The turnover for April-June 2006 has decreased compared to the same period in 2005. Can you please comment on this result?

Shareholder, name withheld

It is correct that the turnover for the April-June 2006 period has decreased slightly compared to 2005, from SEK 4.5 million (2005) to SEK 4.3 million (2006). However, in consideration of the positive market development and other external circumstances, we do not regard this as a negative result. The main reasons for our positive assessment are summarised as follows:

  1. Installations: New installations continue to be the most significant single item in determining the quarterly results. During 2Q06, the only installation revenue was from the Doosan Mini-System 2000. In contrast, higher revenues were received for the larger Hyundai full System 2000 installations during the same period 2005. Quarter-to-quarter results will continue to be influenced by the timing of new installations. Our focus is not on the individual timing, but rather on the positive long-term trend.

  2. Series Production: The continued increase in series production during the period effectively off-set the lower installation revenues. The increased production is evident from the increase in Sampling Cup shipments (20,100 units shipped during the first-half of 2006 vs. 12,200 during the first-half of 2005, +65%). The series production continues to develop positively.

  3. New Production: The start of series production of the Ford 3.6 litre V8 during April 2006 will provide additional production revenues as the volumes ramp-up. Likewise, production of the Ford-Otosan 7.3 litre commercial vehicle engine and the Hyundai V6 will begin soon and contribute to the remaining 2006 turnover. The new MAN 10.5 litre commercial vehicle order will also start series production during mid-2007, but initial revenues from pre-production activities and Engineering Support will be realised from 4Q06. As in the past, new orders will continue to be received, increasing the overall potential.

  4. Exchange Rates: The decline of the US dollar effectively reduced the consolidated revenue by SEK 0.5 million. In an apples-to-apples comparison of the 2Q06 and 2Q05 turnover, under the assumption of constant exchange rates, the April-June 2006 turnover was actually 20% higher than the same period 2005. The funds are primarily used to cover local expenses, so this is primarily a consolidation effect rather than a direct realised cash loss.

The overall business activities continues to develop positively. SinterCast’s primary focus remains on the cashflow result and, in this regard, the burn-rate for the April-June 2006 period was only SEK 0.8 million (liquidity reduced from MSEK 18.4 to MSEK 17.6). This good progress shows that the liquidity is secure as new production orders are received and production revenues continue to increase.