LINAMAR HUNGARY RT. INTERIM REPORT FOR THE FIRST NINE MONTHS ENDED SEPTEMBER 30, LINAMAR HUNGARY RT. Orosháza, 5901 Csorvási út 27.

Transcription

1 LINAMAR HUNGARY RT. INTERIM REPORT FOR THE FIRST NINE MONTHS ENDED SEPTEMBER 30, 2004 LINAMAR HUNGARY RT. Orosháza, 5901 Csorvási út 27.

2 To the Shareholders LINAMAR HUNGARY RT. Page 4.1 Sales for the nine months ended September 30, 2004 were HUF 15,838 million. This is a slight decrease compared to sales of HUF 16,304 million for the same period of the previous year. The sales decrease of 2.9% is the net result of a HUF 480 million decrease in the agricultural equipment and general machinery segment and an increase of HUF 13 million in the automotive component and precision machining segment. The net earnings for the nine months of 2004 were HUF 600 million compared to HUF 579 million for the same period of the previous year, an increase of 3.7%. The increase is mainly related to foreign exchange. Last year the Company experienced an exchange loss on loans of HUF 208 million; in the current year the Company recorded an exchange gain on loans of HUF 330 million causing a significant improvement in earnings. On July 25 th General Motors, announced the cancellation of the CVT transmission program. Linamar Hungary Rt. has not been producing any regular CVT production components for the year to date. Therefore Linamar Hungary Rt. and its parent company, Linamar Corporation have entered into commerial negotiations with its customer anticipating resolution by the end of The management of LINAMAR HUNGARY RT. has ensured that all of the data and information that is necessary to properly evaluate the Company s position has been included in this interim report and that all of the data and information is true and factual. János Ivanics General Manager György Furár Chief Financial Officer

3 LINAMAR HUNGARY RT. Notes to the Financial Statements For the nine months ended September 30, 2004 and 2003 (NON AUDITED) Page Management prepared these financial statements in accordance with generally accepted accounting principles using the historical cost basis of accounting and approximations and estimates based on professional judgement. These interim financial statements contain all adjustments that management believes are necessary for a fair presentation of the Company's financial position, results of operations and changes in cash flows. 2. The accounting policies used in preparing these interim financial statements are consistent with those used in preparing the annual financial statements. These statements should be used in conjunction with the Company's most recent annual financial statements. Beginning with the third quarter of 2004, the Company is presenting its financial statement (balance sheet, profit and loss statement and cash-flow report) in the format presented in its 2003 Annual Report. 3. The share capital of the Company as at September 30, 2004 was 8,580,000 units (September 30, ,016,000). 4. Segmented Sales Information Nine Month Ended September Export Sales Automotive Components and Precision Machining Western Europe 7,680,123 5,731,942 North America 1,185,470 1,434,648 Other European Countries 679, ,147 Total Automotive Components and Precision Machining Export Sales 9,544,693 7,871,737 Agricultural Equipment and General Machinery Segment Western Europe 2,341,920 2,593,508 North America 1,192,538 1,150,398 Other European Countries 643, ,599 Total Agricultural Equipment and General Machinery Segment Export Sales 4,177,519 4,193,505 Total Export Sales 13,722,212 12,065,242 Domestic Sales Automotive Components and Precision Machining 1,748,012 3,407,618 Agricultural Equipment and General Machinery Segment 367, ,492 Total Domestic Sales 2,115,573 4,239,110 Total Sales 15,837,785 16,304,352

