Exel Group's financial statement for 2004

EXEL OYJ STOCK EXCHANGE RELEASE 24 February 2005 AT 1.00 p.m. 1 (10) EXEL GROUP’S FINANCIAL STATEMENT FOR 2004 STRONG SALES AND PROFITABILITY GROWTH CONTINUED IN Q4 SUMMARY - Net sales for the financial year increased by 46% to EUR 83.9 (57.3) million - Operating profit grew to EUR 12.5 (5.3) million, up 134% - Profit after financial items soared by 147% to EUR 12.1 (4.9) million - Earnings per share were EUR 1.54 (0.64), up 141%, diluted EUR 1.45 (0.62) - Proposed dividend EUR 0.70 (1.30 including the bonus dividends) per share - Bright prospects for the beginning of the year in Nordic Walking and profiles NET SALES AND PROFITS Performance October-December 2004 Net sales for Q4 2004 amounted to EUR 19.8 (16.5) million, almost 20% higher year-on-year, while operating profit increased by 73 per cent to EUR 2.6 (1.5) million and profit after financial items totalled EUR 2.4 (1.4) million, an increase by 75%. Performance during the financial year Consolidated net sales totalled EUR 83.9 (57.3) million, and consolidated operating profit more than doubled to EUR 12.5 (5.3) million. Financial expenses remained almost equal to those of the previous year, coming to EUR 0.4 (0.4) million, despite the financing of the Belgian acquisition and the bonus dividends. As a result of strong operative cash flow, interest-bearing net liabilities increased only slightly. Profit after financial items amounted to EUR 12.1 (4.9) million. DIVISIONS Industry Net sales for Exel’s Industry division grew by 67% to EUR 48.3 (28.9) million due to the integration of the new Belgian factory with the Group (approx. EUR 8.9 million) and intensive growth in the special profile market arising chiefly from new customer applications. The Industry division’s operating profit amounted to EUR 7.5 (3.5) million. Increasing sales volume, enhanced production efficiency and high capacity utilisation rates boosted profitability. 2 (10) Sales of lattice masts broke records in 2004, due to the frangibility requirements of the International Civil Aviation Organization taking effect on 1 January 2005, requiring airport approach lighting masts to break upon possible impact without harming the aircraft. Sport The Sport division’s net sales increased by 25% year-on-year to EUR 35.5 (28.4) million as the growth of the Nordic Fitness SportsTM concept (NFS), and the Nordic Walking Market in German-speaking Central Europe in particular, continued. The Sport division’s operating profit also improved year-on-year, amounting to EUR 5.0 (1.8) million. This resulted mainly from increased volumes in Nordic Walking products and the further enhancement of production efficiency. In order to enhance in-house operations, Exel decided to incorporate the sales, marketing, logistics, product range development and procurement activities into a separate company. It is anticipated that the new Exel Sport Oy will begin operations during the first third of 2005, while all production remains within the parent company, Exel Oyj. FINANCING AND CASH FLOW The Group’s financial position remained solid throughout the year and strengthened further during the last few months, when the realisation of large deliveries in the Sport division contributed to cash flow. The Group’s cash flow after investments came to EUR 5.4 (3.9) million. In 2004 an exceptionally large dividend was distributed in two instalments totalling EUR 7,0 million. The Group’s net interest bearing liabilities increased slightly year-on-year, but still amounted to only EUR 5.6 (5.2) million at the end of the year. The solvency ratio remained strong at 46.1% (51.7%), while gearing decreased slightly to 28% (29%). CAPITAL EXPENDITURE AND R&D Capital expenditure was higher than previously, amounting to EUR 5.8 million, the most important item being the acquisition of the Belgian unit’s fixed assets for EUR 2.6 million and investments in capacity increases within Industry, at EUR 0.5 million. To ensure future competitiveness, Exel also made large investments in automated manufacturing and assembly of poles. These investments will be completed in spring 2005 and total EUR 2 million. They are excluded from the abovementioned capital expenditure because they were financed through finance leasing. R&D expenses amounted to EUR 2.0 (1.7) million or 2.3% (3.0%) of net sales. The key R&D projects related to the development of new customer 3 (10) applications and testing of new resins and reinforcement materials to improve production efficiency. PERSONNEL At