New installations in Asia and Mexico deliver the goal of three new

installations before year-end, as series production fluctuates in

response to growing market uncertainty

Third Quarter 2012

• Revenue for Period: SEK 8.5 million (SEK 11.8 million) 

• Operating Result: SEK -2.3 million (SEK 3.2 million) 

• Earnings per Share: SEK -0.3 per share (SEK 0.3 per share) 

• Cashflow from Operations: SEK -0.5 million (SEK 3.2 million) 

• Average Annualised Production during the Period*: 1.30 million Engine Equivalents (1.40 million) 

• Two new installations in Asia provide further growth opportunities in the industrial power sector 

• Most comprehensive ever installation secured for order of more than 300,000 passenger car engines 

Year-to-Date 2012

• Revenue: SEK 31.5 million (SEK 33.0 million) 

• Operating Result: SEK -1.0 million (SEK 7.5 million) 

• Earnings per Share: SEK 0.0 per share (SEK 1.4 per share)  

• Cashflow from Operations: SEK -0.5 million (SEK 9.9 million) 

• Installed Base: 18 fully automated systems and 13 Mini-Systems in Europe, Asia and the Americas 

Series Production*

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

CEO Comments

Series production fluctuates while installation activities increase

Following more than three years of consistent growth, monthly series production volumes have begun to fluctuate.  In response to these fluctuations, the Company has changed its annualised series production reporting from the previous approach of simply multiplying the production in the last month of each quarter by 12, to reporting the annualised average production volume for the quarter. This new presentation provides a better reflection of the production activities.  The change, introduced in this report, does not significantly change the historical development of the Company's series production.  

Annualised series production during the quarter was 1.30 million Engine Equivalents, which represents a decline of approximately 7% relative to the second quarter of 2012.  Much of the decline continues to be attributed to the interrupted shipment of the Navistar Big Bore commercial vehicle cylinder block in North America, following an EPA ruling that the engine does not fully comply with 2010 emissions requirements.  The interrupted production at both the Tupy foundry in Brazil and the Pure Power foundry in the USA continued throughout the third quarter.  Navistar has indicated that production will resume during November 2012.  Series production has also begun to show the influence of the changing global economy, as OEMs began to adjust stock levels and volumes in response to the overall uncertainty in the market.  These actions indicate that further fluctuations in series production can be expected.  

Despite the market uncertainty, new CGI series production commitments were secured during the period and new product development programmes have been initiated in Europe, Asia and the Americas.  The near-term market development will depend on the combined result of the resumption of the Navistar Big Bore production; the start date and ramp-up of the new CGI programmes; and, the overall development of the global economy.

The increased activity in new CGI product development continues to motivate the foundry industry to install CGI capability.  SinterCast has been actively engaged in installation discussions throughout the year and these discussions have now resulted in three new installation commitments, meeting the goal announced at the 2012 AGM.  The first of these installations, with YTO Group Corporation, also known as China First Tractor Works, was announced on 2 July and has been successfully commissioned.  As the leading supplier of tractors and harvesters in China with more than 75% share of the Chinese market for large tractors, the YTO installation reinforces SinterCast's brand and presence in China and provides an important benchmark in the agricultural industry.  The second installation, also destined for the Asian industrial power industry, was announced on 18 October and marked SinterCast's tenth installation in Asia, although the OEM and its captive foundry have requested to remain anonymous for competitive reasons.  

SinterCast's third installation of the year came in October, when the Tupy foundry in Saltillo, Mexico, ordered a System 3000 Plus after receiving the largest ever CGI series production order with a mature volume of more than 300,000 passenger vehicle cylinder blocks per year, with series production starting in 2013.  The System 3000 Plus, which will be SinterCast's most comprehensive ever installation, is planned to be shipped before year-end.  In parallel with the installation of the new System 3000, the existing SinterCast equipment on the passenger vehicle production line at the Saltillo foundry will be moved to the commercial vehicle production line to support ongoing product development for heavy duty engine applications.

Also during the period, an automated wirefeeder was sold to a European commercial vehicle OEM to increase the efficiency of ongoing product development activities for heavy duty engines in the OEM's captive foundry.  Further installation activities are under discussion in Europe, Asia and the America's and installation opportunities are at an all-time high, providing a positive installation outlook for 2013.  

