Harju Elekter Group financial results, 1-9/2017

25.10.2017 Reports Market Announcements

The first 9m-period as well as the reporting quarter were successful for the Harju Elekter Group. The large agreements and purchase orders concluded at the end of the year 2016 increased the sales revenues as well as the operating profit of the Group. The acquisition of subsidiaries Energo Veritas OÜ and Telesilta Oy in 2017 had an impact, resulting in an increase in sales volumes and economic results.

Change

January – September

Change

July – September

Year

(thousand euros)

%

2017

2016

%

2017

2016

2016

Sales revenue

65.0

73,850

44,759

97.7

31,228

15,794

61,167

Gross profit

40.8

11,055

7,852

74.1

4,580

2,630

10,348

EBITDA

34.9

5,241

3,883

68.0

2,347

1,397

4,777

EBIT

49.8

4,037

2,694

87.2

1,915

1,023

3,181

Profit for the period

889.4

28,186

2,849

106.7

1,798

870

3,224

incl attributed to Owners of the Company

888.0

28,153

2,849

108.6

1,798

862

3,219

Consolidated revenue for the reporting quarter was 31.2 (Q3 2016: 15.8) million euros, increasing 97.7% in relation to the comparable period. With the Q3 acquisition of Telesilta Oy a service providing electrical installation works was added, resulting in an 11.8% increase in the Group’s sales revenue during the reporting quarter. The Group’s revenue for nine months was 73.9 (9m 2016: 44.8) million euros, increasing 65% in relation to the comparable period. The main reason for the high growth was the contracts concluded at the end of 2016.

During the reporting quarter 86.0% (Q3 2016: 91.2%) of revenue was earned from the Manufacturing segment, Real Estate and Unallocated activities contributed 14.0% (Q3 2016: 8.8%) of the consolidated sales volume. The sale of electrical equipment provides more than 97% of the sales volume of the Manufacturing segment. Sales revenue of Real Estate segment has decreased due to PKC Group Oyj stopped production in Estonia and moved out from the Group’s rental premises in the beginning of 2017. Released production halles took into use by AS Harju Elekter Elektrotehnika. Since Q3, financial results of Telesilta Oy, an electrical engineering company specializing in electrical contracting for the shipbuilding industry acquired in June, was added, which increased sales revenue for other Unallocated activities during the reporting quarter as well as in 9 months. In August, AS Stera Saue opened new production hall and warehouse in the Allika Industrial Park, owned by AS Harju Elekter. Rental income reflected in the Group’s revenue as well as in income of Real estate segment from beginning of the reporting quarter.

The Group’s sales revenue earned outside Estonia accounted for 88.7% in Q3 2017 (Q3 2016: 81.2%) and 83.3% in 9m 2017 (9m 2016: 79.1%).

Finland continues as the largest market of the Group. In the reporting quarter, 78.0% of the Group’s products and services (Q3 2016: 68.8%) were sold on the Finnish market, growing over the year by 13.5 million euros, i.e. 124.4%. Comparing the reporting 9-months periods, the increase was 72.7%, i.e. 22.4 million euros up to 53.2 million euros, accounting for 72.0% (9m 2016: 68.8%) 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.

Growing the sales volume on the Swedish market is a continuous priority of the Group and AS Harju Elekter Elektrotehnika. Comparing to the same periods last year, the growth of sales to the Swedish market in the reporting quarter was 14.0%, i.e. up to 0.6 million euros and in nine months 40.7%, i.e. up to 2.2 million euros. The growth of sales to the Norwegian market in 9-months period was doubled up to 3.5 million euros, accounting for 4.7% of the consolidated sales revenue.

Operating expenses increased by 98.0% or 14.5 million euros in the third quarter and 65.7% or 27.7 million euros in 9-months compared to the reference period. The main part of operating expenses comprised the cost of sales, which grew faster than the sales revenue. Increased export has also led to a rise in distribution costs, growing by 39.6% in the reporting quarter and 26.7% in 9-months in respect to the comparable periods. Still, the rate of distribution costs dropped, accounting for 3.2% of the sales revenue of the reporting quarter (Q3 2016: 4.6%) and 3.8% in 9 months (9m 2016: 5.0%). 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 5.6% in 9-months, having decreased by 0.5 and 1.0 pp, respectively, compared to the reference periods.

In Q3 2017, an average of 618 employees worked in the Group, which was 171 people more than in the comparable period. In 9-months period, an average of 550 employees worked in the Group, which was 99 people more than in the reference period. At the end of the reporting quarter, there were 624 people working in the Group, which was 170 persons more than a year earlier. Including 42 employees, joined to the Group with purchasing of Telesilta Oy and Energo Veritas OÜ. From the beginning of the year, the number of employees increased by 144 people. In the reporting quarter, the employees were paid as salaries and fees 4,020 (Q3 2016: 2,722) thousand euros, which was 47.7% higher than in the reference period. During 9-months, the employees were paid 9,945 (9m 2016: 7,430) thousand euros, being 33.8% more than in the reference period. The growth of wages was due to hiring new employees related to the significant increase in production volumes, being lower from the growth of sales revenue (65%). The average monthly salary for an employee of the Group was 2,010 (9m 2016: 1,829) euros, having increased by 9.9%. The increase in the average wage was influenced by the increase in the share of Finnish employees in the Group as Finland has a significantly higher wage level than in Estonia and Lithuania.

