Harju Elekter Group financial results, 1-6/2017

26.07.2017 Reports Market Announcements

The first half of the year was successful for the Harju Elekter Group. The large agreements and purchase orders concluded at the end of the year increased the sales revenues as well as the operating profit of the Group. Extraordinary revenue from the realisation of PKC Group Oyj shares resulted in a considerable increase in net profit and provided strong cash flow for prospective investments.

Change

January – June

Change

April – June

Year

(thousand euros)

%

2017

2016

%

2017

2016

2016

Sales revenue

47.2

42,622

28,965

45.9

25,102

17,208

61,167

Gross profit

24.0

6,476

5,222

20.7

3,805

3,153

10,348

EBITDA

16.3

2,894

2,486

8.1

1,844

1,706

4,777

EBIT

26.9

2,123

1,671

13.6

1,455

1,281

3,181

Profit for the period

1 233.5

26,389

1,979

-38.7

1,023

1,668

3,224

incl attributed to Owners of the Company

1 225.9

26,356

1,988

-40.9

982

1,664

3,219

Consolidated revenue for the reporting quarter was 25.1 (Q2 2016: 17.2) million euros, increasing 45.9% in relation to the comparable period. The Group’s revenue for six months was 42.6 (H1 2016: 29.0) million euros, increasing 47.2% in relation to the comparable period. The main reason for the high growth were the contracts concluded at the end of 2016.

During the reporting quarter 89% (Q2 2016: 93%) of revenue was earned from the Manufacturing segment, Real Estate and Unallocated activities contributed 11% (Q2 2016: 7%) of the consolidated sales volume. The sale of electrical equipment provides more than 96% of the sales volume of the Manufacturing segment. In the reporting quarter the sale of electrical equipment has increased by 6.5 million euros up to 21.6 million euros and in six months’ period by 12.0 up to 37.0 million euros.

The Group’s sales revenue earned outside Estonia accounted for 80.8% in Q2 2017 (Q2 2016: 80.9%) and 79.4% in H1 2017 (H1 2016: 78.0%).

Finland continues as the largest market of the Group. In the reporting quarter, 68.3% of the Group’s products and services (Q2 2016: 71.8%) were sold on the Finnish market, growing over the year by 4.8 million euros, i.e. 38.9%. Comparing the reporting half years, the increase was 45.8%, i.e. 9.1 million euros up to 28.8 million euros, accounting for 67.6% (H1 2016: 68.2%) of the consolidated sales revenue. The main reason for the growth were the contracts concluded with Finnish network companies at the end of 2016, whose orders already began in Q1 of 2017.

The Group has also increased the sales on the Norwegian market. The growth of sales to the Norwegian market in the reporting quarter was 1.5 million euros and in H1 1.8 million euros, compared to reference periods.

Growing the sales volume on the Swedish market is a continuous priority of the Group and AS Harju Elekter Elektrotehnika. The growth of sales to the Swedish market in the reporting quarter was 0.4 million euros and in H1 0.6 million euros, compared to the same periods last year.

Also sales on the Estonian market grew by 46.6%, i.e. 1.5 million euros, to 4.8 million euros in the reporting quarter, accounting for 19.2% of the consolidated sales revenue of the reporting quarter. In H1 2017, sales on the Estonian market grew by 37.9%, i.e. 2.4 million euros, up to 8.8 million euros, accounting for 20.6% of the consolidated sales revenue.

Operating expenses increased by 48.3% or 7.7 million euros in the second quarter and 48.2% or 13.2 million euros in a half-year compared to the reference period. The main part of operating expenses comprised the cost of sales, which grew faster than the sales revenue. The main reason was the global price appreciation of raw materials, but hiring an additional workforce as well. Increased export has also led to a rise in distribution costs, growing by 30.3% in the reporting quarter and 20.6% in the half-year in respect to the comparable period. Still, the rate of distribution costs dropped, accounting for 4.1% of the sales revenue of the reporting quarter (Q2 2016: 4.6%) and 4.3% in 6 months (H1 2016: 5.2%). Due to large orders and the development of new products in relation to this, new employees were hired, leading to an increase in the development costs and hence also in administrative expenses. Altogether, the rate of administrative expenses to revenue dropped and made 5.3% in the reporting quarter and 5.9% in the half-year, having decreased by 1.1 and 1.2 pp, respectively, compared to the reference periods.

In Q2 2017, an average of 542 employees worked in the Group, which was 88 people more than in the comparable period. In H1 2017, an average of 516 employees worked in the Group, which was 62 people more than in the reference period. At the end of the reporting period, there were 585 people working in the Group, which was 112 persons more than a year earlier. From the beginning of the year, the number of employees increased by 102 people. In the reporting quarter, the employees were paid as salaries and fees 3,308 (Q2 2016: 2,781) thousand euros, which was 19.0% higher than in the reference period. The H1 2017, the employees were paid 5,925 (H1 2016: 5,155) thousand euros, being 14.9% more than in the reference period. The growth of wages was due to hiring new employees related to the significant increase in production volumes. The average monthly salary for an employee of the Group was 1,914 (H1 2016: 1,894) euros, having increased by 1.1%.

