Interim Report for First Quarter First quarter The quarter began with weak order intake, which gradually improved. Order intake was 10 percent lower than in the strong first quarter of Sales volumes were impacted by the weak order intake at the end of last year and decreased by 8 percent compared with the first quarter of. An improved sales mix limited the decrease in revenue to 7 percent Operating profit before depreciation and amortisation (EBITDA) amounted to EUR 27 (30) million and operating profit (EBIT) amounted to EUR 17 (18) million Cash flows from operating activities amounted to EUR -5 (5) million Steel and metals distributor Ovako Metals Oy Ab (formerly Tibnor Oy) in Finland was acquired on March 31 which has lead to a 3 MEUR positive one-off effect on operating profit Amounts in brackets in this report refer to the corresponding period in the previous year. Group key figures Sales volumes kton 188 204 697 Net revenue EURm 229 246 862 Operating profit before depreciation (EBITDA) EURm 27 30 69 EBITDA margin % 11.7% 12.2 % 7.9 % Operating profit (EBIT) EURm 17 18 15 EBIT margin % 7.2 % 7.3 % 1.7 % Net profit/loss EURm 8 8-15 Earnings per share EUR 149 162-302 Cash flow from operating activities EURm -5 5 66 Net debt/equity ratio % 158 % 141 % 152 % Return on capital employed (ROCE) % 3 % 4 % 3 % Full time employees at end of period (FTE) No. 2,981 2,973 2,925 Comments from the CEO The first quarter showed a significant recovery after a weak ending in. The order intake was weak in the beginning of the quarter and improved gradually. Compared to the strong first quarter last year, volumes were down with 8 percent. Low industrial production in Sweden during the first quarter and weaknesses in some volume segments in Germany are two of the main reasons for the variation. Despite the lower volumes, the operating result was on a similar level compared to the strong first quarter last year. Demand in advanced applications for renewable energy and fuel injection systems was strong in the quarter, affecting the mix in a positive way. That together with a good cost control, and an improved exchange rate balanced out most of the negative volume effects. Contribution margin per ton remained strong and stable. The acquisition of Tibnor Oy in Finland was completed on March 31. The company, a leading distributor in Finland, is now named Ovako Metals Oy Ab. Both cash flow and EBITDA are expected to be positively affected during the rest of. However, the EBITDA margin for the group will be somewhat negatively affected by the lower margins in the distribution business. Ovako Group AB Interim Report for First Quarter 1
During the quarter the SZ-Steel brand for cold climate applications was launched. Ovako has during the last two years completed the introduction of our customer offer in terms of properties. The offering includes IQ- and BQ-Steel for improved fatigue properties, WR-Steel for wear resistant properties, M-Steel for improved machining properties, and finally SZ-Steel for predictable performance down to minus 101 degrees. Short-term outlook The demand is expected to remain stable compared to the first quarter this year and also compared to the second quarter last year. Tom Erixon President and CEO Market development End-user demand growth in Europe had a strong first half and a weaker second half of the year. The growth rate for the second half of seems to continue into the first months of. The Eurostat EU industrial production index showed a growth of 2.1 percent for compared to 2013. In the fourth quarter the growth rate was 1.3 percent compared to last quarter 2013. For the last reported three months (December February) growth slowed down further to 1.2 percent. The growth rate in Germany is marginal and remains below the EU average for the last reported three months. Industrial production development in Sweden and Finland was negative during the last reported three months (-2.7 percent and -2.0 percent respectively) compared to the same periods previous years. The EU industrial production as a whole is recovering at a reasonable rate while the growth in Ovako s core markets in Germany, Sweden and Finland seen together, is negative and is developing at a pace below the European average. The