Kyro Corporation Interim Report 1 January To 31 August 2000

KYRO CORPORATION INTERIM REPORT 1 January to 31 August 2000 Net sales up by 34 % to EUR 110.4 (82.7) million The operating result was EUR 87.9 (0.8) million, the comparable business group operating result improved by EUR 11.5 million to EUR 12.3 (0.8) million The combined share issue and sale profit from Tecnomen shares, EUR 75.6 million, has been booked in the operating result as other operating income The result before taxes was EUR 88.6 (3.9) million The financial standing improved further, and the equity ratio was 80 % (68) KYRO CORPORATION Kyro is a dynamic technology group operating in international business areas. The Group's strategy is to use its solid resources to develop and grow modern breakthrough technology businesses, particularly in their internationalisation phase through the use of a strong business-to- business marketing and sales network. Kyro's goal is to build a globally leading market position and attain strong profitability in carefully selected and focused business areas. The growth strategies of Kyro as well as its subsidiaries Tecnomen and Tamglass contain in addition to organic growth also acquisitions, possibilities for which are under active investigation. CONSOLIDATED NET SALES AND OPERATING RESULT The combined net sales of the Kyro Group during the first eight months of the year grew by 34 % on the corresponding period of the previous year, and amounted to EUR 110.4 (82.7) million. The net sales of Tamglass and Tecnomen grew significantly and Kyro Power's stayed at the level of the previous year. The operating result of the Group was EUR 87.9 million, which includes the profit of EUR 75.6 million on the combined share issue and sale of shares. The comparable result improved by EUR 11.5 million and was EUR 12.3 (0.8) million. The profit before extraordinary items was EUR 88.6 (3.1) million. Earnings per share were EUR 1.79 (0.02) and the equity per share EUR 4.86 (2.98). BUSINESS GROUPS´ NET SALES, OPERATING RESULT AND PERSONNEL Net sales, Oper.result, Personnel EUR mill. EUR mill. 1-8/2000 1-8/1999 1-8/2000 1-8/1999 31.8.2000 31.8.1999 Tamglass 56.6 41.8 8.3 2.4 376 371 Tecnomen 38.3 25.3 2.7 -3.9 504 439 Kyro Power 15.4 15.5 3.8 3.9 25 24 Other operations 0.5 0.5 73.8* -1.3 11 12 Eliminations -0.4 -0.4 -0.7 -0.3 Group total 110.4 82.7 87.9 0.8 916 846 In addition to the parent company's operations, the figure also includes Kyro's profit from the sale of Tecnomen shares amounting to EUR 39.5 million and the portion of profits from the issue of Tecnomen shares amounting to EUR 36.1 million, which has been booked in the consolidated income statement. COMBINED SHARE ISSUE AND SALE OF TECNOMEN SHARES The Boards of Directors of Kyro and Tecnomen decided at their meetings on 9 June 2000 to initiate a combined share issue and sale of Tecnomen shares and to apply for listing on the Main List of the Helsinki Exchanges. The share issue and sale is used to expand Tecnomen's owner base, to strengthen the corporation's financing structure, to finance Tecnomen's growth and to create additional possibilities for developing personnel incentive and commitment programmes. Trading of Tecnomen shares started on the Pre-List of the Helsinki Exchanges on 30 June 2000 and on the Main List on 4 July 2000. A total of 12,969,200 shares were subscribed and sold during the combined share issue and sale. Tecnomen issued 7,969,200 new shares. The subscription price in the institutional and retail issues was EUR 8.50, which was also the maximum price in the offering. The price was EUR 7.65 in the employee issue. The company's share capital was raised by EUR 318,768. The Kyro Group sold a total of 5,000,000 shares. The parent company Kyro owns 73.7% of Tecnomen's shares after the share issue and sale. Tecnomen's institutional issue was oversubscribed more than tenfold. The employee and retail issues were also oversubscribed. FINANCING The Group's financial standing improved further. Net financial income booked for the period was EUR 0.7 (2.3) million. Liquid funds and bonds and securities held by the group amounted to EUR 121.3 (42.9) million. The group repaid EUR 24.3 million of its interest-bearing debt during the first part of the year. Interest-bearing liabilities were EUR 8.0 (33.3) million. The debt to equity ratio (gearing) improved to -52.4 (-8.1). The balance sheet structure strengthened as the equity ratio rose to 80 % (68). Proceeds from the issue and sale of Tecnomen shares after deducting expenses and taxes were EUR 64 million for Tecnomen and EUR 