In the reporting quarter the gross profit of the Group was 3,805 (Q2 2016: 3,153) thousand euros. The gross profit margin was 15.2% (Q2 2016: 18.3%). In H1 the gross profit of the Group was 6,476 (H1 2016: 5,222) thousand euros. The gross profit margin was 15.2% (H1 2016: 18.0%).

The Group’s operating profit in the reporting quarter was 1,455 (Q2 2016: 1,281) thousand euros and EBITDA 1,844 (Q2 2016: 1,706) thousand euros. Return of sales for the reporting quarter was 5.8% (Q2 2016: 7.4%) and return of sales before depreciation 7.3% (Q2 2016: 9.9%).

The operating profit of the Group in the first half year was 2,123 (H1 2016: 1,671) thousand euros and the EBITDA was 2,894 (H1 2016: 2,486) thousand euros. Return of sales for the reporting period was 5.0% (H1 2016: 5.8%) and return of sales before depreciation was 6.8% (H1 2016: 8.6%). Return of sales has decreased due to less rental income as PKC Group Oyj moved out from the Group’s rental premises in the beginning of 2017. Also, the non-recurrent expenses occurred in AS Harju Elekter Elektrotehnika, resulting from moving to new production facilities, has effect on return of sales.

In the reporting quarter, the consolidated net profit was 1,023 (Q2 2016: 1,668) thousand euros, of which the share of the owners of the Company was 982 (Q2 2016: 1,664) thousand euros. EPS in the Q2 2017 was 0.06 euros (Q2 2016: 0.09 euros). The decrease in net profit is related to PKC Group Oyj dividends of 766 thousand euros received in Q2 2016.

Overall, the consolidated net profit of the H1 2017 was 26,389 (H1 2016: 1,979) thousand euros. The share of the owners of the Company was 26,356 (H1 2016: 1,988) thousand euros. In H1, EPS was 1,49 (H1 2016: 0.11) euros. Large net profit was the result of Motherson Sumi Systems Limited acquiring the shares of PKC Group Oyj at the price of EUR 23.55 per share. AS Harju Elekter owned 1,094,641 shares of PKC Group Oyj. Financial income from the sale of shares was 24,839 thousand euros.

In three months’ period, the Group has made a total of 4.5 (H1 2016: 0.5) million euros worth of investments to property, plant and equipment and investment properties. Investment growth is related to the ongoing developments of Allika Industrial Park.

During the 6m period, Harju Elekter’s share in Nasdaq Tallinn increased by 46.6% from 2.83 euros up to 4.15 euros.

Andres Allikmäe
Chairman of the Management Board
+372 674 7400

For more information: Tiit Atso, CFO, +372 674 7400 or Interim report 1-6/2017

AS HARJU ELEKTER
CONSOLIDATED BALANCE SHEET,30.06.2017
Unaudited
EUR’000
ASSETS 30.06.17 31.12.16
Cash and cash equivalents 17 598 3 278
Trade receivables and other receivables 16 113 8 480
Prepayments 1 372 771
Prepaid income tax 73 24
Inventories 14 771 9 712
TOTAL CURRENT ASSETS 49 927 22 265
Deferred income tax asset 37 37
Other long-term financial investments 4 684 21 990
Investment property 15 934 13 273
Property, plant and equipment 11 301 10 972
Intangible assets 6 119 5 431
TOTAL NON-CURRENT ASSETS 38 075 51 703
TOTAL ASSETS 88 002 73 968
LIABILITIES AND OWNERS’ EQUITY
Interest-bearing loans and borrowings 178 804
Advances from customers 1 402 9 140
Trade payables and other payables 13 379 1 242
Payables to shareholders 0 1 075
Tax liabilities 2 567 133
Income tax liabilities 193 15
Short-term provision 81 12 409
TOTAL CURRENT LIABILITIES 17 800 1 167
NON-CURRENT LIABILITIES 3 014 13 576
TOTAL LIABILITIES 20 814 12 418
Share capital 11 176 -1 242
Share premium 804 804
Restricted reserves 2 847 19 214
Retained earnings 52 272 29 113
TOTAL OWNERS’ EQUITY 67 099 60 307
Non-controlling interests 89 85
TOTAL EQUITY 67 188 60 392
TOTAL LIABILITIES AND OWNERS’ EQUITY 88 002 73 968
CONSOLIDATED INCOME STATEMENT,  1-6/2017
Unaudited
EUR’000 Q2 2017 Q2 2016 6m 2017 6m 2016
Revenue 25 102 17 208 42 622 28 965
Cost of goods sold -21 297 -14 055 -36 146 -23 743
Gross profit 3 805 3 153 6 476 5 222
Distribution costs -1 028 -789 -1 824 -1 512
Administrative expenses -1 322 -1 104 -2 504 -2 051
Other income 28 42 30 52
Other expenses -28 -21 -55 -40
Operating profit 1 455 1 281 2 123 1 671
Finance income 0 766 24 846 767
Finance costs -7 -5 -16 -11
Profit from normal operations 1 448 2 042 26 953 2 427
Corporate income tax -425 -374 -564 -448
Profit for the period, attributable to 1 023 1 668 26 389 1 979
   owners of the Company 982 1 664 26 356 1 988
   non-controlling interests 41 4 33 -9
Basic earnings per share  (EUR) 0,06 0,09 1,49 0,11
Diluted earnings per share  (EUR) 0,06 0,09 1,49 0,11

Tiit Atso
CFO
+372 674 7400

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