Neo Industrial Plc FINANCIAL STATEMENT RELEASE 13 March 2013 at 5.50 pm.
Neo Industrial Plc published its financial statement release on 28 February 2013. The companies of its Viscose Fibres segment, Avilon Fibres Ltd and Carbatec Ltd, filed for bankruptcy on 6 March 2013, after the publication of the financial statement release, in which the Viscose Fibres segment was presented in discontinued operations. Because the financial statements for 2012 had not yet been completed in full on 28 February 2013, the date of the publication of the financial statement release, the effect of the bankruptcies has been taken into account in this corrected financial statement release and in the financial statements to be published on 14 March 2013.
The most significant differences between this corrected release and the release published on 28 February 2013 are as follows:
The information presented in this corrected financial statement release on the Viscose Fibres segment is no longer based on the principle of continuity. In accordance with the IFRS standards, the assets and liabilities of the companies of the Viscose Fibres segment have been recorded as write-offs on the balance sheet. The Group’s guarantee liabilities related to Avilon Fibres Ltd have been recorded as liabilities on the consolidated balance sheet through profit or loss. Combined, they had a negative effect of EUR 2.5 million on the consolidated income statement. The corrected result for the financial period from continuing operations is EUR -6.0 million (-2.2 million before the correction). The Group’s corrected result is EUR -6.3 million (-3.8 million before the corrections). The balance sheet total decreased from EUR 76.1 million to EUR 62.9 million. The Group’s corrected equity ratio is 13.8% (14.7% before the correction).
After the shares of subsidiaries had been recorded as write-offs on the balance sheet and guarantee liabilities and credit losses had been recorded through profit or loss, distributable funds decreased by EUR 13 million on the balance sheet of the parent company (Finnish Accounting Standards, FAS). After the change, the parent company’s equity ratio is 63.7%.
Based on the authorisation granted to the Board of Directors by the general meeting of November 2012, the Board decided on 13 March 2013 not to enforce the demerger due to changed circumstances.
CORRECTED FINANCIAL STATEMENT RELEASE INFORMATION
The Cable segment’s operating result improved considerably from 2011. The demerger was not carried out due to changed circumstances.
- The Neo Industrial Group’s net sales increased by 3.3 percent to EUR 106.2 million (102.8 million in 2011).
- Its operating result improved by 116,7 percent to EUR 0.8 million (-4.8 million).
- The Cable segment’s operating result was EUR 2.1 million (-3.1 million).
- The Group’s result for the period improved by 78.4 percent to EUR -6.3 million (-29.1 million).
|Net sales (EUR million)||106.2||102.8||3.3%|
|Operating result (EUR million)||0.8||-4.8||116.7%|
|Result for the period (EUR million)||-6.3||-29.1||78.4%|
|Earnings per share, EUR||-1.25||-4.60||72.8%|
MANAGING DIRECTOR JARI SALO:
The Neo Industrial Group’s Cable segment developed favourably from 2011. The segment’s net sales grew by 3 percent to EUR 106.2 million (102.9 million in 2011). Its operating result improved considerably to EUR 2.1 million (-3.1). In spite of the difficult market situation, the Cable segment maintained its position in its main markets. The prices of the metals the segment uses as raw materials fluctuated less than they did in 2011. Working capital management presented challenges in preparing for the high season and choosing optimal times for raw material deliveries to factories.
All in all, the year 2012 was particularly challenging for the Neo Industrial Group. Of the Neo Industrial Group’s three segments (Cable, Viscose Fibres, Single Family Housing), the Cable segment is presented in continuing operations in 2012. The Single Family Housing segment and Viscose Fibres segment are presented in discontinued operations. In the financial period, Neo Industrial discontinued its Single Family Housing segment by recording its share in Finndomo as a write-off on its balance sheet. The Viscose Fibres segment was recorded in discontinued operations based on a demerger plan, which was in effect on the closing date of the financial period. The purpose of the demerger plan was to separate the Viscose Fibres segment from the Group and establish it as a public limited company.