the end of 2004, staff numbered 419 (355), while the average number of staff during the period was 441 (355). This increase was due to the integration of the Belgian unit with the Group, contributing with 44 employees and an increase in production volume. SHAREHOLDERS AND SHARE PRICE Exel’s share capital totals EUR 1,932,280 and consists of 5,520,800 shares, each of which is nominally valued at EUR 0.35. The President & CEO and the members of the Board of Directors own 1.7% of the total share capital. In 2004, the highest share price quoted was EUR 24.00 and the lowest EUR 11.75. At the end of the year, the share price was EUR 23.00 (11.90). A total of 3.96 million shares were traded during the year, totalling 73% of all shares. During the financial year the average share price was EUR 18.04, whereas in 2003 it was EUR 8.40. On 31 December 2004, Exel’s market capitalisation was EUR 127.0 (63.6) million. Exel had two options programmes running during the year under review. Subscriptions for the first part (A) of the 1998 warrant programme for key staff commenced on 1 October 2000, and those for the second part (B) on 1 October 2002. Staff had the right to subscribe for a total of 137,800 company shares alongside the remaining unused option rights. A total of 137,500 subscriptions were made in 2004, and the right to subscribe for shares based on this options programme ended on 31 October 2004. The subscription for the first part (A) of the 2001 warrant programme for key staff commenced on 1 June 2002, and 48,000 subscriptions were made in 2004. Staff has the right to subscribe for a total of 123,500 company shares alongside the remaining unused option rights at the end of 2004. The subscription for the second part (B) of the warrant programme commenced on 1 October 2003, resulting in 46,300 subscriptions in 2004. Staff has the right to subscribe for a total of 102,700 company shares alongside the remaining unused option rights at the end of 2004. The subscription period for all option rights ends on 30 April 2006. According to a new share-based incentive system for 2004-2007 that Exel’s Board of Directors decided to launch in 2004, the Board decides every year to pay out a certain sum to key staff on the basis of targets set and met. The rewarded employee is obliged to buy Exel Oyj shares with the incentive bonus plus a 20% contribution from him or herself, and retain ownership for a minimum period of two years. 4 (10) As of 31 December 2004, Exel had the following principal shareholders: Shareholder Total Percentage of shares of shares and votes Nordstjernan AB 1,748,253 31.7 Ilmarinen Mutual Pension Insurance Company 419,700 7.6 Varma Mutual Pension Insurance Company 256,800 4.7 Berling Capital Oy 189,500 3.4 Veikko Laine Oy 183,300 3.3 Suutarinen Matti 147,200 2.7 Eläke-Fennia Mutual Insurance Company 145,000 2.6 Placeringsfonden Aktia Secura 117,600 2.1 Renkkeli Oy 100,000 1.8 Ulkomarkkinat 90,300 1.6 Nominee registration 79,238 1.4 Other 2,043,909 37.1 TOTAL 5,520,800 100.0 DISTRIBUTION OF PROFITS Exel Oyj’s distributable funds are EUR 13,521 thousand and the Group’s distributable funds EUR 13,821 thousand. Exel Oyj’s Board of Directors will propose to the Annual General Meeting that a dividend of EUR 0.70 (EUR 1.30, including additional dividend) per share be paid for the year 2004, i.e. EUR 3,931 thousand or 47.2 per cent of the Group’s annual profit. The remainder, EUR 4,391 thousand, will be retained and carried forward. The record date for the dividend payment is 19 April 2005 and the payment date 26 April 2005. IFRS TRANSITION Exel Oyj will publish its first IFRS-compliant (International Financial Reporting Standards) financial statements for the financial year 2005, including interim reports. We have attached a preliminary IFRS opening balance sheet and preliminary reconciliation statement of shareholders’ equity to this bulletin. The IFRS comparative data for consolidated income statement and balance sheet for each quarter and for the year will be given in the interim report for the quarter in question. The purpose of this IFRS summary is to give an overview of the impact of the transition and to describe the effects of those IFRS accounting principles and rules that will have a material impact on the consolidated income statement and certain key ratios. The IFRS financial information presented in this summary may require adjustments before its inclusion as comparative information in Exel’s first set of IFRS financial statements for the year ended December 31, 