Componenta Corporation Financial Statements 1 January - 31 December 2002

Componenta Corporation Financial Statements 1 January - 31 December 2002 Componenta Group had net sales in 2002 of EUR 180.8 million (net sales in the previous year were EUR 193.8 million, net sales declined 7%). The Group had an operating profit of EUR 7.0 (8.3) million and a loss after financial items of EUR 2.1 million (profit of EUR 2.3 million). The earnings per share were EUR 0.11 (0.77). Low sales in the first quarter and increased net financial costs reduced the Group's result from the previous year's level. The Group's equity ratio, including the preferred capital notes in equity, was 31.4 per cent (32.0%). The Board of Directors proposes to the Annual Shareholders' Meeting that a dividend of EUR 0.10 per share will be paid. The weak performance of the global economy in 2002 coupled with increased uncertainty about demand reduced Componenta Group's sales and weakened the Group's result. In consequence of the weaker performance and the uncertainty about demand, the Group has initiated a programme to adjust cost and product structures. This is estimated to improve the Group's operating profit by more than EUR 6 million in 2003. The cost structure has been enhanced through programmes to raise productivity at individual units and by cutting fixed costs. These actions account for two thirds of the programme. The programme to adjust the product structure includes optimizing production processes and correcting unhealthy price structures. The Group reinforced its financing structure through an issue of preferred capital note in February. The preferred capital note is effective at the latest until 2009. Market The year 2002 was characterized by uncertainty about developments in the global economy. Many industrial sectors had unused capacity, which reduced the need for capital expenditure by industry. However, the differences in developments between individual sectors and between individual companies were considerable. Demand for heavy trucks in Europe continued to fall throughout 2002, and total demand was more than 10 per cent down on the previous year. Heavy truck production declined by about 6% in Europe. Componenta's delivery volumes to the heavy truck industry were six per cent lower than in the previous year. Componenta's sales followed general trends closely, despite the steps taken during the year to eliminate non-profitable products. Demand from the energy and power transmission sector was lower in the final quarter than in the same period in the previous year. Sales were affected by changes in the product structure of wind turbine generator customers, which means that in future sales will focus on larger units. During 2002 sales increased by 3%. The purchase of Componenta Nisamo in the summer of 2001 contributed to this improvement. Output by Nordic machinery and equipment manufacturers declined in 2002, a consequence of low demand for investments in export and domestic markets. The sector has much unused capacity. Cast and Other Components' deliveries to machine building industry fell 8% in the final quarter of 2002 from the final quarter in 2001. Componenta's sales to machine building industry were 17% lower in 2002 than in the previous year. Demand from European off-road manufacturers in 2002 was lower than in the previous year. Componenta's deliveries to off-road manufacturers, however, grew slightly in the final quarter compared to the same period in the previous year. For the whole year sales were 5% down on the previous year, due to the weak sales performance at the start of the year. Changes in Group structure In September Componenta sold the operations of metal foundry Componenta Traryd, which was not part of the core business, in an MBO to the company's operative management consisting of Chairman of the Board Antti Lehtonen, Managing Director Bo Rosengren and Finance Manager Gunnar Blomberg. The selling price was EUR 4 million. Componenta continues to participate in Traryd's business as a financier. Net sales and order book The Group had net sales in the January - December review period of EUR 180.8 (193.8) million. Net sales fell 7% from the previous year. The Group's order book at the end of the review period on 31 December 2002 stood at EUR 24.9 million (EUR 26.5 million on 31 December 2001). Net sales in the final quarter of the year totalled EUR 44.5 (46.2) million, a fall of 4% from the previous year. Exports and foreign operations accounted for 72% (72%) of the Group's net sales. Net sales by market area were as follows: Finland 28% (28%), other Nordic countries 53% (52%), Central Europe 17% (18%) and other countries 2% (2%). Net sales by customer business sector were as follows: heavy truck industry 54% (54%) of net sales, power and transmission 14% (13%), machine building 15% (16%), off-road industry 12% (12%) and other 5% (5%). Result and financing Componenta Group had an operating profit of EUR 7.0 (8.3) million, and a loss after financial items of EUR 2.1 million (profit of EUR 2.3 million). The result includes