First quarter in brief (November 1, 2004 - January 31, 2005):
- Net sales EUR 19.1 million (EUR 16.9 million), an increase of 12.9% on
the same quarter in the previous fiscal year.
- Operating profit EUR 1.0 million (EUR 1.9 million).
- Net profit EUR 1.3 million (EUR 1.4 million).
- Earnings per share EUR 0.03 (EUR 0.04).
- Return on investment (ROI) 10.1% (34.8%).
- Return on equity (ROE) 12.3% (30.7%).
- Solvency ratio 71.3% (51.8%).
- Cash flow from business operations EUR 2.4 million (EUR 2.8 million).
- Gearing -43.2% (-28.5%). Interest-bearing cash reserves exceeded
interest-bearing liabilities by EUR 17.9 million.
Events after the period under review:
- A decision was made to increase production capacity in Estonia
substantially by quadrupling the floorspace of Efore¿s own production
facilities in Pärnu. Production will start in the new facilities at the
beginning of the next fiscal period.
Outlook:
- During the past quarter, Efore has continued to strengthen its market
position as a supplier for the leading mobile phone network producers.
- The Group has also signed various new customer agreements and contracts
for high-volume products.
- With the new products and new customers, net sales for the entire
fiscal year (12 months) is expected to grow to a level significantly
higher than in the past fiscal year.
- As a result of growing sales and moving the focus of production towards
countries with a more advantageous cost level, business profitability
is expected to improve, particularly in the second half of the fiscal
year.
- Depending on the exchange rate of the USD operating profit and earnings
per share for the entire fiscal year (12 months) are expected to remain
at the same level as the figures for the past fiscal year.
NET SALES AND FINANCIAL PERFORMANCE
Net sales for the first quarter of the fiscal year (November 1, 2004 - January
31, 2005) totaled EUR 19.1 million (EUR 16.9 million), representing an increase
of 12.9% on the corresponding quarter of the previous fiscal year. Factors
contributing to the net sales growth in the first quarter include the strong
trend on the telecommunications network market, starting deliveries of new
volume products and other new customers in custom-designed power supplies and
EDMS. On the other hand, the continued weakening of the US dollar in the first
quarter hampered the trend in euro-denominated net sales to some extent.
Operating profit for the first quarter was EUR 1.0 million (EUR 1.9 million).
It was affected by postponing the volume deliveries of some new products from
the first quarter to the end of second quarter, the simultaneous start-ups of a
number of new volume products, specifically in the US, and China, and by
substantial increases in production at the plant in Estonia. The comparable
operating profit was also affected by increased investment in sales and product
development. Operating profit was affected to some extent also by the weakening
of the US dollar.
Profit before extraordinary items came to EUR 1.1 million (EUR 1.8 million) in
the first quarter, and net profit to EUR 1.3 million (EUR 1.4 million). The net
profit for the quarter includes a total of EUR 0.4 million of deferred tax
income (EUR 0.0 million).
BUSINESS OPERATIONS
Sales and marketing
Sales of custom-designed power supplies, DC power systems and electronics
design and manufacturing services (EDMS) developed favorably as the market
trend was good.
During the period under review, negotiations were conducted and new contracts
signed for a number of new products, particularly for new customers.
Efore¿s market position as a supplier of power supplies for the leading mobile
phone network producers continued to strengthen. In accordance with a new
contract signed with GE Procond, Efore will start the manufacture of power
filters based on power electronics technology for mobile phone networks in the
second quarter. GE Procond is part of the American General Electric Group,
which is the world¿s biggest multi-sector company.
The most important new product deliveries began in the healthcare sector with
the Finnish company Planmeca. New product development projects were also
started with the American companies Abbott Laboratories and Thermo Corporation.
The healthcare customer sector is expected to account for a higher proportion
of net sales in 2005 compared with previous fiscal years.
The new contract with the American Luminator represented a major new area for
Efore: Efore will start manufacturing power electronics components for
aeroplanes. In terms of annual net sales, this contract will represent some USD
4-6 million as soon as volume deliveries begin.
Product development
In Finland, the US and China, product development focused primarily on custom-
designed power supplies. A major proportion of the new products is associated
with the new 2.5G and 3G base-station products and the fast-growing broadband
solutions. Various products are also being planned for the healthcare,
industrial automation and engineering sectors. Inputs were also made in
development and raw material selection for power supply technology platforms,
lead-free products and products that also otherwise comply with the RoHS
(Restriction of Hazardous Substances) Directive.
