Harju Elekter Group financial results, 1-9/2016

27.10.2016 Reports

In the reporting quarter, the Group’s consolidated revenue was 15.8 (Q3 2015: 18.1) million euros. During the reporting quarter, sales revenue decreased 12.7% or 2.3 million euros in relation to the comparison period. 9 month consolidated revenue remained at the same level as the previous year and was 44.8 (9m 2015: 45.6) million euros. The consolidated net profit of the 9m 2016 was 2.85 (9m 2015: 3.20) million euros.

Change

July-September

Change

January-September

Year

(thousand euros)

%

2016

2015

%

2016

2015

2015

Sales revenue

-12.7

15,794

18,091

-1.9

44,759

45,626

60,656

Gross profit

-23.5

2,630

3,441

-4.5

7,852

8,220

10,299

EBITDA

-36.0

1,397

2,181

10.1

3,883

4,321

4,819

EBIT

-42.8

1,023

1,788

-15.7

2,694

3,197

3,276

Profit for the period

-46.3

870

1,620

-11.0

2,849

3,203

3,186

incl attributable to Owners of the Company

-47.0

862

1,627

-10.9

2,850

3,199

3,190

91.2% (Q3 2015: 92.9%) of revenue was earned from the Manufacturing segment, Real Estate and Unallocated activities contributed 8.8% (Q3 2015: 7.1%) of the consolidated sales volume. In the reporting quarter the sale of electrical equipment had decreased by 16.1% or 2,566 thousand euros in comparison with the comparison period and by 2.3% or 914 thousand euros in 9 month comparison, providing 85.6% of the sales revenue of the Group. In terms of other products and services, sales revenue in the reporting quarter has increased by 12.4%, being by 269,000 euros more than in the comparable period.

In 9m 2016, 79,1% (9m 2015: 76,5%) of the Group’s products and services were sold in foreign markets, outside Estonia and in the reporting quarter 81,2% (Q3 2015: 77,5%). The Finnish market, which is the Group’s largest, has grown by 7.6% or 2,185 thousand euros year-on-year. In the reporting quarter, 68.8% of the Group’s products and services were sold on the Finnish market (Q3 2015: 65.4%). Sales revenue from the Swedish market has increased by 68.3% in the third quarter and 57.8% during the year. AS Harju Elekter Elektrotehnika, which is responsible for the Sweden-oriented business activity, has been quite active in 2015 as well as in 2016 in sales as well as product development work, in order to increase the sales volumes of the group on the Swedish market.

The Group’s sales revenue from the Norwegian market have decreased by 45.6% over the 9 month period due to a change in the ownership of the main client of the Lithuanian company, as a result of which sales orders have been deferred to the following periods.

In the first 9 months of 2016, the Group sold 20.9% of its products and services to the Estonian market (2015: 23.5%). Year on year, supply to the Estonian market decreased by 1.1 million euros or 12.7%. The decline was precipitated by the continued decline in investments in the energy distribution sector in Estonia.

Operating expenses decreased 9.3% in the reporting quarter and 0.8% in the nine months compared to the reference period. Cost of sales decreased 10.1% in the reporting quarter and 1.3% in nine months compared to the reference period. Distribution costs increased by 14.7% in the reporting quarter and by 13% in 9m in relation to the comparison periods, the rate of distribution costs to revenue accounted for 5.0% (9m 2015: 4.3%). In the case of distribution costs, labour costs have increased the most, both due to structural changes in the companies as well as due to payment of additional remuneration. Administrative expenses decreased by 10.9% in the reporting quarter and 3.8% in 9m in relation to the comparison periods, and the rate of administrative expenses to revenue accounted for 6.6%, having decreased by 0.2 percentage points.

As at the end of the reporting period, the Group had 454 employees (30 September 2015: 477). Compared to the beginning of the year, the number of employees has decreased by 16. In the first 9 months of 2016, an average of 451 employees worked in the Group, which is 24 people less than in the comparable period. In the reporting quarter, the average number of employees decreased by 32, to 447. The sound financial results of the Group’s companies in Finland in 2016 have resulted in the payment of additional remuneration and an increase in reserves, which also led to higher labour costs for the Group. In the reporting quarter, the employees were paid as salaries and fees 2,722 (Q3 2015: 2,454) thousand euros and in nine months, 7,430 (9m 2015: 7,256) thousand euros. The average monthly salary for an employee of the Group was 1,829 (9m 2015: 1,696) euros.

Another 58,000 euros was added in the third quarter to the one-off expense of 71,000 euros incurred in the second quarter upon the merger of the metal factories, totalling 129,000 euros. The merger of the metal factories has reached the finishing line in the reporting period. Failures in production, caused by the moving and readjustment of machinery and equipment, had been eliminated to a large extent by the end of the third quarter. Production failures resulted in temporary standstills in production; accordingly, there have been problems in compliance with the delivery deadlines, which in turn have influenced the sales revenue for the first 9 months as well as of the reporting quarter and also the operating profit.

