THE PROFITABILITY AND FINANCIAL SITUATION IMPROVED

NEO INDUSTRIAL PlC          FINANCIAL STATEMENT RELEASE            27 February 2015 at 1.30 pm

The profitability and financial situation improved

January-December:

- The Neo Industrial Group´s turnover was EUR 80.1 million (83.0 million in 2013), decreasing by 3.5 %

- Its operating result improved by 26.0 % to EUR -0.7 million (-1.0 million)

- The Cable segment´s operating result was EUR 0.7 million (1.0 million)

- The Group´s result for the period improved by 248.9 % to EUR 1.8 million (-1.2 million)

KEY FIGURES 

MANAGING DIRECTOR JARI SALO:

Year 2014 was significant for the future development of Neo Industrial. Remarkable risk lowering activities, financing arrangements and profitability improvements has been carried out in the Group to secure the future.

In the beginning of the year the Cable segment signed a long-term financing agreement, which enables the further development of the operations. The financing agreement include also seasonar working capital funding. This improves the capability to respond to the seasonal demand of the market. Terms of the financing agreement included financial covenants for Cable segment. At 31 December 2014 terms of one financial covenant (turnover of capital) were not fulfilled but that did not influence on financial terms because the financier accepted the deviation.

From the risk management point of view it was very important that Neo Industrial Plc won the argument with the bankruptcy estate of Kuitu Finland at the District Court of Pirkanmaa. The decision of District Court of Pirkanmaa was positive to Neo Industrial Plc; The guarantee relating to real estate of Avilon will be paid with yearly instalment as stated in the original agreement instead of one time compensation. The decision of the District Court of Pirkanmaa erased the circa one year encumbered uncertainty. 

Reka Cables carried meritoriously out the negotiations relating the breakdown at Keuruu plant. Negotiations had lasted several years with the insurance company. As outcome of the negotiations the result risk of EUR 0.8 million was avoided.

Neo Industrial Plc planned and negotiated regarding total arrangement which included debt cuts, share issue and buying the shares of Reka Rubber Ltd from Reka Ltd. The total arrangement could not be carried out in a planned way due to the fact that one financier withdrew before implementation. However, Neo Industrial was able to carry out part of the planned arrangement by buying back convertible bonds with total principal amount of EUR 6 million with EUR 1 million. The purchase was financed with new debt financing. At the same time, as a part of the arrangement, the maturity of earlier acquired EUR 1.1 million loan was prolonged by ten (10) years.

The arrangements implemented have positive effect on the Group´s gearing, Balance Sheet and especially cash flow as the future financial costs will be smaller. The arrangement has partly effected to the improvement of the Neo Industrial Plc’s share price in January-February 2015. The price of the share has increased by over 300 per cent and also the trading volume has increased significantly.

The turnover of the Cable segment remained on the same level as in 2013 when the turnover of the spring 2013 sold Russian activities are excluded from the comparison. The profitability improved. The operating result of the Cable segment was EUR 0.7 million better than in the comparative year when positive effect from the sale of the Russian cable manufacturing companies is not taken into the consideration. The good financial situation at the turn of the year enabled additional installment of EUR 1.5 million to the financing agreement signed before. The payment was made in January 2015.

The Cable segment continues the activities to improve profitability and working capital management. These are believed to have favourable effect on the result development. Investment of EUR 1.5 million is made in  Hyvinkää Factory. The investment enhances the productivity of cable manufacturing and enables bringing new products to the market.

The improvements of the grid construction with underground cables continue specially in Finland. The development is boosted by the changed Electricity Market Act regarding electricity supply reliability and also the remarkable interrupts in the delivery of the electricity due to the winter conditions and storms. The Cable business specially invest in delivery capability of the underground cables. There is no picking up  seen yet in the construction in Nordic countries.

 NET SALES AND OPERATING RESULT

The Neo industrial Group´s turnover in 2014 was EUR 80.1 million (83.0 million in 2013). Its result for the full year was EUR 1.8 million (-1.2 million.

BALANCE SHEET AND FINANCING

In March new financial agreement for the Cable segment was signed and old loans were replaced with new one´s and working capital funding increased with EUR 2 million.

In December Neo Industrial carried out arrangement where it bought back convertible bonds issued in 2011 and due in 2016. At the same time, as a part of the arrangement, the maturity of earlier acquired EUR 1.1 million loan was prolonged by ten (10) years.

At the end of the review period, the balance sheet total stood at EUR 44.7 million (47.2 million).

MAJOR EVENTS DURING THE FINANCIAL PERIOD
 

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.

The financial negotiations of the Cable segment were finalised and new long-term financing agreement was signed in March. With this arrangement the Cable segment replaced previous short-term loans with long-term loans and at the same time enabled a working capital increase with EUR 2 million. Terms of the financing agreement include financial covenants for Cable segment. In addition, the use and distribution of the funds requires consent from the financier.  At 31 December 2014 terms of one financial covenant were not fulfilled but that did not influence on financial terms because the financier accepted the deviation.      

The action initiated in April 2013 by the bankruptcy estate of Kuitu Finland against Neo Industrial Plc regarding the personal guarantee on the purchase of the mill real estate of Neo Industrial’s subsequently bankrupted Avilon Fibres Ltd as non-current compensation was dismissed by the District Court of Pirkanmaa on 17 March 2014. The guaranteed debt of EUR 5 million as well as building cost index is due for payment within 25 years as stated in the original agreement made in 2010. The bankruptcy estate of Kuitu Finland did not file a letter of complaint by the closing date. Thereby the decision of District Court of Pirkanmaa is final and legally valid. The decision of the District Court is in accordance with Neo Industrial’s interpretation and has thus no effect on balance sheet values.