supply of European merchant bar (which includes engineering steel) in had a strong first part of the year and a weak finish. According to The European Steel Association, Eurofer, EU supply of merchant bar increased by 4.4 percent in compared to 2013. The growth rate for the fourth quarter of was negative with 5.6 percent compared to the same period 2013. Germany continues to grow slower than the EU average and recorded growth of 4.2 percent for compared to 2013. The supply of European merchant bar to Sweden and Finland had a weaker development during with growth of 3.2 percent in Sweden and 1.3 percent in Finland compared the year before. Revenue and profit for the first quarter Ovako's sales volume amounted to 188 (204) thousand tonnes, which is 8 percent below the same quarter last year. Ovako's crude steel production amounted to 245 (267) thousand tonnes, which is also a decrease of 8 percent. Consolidated sales amounted to EUR 229 (246) million, which is 7 percent lower than last year. This development is due to weaker demand. Operating profit before depreciation and amortisation (EBITDA) amounted to EUR 27 (30) million. The operating profit includes a positive effect of EUR 3 million from the acquisition of Ovako Metals Oy Ab, which took place at a price below the market value of the acquired net assets. Operating profit has also been positively influenced by a better sales mix and negatively influenced by lower sales volumes and lower inventory build-up than last year. Total depreciation and amortisation during the period amounted to EUR 10 (12) million, and operating profit (EBIT) for the quarter was EUR 17 (18) million. Net financial income for the period amounted to EUR -7 (-7) million and was negatively impacted by foreign exchange effects of EUR -1 (0) million. Profit before tax for the period amounted to EUR 9 (11) million and net profit was EUR 8 (8) million. Return on capital employed (ROCE) was 3 (4) percent. Ovako Group AB Interim Report for First Quarter 2
Cash flow Cash flow from operating activities, including interest paid, amounted to EUR -5 (5) million, and cash flow before financing activities amounted to EUR -22 (-3) million. Since the interest on the secured notes issued in May is paid semi-annually in June and December, this had a positive impact of EUR 5 million compared to the cash flow for the first quarter of last year. Cash flow from changes in working capital were negative during the quarter, at EUR -28 (-18) million. The decrease compared to last year is largely attributable to the low level of working capital at the end of, compared to 2013. Financial position The group's loans amounted to EUR 300 (December : 300) million. Total interest-bearing net debt after deduction of financing costs recognised as a deduction from the liability on the balance sheet amounted to EUR 292 (December : 291) million. Equity amounted to EUR 158 (December : 149) million. The net debt/equity ratio therefore amounted to 158 (152) percent. The acquisition of Ovako Metals Oy Ab has increased inventory, accounts receivable and trade payables, each by approximately EUR 10 million. The group s liquidity buffer amounted to EUR 82 (December : 104) million, comprising cash and cash equivalents of EUR 43 (65) million and unutilised contracted loan commitments of EUR 39 (39) million. Investments Investments in intangible assets and property, plant and equipment amounted to EUR 10 (8) million and investments in operations amounted to EUR 6 (0) million. On March 31, steel and metals distributor Tibnor Oy in Finland was acquired. The business, formerly a part of the SSAB group, is now operated under the name Ovako Metals Oy Ab. Ovako Metals Oy Ab purchases, warehouses, processes and distributes steel and other metals for the engineering, process and construction industries. At the time of acquisition, the company had 48 employees (counted as full-time equivalents) and sales in were EUR 67 million. The acquisition is expected to have a slightly positive influence on Ovako's operating profit and cash flow for the remaining part of. Parent company The consolidated figures in the report are presented at the consolidated level of Ovako Group AB. The parent company, Ovako Group AB (corporate registration number 556813-5361), directly and indirectly holds 100 percent of the shares in all subsidiaries of the group. Net profit in Ovako Group AB amounted to EUR 0.1 (0.1) million during the quarter. 