Interim Report 30 September 2011 Third quarter 2011 Net sales amounted to EUR 244 (204) million, an increase of 20 percent compared to third quarter 2010, of which volume growth accounted for 9 percentage points. Operating profit (EBIT) was EUR 7 (2) million, corresponding to 2.7 (1.0) percent of net sales during the seasonally weak third quarter. Net loss for the quarter was EUR -5 million. Cash flow from operations was EUR 13 million. January September 2011 Net sales amounted to EUR 854 (611) million, an increase of 40 percent compared to January September 2010, of which volume growth accounted for 26 percentage points. Operating profit (EBIT) was EUR 81 (36) million, corresponding to 9.5 (6.0) percent of net sales. Net profit for the period was EUR 40 million. Cash flow from operations was EUR 32 million. The net debt/equity ratio was 133 percent, compared to 149 percent at 31 December 2010. (In the report, amounts in brackets refer to the corresponding period of last year. For Pro forma reporting 2010, see page 6.) Group key figures pro-forma pro-forma pro-forma 2011 2010 2011 2010 2010 Q3 Q3 Q1-3 Q1-3 Full Year Net sales EUR million 244 204 854 611 861 Operating profit before depreciation ("EBITDA") EUR million 17 13 114 71 114 as % of Net sales % 6,9% 6,5% 13,3% 11,6% 13,2% Operating profit (EBIT) EUR million 7 2 81 36 67 Operating margin (% of Net sales) % 2,7% 1,0% 9,5% 6,0% 7,8% Net profit/loss for the period EUR million -5 n/a 40 n/a n/a Cash flow from operations EUR million 13 n/a 32 n/a n/a Net debt/equity ratio % 133% n/a 133% n/a 149% Full-time employees at end of period no 3 301 3 123 3 301 3 123 3 141 Comments from the CEO Demand for our products during the first half of 2011 was strong. During the third quarter most markets gradually slowed down in response to the macro-economic environment. The slowdown was mostly noted in the automotive segment and a weaker than expected demand from the wind energy sector. The order intake was lower than invoicing. Despite a weaker market, Ovako shows stable development for third quarter sales. Net sales amounted to MEUR 244, an increase of 9 percent in volume and 20 percent overall, compared to the corresponding period last year. In addition to seasonal variations, the third quarter result was affected by extensive maintenance programs and some start-up problems in August. Still, the EBITDA margin was 6.9 percent during the quarter, slightly above third quarter last year. In anticipation of a weaker market situation Ovako has announced measures to reduce costs and production capacity starting from the first quarter of 2012. The capacity will be reduced by approximately 15 percent compared to the first half of 2011, resulting in a workforce reduction of around 200 full-time employees. The adjustment will be carried out within the framework of fixed-term employment contracts as well as the flexibility agreements between the company and the trade unions. The program to further strengthen Ovako s long-term market position continues according to plan. During the third quarter Ovako decided to invest MEUR 7.5 in a new automated peeling line in Hällefors in order to meet the long-term growth in the high-performance diesel engine segment. Production is scheduled to start up during the first half of 2013. 1
Changes in company management Triako Midco AB After the close of the third quarter, Ovako appointed Göran Nyström to a new position in Group Management, as Head of Group Marketing and Technology. Göran Nyström, with a long career at Sandvik, will start in his new role on January 1, 2012, and he will lead the important work in new application development. The ongoing initiative to strengthen Ovako s R&D and sales organization will continue as planned during 2011 2012. Rickard Qvarfort will take up the position as Head of Business Area Bar SmeBox with immediate effect. Ulf Wilandh, former head of the business area, will leave the Group at year-end. Rickard was previously Head of Ovako s Business Area Tube & Ring. Carl-Michael Raihle has been appointed new Head of Business Area Tube & Ring. Carl-Michael Raihle previously led the Luvata Rolled Products division and has held various positions at Luvata and Outokumpu. He will start his new role on December 1, 2011. Short-term outlook The weaker market conditions are expected to continue into 2012. The fourth quarter 2011 will be supported by the existing order book, while demand for the first half of 2012 is expected to be lower than in 2011. Ovako Group Market Development World crude steel production in January September of 2011 was 1,134 million tonnes, an increase of 8 percent compared to the same period in 2010, according to the World Steel Association. All major steelproducing regions showed increased production. The EU produced 136 million tonne of crude steel