Harju Elekter Group financial results, 1-9/2024

Third quarter results for Harju Elekter were in line with expectations. The decline in the volume of orders, which started in the spring, had a significant impact on revenues, which fell by almost a third during the reporting quarter. In order to maintain strong profitability, the Group’s companies used several cost-saving measures, an important part of which was the adjustment of the number of employees in line with the business volumes. During this year, the number of employees in the Group decreased from 956 to 841. The company has been able to reasonably reduce labour costs and simultaneously optimize general administrative expenses.

At the end of the third quarter, we once again saw a new increase in order volumes, but these will be largely reflected in revenues in the spring and summer of the new year. It is clear that there will be at least two more difficult quarters ahead. We must continue to pursue the course of reasonable savings, without losing the high level of competence that will ensure success in the periods ahead.

We are about to begin preparing the 2025 budget. In the near future, the strategic development plan for years 2025–2030, prepared by management, will also be approved. We continue to see good opportunities for growth in both business volumes and profitability in our sector.

At the end of 2024, the parent company of the Harju Elekter Group will move from Keila to the Tondi business district of Tallinn. We began to change the role of the Group’s parent company two years ago by establishing a reasonable level of sector-specific management in the Group’s companies. One of the functions of the Harju Elekter Group is to manage all subsidiaries with equal attention. The financial results of the last two years are a testament to the success of this management model, and the move to Tallinn represents a fitting end to this phase of change.

Revenue and financial results

The revenue decline in the third quarter was influenced by a decrease in core business orders and the stabilization of previously increased order volumes in key markets.   The nine-month total results achieved exceeded the corresponding period in last year thanks to the strong financial performance achieved by the Lithuanian, Estonian, and Finnish business units in the second quarter. The growth in profitability was driven by the unravelling of supply chain difficulties in the previous year, higher order volumes in the second quarter, and optimisation of the number of employees. In the reporting quarter, revenue was 41.2 (2023 Q3: 56.2) million euros and for the nine months, it was 144.7 (2023 9M: 158.3) million euros.

 Core business and markets

Revenue from the production segment, the core business decreased by 28.1% in the third quarter compared to the previous year and by 8.6% over the nine-month comparison. The production segment generated revenue of 38.5 (2023 Q3: 53.6) million euros in the third quarter and 137.2 (2023 9M: 150.2) million euros over nine months. Sales of electrical equipment accounted for 93.4% and 94.8% of the group’s revenue for the quarter and for the nine months, respectively. The decline in revenue was primarily due to a reduction in orders in the company’s key markets, which is linked to decreased orders from distribution networks and contract manufacturing works for the second half of the year.

The Group’s largest target markets—Estonia, Finland, Sweden, and Norway – accounted for 84,3% of the total revenue in the third quarter. In the reporting quarter, the group earned 6.4 (2023 Q3: 5.1) million euros from the Estonian market, which is 24.5% more than the previous year. As a result, the revenue over nine months also grew by 13.4%, reaching 17.7 (2023 9M: 15.6) million euros. The increase in sales in Estonia was mainly driven by higher sales of compact substations to electricity distribution network customers.

Revenue from the Finnish market decreased by 17.7%, reaching 16.9 million euros, compared to 20.5 million euros in the same period last year. Over the nine months, the decline was 14.5%, resulting in revenue falling to 54.5 (2023 9M: 63.7) million euros. The decline in revenue in Finland was due to lower demand for compact substations, resulting from changes in utility price control methods implemented at the beginning of 2024 and also by a decrease in sales of electric vehicle charging stations and solar energy solutions.

Revenue from the Norwegian market halved compared to the third quarter of the previous year. In the reporting quarter, revenue was 5.7 (2023 Q3: 12.6) million euros, and over nine months, a total of 23.1 (2023 9M: 28.1) million euros. The largest decline occurred in the sales of drive cabinets and motor control centers to contractual customers in the maritime sector.

Similar to other Scandinavian countries, the group’s revenue in the reporting quarter also declined on the Swedish market, decreasing by 26.1% compared to the previous year. The quarterly revenue was 5.7 (2023 Q3: 7.7) million euros, and over nine months, it reached 21.2 (2023 9M: 23.3) million euros. The main reason for the revenue decline was significant changes in the business model, including the decision to discontinue the sale of EPC projects, or turnkey solutions, and to focus on factory-made products.

Investments

During nine months, Harju Elekter invested a total of 2.8 (2023 9M: 5.0) million euros in non-current assets, including 1.4 (2023 9M: 4.2) million euros in investment properties, 0.7 (2023 9M: 0.6) million euros in property, plant, and equipment, and 0.7 (2023 9M: 0.2) million euros in intangible assets. The investments included large-scale renovation and reconstruction work at the Keila industrial park, aimed at meeting the needs of the long-term tenant, Prysmian Group Baltics. Additionally, production technology equipment’s were acquired, and production and process management systems were developed.

As of the reporting date, the value of the Group’s long-term financial investments was 27.7 (31.12.23: 29.2) million euros. In the second quarter, most of the listed securities were sold. The fair value of the remaining securities slightly increased in the reporting quarter but decreased by 66 thousand euros over nine months of the reporting year

Share

The company’s share price on the last trading day of the reporting quarter on the Nasdaq Tallinn Stock Exchange closed at 4.66 euros.

Priit Treial
CFO and Member of the Management Board
+372 674 7400

priit.treial@harjuelekter.com

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