Interim Report Second Quarter 2018

Transcription

1 Interim Report Second Quarter 2018 Second quarter Net sales increased by 12% to SEK (106.5) million. Adjusted to fixed exchange rates, net sales increased by 7%. This follows on the back of 8% growth in Q1 and Diamorph has now reported 4 successive quarters of sales growth at fixed exchange rates. Adjusted operating profit increased by 15% to SEK 40.1 (34.9) million. Adjusted profit before tax increased by 41% to SEK 37.3 (26.4) million. Operating profit (as reported under IFRS) decreased by 90% to SEK 4.1 (39.2) million, reflecting the creation of a provision for environmental remediation costs. Profit before tax (as reported under IFRS) decreased by 143% to a loss of SEK 18.9 (profit of 43.7) million, as significant exchange losses again arose on foreign currency denominated third party and intercompany financing balances as SEK has continued to weaken. First half Net sales increased by 10% to SEK (221.5) million. Adjusted to fixed exchange rates, net sales increased by 8%. Adjusted operating profit increased by 5% to SEK 83.4 (79.3) million. Adjusted profit before tax increased by 26% to SEK 77.9 (61.7) million. Operating profit (as reported under IFRS) decreased by 44% to SEK 46.3 (82.4) million. Profit before tax (as reported under IFRS) decreased by 129% to a loss of SEK 22.2 (profit of 75.7) million. Amounts in SEK millions (unless stated otherwise) Q Q Δ% Q1Q Q1Q Δ% Net debt EBITDA EBITDA rolling 12 month Net debt : EBITDA rolling 12 month(ratio) Operating profit reported (IFRS) Profit/(loss) before tax reported (IFRS) Earnings per share reported (IFRS) (SEK) Net sales Adjusted operating profit (EBITA) 1 Adjusted operating profit margin (EBITA), % 1 Adjusted profit before tax 1 Adjusted earnings per share 1 (SEK) Average number of shares in issue ( 000) Operating cash flow Operating cash conversion, % Diamorph uses adjusted figures as key performance measures in addition to those reported under IFRS. Reconciliations showing how the adjusted performance measures are derived from those reported under IFRS are shown on pages 5 and 12. Diamorph AB (pub) / Org. nr / Q2 report March June

