Quarterly Report • Apr 29, 2008
Quarterly Report
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Series production during the period grew by more than 10% compared to the fourth quarter of 2007, and by over 50% compared to the same period a year ago, to a current annualised production rate in excess of 650,000 Engine Equivalents per year. The production increase was primarily fuelled by growth in the commercial vehicle sector, following sales launches of the Ford-Otosan 9.0 litre Ecotorq engine in Turkey and the International-Navistar 11 and 13 litre MaxxForceTM big bore engines in the United States. Over the past nine months, commercial vehicle production has grown from no production to a rate of approximately 200,000 Engine Equivalents per year. Even with this positive growth, the passenger vehicle sector continues to lead SinterCast's series production activities with a current production rate of approximately 400,000 Engine Equivalents per year. SinterCast-CGI cylinder blocks are currently available in 18 vehicles and 8 car brands.
Series production activities have also increased for products other than cylinder blocks and heads. Specifically, series production has started for a 2.1 kg torsion damper for C. F. Gomma, one of Europe's leading automotive suppliers. Although the torsion damper is SinterCast's lightest series production component, the initial order provides for approximately 15,000 Engine Equivalents per year, with future opportunities for additional CGI components. SinterCast has also begun series production of one other component in the non-block and head sector, although authorisation has not yet been received to announce this specific programme. Automotive production of components other than cylinder blocks and heads, combined with series production in the industrial power sector, currently contribute over 50,000 Engine Equivalents per year. It is anticipated that this production will continue to account for approximately 10% of SinterCast's production volume, even as the core cylinder block and head sector increases.
SinterCast's current series production programmes have the potential to provide approximately 1.2 million Engine Equivalents per year when the programmes reach mature volume. In addition to the programmes that are already in series production, SinterCast's foundry customers have secured production orders for new CGI components that will provide more than one million additional Engine Equivalents per year when mature volume is reached. In total, approximately 40% of SinterCast's current pool of 5.5 million Engine Equivalents has already been approved by the OEM end-users and series production orders have been awarded to SinterCast foundries, corresponding to mature annual volumes of approximately 2.3 million Engine Equivalents.
On 13 March 2008, SinterCast launched a new representation office in Shanghai to provide technical and commercial support in China as the domestic demand for high quality Compacted Graphite Iron develops. Following the successful pre-production period at the Da Shiang Precision foundry in Tianjin, SinterCast's local office will provide on-going support for the planned series production and will also support the overall Chinese CGI market development. SinterCast continues to actively support the foundry industries in China, India, Korea, Japan and Russia, and regards Asia as an important growth area for Compacted Graphite Iron.
During the period, the Tupy foundry of Brazil – SinterCast's largest CGI production partner – announced a new investment of Brazilian Reais 385 million (approximately SEK 1.35 billion). Although Tupy has not specified the exact allocation of the investment, it has indicated that part of the investment will be used to install up to 70,000 tonnes (potentially up to 1.4 million Engine Equivalents) of new production capacity, with the majority of the new capacity being allocated for the production of Compacted Graphite Iron cylinder blocks. SinterCast is currently supporting Tupy in the planning of its new CGI production facilities.