SinterCast continues to support product development programmes for passenger vehicle, commercial vehicle and industrial power applications in Europe, Asia and the Americas.  This development includes SinterCast's first high volume CGI petrol engine, which remains on schedule for the start of series production during 2013.  It is estimated that the combined potential of the current series production programmes and the programmes under development represents a market opportunity of approximately 4.6 million Engine Equivalents per year within SinterCast's five year planning horizon.

Continued progress in new product development

As a result of increased technical resources, SinterCast has accelerated development of new functionality in the core CGI technology and for the ongoing development of the thermal analysis process control technology for ductile iron.  The ductile iron product development has continued throughout the period, both with in-house development and external trials, to further define the technical correlations and potential benefits, and customer discussions have continued in anticipation of the potential market launch.  The proposed ductile iron thermal analysis control technology is intended to provide a net cost-benefit in ductile iron production 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 July-September 2012 revenue amounted to SEK 8.5 million (SEK 11.8 million). The revenue decrease of 28% is due to lower Series Production during the quarter compared to last year. Equipment revenue amounted to SEK 1.6 million (SEK 0.9 million) and refers to the Mini-System 3000 process control system installation at the YTO Group foundry located in China. The revenue from the second Asian installation and the Tupy Mexico installation will be accounted in the fourth quarter.  The revenue from series production decreased by 36% to SEK 6.5 million (SEK 10.2 million), primarily due to lower Sampling Cup shipments and the 7% decrease in series production compared to the third quarter of 2011.

The January-September 2012 revenue amounted to SEK 31.5 million (SEK 33.0 million). The revenue decrease of 5% is a result of decreases in series production and the anticipated reduction in Sampling Cup shipments, as outlined at the 2012 AGM.

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 July-September 2012 Operating Result of SEK -2.3 million (SEK 3.2 million), decreased as a result of lower gross results of SEK 2.4 million and higher operational expenses of SEK 3.1 million, related to the strategic increase in technical and commercial manning.

The Result for the period after tax amounted to SEK -1.9 million (SEK 2.4 million million), decreased as a result of lower Operating Results of SEK 5.5 million and improved Financial Result of SEK 1.2 million.

The January-September 2012 Operating Result of SEK -1.0 million (SEK 7.5 million), decreased as a result of lower gross results of SEK 1.0 million, higher operational expenses of SEK 5.4 million, and reduced operational exchange gains in the amount of SEK 2.1 million, reported as other operating income. The higher operational expenses are related to recruiting and salary expenses incurred in order to position the Company for further growth, as outlined at the 2012 AGM.

The Result after tax for January-September 2012 amounted to SEK -0.1 million (SEK 9.7 million), decreased as a result of lower Operating Results of SEK 8.5 million and the improved Financial Result of SEK 2.3 million. The remaining difference of SEK 3.6 million is primarily related to last year's revaluation of the deferred tax asset, as described in the section entitled "Deferred Tax Asset". The tax expenses refer mainly to business and income tax paid in China.

Deferred Tax Asset

The estimated future taxable profit and deferred tax asset calculation is reassessed every quarter. As of 30 September 2012, SEK 125.1 million (SEK 128.8 million) of SinterCast's total carried-forward tax losses have been used as the basis of the updated calculation, resulting in SEK 32.9 million (SEK 32.8 million) being capitalised as a deferred tax asset, unchanged since 31 December 2011.

It has been announced that the Swedish corporate tax rate is proposed to be reduced from 26.3% to 22% as of 1 January 2013. This change, if implemented, will affect SinterCast's deferred tax asset calculation, reducing the capitalised deferred tax asset by SEK -5.4 million, assuming no other changes relative to the current calculation. The decreased value is expected to affect the profit and loss statement during the fourth quarter of 2012. The deferred tax asset is included in the financial assets in the balance sheet.

Employee Stock Option Program

As of 30 September 2012, the total cost of the employee stock option program 2009-2013 was calculated to be SEK 2.9 million (SEK 3.0 million), based on a closing share price of SEK 46.0 (SEK 41.7). Thus far during 2012, SEK 0.3 million (SEK 0.5 million) has been accounted for as costs related to the option program.  

 

Cashflow, Liquidity and Investments

The July-September 2012 cashflow from operations was SEK -0.5 million (SEK 3.2 million). The decreased cashflow from operations during the period is mainly due to the decreased revenue, installation timing, and increased personnel expenses.

The January-September 2012 cashflow from operations was SEK -0.5 million (SEK 9.9 million). The lower cashflow result during the period, compared to 2011, is primarily explained by the reduced Operating Result, higher installation payments received during the first half of 2011 and increased working capital during 2012, including paid out accrued expenses of a one-time character.