Extraordinary Shareholders´ Meeting held in September authorized the Board to decide on an issue of new class B shares according to the Board of Directors propose. The new class B shares may be issued in deviation from the shareholders´ pre-emptive rights. The maximum number of new B shares issued may amount to a total of 5,000,000 shares. The authorization does not replace or cancel any earlier authorizations for share issues.

In October Neo Industrial Plc published sale and purchase agreement on buying all the shares of Reka Rubber Ltd and notice to the Extraordinary Shareholders´ Meeting. The sale and purchase agreement was related to financing arrangements of Neo Industrial and share issue to raise new capital. The whole arrangement was conditional to the acceptance of the Extraordinary Shareholders´ Meeting to be held on 3 November 2014.  The financing arrangements, which were part of the total arrangement, were not actualized as a whole as Neo Industrial predicted. Therefore the whole arrangement published 13 October 2014 is delayed or can be totally or partly unaccomplished and the Board of Directors of Neo Industrial Plc called off the Extraordinary Shareholders´ Meeting on 3 November 2014.

In December Neo Industrial carried out arrangement where it bought back convertible bonds issued in 2011 and due in 2016. The purchase was financed with new debt financing. At the same time, as a part of the arrangement, the maturity of earlier acquired EUR 1.1 million loan was prolonged by ten (10) years.

In year 2011 issued and subscribed convertible Bonds are senior unsecured loans due 2016 with total principal amount of EUR 6 million and entitle cash compensation based on the Company's class B share price. The Bonds carry a coupon of 7.50% per annum. Neo Industrial group bought the Bonds back with EUR 1 million. The arrangement had positive, round EUR 4.7 million, effect on to the net result of Neo Industrial group.

SEGMENTS

Neo Industrial's business segment is Cable Industry.

Cable

The Cable segment´s turnover in the review period decreased by 3.5 percent from the previous year. The turnover was EUR 80.1 million (83.0 million). The sold Russian companies held totally 3.4 per cent share of the net sales in the Cable segment in 2013.

The Cable segment´s turnover was EUR 80.1 million (83.0 million in 2013). The comparable figures for 2013 include EUR 2.8 million turnover of the Russian cable manufacturing companies sold in spring of 2013. Operating result was EUR 0.7 million (1.0 million) in the Cable segment. Operating result for 2013 include a positive effect of EUR 1.0 million from the sale of the Russian cable manufacturing companies.

The sales volume in the cable market of Nordic countries, the main market area of Reka Cables Ltd, was on the same level as the year before. However, there were regional differences. The sales volume of Russia was clearly lower than in 2013. Deliveries to teh Baltic countries were lower than in year 2013.

 Of the metals used as raw materials, the price of aluminium increased and the price of copper decreased during 2014. The prices of plastics decreased. The EUR/USD exchange changes decreased the effect of price changes of copper and plastics but strengthened the price increase effect of aluminium in EUR.

Investments fullfilled, EUR 0.4 million (1.7 million) were mainly related to optimizing production and maintenance.

Turnover for Nestor Cables Ltd, an associated company, was EUR 30.4 million (25.4 million). The operating result was positive and better than in the previous year.

MAJOR EVENTS AFTER THE REVIEW PERIOD

Neo Industrial Plc´s subsidiary Reka Kaapeli Ltd got substantial underground power cable order in January. The value of the order is EUR 6.0 million. The deliveries are made during 2015 and 2016. The underground power cables are used when building grids that are not vulnerable to weather conditions.

Neo Industrial Plc´s subsidiary Reka Kaapeli Ltd invests EUR 1.5 million in cable manufacturing technology in Hyvinkää Factory. With the investment the productivity of cable manufacturing is enhanced and developing and manufacturing of new products is enabled. The investment will be ready by the end of April 2015.

Good financial situation of Cable industry has enabled additional installment of EUR 1.5 million to the financing agreement signed in March 2014. The payment was made in January 2015.

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.

Due to the significant financial arrangements carried out in 2014 the financial situation got better. However, Neo Industrial continues to pay extra attention to ensure the sufficient funding and ensuring liquidity situation. The financial negotiations are continued and to assure liquidity, company intensifies the working capital management and negotiates adjustments to payment terms and agreements.

In the Cable segment, the most significant risks are related to market development, fluctuations of raw material prices and currencies as well as working capital management in various situations. During considerable seasonal changes, suppliers’ terms of payment effect significantly on the ability to ensure competitive delivery times through sufficient inventories.

NEAR-TERM OUTLOOK

The construction has not been picking up in Nordic countries nor in Baltics and the outlook for Russia is unstable. Also the market situation in Europe does not show any signs of picking up. However, the management believes that grid constructors will boost ground cabling projects to ensure distribution reliability. The turnover of the Cable segment is believed to slightly exceed the turnover in 2014 and the operating result of the Cables segment is believed to be positive.

Neo Industrial continues to pay extra attention to ensure the sufficient funding and ensuring liquidity situation. 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 -8,659,157.65 including the result of the review period EUR -1,246,908.23. The Board proposes to the Annual General Meeting that no dividends will be paid for 2014. No dividends were paid for 2013.

ANNUAL GENERAL MEETING 2015

Neo Industrial Plc´s Annual General Meeting will be held in Helsinki on 9 April 2015 at 1.00 p.m. A separate invitation will be published on 27 February 2015.

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 is attached to this release and is also available on company´s website at www.neoindustrial.fi.

Hyvinkää, 27 February 2015

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

www.neoindustrial.fi

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.