EFORE GROUP'S INTERIM REPORT FOR NOVEMBER 1, 2005 – JULY 31, 2006 (9 months)
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November-July in brief (November 1, 2005 — July 31, 2006)
- Net sales totaled EUR 71.6 million (EUR 55.6 million). The growth compared with the corresponding period in the previous fiscal year was 28.8%. - Operating profit was EUR –3.0 million (EUR –2.2 million) - Profit before taxes was EUR –3.1 million (EUR –1.7 million). - Net profit was EUR –5.8 million (EUR –2.3 million). - Earnings per share amounted to EUR -0.14 (EUR –0.06). - Return on investment (ROI) was -10.3% (-4.9%). - Return on equity (ROE) was –21.9% (-7.6%). - Solvency ratio was 62.1% (65.9%). - Cash flow from business operations was EUR –2.7 million (EUR 3.3 million). - Gearing was –40.6% (-42.5%). Interest-bearing cash reserves exceed interest- bearing liabilities by EUR 13.1 million. - A total of EUR 5.0 million in non-recurring expenses are included against the net profit for the period under review. May-July in brief (May 1, 2006- July 31, 2006) - Net sales totaled EUR 22.5 million (20.3 million). The growth compared with the corresponding period in the previous fiscal year was 10.6%. - Operating profit was EUR –3.4 million (EUR 0.4 million) - Profit before taxes was EUR –4.0 million (EUR 1.0 million - Net profit was EUR –4.3 million (EUR 0.7 million). - The operating profit was weakened considerably by several expenditure items of a non-recurring nature recorded in the third quarter to the amount of EUR 3.1 million. NET SALES AND FINANCIAL PERFORMANCE NOVEMBER-JULY Net sales for November-July went up to EUR 71.6 million (EUR 55.6 million), the growth compared with the corresponding period in the previous fiscal year being 28.8%. The growth in net sales for the period under review accrued principally from the increase in deliveries of power supply solutions for mobile phone networks, fixed telecommunications networks and industrial electronics. Sales by customer segment were as follows: telecommunications 72.0% (70.2), industrial electronics 23.2% (24.1%) and health-care electronics 4.8% (5.7%). Geographically sales were as follows: EMEA EUR 44.0 million (EUR 36.1 million), the Americas EUR 18.6 million (EUR 15.6 million) and APAC EUR 9.0 million (EUR 3.9 million). The operating profit for November-July was EUR –3.0 million (EUR –2.2 million). The profit before taxes for November-July was EUR -3.1 million (EUR –1.7 million) and the net profit was EUR –5.8 million (EUR –2.3 million). Tax assets amounting to EUR 1.9 million which had a positive effect on the profit in earlier fiscal periods and the potential realization of which is uncertain in the future were recorded as a non-recurring expense during the second quarter against the net profit for November-July. Furthermore, non- marketable inventory entries relating to product transfers and transfers to lead- free ROHS products, certain redundancy expenses and advisory expenses were recorded against the net profit during the second quarter as expenses. In total, the above-mentioned expenses recorded above the operating profit form a considerable sum. Special factors that affected the development of the profit in the third quarter are shown separately later. NET SALES AND FINANCIAL PERFORMANCE MAY-JULY Net sales in the third quarter improved and went up to EUR 22.5 million (EUR 20.3 million), the growth compared with the corresponding period in the previous fiscal year being 10.6%. Geographically the growth was strongest in the APAC region. Sales by customer segment were: telecommunications 74.5% (73.4%), industrial electronics 20.3% (22.0%) and health-care electronics 5.2% (4.6%). Geographically sales were as follows: EMEA 14,2 million (EUR 12.9 million), the Americas EUR 4.6 million (EUR 6.1 million) and APAC EUR 3.7million (EUR 1.3 million). The operating profit for the third quarter was EUR –4.0 million (EUR 1.0 million). The net profit was EUR –4.3 million (EUR 0.7 million). The operating profit was significantly weakened by the non-recurring expenses relating to the company's significant restructuring including write-downs of production equipment