during the first three quarters, up by 4 percent compared to the same period in 2010. The EU production volume during the third quarter was 43 million ton, an increase of 6 percent compared to the same period last year. According to EUROFER October report, steel consumption in the EU is expected to increase 6 percent during 2011 compared to last year. After the robust 12 percent increase during first quarter, EUROFER forecasts more modest growth of slightly less than 4 percent for the third and fourth quarter. The segments that have shown the largest increase in consumption are automotive and mechanical engineering, with an increase of approximately 10 percent compared to 2010, which supported an increased demand for special steels. Despite the positive forecasts, the steel sector has been negatively influenced by the macroeconomic development, and in September several steel companies announced capacity reductions. Demand for commercial vehicles increased significantly during the first two quarters of 2011, supported by very strong demand for medium and heavy trucks and also a moderate growth in sales of light commercial vehicles. Demand was reduced gradually during the third quarter leading to capacity reductions from, for instance, the truck industry. Ovako s order intake during the first two quarters was very strong, but has weakened over the summer. Increasing focus on the European debt crisis and the general uncertainty regarding economic development has further weakened the order intake at the end of the third quarter. The segments most affected are transportation and wind power. Net sales and result for the third quarter 2011 Net sales and the result for the third quarter were affected by the summer period, with lower production levels in July and August. During the summer, the steel mills have undertaken more extensive seasonal maintenance work than normal. 2
Consolidated net sales amounted to EUR 244 (204) million, a 20 percent increase compared to the third quarter of 2010.The external sales volume for the quarter increased to 182 (167) thousand tonnes, an increase of 9 percent. Average revenue per tonne was 9 percent higher than during third quarter 2010. The average purchase price for ferrous scrap, which is the most important raw material, remained at the same level during third quarter as during second quarter 2011. Earnings before interest, taxes, depreciation of tangible assets, amortization of surplus values and impairments ( EBITDA ) increased to EUR 17 (13) million, equivalent to an EBITDA margin of 6.9 (6.5) percent. The improved earnings can mainly be explained by higher volumes, higher capacity utilisation and improved gross margins. The quarterly result was negatively affected with EUR -4 million due to revaluations and write-downs related to scrap. Depreciations and amortization during the period was EUR 10 million. The consolidated operating profit for the third quarter was EUR 7 (2) million, equivalent to an operating margin of 2.7 (1.0) percent. Net financial items for the quarter amounted to EUR -8 million. The third quarter result before tax was EUR -1 million. Tax for the period was EUR -3 million and the net profit/loss for the quarter was EUR -4.5 million. The tax expenses have been affected by EUR -4 million attributed to previous years. Net sales and result January September 2011 The net sales and result for the period January September are characterised by increased sales and improved margins. Consolidated net sales amounted to EUR 854 (611) million, a 40 percent increase compared to the same period last year. The sales volume for the period increased to 651 (515) thousand tonnes, an increase of 26 percent. The Group s average sales revenue per tonne increased by 11 percent, driven by base price increases and higher scrap and alloy surcharges. Exchange rates accounted for a 1 percent positive effect on net sales. Reported EBITDA increased to EUR 114 (71) million, corresponding to an EBITDA margin of 13.3 (11.6) percent. The improved earnings were the result of higher volumes, higher capacity utilisation and improved gross margins. The average purchase price of ferrous scrap, the most important raw material, increased by 23 percent compared to January September 2010. The surcharge mechanism secures that changes in underlying raw material prices are passed on to customers. The exchange rate effect when converting SEK denominated personnel and other expenses to euro had a negative impact on earnings, which offset the positive currency effect on net sales. The total currency effect was limited. Depreciations and amortization during the period was EUR 33 million. The consolidated operating profit for the third quarter was EUR 81 million, corresponding to an operating margin of 9.5 (6.0) percent. Net financial items for January September amounted to EUR -21 million. The result before tax for the period totalled EUR 60 million. Tax for the period was EUR -20 million and the net profit/loss for the period was EUR 40 million. The tax expenses have been affected by EUR -4 million attributed to previous years. 3
