Componenta Corporation Interim Report 1 January - 30 June 2003

Componenta Corporation Interim Report 1 January - 30 June 2003 · Net sales during the first six months were EUR 93.5 million (net sales of EUR 97.2 million in the same period in the previous year, a decline of 4%). · Operating profit of EUR 4.4 (4.2) million and a profit after financial items of EUR 0.5 million (loss of EUR 0.3 million). · Earnings per share were EUR 0.09 (0.03). · The Group's operating profit remained at the same level as the previous year, thanks mainly to the programme of remedial action carried out and despite the high prices for scrap steel and lower net sales than in the previous year. Lower financing costs also contributed to the improvement in the Group's result. · The Group's equity ratio, including the preferred capital note in equity, was 31.3% (31.4% on 31 December 2002). · The Iraq war cast a shadow over the global economy during the first half of the year, and since the war ended the uncertainty affecting demand has continued. Markets and developments by customer sector The Iraq war has been a major factor affecting prospects for the global economy. The war and other destabilising factors have caused further delays in any recovery in economic growth and investments by industry. The fall in interest rates since the end of the war and a possible decline in the prevailing uncertainty create conditions for improving this state of affairs, but probably not until next year. Production of heavy trucks has remained at a satisfactory level in Europe, even though volumes have fallen. Volumes supplied by Componenta to heavy truck manufacturers in the second quarter were considerably lower (-8%) than in the same period last year. Exceptionally poor demand for truck brake components contributed to this, in addition to the factors mentioned above. Demand in the power and transmission industries picked up as expected in the second quarter and was 3 per cent up on the corresponding period in the previous year. Sales for the first half of the year were, however, down on the same period in the previous year. The poor performance at the start of the year was mainly due to low demand for wind generator components. During the review period, demand has improved in all segments of the business sector (components for diesel and electric engines and for wind turbine generators). Output by Nordic machinery and equipment manufacturers has continued at a low level in 2003 as a result of poor investment demand. Componenta's sales to the machine building industry in the second quarter of 2003 were at the same level as in the corresponding period in the previous year. Sales fell 2 per cent compared with the first half of the previous year. Componenta's deliveries to off-road manufacturers in the second quarter fell 9 per cent from the corresponding period in the previous year. Sales for the first half of the year were similar to those in the previous year. Net sales and order book The Group had net sales in the review period of January - June of EUR 93.5 (97.2) million. Net sales declined 4% from the previous year. The Group's order book improved from the start of the year, remaining the same as at the end of the previous quarter. At the end of the review period the order book stood at EUR 26.5 (29.9) million (EUR 24.9 million on 31 December 2002). Exports and foreign operations accounted for 72% (73%) of net sales. Componenta Corporation's net sales by market area were as follows: Finland 28% (27%), other Nordic countries 52% (53%), Central Europe 17% (17%) and other countries 3% (3%). Net sales by customer sector were as follows: heavy truck industry 55% (54%), power and transmission 14% (14%), machinery and equipment manufacturers 14% (14%), off-road 13 % (12%) and others 4% (5%). Result Componenta Group made an operating profit of EUR 4.4 (4.2) million during the first six months of the year, and the profit after financial items was EUR 0.5 million (loss of EUR 0.3 million). The result includes a one time item of EUR -0.3 million for the outstanding amount in the sale of SEW-Componenta decided by the Court of Arbitration. By the end of the review period SEW-Eurodrive had not paid the sum of more than EUR 2.6 million, including interest, that the court decided it should pay. According to the terms of the decision of the Court of Arbitration, interest of 8.4% is charged on the unpaid item. The Group's operating profit remained at the same level as in the previous year, mainly because of the programme of remedial action and in spite of the high prices for scrap steel at the start of the year and lower net sales than in the previous year. These factors and lower financing costs contributed to the improvement in the Group's result. Because of the