28 million for Kyro. PERSONNEL The Group's personnel reached 916 (846) at the end of the reporting period. The growth of 8 % was primarily due to the strengthening of Tecnomen's product development resources. Resources were also added to Tamglass's automation group and after-sales operations. INVESTMENTS AND R&D The Group's investments were EUR 8.9 (7.5) million, a major proportion of which was for Tecnomen's product development. The Group's R&D expenses amounted to 12 % (12) of net sales. BOARD OF DIRECTORS AND AUTHORISATIONS The Board of Directors was authorised by the Annual General Meeting of Shareholders to acquire and sell the company's own shares, which makes it possible to use these shares as payment for acquisitions or financing investments. The authorisation is for a maximum of 5 % of the entire share capital and voting rights. The Board of Directors did not use the authorisation during the reporting period. SHARES AND SHARE PRICE DEVELOPMENT A total of 12,861,006 Kyro shares were traded during the period under review. The highest share price was EUR 16.50 and the lowest EUR 6.50. During the corresponding period the previous year, the highest was EUR 6.50 and the lowest EUR 3.81. DE-MERGER PLAN The Boards of Kyro and Tecnomen decided on 9 June 2000 to start preparations for a de-merger of Kyro into two new companies with the proposed names of Tecnomen Holding Corporation and Kyro Corporation, as well as the subsequent merger of Tecnomen with Tecnomen Holding Corporation. The board of Kyro approved the de-merger plan in its meeting on 5 October 2000, and decided to present the plan for approval by Kyro's Extraordinary General Meeting of Shareholders to be held on 22 November 2000. The de-merger plan will be made available to share holders of Kyro before the meeting. According to the de-merger plan, Kyro Corporation will de-merge through the establishment of two new recipient companies. The assets and liabilities of Kyro are proposed to be divided between the recipient companies in the manner that the shares in Tecnomen Corporation owned by the de-merging company will be transferred to Tecnomen Holding Corporation along with a proportionate amount of shareholders' equity, and the new Kyro Corporation to be established will receive the shares in Tamglass Ltd. Oy and Kyro Power Oy and other assets held by the de-merging company as well as the remaining shareholders' equity. In the proposed de-merger, one existing Kyro share entitles the holder to one share in the new Kyro Corporation to be established and one share in Tecnomen Holding Corporation. The Board proposes that the de-merger take place on 1 April 2001. The separation of the Kyro Group businesses into two corporations makes it possible for investors to invest directly into that particular business whose characteristics, growth outlook and profit expectations match their interests OUTLOOK FOR THE REST OF THE YEAR Tamglass's net sales for the entire year are expected to grow by more than one-fifth and the operating result to improve significantly over the previous year due to a strong order backlog at the turn of the year and a record-high volume of new orders received during the first eight months. The market for safety glass machinery continues to develop favourably, and the order intake for the rest of the year is predicted to be good. Tecnomen's net sales and operating result during the first eight months were somewhat better than expected as a result of significant orders during the second tertiary period. The market outlook is good. Net sales for the entire year are estimated to increase clearly and the operating result is expected to improve from last year. Kyro Power's net sales and operating result are expected to remain at the previous year's level. The net sales and comparable operating result of the Kyro Group are expected to improve strongly for the current year. The Group's profit before taxes will grow manifold as a result of Tecnomen's successful listing. TAMGLASS Tamglass produces safety glass manufacturing equipment for automotive and construction glass manufacturers, and is the market leader in its field. The eight-month net sales of the company grew by 35 % over the corresponding period in the previous year to EUR 56.6 (41.8) million. The operating result for Tamglass grew by a factor of almost four and was EUR 8.3 (2.4) million. The demand for safety glass manufacturing lines and machinery continued to be lively also during the second tertiary period in Europe, the Far East and North and South America, where the market situation picked