and the expenses involved in giving notice of redundancy arising from the decision to discontinue production at the Saarijärvi plant and to close down one of the two plants in the USA. In conjunction with the closing down of the plants there have been substantial non-marketable inventory write- downs both in Finland and the USA for those materials and components that will be of no use in the future. Resignation and redundancy compensations for the executives were also recorded against the profit for the third quarter. The operating profit was also weakened by the operating loss at the Saarijärvi plant and by a more unfavorable trend than expected in the prices of certain important materials. BUSINESS OPERATIONS During the period under review a record number of new product development ventures has been under way. Product development focused mainly on custom- designed power supplies. Most of the products are connected with new product families for 2,5G and 3G base stations that will be used in the future and with other equipment for broadband wireless and fixed telecommunications networks which form the basis for the new and rapidly expanding telecommunications networks such as Triple Play, Quardruple Play and WiMax. In addition, product development inputs were focused on various DC power systems for telecommunications facilities and controlling industrial processes. A number of custom-designed health-care equipment-related development projects are also under way. During the period under review new products and technology solutions to the value of EUR 3.8 million (EUR 3.6 million) were developed. The number of personnel working in product development and in functions assisting product development stood at 93 at the end of the period under review. INVESTMENT During the period under review investment in fixed assets amounted to EUR 4.0 million (EUR 4.0 million), EUR 1.2 million (EUR 1.5 million) of which was accounted for by the capitalization of product development. The investment in equipment for increasing the company's own production particularly in Estonia and China contributed to the growth in investment. The aim in the next few years is still for investment not to exceed planned depreciation. The company is at present looking into the possibility of transferring to larger premises in China under a quick timetable. FINANCIAL POSITION The Group's financial position during the period under review was good. The Group's solvency rate at the end of the period was 62.1% (65.9%) and the gearing was –40.6% (-42.5%). Consolidated net interest-bearing liabilities amounted to a positive figure of EUR 13.1 million (EUR 15.8 million positive), i.e. the consolidated interest-bearing cash reserves exceed interest-bearing liabilities by EUR 13.1 million. The consolidated net financial income was EUR –0.1 million (EUR 0.4million). The cash flow from business operations was EUR –2.7 million (EUR 3.3 million) and the change in cash flow showed a decrease of EUR 7.6 million (EUR 6.3 million decrease). The cash flow after investments was EUR –6.8 million (EUR –1.0 million). Liquid assets excluding undrawn credit facilities totaled EUR 14.2 million (EUR 17.8 million) at the end of the period under review. The balance sheet total was EUR 52.2 million (EUR 56.6 million). The consolidated working capital was equivalent to 8.8 % (11.4%) of net sales in the preceding 12-month period. The Group has started projects to improve the inventory turnover and reduce the value considerably. TAXATION During the second quarter of the fiscal year a deferred tax asset of EUR 1.3 million was adjusted and recorded under taxes. This item is related to Efore (USA) Inc.'s unused taxation losses from previous years, the utilization of which in the future is uncertain. An amount of EUR 0.6 million previously taken into account as an avoir-fiscal receivable has been entered under taxes for the fiscal period. The entries do not affect the cash flow. The consolidated profit and loss statement also includes a change of EUR 0.2 million in other deferred tax assets and liabilities as an expense included under income taxes. In other respects