Exel interim report for 1 January - 30 June 2005

EXEL OYJ STOCK EXCHANGE RELEASE 26.7.2005 at 11:00 1 (10) EXEL INTERIM REPORT FOR 1 JANUARY – 30 JUNE 2005 FIRST SIX MONTHS IN BRIEF - Net sales rose to EUR 46.9 million for the first six months, up 7.4 per cent on the previous year’s EUR 43.7 million - Net sales were EUR 25.2 (23.2) million in the second quarter - Operating profit grew in H1 by 1.8 per cent to EUR 7.2 (7.1) million - Operating profit still strong in the second quarter and reached EUR 5.0 (5.2) million or 19.9 (22.3) per cent of net sales - Earnings per share were EUR 0.31 (0.31), based on the diluted number of shares at the end of the period - The industrial profile market was very active - The Industry division posted a strong growth in profit in the first six months, EUR 5.1 (3.5) million, up 46.4 per cent - The Sport division focused strongly on opening new Nordic Walking markets, the investment to affect profitability clearly in the short term - Exel Sports Oy started operations on 1 April 2005 - Exel Composites GmbH (Faserprofil, Austria) joined the Group at the beginning of April KEY FINANCIAL FIGURES (unaudited) 1.4.- 1.4.- Change 1.1.- 1.1.- Change 1.1.- 30.6. 30.6. % 30.6. 30.6. % 31.12. 2005 2004 2005 2004 2004 EUR million Net sales 25.2 23.2 8.7% 46.9 43.7 7.4% 83.9 Operating profit 5.0 5.2 -3.1% 7.2 7.1 1.8% 13.7 % of net sales 19.9% 22.3% -10.9% 15.4% 16.2% -5.3% 16.3% Profit for the period 3.6 3.5 2.9% 5.1 4.7 9.2% 9.1 Equity 21.8 17.8 22.5% 21.8 17.8 22.5% 20.7 Net interest- bearing liabilities 13.0 13.7 -5.1% 13.0 13.7 -5.1% 7.4 Invested capital 40.3 37.0 8.8% 40.3 37.0 8.8% 33.3 Return on equity, % 64.6% 75.8% -14.8% 48.0% 53.0% -9.4% 47.8% Return on investment, % 54.0% 58.1% -7.1% 40.1% 44.1% -9.9% 45.2% Solvency ratio, % 38.9% 35.8% 8.7% 38.9% 35.8% 8.7% 44.9% Net gearing % 59.4% 76.6% -22.5% 59.4% 76.6% -22.5% 36.0% Earnings per share, EUR 0.32 0.32 0.0% 0.45 0.43 4.7% 0.84 Earnings per share, EUR, diluted 0.31 0.31 0.0% 0.45 0.42 7.1% 0.80 Equity per share, EUR 1.95 1.66 17.5% 1.95 1.66 17.5% 1.84 2 (10) IFRS REPORTING Exel has applied IFRS reporting since the beginning of 2005 and this interim report has been prepared in accordance with the recognition and measurement principles of IFRS. The reconciliation statement for the opening IFRS balance sheet for 2004 was presented in the financial statements bulletin released on 24 February 2005. The effects of IFRS transition on 2004 financial statements on a quarterly basis were explained in more detail in a stock exchange release published on 3 May 2005. In the present interim report, the figures published on that occasion have been used as comparative information. NET SALES Exel’s consolidated net sales for January-June grew this year by 7.4% over the previous year’s, to EUR 46.9 (43.7) million. In Q2, net sales grew by 8.7 per cent to EUR 25.2 (23.2) million. The net sales for April-June include the operations of the Austrian company Faserprofil GmbH, which was acquired on 1 April 2005. The company now operates under the name Exel Composites GmbH as Exel’s subsidiary. Of this growth in net sales the majority, EUR 2.1 million was organic growth. The acquisition of Faserprofil accounted for EUR 1.1 million of the net sales in H1. PROFIT PERFORMANCE Exel’s operating profit for H1 improved by 1.8 per cent on the figure for H1 of 2004 and was EUR 7.2 (7.1) million. Operating profit, as a percentage of net sales, was 15.4 (16.2) per cent. The Industry division’s operating profit increased due to improved labour productivity, more efficient use of raw materials and tight cost management. Major investments made to expand the Nordic Walking market caused operating margin to fall in the Sport division. Net financial expenses came to EUR 170 thousands. Pre-tax profit was EUR 7.0 (6.9) million, and profit for the period totalled EUR 5.1 (4.7) million. BALANCE SHEET AND FINANCIAL POSITION The consolidated balance sheet total stood at EUR 56.2 (50.0) million. Half of the increase was due to the Austrian acquisition and the rest accounted by an increase in