The typical concept-to-showroom development cycle for new engine programmes in the automotive industry is approximately four years. The planning of the automotive OEMs therefore allows SinterCast to estimate the Start of Production (SOP) dates for new engine programmes within the near-term (<5 year) period. Following the start of series production, the ramp-up rates for new production programmes and the time required to reach mature volume depend largely on the sales success of the vehicles and are therefore more difficult to forecast. In general, new engine programmes ramp-up to mature volume within approximately two years after SOP. While SinterCast does conduct sales and marketing activities that are targeted toward development programmes beyond the near-term period, these are more speculative and are generally not included in the Development Pipeline. Many of the programmes in the Development Pipeline have already progressed through the initial product development stages and are expected to begin foundry production within the next two years. Based on current activities and knowledge, the near-term market opportunity can be summarised as follows:
| Approximate Annual Engine Equivalents (Thousands) | ||||
|---|---|---|---|---|
| Activity | 31 March 2008 | 31 December 2007 | ||
| Current Series Production1 | 650 | 525 | ||
| Potential Mature Volume2 | 1,200 | 1,000 | ||
| Production Orders Secured3 | 1,100 | 200* | ||
| Development Pipeline4 | 3,200 | 4,300* | ||
| Total5 : |
5,500 | Total5 : |
5,500 |
Notes: 1. Current annualised production rate
With SinterCast's current business model, the total near-term market opportunity, when fully ramped to mature volume, provides for running revenues in excess of SEK 100 million per year. Additional revenues will continue to be realised from Engineering Services, new System 2000 installations and other business activities.
Virtually every company encounters competition, and SinterCast is no exception. Some foundries, for example in Germany, follow in-house CGI production techniques to differentiate their offering from off-shore competition. However, in the global market, SinterCast enjoys the respect of the industry as the market leader for CGI process control technology and CGI know-how, and is welcomed as a reliable and trustworthy technology partner. At present, SinterCast's market penetration in comparison to the combined penetration of other companies that may present themselves as providers of CGI process control technology can be summarised as follows:
| Category | SinterCast | All Others |
|---|---|---|
| CGI Cylinder Blocks/month | ~ 30,000 | 0 |
| Last 5 CGI foundry installation orders | 5 | 0 |
| Penetration of global cast iron block and head capacity (%) | 50 | 0 |
Based on its leading technology and engineering service, SinterCast will continue to support new CGI development activities and further increase its share of the world CGI cylinder block and head production capacity.
The Group revenue of SEK 5.4 million (SEK 5.0 million for the same period 2007) primarily relates to income from installations, series production and engineering services. Installation revenues were positively impacted by one foundry customer exercising the purchase option on its leased System 2000. However, despite the increase in series production compared to the same period 2007, revenues were lower than expected. This is primarily due to the uncharacteristically low shipment of only 11,000 (13,700) Sampling Cups. Sampling Cup shipments are expected to increase during the second quarter, and for the balance of 2008.
The cashflow result during the quarter was SEK -3.1 million (SEK 1.7 million), providing a Group liquidity of SEK 13.2 million on 31 March 2008 (SEK 17.2 million). The cashflow result was primarily affected by increased personnel (16 employees vs. 12 employees during the same period 2007), recruiting costs, and costs to establish the new representative office in China. Cashflow was also affected by the timing of the receipt of payment for invoices, as evidenced by the change in outstanding operating receivables of SEK 2.8 million compared to the first quarter of 2007. The operating result of SEK -2.2 million for the period is SEK 0.7 million lower than the same period 2007, again, primarily affected by increased investments in personnel and the establishment of the representative office in China. SinterCast will continue to focus on internal growth and investment in human resources and new market development during 2008, in anticipation of increased series production volumes during 2009 and beyond. Although increased staffing and sales activities will increase the overall expense level, SinterCast continues to target neutral cashflow for the full year.
During the period, the Company began the capitalisation of its deferred tax assets by activating SEK 75 million of its unused carried-forward tax losses, resulting in a deferred tax asset of SEK 21 million being reported as statutory income in March 2008. Approximately 12.5% of SinterCast's total potential deferred tax assets were utilised in this first step and additional tax assets will be capitalised in the future, as new production orders are confirmed and as the Company's five-year tax planning horizon rolls forward. Following the capitalisation of the deferred taxes, the result after financial net, extraordinary items and taxes was SEK 18.8 million, which is SEK 20.1 million higher than the same period 2007.
