In Q2, many orders that were delayed in Q1 continued to be performed. Production and sales for Estonian, Finnish and Lithuanian enterprises began swiftly and sales revenue has increased in this area significantly. Primarily, sales of substations to Finland increased. H1 as well Q2 began much more modestly for Swedish companies, in the case of which the execution of the new substations contract only began at the end of Q2 and new large orders were also received at the end of the reporting quarter. In H1, preparation and development costs continued to increase in order to execute the Swedish and Finnish procurement contracts that had already been won and to integrate newly acquired businesses.
|
Change |
January – June |
Change |
April – June |
Year |
|||
| (thousand euros) |
% |
2018 |
2017 |
% |
2018 |
2017 |
2017 |
| Sales revenue |
40.4 |
59,837 |
42,622 |
34.9 |
33,851 |
25,102 |
102,668 |
| Gross profit |
25.8 |
8,146 |
6,476 |
26.2 |
4,802 |
3,805 |
15,625 |
| EBITDA |
-8.5 |
2,647 |
2,894 |
-2.5 |
1,797 |
1,844 |
7,587 |
| EBIT |
-34.1 |
1,398 |
2,123 |
-19.9 |
1,166 |
1,455 |
5,442 |
| Profit for the period |
-95.7 |
1,140 |
26,389 |
-1.5 |
1,038 |
1,023 |
29,132 |
| incl attributed to Owners of the Company |
-95.5 |
1,180 |
26,356 |
6.6 |
1,047 |
982 |
29,129 |
The Group’s consolidated revenue increased by 34.9% to 33.9 million euros in the reporting quarter. The consolidated sales revenue of the half-year increased by 40.4% and reached 59.8 million euros compared to the reference period. The boost in sales volumes was due to the increase in order volumes and the acquisition of new business combinations in the second half of 2017 and in January 2018.
During the reporting quarter 81.5% (Q2 2017: 89.3%) of revenue was earned from the Manufacturing segment, Real Estate and Unallocated activities contributed 18.5% (Q2 2017: 10.7%) of the consolidated sales revenue. In H1, the Manufacturing segment contributed 80.5% (H1 2017: 90.4%) of the consolidated sales revenue. The sales revenue of the Real Estate segment increased by 0.2 million euros to 0.6 million euros in Q2 and by 0.3 million euros to 1.2 million euros in H1, compared to the reference period. The increase in the sales revenue in the Real Estate segment compared to the previous period is related to a long-term major tenant leaving the Group’s rental space at the beginning of 2017, which reduced the sales revenue of the reference period. The new production and storage buildings completed in the Allika industrial park in autumn 2017 and rented out to AS Stera Technologies AS and the Laohotell that was taken into use at the beginning of the current year have halted the decrease in the sales revenue of the Real Estate segment and increased the rental income of this year. The sales revenue of Unallocated activities has increased by 3.4 million euros to 5.7 million euros in the quarterly comparison, and in first 6 months by 7.3 million euros up to 10.4 million euros. Electrical installation work, which was added to the Group since second half of 2017, contributed over 90% of the segment’s sales revenue.
The sales revenue increased by 8.7 million euros in Q2 and by 17.2 million euros in half-year comparison, of which 5.9 million euros in the reporting quarter and 10.7 million euros in H1 came from the increase in sales of electrical equipment. Important part of the 27.5% growth of the electrical equipment sales came from the purchase of a Swedish subsidiaries.
In Q2 2018, the Group’s sales revenue earned outside Estonia accounted for 89.5% (Q2 2017: 80.8%) increasing by 10.0 million to 30.3 million euros and in the first half of the year for 89.4% (H1 2017: 79.4%) increasing by 19.6 million to 53.5 million euros.
