Salcomp Plc Stock Exchange Release 8 February 2007 at 11:30 Finnish
time
Salcomp Plc Financial Statements Release for 2006
INTENSE GROWTH IN NET SALES CONTINUED
-Net sales increased by 66% to EUR 259.0 million (EUR 156.0 million).
-Operating profit increased by 24% to EUR 15.5 million (EUR 12.5 million).
-Earnings per share excluding the calculative tax item increased to EUR 0.28
(EUR 0.27).
-The number of chargers delivered increased to 230.5 million (152.2 million).
-The market share in mobile phone chargers increased to 23% (18%).
-The construction of a plant in India began.
-Salcomp was listed on the Helsinki Stock Exchange.
-Salcomp aims to further increase its market share in 2007. However, following
the intense growth during 2006, net sales are expected to revert to a more
moderate growth track and to grow somewhat faster than the average growth of
the mobile phone charger market. It is estimated that both the operating profit
and the earnings per share will clearly increase from the previous year.
Salcomp Plcs consolidated financial statements have been prepared in
accordance with the IFRS and IAS standards which Salcomp has been applying
since January 1, 2005. This release has not been audited.
Markku Hangasjärvi, President and CEO:
"At Salcomp, 2006 was a year of positive development. I would personally like
to thank our skilled and professional personnel for their excellent
contribution in creating our growth. The number of chargers we have sold and
our net sales increased to the highest levels ever, both during the last
quarter and over the entire year. We significantly outperformed the mobile
phone charger market growth and strengthened our market positions as the key
supplier to major mobile phone manufacturers.
Due to the growth, our profitability improved noticeably on the previous
quarter. The operating profit percentage over the entire financial year
increased to 6.0%, even though it was slightly burdened by an increase in
material prices in the spring, as well as the measures required to achieve
growth.
As per our strategy, we focused on the mobile phone charger business where we
have a good position as one of the three major players. Our market share
continued its strong growth, and we now have a far better basis to compete for
the position of market leader in the industry.
Effective production and logistics, as well as technology leadership, will also
enable our future competitiveness. In order to increase and balance our global
production, we are currently constructing a plant in India. The new plant will
commence operations at the end of the first half of 2007. Plant capacity will
gradually increase to approximately 100 million chargers per year.
In 2007, we aim to further strengthen our market position and increase our
market share, while the mobile phone market continues its growth, forecast at
approximately 10% in unit sales. Due to this growth, we also forecast positive
development in our profitability for 2007."
The fourth quarter
During the last quarter of the year, strong demand for chargers continued
through the very last days. As a result of this great demand, which exceeded
expectations, net sales also increased in the period October to December by
62%, being EUR 78.6 million (EUR 48.6 million in 10-12/2005). The increase in
net sales was due to the number of chargers sold, growing to 69.6 million (45.8
million), and the average sales price rising to approximately EUR 1.13 (EUR
1.06). Fuelled by the market growth, Salcomp was able to increase its market
share in mobile phone chargers in the fourth quarter to an estimated 24%.
Operating profit increased to EUR 6.7 million (EUR 3.6 million). The increase
in profitability was mostly due to increased net sales. In addition, the
improvement in profitability could also be attributed to more efficient
production and purchasing operations. Operating profit percentage increased to
8.5% (7.4%).
The fourth quarter result amounted to EUR 4.6 million (EUR 1.3 million) and
earnings per share were EUR 0.12 (EUR 0.04). Excluding the calculative tax
item, earnings per share amounted to EUR 0.14 (EUR 0.07).
Cash flow from operations in the last quarter of the year was EUR 7.8 million
(EUR 2.4 million).
FINANCIAL YEAR 2006
Business environment
During 2006, the mobile phone market grew by approximately 20%. Approximately
980 million mobile phones were sold. Market growth exceeded even customer
expectations: both market research companies and customers raised their
forecasts on the size of the market during the year.
Market growth was reflected in increased demand for mobile phone chargers.
Consolidation in the market continued, and Salcomp's main customers, major
mobile phone manufacturers, increased their combined market share.
Consolidation in the charger market also continued, and the combined market
share of the three major manufacturers increased.
During spring 2006, several material costs that are essential in charger
production increased more than expected. In particular, an increase in the
global market price of oil and copper resulted in higher component charges.
During the autumn, the prices began to level off.
Net sales
Salcomps net sales in 2006 increased by 66% to EUR 259.0 million (EUR 156.0
million in 2005). The increase in net sales was due to the number of chargers
sold, growing to 230.5 million (152.2 million), and the average sales price
rising to approximately EUR 1.12 (EUR 1.03). The market share in mobile phone
chargers for the entire year increased to an estimated 23% (18%).
Result
The Group's operating profit increased by 24% to EUR 15.5 million (EUR 12.5
million). The operating profit was improved by an increase in the number of
units delivered, more effective production and purchasing operations, as well
as an improved product cost structure. The operating profit was burdened by an
increase in material costs in the spring, the earlier than expected
commissioning of new production lines to match the rapidly increased demand,
and the unsatisfactory profitability development of the Brazilian operations,
partly due to the customs strike in Brazil in the spring. The Group's operating
profit percentage was 6.0% (8.0%).
The Groups net financial expenses were EUR 4.3 million (EUR 4.2 million).