A total of EUR 1.4 million (EUR 1.3 million) was spent on developing new
products and technology solutions during the fiscal period. At the end of the
period, there were 61 employees engaged in product development work and an
additional 35 engaged in work directly assisting product development. Product
development resources were increased particularly in Finland. In the past five
fiscal periods, the Group has invested an average of 7% of net sales in product
development.
Improving cost-effectiveness
In the quest for a constant improvement in competitiveness, the main emphasis
was on the cost-effectiveness of production, the transfer of production to
countries with lower production costs, materials procurement, control of
working capital, and personnel development.
The increase in production capacity was carried out as planned in Estonia. A
production line based on automatic surface-mounting technology suitable for
large series went on stream in January 2005. Expansion of production in Estonia
is based on rising demand for Efore products and services and an advantageous
cost structure.
With the expansion of production in Estonia and the favorable trend in volume
production in China, as much as 43.5% (17,6%) of Efore¿s production was in
countries with a low cost level at the end of the period under review.
Alongside Efore¿s own production, cooperation with manufacturing partners
located in countries with low production costs is also being developed, e.g. in
Russia, Estonia and Brazil. The Group¿s production strategy is thus based on a
combination of operating its own production units and establishing extensive
cooperation with manufacturing partners.
INVESTMENT
Investment in fixed assets increased during the period under review, totaling
EUR 1.4 million (EUR 0.8 million), of which EUR 0.5 million (EUR 0.3 million)
consisted of capitalization of product development costs. The increase was due
to the equipment acquisitions related to increasing Efore¿s own production,
specifically in Estonia and China. The aim for the next few years is to ensure
that investment does not exceed planned depreciation.
FINANCIAL POSITION
The Group¿s financial position was good. Consolidated net financial income
totaled EUR 32 thousand (financial expenses EUR -76 thousand). The Group¿s
solvency ratio at the end of the period was 71,3% (51,8%) and its gearing was
-43.2% (-28.5%). Consolidated net interest-bearing liabilities totaled EUR
-17.9 million (EUR -5.3 million). The consolidated interest-bearing cash
reserves exceed interest-bearing liabilities by EUR 17.9 million.
The cash flow from business operations was EUR 2.4 million (EUR 2.8 million),
and the change in the cash flow showed an decrease of EUR -4.0 million (EUR 2.0
million increase). Cash flow after investment amounted to EUR 0.9 million (EUR
2.0 million). The cash flow of EUR -4.9 million from financing activities
comprises a total of EUR 1.0 million from the share subscriptions with
warrants, EUR 6.0 million in dividend payments and EUR 0.0 million in long-term
loan installments.
Liquid assets excluding undrawn credit facilities totaled EUR 19.9 million (EUR
9.2 million) at the end of the quarter. The balance sheet total was EUR 58.0
million (EUR 36.3 million).
Consolidated working capital in relation to net sales was 12,8% (8,2%) of net
sales in the past 12-month period. The Group¿s aim is to ensure that this
percentage remains below 10% in the near future.
TAXATION
Consolidated taxes include the taxes payable on each separate company¿s taxable
income for the period reviewed. Deferred tax income totaling EUR 0.4 million
have been entered in the financial statements for the period reviewed.
The Group¿s tax rate for 2005 and the following fiscal years is expected to
remain well below the Finnish tax rate, particularly because of the low tax
rates for the Chinese and Estonian subsidiaries.
PERSONNEL
The number of Group personnel averaged 587 (479) during the quarter and totaled
602 (508) at the end of the period. The number of personnel increased by 35
during the first quarter. In addition to its own personnel, the Group¿s
contract staff numbered 137 at the end of the fiscal period, an increase of 16
during the period. The geographical distribution of Efore¿s personnel at year-
end was as follows: Europe 395 (340), America 126 (118), and Asia 218 (88).
These figures include contract personnel.
GROUP STRUCTURE AND ORGANIZATION
Efore Group consists of the parent company, Efore Plc, and its wholly owned
subsidiaries Efore (UK) Ltd, Efore (USA), Inc., Efore (Suzhou) Electronics Co.
Ltd, Efore (SIP) Technologies Co. Ltd., Efore Ltda, Efore AS and FI-Systems Oy.
In addition, Efore Plc has a 25% holding in the German power electronics
company Power Innovation GmbH.