As of 31 March 2008, the cost of the employee stock option programme was calculated at a total amount of approximately SEK 4.6 million (SEK 5.0 million as of 31 December 2007), based on a share price of SEK 131 (SEK 140). Thus far, during 2008, SEK 0.5 million (SEK 0.3 million) has been accounted for as costs related to the option programme. Investments by the Group during the period amounted to SEK 0.0 million (SEK 0.1 million).
| January – March | |||
|---|---|---|---|
| 2008 | 2007 | ||
| Revenue | 5.4 | 5.0 | |
| Result after calculated tax | +18.8 | -1.3 | |
| Result after tax per share (SEK) | +3.4 | -0.2 | |
| Cashflow | -3.1 | +1.7 | |
| Liquidity | 13.2 | 17.2 | |
| Investments | 0.0 | -0.1 | |
Amounts in SEK million if not otherwise stated
Two new employees joined the Company as of 1 January 2008, both of whom are university graduates with PhD degrees. As of 31 March 2008, the Group had 16 (12) employees. Further technical and commercial recruitment is planned to support the increasing market demand.
SinterCast has historically been financed by risk capital provided by its shareholders. SinterCast regularly monitors its cash position with reference to market forecasts and expense budgets. During recent years, the expense level has been reduced and the revenues have been increased, thus significantly reducing the financing risk. The main uncertainty factor for SinterCast is the timing of the CGI market ramp-up. SinterCast's risks and uncertainty factors have been described in the Annual Report 2007 and no significant changes have occurred thereafter.
There have been no significant events since the balance sheet date of 31 March 2008 that could materially change these financial statements.
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. The accounting policies that have been applied for the Group and for the Parent Company are in agreement with the accounting policies used in the preparation of the company's latest annual report. The company auditors have not audited this report.
SinterCast AB (publ) is the parent company of the SinterCast Group, with registered office located in Stockholm, Sweden. The Parent company has 13 (9) employees. The majority of the operations are conducted by the parent company, including responsibility for the representative office in China. Operations in the UK and the USA are managed by the local companies. The information given for the Group in this report corresponds in all material respect to the parent company.
The Annual Report 2007 was issued on 18 April 2008 and sent to all registered shareholders and to those who have requested the report. The Annual Report can be downloaded, or ordered, from the SinterCast website.
The Annual General Meeting of SinterCast AB (publ) will be held on 6 May 2008 at 16:00, at the premises of the Royal Swedish Academy of Engineering Sciences (IVA), Grev Turegatan 16, Stockholm. The notice for the AGM and the proposals for the shareholders to decide upon were published on 8 April 2008. These documents, and the AGM registration form, are available on the SinterCast website.
The Interim Report April-June 2008 will be published on 20 August 2008. The Interim Report July-September 2008 will be published on 5 November 2008. The Interim Report October-December 2008 and Full Year Results 2008 will be published on 9 February 2009.
Dr. Steve Dawson President & CEO Office: +44 1932 862 100 Mobile: +44 7710 026 342 e-mail: [email protected]
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 weight, noise and emissions. SinterCast produces a variety of CGI components ranging from 2.1 kg to 17 tonnes, all using the same process control technology. The end-users of SinterCast-CGI components include Aston Martin, Audi, Caterpillar, Chrysler, Ford, General Electric Transportation Systems, General Motors, Hyundai, International Truck and Engine, Jaguar, Kia, Land Rover, MAN, MAN B&W Diesel, PSA Peugeot-Citroën, Rolls-Royce Power Engineering, Toyota, Volkswagen, Volvo and Waukesha Engine. The SinterCast share is quoted on the Small Cap segment of the Nordic Exchange, Stockholm (Stockholmsbörsen: SINT).