working capital arising from increased sales volumes, especially in Exel’s main markets. At the end of the period, equity stood at EUR 21.8 (17.8) million and the solvency ratio was 38.9 (35.8) per cent. Interest-bearing liabilities were EUR 18.4 (19.2) million of which short-term liabilities accounted for EUR 10.8 (9.1) million. Net interest-bearing liabilities were EUR 13.0 (13.7) million and the debt-to-equity ratio was 59.4 (76.6) per cent. The development of the cash flow from business operations turned clearly positive in the second quarter and was EUR +1.5 (+5.6) million in H1. Lower cash flow compared to last year was due to the exceptionally low level of working capital at the turn of the year resulting mostly from accounts receivable. In addition, because of the good results posted in 2004, EUR 1.5 million in taxes for last year was paid in H1. Operative capital expenditure was financed with cash flow from business operations. The acquisition was funded by increasing long-term loans. At the end of the period, liquid assets stood at EUR 5.4 million, compared with EUR 5.1 million at the end of 2004. CAPITAL EXPENDITURE 3 (10) Capital expenditure totalled EUR 2.7 million containing some EUR 1.1 million operative investments. The most significant investment was the acquisition of the Austrian Faserprofil GmbH at the beginning of April 2005. The total investment amounts to some EUR 1.9 million, of which fixed assets account for some EUR 1.7 million. This sum includes a supplement to the purchase price, likely to be paid in the future depending on the development of business operations. In addition, maintenance and productivity-enhancing investments were continued. A decision to increase the Industry division’s capacity was made in the form of investment in a new production line at the Voerde factory. PERSONNEL The number of Exel employees was 514 (467) in total on 30 June 2005. Of these 362 (355) worked in Finland and 152 (112) abroad. The number of employees during the reporting period averaged 451 (430). The increase from last year is mainly due to the acquired Austrian unit. BUSINESS SEGMENTS The Group’s operations are divided into two main segments, Industry and Sport, based on the primary IFRS-compliant reporting format. Industry The Industry division’s key financial figures for the second quarter were as follows: 1.4.- 1.4.- Change 1.1.- 1.1.- Change 1.1.- 30.6. 30.6. % 30.6. 30.6. % 31.12. 2005 2004 2005 2004 2004 EUR million Net sales 15.5 13.4 15.3% 28.0 25.1 11.3% 48.3 Operating profit 3.3 2.5 30.2% 5.1 3.5 46.4 7.8 % of net sales 21.2% 18.7% 12.9% 18.2% 13.8% 31.5% 16.2% Average number of personnel 247 230 7.4% 222 214 3.7% 224 Industry’s net sales grew by 11.3 per cent on those posted a year earlier. Of the increase, EUR 1.1 million arose from the acquisition of Faserprofil, while the rest was organic growth. Demand in the profile market recovered significantly in Q2, and many new applications are being developed. In the first half of the year, new customer mould projects numbered more than 20, which reflects the increase in demand. Production utilisation rate was high at most factories, and additional investments in production are being planned. Profitability remained at a good level, a considerable increase in raw material prices notwithstanding. Some of this price pressure was successfully passed on within the production chain. Operating profit grew by 46.4% to EUR 5.1 from the EUR 3.5 million of the previous year. This improvement in profitability was caused by higher sales volumes and productivity gains at the main factories. Tight cost management has reinforced profitability. Carbon fibre was in short supply throughout the reporting period, a situation that is expected to continue throughout the year. This is due to major new projects, the most important of which are the Airbus380 programme, defence projects in the US, and the development of China’s infrastructure. In the second 4 (10) quarter, the situation has stabilised, and Exel has, for the most part, ensured adequate fibre supplies for this year’s