up after the first four months. Furthermore, the economic upswing, which started in the Far and Middle East in the first part of the year, continued. In China, industrial infrastructure develops strongly, which raises demand for safety glass and also breeds local machine manufacturing. The value of orders received by Tamglass during the first eight months was nearly 40% higher than in the previous year. In glass construction the importance of large tempered glass surfaces is growing strongly. The total number of flat tempered glass manufacturing lines delivered by Tamglass exceeded 800, and the total number of lines delivered throughout the company's 30 years of operations is already close to 1,200. Tamglass further strengthened its position as the market leader for large flat tempered glass manufacturing lines. Furthermore, deliveries of special equipment for highly processed glass products, such as bent tempering furnaces, have grown strongly. During the second tertiary period Tamglass received, for example, significant orders from the United States for high-capacity flat tempered glass manufacturing machinery for tempering low-energy glass. In the automotive glass industry, investments grew in the second tertiary period, which was reflected in orders from the United States and the Far East. Mergers among large automotive glass manufacturers and a consolidation of the markets continued. The market share for Tamglass's bending furnaces for automotive glass continued to grow. During the second tertiary period, Tamglass strengthened its operations in South America by establishing a new company and starting the production of safety glass machinery and production lines in Brazil. Brazil is a growing market area and interesting due to its size. The establishment of a regional manufacturing facility is part of the global growth strategy of Tamglass. Local manufacturing makes financing arrangements for customers easier and eliminates currency risks. The new manufacturing facility immediately received two orders for flat tempered glass manufacturing machinery. During the period under review, the rate of capacity utilisation in the production of safety glass lines and machinery has been good. The share of subcontracting was increased in production, which is oriented towards product development, model design and assembly, while personnel resources were increased particularly in automation design. A product innovation for the second tertiary period was the FTF flat tempered safety glass manufacturing line, which was launched on the Brazilian market in conjunction with the start-up of the new facility. During the period under review, Tamglass participated actively in several international exhibitions in North and Central America, the Far East, Russia and Europe. The exhibitions were national, and existing customer relationships were strengthened and new ones were created in the market areas in question. The main event for the final part of the year will be the Glasstec exhibition in Dusseldorf, Germany. Moreover, Tamglass invested in an extensive corporate identity campaign and arranged company visits for various interest groups to increase company awareness and improve general safety glass knowledge in Finland. Net sales of the Tamglass after-sales business grew during the period under review. The maintenance service contract portfolio grew alongside strong sales growth. Refurbishing and re-sale of used machinery also increased. The significance of the after-sales business as a competitive edge becomes further pronounced as machine utilisation rates rise. The eight-month net sales of Tamglass's safety glass production unit, Tamglass Safety Glass Ltd., clearly rose compared with the corresponding period in the previous year. The renewal of manufacturing facilities for the safety glass unit progressed according to plan, and transfers of machinery to the new facility were mostly carried out during the second tertiary period. TECNOMEN Tecnomen develops and delivers value-added telecommunications service systems for telecom operators and service providers. Tecnomen's product areas consist of Messaging Systems and closely related Wireless Internet Solutions as well as Prepaid and Paging Systems. Tecnomen's net sales for the first eight months grew 52 % in comparison with the corresponding period last year and amounted to EUR 38.3 (25.3) million. The increase reflects both favorable market conditions and sales originating from a healthy order book at the end of last year. Additionally, messaging system orders received during the second