END
| AMOUNTS IN SEK MILLION | 2008 | January - March 2007 |
January - December | 2007 |
|---|---|---|---|---|
| Revenue | 5.4 | 5.0 | 22.8 | |
| Cost of goods sold | -1.8 | -1.8 | -8.7 | |
| Gross result | 3.6 | 3.2 | 14.1 | |
| Cost of sales and marketing | -3.0 | -2.6 | -9.8 | |
| Cost of administration | -1.5 | -1.4 | -6.3 | |
| Cost of research & development | -1.3 | -0.7 | -4.1 | |
| Other operating income | 0.0 | 0.0 | 1.0 | |
| Other operating costs | 0.0 | 0.0 | 0.0 | |
| Operating result | -2.2 | -1.5 | -5.1 | |
| Interest income and similar items | 0.2 | 0.2 | 0.9 | |
| Interest expenses and similar items | -0.2 | 0.0 | -0.3 | |
| Income Tax | 21.0 | 0.0 | 0.0 | |
| Result for the period | 18.8 | -1.3 | -4.5 | |
| Number of shares at the close of the period, thousands | 5,552.9 | 5,552.9 | 5,552.9 | |
| Average number of shares, thousands | 5,552.9 | 5,552.9 | 5,552.9 | |
| Earnings per share, SEK | 3.4 | -0.2 | -0.8 | |
| Earning per share, diluted, SEK | 3.4 | -0.2 | -0.8 | |
| Depreciation | -0.2 | -0.2 | 1.3 | |
| GEOGRAPHICAL MARKETS* | Revenue | Operating Result | ||
| January - March | January - March | |||
| 2008 | 2007 | 2008 | 2007 | |
| Europe | 2.1 | 1.3 | -5.0 | -4.1 |
| Americas | 2.0 | 2.5 | 1.7 | 1.6 |
| Asia | 1.3 | 1.2 | 1.1 | 1.0 |
| Total | 5.4 | 5.0 | -2.2 | -1.5 |
*SinterCast provides only one product, process control systems for the reliable production of Compacted Graphite Iron, and related services for product development, installations, calibration and maintenance. The company judges that the opportunities and risks are not primarily related to the geographical markets but associated with the overall CGI market development. The operation is defined as the primary segment and no further split has been made other than the presented financial statements.
Based on the present customer base and the geographical areas, the secondary segment has been split into Europe Americas, and Asia. The income, operating results, assets and investments presented are allocated based on the location of the individual customers in these geographical areas.
| AMOUNTS IN SEK MILLION | January - March | January - December | |
|---|---|---|---|
| 2008 | 2007 | 2007 | |
| Operating activities | |||
| Operating result | -2.2 | -1.5 | -5.1 |
| Adjustments for items not included in the cash flow | |||
| Depreciation | 0.2 | 0.6 | 1.3 |
| Other | 0.4 | 0.5 | 0.9 |
| Exchange rate differences | -0.1 | 0.0 | 0.1 |
| Received interest income and similar items | 0.2 | 0.2 | 0.9 |
| Paid interest expenses and similar items | -0.2 | 0.0 | -0.3 |
| Income tax | 0.0 | 0.0 | 0.0 |
| Total cashflow from operating activities | |||
| before change in working capital | -1.7 | -0.2 | -2.2 |
| Change in working capital | |||
| Stock | 0.0 | 0.0 | 0.3 |
| Operating receivables | -1.6 | 1.2 | 1.9 |
| Operating liabilities | 0.2 | 0.8 | 2.2 |
| Total change in working capital | -1.4 | 2.0 | 4.4 |
| Cashflow from operations | -3.1 | 1.8 | 2.2 |
| Investing activities | |||
| Acquisition of intangible assets | 0.0 | -0.1 | -0.3 |
| Acquisition of tangible assets | 0.0 | 0.0 | -0.1 |
| Increase/decrease in long-term receivables/payables | 0.0 | 0.0 | -1.0 |
| Cashflow from investing activities | 0.0 | -0.1 | -1.4 |
| Financing activities | - | - | - |
| Cashflow from financing activities | - | - | - |
| Change in cash and cash equivalents* | -3.1 | 1.7 | 0.8 |
| Cash - opening balance | 16.3 | 15.5 | 15.5 |
| Cash - closing balance | 13.2 | 17.2 | 16.3 |
*The cash and cash equivalents comprises short-term deposits and cash at bank and in hand.