5 (10) 2005 due to the ongoing changes in IFRS which might have an effect on the accounts of the companies applying IFRS from 2005. The most important impacts on the opening balance sheet and shareholders’ equity are due to the measurement principles of inventories, treatment of finance leases and disability pension liabilities. Previously, only variable costs were included in Exel’s inventories valuation, but not the related fixed production costs. The cost of inventories in the opening IFRS balance sheet is determined by using weighted average cost formula and the cost for produced finished goods and work in process represents the purchase price of materials, direct labor, other direct costs and related production overheads. Capitalised fixed costs increase the balance sheet total and shareholders’ equity by EUR 540 thousand. According to IAS 17, assets acquired through a finance lease must be recognised in the balance sheet and, correspondingly, lease liabilities under interest-bearing liabilities. Exel has acquired one property based on a finance lease, increasing the balance sheet total in the opening balance sheet by EUR 1,677 thousand and decreasing shareholders’ equity by EUR 90 thousand. In compliance with IAS 19, Exel recognises future disability pension liabilities related to the Finnish employees’ pension act system (TEL). The liability related to the future disability pensions within the TEL system is treated on a defined benefit basis in the opening balance sheet for 2004, decreasing shareholders’ equity by EUR 513 thousand. In addition, Exel applies defined benefit plans in other countries, for which the resulting liability is recognised in full, decreasing shareholders’ equity at the time of IFRS adoption. The total impact of pension liabilities amounts to EUR 556 thousand. According to previous GAAP the consolidated financial statements excluded dormant company Pro Stick Oy. The company is consolidated from 1 January 2004 in the financial statements prepared under IFRS resulting in an effect of EUR 3 thousand in the opening balance sheet equity. Exel Oyj recognises financial instruments at fair value in the IFRS consolidated financial statements. Changes in the fair values of financial instruments are recognised in the income statement. The effect of the change in the valuation method in the opening balance sheet equity is EUR -8 thousand. The recognition of deferred tax assets and liabilities in compliance with IAS 12 increases Exel’s deferred tax assets. Exel has tested the FAS goodwill items included in the opening balance sheet for impairment. Based on these calculations, the discounted cash flows exceeded the carrying values of the cash generating units i.e., there is no need to write down goodwill. 6 (10) CORPORATE GOVERNANCE The Board of Directors has further refined the Group’s corporate governance policies, observing the new recommendations issued in December 2003 for the corporate governance of listed companies, which were implemented within Exel as of 1 July 2004. The Board of Directors has also begun self-auditing procedures, with the first audit performed in December 2004. On the basis of this, certain risk management related elements will be enhanced in the coming year. INTERIM REPORTS IN 2005 The Group will issue quarterly interim reports on 3 May 2005, 26 July 2005 and 3 November 2005. OUTLOOK FOR 2005 The short-term market outlook is stable within the Group’s key product ranges. New profile applications will be launched. Nordic Walking is expected to enjoy further growth, mainly in new market areas. However, opening up new markets requires additional marketing and sales effort. Raw material prices have increased over the previous year which cannot be wholly passed on to the customers through product price increases. The availability of carbon fibre will be critical to the development of certain market segments. Due to rising raw material prices purchases are being directed more and more to the Far East. Major investments in entering new markets will be put in place especially in China and the US. Hence, we forecast that net sales will increase and the profit after financial items will remain at least on the same level as in 2004. Mäntyharju, 24 February 2005 EXEL OYJ Board of Directors Ari Jokelainen President & CEO Further information: Mr. Ari Jokelainen, President & CEO, Exel Oyj, tel. 050 590 6750 Mr. Ilkka Silvanto, Senior Vice President, CFO and Administrative Director, Exel Oyj, tel. 050 598 9553 www.exel.net CONSOLIDATED INCOME