Cash flow and financing Triako Midco AB Cash flow from operations from January to September 2011 was EUR 32 million and cash flow before financing activities was EUR 10 million. Working capital increased by EUR 53 million during January September 2011. Working capital increased by EUR 46 million during the first quarter as a result of higher sales and activity, as well as deferred social expenses and payroll tax of approximately EUR 9 million from 2009, paid in January 2011.The increase in working capital during the second quarter was EUR 11 million, as the operations stabilised at a higher capacity utilisation level. Working capital improved during the third quarter and decreased by EUR 4 million. Utilisation of loans under senior credit facilities remained at EUR 310 million as per 30 September 2011 and the total interest-bearing debt was EUR 258 million. Equity at the end of the third quarter was EUR 194 million. The net debt/equity ratio was 133 percent, compared to 149 percent on 31 December 2010. The Group s liquidity buffer was 109 MEUR, consisting of EUR 34 million in cash and cash equivalents and EUR 75 million in undrawn committed credit facilities. Capital expenditures Capital expenditures in property, plant and equipment during January September 2011 totalled EUR 22 million and consisted mainly of reinvestments. The largest individual investments were a new gearbox at the Hofors rolling mill and a new tundish at Imatra steel works. During third quarter, Ovako decided to invest in a new peeling line at Hällefors in order to enable continued growth in the promising diesel injection segment. The EUR 7.5 million investments will be carried out during 2012. Start of production is estimated to take place during the first half of 2013. Events after the end of third quarter Göran Nyström was appointed Head of Group Marketing and Technology, a new role in Group Management. Göran has a long career from Sandvik and will take up his position on 1 January 2012. Rickard Qvarfort will take up the position as Head of Business Area Bar SmeBox with immediate effect. Ulf Wilandh, former head of the business area, will leave the Group at year-end. Carl-Michael Raihle has been appointed Head of Business Area Tube & Ring. Carl-Michael Raihle previously led the Luvata Rolled Products division and has held various positions at Luvata and Outokumpu. He will start his new role on December 1, 2011. Parent Company The consolidated figures in the interim report are presented at the consolidated level of Triako Midco AB (Business ID 556813-5361). The Parent Company, Triako Midco AB, directly and indirectly holds 100 percent of the shares in all of the operational subsidiaries in the Group, including the direct subsidiary Ovako AB. Net profit for the parent company Triako Midco AB during January September 2011 amounted to EUR 0.3 million. Most significant risks and uncertainty factors For information regarding the most significant risks and uncertainty factors, please refer to the description in the Annual Report 2010. The company does not consider there has been any material changes during the report period in the risks and factors of uncertainty presented in the Annual Report. The current macroeconomic uncertainty may, however, come to affect the development of the business. 4
Triako Midco AB s Board of Directors and the Ovako group s President declare that the interim report gives a fair view of the Parent Company s and Group s operations, balance sheet and earnings, and describes the principal risks and uncertainty factors facing the company and the Group. Stockholm November 9, 2011 Tom Erixon President Ovako Group 5
Interim Report and Notes Triako Midco AB This interim report has been prepared in accordance with IAS 34 and is in conformity with the accounting policies applied in the 2010 financial statements, described in the notes to the consolidated financial statements on page 10 of the 2010 Annual Report. The consolidated accounts for the interim report have been compiled in accordance with the International Financial Reporting Standards (IFRS) as adopted by the EU, and the Swedish Annual Accounts Act. The Parent Company s accounts have been compiled in accordance with the Annual Accounts Act and the Swedish Financial Reporting Board s recommendation RFR 2 (Accounting for Legal Entities). The term IFRS in this document includes the application of IAS and IFRS, as well as the interpretations of these standards as published by IASB s Standards Interpretation Committee (SIC) and Internal Reporting