continuing economic uncertainty, the Group has taken other steps to further raise efficiency and to maintain the positive cash flow, in addition to the restructuring programme already started. Implementation of this programme has progressed as planned. The Group's net financial costs amounted to EUR 4.0 (4.5) million and the net result was EUR 0.8 (0.3) million. Income taxes in the review period were EUR 0.4 million positive, due to the reduction in deferred tax liability recorded through the reversal of accelerated depreciation. Earnings per share were EUR 0.09 (0.03). The return on investment was 5.6% (5.1%) and the return on equity was 4.3% (1.3%). Financing The Group's equity ratio was 19.0% (17.5%). Including the preferred capital note in shareholders' equity, the equity ratio was 31.3% (30.1%, 31.4% on 31 December 2002). In March the company carried out an EUR 49 million financing arrangement lasting until 2006. As part of its action to make more effective use of capital, in March the Group started a programme to sell its trade receivables. On the basis of this arrangement, some of the trade receivables can be sold without any right of recourse. The target for this programme is to reduce by half the amount of capital tied up in trade receivables. By 30 June 2003 the company had sold trade receivables totalling EUR 5.6 million. In March the Group repaid EUR 3.2 million, or 10%, of the principal of the preferred capital note in accordance with the terms for the note. On 30 June 2003 Componenta Corporation's preferred capital note amounted to EUR 25.4 million. The Group had committed credit facilities of EUR 22.3 million at the end of the review period. The Group has a EUR 40 million commercial paper programme. The Group's interest-bearing net liabilities, excluding the EUR 25.4 million preferred capital note, totalled EUR 109.7 (122.9) million (EUR 116.5 million on 31 December 2002). Net gearing, including the preferred capital note in shareholders' equity, was 169% (181%). The cash flow from operations was EUR 11.4 (-1.0) million, and of this the change in net working capital was EUR 4.5 (-3.5) million. The cash flow from investments was EUR -1.0 (-4.3) million. The change in cash funds during the review period was EUR -2.3 (-0.5) million. Performance of business groups The Cast and Other Components business group, which forms the Group's core business, supplies ready to install cast and machined components to the heavy truck industry, the power and transmission industries, other machine building industry and the off-road industry. Cast and Other Components had net sales in the first half of the year of EUR 74.5 (79.9) million and an operating profit of EUR 5.0 (4.7) million. The order book stood at EUR 20.4 (23.8) million on 30 June 2003 (EUR 19.6 million on 31 December 2002). At the beginning of 2003, three major customers of Componenta Främmestad simultaneously made significant changes to their production strategies. The changes will mean an annual reduction of some SEK 75 million in production at Främmestad. Deliveries of the products affected by these reductions will not cease until the end of 2003, in accordance with the contracts for them. To cut personnel costs and improve competitiveness, negotiations were held at Componenta Främmestad and a plan implemented which will result in the number of personnel in Främmestad being reduced by 50 to 120 this year. 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 business. Net sales for Other Business totalled EUR 19.0 (17.3) million in the first half of the year and the operating loss was EUR 0.6 (loss of EUR 0.5) million. The order book stood at EUR 6.1 (6.1) million at the end of the review period (EUR 5.3 million on 31 December 2002). Componenta Wirsbo's sales increased from the corresponding period of the previous year. The unit's result has slightly improved from the same period of the previous year in consequence of the savings programme. Componenta Group's share of the result of the associated companies was EUR 0.1 (-0.1) million. The result was boosted by Keycast's improved result and exchange rate gains at Ulefos. The result was weakened by the poorer operational result of Ulefos NV due to the difficult state of the market in Norway. The associated company has started remedial action at the company's factory in Norway. Change in corporate structure Componenta Corporation and its fully owned subsidiary Componenta Finance Corporation signed a merger plan on 15 May 2003. According to the terms of the merger plan, Componenta Finance Corporation, including its assets and liabilities, will be merged with its parent company Componenta Corporation without giving any consideration. The reason for the merger is to simplify the corporate structure. The