the Shareholders on 20 August 2009, and hassince resulted in a net cash injection of SEK 18.3 million with the prospect ofan additional SEK 11.6 million being raised during September 2010 from thewarrants related to the new rights issue. The rights issue enables the Companyto be more pro-active in its operations in advance of the market recovery.Market Penetration and CompetitionSinterCast has played a leading role in the development and application of CGIsince the early 1990's. SinterCast enjoys global brand recognition and respectas the CGI technology leader and is welcomed by the industry as a reliable andtrustworthy partner. However, virtually every company encounters competition,and SinterCast is no exception. As the CGI market has developed, some foundrysupply companies have proposed alternative CGI technologies. To SinterCast'sknowledge, these have included Hereaus-Electronite, OxyCast, OCC and NovaCast.It is also possible that some foundries may opt to produce CGI using in-housecontrol and discipline, but this is generally judged to become less likely asproduct complexity and production volumes increase, and as specificationrequirements become more rigidly enforced by the end-users. SinterCast judgesthat its technology and engineering know-how provides the most reliable andcost-effective solution for the production of high quality CGI. Based on itsproven technology, production experience and engineering service, SinterCastwill continue to support new CGI development activities to further increase itsshare of the world CGI production capacity. With respect to the development ofalternative automotive technologies such as biofuels, hybrids and fuel cells,SinterCast does not expect these to have a significant effect on the Company'scompetitive position for the foreseeable future.OrganisationThe Group management and sales activities are based at the headquarter office inLondon, UK. The Technical Centre based in Katrineholm, Sweden is responsiblefor technical and commercial support of ongoing foundry production activities,product development, production of the control systems and sampling consumables,ISO 9001:2008 quality certification, and finance and administration. Localsupport of customer activities in North and South America is provided bySinterCast Inc., based in Chicago, USA, while local support for the Chinesemarket is provided by the SinterCast AB Shanghai Representative Office.Technical back-up for the US and Chinese offices is provided by the TechnicalCentre in Katrineholm.In order to expand SinterCast's market reach, representation agreements havebeen established with Ashland Casting Solutions on a global basis, ASDInternational in Japan, Pantech Engineering in Australia and with the STPC(Swedish Trade Promotion Center) in Korea. Consultancy agreements have alsobeen established to support SinterCast's local sales activities in France andIndia. Together with the global presence of technology partners such as ABP forfoundry automation, Grainger & Worrall for rapid prototyping and MAG IndustrialAutomation Systems for manufacturing, the representation and consultancyagreements provide a familiar and respected local presence for the SinterCasttechnology.As of 31 December 2009, the Group had 13 (15) employees, two (three) of whichwere female. Further recruitment will be phased with the development of fieldactivities, particularly the need to support new installations.PatentsSinterCast currently holds 13 (16) patents. The core technology is primarilyprotected by ten of the most recent patents that will remain valid until atleast 2015. During the early 1990s, SinterCast's strategy was to aggressivelyfile new patents, in order to establish and protect the value of thetechnology. As the market development has evolved, SinterCast has graduallytransitioned from a strategy of publishing patents to retaining internalknow-how.During 2009, several patents were intentionally allowed to lapse. It was judgedthat these older patents no longer reflected SinterCast's current technology andthat the protection offered did not warrant continued payment of the annualfees. SinterCast currently maintains 63 (79) individual national phase patentsgranted or pending worldwide. The 13 base patents address SinterCast'smetallurgical technology, the Sampling Cup, product applications and machining.Accounting PrinciplesThe information provided on behalf of the Group in this interim report has beenprepared in accordance with Sweden's Annual Accounts Act and IAS 34 InterimFinancial Reporting. As of 1 January 2009, several amendments to existingstandards, new interpretations and one new standard (IFRS 8) have come intoeffect. In accordance with IAS 1, SinterCast has opted to present the Group'stotal earnings divided into two statements: a separate income statement and astatement of comprehensive income. Furthermore, the consolidated statement ofchanges in shareholders' equity only includes transactions with the Group'sowners. As of 1 April 2009, development costs that can be directly attributedto the design and testing of identifiable and unique new products controlled bythe Group are recognised as intangible assets when the criteria of IAS38 aremet. Beginning with the 3Q09 report, SinterCast has reassessed the estimatedfuture taxable profit and deferred tax asset calculation to reflect the typicallifecycle of an engine programme in the automotive industry. In compliance withIFRS 8, beginning with the 4Q09 report, the Geographical Market presentationsummary has been removed from the financial statements, to better correspondwith the internal reporting within the Group. The reporting for the ParentCompany has been prepared in accordance with Sweden's Annual Accounts Act. Theaccounting policies that have been applied for the Group and for the ParentCompany are in agreement with the accounting policies used in the preparation ofthe Company's latest annual report.During the period, no material transactions have taken place between SinterCastand the Board or the Management, with the exception of their unanimousparticipation in the new rights issue.Events after the Balance Sheet DateThere have been no significant events since the balance sheet date of 31December 2009 that could materially change these financial statements.Parent CompanySinterCast AB (publ) is the Parent Company of the SinterCast Group, withregistered office located in Stockholm, Sweden. The Parent Company has 10 (12)employees. The majority of the operations are conducted by the Parent Company,including responsibility for the representative office in China and salesrepresentatives in Australia, India, Japan and Korea. Operations in the UK andthe USA are managed by the local companies. The information given for the Groupin this report corresponds in all material respects to the Parent Company.Nomination CommitteeThe Nomination Committee, elected by the Annual General Meeting 2009, consistsof Ulla-Britt Fr?in-Hellqvist, Lars Ahlstr?nd Torbj?Nordberg. TheNomination Committee can be contacted at: nomination.committee(at)sintercast.com
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