The Group’s largest market is Finland. Both, in the reporting quarter and in the first half of the year, 70.0% of the Group’s products and services were sold on the Finnish market (68.3% and 67.6% respectively in 2017). In the quarterly comparison, sale to the Finnish market has grown by 6.5 million euros to 23.7 million euros and in the first 6 months by 44.6% i.e. 12.8 million euros up to 41.7 million euros. Half of the growth in the reporting quarter sales revenue came from the Finnish subsidiary Telesilta Oy, acquired in June 2017, but also large-scale contracts concluded with Finnish grid companies in the years 2016-2017 were behind the growth.
In Q2 2018, the sales to Swedish market has fourfold in quarterly comparison and increased to 3.0 million euros. In H1, sales to Sweden have increased by 3.4 million euros to 5.0 million euros, accounting for 8.3% (H1 2017: 3.7%) of the total sales revenue. The growth came from Group’s and Group’s subsidiaries purposeful work to increase market share in Sweden and combining new companies to the Group. AS Harju Elekter Elektrotehnika participation in several tenders resulted a 3-year frame agreement to deliver substations to E.ON Energidistribution AB. The deliveries of substation will start in Q3.
While comparing the quarters, sales to the Norwegian market decreased by 0.4 million euros but increased in the half-year comparison by 1.0 million euros to 3.3 million euros and stayed at 5.5% of the consolidated sales revenue. As the sale of the Group’s Lithuanian subsidiary has been directed towards other European countries, the Lithuanian market continues to decline.
Due to the low level of investment in the energy distribution sector, sales to the Estonian market in the second quarter decreased by 26.3% to 3.5 million euros and accounted for 10.5% of the consolidated sales revenue of the reporting quarter. In H1, sales to the Estonian market decreased by 27.4% i.e. 2.4 million euros to 6.4 million euros and accounted for 10.7% of the consolidated sales revenue of H1 2018.
Sales from other markets were majority earned from Austria, Denmark and the Netherlands, where 1.7 million, 0.7 million and 0.5 million euros were earned respectively.
Operating expenses increased by 38.1% i.e. 9.0 million euros in the second quarter and 44.3% i.e. 17.9 million euros in a half-year compared to the reference periods. The main reason for the upsurge in costs was the increase in the cost of sales: by 7.8 million euros in Q2 2018 and by 15.5 million euros in H1 compared to the reference periods, exceeding the growth rate of sales revenue, while decreasing the gross profit margin by 1.0 percentage point and 1.6 percentage point respectively, compared to the reference periods. The labour costs of the reported period have increased due to the need to hire new employees to the Group because of increased production volumes as well as the wage pressure. Moreover, the number of employees in Group’s subsidiaries in Finland and Sweden has also increased, with the wage level being significantly higher than in the Group’s other enterprises. Labour costs increased by 52.0% up to 6.5 million euros in Q2 and by 52.7% up to 12.2 million euros in H1. The rate of labour costs accounted for 19.3% (Q2 2017: 17.2%) of the reporting quarter and for 20.4% (H1 2017: 18.7%) of the first 6-months period sales revenue. The Group’s distribution costs increased by 0.4 million euros to 1.4 million euros in Q2 and by 0.8 million euros to 2.6 million euros in H1. The rate of distribution costs accounted for 4.2% (Q2 2017: 4.1%) of the sales revenue in the reporting quarter and stood stable in 4.3 % in H1, compared to the reference periods.
The Group has incurred expenditures on the preparation of new procurements and completing the acquisition of new subsidiaries in 2018. Besides that, the exponential rise in the volume of specific orders has brought with it the need to hire additional specialists. The higher salary levels of the top managers of the new subsidiaries in Sweden and Finland also affected the costs. All this has increased administrative expenses by 0.9 million euros in Q2 and has grown the rate of administrative expenses to revenue to 6.5% (Q2 2017: 5.3%). In H1, administrative expenses amounted 4.1 million euros increasing by 1.6 million euros and the rate of administrative expenses to revenue was 6.9% (H1 2017: 5.9%). The growth in administrative expenses is mainly due to the increase in development costs.