In nine months the gross profit of the Group was 7,852 (9m 2015: 8,220) thousand euros. The gross profit margin was 17.5% (9m 2015: 18.0%). In Q3 the gross profit margin was 16.7% (Q3 2015: 19.0%).

The operating profit of the Group in the nine months was 2,694 (9m 2015: 3,197) thousand euros and the EBITDA was 3,883 (9m 2015: 4,321) thousand euros. The operating margin of the reporting period was 6.0% (9m 2015: 7.0%) and the EBITDA margin was 8.7% (9m 2015: 9.5%).

The consolidated operating profit of the reporting quarter was 1,023 (Q3 2015: 1,788) thousand euros and the EBITDA was 1,397 (Q3 2015: 2,181) thousand euros. The operating margin of the reporting quarter was 6.5% (Q3 2015: 9.9%) and the EBITDA margin was 8.8% (Q3 2015: 12.1%).

In Q3 2016, the consolidated net profit was 870 (Q3 2015: 1,620) thousand euros, of which the share of the owners of the Company was 862 (Q3 2015: 1,627) thousand euros. EPS in the Q3 2016 was 0.05 (Q3 2015: 0.09) euros. The net margin was 5.5% (Q3 2015: 9.0%).

Overall, the consolidated net profit of the nine months 2016 was 2,849 (9m 2015: 3,203) thousand euros. The share of the owners of the Company was 2,850 (9k 2015: 3,199) thousand euros. EPS was 0.16 (9m 2015: 0.18) euros.

In nine months, the Group has made a total of 1,336 (9m 2015: 2,240) thousand euros worth of investments to property, plant and equipment and investment properties. In the 1st half of 2015, the Group invested 1,272 thousand euros to the production facilities at Allika Industrial Park. In Q3 2016 the Group invested 637,000 euros to the building of the next larger production complex at Allika Industrial Park.

Main events and post-balance events

Swiss CEAMS-CE Asset Management, along with its Baltic partners, announced the next nominees for the Corporate Excellence Award. AS Harju Elekter was recognised as the best listed company in Estonia while being the third in the overall Baltic assessment. It was recognised thanks to a significant improvement compared to the previous year, which was possible thanks to the continued expansion in Northern Europe, conservative balance sheet management as well as a stable and experienced management team. Positive recognition was awarded also to the Group’s Finnish company Oy Finnkumu, who reached high, 2nd ranking on the list of the Entrepreneurs of South Ostrobothnia.

On 14 October 2016, AS Harju Elekter bought the real estate company Kiinteistö Oy Uutvallinkulma. Following the transaction, it will bear the name of Harju Elekter Kiinteistö Oy. The contract price was 518,000 euros. To date, the acquired company has been leasing 2,470 m2 of production premises to the Group’s Finnish company, Finnkulmu Oy, and in the immediate future the production premises used by Satmatic Oy at Kerava and Ulvila, totalling 5,185 m2, will also be consolidated under the acquired real estate company. This activity is consistent with the policy of the Group, whereby any production premises used by companies in the Group are owned by the Group.

On 21 October 2016, in Allika Industrial Park, located on the city limits of Tallinn, the cornerstone was laid for two important buildings: the production and storage facilities of HE and the production and storage building of Stera Technologies Oy, the commercial producer of mechanical and electromechanical devices and components. Prior to that, in April 2016, a preliminary contract was concluded with Stera Technologies Oy for the construction and subsequent leasing of production facilities for the company and procurement conducted to identify a project manager, with construction company Rand and Tuulberg AS qualifying. The investment volume is 8.2 million euros, which will be covered from own funds and a bank loan. For this purpose, loan agreements in a total amount of 7 million euros, was signed with Swedbank AS. In total, 12,700 m2 of floor area for various purposes will be constructed.  First stage will be ready for delivery to the tenants in the first half of 2017.

AS Harju Elekter granted a loan of 660,000 euros to Skeleton Technologies OÜ. In Q3, an additional round of funding and involvement of investors was arranged and the loan was converted into the share capital of Skeleton Technologies OÜ. The respective entry in the Commercial Register was made on 24 August 2016.

On 28 April 2016, the AGM of shareholders of AS Harju Elekter was held; it approved the 2015 annual report and distribution of profit as well as the decision to pay the shareholders a dividend of 0.05 euros per share, or a total of 887,000 euros, for 2015. In addition, the AGM decided to introduce a no par value share and approved the new version of the articles of association of AS Harju Elekter. By virtue of the decision of the AGM, the share capital of AS Harju Elekter will be reduced by 1,242,000 euros, to 11,176,124.40 euros, by means of a reduction of the book value of the shares. The reduction of share capital was entered in the Commercial Register on 18 October 2016 and disbursements to the shareholders will be made in amount of 0.07 euros per share after the three-month term, stipulated by law, has passed as of the registering of the reduction of share capital in the Commercial Register, i.e. on 20 January 2017. The list of shareholders eligible to receive dividends as well as those participating in the reduction of share capital was fixed as at 23.59 on 13 May 2016. Dividends were transferred to the shareholders’ bank accounts on 17 May 2016.

