Neo Industrial Oyj - Half Year financial report

Neo Industrial Plc: Turnover to the clear growth

6.8.2020 09:00:10 EEST | Neo Industrial Oyj | Half Year financial report

January-June 2020

 * Neo Industrial group's turnover was EUR 55.7 million (49.4 million)
 * EBITDA was EUR 3.3 million (2.4 million)
 * The operating result was EUR 1.0 million (0.2 million)
 * The operating result of the Cable segment was EUR 1.4 million (0.8 million)
 * The Group's result for the period was EUR -0.1 million (-0,6 million)

Near-term outlook remains the same: For the financial year 2020, Neo
Industrial's net result is expected to be positive, provided that predominant
conditions due COVID-19 pandemic will not substantially affect to the company's
cable business capability to deliver.

In the main market of cable business there is no instant significant change in
the demand. 

The rubber business is expected to have positive EBITDA with prevailing market
situation.

MANAGING DIRECTOR JUKKA POUTANEN:

The turnover of Reka Cables Ltd increased clearly from last year, even though
COVID -19 pandemic restricted the growth during the second quarter of the year.

The COVID -19 pandemic has not affected to the market demand in the cable
business.

The operating result improved even though COVID 19 pandemic caused extra costs
and delively delays and price variations of aluminium and copper stressed the
operating result. All together these decreased the operating result
approximately EUR 1.0 - 1.2 million.

The strong growth employed working capital and affected to the operating cash
flow.

As a result of purchase of Reka Rubber, implemented in June, the company will
form new business, rubber industry, adjacent to cable industry. This is step
from Investment company to an industrial conglomerate. At the preliminary
purchase price allocation there is no goodwill. Instead preliminary
consolidation had positive EUR 0.2 million impact to the operating result. 

The company has started preparations to change the name of the company to be
Reka Industrial.

Green Bond funded projects have been launched and new ones are under
preparation. Investments have been made specially to the projects and
development relating wind power and decreasing energy comsumption. The first
Green Bond investor letter was published in March.

MAJOR EVENTS DURING JANUARY - JUNE

Neo Industrial Plc’s subsidiary Reka Cables Ltd received in January 2020 a
substantial contract for underground power cables from Scandinavia. The total
value of the contract is approximately EUR 9 million. The deliveries will be
made during 2020-2022.

Neo Industrial Plc bought June 2020 all shares of Reka Rubber from the biggest
shareholder of Neo Industrial, Reka Ltd. The purchase price, EUR 7.5 million,
was paid by cash. According to the third party expert fairness opinion, acquired
by the independent committee of the Board of Directors, the price paid for the
shares is fair from financial point of view for Neo Industrial Plc.

On 24th of June 2020, the AGM approved the corporate acquisition of Reka Rubber
and the acquisition was implemented after the AGM on 25th of June 2020. The
financial figures of Reka Rubber were consolidated to the Group figures as of 30
June 2020 as there was no significant difference between implementation and end
of June figures. On the preliminary purchase price allocation, positive
difference of EUR 0.4 million was formed and this amount was booked through
consolidated income statement in June 2020. The operating result include EU 0.2
million of expenses relating the acquisition.

Via corporate acquisition the company will form new business, rubber industry,
adjacent to cable industry. This is step from investment company to an
industrial conglomerate.

The new Group is expected to benefit bigger size, different seasons of the
businesses and sharing best practices. Different seasons of the businesses
lessens the effects of seasonal fluctuations to the result of the company.

Figures in brackets refer to the same period a year earlier, unless otherwise
stated. The half year financial report is unaudited.

KEY FIGURES

                                               | 1-6/2020 | 1-6/2019 | 1-12/2019
Turnover, EUR million                          | 55.7     | 49.4     | 97.5
Operating result, EUR million                  | 1.0      | 0.2      | 0.5
EBITDA, EUR million                            | 3.3      | 2.4      | 4.9
Result for the period, EUR million             | -0.1     | -0.6     | -1.4
Earnings per share, EUR                        | -0.02    | -0.10    | -0.24
Net cash provided by operating activities, EUR | -0.8     | 1.8      | 7.8
million                                        |          |          | 
ROI, %                                         | 0.5      | 2.1      | 2.4
IAS 19 corrected Equity ratio, %               | 16.4     | 19.1     | 16.8

TURNOVER AND OPERATING RESULT 

Neo Industrial Group's turnover consisted of the Cable segment's turnover,
totalling EUR 55.7 million (49.4).