projects. Negotiations concerning next year’s supplies have commenced, and they are expected to be completed in the latter part of the year. During the reporting period, the Industry division made a decision to establish a production unit in China. Negotiations and matters pertaining to licences have progressed as planned. Exel now has almost all of the necessary licences. Construction of the factory is to commence in August 2005. According to the plans, the factory will be in full operation by the summer of 2006 at the latest. Establishing the factory will incur costs also in 2005, but the most significant costs are going to be encountered in 2006. Europe’s pultrusion industry continues its consolidation. The integration of Faserprofil into the Industry division has progressed well. Operations are profitable. Several customer application projects are underway and work to expand production and increase its efficiency is progressing as planned. The main reasons for the acquisition were the company’s expertise in epoxy pultrusion and the skilled personnel. In addition, Faserprofil will enable Exel to become a component supplier for the electronics industry. Sport The Sport division’s key financial figures for the second quarter were: 1.4.- 1.4.- Change 1.1.- 1.1.- Change 1.1.- 30.6. 30.6. % 30.6. 30.6. % 31.12. 2005 2004 2005 2004 2004 EUR million Net sales 9.7 9.8 -0.3% 19.0 18.6 2.2% 35.5 Operating profit 1.7 2.7 -34.6% 2.1 3.6 -41.2% 5.9 % of net sales 17.8% 27.1% -34.4% 11.2% 19.4% -42.5% 16.5% Average number of personnel 238 222 7.2% 229 216 6.0% 217 The Sport division’s net sales grew by 2.2% during the period under review. Net sales for Q2 were at the same level as in 2004. The Nordic Walking market continues to grow in Central Europe, especially in the German-speaking market. The selling of products from sports shops was slightly slower in early summer, but demand is expected to become livelier towards autumn. Of the new markets, the Netherlands and Denmark are developing strongly. The market is expected to be opened up also in Poland this autumn. The Sport division’s operating profit fell from last year’s EUR 3.6 million to EUR 2.1 million. The division continued its dedicated efforts to open new Nordic Walking markets and launch our concept. Marketing investments are going to reduce the division’s operating profit clearly in the short term. New markets are being opened in North America where the new subsidiary, Exel USA, Inc., is investing in spreading the sport, and in China, where joint marketing with our partner, CISS, is progressing well. The Nordic Walking category is at present one of the few areas, in fact the only one in the whole of the sporting goods market that is experiencing strong growth. Exel’s market share has remained strong. 5 (10) Exel Sports Oy started operating during the period under review with Mika Sulin as managing director. Activities to improve logistics efficiency, as well as to focus sales and further develop the Nordic Walking concept and related operations, are progressing. In the OEM product group (surfing masts and laminate components) the market is stable. The downward trend in surfing mast deliveries has stopped, and volumes are expected to remain at the present level for the foreseeable future. Laminate sales have increased on those of the previous year, and several new application areas are being developed. SHARES In April 2005, Exel Oyj’s Annual General Meeting approved the proposal by the Board of Directors to double the number of shares and increase the share capital through a EUR 56,150 bonus issue. Following the increase, the share capital of the company is EUR 2,021,400, divided into 11,230,000 shares, each with a counter-book value of EUR 0.18. The highest share quotation during the reporting period was EUR 13.78 (8.13) and the lowest EUR 11.35 (5.87), and the share price closed at EUR 12.20 (8.06). The share price averaged EUR 12.48 (7.04). In total, 2,074,235 (3,576,414) shares were traded during the period, accounting for 18.5 (33.2) per cent of the average number of outstanding