4 MANAGEMENT'S ANALYSIS AND OTHER REQUIRED DISCLOSURE Page 4.3 Explanation of the main changes in the balance sheet The tangible fixed assets have increased by HUF 56 million from September 30, 2003 as the Company continued to invest in new automotive and precision machining programs. Accounts receivable increased by 17.3% to HUF 4,502 million compared to the nine months of The increase in accounts receivable balances is mainly related to the agricultural and general machinery segment where the previous year s business experienced more favourable payment terms but now has been replaced by new projects with longer payment terms. The Company continues to operate with low cash balances. Cash, bank balances and short-term deposits increased by 87.7%, from HUF 337 million to HUF 633 million. The reason for the increase is preparation for a payment of a loan due in October, for which the Company accumulated cash. The level of inventories was 21.4% higher at September 30, 2004 compared to the previous year. Inventories increased from HUF 3,315 million to HUF 4,024 million. Most of the HUF 710 million increase occurred in the automotive segment, where the inventories increased as a result of new jobs awarded and due to the cessation of the CVT automotive project. The Company s short-term bank loans decreased by 19.3% from HUF 3,484 million to HUF 2,813 million compared to the same period of the last year. The decrease was in connection with a financial decision, where a new long-term loan for operating funds was taken in the second quarter with favourable terms and conditions. The current portion of long-term debt contains mainly the required repayments of long-term loans with interest due in This amount increased from HUF 302 million to HUF 1,498 million over last year. The reason for the increase is that the repayment of one portion of the long-term investment loan taken in 2000 and the long-term loan for operating funds taken in 2002 is due during Of the HUF 1,498 million repayable amount, HUF 1,087 million relates to the loan for operating funds; HUF 371 million relates to the investment and HUF 40 million relates to the government supported interest free loans. The repayment of the HUF 371 million investment loan was completed in October, while the loan related to operating funds will be replaced with a new long-term loan. The Company's long-term debt decreased from HUF 2,180 million to HUF 2,046 million. Accounts payable, decreased by 15.9%, from HUF 2,508 million to HUF 2,108 million. This decrease results from supplier payments made in the first nine months of 2004, including the payments for the acquisition of fixed assets of HUF 989 million.

5 Page 4.4 Explanation of the main changes in the statement of earnings Sales LINAMAR HUNGARY RT. s sales decreased by 2.9% to HUF 15,838 million in the nine months of 2004 compared to sales of HUF 16,304 million in the nine months of Changes by business segment, as discussed below, can be seen under item 4 of the Notes to the Financial Statements. Automotive component and precision machining sales increased by HUF 13 million, or 0.1%, compared to the same period of 2003, while agricultural and general machinery sales decreased by HUF 480 million, or 9.6%. Segmented Sales are as follows: 71.3% automotive component and precision machining and 28.7% agricultural equipment. The automotive component and precision machining export sales increased by HUF 1,948 million or 34%, mainly as a result of the increasing proportion of Common Rail systems parts and components, increased production of components due to the higher demand in the industrial generators market, and a new project for transmission components which is in a ramp-up phase. Domestic automotive component and precision machining sales were HUF 1,748 million, which dropped by HUF 1, 660 million compared to the same period last year. The main reason for the decrease is that the sales from domestic automotive jobs in the ramp-up phase could not compensate for the sales loss regarding the customer s cessation of releases on the CVT project. Agricultural export sales decreased by HUF 16 million to HUF 4,178 million from the nine months of last year. The Company could not meet its planned sales due to material supply and production scheduling problems. Domestic agricultural sales decreased by 55.8% from HUF 831 million to HUF 368 million compared to the same period of last year due primarily to the significantly lower demand for corn heads in the domestic market. Cost of sales LINAMAR HUNGARY RT. s cost of sales increased from 85.3% of sales to 88.8%. The higher level of cost of sales resulted mainly from two factors. First, in the agricultural and general machinery segment, the raw material price increases at the beginning of the year caused extra costs. The increase in raw material prices continued and only a proportion of it could be passed on to the Company s customers with a delay in time. Second, the impact of the cessation of CVT orders meant fixed costs continued without the corresponding revenue. In particular, the depreciation of the CVT equipment not used and the continuing labour cost on this project were significant unrecovered expenses for the Company.

6 Page 4.5 Selling, general and administrative costs In the nine months the 2004 selling, general and administrative costs amounted to HUF 1,190 million or 7.5% of sales, compared to HUF 1,260 million or 7.7% of sales for the same period of The favorable, 5.5% decrease mainly relates to the HUF 92 million decrease in administrative expenses, where the labour cost decreased significantly. The Selling expenses contain the foreign exchange effect regarding accounts receivables and payables of HUF 16 million gain in 2003 and HUF 126 million loss in Selling expenses excluding the exchange effect decreased by HUF 111 million. This downward trend is favourable for the Company and shows that the procedures started last year had positive impact on the earnings both in short and long term. Profit from operations Operating earnings of HUF 944 million last year decreased to HUF 401 million this year in the same period. Operating earnings as a percent of sales decreased from 5.8% to 2.5%. The lack of releases under the CVT program has had the most significant impact upon operating earnings. Exchange gain (loss) The Company experienced an exchange gain of HUF 204 million in the nine months of 2004, compared to an exchange loss of HUF 192 million in the same period of The exchange gain was mainly related to the Euro denominated loans of the Company as a result of the strengthening of the Forint. During the first quarter the Company closed its forward contracts with a gain of HUF million. This gain on the contracts will be accounted for in the months the positions were due, in November and December Net earnings The Company's net earnings for the nine months of 2004 were HUF 600 million, or an increase of 3.7% compared to the HUF 579 million in the nine months ended September 30, 2003, or 3.5% of sales. The most significant impacts upon net earnings were the positive exchange gains partially offset by the lack of releases under the CVT program. Explanation of the main changes in the cash-flow statement In the nine months of 2004, the purchases of fixed assets amounted to HUF 893 million. The cash payments during the period related to purchases of fixed assets totalled HUF 989 million. These investments mainly related to the automotive components and precision machining business segment.