EBITDA was EUR 3.3 million (2.4) and the operating result was EUR 1.0 million
(0.2).

The Group's result for the review period was EUR -0.1 million (-0.6).

BALANCE SHEET AND FINANCING

At the end of the review period, the balance sheet totalled at EUR 76.9 million.
On 31 December 2019 the balance sheet totalled at EUR 58.9 million.

Neo Industrial Plc bought June 2020 all shares of Reka Rubber. The purchase
price, EUR 7.5 million, was paid by cash. The purchase was funded by EUR 7.5
million bank loan. Reka Rubber was consolidated to the Group figures as of 30
June 2020.

The Group arranged the ownership of real estate situating in Keuruu. Neo
Industrial Plc bought the real estate by using purchase option of related sale
and lease agreement. Purchase price due purchase option was EUR 1.0 million. Neo
Industrial Plc sold the real estate further to Reka pension fund with fair value
of EUR 2.2 million. 10 year rental agreement was made with Reka Pension fund
relating the real estate. The fair value of the real estate was defined by third
party experts. With the funding occurred due arrangements, Neo Industrial paid
back its short-term loan EUR 1.2 million. The arrangement did not have
significant result effect.

COVID-19

The COVID-19 pandemic has not affected to the market demand in the cable
business. However, COVID-19 pandemic restricted the growth during the second
quarter of the year.

COVID-19 has caused additional costs and delivery delays as personnel has been
more than usual on sick leave to eliminate the possible infection risk. The
additional costs due COVID-19 pandemic is estimated to stress operating result
of cable business EUR 0.3 - 0.5 million.

In rubber business the COVID-19 pandemic has affected the customer demand. The
volumes of part of the customers have been lower than usual due to whether the
market demand of the customer, delivery problems of other suppliers, temporal
closing of factories or combination of these factors.

COVID-19 pandemic has not significantly affected to the material procurement of
cable nor rubber businesses. So far COVID-19 pandemic has not affected to the
payment behaviour of the customers.

BUSINESS ACQUISITIONS

Neo Industrial Plc bought June 2020 all shares of Reka Rubber from the biggest
shareholder of Neo Industrial, Reka Ltd. The purchase price, EUR 7.5 million,
was paid by cash. On 24th of June 2020, the AGM approved the corporate
acquisition of Reka Rubber and the acquisition was implemented after the AGM on
25th of June 2020. The financial figures of Reka Rubber were consolidated to the
Group figures as of 30 June 2020 as there was no significant difference between
implementation and end of June figures. On the preliminary purchase price
allocation, positive difference of EUR 0.4 million was formed and this amount
was booked through consolidated income statement in June 2020. The operating
result include EU 0.2 million of expenses relating the acquisition.

Reka Rubber is one of the leading European manufacturers of small and
medium-sized rubber components to the heavy vehicle and machine building
industries. Reka Rubber has manufacturing units in Finland (Aura) and in Poland
(subsidiary in Dopiewo). In addition to that the rubber products are
manufactured in Asia through the subcontracting network managed by Reka Rubber.

Via corporate acquisition the company will form new business, Rubber industry,
adjacent to cable industry.

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 development of
its business segments.

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. Also,
operation models are being developed in order to balance out the effects of
seasonal changes on the load rates of factories. In cable business, COVID-19
pandemic has caused extra costs and delively delays. It is difficult to estimate
the effect of the pandemic for the future. The additional costs are expected to
have also in the second half of the year.

In the cable segment the key raw materials are metals (copper and aluminium) and
plastics. In the metals purchases partial price hedging is used with the aid of
commodity derivatives. Important with metals are the development of both the
dollar-denominated price and the USD / EUR exchange rate. Partial price fixing
is used with electricity.