taxes corresponding to Group companies' profit for the period under review have been taken into account under taxes. However the deferred tax asset caused by unprofitable operation, which has remarkable potential value, has not recognised as an asset. PERSONNEL The number of Group's own personnel averaged 786 (647) during the period under review and at the end of the period it was 805 (728). The number of personnel increased by 37 during the period. In addition to its own personnel, the Group's contract staff numbered 270 at the end of the period, an increase of 77 during the period. The geographical distribution of Efore's personnel including contract staff at the end of the period was as follows: Europe 501 (442), of which 248 (349) were in Finland and 245 (91) in Estonia, the Americas 96 (151) and Asia 478 (307). Mr. Markku Hangasjärvi resigned as President and CEO of Efore on June 7, 2006 and on the same day the Efore Plc Board of Directors appointed Mr. Reijo Mäihäniemi as the new President and CEO. Reijo Mäihäniemi resigned from the Efore Plc Board of Directors and from the membership of various committees on June 8, 2006. The statutory negotiations with employees in Finland that began on July 17, 2006 ended after the period under review on August 28,2006. As a result of the negotiations, Efore will be giving notice to a total of 82 employees. The redundancies are connected with the discontinuing of production at the Group's plant at Saarijärvi and the transfer of products to the plants in Estonia and China. The redundancies will take place in phases by the end of May 31, 2007. Efore will have hardly any production left at Saarijärvi after October 31, 2006. After the redundancies 26 people will remain at Saarijärvi for sales, product development and maintenance functions. A few other people will also remain at Saarijärvi for the time being in order to make sure that the Group products are transferred successfully. Most of the cost savings achieved with the discontinuing of production at Saarijärvi will materialize right in the beginning of the new fiscal year. After the redundancies the number of people working for the Group in Finland will be 134. IAS/IFRS REPORTING Efore transferred to financial reporting in accordance with the International Financial Reporting Standards (IFRS) at the beginning of the 2006 fiscal year. The comparison data used for this report are IFRS-compatible figures for 2005, published on February 27, 2006. The interim report applies valuation and depreciation principles that are in accord with the IFRS standards. 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, and Efore AS and FI-Systems Oy. Efore Plc also has a 25% holding in the German power electronics company Power Innovation GmbH. Efore Plc has established a branch office in Sweden in the summer 2006. BOARD AUTHORIZATIONS The Annual General Meeting decided on January 25, 2006 that the Board of Directors be authorized to increase the share capital by a maximum of EUR 6,890,039.65 i.e. 8,105,929 new shares with an equivalent book value of EUR 0.85. The authorization is valid until the next Annual General Meeting, however, no longer than one year from the decision of the Annual General Meeting, and it contains the right to disapply the pre-emptive rights on condition that the Company has sound financial grounds for doing so. SHARES, NUMBER OF SHARES AND SHAREHOLDERS The total number of Efore Plc shares at the end of the period under review was 40,529,648 and the registered share capital was EUR 34,450,200.80. The highest share price during the period was EUR 2.06 and the lowest price was EUR 1.60. The average price during the period was EUR 1.88 and the closing price was EUR 1.68. The market capitalization calculated at the final trading price was EUR 68.1 million. The total number of Efore shares traded on the Helsinki Stock Exchange during the period was 21.6 million and their turnover value was EUR 40.7 million. This accounted for 53.4% of the total number of shares at the end of the period. The number of shareholders totaled 4,117 at the end of the period. According to the Annual General Meeting decision