planned date for registering the completion of the merger is 31 December 2003. Share capital and shares The shares of Componenta Corporation 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 shares have a nominal value of 2 euros. At the end of the review period on 30 June 2003 the quoted price of Componenta Corporation shares stood at EUR 2.03. The average price during the review period was EUR 1.67, the lowest quoted price was EUR 1.39 and the highest EUR 2.19. The share capital had a market value of EUR 19.5 million at the end of the review period (EUR 17.4 million on 31 December 2002) and the volume of shares traded during the review period was equivalent to 9.1% of the share stock. The Annual Meeting of Shareholders decided on 12 February 2003 to pay a dividend of EUR 0.10 per share, in accordance with the proposal of the Board of Directors. The dividend was paid on 24 February 2003. The subscription period for the warrants issued by Componenta Corporation in 2001 ended on 30 April 2003. The subscription period for the Componenta Finance Ltd warrants from the 1997 bond with warrants and for the 1998 warrants ended on 30 April 2003. No shares were subscribed with these warrants. Authorization for share issues and purchasing own shares The company's Board of Directors has no authorization for share issues or for purchasing the company's own shares. Investments Investments in production facilities during the review period totalled EUR 0.6 (3.7) million. The Group's gross investments totalled EUR 0.6 (4.8) million. Changes in Group Management Sirpa Koskinen, Componenta's CFO and a member of the corporate executive team, left to work for another company on 7 May 2003. Kimmo Virtanen, M.Sc. (Econ.), has been appointed CFO and a member of the corporate executive team at Componenta Group as from 18 August 2003. Personnel The Group's average number of employees during the review period was 1,596 (1,722). On 30 June 2003 the Group had 1,614 (1,752) employees. 54.6% (54.1%) of the Group's personnel were in Finland, 44.9% (45.4%) in Sweden and 0.6% (0.5%) in other countries. Prospects for the near future Componenta's prospects for the near future are based on general external financial indicators, order forecasts given by customers, and on Componenta's order intake and order book. Industrial investment decisions are expected to be postponed again. The cut in interest rates creates the conditions for industrial investments to start up. The decline in demand for heavy truck components, which has continued for three years, is thought to have ended. Demand for power and transmission components is expected to continue to improve in the second half of the year. Demand in the Nordic machine building industry was better than expected during the second quarter. The Group's deliveries to off-road manufacturers failed to match expectations in the second quarter and fell short of those in the same period in the previous year. Despite this, the previous positive trend in sales is expected to continue during the second half of the year. Despite some positive signs recently, numerous factors put the start up of growth at risk, which can affect the above mentioned estimates. Thanks to the streamlining programme started last year, the Group's cost structure is lighter than in the previous year. Componenta Group's net sales in the third quarter of 2003 are forecast to be almost the same as in the corresponding period last year. As a result of the streamlining programme, the operational result after financial items, excluding non- recurring items, is forecast to be loss-making, even though significantly better than in the previous year. The cash flow from operations is forecast to be clearly positive in the third quarter. Helsinki, 11 July 2003 COMPONENTA CORPORATION Board of Directors Further information: Heikki Lehtonen President and CEO tel. +358 9 225 021 [REMOVED GRAPHICS] Componenta is a metal sector company with international operations and production plants located in Finland and Sweden. The company's net sales exceed EUR 180 million and the group employs about 1,700 people. Componenta's shares are quoted on the Main List of the Helsinki Exchanges. The group's customers operate in the heavy truck, power and transmission, machine building and off-road industries. Componenta specializes in supplying ready-to-install cast, geared and machined components directly to the customer's assembly line. Componenta Corporation Nuijamiestentie 3 C FIN-00400 Helsinki , Finland Tel. +358 9 225 021 Fax +358 9 2250 2721 http://www.componenta.com ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2003/07/11/20030711BIT00150/wkr0001.doc The full report http://www.waymaker.net/bitonline/2003/07/11/20030711BIT00150/wkr0002.pdf The full report