Neo Industrial’s creditors opposed the demerger. After 10 January 2013, the closing date of the financial period, Neo Industrial and the creditors decided to apply for postponement for the demerger hearing. The companies of the Viscose Fibres segment filed for bankruptcy on 6 March 2013.
NET SALES AND OPERATING RESULT
The Neo Industrial Group’s net sales in 2012 were EUR 106.2 million (102.8 in 2011). Its result for the full year was EUR -6.3 million (-29.1 million). Avilon’s reorganisation debt cuts had a positive effect of EUR 10.3 million on the result. The conversion of Reka Cables’ leases for premises into open-ended contracts also improved the result. As a result of the conversion, EUR 9.7 million was eliminated from tangible assets and liabilities on the balance sheet. Its effect on the result was EUR 0.9 million before taxes and EUR 0.7 million after taxes. Neo Industrial recorded its EUR 6.4 million share in Finndomo as a write-off on its balance sheet, which had a negative effect on the result. As a result of a review of and negotiations on liabilities and guarantees related to Avilon’s corporate reorganisation debts, an expense of EUR 0.8 million was recognised in “Financial items”. The information presented in the financial statements on the Viscose Fibres segment is not based on the principle of continuity. In accordance with the IFRS standards, the assets and liabilities of the companies of the Viscose Fibres segment have been recorded as write-offs on the balance sheet. The Group’s guarantee liabilities related to Avilon Fibres Ltd have been recorded as liabilities on the consolidated balance sheet through profit or loss. Combined, they had a negative effect of EUR 2.5 million on the consolidated income statement.
BALANCE SHEET AND FINANCING
Neo Industrial’s liquidity situation remained tight throughout the review period.
Reka Cables combined its sales receivables financing tools in July. It decided to abandon sales receivables purchase agreements and increased the total credit facility for sales receivables factoring agreements to EUR 18 million (9.5 million in 2011). Of this total, EUR 8.8 million was in use at the end of 2012 (6.4 million). Of the company’s revolving bank credit of EUR 6.5 million (6.0 million), EUR 5.7 million was in use at the end of the year (5.8 million).
In the Cable segment, due to the conversion of leases for premises into open-ended contracts, EUR 9.7 million was eliminated from “Tangible assets” and “Interest-bearing liabilities” on the balance sheet.
At the end of the review period, the balance sheet total stood at EUR 62.9 million (97.9 million).
|Net sales (EUR million)||22.3||24.5||-9.0%||106.2||102.9||3.2%|
|Operating result (EUR million)||-0.2||-1.0||78.1%||2.1||-3.1||168.1%|
The Cable segment’s net sales in January–December were EUR 106.2 million (102.9 million), representing an increase of 3 percent. Demand in the Nordic countries remained at a good level in early 2012, but weakened clearly at the end of the year when compared to 2011. Sales volumes grew in the Nordic countries, but remained below the previous year’s levels in Russia and the Baltic countries.
The Cable segment’s operating result for the full year improved considerably to EUR 2.1 million (-3.1). Increased operational efficiency, stable metal prices and increased investments in the Nordic countries were the key factors behind the improvement.
The prices of metals used as raw materials fluctuated less than they did in 2011, whereas the prices of plastics fluctuated very strongly at times. At the beginning of June, an operations steering team was established to optimise production. Investments in the Nordic markets were increased to achieve goals.
Working capital management presented challenges throughout the year. For this reason, the conditions were not optimal for increasing inventories for the high season. In the spring and early autumn, Reka Cables was not always able to ensure quick enough delivery times, which affected sales volumes. Towards the end of the year, the situation developed favourably, creating better conditions for ensuring sufficient deliveries.
In Finland, the capacity of the Keuruu production plant was in stable use until November. The capacity of the Hyvinkää production plant was in stable use until October, and the plant exceeded its annual goal for volumes. Considerable changes in capacity utilisation rates between peaks and slower seasons presented challenges at the Riihimäki plant, for which reason variable costs were higher than planned.