At its 5 April 2016 meeting, the Supervisory Board of AS Harju Elekter decided to merge the metal factories of the Group’s Estonian subsidiaries, consolidating the sheet metal processing resources, capability and know-how of the entire Group into AS Harju Elekter Teletehnika. The outcome of restructuring is significant economy in terms of manufacturing as well as labour costs. After the changes, AS Harju Elekter Teletehnika will focus on the manufacturing of sheet metal products and details for the electrical engineering and telecommunications sector, while also maintaining the production line for telecommunications products and fibre-optic cables. By the end of Q3, 30 September, the distribution of assets of factories as well as transfer of employees has been completed.

The annual general meeting of the shareholders of PKC Group Oyj, which gathered on 4 April 2016, decided to pay dividends in the amount of 0.70 euros per share. Dividends were transferred to the shareholders’ bank accounts on 15 April 2016. AS Harju Elekter owns 1,094,641 shares. The dividend income of 766,000 euros is reflected in the profit of Q2 2016. The 15% income tax withheld from the dividends in Finland comprised 115,000 euros. PKC Group dividends added 651,000 euros to the cash flow from investment activities in Q2.

In February, our subsidiary Satmatic Oy in Finland and Finnkulmu Oy participated in the local trade fair Sähkö-Tele-Valo-AV, in Jyväskülä, and in October in the fair Energia 2016, in Tampere. In September, AS Harju Elekter Elektrotehnika presented its product range at the SLO autumn fair, and in April AS Harju Elekter Trade Group participated in the International Building Fair Estbuild, in Tallinn.

Andres Allikmäe
Managing director/ CEO
+372 674 7400

For more information:
Tiit Atso, CFO, +372 674 7400
Interim report 1-9/2016

 

AS HARJU ELEKTER
CONSOLIDATED BALANCE SHEET, 30.09.2016
Unaudited
EUR’000
ASSETS 30.09.16 31.12.15
Cash and cash equivalents 2 593 5 711
Trade receivables and other receivables 9 219 6 678
Prepayments 440 278
Prepaid income tax 26 28
Inventories 10 169 7 148
TOTAL CURRENT ASSETS 22 447 19 843
Deferred income tax asset 57 57
Other long-term financial investments 23 512 20 188
Investment property 13 493 12 990
Property, plant and equipment 7 802 8 010
Intangible assets 5 436 5 491
TOTAL NON-CURRENT ASSETS 50 300 46 736
TOTAL ASSETS 72 747 66 579
LIABILITIES AND OWNERS’ EQUITY
Interest-bearing loans and borrowings 75 296
Trade payables and other payables 7 470 6 043
Payables to shareholders 1 242 0
Tax liabilities 1 307 944
Income tax liabilities 138 146
Short-term provision 16 34
TOTAL CURRENT LIABILITIES 10 248 7 463
NON-CURRENT LIABILITIES 912 912
TOTAL LIABILITIES 11 160 8 375
Share capital 12 418 12 418
Unregistered share capital -1 242 0
Share premium 804 804
Restricted reserves 20 734 18 047
Retained earnings 28 756 26 817
TOTAL OWNERS’ EQUITY 61 470 58 086
Non-controlling interests 117 118
TOTAL EQUITY 61 587 58 204
TOT.LIABILIT.AND OWNERS’ EQUITY 72 747 66 579
CONSOLIDATED INCOME STATEMENT,  1-9/2016
Unaudited
EUR’000 Q3 2016 Q3 2015 9m 2016 9m 2015
Revenue 15 794 18 091 44 759 45 626
Cost of goods sold -13 164 -14 650 -36 907 -37 406
Gross profit 2 630 3 441 7 852 8 220
Distribution costs -704 -614 -2 216 -1 961
Administrative expenses -922 -1 035 -2 973 -3 088
Other income 31 5 83 66
Other expenses -12 -9 -52 -40
Operating profit 1 023 1 788 2 694 3 197
Finance income 2 3 769 788
Finance costs -6 -11 -17 -40
Profit from normal operations 1 019 1 780 3 446 3 945
Corporate income tax -149 -160 -597 -742
Profit for the period, attributable to 870 1 620 2 849 3 203
   owners of the Company 862 1 627 2 850 3 199
   non-controlling interests 8 -7 -1 4
Basic earnings per share  (EUR) 0,05 0,09 0,16 0,18
Diluted earnings per share  (EUR) 0,05 0,09 0,16 0,18

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