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 for. The company does not consider that there have been any material changes during the reporting period in the risks and factors of uncertainty presented in the annual report. The current macroeconomic uncertainty may influence the development of the business. Related-party transactions The group is under the controlling influence of Triako Holdco AB, the parent company of Ovako Group AB. Triako Holdco AB is under the controlling influence of Triton Fund III. There are no material transactions with companies in which Triton Fund III has significant or controlling influence. Ovako Group AB Interim Report for First Quarter 3
Accounting policies The interim report for the group has been prepared in accordance with IAS 34 Interim Reporting. The interim report for the parent has been prepared in accordance with the Swedish Annual Accounts Act and the Swedish Financial Accounting Standards Council s recommendation RFR 2 Accounting for Legal Entities. The group applies the International Financial Reporting Standards (IFRS) adopted by the EU and the Swedish Annual Accounts Act. Segment information is presented based on the company management s perspective, and operating segments are identified based on the internal reporting to Ovako s chief operating decision maker. Ovako has identified the CEO as its chief operating decision maker, and the internal reporting used by this person to review operations and make decisions about resource allocation is the basis for segmentation. Ovako has combined its segments (business units) into one reportable operating segment in accordance with the rules for aggregation. The accounting policies applied in this interim report are the same as those applied in the consolidated annual accounts for. No new or revised IFRSs entering into force during have any material effect on the group. 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 the International Financial Reporting Interpretations Committee (IFRIC). This report has not been reviewed by the company s independent auditor. Stockholm, 28 April Tom Erixon President and CEO Ovako Group AB Interim Report for First Quarter 4
CONDENSED CONSOLIDATED INCOME STATEMENT REVENUE 229.3 245.9 862.1 Cost of goods sold -201.8-214.3-795.7 GROSS PROFIT 27.5 31.6 66.4 Selling expenses -6.7-5.6-25.6 Administrative expenses -8.0-9.0-30.1 Other operating income 3.7 1.0 4.0 OPERATING PROFIT/LOSS 16.5 18.0 14,7 Financial income and expenses, net -7.2-6.9-32.7 PROFIT/LOSS BEFORE TAX 9.3 11.1-18.0 Taxes -1.8-3.0 2.9 NET PROFIT/LOSS FOR THE PERIOD 7.5 8.1-15.1 Of which attributable to Owners of the parent 7.5 8.1-15.1 Non-controlling interests - - - CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Net profit/loss for the period 7.5 8.1-15.1 Items that will be reclassified to profit or loss Translation differences 2.6 0.0-0.9 Cash flow hedges 3.9-0.8-0.9 Tax attributable to cash flow hedges -0.9 0.2 0.2 5.6-0.6-1.6 Items that will not be reclassified to profit or loss Revaluation of pension obligations -5.5 - -7.5 Tax attributable to revaluation of pension obligations 1.2-1.5-4.3 - -6.0 Other comprehensive income, net of tax 1.3-0.6-7.6 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 8.8 7.5-22.7 KEY FIGURES Operating profit before depreciation (EBITDA) 26.9 29.9 68.5 Depreciation -7.6-7.1-29.8 Operating profit before amortization of surplus values and impairments (EBITA) 19.3 22.8 38.7 Amortization of surplus values and impairments -2.8-4.8-24.0 Operating profit (EBIT) 16.5 18.0 14.7 Number of shares 50,000 50,000 50,000 Earnings per share (EUR) 149 162-302 Ovako Group AB Interim Report for First Quarter 5