| AMOUNTS IN SEK MILLION | 31 March 2008 |
31 March 2007 |
31 Dec 2007 |
|---|---|---|---|
| ASSETS | |||
| Intangible assets | 4.1 | 5.0 | 4.4 |
| Tangible assets | 0.1 | 0.0 | 0.1 |
| Financial assets | 21.2 | 0.2 | 0.2 |
| Total fixed assets | 25.4 | 5.2 | 4.7 |
| Stock | 3.2 | 3.5 | 3.2 |
| Short-term receivables | 5.5 | 4.6 | 3.9 |
| Short term deposits and cash at bank and in hand | 13.2 | 17.2 | 16.3 |
| Total current assets | 21.9 | 25.3 | 23.4 |
| Total Assets | 47.3 | 30.5 | 28.1 |
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||
| Shareholders' equity* | 39.0 | 22.8 | 20.0 |
| Long term liabilities | 0.0 | 1.0 | 0.0 |
| Current liabilities | 8.3 | 6.7 | 8.1 |
| Total shareholders' equity and liabilities | 47.3 | 30.5 | 28.1 |
| Adjusted equity per share | 7.0 | 4.1 | 3.6 |
| *STATEMENTS OF CHANGES IN EQUITY | Share CapitalAdditional Paid | In Capital Differences | Exchange Accumulated Total Equity Deficit |
||
|---|---|---|---|---|---|
| Opening balance 1 January 2007 | 5.55 | 81.27 | 6.05 | -69.44 | 23.43 |
| Exchange rate differences foreign subsidiaries | - | - | 0.00 | - | 0.00 |
| Result for the period | - | - | - | -1.27 | -1.27 |
| Total recognised income and expense | - | - | - | -1.27 | -1.27 |
| Employee share option programme | 0.59 | 0.59 | |||
| Closing balance 31 March 2007 | 5.55 | 81.27 | 6.05 | -70.12 | 22.75 |
| Opening balance 1 January 2008 | 5.55 | 81.27 | 6.29 | -73.06 | 20.05 |
| Exchange rate differences foreign subsidiaries | - | - | -0.08 | - | -0.08 |
| Result for the period | - | - | - | 18.80 | 18.80 |
| Total recognised income and expense | - | - | - | 18.80 | 18.72 |
| Employee share option programme | 0.23 | 0.23 | |||
| Closing Balance 31 March 2008 | 5.55 | 81.27 | 6.21 | -54.03 | 39.00 |
| January - March | January - December | ||||
|---|---|---|---|---|---|
| KEY RATIOS | 2008 | 2007 | 2007 | 2006 | |
| Revenue, SEK millions | 5.4 | 5.0 | 22.8 | 18.1 | |
| Net result, SEK millions | 18.8 | -1.3 | -4.5 | -9.7 | |
| Solidity, % | 82.5 | 74.8 | 71.2 | 77.2 | |
| Adjusted shareholders' equity, SEK millions | 39.0 | 22.8 | 20.0 | 23.4 | |
| Capital employed, SEK millions | 39.0 | 33.0 | 20.0 | 23.4 | |
| Total assets, SEK millions | 47.3 | 30.5 | 28.1 | 30.3 | |
| Return on shareholders' equity, % | 63.7 | -5.6 | -20.7 | -34.4 | |
| Return on capital employed, % | 64.2 | -5.5 | -19.2 | -33.7 | |
| Return on total assets, % | 50.3 | -4.1 | -29.7 | -26.3 | |
| Debt-to-equity ratio | - | - | - | - | |
| Employees | |||||
| Number of employees at the end of the period | 16 | 12 | 14 | 12 | |
| Data per Share | |||||
| Dividends per share, SEK | - | - | - | - | |
| Share price at the end of the period, SEK | 131.0 | 66.3 | 140.0 | 82.5 | |
| Average number of shares | Return on shareholders' equity | ||||
| Weighted average of the number of shares outstanding for the period | Net result as a percentage of average adjusted | ||||
| Average number of shares adjusted for outstanding warrants | shareholders' equity | ||||