7 Information on shares Page 4.6 Share options, previously issued under the Company s Share Option programme and representing 564,000 units, were exercised in December In December of 2003, the Company s Board of Directors decided in favour of a closed share capital increase to satisfy the required issuance of shares under the Company s share option program. After the registration in the Court of Registry on February 19, 2004 the Company s share capital increased by 564,000 units, each of HUF 100 nominal value, to HUF 858,000,000. The Company does not currently hold any of its own shares and has not held any in the past. The Company, fulfilling its obligations by law, started the dematerialization procedure for its shares. The dematerialization of the shares of Linamar Hungary Rt. will be done on December 1, The shareholders should deposit their shares for dematerialization purposes by November 30, Commitments As at September 30, 2004, the Company has outstanding commitments for fixed assets under purchase orders and contracts of approximately HUF 29 million. Major events The building expansion of 5,700 square meters and the building of a new 1,200 square meters office area at PPM Division have both been completed, and the opening ceremony was held on January 29, The Company held its Annual General Meeting on March 26, At the extraordinary General Meeting held on September 17, 2004 the Company amended its Articles related to the dematerialization and appointed a new member to the Supervisory Board. Other information Organizational structure On January 5, 2004 the following organizational changes came into effect. Orosháza Automotive Division and Linamar Products Division have been consolidated under the name of Linamar Products Division (LPD). Orosháza Agricultural Division and Linamar Hungary Rt.'s Corporate Office have been consolidated under the name of OROS Division. Senior officers Mr. George W. Sims, chairman of the Supervisory Board resigned from the Supervisory Board and at the extraordinary General Meeting held on September 17, 2004 Mr. Keith Wettlaufer Chief Financial Officer, Treasurer & VP Strategic Development of Linamar Corporation, was appointed to the Supervisory Board until May 31, 2005.

8 Page 4.7 Senior management On January 5, 2004 the following changes came into effect. The mandate of István Prozlik, Operations Manager of LPD has been withdrawn and he now works in another position at Linamar Hungary Rt. The new Operations Manager of LPD is Gábor Fehér. Effective January 31, 2004 the Operations Manager of OROS Division, István Borsos, no longer works for Linamar Hungary Rt. Share Option Program There are no outstanding share options under the share option program of the Company.

9 Page 4.8 PK1. General information about financial data Audited Consolidated Yes X X No Accounting principles Hungarian IFRS X Other

10 Page 4.9 PK2. Consolidated companies Name Equity/Registered Capital Interest held (%) Voting right 1 Classification Voting rights for decision making at the consolidated company s General Meeting 2 Full (L); Jointly Managed (K); Associated (T)

11 Page 4.10 PK3. Balance Sheet (expressed in thousands of Hungarian Forints) Nine Months Ended September Change % December ASSETS Non-Current Assets Property, plant and equipment 10,791,307 10,741, ,465,864 Intangible assets 58,796 52, ,639 10,850,103 10,794, ,531,503 Current Assets Inventories 4,024,459 3,314, ,333,420 Trade receivables 4,502,085 3,837, ,275,133 Due from related parties 371, ,911 (28.4) 297,173 Recoverable value added tax 359, ,454 (50.1) 905,165 Other current assets 83, ,117 (64.2) 133,357 Cash and cash equivalents 633, , ,647 9,974,533 8,963, ,784,895 Total Assets 20,824,636 19,757, ,316,398 SHAREHOLDERS EQUITY Share capital 858, , ,600 Capital reserve 5,026,774 4,500, ,500,562 Accumulated profit 5,479,472 5,160, ,879,797 11,364,246 10,462, ,181,959 LIABILITIES Non-Current Liabilities Long-term bank borrowings 2,018,047 2,027,855 (0.5) 943,256 Deferred government grants 186, , ,540 2,204,090 2,211,263 (0.3) 1,115,796 Current Liabilities Short-term bank borrowings 2,813,101 3,484,059 (19.3) 3,667,519 Current portion of long-term bank borrowings 1,498, , ,787,844 Trade payables 2,018,212 2,355,190 (14.3) 2,669,894 Due to related parties 89, ,337 (41.2) 105,049 Other current liabilities 837, , ,337 7,256,300 7,083, ,018,643 Total Liabilities 9,460,390 9,294, ,134,439 Total Equity and Liabilities 20,824,636 19,757, ,316,398