2 Sales Second Quarter Sales for the second quarter amounted to SEK (106.5) million representing an increase of 12% as reported. At fixed exchange rates sales increased by 7% compared with the same period last year. This follows on the back of 8% growth in Q1 and 6% growth across the second half of 2017; Diamorph has therefore now reported 4 successive quarters of sales growth at fixed exchange rates. Business Development sales grew strongly due in particular to demand for products with high temperature applications, including for hot gas filtration and for glass/metal rollers. Sales of Ceramic Rollers continued to grow strongly. The Fire Protection business continued to see growth in Europe, supported by demand for ventilated fire barrier products; however the previously referenced challenges for the Fire Protection business in the USA continued to cause a decline in sales in that market although the pace of decline has started to slow. The Rail and Vacuum Pump & Compressor business sales have been stable, whilst higher bearings sales in the Marine business has more than offset a decline in tanker support product sales which are impacted by the timing of customer projects. First half Sales in the first half amounted to SEK (221.5) million, an increase of 10% as reported. At fixed exchange rates sales increased by 8% compared with the same period last year. To a large extent, the growth trends explained above in respect of the second quarter reflect also on the trends behind the overall first half sales performance. Operating profit performance Driven by the sales performance, gross profit amounted to SEK 64.2 (60.5) million in the second quarter and SEK (128.1) million in the first half. The gross profit margin therefore reduced to 54.0% (56.8%) in the second quarter and 54.3% (57.8%) in the first half. The margin has been impacted by a combination of factors including the product mix as well as investments in key functional areas such as continuous manufacturing performance improvement, higher repair and maintenance charges, and initiation of depreciation on the new kiln in the Czech Republic. In the second quarter operating expenses excluding acquisitionrelated and nonrecurring items amounted to SEK 24.1 (25.6) million representing a decrease of 6% as reported. In the first half operating expenses excluding acquisitionrelated and nonrecurring items remained flat at SEK 49.0 (48.8) million. At fixed exchange rates operating expenses were flat with previous year in the second quarter and increased by 1% in the first half. second quarter as the benefit of delivering sales growth on the flat operating expenses exceeded the effect of the decline in gross profit margin percentage. However the adjusted operating profit margin decreased in the first half to 34.2% (35.8%) reflecting to a large extent the very strong comparative for the first quarter gross margin performance referred to previously. Nonrecurring operating expenses of SEK 35.0 (income of 5.4) million were recognised in the second quarter as a provision was created for environmental remediation costs following the review initiated in the first quarter; further details are provided below. The nonrecurring operating income in the second quarter of 2017 reflected the legal settlement in the Group s favour relating to alleged infringements of one of the Group s trademarks. Acquisitionrelated intangible asset amortisation charges remained flat at SEK 1.0 (1.1) million in the second quarter and SEK 2.1 (2.1) million in the first half. Operating profit (as reported under IFRS) therefore decreased to SEK 4.1 (39.2) million in the second quarter and to SEK 46.3 (82.4) million in the first half. Financing charges and profits before tax Net financial items amounted to charges of SEK 23.0 (credits of 4.5) million in the second quarter and SEK 68.5 (6.7) million in the first half, with the increases arising mainly from changes in nonrecurring financial charges. Underlying net financial expenses reduced significantly to SEK 2.8 (8.5) million in the second quarter and SEK 5.5 (17.6) million in the first half following the refinancing of the Company s borrowings in 2017 and a reduction in net debt. Nonrecurring financial items totalled charges of SEK 20.2 (credits of 13.0) million in the second quarter and SEK 63.0 (credits of 10.9) million in the first half. This mainly comprises exchange gains and losses on third party and intercompany financing balances with significant exchange losses arising in both the first and second quarters of 2018 as SEK has gradually weakened. Adjusted profit before tax (adjusted to remove the effect of acquisitionrelated and nonrecurring operating and financing items) therefore increased by 41% to SEK 37.3 (26.4) million in the second quarter and by 26% to SEK 77.9 (61.7) million in the first half. Further impacted by the creation of the provision for environmental remediation costs, nonrecurring financing items and acquisitionrelated intangible asset amortisation charges, profit/(loss) before tax (as reported under IFRS) reduced to a loss of SEK 18.9 (profit of 43.7) million in the second quarter and SEK 22.2 (profit of 75.7) million in the first half. Adjusted operating profit therefore increased to SEK 40.1 (34.9) million in the second quarter and SEK 83.4 (79.3) million in the first half. Overall adjusted operating profit margins increased to 33.8% (32.8%) in the Diamorph AB (pub) / Org. nr / Q2 report March June