ANNUAL GENERAL MEETING ON DECEMBER 16, 2004
Efore Plc¿s Annual General Meeting for the fiscal period ending on October 31,
2004 was held during the period under review. The AGM made the following
decisions:
Board of Directors
In accordance with the proposal of the Nomination Committee, ten ordinary
members were elected to the Board. The following were re-elected: Heikki
Marttinen, Timo Syrjälä and Matti Tammivuori. Johan Ek, Isto Hantila, Anne
Leppälä-Nilsson, Reijo Mäihäniemi, Rauno Puolimatka, Outi Raitasuo and Olli
Riikkala were elected new members.
At its inaugural meeting following the AGM, the Board of Directors elected Timo
Syrjälä as its chairman and Heikki Marttinen as deputy chairman. Heikki
Marttinen was elected chairman of the Audit Committee, and Anne Leppälä-Nilsson
and Timo Syrjälä were elected members. Olli Riikkala was elected chairman of
the Compensation Committee, and Reijo Mäihäniemi, Outi Raitasuo and Matti
Tammivuori were elected members.
Auditors
The AGM elected Authorized Accounting Firm Ernst & Young Oy as auditors.
Dividend
The AGM decided to distribute a dividend of EUR 0.30 per share. It was paid out
on December 29, 2004.
Amendment to Company Articles
The maximum number of Board members laid down in the Articles of Association
was increased from seven to ten ordinary members and the provision concerning a
deputy member was removed. The power of decision concerning the papers in which
invitations to shareholders¿ meetings are published was transferred from the
shareholders¿ meeting to the Board of Directors.
Raising share capital through a bonus issue
The AGM decided to raise the company¿s share capital with a bonus issue of EUR
16,963,130.40, in which one old share entitled its holder to one new share. A
total of 19,956,624 new shares with a book countervalue of EUR 0.85 were
issued. The issue was entered in the Trade Register on December 21, 2004. The
new shares issued in the bonus issue entitle their holders to a dividend for
the fiscal period beginning on November 1, 2004.
Authorization for the Board to raise share capital
The Board of Directors was authorized to decide on raising the company¿s share
capital by a maximum of EUR 3,433,153.40, equal to 4,039,004 new shares with a
book countervalue of EUR 0.85. The authorization is valid up to the following
AGM but not longer than one year from the decision of the AGM, and it includes
the right to deviate from the shareholders¿ pre-emptive subscription right if
there is a pressing financial reason from the company¿s point of view. The
authorization given by the previous AGM was cancelled.
Annulment of Efore shares held by the company
The AGM decided to annul the 238,400 Efore shares with a book countervalue of
EUR 0.85 held by the company. A decision was made to transfer the aggregate
value of these shares, EUR 202,640, from share capital to the premium fund. The
annulment was entered in the Trade Register on December 21, 2004. After this,
the company no longer holds Efore shares.
SHARES AND SHAREHOLDERS
The total number of Efore Plc shares at the end of the quarter, on January 31,
2005, was 40,529,648 and Efore¿s registered share capital was EUR
34,450,200.80.
In the period under review, changes were made in the company share capital as a
result of the bonus issue complemented by an AGM decision, annulment of Efore
shares owned by the company and share subscriptions made on the basis of option
rights. During this period, the share capital was raised by a total of EUR
563,040 on the basis of share subscriptions, which equals 662,400 shares. A
total of 771,000 shares were subscribed under the 1998 option programmed by the
end of the subscription period on December 31, 2004.
The highest split-adjusted share price during the period under review was EUR
3.65 and the lowest price was EUR 3.0. The average price during the year was
EUR 3.31 and the closing price was EUR 3.20. The market capitalization
calculated at the final trading price of the shares in the period under review
was EUR 129.7 million.
The total number of Efore Plc shares traded on the Helsinki Stock Exchange
during the period under review was 18,7 million and their turnover value was
EUR 61.6 million. This accounted for 46,1% of the total number of shares at the
end of the period. The number of shareholders totaled 4241 (2124) at the end of
the first quarter.