12 Page 4.11 Statement of Changes in Shareholders Equity for the nine months ended September 30, 2003 and 2004 (Expressed in Thousands of Hungarian Forints) Share Capital Capital Reserve Accumulated Profit Total Reserves Balance as at 31/12/ ,600 4,500,562 4,879,797 10,181,959 Capital Increase Result for the period , ,830 Balance as at 30/09/ ,600 4,500,562 5,160,627 10,462,789 Share Capital Capital Reserve Accumulated Profit Total Reserves Balance as at 31/12/ ,600 4,500,562 4,879,797 10,181,959 Capital Increase 56, , ,612 Result for the period , ,675 Balance as at 30/09/ ,000 5,026,774 5,479,472 11,364,246

13 Page 4.12 PK4. Profit and Loss Statement (expressed in thousands of Hungarian Forints except per share figures) Nine Months Ended September 30 Change % Three Months Ended September Sales 15,837,785 16,304,352 (2.9) 5,558,293 5,697,399 Cost of Sales 14,063,685 13,907, ,009,412 4,922,769 Gross Profit 1,774,100 2,397,121 (26.0) 548, ,630 Selling expenses 536, , , ,686 General expenses 287, ,462 (3.2) 93, ,341 Administrative expenses 366, ,285 (20.0) 109, ,890 Other operating income/expenses 214, ,865 (4.4) 98, ,160 Government grants (32,625) (32,243) 1.2 (10,875) (10,493) Profit from Operations 401, ,479 (57.5) 81,628 64,046 Exchange (loss) / gain from financial operations - net 330,248 (208,000) (258.8) 144, ,581 Interest expense - net (132,026) (157,979) (16.4) (40,113) (63,074) Profit before Tax 599, , , ,553 Income taxes Net Income 599, , , ,553 Earnings per Share Basic HUF 70 HUF 72 HUF 22 HUF 38

14 Page 4.13 PK5. Cash-Flow Report (expressed in thousands of Hungarian Forints) Nine Months Ended September Net Income 599, ,500 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,442,322 1,393,469 Provision for guarantees and tax penalty (50,495) (29,947) Net (gain)/loss on sale of property, plant and equipment (7,713) 921 Changes in operating assets and liabilities: Increase in inventories (691,039) (553,859) Increase in accounts receivable (1,226,952) (1,306,618) Increase in due from related parties (74,240) (195,854) (Increase)/decrease in tax receivable 545,282 (156,921) (Increase)/decrease in other current assets 49,942 (204,371) Increase/(decrease) in accounts payable (536,966) 654,724 Decrease in due to related parties (34,372) (677,611) Increase in other current liabilities 112, ,713 Net cash provided by operating activities 128,353 (222,854) Cash-flows from investing activities Purchase of property, plant and equipment and intangibles (988,756) (1,058,717) Proceeds on sales of property, plant and equipment 139,684 4,380 Net cash used in investing activities (849,072) (1,054,337) Cash-flows from financing activities Proceeds from issue of shares 582,612 - Repayments of long-term debt-interest free loan (51,105) (51,105) Proceeds from new long-term loans 1,281, ,637 Proceeds from other short-term loans 1,692,217 2,585,419 Repayment of other short-term loans (2,546,635) (1,745,660) Repayments of long-term loans investment loan (445,254) (253,876) Net cash provided from financing activities 513, ,415 Net decrease in cash and cash equivalents (207,369) (476,776) Cash and cash equivalents at the beginning of the period 840, ,090 Cash and cash equivalents at the end of the period 633, ,314

15 Page 4.14 PK6. Significant off-balance sheet items 1 Description (HUF million) Value Vertical machining centres Any financial liabilities of material importance in respect of financial evaluation not reflected in the balance sheet (e.g. surety, guarantees given, liabilities under lien, etc.)