STATEMENT AND BALANCE SHEET (AUDITED) CONSOLIDATED INCOME STATEMENT (EUR 1,000) 2004 2003 Change % 7 (10) Net sales 83,857 57,281 46% Operating profit 12,531 5,345 134% Financial income and expenses -402 -436 -8% Profit after financial items 12,129 4,910 147% Profit before income taxes 12,129 4,910 147% Taxes -3,807 -1,537 -148% Profit for the year 8,322 3,373 147% BALANCE SHEET (EUR 1,000) 2004 2003 Change % Intangible assets 3,501 3,126 12% Consolidated goodwill 258 330 -22% Tangible assets 12,224 10,470 17% Investments 95 95 0% Inventories 12,397 8,747 42% Receivables 9,841 8,626 14% Marketable securities 2,197 762 188% Money in hand and at bank 2,943 1,991 48% Share capital 1,932 1,870 3% Other shareholders’ equity 18,030 15,666 15% Non-current liabilities 6,787 4,091 66% Current liabilities 16,707 12,521 33% Balance sheet total 43,457 34,147 27% FUNDS STATEMENT 2004 2003 Cash flow from business operations 15,752 6,409 Acquisitions -7,181 Investments in tangible and intangible assets -3,187 -2,599 Income from surrender of tangible and intangible assets 44 79 Rights issue 1,102 282 Withdrawals of non-current loans 5,100 53 Repayments of non-current loans -2,588 -2,192 Withdrawals of/repayments of current loans 345 -747 Dividend paid -6,998 -1,060 Other -2 4 Change in liquid funds 2,387 229 INDICATORS 2004 2003 Earnings per share, EUR 1.54 0.64 Earnings per share, EUR (diluted) 1.45 0.62 Equity per share, EUR 3.56 3.26 Dividend per share, EUR 0.70 x) 1.30 Return on equity (ROE), % 44.4 20.8 Return on investment (ROI), % 44.9 20.8 Solvency ratio, % 46.1 51.7 Gearing, % 28.2 29.4 Gross investment (EUR 1,000) 5,803 2,519 % of net sales 6.9% 4.4% 8 (10) 6 (6) Personnel at year end 419 355 18% Average personnel 441 355 24% Order book as of Dec. 31, 2004 (EUR 1,000) 13,798 11,449 21% x) Board of Directors’ proposal for 2004 Derivatives Derivatives are used for hedging purposes only. Interest rate risk The company’s long-term debt is subject to interest rate risk, which is why it has fixed the rate of interest on some of its borrowings through swap agreements that extend to the years 2007-2009. Currency risk The company’s US dollar-denominated raw materials purchases are partially hedged against currency risk through 12-month foreign exchange forwards and foreign exchange options. Interest rate derivatives Face value Fair market value (NPV) Interest swaps 2 636 -27 Currency derivatives Forward contracts 877 -27 Purchased currency options 750 10 Sold currency options 371 -18 CONTINGENT LIABILITIES 2004 2003 Liabilities for which a corporate mortgage and real estate mortgages have been provided as collateral Financial institution loans 10,602 7,611 Mortgages given on land and buildings 2,954 2,954 Corporate mortgage given 12,500 12,500 Other liabilities 3,396 2,390 NET SALES BY MARKET AREA 2004 2003 Change % Finland 13,884 12,446 12% Other Nordic countries 7,240 5,820 24% Rest of Europe 49,935 36,010 39% North America 1,694 2,332 -27% Other countries 11,104 674 1,548% Total 83,857 57,281 46% 9 (10) RECONCILIATION OF SHAREHOLDERS´ EQUITY AS PER 1ST JANUARY 2004 (Unaudited) EUR Thousand Shareholders´ equity 31.12.2003 FAS 17,536 IAS 2 Inventories 540 IAS 17 Financial leasing -90 IAS 19 Employee benefits - 556 IAS 27 Consolidated financial statements 3 IAS 39 Financial instruments - 8 IAS 12 Deferred tax assets ___36 Shareholders´ equity 1.1.2004 IFRS 17,462 IFRS OPENING BALANCE SHEET 1.1.2004 (Unaudited) EUR Thousand IFRS IFRS- FAS 1.1.04 adjustments 31.12.03 ASSETS NON-CURRENT ASSETS Intangible assets 475 475 Goodwill 2,980 2,980 Tangible assets 12,147 1,677 10,470 Available for sale investments 99 4 95 Deferred tax assets 121 121 Non-current assets, total 15,822 1,802 14,021 CURRENT ASSETS Inventories 9,287 540 8,747 Current receivables 8,541 -85 8,626 Cash and cash equivalents 2,759 6 2,753 Current assets, total 20,587 461 20,126 ASSETS 36,409 2,262 34,147 SHAREHOLDERS’ EQUITY AND LIABILITIES SHAREHOLDERS´ EQUITY Share capital 1,870 1,870 Share issue 135 135 Share premium account 3,028 3,028 Retained earnings 12,429 -74 12,503 Total equity 17,462 -74 17,536 LIABILITIES Non-current liabilities Financial liabilities 5,687 1,610 4,077 Deferred tax liabilities 14 14 Other non-current liabilities 556 556 10 (10) Non-current liabilities, total 6,257 2,166 4,091 Current liabilities Financial liabilities 3,987 157 3,830 Trade and other payables 8,704 14 8,690 Current liabilities, total 12,691 170 12,520 Liabilities 18,948 2,336 16,611 SHAREHOLDERS’ EQUITY AND LIABILITIES 36,409 2,262 34,147