In Q2 2018, an average of 713 employees worked in the Group, which was 171 people more than in the comparable period. In H1 2018, an average of 696 employees worked in the Group, which was 180 people more than in the reference period. At the end of the reporting period, there were 752 people working in the Group, which was 170 persons more than a year earlier. From the beginning of the year, the number of employees increased by 122 people, incl. 53 people in Q2. With the acquisition of SEBAB AB and Grytek AB, 45 employees were added to the Group and 7 more in Q2. In the reporting quarter, 4,906 (Q2 2017: 3,308) thousand euros and 9,281 (H1 2017: 5,925) thousand euros during the first 6 months were paid to the employees as salaries and fees. In H1, the average monthly salary per employee of the Group was 2,221 euros, an average increase of 307 euros compared to the reference period.
In the reporting quarter, the gross profit of the Group was 4,802 (Q2 2017: 3,805) thousand euros and the gross profit margin was 14.2% (Q2 2017: 15.2%). In H1, the consolidated gross profit was 8,146 (H1 2017: 6,476) thousand euros and the gross profit margin was 13.6% (H1 2017: 15.2%). The decline in profitability was caused by the raw material price as well as the significant increase in sales volume in the Swedish market, where margins are lower. According to the London stock exchange the customs tariffs change initiated by the US has brought all metal ore, except for aluminium, into decline. The price change could be reflected in Q3-4.
In Q2, the Group’s operating profit was 1,166 (Q2 2017: 1,455) thousand euros and EBITDA 1,797 (Q2 2017: 1,844) thousand euros. Return of sales for the reporting quarter was 3.4% (Q2 2017: 5.8%) and return of sales before depreciation 5.3% (Q2 2017: 7.3%). In H1, the Group’s operating profit was 1,398 (H1 2017: 2,123) thousand euros and EBITDA 2,647 (H1 2017: 2,894) thousand euros. Return of sales for the first half of the year was 2.3% (H1 2017: 5.0%) and return of sales before depreciation 4.4% (H1 2017: 6.8%). Integrating newly acquired businesses has increased distribution and development costs. Preparations for new and already won procurements continue, leading to higher development costs, and due to hiring new specialists, increase labour costs. The profitability was also affected by one-off expenses due to the move of AS Harju Elekter Teletehnika into new premises.
The profit before taxes for the reporting quarter was 1,497 (Q2 2017: 1,448) thousand euros. The calculated income tax expense of last three months was 459 (Q2 2017: 425) thousand euros. In Q2, the consolidated net profit was 1,038 (Q2 2017: 1,023) thousand euros, of which the share of the owners of the Company was 1,048 (Q2 2017: 982) thousand euros. EPS in the Q2 2018 was 0.06 euros (Q2 2017: 0.06 euros).
In H1, the profit before taxes was 1,726 (H1 2017: 26,953) thousand euros and the calculated income tax expense was 586 (H1 2017: 564) thousand euros. All in all, the consolidated net profit in H1 was 1,140 (H1 2017: 26,389) thousand euros, of which the share of the owners of the Company was 1,180 (H1 2017: 26,356) thousand euros. EPS in the H1 2018 was 0.07 euros (H1 2017: 1.49 euros). The consolidated net profit without extraordinary income of the H1 2017 (the result of one-time financial income from the sale of the PKC Group Oyj shares in amount of 24,839 thousand euros) was 1,550 thousand euros.
In H1 2018, the Group has made a total of 4.6 (H1 2017: 4.5) million euros worth of investments to fixed assets, incl. acquisitions through business combinations amounted to 1.0 (H1 2017: 0.7) million euros and the ongoing developments in Allika Industrial Park in amount of 1.0 (H1 2017: 2.9) million euros.
During H1 2018, Harju Elekter’s share in Nasdaq Tallinn increased by 3.2% from 5.00 euros up to 5.16 euros.