16 Page 4.15 RS1. Ownership structure, Ratio of Holdings Description of owner Total equity Opening Closing at 1 st January % Qty % Qty Domestic institution/company , ,421 Foreign institution/company ,021, ,810,729 Domestic individual , ,306 Foreign individual Employees, senior officers , ,544 Treasury shares Government held owner International Development Institutions Other TOTAL ,016, ,580,000 Notes: 1. All of Linamar Hungary Rt.'s shares are listed on the Budapest Stock Exchange. 2. Each shares entitles the shareholder to one vote.

17 Page 4.16 RS2. Volume (qty) of treasury shares held in the year under review 1 January 31 March 30 June 30 September 31 December Company Subsidiaries TOTAL

18 Page 4.17 RS3/1. List and description of shareholders with more than 5% (at the end of the period) in reference to listed series Name Nationality 1 Activity 2 Quantity Interest (%) Remarks Linamar Corporation K C 5,030, strategic investor Each share entitles the shareholder to one vote. Linamar Corporation s headquarters are located in Guelph, Ontario, Canada, along with a significant percentage of the Company s manufacturing capacity. Linamar Corporation is a global manufacturer of precision machined components, assemblies and castings primarily for automotive industry. 1 Domestic (B), Foreign (K) 2 Custodian (L), Government (Á), International Development Institute (F), Institutional (I), Corporate (C), Individual (M), Employee, Senior Officer (D) RS3/2. List and description of shareholders with more than 5% (at the end of the period) in reference to the total share capital The listed series corresponds to the total share capital, information can be found on the RS3/1 table.

19 Page 4.18 TSZ2/1. Changes in the headcount (number of persons) employed by the End of reference period Current period opening Current period closing Company 1,676 1,701 1,632 Group n.a. n.a. n.a.

20 Page 4.19 TSZ3. Senior officers, strategic employees Type 1 Name Position Beginning of assignment End/ termination of assignment No. of shares held IT Frank J. Hasenfratz Chairman of the Board IT Linda Hasenfratz Director IT Tibor Antalpéter Independent Director IT Márton Havasi Director ,344 IT Csaba Havasi Director IT János Ivanics General Manager, ,200 Member of the Board FB Keith Wettlaufer Chairman of the Supervisory Board FB Rezső Bándy Dr. Member FB Sándor Csontos Member SP György Furár Chief Financial UNDEFINED 2,000 Officer SP Zoltán Laskai Human Resources Manager UNDEFINED - Own share property (pcs) TOTAL: 307,544 1 Employee in strategic position (SP), Board Member (IT), Supervisory Board Member (FB)

21 Page 4.20 Company address: 5900 Orosháza Csorvási út 27. Fax: Reporting period: Investor relations manager: György Furár ST1. Extraordinary reports published in the period under review Date Place of Subject matter, brief summary publication Magyar Tőkepiac Extraordinary briefing, that Mr. István Borsos does not work anymore at Linamar Hungary Rt Magyar Tőkepiac Interim Report for the quarter ended December 31, Magyar Tőkepiac Linamar Hungary Rt. s information about the change in ownership structure Magyar Tőkepiac Linamar Hungary Rt. s information about the change in ownership structure Magyar Tőkepiac The Registry Court registered Linamar Hungary Rt. s share capital raise Magyar Tőkepiac Notice of the Annual General Meeting Magyar Tőkepiac Extraordinary briefing about the Memorandum and Articles of the Company Magyar Tőkepiac Extraordinary briefing about change of shares in the top management Magyar Tőkepiac Resolutions of the Annual General Meeting Magyar Tőkepiac Publication of Statutory Report Magyar Tőkepiac Extraordinary briefing about three members of Linamar Hungary Rt. s Board of directors sold their Linamar Hungary Rt. shares Magyar Tőkepiac Briefing about completion of the Annual Report Magyar Tőkepiac Publication of the Annual Report Magyar Tőkepiac Interim Report for the I. Quarter ended March 31, Magyar Tőkepiac Interim Report for the II. Qarter ended June 30, Magyar Tőkepiac Notice of the Extraordinary General Meeting Magyar Tőkepiac Resolutions of the Extraordinary General Meeting Magyar Tőkepiac, Napi Gazdaság, Cég közlöny Information about the dematerialization of the Company s printed shares

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