3 Taxes Income taxes amounted to a credit of SEK 2.7 (charge of 8.6) million in the second quarter and SEK 3.4 (charge of 20.7) million in the first half. As for the net financial items, income taxes comprises tax on the underlying business performance as well as nonrecurring tax items. first half of 2017 to create and expand capacity for the production of longer ceramic conveyor rollers by the Hob Certec business in the Czech Republic. In the first half of 2017 cash outflows included SEK 32.0 million relating to the acquisition of shares from minority shareholders of Diamorph Bearings AB which also caused a restriction over SEK 22.6 million of cash to be released. The underlying tax charge was SEK 7.4 (5.3) million in the second quarter and SEK 15.5 (12.2) million in the first half. The underlying tax charge represents an effective tax rate of 20% (20%) of adjusted profits before tax which is consistent with the previous year. Nonrecurring tax credits amounted to SEK 10.1 (charges of 3.3) million in the second quarter and SEK 18.9 (charges of 8.5) million in the first half. Cash flows from financial activities amounted to an outflow of SEK 26.0 (1.9) million in the second quarter and SEK 40.2 (54.8) million in the first half. The outflow in the first half of 2018 reflected the net repayment of loans under the new bank facility. The outflow in the first half of 2017 mainly reflected the voluntary partial repayment of SEK 50 million of outstanding bonds and associated early redemption premium of SEK 1 million. The nonrecurring tax credits in the first half of 2018 relate partly to a deferred tax asset recognised in respect of the provision for environmental remediation costs but also arise from the foreign exchange losses within the financing charges. The nonrecurring charge in the first half of 2017 related mainly to the payment of 5.9 million of withholding taxes to the Swiss tax administration as part of the ongoing process to liquidate KHP Marketing Gmbh i.l. Earnings per share After allowing for the profits after tax attributable to minority interests within the result for the first half of 2017, adjusted earnings per share increased by 43% to SEK 0.57 (0.40) per share in the second quarter and by 27% to SEK 1.18 (0.93) per share in the first half. Earnings per share (as reported under IFRS) decreased by 147% to a loss of SEK 0.31 (earnings of 0.66) per share in the second quarter and by 135% to a loss of SEK 0.36 (earnings of 1.04) per share in the first half. Cash flow and financial position Cash flow for the period, therefore, amounted to a cash inflow of SEK 1.2 (21.4) million in the second quarter and SEK 1.4 (outflow of 35.1) million in the first half. After adjusting for exchange rate differences, cash and cash equivalents at the end of the period amounted to SEK 23.9 (178.7) million. Net debt Net debt at the end of the period amounted to SEK (287.7) million, a decrease of SEK 19.6 (18.2) million during the period. As reported, the leverage ratio of net debt : EBITDA reduced to 1.73x compared with a position of 1.94x at the start of the year; the reduction would have been larger but for exchange losses experienced on the bank loans (which are predominantly arranged in EUR and USD) as SEK weakened in the first half of 2018 compared to Consistent with the approach in 2017, reported EBITDA excludes nonrecurring operating income and expenses. However it should be noted that the leverage ratio calculated formally under the definitions of the banking facility limits the amount of nonrecurring expenses that can be excluded from the calculation; on this basis the leverage ratio is higher, being close to 2x, but still well within the facility covenant limit of 3.0x. Net cash flow from operating activities before changes in working capital amounted to SEK 34.2 (34.0) million in the second quarter and SEK 73.8 (50.3) million in the first half. The increase in the first half is explained mainly by a decrease in interest costs due to the refinancing in Additionally, there has been a marked decrease in tax payments due to significant exchange gains in 2016 giving rise to higher than normal tax payments in the first half of Changes in working capital reduced cash flow by SEK 3.0 (2.9) million in the second quarter and by SEK 20.9 (6.2) million in the first half. The change in working capital has been mainly influenced by the phasing of sales and the sales mix also impacts on the working capital position since typical payment terms differ by country and customer. Lesser factors include the timing of creditor payments and there has been an increase in strategic stock holding in the first half. Equity and number of shares The parent company s share capital at June 30, 2018 consisted of SEK 1,105,608 divided into 52,846,841 shares with a quota value of SEK Group equity at June 30, 2018 amounted to SEK (470.0) million, an increase of SEK 77.4 (8.4) million during the first half of the year. In addition to the net loss of SEK 18.8 (profit of 55.0) million reported for the period, foreign exchange gains of SEK 96.3 (losses of 23.9) million arose primarily on GBP denominated net assets within the business. In the first half of the previous year, additional movements arose in relation to the purchase of the remaining noncontrolling interest in Diamorph Bearings AB. Cash outflows from investing activities were SEK 4.0 (7.8) million in the second quarter and SEK 11.3 (24.4) million in the first half. Cash outflows in the first half include payments to the Tenmat defined benefit pension scheme of SEK 5.9 (2.6) million and investments in tangible and intangible fixed assets of SEK 5.4 (12.4) million. The increase in pension payments reflects the new deficit recovery payment arrangements agreed with the pension scheme trustees toward the end of The reduction in investments in tangible fixed assets reflects the initial expenditures in the Diamorph AB (pub) / Org. nr / Q2 report March June

4 Significant events during the period Environmental review Since the end of the year specialist consultants have been engaged to undertake an environmental review at the Group s main manufacturing site. Based on the findings of the review certain remedial actions are necessary. The Group is still in the process of developing a detailed management action plan and the actual costs that will be incurred will only be known when this process is completed and works have been contracted. Nevertheless the Group has sought to estimate the expected remediation costs and as a result of this exercise it has been determined to recognise a provision of SEK 35.0 million in the balance sheet at 30 June 2018, with the expenditures expected to be incurred over approximately 2 years. The creation of this provision has been recognised as a nonrecurring operating expense in the income statement. Certain additional costs are likely to be incurred during the remediation work but these are not eligible to be recognised as a provision in the accounts as they relate to the future conduct of the business. Shareholders As noted at the time of the publication of the 2017 Annual Report, based on requests of at least 93% of the Company s shareholders, the board of the Company appointed advisers earlier in the year to initiate a trade sale of the shares of the Company. The process is being managed by Valentum Partners KB. At the date of publication of this quarterly report, this process is ongoing and further information will be released in due course. Employees As of June 30, 2018 the Diamorph group had 286 (277) employees. Accounting principles The accounting policies applied in this report are unchanged since the 2017 Annual Report. For a detailed description of accounting policies applied, see the 2017 Annual Report, page 32. At the current time, the Group has not finalised any adjustments necessary to implement IFRS 9 and IFRS 15 in 2018; however as explained in the 2017 Annual Report, any such adjustments are not expected to be significant. Adjusted performance measures The Group provides adjusted figures for key performance measures in addition to those reported under IFRS. The definitions of the adjusted measures are set out in notes 29 and 30 in the Annual Report for 2017 and are unchanged. Reconciliations between profit and earnings figures reported under IFRS and adjusted figures are set out on pages 5 and 12. Audit The interim financial statements have not been audited. Stockholm, 29 August 2018 Gordon MacLeman CEO Diamorph AB (pub) / Org. nr / Q2 report March June