Due to seasonal changes and with the market slowing down in early 2012 and at the end of the year, shutdowns were carried out at production plants and layoffs were carried out across the entire organisation.
No significant new investments were made. Investments totalled EUR 1.3 million (0.4 million), mainly consisting of investments in maintenance and enhancing the efficiency of production.
Reka Cables continued to negotiate with the insurance company about the amount of insurance compensation that is due for the machinery breakdown in Keuruu in 2011. The compensation is estimated at EUR 0.8 million and was recognised accordingly in 2011. On the closing date of the financial period, the insurance company estimated the compensation at EUR 0.3 million. Reka Cables’ estimate of the compensation is based on the extent of the breakdown: it affected operations and deliveries at all of Reka Cables’ three production plants.
In Russia, net sales from special cables met expectations. The operating result for the Cable segment’s business operations in Russia was slightly negative. In July, the Cable segment decided to invest in increasing its production capacity of fire-retardant special cables. The project progressed as planned, and the goal is to launch production in the summer of 2013.
The net sales of Nestor Cables – a manufacturer of telecommunications and fibre-optic cable – were EUR 27.4 million in 2012 (29.7 million). Its operating result for the financial period was slightly negative. Adjustment measures were carried out due to the difficult market situation.
|Net sales (EUR million)||0.0||1.5||-99.4%||2.1||18.4||-88.5%|
|Operating result (EUR million)||-1.4||-2.1||35.3%||5.1||-11.0||146.9%|
The Viscose Fibres segment’s net sales in 2012 were EUR 2.1 million (18.4 million) and mainly consisted of the sales of fire-retardant fibre to the United States from Avilon’s inventory. As a result of the recognition of EUR 10.3 million in debt cuts in accordance with Avilon’s corporate reorganisation programme, the segment recorded a positive operating result of EUR 5.1 million (-11.0 million). The Viscose Fibres segment is presented as a single item under “Result for the period from discontinued operations” in the income statement, together with the Single Family Housing segment.
The District Court of Pirkanmaa accepted Avilon’s proposal for a corporate reorganisation programme on 28 June 2012. As part of the proposed programme, creditors were offered an opportunity to convert their receivables into shares in Avilon Ltd. Avilon’s debts decreased by a total of EUR 14.5 million, of which EUR 10.3 million were due to cuts in unsecured debts. Debts converted into shares totalled EUR 4.2 million, of which companies outside the Group represented EUR 2.3 million. After the debt cuts, Avilon’s unsecured reorganisation debts totalled EUR 2.6 million. All in all, 80 percent of the company’s unsecured debts were cut.
Throughout the year, the world market price for standard viscose remained too low in terms of resuming production at the Valkeakoski plant. The market situation for fire-retardant fibre was difficult as well. Avilon focused on special fibres. In special products, the company began to develop antimicrobial fibre products. An investment in post-processing at the Valkeakoski plant made it possible for Avilon to start test and trial runs in antimicrobial post-processing. The first samples were submitted to customers for analysis at the end of the year.
During the review period, Avilon held emission rights, all of which it sold. The gains from the sales of emission rights totalled EUR 1.1 million (2.2 million).
In the third quarter, Avilon acquired the maintenance operations of its Valkeakoski plant from Maintpartner Ltd. The business transfer agreement concerned a total of 34 employees in maintenance and power plant operation. They were transferred to Avilon Ltd as existing employees on 1 September 2012. The transaction has no material effect on the figures for the financial period. Avilon Ltd changed its name to Avilon Fibres Ltd in December.
A fire in a peat silo at Avilon’s production plant occurred in October. The assessment of the damage is still in progress. Avilon’s deductible is EUR 0.1 million.
The first licensing agreement on the PPV technology was signed with the Chinese TangShan SanYou Xingda Chemical Fibre Company on 12 November 2012. The PPV technology is used for converting paper-grade pulp into raw material suitable for viscose production. The environmentally friendly carbamate technology was developed further.
Finndomo Ltd filed for corporate reorganisation in early 2012. The reorganisation procedure was started on 2 March 2012. The District Court of Northern Savonia confirmed Finndomo Ltd’s corporate reorganisation programme on 3 December 2012.