CONDENSED CONSOLIDATED BALANCE SHEET 31 Mar 31 Mar 31 Dec Property, plant and equipment 328.2 343.4 327.0 Intangible assets 8.9 7.2 8.4 Other financial assets 7.0 1.9 6.9 Derivative assets 0.8 0.9 0.0 Deferred tax assets 12.7 11.6 13.4 Non-current assets 357.6 365.0 355.7 Inventories 211.0 202.3 200.9 Trade receivables 121.4 126.5 86.2 Other current receivables 20.0 19.2 22.6 Current tax assets 0.9 1.3 0.8 Derivative assets 1.0 2.0 1.2 Cash and cash equivalents 43.1 19.0 65.0 Current assets 397.4 370.3 376.7 ASSETS 755.0 735.3 732.4 Equity 157.5 173.9 148.7 Non-current interest-bearing liabilities 291.5 222.0 291.0 Derivative liabilities 1.7 2.8 1.7 Deferred tax liabilities 38.5 49.4 38.0 Other provisions 89.9 81.3 84.0 Other liabilities 0.4 0.4 0.3 Non-current liabilities 422.0 355.9 415.0 Current interest-bearing liabilities 0.1 41.6 0.1 Derivative liabilities 4.8 8.3 8.0 Trade payables 105.6 99.8 108.0 Current tax liabilities 0.5 0.4 0.1 Other current liabilities 64.5 55.4 52.5 Current liabilities 175.5 205.5 168.7 EQUITY AND LIABILITIES 755.0 735.3 732.4 KEY FIGURES Equity 157.5 173.9 148.7 Net debt 248.5 244.6 226.2 Net debt/equity ratio (%) 158 % 141 % 152 % Return on Capital Employed (%) 3 % 4 % 3 % Ovako Group AB Interim Report for First Quarter 6
CONDENSED CONSOLIDATED CASH FLOW STATEMENT Operating profit 16.5 18.0 14.7 Adjustment for depreciation and amortization 10.4 11.9 53.8 Adjustment for other non-cash items -3.1-0.1 0.0 Change in working capital -28.4-18.0 19.3 Cash flow from operations -4.6 11.8 87.8 Interest received and paid 0.1-6.0-20.4 Income tax paid -0.3-0.8-1.6 Cash flow from operating activities -4.8 5.0 65.8 Acquisition of businesses -6.4 - - Investments in non-current assets -10.3-7.5-34.1 Acquisition of shares - - -5.0 Cash flow from investing activities -16.7-7.5-39.1 Cash flow before financing activities -21.5-2.5 26.7 Repayment of loans - -9.0-282.0 New loans - 10.0 310.0 Other -0.9 0.0-9.4 Cash flow from financing activities -0.9 1.0 18.6 Cash flow for the period -22.4-1.5 45.3 Cash and cash equivalents at the beginning of period 65.0 20.6 20.6 Translation differences on cash and cash equivalents 0.5-0.1-0.9 Cash and cash equivalents at the end of period 43.1 19.0 65.0 Ovako Group AB Interim Report for First Quarter 7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Equity attributable to owners of the parent Share Translation Cash flow Retained Total capital reserve hedge reserves earnings equity Opening balance at 1 Jan 0.0-0.2-6.6 155.5 148.7 Comprehensive income Profit for the period - - - 7.5 7.5 Other comprehensive income - 2.6 3.0-4.3 1.3 Comprehensive income 0.0 2.6 3.0 3.2 8.8 Closing balance at 31 Mar 0.0 2.4-3.6 158.7 157.5 Equity attributable to owners of the parent Share Translation Cash flow Retained Total capital reserve hedge reserves Earnings equity Opening balance at 1 Jan 0.0 0.7-5.9 155.9 150.7 Comprehensive income Profit for the period - - - 8.1 8.1 Other comprehensive income - 0.0-0.6 - -0.6 Comprehensive income 0.0 0.0-0.6 8.1 7.5 Shareholders contribution - - - 15.7 15.7 Closing balance at 31 Mar 0.0 0.7-6.5 179.7 173.9 Ovako Group AB Interim Report for First Quarter 8
PARENT COMPANY CONDENSED INCOME STATEMENT REVENUE - - - Administrative expenses 0.0 0.0-0.2 OPERATING PROFIT/LOSS 0.0 0.0-0.2 Interest income from group companies 0.1 0.1 0.5 PROFIT BEFORE TAX 0.1 0.1 0.3 Group contribution - - -1.6 Taxes 0,0 0.0 0.3 NET PROFIT/LOSS FOR THE PERIOD 0.1 0.1-1.0 PARENT COMPANY STATEMENT OF COMPREHENSIVE INCOME Net profit/loss for the period 0.1 0.1-1.0 Other comprehensive income - - - Other comprehensive income, net of tax - - - TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 0.1 0.1-1.0 PARENT COMPANY CONDENSED BALANCE SHEET 31 Mar 31 Mar 31 Dec Shares in subsidiaries 139.8 139.8 139.8 Receivables from subsidiaries 23.5 23.2 23.4 Deferred tax asset 0.3-0.3 Non-current assets 163.6 163.0 163.5 Receivables from subsidiaries 37.3 15.9 37.3 Current assets 37.3 15.9 37.3 ASSETS 200.9 178.9 200.8 Equity 200.3 178.5 200.2 Other current liabilities 0.6 0.4 0.6 Current liabilities 0.6 0.4 0.6 EQUITY AND LIABILITIES 200.9 178.9 200.8 Pledged collateral 179.3 None 179.3 Contingent liabilities None None None Ovako Group AB Interim Report for First Quarter 9