TRANSITION TO IFRS STANDARDS
Efore Plc¿s first financial statements based on the IFRS standards will be for
the fiscal year beginning November 1, 2005. The reference year used will be the
fiscal year beginning November 1, 2004. A preliminary study of the effects of
the changes to the accounting principles was made in 2002-2003, under the
direction of an outside expert. The IFRS project itself was begun during the
2004 fiscal year. As the project progresses, the differences between the
current accounting principles and the accounting principles for financial
statements under the IFRS standards will be analyzed and new IFRS accounting
principles will be determined for the consolidated financial statements. The
project also includes an analysis of the effects of the changes to accounting
practice on the reference year opening balance sheet at November 1, 2004, and
on the key figures and ratios. The project work is divided among different
working groups which have been given specific matters and standards to examine.
To support the changeover process the company has also acquired a new
information management system which was introduced in autumn 2004.
The preliminary study concluded that the most important changes in adopting the
IFRS standards in comparison with Efore¿s current reporting will be related
primarily to the treatment of unrealized exchange rate differences on long-term
loan receivables and financial leasing agreements, and to segment reporting.
EVENTS FOLLOWING THE CLOSE OF THE FISCAL PERIOD
As a result of the survey carried out on the expansion of production facilities
in Estonia, it was decided to increase production capacity in Estonia
substantially by quadrupling the floorspace of Efore¿s production facilities in
Pärnu. The new leased facilities will go on stream from the beginning of the
following fiscal period. The new facilities are needed for the forecasted
increase in sales. At the same time the share of Efore¿s own production in low
costs countries will grow further.
OUTLOOK
The power supplies market is forecast to grow 5-10% a year over the next few
years. The demand for power supplies in the telecommunications sector, which is
Efore¿s most important customer sector, is expected to grow even faster, at
about 5-15% per annum. One of the reasons for this is that the new third-
generation WCDMA network technology requires more power and therefore more
power supplies. Other reasons include the construction and expansion of GSM
networks in, for example, China, India, Thailand, Russia, and South America.
The number of mobile users is expected to grow in general from the present 1.7
billion to more than 3 billion by 2010. Investment in the fixed network and
particularly in broadband solutions will increase.
In healthcare, the estimated growth on the power supplies market is over 10% a
year, while demand for power supplies in the industrial automation and
engineering sectors is expected to average about 5%.
Efore aims to grow at a rate significantly higher than that of the power
supplies market in general. According to the most recent estimates, the overall
value of the global power supplies market will be about USD 13.7 billion in
2005, indicating that there is ample scope for growth. Growth above the market
average will be based on the successful acquisition of new customers and an
increase in market shares.
The short-term growth prospects for the EDMS market are also good, as customers
continue to outsource their activities. The sector is expected to grow overall
by an annual 20-30% in the next few years. Efore¿s aim in the EDMS market is to
achieve a growth rate which is at least equal to the market average.
With new products and new customers, growth in net sales for the entire fiscal
period (12 months) is expected to increase significantly over the previous
fiscal period. As a result of growing sales and moving the focus of production
towards countries with a more advantageous cost level, business profitability
is expected to improve over the period under review, particularly in the second
half of the fiscal year. Depending on the exchange rate of the USD operating
profit and earnings per share for the entire fiscal year (12 months) are
expected to be at the same level as the figures in the previous fiscal year.
In addition to expanding its existing business, Efore is investigating the
possibility of participating in the consolidation process within the power
supplies sector.
