Commentary from the Management
The activities of Harju Elekter Group in 2019 could be aptly described using the keywords “changes” and “reorganisation”. Changing environment and future-orientated challenges in incorporating and reorganising the business structure of the Group did not make achievement of the results easy. Nevertheless, we successfully managed to increase our revenue to 143.4 (+ 18.7%) million euros and our operating profit (EBIT) to 3.3 (+35.6%) million euros. Expectations for higher profitability were not met due to delays in complex major projects and higher-than-expected costs in Sweden, but also due to the underutilization of Estonian companies as a result of significant changes in the Finnish substation market. At the same time, we are proud of the group's Lithuanian and Finnish production companies for achieving their best results ever.
In coordination with the Supervisory Board, the Group's Management Board will propose to pay dividends to the shareholders 0.18 euros per share, totaling 3.2 million euros.
Key indicators
January - December October - December
(thousand euros)2019 2018 Change % 2019 2018 Change %
Sales revenue 143,397 120,804 18.7% 31,246 31,669 -1.3%
Gross profit 18,244 15,976 14.2% 3,995 4,867 -17.9%
EBITDA 6,791 5,001 35.8% 1,112 1,701 -34.6%
EBIT 3,273 2,413 35.6% 210 1,007 -79.1%
Profit for the period 2,367 1,514 56.3% 55 736 -92.5%
incl attributed to Owners
of the Company 2,460 1,546 59.1% 77 735 -89.5%
Revenue and profit
The Group develops and manufactures electrical equipment, control and power automation devices and various metal products, totaling approximately 95% of the Group's revenue. In addition, revenue is also earnt from the rental of industrial real estate and electricity works in the shipbuilding sector.
Revenue in the reporting quarter was as expected, considering the seasonality, and remained at the similar level, 31.2 (Q4 2018: 31.7) million euros, as in the comparison period. During the reporting year the Group's revenue continued the increase being 18.7% higher than in the comparable period, reaching 143.4 (2018: 120.8) million euros. The major part of the increase in the Group's revenue came from sales of electrical equipment: 0.8 million euros for the quarterly comparison and 28.0 million euros for the 12 months comparison. Primarily, the volumes of electrical equipment, produced in Lithuania and sold to the shipping and industrial sectors, have increased.
The consolidated gross profit for the reporting quarter was 3,995 (Q4 2018: 4,867) thousand euros, the gross margin was 12.8% (Q4 2018: 15.4%).
Consolidated operating profit (EBIT) for the fourth quarter was 210 (Q4 2018: 1,007) thousand euros and the consolidated net profit was 55 (Q4 2018: 736) thousand euros. Low profitability was mostly influenced by an increase in sales of lower margin products on the Swedish market, postponement of deadlines of several large projects by clients, changes in the Swedish krona exchange rate, underutilization of the production capacity of Estonian companies in relation to a decreasing volume of orders from the Finnish power grid networks, and allowances for several receivables and inventories.
The consolidated gross profit for the reporting year was 18,244 (2018: 15,976) thousand euros and the gross margin was 12.7% (2018: 13.2%). Consolidated operating profit (EBIT) was earned in the reporting year 3,273 (2018: 2,413) thousand euros. Overall, the consolidated net profit of the reporting year was 2,367 (2018: 1,514) thousand euros and earnings per share (EPS) was 0.14 (2018: 0.09) euros.
Markets
The Group’s Estonian companies continue to contribute to the home market activities by participating in procurements, selling electrical products for retail and project sales, and offering different industrial rental premises for corporate customers. Sales to the Estonian market decreased 1.2 million euros to 3.5 (Q4 2018: 4.7) million euros in the quarterly comparison. In 12 months, sales to Estonia increased by 1.3 million euros compared to 2018, reaching 16.7 (2018: 15.4) million euros. Nevertheless, the share of the Estonian market in consolidated revenue is declining due to the growth of the foreign market, making up 11.3% and 11.7% respectively (Q4 2018: 15.1% and 2018: 12.8%).
The quarterly and 12 months revenue for the Finnish market has decreased to 14.8 and 71.8 (Q4 2018: 16.2 and 12 months: 75.5) million euros respectively. The decrease in revenue was most affected by the adjustment of the renovation plan of Finnish power grid construction projects to a smaller volume than originally planned. However, the sales in the other electrical equipment increased. In the reporting quarter, Finland market accounted for 47.4% (Q4 2018: 51.2%) and in the 12 months, 50.1% (2018: 62.5%) of the Group's consolidated revenue. Although its share is 12.4 percentage points less than in the previous period, it continues to be the largest market in the Group. The decrease in the Finnish market share of the Group's revenue was affected by the growth of revenue in Sweden, Norway and Netherland.