PRELIMINARY ACQUISITION ANALYSIS FOR THE ACQUISITION OF OVAKO METALS OY AB Purchase price EURm Assets and liabilities acquired *) EURm Preliminary purchase price paid 6.8 Fixed assets 1.0 Receivable for adjustment of purchase price -0.5 Current assets 21.3 Purchase price 6.3 Cash and cash equivalents 0.4 Preliminary fair value for acquired assets 9,6 Current liabilities -13.1 Preliminary calculated negative goodwill -3.3 Acquired net assets 9.6 Effect on the Group s cash and cash equivalents EURm *) The preliminary assessment is that book values agree with fair values Preliminary purchase price paid -6.8 Acquired cash and cash equivalents 0.4 Effect on the Group s cash and cash equivalents -6.4 FINANCIAL INSTRUMENTS DISCLOSURE - GROUP Fair value of financial instruments: Ovako s financial instruments include derivatives, unlisted equities, loan receivables, accounts receivable and cash and cash equivalents, interest-bearing liabilities, trade payables and other liabilities. Derivatives are measured at fair value in Level 2 as defined by IFRS 13 i.e. fair value determined using valuation techniques with observable market data, either directly (such as prices) or indirectly (derived from prices). Other financial instruments are measured at amortised cost. The fair value of the bond loan is determined based on the list price on the closing date. In the comparative numbers, interest-bearing liabilities relating to the former loan are recognised net of prepaid financing fees. The table below shows the carrying amounts and fair values of financial instruments. 31 Mar 31 Mar 31 Dec Carrying Fair Carrying Fair Carrying Fair value value Value value value value Derivatives 1.8 1.8 2.9 2.9 1.2 1.2 Financial non-current assets 6.8 6.8 1.8 1.8 6.8 6.8 Accounts receivable 121.9 121.9 127.0 127.0 86.7 86.7 Cash and cash equivalents 43.1 43.1 19.0 19.0 65.0 65.0 Total assets 173.6 173.6 150.7 150.7 159.7 159.7 Derivatives 6.5 6.5 11.1 11.1 9.7 9.7 Interest-bearing liabilities 291.5 294.0 263.6 273.3 291.1 283.7 Trade and other payables 105.9 105.9 100.2 100.2 108.3 108.3 Total liabilities 403.9 406.4 374.9 384.6 409.1 401.7 Financial assets and liabilities that are offset or subject to a legally enforceable framework agreement for netting or similar agreement: Financial assets and liabilities subject to offset consist of electricity derivatives, interest derivatives and currency derivatives covered by legally binding master netting agreements. 31 Mar 31 Mar 31 Dec Financial Financial Financial Financial Financial Financial assets liabilities assets liabilities assets liabilities Gross amount,derivatives 1.8 6.5 2.9 11.1 1.2 9.7 Amount offset - - - - - - Disclosed in balance sheet 1.8 6.5 2.9 11.1 1.2 9.7 Amounts included in an offset agreement -0.9-0.9-2.5-2.5-1.1-1.1 Net after amounts included in an offset agreement 0.9 5.6 0.4 8.6 0.1 8.6 Ovako Group AB Interim Report for First Quarter 10
DEFINITIONS OF KEY FINANCIAL FIGURES Revenue Gross profit EBITDA EBITA Operating profit (EBIT) Operating margin Net debt Sales less deduction for value added tax, discounts and returns Revenue minus cost of goods sold Earnings before financial income and expenses, taxes, depreciation, amortisation and impairments Earnings before financial income and expenses, taxes, amortisation of surplus values from acquisitions and impairments Profit before financial income and expenses and taxes Operating profit as a percentage of revenue Net debt/equity ratio, percent (Net debt/equity) x 100 Earnings per share before and after dilution Interest-bearing liabilities (excluding pension liabilities) minus cash and cash equivalents Net profit for the period/weighted average number of shares during the period Return on capital employed (ROCE) EBIT rolling 12 months/equity plus financial liabilities (average of opening and closing balances for the period). For more information, please contact: Viktoria Karsberg, Head of Group Communications, +46 70 209 93 96 Ovako is a leading European producer of engineering steel for customers in the bearing, transportation and manufacturing industries. Our production is based on recycled steel and includes steel in the form of bars, tubes, rings and pre-components. Ovako is represented in more than 30 countries and has sales offices in Europe, North America and Asia. Revenue in amounted to EUR 862 million and the company had 2,925 employees. For further information please visit us at www.ovako.com Ovako AB (publ) Box 1721 SE-111 87 Stockholm, Sweden Street address: Kungsträdgårdsgatan 10, Stockholm Tel: +46 (0)8 622 13 00 Ovako Group AB Interim Report for First Quarter 11