| No outstanding warrants | Return on capital employed | ||||
| Earnings per share | Net result after financial items plus financial | ||||
| Net result divided by the average number of shares | expenses as a percentage of average capital employed | ||||
| Earnings per share adjusted for outstanding warrants | Return on total assets | ||||
| No outstanding warrants | Net result after financial items plus financial expenses | ||||
| Adjusted equity per share | as a percentage of total average assets | ||||
| Adjusted shareholders' equity divided by the average number of shares | Debt-to-equity ratio | ||||
| Adjusted equity per share adjusted for outstanding warrants | Interest bearing liabilities divided by adjusted | ||||
| No outstanding warrants | shareholders' equity | ||||
| Solidity | Share price at the end of the period | ||||
| Adjusted shareholders' equity expressed as percentage | Latest paid price for the SinterCast share at | ||||
| of total assets | the Swedish stock exchange, Stockholmsbörsen | ||||
| Adjusted shareholders' equity | Value presented as "0.0" | ||||
| Shareholders' equity plus 72% of untaxed reserves | Amount below SEK 50,000 | ||||
| Capital employed | Value presented as "-" | ||||
| Total assets less non-interest bearing liabilities, including deferred tax liabilities | No amount applicable |
| AMOUNTS IN SEK MILLION | January - March | January - December | ||
|---|---|---|---|---|
| 2008 | 2007 | 2007 | ||
| Revenue | 5.0 | 4.5 | 20.7 | |
| Cost of goods sold | -3.2 | -1.1 | -8.3 | |
| Gross result | 1.8 | 3.4 | 12.4 | |
| Cost of sales and marketing | -2.5 | -0.9 | -8.8 | |
| Cost of administration | -1.4 | -1.2 | -6.2 | |
| Cost of research & development | -1.2 | -1.0 | -4.1 | |
| Other operating income | 0.0 | 0.0 | 1.0 | |
| Other operating costs | 0.0 | 0.0 | 0.0 | |
| Operating result | -3.3 | 0.3 | -5.7 | |
| Interest income and similar items | 0.2 | 0.2 | 1.0 | |
| Interest expenses and similar items | -0.2 | 0.0 | -0.3 | |
| Income Tax | 21.0 | 0.0 | 0.0 | |
| Result for the period | 17.7 | 0.5 | -5.0 |
| AMOUNTS IN SEK MILLION | 31 March 2008 |
31 March 2007 |
31 Dec 2007 |
|---|---|---|---|
| ASSETS | |||
| Intangible assets | 4.1 | 5.0 | 4.4 |
| Tangible assets | 0.1 | 0.1 | 0.1 |
| Financial assets | 22.2 | 0.4 | 1.0 |
| Total fixed assets | 26.4 | 5.5 | 5.5 |
| Stock | 3.2 | 3.5 | 3.2 |
| Short-term receivables | 5.3 | 5.1 | 3.1 |
| Short term deposits and cash at bank and in hand | 12.8 | 15.8 | 15.4 |
| Total current assets | 21.3 | 24.4 | 21.7 |
| Total Assets | 47.7 | 29.9 | 27.2 |
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||
| Restricted capital | 86.8 | 86.8 | 86.8 |
| Accumulated Deficit | -53.7 | -67.2 | -71.7 |
| Total Shareholders' equity | 33.1 | 19.6 | 15.1 |
| Long term liabilities | 0.1 | 1.1 | 0.1 |
| Current liabilities | 14.5 | 9.2 | 12.0 |
| Total shareholders' equity and liabilities | 47.7 | 29.9 | 27.2 |
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