tertiary period had a positive effect on sales growth already during the reporting period. The company's operating result was EUR 2.7 (-3.9) million. Large product development expenses for Prepaid Systems, relative to their sales, weakened the operating result still during the period. The market growth of value-added service systems continued. The continuing growth in subscriber numbers for messaging and prepaid services of mobile phone operators increased their capacity requirements, which created demand for new systems deliveries and expansions. Investments into new networks within Tecnomen's home market in Europe were minor as operators were preparing for upcoming third generation networks. The granting of licenses for third generation networks and merger plans among large operators are preparing the ground for future market growth and demand for system products. New service providers continued to enter the market for value-added services. The expanding offering of services based on wireless data transfer promoted service providers to focus according to differentiating customer groups. Interest was focused especially on general data communications and entertainment services. The current and future services for Tecnomen eZoner and Unified Messaging products are well-targeted at these growing areas. Tecnomen received orders for several new messaging systems and system expansions during the period under review. The company's order book was considerably larger at the end of the reporting period as compared to the end of the first tertiary period. The company received in the second tertiary period a significant order valued at nearly EUR 7 million for a Unified Messaging system from the Taiwanese Chunghwa Telecom, Long Distance & Mobile Business Group. The Thai Total Acces Communication company ordered a voice mail system and an expansion of their prepaid system. The operator's previous voice mail system was from another supplier. Other orders for messaging and prepaid systems were received from the Swiss mobile phone operators Swisscom and Sunrise as well as from the Bolivian Nuevatel. Tecnomen continued deliveries to British Telecom's subsidiary BT Cellnet as a partially responsible supplier in a co-operative project begun in 1999. After the closing of the reporting period, Tecnomen received an order for a voice- mail system worth EUR 3 million from Telekom Cellular, which is part of the Telekom Malaysia Group. During the period under review, Tecnomen continued to increase its awareness, and the company began strong investments in international press communications and the global Tecnomen brand. The company is strengthening its image as a leading supplier of messaging systems and wireless Internet solutions, which supports Tecnomen's sales activities towards major European service providers. The most significant exhibition in the second tertiary period was Communic Asia, where Tecnomen presented the eZoner 2.0 product version. The introduction and further development of the first product in the wireless Internet solutions product area, the Tecnomen eZoner service platform, continued during the second tertiary period. New products, such as a mobile chat service, are currently being developed for this wireless Internet service platform. Test systems have been delivered to several operators for assessment, and the outstanding offer volume for the product is good. Within the Tecnomen product portfolio, eZoner holds a significant future role in connecting Unified Messaging and 3G mobile phone communications. The corresponding development and testing so-called Internet Protocol (IP) based messaging systems is proceeding according to plan. To meet the challenge of future market growth and the requirements for value-added services to 3G mobile phone networks, Tecnomen continued to invest heavily in product development during the reporting period. The majority of new staff employed during the second tertiary period began in product development units in Espoo, Ireland and Vaasa, of which the latter began operations at the beginning of June. Tecnomen was awarded the Multimedia Super Corridor (MSC) status in Malaysia during the period under review. This status may be granted to those international IT and telecommunications companies operating in Malaysia, which are strong and innovative technology developers and also employ local staff. The granting of the status is linked to a decision to establish Tecnomen's Asian competence center. A significant factor for granting the status is a company's own local product development. Co-operation