shares. Based on the closing price in the second quarter, market capitalisation totalled EUR 137.0 (86.7) million. CORPORATE GOVERNANCE Exel Sports Oy, a fully owned subsidiary of Exel Oyj, commenced operations on 1 April 2005. Exel Sports assumed responsibility for the marketing, sales, logistics, and development of consumer products, and 25 employees from the parent company joined the new company’s payroll. OUTLOOK Profitability has remained strong in H1. However, the competition in existing Nordic Walking markets is expected to intensify. Opening of new markets is going to require major investments in marketing, sales, and delivery operations as well as targeted, innovative, and customer-oriented product development. Raw material markets have stabilised, even the allocation of carbon fibre is under control. In the short term, the supply of carbon fibre is going to slow growth in the Industry division. The acquisition of Faserprofil GmbH will strengthen our position in the Central European pultrusion markets. The industrial profile market is very active. The combined effect is going to result in growth in revenue, whilst profit after financial items is expected to remain at last year’s level. Mäntyharju, 26 July 2005 EXEL OYJ Ari Jokelainen Board of Directors President Further information: 6 (10) Ari Jokelainen, President & CEO, tel. +358 50 590 6750 Ilkka Silvanto, CFO, tel. +358 50 598 9553 CONSOLIDATED FINANCIAL STATEMENTS (unaudited) CONDENSED CONSOLIDATED INCOME STATEMENT, EUR thousands 1.4.- 1.4.- Change 1.1.- 1.1.- Change 1.1.- 30.6. 30.6. % 30.6. 30.6. % 31.12. 2005 2004 2005 2004 2004 Net sales 25,203 23,181 8.7% 46,941 43,695 7.4% 83,857 Other operating income 153 99 54.5% 203 120 69.2% 111 Operating expenses -19,505 –17,348 –12.4% -38,298 –35,243 -8.7% -67,085 Depreciation and impairment -845 -767 -10.2% -1,636 -1,487 -10.0% -3,181 Operating profit 5,006 5,165 -3.1% 7,210 7,085 1.8% 13,702 Net financial items -112 -91 -23.1% -170 -198 14.1% -467 Profit before tax 4,894 5,074 -3.5% 7,040 6,887 2.2% 13,236 Income taxes -1,332 -1,614 17.5% -1,934 -2,212 12.6% -4,110 Profit for the period 3,562 3,460 2.9% 5,106 4,675 9.2% 9.126 Earnings per share, EUR 0.32 0.32 0.0% 0.45 0.43 4.7% 0.84 Earnings per share, EUR, diluted 0.31 0.31 0.0% 0.45 0.42 7.1% 0.80 CONDENSED CONSOLIDATED BALANCE SHEET, EUR thousands 30.6. 30.6. Change 1.1.- 2005 2004 31.12. 2004 ASSETS Non-current assets Intangible assets 778 522 256 926 Goodwill 3,878 3,188 690 3,188 Tangible assets 14,311 14,286 25 13,742 Deferred tax assets 928 350 578 310 Other non-current assets 101 98 3 100 Non-current assets total 19,996 18,444 1,552 18,266 7 (10) Current assets Inventories 15,108 13,007 2,101 13,269 Trade and other receivables 15,639 12,997 2,642 9,568 Cash and cash equivalents 5,444 5,513 -69 5,150 Current assets total 36,371 31,517 4,674 27,987 Total assets 56,187 49,961 6,226 46,253 EQUITY AND LIABILITIES Shareholders’ equity Share capital 2,021 1,884 137 1,932 Share issue 817 Share premium reserve 4,118 3,149 969 3,390 Retained earnings 10,599 8,122 2,477 5,427 Profit for the period 5,106 4,675 431 9,126 Total equity 21,844 17,830 4,014 20,629 Non-current liabilities Interest-bearing liabilities 7,643 10,052 -2,409 8,456 Deferred tax liabilities 349 108 241 297 Current liabilities Interest-bearing liabilities 10,772 9,128 1,644 4,141 Trade and other non-current liabilities 15,579 12,843 2,736 12,666 Total liabilities 34,343 32,131 2,212 25,560 Total equity and liabilities 56,187 49,961 6,226 46,253 STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY, EUR thousands Share Share Share Retained Total Capital Issue Premium Earnings Reserve Balance on 1.1.2004 1,870 135 3,028 12,429 17,462 Share issue 14 -135 121 0 Exchange rate differences 0 0 Dividend -4,307 -4,307 Profit for the period 4,675 4,675 Balance 30.6.04 1,884 0 3,149 12,797 17,830 8 (10) Balance on 1.1.2005 1,932 817 3,390 14,553 20,692 Share issue 89 -817 728 0 Exchange rate differences -23 -23 Dividend -3,931 -3,931 Profit for the period 5,106 5,106 Balance on 30.6.2005 2,021 0 4,118 15,705 21,844 CONDENSED CONSOLIDATED CASH FLOW STATEMENT, EUR thousands 1.1.