The financial situation in euro area and political uncertainties may have effect
on purchase amount of the customers in rubber business as well to the start of
new projects. COVID-19 pandemic has affected to the purchase amount of customers
and it is difficult to estimate the effect of pandemic for the future. COVID-19
pandemic is expected to have negative effect on purchase amounts of the
customers also in the second half of the year. Due COVID-19 pandemic the rubber
business got EUR 100 thousand support from Business Finland to develop its
products, marketing and competitiveness. The development measures are under way.

The trade sanctions of USA, increase of customs tariffs for the products as well
Brexit can have negative effect on customer volumes in rubber industry. Also the
increased competition by Asian actors in euro area can have effect on customer´s
purchase decisions.

The Group has carried out and is carrying out the simplifications of the Group
structure with mergers. Tax authority has questioned the tax neutrality of the
subsidiary merge carried out in 2015. Neo Industrial has filed for changes in
its tax assessment notice. Neo Industrial has the opinion that the merge is
universal succession and therefore tax neutral. The difference of opinion of the
Neo Industrial and tax authority is EUR 1.2 million.

MAJOR EVENTS AFTER THE REVIEW PERIOD

There has not been any major events after the review period.

NEAR-TERM OUTLOOK

For the financial year 2020, Neo Industrial's net result is expected to be
positive, provided that predominant conditions due COVID-19 pandemic will not
substantially affect to the company's cable business capability to deliver.

In the main market are of cable business there is no instant significant change
in the demand. 

The rubber business is expected to have positive EBITDA with prevailing market
situation.

DISCLOSURE POLICY OF HALF YEAR FINANCIAL REPORT

Neo Industrial discloses relevant information related to its Half Year Financial
Report with this Stock Exchange Release. The entire Half Year Report for
January–June 2020 is attached to this release and is also available on company's
website at www.neoindustrial.fi [http://www.neoindustrial.fi].

Hyvinkää, 6 August 2020

 

Neo Industrial Plc
Board of Directors

Further information:
Jukka Poutanen, Managing Director, tel. +358 40 833 9007

 

DISCLAIMER

All comments in this report that do not refer to actual facts are future
estimates. Such estimates include expectations concerning market trends, growth
and profitability as well as statements including the words "believe", "assume"
or "will be" or a similar expression. Since these estimates are based on current
plans and estimates, they involve risks and uncertainty factors that may cause
the actual results to differ substantially from current statements.

Among other things, such factors include 1) operating conditions, such as
continued success in production and the ensuing efficiency benefits,
availability and cost of production inputs, demand for new products and changes
in circumstances affecting the acquisition of capital under acceptable
conditions; 2) sector-specific circumstances, such as the intensity of demand
for products, the competition, current and future market prices for the Group’s
products and related pricing pressures, the financial situation of the Group’s
customers and competitors and competitors’ possible new products; and 3) the
general economic situation, such as economic growth in the Group’s main market
areas and change in exchange rates and interest rates.

Figures in brackets refer to the same period a year earlier, unless otherwise
stated.

ABOUT NEO INDUSTRIAL OYJ

Neo Industrial Plc is a Finnish company, that focuses on building a sustainable
future by developing and renewing modern society. We own emerging private
companies in the industrial sector, to whom we are a long-term and responsible
partner. As a conglomerate, we create opportunities responsibly for a smart and
energy-efficient society. Neo Industrial Plc's class B shares are listed on the
main list of NASDAQ Helsinki Stock Exchange.

ATTACHMENTS

 * Download announcement as PDF.pdf
   [https://www.sttinfo.fi/ir-files/69817735/65/134/Download%20announcement%20as
   %20PDF.pdf]
 * NEO1V_Half Year financial report_H12020.pdf
   [https://www.sttinfo.fi/ir-files/69817735/65/129/NEO1V_Half%20Year%20financia
   l%20report_H12020.pdf]

Attachments:

Download announcement as PDF.pdf

NEO1V_Half Year financial report_H12020.pdf