NEO INDUSTRIAL PLC FINANCIAL STATEMENT RELEASE 28 February 2014 at 2.30 p.m
The Cable segment´s net sales and operating result decreased, cable manufacturing companies were sold in Russia.
January-December: - The Neo Industrial Group´s net sales were EUR 83.0 million (106.2 million in 2012), decreasing by 21.8 % - Its operating result decreased by 226.4 % to EUR -1.0 million (0.8 million) - The Cable segment´s operating result was EUR 1.0 million (2.1 million) - The Group´s result for the period improved by 81.2 % to EUR -1.2 million (-6.3 million)
KEY FIGURES
| 2013 | 2012 | Change | |
| Net sales (EUR million) | 83.0 | 106.2 | -21.8 % |
| Operating result (EUR million) | -1.0 | 0.8 | -226.4 % |
| Result for the period (EUR million) | -1.2 | -6.3 | 81.2 % |
| Earnings per share | -0.20 | -1.25 | 84.0 % |
MANAGING DIRECTOR JARI SALO:
The Cable segment´s operating result for the first half of 2013 was on a par with the corresponding period of the previous year. The operating result was positive in the second half of 2013, but decreased clearly as compared to the corresponding period in 2012. Net sales decreased, mainly due to reduced demand in the main markets in the Nordic countries. On the positive side, new orders were received from other CIS countries, although orders from Russian customers were postponed.
In May, Neo Industrial sold its cable manufacturing companies in Russia.
The divestment of the cable manufacturing companies in Russia improved Neo Industrial´s liquidity situation. Export to Russia still continues through its sales company.
Negotiations for current and long term financing for Cable segment are in progress.
The negotiations relating to the breakdown at Reka Cables´ Keuruu plant in 2011 were closed with the insurance company in February 2014. The compensation was on a par with the estimation recognised in the financial statements in 2011, EUR 0.8 million.
NET SALES AND OPERATING RESULT
The Neo Industrial Group´s net sales in 2013 were EUR 83.0 million (106.2 million in 2012). Its result for the full year was EUR -1.2 million (-6.3 million).
In the Cable segment, manufacturing companies OAO Expokabel and ZAO Reka Kabel were sold in May 2013. The companies held totally 10 per cent share of the net sales in the Cable segment in 2012. The transaction had a positive effect of EUR 1.0 million on the Group´s result.
BALANCE SHEET AND FINANCING
Neo Industrial´s liquidity situation was tight almost whole review period. The divestment of the cable manufacturing companies in Russia improved the liquidity situation, but the working capital situation continued to be challenging due to higher-than-expected stock levels and decreased sales volume lower than expected.
At the end of the review period, the balance sheet total stood at EUR 47.2 million (62.9 million).
SEGMENTS
Cable
| H2/2013 | H2/2012 | Change | 2013 | 2012 | Change | |
| Net sales (EUR million) | 37.5 | 50.6 | -25.8 % | 83.0 | 106.2 | -21.8 % |
| Operating result (EUR million) | 0.7 | 1.6 | -56.9 % | 1.0 | 2.1 | -52.5 % |
The Cable segment´s net sales in the review period decreased by 22 percent from the previous year. The net sales were EUR 83.0 million (106.2 million). The sold Russian companies held totally 10 percent share of the net sales in the Cable segment in 2012.
Demand in the Nordic countries, the main market of Reka Cables Ltd, was weaker than in the previous year. Projetcs were delayed in the Nordic countries as well as in Central Europe. This is also recognized as harder competition in the Baltic markets. Projects were postponed in Russia, too. On the other hand, new projects were received from other CIS countries.
Operating result was EUR 1.0 million (2.1 million) in the Cable segment.
Excluding the early part of the year, the prices of copper and aluminium, metals used as raw materials, were on lower level than in the previous year. The prices of plastics varied heavily, but were on the same level in the end of the year as year before.
In February, Reka Cables signed a short-term financing agreement of EUR 2.0 million, which created better conditions for increasing delivery capacity for the high season in spring. The short-term loan was repaid and short-term financing agreements were signed.
Demand and inventories were not met entirely. Production management was challenging while demand was decreasing. In the summer, inventories increased more than expected. On the other hand, the company could not supply deliveries sufficiently in all cases during the high season. This partly effected the sales volumes. Managing net working capital was challenging.
Investments fullfilled, EUR 1.7 million (1.3 million) were mainly related to optimizing production and maintenance.
In the Cable segment, the useful economic lives of machines and production lines were reassessed in September. The related depreciation periods were adjusted in accordance with the actual useful lives. The adjustment had a positive effect of EUR 0.3 million in the result of the review period.
Net sales for Nestor Cables Ltd, an associated company, were EUR 25.4 million (27.4 million). The result was slightly positive. The value of the shares of Nestor Cables is zero in the consolitated financial statements, and the consolidated figures for 2013 do not include its share of the result.
Other operations
The comparable figures for 2012 include Single Family Housing and Viscose Fibres segments in discontinued operations. Neo industrial Group divested Single Family Housing segment while writing down the value of the stocks of Finndomo Ltd in the consolidated balance sheet in 2012. Avilon Fibres Ltd and Carbatec Ltd, companies in Viscose Fibres segment, filed bankruptcy in March 2013. The effects of the bankcuptcies are noticed in the financial statements 2012, in where the assets and the liabilities of the companies were written down, and the Group´s collaterals were noticed through result as liabilities in the consolidated balance sheet. Above-mentioned companies did not belong to Neo Industrial Group any longer in the end of 2013.