and the National Board of Patents and Registration permission (registered on June 2, 2006) the share premium was decreased by EUR 3,971,543.60 by transferring the decreased amount to the company's non-restricted equity. OUTLOOK The telecommunications infrastructure market is expected to continue growing at a moderate rate, measured by its value in euros, during 2006. Growth is expected on both the wireless and fixed network side and, in particular, for broadband network solutions. The consolidation taking place in the sector will create business uncertainty, but at the same time it will provide new opportunities for reliable and competitive suppliers. As a result of the reasonably favorable market outlook and Efore's new customers and products, the net sales for the current fiscal year (12 months) are expected to be clearly up on the previous fiscal year's figures. In spite of the growth, the operating profit and earnings per share will remain negative and lower for the fiscal year than in the previous fiscal year. The profit will be adversely affected by the non-recurring costs caused by the heavy restructuring under way in the company and the more unfavorable than expected trend in the price of important components and materials during the fiscal year. The consolidated operational result is expected to show a noticeable improvement during the final quarter. The Group has started several projects to develop operations e.g. to control the inventory more efficiently — and projects aimed at improving production that will have positive effects on the business operations. The target of the restructuring is to improve Efore's ability to compete in the global market and enable the business operations to grow profitably. The Group's aim is a clear improvement in the operational result during the new fiscal year starting at the beginning of November. CONSOLIDATED PROFIT AND LOSS STATEMENT EUR million May./06- May./05- Nov./05- Nov./04- Nov./04- Jul./06 Jul./05 Jul./06 Jul./05 Oct./05 3 months 3 months 9 months 9 months 12 months Net sales 22,5 20,3 71,6 55,6 81,6 Changes in inventories of finished goods and work in 0,5 0,1 0,0 -0,3 -0,1 progress Other operating income 0,2 0,0 0,4 0,2 0,2 Other operating expenses -25,6 -19,3 -72,4 -55,3 -79,4 Depreciation -0,9 -0,7 -2,6 -2,1 -2,8 Impairment 0,0 0,0 0,0 -0,3 -0,4 OPERATING PROFIT (-LOSS) -3,4 0,4 -3,0 -2,2 -0,8 % net sales -15,0 1,7 -4,1 -3,9 -1,0 Financing income and expenses -0,5 0,6 -0,1 0,4 0,4 Share of loss of associated companies -0,1 0,0 0,0 0,0 0,0 PROFIT (-LOSS) BEFORE TAX -4,0 1,0 -3,1 -1,7 -0,4 % net sales -18,0 4,9 -4,4 -3,1 -0,5 Tax on income from operations -0,3 -0,3 -2,7 -0,5 -1,0 PROFIT (-LOSS) FOR THE PERIOD -4,3 0,7 -5,8 -2,3 -1,5 Earnings per share,eur -0,11 0,02 -0,14 -0,06 -0,04 Earnings per share, diluted, -0,11 0,02 -0,14 -0,06 -0,04 eur NET SALES BY SECONDARY May./06- May./05- Nov./05- Nov./04- Nov./04- SEGMENTS, EUR million Jul./06 Jul./05 Jul./06 Jul./05 Oct./05 3 months 3 months 9 months 9 months 12 months Americas 4,6 6,1 18,6 15,6 24,8 EMEA 14,2 12,9 44,0 36,1 50,5 APAC 3,7 1,3 9,0 3,9 6,3 TOTAL 22,5 20,3 71,6 55,6 81,6 CONSOLIDATED BALANCE SHEET EUR million Jul. 31, Jul. 31, change Oct. 31, 2006 2005 % 2005 ASSETS NON-CURRENT ASSETS Intangible assets 4,9 4,2 16,7 4,4 Tangible assets 8,9 8,0 11,4 8,6 Investments in associates 0,1 0,0 n.a. 0,0 Long-term receivables and investments 0,4 2,1 -81,1 1,8 NON-CURRENT ASSETS 14,2 14,3 -0,2 14,8 CURRENT ASSETS Inventories 12,4 13,2 -6,1 13,2 Trade receivables and other 11,5 11,3 1,2 10,2 receivables Cash equivalents 7,3 10,7 -31,7 11,5 Cash in hand and at banks 6,8 7,1 -3,2 10,3 CURRENT ASSETS 38,0 42,3 -10,1 45,2 ASSETS 52,2 56,6 -7,6 59,9 EQUITY AND LIABILITEIS SHAREHOLDERS' EQUITY Share capital 34,5 34,5 0,0 34,5 Share premium account and other 0,9 4,4 -78,6 4,7 reserves Transferred from share premiun account 4,0 0,0 n.a. 0,0 Retairned earnigs -6,9 -1,5 356,9 -1,0 SHAREHOLDERS' EQUITY 32,4 37,3 -13,1 38,2 LIABILITIES Long-term liabilities 0,4 0,8 -47,1 0,8 Current liabilities 19,4 18,4 5,2 20,9 LIABILITIES 19,8 19,3 2,9 21,7 TOTAL EQUITY AND LIABILITIES 52,2 56,6 -7,6 59,9 GROUP