MAJOR EVENTS AFTER THE FINANCIAL PERIOD
In February, Reka Cables Ltd negotiated an additional financing package of EUR 2.0 million to alleviate the effects of seasonal changes. In conjunction with this, the company signed a financing agreement related to the Cable segment. The intention is to update the agreement in the spring of 2013.
On 6 March 2013, Neo Industrial announced that Avilon Fibres Ltd and Carbatec Ltd had filed for bankruptcy.
Based on the authorisation granted to the Board of Directors by the general meeting of November 2012, the Board decided on 13 March 2013 not to enforce the demerger due to changed circumstances.
RISKS AND UNCERTAINTY FACTORS
Neo Industrial’s financial risks include currency, interest rate, commodity, liquidity, credit and investment market 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.
With regard to the Cable segment, the financial statements have been prepared in accordance with the principle of continuity. The continuity of operations requires that the Group be able to secure additional funding to replace maturing loans and renegotiate payment terms or liquidate capital from its operations in other ways during 2013.
Negotiations with financiers, suppliers and customers are in progress, and the company’s management believes they will be successful. If, however, the Group does not succeed in securing financing, it is possible that it will not be able to liquidate assets to a sufficient extent or sufficiently fast and pay its debts in its ordinary business operations. This would jeopardise the continuity of the Group’s operations in their current form.
In the Viscose Fibres segment, low market prices did not allow for the financing and profitable relaunch of viscose production. The corporate reorganisation programme was discontinued after the closing date of the financial period, and Avilon Ltd and Carbatec Ltd filed for bankruptcy. For these reasons, it was no longer reasonable to assume continuity of operations. The information presented in the financial statements on the Viscose Fibres segment is not based on the principle of continuity. In accordance with the IFRS standards, the assets and liabilities of the companies of the Viscose Fibres segment have been recorded as write-offs on the balance sheet. The Group’s guarantee liabilities related to Avilon Fibres Ltd have been recorded as liabilities on the consolidated balance sheet through profit or loss.
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 a material effect on the company’s ability to ensure competitive delivery times through sufficient inventories.
Neo Industrial believes in the growth and development of the Russian cable market. The company has made significant investments in making use of business opportunities in Russia. The investments entail the risk that growth in Russia will not meet expectations.
The global economy is currently causing significant uncertainty, which may affect Neo Industrial’s business operations.
However, ground cabling operations are expected to increase in Finland in the spring and early summer. Investments made in previous years as well as changes made to processes create conditions for profitable operations as well as for maintaining volumes at their previous levels in the main markets. The segment expects to record a positive result in 2013.
Avilon Fibres Ltd and Carbatec Ltd filed for bankruptcy on 6 March 2013 and are no longer part of the Neo Industrial group on the publication date of the financial statements. However, to the best of its ability, the Group will support solutions that enable viscose business operations to continue in Valkeakoski and facilitate the commercialisation of the PPV technology.
Throughout the year, the company will pay special attention to liquidity and funding for growth. Neo Industrial will carry out negotiations on financing and payment terms as well as boost inventory turnover and free up capital assets.
Neo Industrial aims to distribute at least 30 percent of its net earnings as dividends.
The parent company’s unrestricted equity stood at EUR 2,866,136.01 on 31 December 2012. The Board proposes to the Annual General Meeting that no dividends be paid for 2012. No dividends were paid for 2011.
ANNUAL GENERAL MEETING 2013
Neo Industrial Plc’s Annual General Meeting will be held in Helsinki on 4 April 2013 at 1 p.m. A separate invitation was published on 12 March 2013.
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 Industrials Financial Statement Release for 2012 is attached to this release and is also available on company's website at www.neoindustrial.fi.
Helsinki, 13 March 2012
Neo Industrial Plc
Board of Directors
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 NASDAQ OMX Helsinki Stock Exchange.Neo Industrial's business segment is Cable.
Attachment Corrected Financial Statement Release 2012