With Avilon Fibres´ bankruptcy estate selling its landfill site in summer 2013, the related counter-security for an environmental guarantee was eliminated from Neo Industrial´s liabilities. The provision in the financial statements 2012 covered the expenses related to the case.
MAJOR EVENTS AFTER THE REVIEW PERIOD
The long negotiations relating to the breakdown at Reka Cables´ Keuruu plant in 2011 were closed with the insurance company in February 2014. The compensation was on a par with the estimation recognised (EUR 0.8 million) in the financial statements in 2011.
RISKS AND UNCERTAINTY FACTORS
Neo Industrial´s financial risks include currency, interest rate, commodity, liquidity, credit and investment risks. Financial risks and the related protection measures are described in more detail in notes to the financial statements. The company´s future risk factors are related to the business development of its portfolio companies. The uncertainty of the international economy and financial markets poses a risk to the Group´s financial arrangements.
The Group´s liquidity situation is tight. To assure the liquidity situation, the Group strives to negotiate adjustments to payment terms and agreements and to liquidate capital from its operations. The fluctuation of raw material prices and currencies as well as seasonal market changes present challenges in working capital management. The Cable segment´s challenge is to ensure favourable operating conditions. To assure those conditions the Group needs to be able to secure additional funding to replace the remaining maturing loans and renegotiate payment terms or liquidate capital from its operations in other ways. At the moment of the publishment of the financial statemets realease the negotiations for long and short term financing for Cable segment are in progress.
In the Cable segment, the most significant risks are related to market development, working capital management and fluctuations in the prices of raw materials and currencies. During considerable seasonal changes, suppliers´ terms of payment have an essential effect to the company´s ability to ensure competitive delivery times through sufficient inventories.
The bankruptcy estate of Kuitu Finland Ltd brought an action against Neo Industrial on 9 April. The action is related to to the transaction of the industrial premises of Avilon Fibres, Neo Industrial´s former subsidiary. The action demands that Neo Industrial pays the remaining amount (EUR 5.0 million) as a one-off payment plus penalty interest, legal expenses and an adjustment (EUR 309,000) based on the building cost index, contrary to the 25-year payment plan stated in the agreement. Neo Industrial considers the action to be unfounded and is seeking for agreement with the bankruptcy estate of Kuitu Finland. The provisions in Neo Industrial´s consolidated financial statements for 2012 include the discounted balance sheet value (EUR 2.7 million) of the instalments of Avilon Fibres´ industrial premises for the price remaining unpaid. In the parent company´s financial statements (FAS), the instalments are not discounted, for which reason the related provision is EUR 5.0 million. If the action is successful, the Group will have to pay the amount demanded (EUR 5.1 million deducted by the payment in 2013) as a one-off payment, contrary to the 25-year payment plan stated in the sales agreement. Neo Industrial has given a reply to this action.
NEAR-TERM OUTLOOK
The outlook for the Cable segment weakened during 2013. On the horizon, construction is not picking up in Finland or in Sweden yet, but at least some delayed projects are believed to materialize in 2014. Additionally, grid constructors are expected to boost ground cabling projects to ensure distribution reliability. So the net sales of the Cable segment is believed to exceed the net sales in 2013 and the operating result of the Cable segment is believed to be positive.
The company will pay special attention to liquidity and funding for growth. The measures are negotiations on financing and payment terms as well as boosting inventory turnover and freeing up capital assets.
DIVIDEND POLICY
Neo Industrial aims to distribute at least 30 percent of its net earnings as dividends.
DIVIDEND PROPOSAL
The parent company´s unrestricted equity stood at EUR -7,636,507.51 including the result of the review period EUR -9,911,849.42. The Board proposes to the Annual General Meeting that no dividends be paid for 2013. No dividends were paid for 2012.
ANNUAL GENERAL MEETING 2014
Neo Industrial Plc´s Annual General Meeting will be held in Hyvinkää on 3 April 2014 at 2.00 p.m. A separate invitation will be published on 12 March 2014.
DISCLOSURE PROCEDURE OF FINANCIAL REVIEW
Neo Industrial follows the disclosure procedure enabled by Standard 5.2b published by the Finnish Financial Supervision Authority, and discloses relevant information related to its Financial Statement Release with this Stock Exchange Release. Neo Industrial´s Financial Statement Release for 2013 is attached to this release and is also available on company´s website at www.neoindustrial.fi. Hyvinkää, 28 February 2014
Neo Industrial Plc Board of Directors
Further information: Jari Salo, Managing Director, tel. +358 20 720 9196 Sari Tulander, CFO, tel. +358 20 720 9192
Neo Industrial's strategy is to invest mainly in industrial companies with similar synergic benefits. The aim of investments is with active ownership to develop the purchased companies and establish additional value. Returns are sought through both dividend flow and an increase in value. Neo Industrial's class B shares are listed on the main list of NASDAQ OMX Helsinki Stock Exchange. Neo Industrial's business segment is Cable Industry.