Andres Allikmäe
Chairman of the Management Board
+372 674 7400
For more information: Tiit Atso, CFO, +372 674 7400 or Interim report 1-6/2018
| AS HARJU ELEKTER | ||||
| CONSOLIDATED BALANCE SHEET,30.06.2018 | ||||
| Unaudited | ||||
| EUR’000 | ||||
| ASSETS | 30.06.18 | 31.12.17 | ||
| Cash and cash equivalents | 2,997 | 10,992 | ||
| Available-for-sale financial assets | 5,251 | 9,935 | ||
| Trade receivables and other receivables | 24,248 | 13,575 | ||
| Prepayments | 1,204 | 1,118 | ||
| Prepaid income tax | 204 | 56 | ||
| Inventories | 19,832 | 13,037 | ||
| TOTAL CURRENT ASSETS | 53,736 | 48,713 | ||
| Deferred income tax asset | 56 | 56 | ||
| Other long-term financial investments | 4,696 | 4,684 | ||
| Investment property | 18,528 | 17,881 | ||
| Property, plant and equipment | 13,896 | 11,983 | ||
| Intangible assets | 7,359 | 6,660 | ||
| TOTAL NON-CURRENT ASSETS | 44,535 | 41,264 | ||
| TOTAL ASSETS | 98,271 | 89,977 | ||
| LIABILITIES AND OWNERS’ EQUITY | ||||
| Interest-bearing loans and borrowings | 3,893 | 625 | ||
| Advances from customers | 1,678 | 1,088 | ||
| Trade payables and other payables | 18,239 | 12,802 | ||
| Tax liabilities | 3,423 | 2,106 | ||
| Income tax liabilities | 69 | 270 | ||
| Short-term provision | 44 | 245 | ||
| TOTAL CURRENT LIABILITIES | 27,346 | 17,136 | ||
| NON-CURRENT LIABILITIES | 4,233 | 2,910 | ||
| TOTAL LIABILITIES | 31,579 | 20,046 | ||
| Share capital | 11,176 | 11,176 | ||
| Share premium | 804 | 804 | ||
| Restricted reserves | 2,715 | 2,844 | ||
| Retained earnings | 51,978 | 55,048 | ||
| TOTAL OWNERS’ EQUITY | 66,673 | 69,872 | ||
| Non-controlling interests | 19 | 59 | ||
| TOTAL EQUITY | 66,692 | 69,931 | ||
| TOTAL LIABILITIES AND OWNERS’ EQUITY | 98,271 | 89,977 | ||
| CONSOLIDATED INCOME STATEMENT, 1-6/2018 | ||||
| Unaudited | ||||
| EUR’000 | Q2 2018 | Q2 2017 | 6m 2018 | 6m 2017 |
| Revenue | 33,851 | 25,102 | 59,837 | 42,622 |
| Cost of goods sold | -29,049 | -21,297 | -51,691 | -36,146 |
| Gross profit | 4,802 | 3,805 | 8,146 | 6,476 |
| Distribution costs | -1,431 | -1,028 | -2,592 | -1,824 |
| Administrative expenses | -2,187 | -1,322 | -4,116 | -2,504 |
| Other income | 24 | 28 | 38 | 30 |
| Other expenses | -42 | -28 | -78 | -55 |
| Operating profit | 1,166 | 1,455 | 1,398 | 2,123 |
| Finance income | 343 | 0 | 353 | 24,846 |
| Finance costs | -12 | -7 | -25 | -16 |
| Profit from normal operations | 1,497 | 1,448 | 1,726 | 26,953 |
| Corporate income tax | -459 | -425 | -586 | -564 |
| Profit for the period, attributable to | 1,038 | 1,023 | 1,14 | 26,389 |
| owners of the Company | 1,047 | 982 | 1,18 | 26,356 |
| non-controlling interests | -9 | 41 | -40 | 33 |
| Basic earnings per share (EUR) | 0.06 | 0.06 | 0.07 | 1.49 |
| Diluted earnings per share (EUR) | 0.06 | 0.06 | 0.07 | 1.49 |
Tiit Atso
CFO
+372 674 7400