with overall system suppliers, Nokia Networks and Siemens, proceeded well during the period. Tecnomen delivered several systems through its partners, and the co-operation expanded to cover new products. The joint realisation of future IP-based solutions gained further emphasis in partnering relationships. As the role of sales through partners is growing alongside direct sales, Tecnomen invests in expanding its partnership network. Tecnomen's long-term goal is net sales growth at least at a rate corresponding to market growth. This requires continuous investments in product development as well as sales and marketing. A key target is the expansion of the customer base among large international operators. This target is supported by the expansion of office and partner networks. To realise its growth strategy, Tecnomen will invest in acquisitions along with organic growth. KYRO POWER OY Kyro Power is a modern power generation company, whose hydro and natural gas power plants produce environmentally compatible power for industry as well as energy sales and distribution companies. The eight-month net sales of Kyro Power were at the previous year's level and reached EUR 15.4 (15.5) million. The operating result was EUR 3.8 (3.9) million. Kyro Power's electricity sales during the period under review were at the same level as in the previous year. Sales of heat fell slightly from the corresponding period in the previous year, which was primarily due to a strike by the paper workers' union. Severe fluctuations in the market price of electricity continued. The highest daily market tariffs were EUR 30-50/MWh even in the summer. On average, electricity tariffs were EUR 1.25 higher during the beginning of the year compared with the corresponding period in the previous year. The retailer of Kyro Power, Maakunnan Sähkö, grew its sales volumes during the period under review. A new heat supply agreement was signed with the Hämeenkyrö municipality in July. The agreement will be valid until the end of 2006. The total delivery volume over six years will exceed 210 GWh. Kyro Power's production plants operated at a high utilisation rate during the second tertiary period. Hydro power production during the first eight months also increased by 30% over the corresponding period in the previous year due to the rainy summer. CONSOLIDATED INCOME STATEMENT 1-8/2000 1-8/1999 1-12/1999 EUR million EUR million EUR million Net sales 110.4 82.7 149.6 Other income 75.6 1.2 0.3 Operating expenses 92.6 78.0 130.9 Depreciation 5.5 5.1 8.3 Operating profit 87.9 0.8 10.7 as a % of net sales 79.6 0.9 7.2 Financial income and expenses 0.7 2.3 2.9 Profit before extraordinary items 88.6 3.1 13.6 Extraordinary income and expenses 0.8 0.8 Profit before taxes and minority interest 88.6 3.9 14.4 Taxes -15.5 -1.4 -4.4 Minority interest -2.0 -0.9 -2.3 Profit for the period in review 71.1 1.6 7.7 CONSOLIDATED BALANCE SHEET 31.8.2000 31.8.1999 31.12.1999 EUR million EUR million EUR million Fixed assets 79.7 77.6 77.0 Current assets Inventories 16.7 19.0 16.3 Financial assets 193.2 93.1 116.3 Assets 289.6 189.7 209.6 Shareholders' equity 192.9 118.4 124.8 Minority interest 23.8 3.1 4.6 Liabilities Interest-bearing liabilities 8.0 33.3 32.8 Non-interest-bearing liabilities 58.4 29.1 41.0 Imputed tax liability 6.5 5.8 6.3 Equity and liabilities 289.6 189.7 209.6 KEY FIGURES 1-8/2000 1-8/1999 1-12/1999 Earnings per share, EUR 1.79 0.02 0.17 Number of shares on average (1,000) 39,675 39,675 39,675 Return on capital invested, % 46.4 3.6 9.8 Return on equity, % 42.2 1.5 7.3 Equity ratio, % 79.8 67.9 66.3 Debt/equity ratio, % -52.4 -8.1 -15.8 Equity per share, EUR 4.86 2.98 3.14 Investments, EUR million 8.9 7.5 10.3 Personnel at Aug 31, 2000 916 846 837 Personnel average 891 853 848 CONTINGENT LIABILITIES 31.8.2000 31.8.1999 31.12.1999 EUR million EUR million EUR million For own debt Mortgages 0.7 21.3 18.6 Other own commitments 17.6 10.1 15.1 Values of the underlying instruments of derivative contracts Underlying value Interest rate swaps 12.3 10.9 Currency forwards 29.3 15.4 25.2 Market value Currency forwards 31.5 16.0 26.4 The figures have not been audited. Additional information on the Kyro Interim Report is available from Pentti Yliheljo, President and CEO, and Veli Kronqvist, CFO. Tampere, 6 October 2000 KYRO Corporation Veli Kronqvist Arja Louhimo CFO Manager, Finances Distribution Helsinki Stock Exchange Main media ------------------------------------------------------------ This information was brought to you by BIT The following files are available for download: