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Vacon Oyj (HEL:VAC1V) Vacon Plc, Stock Exchange Release, 23 October 2008 at 9.00 am EET:
Demand for Vacon's AC drives remained strong
July-September summary:
* Order intake totalled MEUR 77.8, growth of 33.2 % from the corresponding period in the previous year (MEUR 58.4). * Revenues totalled MEUR 74.2, increase of 26.4 % (MEUR 58.7). * Operating profit was MEUR 9.1, growth of 16.7 % (MEUR 7.8). * Cash flow from operations was MEUR 6.4 (MEUR 7.9). * Earnings per share were EUR 0.37 (EUR 0.34), growth of 8.8 % from the previous year.
January-September summary:
* Order intake totalled MEUR 239.3, growth of 37.1 % from the corresponding period in the previous year (MEUR 174.5). * Revenues totalled MEUR 218.1, growth of 27.7 % (MEUR 170.8). * Operating profit was MEUR 27.1, increase of 24.9 % (MEUR 21.7). * Cash flow from operations was MEUR 16.8 (MEUR 14.1). * Earnings per share were EUR 1.19 (EUR 0.97), growth of 22.7 % from the previous year.
The need to improve the energy efficiency of electric motor applications and the large investments in power generation based on renewable energy sources are expanding the AC drive market. Based on market surveys, Vacon estimates that the AC drive market is growing in the long term at an annual rate of about 10 %. Growth in North America will be slightly lower than average market growth and in Asia it will be higher, with China and India functioning as the engines of growth. Vacon's market share is rising in all main market areas.
Vacon's investments in the growing markets in North America, Asia and Russia will strengthen Vacon's position in the global market. The purchase of the AC drives operations of TB Wood's boosts Vacon's growth opportunities.
Sales of Vacon's products have developed well in 2008 in Europe, North America and the Asia and Pacific region. All major application areas for Vacon's products, in different industrial sectors as well as in municipal engineering, have grown in the third quarter of 2008 compared to the corresponding period in the previous year. Growth in revenues in the third quarter was proportionately strongest in the Asia and Pacific region. Growth in Europe, the Middle East and Africa region, and North and South America was as expected and clearly above market growth.
The value of the orders received by Vacon in the third quarter rose to EUR 77.8 million, and revenues totalled EUR 74.2 million. Operating profit rose to EUR 9.1 million. Excluding the impact of the purchase of the AC drives business of TB Wood's, Vacon's order intake increased 25.9 %, revenues 17.5 % and operating profit 16.7 % from the corresponding period in the previous year.
The operating profit margin in the third quarter was 12.3 %, compared to 13.3 % in the corresponding period in 2007. The operating profit margin before amortization of intangible rights (EBITA) was 13.6 (14.0 %). Amortization of the intangible rights generated by the acquisition of the AC drives business of TB Wood's (EUR 0.4 million) reduced the operating profit margin by 0.5 percentage points.
January - September result and equity structure
MEUR 7-9/ % 7-9/ % 1-9/ % 1-9/ % 1-12/ % 2008 2007 2008 2007 2007 Europe, Middle East, Africa 52.3 70.5 43.9 74.8 156.6 71.8 129.6 75.9 172.6 74.3 North and South America 14.9 20.1 10.6 18.1 41.9 19.2 29.0 17.0 42.1 18.1 Asia & Pacific 7.0 9.4 4.2 7.1 19.6 9.0 12.2 7.1 17.5 7.6 Total 74.2 100 58.7 100 218.1 100 170.8 100 232.2 100
Orders received by the Group in January-September were 37.1 % higher than in the previous year. The order book for the acquired AC drives business of TB Wood's at the start of the year together with the orders received during the first nine months of the year totalled EUR 19.7 million. Excluding the impact of the acquired business, the volume of orders increased 25.9 %. The Group's order book stood at EUR 56.0 (33.4) million at the end of September, an increase of EUR 21.2 million from the beginning of the year.
Revenues increased 27.7 % from the corresponding period in the previous year. Growth in revenues excluding the acquisition of the TB Wood's AC drives business was 17.6 %.
The operating profit for nine months was 24.9 % higher than one year before. The operating profit for comparable figures was EUR 27.7 million, growth of 27.6 % from the previous year. The EBITA margin was 13.7 %, which was better than in the previous year (13.5 %). Amortization of intangible rights generated by the acquisition of the TB Wood's AC drives business (EUR 1.1 million) reduced the operating profit margin by 0.5 percentage points. The earnings per share rose to EUR 1.19, an increase from the previous year of EUR 0.22.
No change occurred during the third quarter in the estimate of the final price for the AC drives business of TB Wood's. Calculations for allocating the goodwill and the acquisition price for the acquired business are presented in the tables at the end of this report.
The balance sheet total was EUR 150.8 (97.8) million. The balance sheet total shows the impact of the acquired business and the increase in the Group's net working capital. Net working capital rose EUR 12.7 million from the start of the year, and EUR 5.5 million of this was due to the acquired business. The equity ratio was 48.0 %. The Group's cash flow from operations for the January- September period was EUR 16.8 (14.1) million.
The Group's equity structure and liquidity remained strong. Interest-bearing net debt at the end of the period totalled EUR 11.3 (-8.0) million, and gearing was 15.8 % (-13.8 %). The debt comprises long-term loans used to finance the purchase of the TB Wood's AC drives business.
Market position
Vacon Group revenues by market area were as follows
MEUR 7-9/ % 7-9/ % 1-9/ % 1-9/ % 1-12/ % 2008 2007 2008 2007 2007 Europe, Middle East, Africa 52.3 70.5 43.9 74.8 156.6 71.8 129.6 75.9 172.6 74.3 North and South America 14.9 20.1 10.6 18.1 41.9 19.2 29.0 17.0 42.1 18.1 Asia & Pacific 7.0 9.4 4.2 7.1 19.6 9.0 12.2 7.1 17.5 7.6 Total 74.2 100 58.7 100 218.1 100 170.8 100 232.2 100
During the first nine months of 2008 Vacon strengthened its position in all main market areas.
Vacon's revenues by region increased during the first nine months of the year as follows: Europe, Middle East and Africa in total 20.8 %, North and South America 44.5 % and Asia and Pacific 60.7 %. Excluding the impact of the AC drives business of TB Wood's, growth in revenues in January-September was 16.9 % in North and South America and 14.0 % in Europe. The corresponding figures for the third quarter were 11.3 % in North and South America and 14.8 % in Europe.
Breakdown of Vacon Group revenues by distribution channel
Consolidated revenues by distribution channel compared to those of the previous year increased during the first nine months as follows: OEM 15.4 %, direct sales 44.8 %, distributors 20.0 % and brand label customers 11.8 %.
On 25 September 2008 Vacon signed an agreement with Elo Serviços Indústria e Comercio de Equipamentos Eletroeletrônicos Ltda (ELO), one of the biggest distributors of AC drives in Brazil. Vacon is expanding its operations in Brazil, since demand, particularly in the renewable energy production sector, is creating growth opportunities in Brazil and elsewhere in South America.
Vacon Group structure No significant changes took place in the Group structure during the third quarter.
Research and development During the first part of the year Vacon has increased the number of personnel at its R&D units in Finland and China. Following the acquisition of the TB Wood's business, Vacon now has R&D in the USA and Italy as well.
R&D expenditure during the first nine months of the year totalled EUR 12.6 (10.1) million, and EUR 1.3 (1.1) million of this was capitalized as development costs. R&D costs accounted for 5.8 % (5.9 %) of Group revenues.
Vacon aims to renew its product offering during 2008-2010. Work on developing the new products continued during the review period in accordance with the company's plans. Next generation product will further enhance company's product leadership strategy. The new product generation is developed to make it more competitive in terms of features and costs. The new generation Vacon 100 HVAC AC drive designed for building automation will be launched in November 2008.
Investments Gross investments by the Group during the first nine months of the year, excluding the purchase of the TB Wood's AC drives business, totalled EUR 7.0 (4.9) million. Expenditure focused on increasing and maintaining production capacity, on tools needed in the manufacture of new products, and on information systems.
The extension to Vacon's factory in Finland was completed in October 2008. The extension will help ensure the company has sufficient production capacity in the next few years.
Organization and personnel The number of Vacon personnel has increased by 294 since the start of the year, including 149 new people that came with the acquisition of the TB Wood's AC drives business. At the end of September the Group employed 1,163 people (809), of whom 633 (515) were in Finland and 530 (294) in other countries. These figures do not include contract personnel. The table below shows the average number of Vacon employees during the review period:
Shares and shareholders Vacon had a market capitalization at the end of September of EUR 411.8 million. The closing share price on 30 September 2008 was EUR 27.00. The lowest share price during the January-September period was EUR 20.02 and the highest EUR 32.44. A total of 3,842,061 Vacon shares (25 % of the share stock) were traded during the January-September period, in monetary terms EUR 106.6 million.
Vacon's main shareholders on 30 September 2008:
Number of shares Holding, %
Ahlström Capital Oy 2,297,996 15.0 Tapiola Mutual Pension Insurance Company 584,500 3.8 Vaasa Engineering Oy 424,433 2.8 Koskinen Jari 360,670 2.4 Holma Mauri 347,171 2.3 Ehrnrooth Martti 331,000 2.2 Tapiola Group companies 325,300 2.1 Niemelä Harri 309,840 2.0 OP-Delta fund 265,607 1.7 Karppinen Veijo 209,349 1.4 Nominee registered and in foreign ownership 5,066,802 33.1 Others 4,772,332 31.2 Total 15,295,000 100.0 Vacon Plc's own shares -43,312 Shares outstanding 15,251,688
On 30 September 2008 members of Vacon's Board of Directors, the President and CEO, and the Deputy to the CEO held directly a total of 574,276 shares, or 3.8 % of Vacon's share stock.
Own shares On 30 September 2008 Vacon Plc held a total of 43,312 of its own shares, which it had acquired at an average price of EUR 12.45. The shares have a nominal value of EUR 0.20. The shares held by the company are 0.3 % of the share capital and voting rights so they have no significant impact on the distribution of ownership or voting rights in the company.
Risks and factors causing uncertainty in the near future The financial crisis which began in the USA turned critical during September and October and has increased the probability of a decline in industrial investment. On the other hand, it is especially when market conditions are difficult that companies have the need to improve the cost-efficiency of their operations, which in turn encourages them to invest in solutions that improve energy efficiency, such as AC drives.
The most significant risks for Vacon in the near future are a weakening in general demand and intensified competition on prices. Other major risks relate to the availability of raw materials and components and developments in their prices. Purchase agreements for raw materials and components are mainly annual agreements that contain price and exchange rate clauses relating to changes in the global market prices for raw materials and other materials.
Another factor that affects the company's profitability is the value of the euro against other invoicing currencies, of which the most important are the US dollar and the Chinese RMB.
More information about risks and risk management at Vacon are given in Vacon's 2007 annual report and consolidated financial statements.
Prospects Concern about the sufficiency of energy supplies, environmental warming and clean water in densely populated areas will increase the market for AC drives in the long term. Market research indicates that the AC drive market is expected to grow at an annual rate of about 10 %.
Vacon has started to renew its product offering. The new products will be more competitive than the current products. This will also give a competitive edge if the market becomes more strained in the near future. This will further enhance company's product leadership strategy. The new products will be more cost competitive and easier to apply to customers' needs. Its global production and R&D network on three continents will enable Vacon to serve the changing needs of its customers more effectively.
The order intake in July-September was good. All major application areas for Vacon's products, in different industrial sectors and in municipal engineering, grew in the third quarter of 2008 compared to the corresponding period in the previous year. As a product company, Vacon's order book is short, however, and any slowdown in the order intake towards the end of the year can still affect revenues and the result for the final period.
In the current state of economic environment, making a forecast about the prospects in the next few months is difficult and contains factors causing uncertainty. Vacon is maintaining the forecast it issued previously and estimates that revenues in 2008 will rise by close to 30 % (by close to 20 % on comparable figures) and profitability (EBIT-%) will remain at the same level as in 2007. Earnings per share are forecast to be above EUR 1.6 in 2008.
Financial reports for 2008 Vacon will publish its financial statements for 2008 on Thursday, 5 February 2009 at 9.00 am.
Formal statement This release contains certain forward-looking statements that reflect the current views of the company's management. Due to the nature of these statements, they contain risks and uncertainties and are subject to changes in the general economic situation or in the company's business sector.
Vacon in brief Vacon was established in 1993 from a passion to develop and produce AC drives globally. It is a matter of honour for Vacon to offer customers efficient, reliable and easy to use means for improving process control and saving energy and costs. Vacon's solutions represent clean technology. They can be used to control the speed of electric motors used by industry and municipal engineering, and in power generation using renewable energy. Vacon provides AC drives in the power range 0.25 kW - 5 MW. Revenues in 2007 totalled EUR 232.2 million.
Vaasa, 23 October 2008
VACON PLC
Board of Directors
For more information please contact: Mr Vesa Laisi, President and CEO, phone: +358 (0)40 8371 510 Mr Mika Leppänen, CFO and Vice President, Finance & Control, phone: +358 (0)40 8371 235
Conference for media and analysys Vacon will hold a briefing for analysts and the media at 11.30 am on 23 October 2008 at the Radisson SAS Plaza Hotel, Mikonkatu 23, Helsinki
Dial-in conference for investors and investment analysts A dial-in conference in English for investors and investment analysts will be held at 3.00 pm on 23 October 2008. President and CEO Vesa Laisi and Mika Leppänen, CFO and Vice President, Finance and Control, will participate in the conference. Lines can be booked ten minutes before the conference by calling the service number +44 207 162 0025. The conference ID code is "Vacon Oyj". To hear a recording of the conference, available for three working days, call +44 207 031 4064, ID code 782084.
Distribution Helsinki Exchanges Financial Supervision Authority Main media
Summary of financial statements and notes
Accounting principles This interim report has been prepared in accordance with IFRS (International Financial Reporting Standards) standard IAS 34 on Interim Financial Reporting.
Vacon has prepared this interim report applying the same accounting principles as those decribed in detail in its 2007 consolidated financial statements
Q3/2007 Calculation of changes in shareholders' equity, IFRS, MEUR
Minor- Total Attributable to equity ity equity holders of the parent inter- est Share Share Own Transla- Revalu Re- Total capital pre- shares tion ation tained mium differ- fund earn- reserve rence ings
Shareholders' Equity 31.12.2006 3.1 5.0 -1.2 -0.1 0.1 45.2 52.0 1.0 53.0 Cash flow Hedging: Hedging result allocated to Equity 0.1 0.1 0.1 Transferred as adjustment to revenues -0.1 -0.1 -0.1 Translation difference 0.0 0.0 0.0 Other changes 0.1 0.2 0.2 0.2 Net income recorded Directly in equity 0.0 0.0 0.0 0.1 0.0 0.2 0.2 0.0 0.3 Profit for Period 14.8 14.8 0.4 15.2 Income and expenses recorded during period, total 0.0 0.0 0.0 0.1 0.0 15.0 15.1 0.4 15.5 Dividend paid -9.9 -9.9 -0.3 -10.2 Shareholders' equity 30.9.2007 3.1 5.0 -1.2 -0.1 0.1 50.3 57.2 1.0 58.2
Q3/2008 Calculation of changes in shareholders' equity, IFRS, MEUR
Attributable to equity Mino Total -ity Equi- ty holders of the parent inter- est Share Share Own Transla- Revalu- Re- Total capital Pre- shares tion ation tained mium diffe- fund earn- rence ings
Segment information Reporting on Vacon Group's operations is firstly by business segment and secondly by geographical segment.
Vacon has one business segment, AC drives. The figures for the primary segment are identical with the figures for the whole Group. Vacon's operations are organized in the following functions: Products and Markets, Production, Research & Development, Finance and Administration, Human Resources, IT and Process Development. To ensure that the organisation is customer-oriented, operations are controlled by customer segments that are called business areas. These business areas are: Component Customers, Solutions Customers, OEM and Brand Label Customers, and Service and After-Market Services. The secondary, geographical segment is divided into three sales areas: EMEA (Europe, Middle East and Africa), Americas (North and South America) and APAC (Asia and Pacific).
Acquired business operations On 1 January 2008 the Group acquired the AC drives business of TB Wood's, part of US-based Altra Holdings Inc. The estimated final price is USD 29.2 million. According to initial calculations, the acquisition of TB Wood's generates goodwill of EUR 6.4 million, which is based on the anticipated opportunities for expansion and synergy benefits.
+-----------------------------------------------+ | MEUR | | |---------------------------------------+-------| | Acquisition cost | | |---------------------------------------+-------| | Cash price | 19.8 | |---------------------------------------+-------| | Direct costs relating to acquisition | 1.3 | |---------------------------------------+-------| | Total acquisition cost | 21.1 | |---------------------------------------+-------| | | | |---------------------------------------+-------| | Fair value of net assets acquired | 14.7 | |---------------------------------------+-------| | Goodwill | 6.4 | |---------------------------------------+-------| | | | |---------------------------------------+-------| | Allocation of goodwill: | | |---------------------------------------+-------| | Europe, Middle East and Africa | 2.7 | |---------------------------------------+-------| | North and South America | 3.7 | |---------------------------------------+-------| | Asia and Pacific | 0.0 | |---------------------------------------+-------| | | | |---------------------------------------+-------| | | | |---------------------------------------+-------| | Impact on cash flow was as follows: | | |---------------------------------------+-------| | Total acquisition cost | -21.1 | |---------------------------------------+-------| | Loans raised | 19.4 | |---------------------------------------+-------| | Cash funds received | 0.7 | |---------------------------------------+-------| | Net payment for acquisition from cash | | |---------------------------------------+-------| | funds | -1.0 | +-----------------------------------------------+