CONSOLIDATED PROFIT AND LOSS STATEMENT, CONSOLIDATED BALANCE SHEET,
AND CASH FLOW STATEMENT
CONSOLIDATED PROFIT AND LOSS Nov./04- Nov./03- change Nov./03-
STATEMENT Jan./05 Jan./04 Oct./04
EUR million 3 months 3 months % 12 months
Net sales 19,1 16,9 12,9 73,2
Change in stocks of finished 0,2 0,2 -2,9 1,2
and unfinished goods
Other operating income 0,1 0,1 14,9 0,3
Other operating expenses -17,5 -14,5 20,4 -64,2
Depreciation and reductions in -0,7 -0,6 22,2 -2,5
value
Share of loss of associated 0,0 -0,1 -87,5 0,0
companies
OPERATING PROFIT 1,0 1,9 -45,9 8,0
% net sales 5,4 11,2 10,9
Financial income and expenses 0,0 -0,1 -141,8 -0,2
(net)
PROFIT BEFORE EXTRAORDINARY 1,1 1,8 -41,9 7,8
ITEMS
Extraordinary income 0,0 0,0 0,0 0,5
PROFIT BEFORE APPROPRIATIONS 1,1 1,8 -41,9 8,3
AND TAXES
% net sales 5,5 10,8 11,3
Income taxes 0,3 -0,4 -161,0 -0,8
PROFIT FOR THE PERIOD 1,3 1,4 -3,9 7,5
CONSOLIDATED BALANCE SHEET Jan. 31, Jan. 31, change Oct. 31,
2005 2004 2004
EUR million %
ASSETS
NON-CURRENT ASSETS
Intangible assets 3,4 2,2 56,3 3,0
Group goodwill 0,0 0,0 -31,6 0,0
Tangible assets 6,8 5,4 26,9 6,7
Financial assets 0,2 0,1 45,3 0,2
CURRENT ASSETS
Stocks 12,1 9,5 26,9 11,0
Non-current receivables 2,4 1,3 80,5 2,0
Current receivables 13,2 8,6 54,2 13,0
Investments 0,8 1,1 -29,2 1,5
Cash in hand and at banks 19,2 8,1 135,4 22,9
TOTAL ASSETS 58,0 36,3 59,7 60,3
LIABILITIES
Shareholders' equity 41,4 19,1 117,2 45,4
CREDITORS
Non-current creditors 0,8 2,0 -59,7 0,9
Current creditors 15,8 15,2 3,6 14,0
TOTAL LIABILITIES 58,0 36,3 59,7 60,3
CASH FLOW STATEMENT
EUR million Nov./04- Nov./03- Change Nov./03-
Jan./05 Jan./05 Oct./04
%
Cash flow from business
operations
before financing items ans 2,8 2,9 6,2
taxes
Financing items and taxes -0,4 -0,1 -2,6
Cash flow from business 2,4 2,8 -15,8 3,6
operations (A)
Investments -1,5 -0,8 -5,3
Income from sale of 0,0 0,0 0
investments
Cash flow from investments (B) -1,5 -0,8 -81,7 -5,3
Directed share issue and 1,0 0,0 23,5
subscription of shares with
warrants
Change in liabilities 0,0 0,0 -1,5
Dividends paid -6,0 0,0 -3
Cash flow from financing (C) -4,9 0,0 -989,0 19,1
Change in cash flow (A+B+C),
increase
(+), decrease (-) -4,0 2,0 -300,4 17,4
EFORE GROUP KEY FIGURES
Earnings per share, ¿ 0,03 0,04 -25,00 0,39
Shareholders' equity per 1,02 0,56 82,1 2,26
share, ¿
Solvency ratio, % 71,3 51,8 37,6 75,1
Gross investments, M¿ 1,4 0,8 75,0 5,0
as percentage of net sales 7,5 4,7 6,8
Average personnel 587 479 22,5 512
Return on equity-% (ROE) 12,3 30,7 -60,0 22,6
Return on investment-% (ROI) 10,1 34,8 -70,9 23,2
Gearing, % -43,2 -28,5 51,6 -49,6
Net interest-bearing debt -17,9 -5,3 237,7 -22,3
GROUP CONTINGENT LIABILITIES Jan. 31, Jan. 31, Change Oct. 31,
2005 2004 2004
Contingent liabilities, EUR
million
On own behalf
- Corporate mortgages 6,7 6,7 0,0 6,7
- Pledges given 0,1 0,0 561,5 0,1
-Other contingent liabilities 0,2 0,1 72,6 0,1
- Rent and leasing commitments 4,4 4,4 0,3 4,8
Derivative contracts
-Forward currency contracts
Market value 0,0 0,3 -100,0 1,6
Value of underlying 0,0 0,3 -100,0 1,6
Instruments
Percentage changes calculated
on basis of exact figures.
EFORE PLC
Board of Directors
Further information from President and CEO Markku Hangasjärvi,
tel +358-40-731 0114
DISTRIBUTION
Helsinki Stock Exchange
Principal media
Efore Group
The Efore electronics group is an international company providing services for
the telecommunications, industrial automation, health care and engineering
industries. Its operations comprise custom-designed power supplies, DC power
systems and electronics design and manufacturing services (EDMS).
Efore¿s domicile is Espoo, Finland. In Finland the company has operations also
in Saarijärvi and Tampere. Its other product development and production
operations are located in the USA and China. The group also has production in
Estonia and Brazil and an associated company in Germany. In the fiscal period
ending in October 2004, the consolidated turnover was some EUR 73.2 million and
the personnel numbered 567. The parent company Efore Plc is quoted on the Main
List of the Helsinki Stock Exchange.