Following the payment of the dividend to shareholders in the amount of SEK 11.9 million (SEK 3.5 million), the total cashflow result for the period is SEK -12.6 million (SEK 3.1 million), resulting in SEK 35.0 million (SEK 43.4 million) in liquidity on 30 September 2012.

Investments amounted to SEK 0.2 million (SEK 0.8 million) during the period.

 

Risks and Uncertainty Factors

The main uncertainty factor for SinterCast continues to be the overall 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 recently become more uncertain and this has begun to influence consumer confidence and automotive sales.  SinterCast's diversification between V-diesel engines for passenger vehicles, commercial vehicle engine components, and other applications such as exhaust components and industrial power engines, combined with its presence in Europe, Asia and the Americas, reduces the dependence on individual product applications and geographical 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.39 in SinterCast's Annual Report 2011

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 representatives in Sweden, the United Kingdom, the United States, China, Korea, Japan, India and Australia. During the second quarter, a new subsidiary was established in Korea. The establishment of the Chinese subsidiary is expected to be completed during the fourth quarter of 2012. As of 30 September 2012, the Group had 20 (17) employees, three (three) of whom were female. Following the planned recruitment over the past 18 months, the Company is now well positioned to support global market activities and to drive the next phase of SinterCast's growth. No further recruitments are currently planned.  

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 16 (14) employees.  The majority of the operations are managed by the Parent Company, including responsibility for the representative office in China and sales representatives in Australia, India and Japan. Operations in the UK, USA and Korea 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 for the Parent Company are in agreement with the accounting policies used in the 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

The following press releases have been issued:
18 October 2012 - SinterCast secures new order for product development and series production
29 October 2012 - Tupy orders SinterCast process control system for high volume CGI production in Mexico

There have been no other significant events since the balance sheet date of 30 September 2012 that could materially change these financial statements.

Nomination Committee

The Nomination Committee, elected by the Annual General Meeting 2012, consists of Karl-Arne Henriksson, Chairman, Ulla-Britt Fräjdin-Hellqvist and Torbjörn Nordberg. The Nomination Committee can be contacted at: nomination.committee@sintercast.com

 

Annual General Meeting

The Annual General Meeting 2013 of SinterCast AB (publ) will be held on Wednesday 15 May 2013.

Shareholders wishing to have a matter considered at the Annual General Meeting should submit their proposals in writing to agm.registration@sintercast.com or to the Company: SinterCast AB (publ), P.O. Box 10203, SE-100 55 Stockholm, Sweden, at least seven weeks prior to the Annual General Meeting for the proposal to be included in the notice to the meeting. Further details on how and when to register will be published in advance of the Annual General Meeting.

Information

The Interim Report October-December and Full Year Results 2012 will be published on 20 February 2013
The Interim Report January-March 2013 will be published on 24 April 2013
The Interim Report April-June 2013 will be published on 21 August 2013
The Interim Report July-September 2013 will be published on 6 November 2013

 

Stockholm 7 November 2012       

Report of Review of Interim Financial Information
Introduction
We have reviewed this report for the 1^st of January 2012 to 30^th of September 2012 for SinterCast AB (publ). The board of directors and the CEO are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.       

Scope of Review       
We conducted our review in accordance with the Swedish Standard on Review Engagements SÖG 2410, Review of Interim Report Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.

Stockholm, 7th of November 2012

Öhrlings PricewaterhouseCoopers

Anna-Carin Bjelkeby       
Authorised Public Accountant

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. The SinterCast technology is used for the production of more than 50 CGI components, ranging from 2 kg to 17 tonnes, all using the same proven process control technology.  The end-users of SinterCast-CGI components include Aston Martin, Audi, Cameron Compression, Caterpillar, Chrysler, DAF Trucks, Ford, Ford-Otosan, General Electric Transportation Systems, General Motors, Hyundai, Jaguar, Jeep, Kia, Lancia, Land Rover, MAN, Navistar, Porsche, PSA Peugeot-Citroën, Renault, Rolls-Royce Power Engineering, Scania, Toyota, VM Motori, Volkswagen, Volvo and Waukesha Engine. The SinterCast share is quoted on the Small Cap segment of the NASDAQ OMX stock exchange (Stockholmsbörsen: SINT). For more information: www.sintercast.com

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