EUR 1.8 (1.2) million in net profit from the sale of non-current assets and other non-recurring items. The remaining amount of the negative goodwill generated in 2001 in the restructuring of the Group was recognized in the final quarter of the year. A total of EUR 2.9 (12.3) million of negative goodwill was recognized as income during the year. The Group's net financial costs totalled EUR 9.1 (6.0) million. Financial costs increased mainly because the 2001 financial costs do not include interest on preferred capital notes (EUR 1.6 million). Another factor in the increase was the EUR 0.4 million currency exchange losses. The Group's net profit was EUR 1.0 (7.4) million. The income taxes for the review period were EUR 3.1 (5.0) million positive. This consists partly of the reduction in deferred tax liability through the reversal of depreciation difference and partly of the change recorded in deferred tax assets for the losses for the financial year and for confirmed losses. The prudence principle was followed in recording the deferred tax assets. Closing the Osby machine shop and the transfer of products to other Componenta units took place largely according to plan. 60% of Osby's production was transferred to other units in the Group. The costs for closing the unit were, however, EUR 0.7 million higher than had been estimated in 2001. Production was terminated at the unit in March and operations ceased entirely in May. The Group's equity ratio was 18.2% (18.7%). The equity ratio including the preferred capital notes was 31.4% (32.0%). The Group reinforced its financial structure in February with an issue of preferred capital note which is effective at the latest until 2009. The Group had unused committed credit facilities at the end of the year of EUR 27 million. The Group has a EUR 40 million commercial paper programme and EUR 16.6 million of this was in use at the end of the year. The Group's net interest-bearing liabilities, excluding the EUR 28.6 million preferred capital note, totalled EUR 116.5 (112.4) million. Cast and Other Components The Cast and Other Components business group, which forms the Group's core business, supplies ready to install cast and machined components to heavy truck industry, power and transmission industries, machine building industry and off-road industry. Cast and Other Components had net sales in the period January - December of EUR 148.7 (158.4) million and an operating profit of EUR 5.8 (8.7) million. The order book on 31 December 2002 stood at EUR 19.6 (22.0) million. Net sales in the fourth quarter were EUR 36.4 (38.5) million and the operating profit was EUR 1.5 (1.1) million. The fall of EUR 9.7 million in sales from the previous year and the restructuring actions taken had a major impact on the result for the whole year, resulting in lower capacity usage. The Alvesta unit was still loss-making, even though its result improved from the previous year. Other Business Componenta's Other Business consists of operations that are not part of the company's core operations, such as the Wirsbo forges, associated companies, the Group's support functions and service units, as well as divested businesses. Other Business had net sales in January - December of EUR 32.1 (35.4) million and an operating profit of EUR 1.2 million (loss of EUR 0.4 million). The order book at the end of the year stood at EUR 5.3 (4.5) million. Net sales in the fourth quarter were EUR 8.1 (7.7) million and the operating profit was EUR 1.0 (0.0) million. Despite weak sales at the start of the year, Componenta Wirsbo almost achieved the same level in its sales as in the previous year. Wirsbo's operative result failed to match expectations, however, and the unit was heavily loss-making. A one-time write-down of inventory in the third quarter was an extra burden on the unit's result. A streamlining programme has been started at the unit to correct prices and to increase efficiency in the unit. In January 2002 Componenta raised its holding in the associated company Thermia AB from 30 per cent to 36 per cent. Componenta Group's share of the result of the associated companies was EUR 0.2 (-0.5) million. Improved operating profits by Thermia and Ulefos NV increased the Group's share and exchange rate losses at Ulefos NV reduced it. Investments Investments in production facilities in 2002 totalled EUR 7.9 (15.6) million. The largest of these were the expansion of Suomivalimo, new production lines at Albin and Nisamo, and the pressing line for forged components at Wirsbo, which was started in 2001 and taken in use in the summer of 2002. The Group also invested EUR 1.1 million in the shares of the associated company Thermia AB. Gross investments totalled EUR 9.8 (53.1) million. Because of its divestments the Group's cash flow for investments was EUR -5.7 million. The Group's research and development costs are recorded as expenses for the period in which they are incurred. Share capital and shares Componenta Corporation's shares are quoted on the main list of the Helsinki Exchanges. At the end of the review period, the