In the reporting quarter, revenue from the Swedish market was 4.8 (Q4 2018: 5.1) million euros, which is 0.3 million euros less than in the comparable period. At the same time, revenue for the reporting year increased by 44.5% or 6.0 million euros to 19.5 million euros. The growth was ensured by an increase in the sales of substations in Sweden and adding bigger projects to the Swedish subsidiary. The share of the Swedish market in the consolidated revenue rose, reaching 13.6% (2018: 11.2%) in the reporting quarter year.
As a result of the Group’s Lithuanian subsidiary’s successful sales, sales to the Norwegian market have increased the most. Revenue for the quarter was 3.8 (Q4 2018: 3.0) million euros and for the twelve months totalled 21.6 (2018: 8.7) million euros, increasing by 23.5% and 148.1%, respectively. Multiplied sales to the Norwegian market have increased their market share to 15.0% (2018:7.2%) of the Group's sales in 12 months and raised the Norwegian market to second position in the Group’s markets.
From the second half of 2018, the Group started deliveries and supplies to the Netherlands, where we have managed to achieve a stable revenue growth. In quarterly comparison, sales to the Netherland market increased by 1.5 million euros and in the 12 months by 7.3 million euros. The Netherlands made up 8.6% (Q4 2018: 3.9%) of the consolidated revenue in the reporting quarter and 7.2% (2018: 2.4%) in the reporting year.
Business segments
In the reporting quarter, revenue of the Production segment was 26.7 million euros. Revenue for the 12 months has increased compared to the previous year by 25.0 euros, to 124.8 million euros accounting for 87.1% (2018: 82.6%) of the Group's revenue. The Lithuanian company, whose production capacity has increased significantly thanks to the opening of a new production building, has contributed the most to the increase in the revenue of the Production segment, which revenues have tripled.
Revenue in the Real Estate segment remained at 0.8 million euros in the quarterly comparison, since new production and warehousing premises at Allika Industrial Park were already leased out during the last quarter of 2018. The revenue has increased by 24.8% to 3.3 (2018: 2.6) million euros for the 12 months, accounting for 2.3% (2018: 2.2%) of the Group's reporting year revenue. Rental income is earn from rental premises in the Allika, Keila and Haapsalu industrial parks.
The revenue of Other activities in the quarter has decreased by 0.5 million euros, to 3.8 million euros year-on-year and for the yearly comparison decreased by 3.1 million euros to 15.3 million euros. Compared with the comparable period, the reduction is caused by large-volume electrical works projects in the shipbuilding sector in the first half of 2018.
Operating expenses
Operating expenses in the reporting quarter were 31.1 (Q4 2018: 30.6) million euros and of the reporting year were 140.1 (2018: 118.3) million euros in total. The main reason for the reporting year expenses growth was the unexpectedly higher project implementation costs in Sweden that was partly affected by the change in the Swedish krona. The principal part of the cost increase is attributable to the higher amount of cost of sales: 0.5 million euros in the quarterly and 20.3 million euros in the yearly comparison. The increase in the cost of sales overtook sales growth by 0.7 percentage points, reducing the gross margin by 2.6 and 0.5 percentage points compared to the comparison periods. Distribution costs have decreased by 0.1 million compared to the comparable quarter and increased by 0.4 million euros compared to the 12 months. The ratio of marketing expenses to Group revenue has decreased, quarterly and for the 12 months, accounting for 4.8% and 4.0% respectively (Q4 2018: 5.2% and 2018: 4.4%). The Group’s companies have participated in several professional fairs and they actively search for possibilities to increase business volumes.
The addition of new employees to expand operations in the Lithuanian subsidiary and the wage pressure resulting from the demand for local skilled labour, have increased labour costs in the reporting period. In addition, the costs of the share option programmes in the amount of 189 (2018: 97) thousand euros were reflected as labour costs in the reporting year. Labour costs increased by 6.9%, to 7.2 million euros year-on-year and by 7.9% to 26.7 million euros in the 12 months comparison. The ration of labor costs to revenue increased to 23% (Q4 2018: 21.2%) in the quarter and decreased to 18.6% (2018: 20.5%) compared to previous year.
The innovative production line and buildings that were taken into use increased the depreciation of non-current assets by 0.2 million euros, to 0.9 million euros year-on-year and by 0.9 million euros to 3.5 million euros in the 12 months comparison.
Personnel
As of the end of the reporting period, the Group had 791 employees, being 55 employees more than a year ago. The change was caused by a significant increase in production volume in the Lithuanian subsidiary. During the reporting year, the Group employed an average of 778 people, which was an average of 65 employees more than in the comparable period. In the reporting quarter, 5.8 (Q4 2018: 4.5) and during the 12 months 21.4 (2018: 18.5) million euros were paid to the employees in salaries and remuneration. Average wages per Group employee was 2,296 euros, an increase of 6% to the comparable period. The decision of the Republic of Lithuania to calculate part of the social tax as the gross salary of the employee had an impact on the Group's salary costs but this did not have a significant impact on the labour costs of the Group.