- 1.1.- Change 1.1.- 30.6. 30.6. 31.12. 2005 2004 2004 Cash flow from operations Profit for the period 5,106 4,675 431 9,126 Adjustments 3,847 3,940 -93 7,623 Change in working capital –4,862 -755 -4,107 1,657 Cash flow generated by operations 4,091 7,860 -3,769 18,406 Net financial items -175 -133 -42 -359 Income taxes paid -2,431 -1,083 –1,348 -2,136 Net cash flow from operations 1,485 6,644 -5,159 15,911 Cash flow from investing activities Acquisitions -1,912 -7,181 5,269 -7,181 Capital expenditure -1,077 -1,234 157 -3,187 Proceeds from sale of fixed assets 44 Other cash flow from investing activities Cash flow from investing activities -2,989 -8,415 5,426 -10,324 Cash flow from financing Share issue 0 0 0 1,102 Change in long- term loans 937 3, 862 -2,925 Change in short-term loans 4,792 4,970 -178 Dividends paid -3,931 -4,307 376 -6,998 Net cash flow from financing 1,798 4,525 -2,727 -3,196 Change in liquid funds 294 2,754 -2,460 2,391 Liquid funds in the beginning of the period 5,150 2,759 2,391 2,759 9 (10) Change in liquid funds 294 2,754 -2,460 2,391 Liquid funds at the end of period 5,444 5,513 -69 5,150 KEY FINANCIAL FIGURES BY QUARTER, EUR thousands II/ I/ IV/ III/ II/ I/ I-IV/ 2005 2005 2004 2004 2004 2004 2004 Net sales by segment Industry 15,459 12,509 11,689 11,523 13,408 11,730 48,349 Sport 9,744 9,229 8,087 8,864 9,773 8,784 35,308 Total net sales 25,203 21,738 19,776 20,387 23,181 20,514 83,857 Operating profit by segment Industry 3,271 1,818 2,327 2,041 2,512 965 7,845 Sport 1,735 386 987 1,263 2,653 955 5,858 Total operating profit 5,006 2,204 3,314 3,304 5,165 1,920 13,702 Financial income and expenses –112 -58 -131 -138 -91 -107 -466 Profit before income taxes 4,894 2,146 3,182 3,167 5,074 1,813 13,236 Income tax charge -1,332 -602 -922 -976 -1,613 -598 -4,110 Profit for the period 3,562 1,544 2,260 2,190 3,461 1,215 9,126 Earnings per share, EUR 0.32 0.14 0.21 0.20 0.32 0.11 0.84 Earnings per share, EUR, diluted 0.31 0.13 0.19 0.19 0.31 0.11 0.80 Average number of shares, 1,000 11,230 11,230 10,998 10,768 10,766 10,766 10,826 Average number of shares, diluted, 1,000 11,393 11,524 11,464 11,268 11,162 11,136 11,464 Average personnel 485 417 424 456 453 406 441 COMMITMENTS AND CONTINGENCIES, EUR thousands 30.6. 30.6. 31.12. 2005 2004 2004 On own behalf Mortgages 2,954 2,954 2,954 Corporate mortgages 12,500 12,500 12,500 Lease liabilities -in next 12 months 455 200 223 -in next 1-5 years 1,786 460 1,563 Other commitments 260 222 67 DERIVATIVE FINANCIAL INSTRUMENTS, NOMINAL VALUES, EUR thousands 30.6. 30.6. 31.12. 10 (10) 2005 2004 2004 Foreign exchange derivatives Foreign contracts 335 672 877 Purchased currency options 750 750 Sold currency options 371 371 Interest rate derivatives Interest rate swaps 2,192 3,081 2,636 CONSOLIDATED KEY FIGURES, EUR thousands 1.1.- 1.1.- Change 1.1.- 30.6. 30.6. % 31.12. 2005 2004 2004 Net sales 46,941 43,695 7.4% 83,857 Operating profit 7,210 7,085 1.8% 13,702 % of net sales 15.4% 16.2% -5.3% 16.3% Profit before tax 7,040 6,887 2.2% 13,236 % of net sales 15.0% 15.8% -4.8% 15.8 Profit for the period 5,106 4,675 9.2% 9,126 % of net sales 10.9% 10.7% 1.7% 10.9% Shareholders’ equity 21,844 17,830 22.5% 20,692 Interest-bearing liabilities 18,415 19,180 -4.0% 12,597 Cash and cash equivalents 5,444 5,513 -1.3% 5,150 Net interest-bearing liabilities 12,971 13,667 -5.1% 7,447 Capital employed 40,259 37,010 8.8% 33,290 Return on equity, % 48.0% 53.0% -9.4% 47.8% Return on capital employed, % 40.1% 44.1% 8.7% 44.9% Equity ratio,% 38.9% 35.8% 8.7% 44.9% Net gearing % 59.4% 76.6% -22.5% 36.0% Capital expenditure 2,743 3,981 -31.1% 5,803 % of net sales 5.8% 9.1% -35.9% 6.9% R&D costs 1,214 997 21.8% 1,956 % of net sales 2.6% 2.3% 13.3% 2.3% Earnings per share, EUR 0.45 0.43 4.7% 0.84 Earnings per share, EUR, diluted 0.45 0.42 7.1% 0.80 Equity per share, EUR 1.95 1.66 17.5% 1.84 Average number of shares -cumulative 11,230 10,766 4.3% 10,826 -cumulative, diluted 11,393 11,162 2.1% 11,464 Average number of employees 451 430 4.9% 441