5 Group income statements Income statement Q Q Q1Q Q1Q Net sales Cost of goods sold Gross profit Operating expenses Sales Admin R&D Other operating income Operating expenses Operating profit before acquisitionrelated and nonrecurring items Nonrecurring items Acquisitionrelated intangible asset amortisation Operating profit Financial items Financial income Financial expenses Nonrecurring financial (charges)/credits Net financial Profit/(loss) before income tax Income taxes Profit/(loss) for the period Consolidated statement of comprehensive income Profit/(loss) for the period Other comprehensive profit/(loss) for the period Actuarial profit/(loss), net after tax Exchange rate differences Other comprehensive profit /(loss) for the period Total comprehensive profit /(loss) for the period Profit for the period attributable to: Parent Company shareholders Noncontrolling interests Total comprehensive profit /(loss) attributable to: Parent Company shareholders Noncontrolling interests Diamorph AB (pub) / Org. nr / Q2 report March June

6 Group balance sheet Q Q ASSETS Fixed assets Intangible assets Property, plant and equipment Pension asset 3.1 Total fixed assets Current assets Inventories Accounts receivable Other receivables Cash and cash equivalents Total current assets TOTAL ASSETS EQUITY Equity Total equity LIABILITIES Longterm liabilities Interestbearing liabilities Pension liability Deferred tax liability Provisions 35.0 Total longterm liabilities Current liabilities Interestbearing liabilities Accrued interest Accounts payable Accrued expenses and other liabilities Total current liabilities TOTAL LIABILITIES AND EQUITY Diamorph AB (pub) / Org. nr / Q2 report March June

7 Group changes in equity H Equity attributable to Parent Company Noncontrolling Interests Total Equity At beginning of period Profit/(loss) for the period Other comprehensive income Actuarial profit/(loss) on defined benefit pension schemes Exchange rate differences Transactions with shareholders Sharebased payments At end of period H Equity attributable to Parent Company Noncontrolling Interests Total Equity At beginning of period Profit/(loss) for the period Other comprehensive income Exchange rate differences Transactions with shareholders Sharebased payments Purchase of noncontrolling interest Revaluation of put option over noncontrolling interests At end of period FY 2017 Equity attributable to Parent Company Noncontrolling Interests Total Equity At beginning of period Profit/(loss) for the period Other comprehensive income Actuarial profit/(loss) on defined benefit pension schemes Tax effect on actuarial profit Exchange rate differences Transactions with shareholders Sharebased payments Purchase of noncontrolling interest Revaluation of put option over noncontrolling interests At end of period Diamorph AB (pub) / Org. nr / Q2 report March June

8 Group cash flow Q Q Q1Q Q1Q Cash flow from operations Operating profit Adjustments for items not included in cash flow : Depreciation & amortisation Share based payment expense Increase in provisions Interest received Interest paid Tax paid Cash flow from operations before change in working capital Changes in working capital Cash flow from operations Cash flow from investment activities Acquisition of noncontrolling interest Transfer of restricted cash relating to acquisition of subsidiaries Payment to defined benefit pension scheme Investments in tangible and intangible fixed assets Total cash flow from investment activities Free cash flow for the period Cash flow from financial activities Initial drawing under new bank facility, net of transaction costs Repayment of loans under new facility Repayment of bonds, including early redemption fee Repayment of loans under previous facility (Czech Republic) Total cash flow from financial activities Cash flow for the period Cash and cash equivalents at beginning of period Exchange rate differences Cash and cash equivalents at end of period Diamorph AB (pub) / Org. nr / Q2 report March June

9 Parent Company income statement Q Q Q1Q Q1Q Net sales Cost of goods sold Gross profit Operating expenses Sales Admin Operating expenses Operating loss before nonrecurring items Nonrecurring items Operating loss Financial Items Financial income Financial expenses Net financial Loss before income tax Income taxes Loss for the period Diamorph AB (pub) / Org. nr / Q2 report March June