Investments
In the reporting period, the Group invested a total of 5.5 million euros in non-current assets, incl. 0.9 million euros in investment properties, 4.2 million euros in property, plant and equipment and 0.4 million euros in intangible assets. Most of the investment, 3.2 million euros, was directed to the extension of the Lithuanian subsidiary's production facility, construction of the infrastructure needed to service it, and purchasing new production equipment. The rest of the investments were placed into integration of the new sale office and the central warehouse of the Estonian subsidiary, and into the development projects of the Group’s companies and industrial parks. In the comparable period, a total of 10.6 million euros were invested into non-current assets, of which 1.0 million euros was through business combinations. The remaining amount was used for the subsidiary’s Prima Power production line, construction of the Allika industrial park and Haapsalu solar power plant.
Main events in the fourth quarter
• AS Harju Elekter Elektrotehnika, a subsidiary of AS Harju Elekter, won a tender from Elektrilevi OÜ for the supply of 630 kVa and 1000 kVa prefabricated substations and these components. Totally 27.8 million euros amounted in the 62-months contract period.
• Telesilta Oy, a subsidiary of AS Harju Elekter, and Uudenkaupungin Työvene Oy have signed a contract for electrical turnkey delivery for workboat series to Finnish Coast Guard. The contract price is around 4 million euros and work will be carried out on years 2020 to 2023.
Events after the reporting period
• In order to simplify the coordination of sales and marketing activities and the management of Finnish subsidiaries, Harju Elekter decided to merge its subsidiaries Finnkumu Oy and Kiinteistöyhtiö Oy Ulvilan Sammontie 9 with Satmatic Oy in 2020. The next step is to transfer all the Harju Elekter's real estate in Finland to Harju Elekter Kiinteistöyhtiö Oy and then rename Satmatic Oy to Harju Elekter Oy.
The share
The company's share price on the last trading day of the reporting quarter on the Nasdaq Tallinn Stock Exchange closed at 4.21 euros.
Andres Allikmäe
Chairman of the Management Board
+372 674 7400
For more information: Tiit Atso, CFO, +372 674 7400 or Interim report 1-12/2019
AS HARJU ELEKTER
CONSOLIDATED BALANCE SHEET,31.12.2019
Unaudited
EUR'000
ASSETS 30.09.19 31.12.18
Cash and cash equivalents 4,878 3,142
Trade receivables and other receivables 22,958 22,218
Prepayments 1,166 1,173
Inventories 19,010 17,468
TOTAL CURRENT ASSETS 48,012 44,001
Deferred income tax asset 472 98
Other long-term financial investments 10,494 9,587
Investment property 21,259 19,804
Property, plant and equipment 20,402 17,403
Intangible assets 7,260 7,260
TOTAL NON-CURRENT ASSETS 59,887 54,152
TOTAL ASSETS 107,899 98,153
LIABILITIES AND OWNERS' EQUITY
Interest-bearing loans and borrowings 11,305 6,656
Advances from customers 2,212 1,740
Trade payables and other payables 16,448 14,911
Tax liabilities 2,959 2,409
Short-term provision 34 14
TOTAL CURRENT LIABILITIES 32,958 25,730
Interest-bearing loans and borrowings 7,901 5,449
Other long-term liabilities 64 35
NON-CURRENT LIABILITIES 7,965 5,484
TOTAL LIABILITIES 40,923 31,214
Share capital 11,176 11,176
Share premium 804 804
Reserves 3,412 2,665
Retained earnings 51,699 52,316
TOTAL OWNERS' EQUITY 67,091 66,961
Non-controlling interests -115 -22
TOTAL EQUITY 66,976 66,939
TOTAL LIABILITIES AND OWNERS' EQUITY 107,899 98,153
CONSOLIDATED INCOME STATEMENT, 1-12/2019
Unaudited
EUR’000 Q4 2019 Q4 2018 12m 2019 12m 2018
Revenue 31,246 31,669 143,397 120,804
Cost of sales -27,251 -26,802 -125,153 -104,828
Gross profit 3,995 4,867 18,244 15,976
Distribution costs -1,508 -1,623 -5,706 -5,267
Administrative expenses -2,300 -2,224 -9,229 -8,223
Other income 85 64 255 124
Other expenses -62 -77 -291 -197
Operating profit 210 1,007 3,273 2,413
Finance income 4 16 139 157
Finance costs -58 -27 -225 -63
Profit before tax 156 996 3,187 2,507
Income tax expense -101 -260 -820 -993
Profit for the period, attributable to 55 736 2,367 1,514
owners of the Company 77 735 2,460 1,546
non-controlling interests -22 1 -93 -32
Basic earnings per share (EUR) 0.00 0.04 0.14 0.09
Diluted earnings per share (EUR) 0.00 0.04 0.14 0.09
Tiit Atso
CFO
+372 674 7400 |