Interpretations Committee (IFRIC). In the condensed cash flow statement, received and paid interest is classified under cash flow from operating activities, whereas in the 2010 financial statements this item was classified as cash flow from financing activities. Certain prior-period amounts may have been reclassified to conform to current period presentation. Segment reporting in accordance with IAS 34 is not disclosed as this is not mandatory for companies whose equity securities are not publicly traded. All of the Group s holding companies and major Swedish subsidiaries changed their functional currency to Euro as of 1 January 2011. At the same time, the Euro was introduced as the reporting currency for the Consolidated Financial Statements in the Group. Consolidated pro forma accounting On September 29 2010, after receiving approval from primarily EU competition authorities, the private equity investor Triton completed its acquisition of the majority of Ovako s business activities by signing the final agreement on Triton's purchase of all shares in the Ovako companies belonging to the divisions Bar, Bright Bar and Tube and Ring. A pro forma income statement has been prepared for 2010 to illustrate what Ovako would have looked like had the group been formed as of 1 January 2010. The pro forma reporting is intended to represent a hypothetical situation and has been prepared for illustrative and informative purposes only. It does not aim to present the financial position or earnings that the business actually would have achieved if the acquisition had been completed as of the beginning of 2010. The pro forma income statement has been prepared excluding non-recurring items due to the above transaction. The non-recurring expenses amounted to EUR 24 million, of which surplus values on inventories of EUR 12 million derived from the purchase price allocation and transaction costs of EUR 12 million were due to the acquisition of shares in September 2010. Due to refinancing of debts in September last year, which impacted the capital structure and total net debt of the Group, the pro-forma income statement has been prepared down to earnings level operating profit only. For the same reason no pro forma accounting has been prepared for other statements, such as balance sheet and cash flow. The 2010 pro forma reporting has not been audited by the company s auditors. 6
CONDENSED CONSOLIDATED INCOME STATEMENT pro forma pro forma pro forma 2011 2010 2011 2010 2010 EUR million Q 3 Q3 Q 1-3 Q 1-3 FY NET SALES 243.9 203.5 854.3 610.6 860.6 Cost of goods sold -225.6-202.7-734.9-578.7-753.3 GROSS PROFIT 18.3 0.8 119.4 32.0 107.3 Selling and administrative expenses -12.6 n/a -40.7 n/a -44.5 Other operating income and expenses 0.9 1.2 2.3 4.5 4.5 OPERATING PROFIT 6.7 2.0 81.1 36.5 67.3 Financial income -0.2 n/a 2.1 n/a n/a Financial expenses -8.0 n/a -23.3 n/a n/a Share of profit / loss in associated companies - - RESULT BEFORE TAX -1.4 n/a 59.9 n/a n/a Income taxes -3.1-20.0 NET PROFIT/LOSS FOR THE PERIOD -4.5 n/a 39.9 n/a n/a Of which attributable to Parent company s shareholders -4,5 39,9 Non-controlling interests - - CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME pro forma pro forma pro forma EUR Million 2011 2010 2011 2010 2010 Q 3 Q3 Q 1-3 Q 1-3 FY Net profit for the period -4.5 39.9 Other comprehensive income: Exchange differences on translating foreign operations 0.4-0.6 Cash flow hedges -9.6-23.2 Income tax relating to cash flow hedges 2.5 6.0 Cash flow hedges (net of tax) -7.1-17.1 Defined benefit plans, actuarial gains and losses -4.6-7.4 Income tax relating to defined benefit plans 1.2 1.9 Defined benefit plans, actuarial gains and losses (net of tax) -3.4-5.5 Income tax relating to components of other comprehensive income Other comprehensive income for the period, net of tax -10.1-23.2 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD -14.7 16.7 KEY FIGURES 2011 2010 2011 2010 2010 EUR million Q 3 Q3 Q 1-3 Q 1-3 Full Year Sales volume - kton 182 167 651 515 719 Net sales per ton - /ton 1,337 1,222 1,313 1,185 1,196 Operating profit before depreciation ("EBITDA") 16.9 13.3 113.9 71.0 113.8 as % of Net Sales 6.9% 6.5% 13.3% 11.6% 13.2% Depreciation -6.1-6.2-18.8-19.2-25.9 Operating profit before amortization of surplus values ("EBITA") 10.7 7.1 95.0 51.9 87.9 as % of Net Sales 4.4% 3.5% 11.1% 8.5% 10.2% Amortization of surplus values -4.0-5.1-14.0-15.4-20.6 Operating profit (EBIT) 6.7 2.0 81.1 36.5 67.3 Operating margin (% of Net Sales) 2.7% 1.0% 9.5% 6.0% 7.8% Number of shares 50,000 50,000 50,000 Earnings per share (Euro) -91 797 n/a 7