10 Parent Company balance sheet Q Q ASSETS Fixed assets Shares in subsidiaries Total fixed assets Current assets Other receivables Receivables from Group Companies Cash and cash equivalents Total current assets TOTAL ASSETS EQUITY Equity Total equity LIABILITIES Longterm liabilities Interestbearing liabilities Total longterm liabilities Current liabilities Accrued interest 10.1 Liabilities to Group Companies Other liabilities Total current liabilities TOTAL LIABILITIES AND EQUITY Diamorph AB (pub) / Org. nr / Q2 report March June

11 Parent Company cash flow Q Q Q1Q Q1Q Cash flow from operations Operating loss Interest received Interest paid Cash flow from operations before change in working capital Changes in working capital Cash flow from operations Cash flow from investment activities Transfer of restricted cash relating to acquisition of subsidiaries Total cash flow from investment activities Free cash flow for the period Cash flow from financial activities Loan received from subsidiary company Loan advanced to subsidiary company 8.0 Repayment of bond, including early redemption fee Repayment of loan to subsidiary company, including fees Total cash flow from financial activities Cash flow for the period Cash and cash equivalents at beginning of period Cash and cash equivalents at the end of the period Diamorph AB (pub) / Org. nr / Q2 report March June

12 Adjusted key performance measures In order to better show the underlying performance of the business, Diamorph uses adjusted figures for key performance measures in addition to those reported under IFRS. The adjusted operating profit performance is presented in the income statement on page 5. Reconciliations of adjusted profit before tax and adjusted earnings per share are shown below. Nonrecurring items are items which management do not consider reflect the underlying performance of the business. Nonrecurring tax items are analysed below and include both the tax effect of nonrecurring operating and financing items, as well as nonrecurring tax items. Group Q Q Q1Q Q1Q Cash flow from operations as reported under IFRS Adjusted for: Interest paid and received Tax paid Investments in tangible and intangible fixed assets Operating cash flow for purpose of calculating operating cash conversion % Group Q Q Q1Q Q1Q Operating expenses as reported under IFRS Adjusted for: Nonrecurring operating (income)/expenses Acquisitionrelated intangible asset amortisation Operating expenses before acquisitionrelated and nonrecurring items Group Q Q Q1Q Q1Q Operating profit as reported under IFRS Adjusted for: Depreciation and amortisation Nonrecurring operating (income)/expenses Unrealised (gains)/losses on derivative financial instruments EBITDA EBITDA rolling 12 month Group Q Q Q1Q Q1Q Profit/(loss) before tax as reported under IFRS Adjusted for: Nonrecurring operating (income)/expenses Acquisitionrelated intangible asset amortisation Nonrecurring items within net financing items Adjusted profit/(loss) before tax Group Q Q Q1Q Q1Q Tax credit/(charge) as reported under IFRS Adjusted for: Tax charge/(credit) on nonrecurring operating (income)/expenses Tax charge/(credit) on acquisitionrelated intangible asset amortisation Tax charge/(credit) on nonrecurring items within net financing items Other nonrecurring items charge/(credit) Tax charge on adjusted basis Underlying effective tax rate (on adjusted profits before tax) 20% 20% 20% 20% 18% Group Q Q Q1Q Q1Q Profit/(loss) after tax attributable to parent company shareholders as reported under IFRS Adjusted for (excluding amounts attributable to minority interests where applicable*): Nonrecurring operating (income)/expenses Acquisitionrelated intangible asset amortisation Nonrecurring items within net financing items* Tax effect of the above and other nonrecurring tax items* Profit after tax attributable to parent company shareholders on adjusted basis Weighted average number of shares outstanding Basic earnings per share as reported under IFRS Adjusted earnings per share Diamorph AB (pub) / Org. nr / Q2 report March June

13 Calendar Q3 Report November 2018 For more information contact Gordon MacLeman, CEO Telephone: Mark Hutchison, CFO Telephone: Diamorph AB (publ) The information was submitted for publication on August 29, 2018 at 08:00. Diamorph supplies advanced material solutions for especially demanding industrial applications. The company is headquartered in Stockholm and has operations in the United Kingdom and the Czech Republic. Learn more at Diamorph AB (publ) Internet: Address: Stureplan 15, , Stockholm Registered office: Stockholm Corporate registration number: Diamorph AB (pub) / Org. nr / Q2 report March June