KEY FIGURES, EUR May./06- May./05- Nov./05- Nov./04- Nov./04- million Jul./06 Jul./05 Jul./06 Jul./05 Oct./05 3 months 3 months 9 months 9 months 12 months Earnings per share,eur -0,11 0,02 -0,14 -0,06 -0,04 Earnings per share, -0,11 0,02 -0,14 -0,06 -0,04 diluted, eur Shareholders' equity 0,80 0,92 0,80 0,92 0,94 per share, eur Solvency ratio,% 62,1 65,9 62,1 65,9 63,7 Return on equity-%(ROE) -50,2 8,1 -21,9 -7,6 -14,4 Return on investment- -43,9 10,8 -10,3 -4,9 -1,1 %(ROI) Gearing, % -40,6 -42,5 -40,6 -42,5 -52,2 Net interest-bearing -13,1 -15,8 -13,1 -15,8 -19,9 debt, EUR million Gross investments, Me 1,6 1,2 4,0 4,0 5,6 as percentage of net 7,2 6,0 5,6 7,2 6,8 sales Average personnel 807 709 786 647 668 CASH FLOW STATEMENT Nov./05- Nov./04- change Nov./04- EUR million Jul./06 Jul./05 % Oct./05 Cash flow from business operations before financing items and taxes -2,0 4,3 8,1 Financing items and taxes -0,7 -1,0 0,5 Cash flow from business operations (A) -2,7 3,3 -183,0 8,7 Investments -4,1 -4,3 -5,9 Cash flow from investments (B) -4,1 -4,3 -3,1 -5,9 Directed share issue and subscription 0,0 1,0 1,0 of shares with warrants Change in liabilities -0,7 -0,4 -0,3 Dividends paid 0,0 -6,0 -6,0 Cash flow from financing (C) -0,7 -5,3 -86,5 -5,3 Change in cash flow (A+B+C), increase (+), decrease (-) -7,6 -6,3 20,5 -2,5 GROUP CONTINGENT LIABILITIES Jul. 31, Jul. 31, change Oct. 31, Contingent liabilities, EUR million 2006 2005 % 2005 On own behalf - Corporate mortages 0,0 0,0 0,0 - Pledges given 0,0 0,1 -77,5 0,1 - Other contingent liabilities 0,2 0,2 0,0 0,2 - Rent and leasing commitments 6,1 6,7 -8,5 7,4 Derivative contracts -Forward currency contracts Market value 0,9 2,2 -57,9 1,9 Value of underlying Instruments 0,9 2,2 -56,2 1,9 Percentage changes calculated on basis of exact figures. GROUP STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY EUR million Share- Share Other Translation Retained holders' premium reserves differences earnings Total equity account and transferred from share premium acc. Shareholders' 34,5 4,0 0,7 0,2 -1,2 38,2 equity Nov.1, 2005 Change in 0,0 0,0 0,0 0,0 -0,1 -0,2 translation defference Other changes 0,0 -4,0 0,2 0,0 4,0 0,2 Loss for the 0,0 0,0 0,0 0,0 -5,8 -5,8 period Shareholders' 34,5 0,0 0,9 0,2 -3,1 32,4 equity Jul. 31, 2006 EUR million Share- Share Other Translation Retained holders' premium reserves differences earnings Total equity account Shareholders' 17,1 20,1 0,3 0,0 5,9 43,4 equity Nov.1, 2004 Change in 0,0 0,0 0,0 0,2 -0,1 0,0 translation defference Other changes 0,0 0,0 0,1 0,0 0,8 0,9 Annulment of -0,2 0,2 0,0 0,0 0,0 0,0 shares Profit for the 0,0 0,0 0,0 0,0 -2,3 -2,3 period Dividend 0,0 0,0 0,0 0,0 -6,0 -6,0 Bonus issue 17,0 -17,0 0,0 0,0 0,0 0,0 Exercised 0,6 0,7 0,0 0,0 0,0 1,2 options Shareholders' 34,5 4,0 0,4 0,2 -1,7 37,3 equity Jul. 31, 2005 EFORE PLC Board of Directors For further information please contact Mr. Reijo Mäihäniemi, President and CEO, on September 7, 2006 at 9 – 11 a.m. or at 3-5 p.m., tel. +358 9 4784 6312 Efore Plc will hold a news conference regarding the interim report for analysts and media on September 7, 2006 at 11 a.m in Helsinki World Trade Center, Marski Conference Room, address Aleksanterinkatu 17. DISTRIBUTION Helsinki Exchanges Principal media Efore Group The Efore electronics group is an international company providing services for the telecommunications, industrial electronics and health-care industries. Its operations comprise custom-designed power supplies, DC power systems, electronics design and manufacturing services (EDMS), and maintenance and repair services. Efore's registered office is in Espoo, Finland. The company also has operations elsewhere in Finland, in Saarijärvi and Tampere. Efore's other product development and production units are located in China, Estonia and the USA. The Group also has a subsidiary in Brazil and an associate company in Germany. In the fiscal year ending in October 2005, consolidated net sales totaled approximately EUR 81.8 million and the Group's personnel numbered 751. The parent company Efore Plc is quoted on the Main List of the Helsinki Stock Exchange. www.efore.com |