CONDENSED CONSOLIDATED BALANCE SHEET 30 Sept 31 Dec EUR million 2011 2010 ASSETS Tangible assets (property, plant and equipment) 350,9 361,9 Intangible assets 3,1 3,4 Other financial assets 1,2 1,0 Deferred tax assets 18,8 16,2 Total non-current assets 374,0 382,5 Inventories 234,2 204,5 Trade and other receivable 159,6 128,8 Current tax receivables 0,0 0,4 Derivative financial instruments 4,3 28,8 Other current receivables 0,0 0,0 Cash and cash equivalents 33,7 24,2 Total current assets 431,8 386,6 30 Sept 31 Dec EUR million 2011 2010 EQUITY AND LIABILITIES Total equity 194,4 177,7 Deferred tax liabilities 66,9 74,1 Other provisions 75,4 75,9 Non-current interest-bearing liabilities 291,3 288,6 Other liabilities 0,3 0,3 Total non-current liabilities 433,8 438,9 Current financial liabilities 0,5 0,2 Trade and other payables 136,6 127,2 Current tax liabilities 35,3 20,6 Derivative financial instruments 5,2 4,6 Total current liabilities 177,6 152,5 Total liabilities 611,4 591,4 TOTAL ASSETS 805,8 769,2 TOTAL EQUITY AND LIABILITIES 805,8 769,2 KEY FIGURES 2011 2011 2010 EUR million Q 3 Q 1-3 FY Equity 194.4 194.4 177.7 Net debt 258.1 258.1 264.6 Net debt/equity ratio (%) 133% 133% 149% CONDENSED CASH FLOW STATEMENT 2011 2011 EUR million Q 3 Q 1-3 Operating profit 6.7 81.1 Adjustment for depreciation and amortization 10.1 32.8 Adjustment for other non-cash items incl. translation differences 0.7-2.1 Received and paid interest -6.8-19.8 Tax paid -1.5-6.9 Change in working capital 3.7-53.2 Cash flow from operations 12.8 31.9 Capital expenditure payments -12.4-22.3 Other investing activities 0.0 Cash flow from investing activities -12.4-22.3 Cash flow before financing activities 0.5 9.6 Change in loans -0.2-0.1 Other financing activities Cash flow from financing activities -0.2-0.1 Cash flow for the period 0.2 9.5 Cash and cash equivalents at the beginning of period 33.5 24.2 Cash and cash equivalents at end of period 33.7 33.7 Change in cash and cash equivalents 0.2 9.5 Since the current group structure was established in September 2010, no cash flow figures are available for the comparison period of the previous year. 8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 2011 EUR million Equity attributable to the parent company s shareholders Cash flow Total Share Translation hedge Retained equity capital reserve reserves earnings Equity at January 1, 2011 0,0 1,0 17,4 159,3 177,7 Other changes in equity for 2011 Profit for the year 39,9 39,9 Other comprehensive income -0,6-17,1-5,5-23,2 Total comprehensive income for the year 0,0-0,6-17,1 34,4 16,7 Equity at September 30, 2011 0,0 0,4 0,3 193,7 194,4 Changes in fair value and other reserves relate to commodity derivatives and interest rate SWAP during the accounting period. 2010 EUR Million Equity attributable to the parent company s shareholders Cash flow Total Share Translation hedge Retained equity capital reserve reserves earnings Equity at January 1, 2010 0,0 0,0 0,0 0,0 0,0 Changes in equity for 2010 Issue of share capital 0,0 0,0 0,0 Shareholders contribution 160,0 160,0 Other changes in equity for 2010 Profit for the year -3,9-3,9 Other comprehensive income 1,0 17,4 3,2 21,6 Total comprehensive income for the year 0,0 1,0 17,4-0,7 17,7 Equity at December 31, 2010 0,0 1,0 17,4 159,3 177,7 9
THE PARENT COMPANY CONDENSED INCOME STATEMENT 2011 2011 EUR million Q3 Q1-3 GROSS PROFIT 0.0 0.0 Selling and administrative expenses 0.0 0.0 Other operating income and expenses 0.0 0.0 OPERATING PROFIT 0.0 0.0 Financial income 0.1 0.4 Financial expenses 0.0 0.0 RESULT BEFORE TAX 0.1 0.4 Income taxes 0.0-0.1 NET PROFIT FOR THE PERIOD 0.1 0.3 THE PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME 2011 2011 EUR Million Q3 Q1-3 Net profit for the period 0.1 0.3 Other comprehensive income: 0.0 0.0 Other comprehensive income for the period, net of tax 0.0 0.0 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 0.1 0.3 THE PARENT COMPANY CONDENSED BALANCE SHEET 30 Sep 31 Dec EUR million 2011 2010 Investment in subsidiaries 139.8 139.8 Receivables from subsidiaries 22.0 21.6 Deferred tax assets 0.4 0.4 Total non-current assets 162.3 161.9 TOTAL ASSETS 162.3 161.9 Total equity 162.2 161.9 Deferred tax liabilities 0.1 Total non-current liabilities 0.1 0.0 TOTAL EQUITY AND LIABILITIES 162.3 161.9 10
Definitions of key financial figures Net sales Gross profit EBITDA EBITA Operating profit (EBIT) Operating margin Net debt = Sales less deduction for value added tax, discounts and returns = Net sales - Cost of goods sold = Earnings before interest, taxes, depreciation of tangible fixed assets, amortization of surplus values from acquisitions and impairments = Earnings before interest, taxes, amortization of surplus values from acquisitions and impairments = Net sales - operating expenses = Operating profit as a percentage of net sales = Interest-bearing liabilities - Cash and Cash equivalents Net debt / equity ratio = (Net debt / Total equity) x 100 Earnings per share = Net profit /average number of shares outstanding during the period 11