In the reporting quarter, the gross profit of the Group was 4,580 (Q3 2016: 2,630) thousand euros. The gross profit margin was 14.7% (Q3 2016: 16.7%). In 9-months, the gross profit of the Group was 11,055 (9m 2016: 7,852) thousand euros. The gross profit margin was 15.0% (9m 2016: 17.5%).

The Group’s operating profit in the reporting quarter was 1,915 (Q3 2016: 1,023) thousand euros and EBITDA 2,347 (Q3 2016: 1,397) thousand euros. Return of sales for the reporting quarter was 6.1% (Q3 2016: 6.5%) and return of sales before depreciation 7.5% (Q3 2016: 8.8%).

The operating profit of the Group in the 9-months period was 4,037 (9m 2016: 2,694) thousand euros and the EBITDA was 5,241 (9m 2016: 3,883) thousand euros. Return of sales for the reporting period was 5.5% (9m 2016: 6.0%) and return of sales before depreciation was 7.1% (9m 2016: 8.7%). 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 as well as the global price appreciation of raw materials. 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 1,798 (Q3 2016: 870) thousand euros, of which the share of the owners of the Company was 1 798(Q3 2016: 862) thousand euros. EPS in the Q3 2017 was 0.10 euros (Q3 2016: 0.05 euros).

Overall, the consolidated net profit of the 9m 2017 was 28,187 (9m 2016: 2,849) thousand euros. The share of the owners of the Company was 28,154 (9m 2016: 2,850) thousand euros. EPS was 1.59 (9m 2016: 0.16) 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 nine months’ period, the Group has made a total of 7.2 (9m 2016: 1.4) million euros, incl. acquisitions through business combinations amounted to 1.7 million euros, worth of investments to fixed assets. Investment growth is related to the ongoing developments of Allika Industrial Park as well as investments into the production.

During the 9m period, Harju Elekter’s share in Nasdaq Tallinn increased by 57.2% from 2.85 euros up to 4.45 euros.

Andres Allikmäe
Chairman of the Management Board
+372 674 7400

For more information: Tiit Atso, CFO, +372 674 7400 or Interim report 1-9/2017

AS HARJU ELEKTER
CONSOLIDATED BALANCE SHEET,30.09.2017
Unaudited
EUR’000
ASSETS 30.09.17 31.12.16
Cash and cash equivalents 13 271 3 278
Available-for-sale financial assets 5 116 0
Trade receivables and other receivables 17 769 8 480
Prepayments 1 097 771
Prepaid income tax 113 24
Inventories 13 224 9 712
TOTAL CURRENT ASSETS 50 590 22 265
Deferred income tax asset 37 37
Other long-term financial investments 4 684 21 990
Investment property 15 983 13 273
Property, plant and equipment 12 598 10 972
Intangible assets 7 033 5 431
TOTAL NON-CURRENT ASSETS 40 335 51 703
TOTAL ASSETS 90 925 73 968
LIABILITIES AND OWNERS’ EQUITY
Interest-bearing loans and borrowings 92 804
Advances from customers 1 177 9 140
Trade payables and other payables 14 468 1 242
Payables to shareholders 0 1 075
Tax liabilities 2 724 133
Income tax liabilities 320 15
Short-term provision 145 12 409
TOTAL CURRENT LIABILITIES 18 926 1 167
NON-CURRENT LIABILITIES 3 014 13 576
TOTAL LIABILITIES 21 940 12 418
Share capital 11 176 -1 242
Share premium 804 804
Restricted reserves 2 846 19 214
Retained earnings 54 070 29 113
TOTAL OWNERS’ EQUITY 68 896 60 307
Non-controlling interests 89 85
TOTAL EQUITY 68 985 60 392
TOTAL LIABILITIES AND OWNERS’ EQUITY 90 925 73 968
CONSOLIDATED INCOME STATEMENT,  1-9/2017
Unaudited
EUR’000 Q3 2017 Q3 2016 9m 2017 9m 2016
Revenue 31 228 15 794 73 850 44 759
Cost of goods sold -26 648 -13 164 -62 795 -36 907
Gross profit 4 580 2 630 11 055 7 852
Distribution costs -983 -704 -2 807 -2 216
Administrative expenses -1 658 -922 -4 162 -2 973
Other income 9 31 39 83
Other expenses -33 -12 -88 -52
Operating profit 1 915 1 023 4 037 2 694
Finance income 120 2 24 966 769
Finance costs -7 -6 -23 -17
Profit from normal operations 2 028 1 019 28 980 3 446
Corporate income tax -230 -149 -794 -597
Profit for the period, attributable to 1 798 870 28 186 2 849
   owners of the Company 1 798 862 28 153 2 850
   non-controlling interests 0 8 33 -1
Basic earnings per share  (EUR) 0,10 0,05 1,59 0,16
Diluted earnings per share  (EUR) 0,10 0,05 1,59 0,16

Tiit Atso
CFO
+372 674 7400

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