company's share capital stood at EUR 19.2 million. The share has a nominal value of 2 euros. At the end of the year the quoted price of Componenta Corporation shares stood at EUR 1.81. The lowest quoted price during the year was EUR 1.71 and the highest was EUR 2.70. The share capital had a market value at the end of 2002 of EUR 17.4 million. The volume of shares traded during the review year was the equivalent of 11.3% of the share stock. Authorization for share issues and purchasing own shares The company's Board of Directors has no authorization to issue shares or to purchase the company's own shares. Preferred capital note Componenta Corporation offered holders of the preferred capital notes issued in 1997 by Componenta's subsidiary Componenta Finance Corporation the opportunity to exchange their notes for new preferred capital note issued in February 2002 by Componenta Corporation. The preferred capital notes issued by Componenta Finance Corporation were in their entirety in the possession of Componenta Corporation by the end of March, and as a result stock exchange trading in Componenta Finance preferred capital notes also ceased in March. The preferred capital note issued by Componenta Corporation had a principal of EUR 25.1 million and the loan period is 15 February 2002 - 19 March 2009. Annual interest is paid on the note at a rate 4% above the 12-month Euribor interest rate. The company repays 10% of the principal annually, and the first instalment was repaid on 19 March 2002. Componenta Corporation also has the right to pay off more than 10% of the note on the annual interest payment date. On 31 December 2002 Componenta Corporation had preferred capital note with a value of EUR 28.6 million. Personnel During the financial year the Group had an average of 1,705 (1,810) employees. The Group had 1,616 (1,741) employees on 31 December 2002. 52.8% (50.8%) of the Group's personnel were in Finland, 46.6% (48.7%) in Sweden and 0.5% (0.5%) in other countries. Board of Directors and Management Componenta's Annual Shareholders' Meeting on 12 February 2002 elected Heikki Bergholm, Antti Lehtonen, Heikki Lehtonen, Juhani Mäkinen and Olli Reenpää as members of the Board of Directors. The Board chose Olli Reenpää as its chairman and Juhani Mäkinen as its vice chairman. Antti Lehtonen resigned from the Board of Directors of Componenta Corporation at the end of September. Senior Vice President Yrjö Julin left to work at another company at the beginning of May and Bengt Christensson, Director of Supply Group 1, at the beginning of October. The corporate executive team of Componenta Group is formed by President and CEO Heikki Lehtonen, Lauri Huhtala, Director, Foundries, Olli Karhunen, Director, Power and Transmission, Jari Leino, Director, Sales and Marketing, CFO Sirpa Koskinen and Communications Manager Pirjo Aarniovuori. Announcements in conformance with Chapter 2, Article 9 of the Finnish Securities Markets Act in 2002 According to a statement made on 12 July 2002, the holding of Etra- Invest Oy in Componenta Corporation exceeded 10 per cent, rising to 10.42 per cent of the shares and voting rights. Shareholders' Meeting The Annual Shareholders' Meeting of Componenta Corporation will be held on 12 February 2003 at 2.00 pm. Publication of Annual Report Componenta Corporation will publish its 2002 annual report and the Internet version of the report in week 6. Prospects for 2003 This perception of Componenta's prospects is based on publicly available, external business cycle indicators, order forecasts given by customers and on Componenta's order intake and order book. Uncertainty about developments in the global economy continues to postpone decisions about capital expenditure in machinery and equipment by industry. Demand is expected to be slack in 2003. Demand for heavy truck components stopped falling in 2002. The uncertainty about general economic developments may, however, also affect demand for heavy truck components in 2003. Judging from the order books, the first quarter of 2003 is likely to be a weak period for wind turbine components due to a seasonal trend. Demand is expected to pick up in the second quarter. Demand in Nordic machine building industry remained weak at the end of 2002 and any recovery in growth will probably be further postponed, even though demand is expected to have stopped falling. The Group's deliveries to European off-road manufacturers increased in the final quarter of the year and this positive trend is expected to continue in the first part of 2003. Thanks to the restructuring programme initiated in 2002, in the first quarter of 2003 the Group's cost structure will be EUR 1 million lighter than in 2002. Componenta Group's net sales in the first quarter of 2003 should be at the same level as in the corresponding period in the previous year and the operating profit is expected to improve. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2003/01/24/20030124BIT00060/wkr0001.doc The full report http://www.waymaker.net/bitonline/2003/01/24/20030124BIT00060/wkr0002.pdf The full report