Financial expenses increased due to higher market interest rates, as well as
costs related to the revamping of financial arrangements. Taxes for the period
totaled EUR 3.6 million (EUR 2.5 million). They include a calculative item of
EUR 3.0 million (EUR 3.0 million), resulting from the parent companys tax-
deductible goodwill amortization.
Salcomps net result totaled EUR 7.6 million (EUR 5.8 million) and earnings per
share EUR 0.20 (EUR 0.18). Excluding the calculative tax item, earnings per
share amounted to EUR 0.28 (EUR 0.27).
R&D
During the financial year, the Group's R&D expenditure was EUR 5.4 million (EUR
4.0 million), or 2.1% of net sales (2.6%). Over the year, an average of 125
people were working in R&D. The focus was on the development of new mobile
phone chargers for the main customers and on the continued improvement of the
product cost structure.
Capital expenditure
Capital expenditure for the year totaled EUR 9.3 million (EUR 9.0 million). It
mainly involved boosting the production capacity in China and Brazil, revamping
the production control system in Brazil and commencing the plant construction
in India, agreed in April.
Due to the unexpectedly rapid growth outlook for mobile phone chargers for 2007
to 2010, a decision was made in August to expand capital expenditure to cover
the simultaneous construction of both phases of the plant in India. The value
of this investment is approx. EUR 9 million. It is estimated that the plant
will come on line at the end of the first half of 2007. The investment is
progressing as planned.
Financing
The cash flow from business operations was EUR 3.9 million (EUR 10.8 million).
The decrease in cash flow was mostly due to the increase in net working capital
as a result of strong growth.
The Groups equity ratio at the end of the year was 30.5% (19.1%) and gearing
was 83.7% (194.6%). The key figures of the balance sheet were improved by the
offering, organized in March, as well as the result development. At the end of
the year, interest-bearing net debt stood at EUR 44.4 million (EUR 54.9
million).
In February, Salcomp signed a new financial agreement with a banking syndicate
arranged by Nordea Bank Finland Plc. The agreement consists of a loan of EUR 65
million and a credit facility of EUR 5 million. This financial arrangement
replaced the previous interest-bearing credits and the sales program for
receivables. In accordance with the loan agreement, EUR 12 million of the
proceeds obtained in connection with the stock exchange listing were used for
premature repayment. Furthermore, an equity-based additional remuneration of
EUR 1.7 million was paid in accordance with the terms of the repaid Mezzanine
loan agreement, which generated financial expenses to the amount of EUR 0.1
million in the financial year 2006.
Changes in the Group structure
Salcomp continued to streamline the Group's management and reporting systems as
planned. In May, the Group's subsidiary, Salcomp Industrial Eletrônica da
Amazônia Ltd, which carries out the production operations in Brazil, was
transferred from Salcomp Plc to Salcomp Manufacturing Oy. In March, a
subsidiary called Salcomp Manufacturing India Pvt Ltd was founded in India.
Environment and quality
The management of Salcomp's environmental issues is based on the Group's
environmental policy, environmental programs and guidelines, as well as its
risk management policy. The focus in the management of environmental issues is
to minimize the effects on the environment and people.
The total amount of harmful chemicals used in production is small, and no
harmful emissions are caused by the process. The Group's production plants are
ISO 14001 certified, and Salcomp has the environmental permits required for its
operations.
The Group has an extensive ISO 9001 certified quality system. In addition to
Salcomp's own quality control, customers regularly conduct quality audits.
Governance, management and personnel
The Board of Directors was selected in February at the Annual General Meeting.
For the duration of the financial year, the Board of Directors comprised Kari
Vuorialho (Chairman), Jorma Terentjeff (Vice Chairman), Timo Leinilä and
Andreas Tallberg. From February 7, 2006, the Board also included Panu Halonen
and Petri Myllyneva. Until February 7, 2006, Panu Halonen and Jussi Nyrölä
acted as deputy members.
In September, Markku Hangasjärvi was appointed President and CEO of Salcomp,
effective as of November 6, 2006, after Mats Eriksson's resignation at his own
request.
The company auditor was Authorized Public Accountants KPMG Oy Ab, with APA
Tapio Raappana as the responsible auditor.
The number of Group personnel at the end of the year totaled 7,910 (6,304):
6,815 were employed in China and 1,015 in Brazil. The increase in the number of
personnel was mostly due to increased production volumes.
Listing
On January 30, 2006, Salcomps Board of Directors decided to investigate the
various possibilities of broadening the companys ownership structure. One
option was to seek listing. Following these investigations, the Board decided,
on February 27, 2006, to seek listing of Salcomp's shares on the Helsinki Stock
Exchange Main List.
In the Offering, a total of 17 million Salcomp shares were sold at EUR 3.20 per
share. Of these, 6 million were new shares. The shares allocated in the
Offering represented, in total, approximately 44% of the total number of shares
of Salcomp Plc after the Offering.
The net proceeds subscribed for in the share issue totaled approximately EUR 17
million after deducting the related fees and commissions.
The Salcomp Plc shares were quoted on the Helsinki Stock Exchange Prelist on
March 13, 2006 and the Main list on March 17, 2006. After the listing, Salcomp
had a total of 591 shareholders. Foreign ownership accounted for 67.8% of the
shares with 52.3% being held by a capital investment fund called EQT II Swedish
Non-Registered Partnership, administered by EQT II B.V.
Shares and shareholders
Salcomp's registered share capital amounts to EUR 9,832,735.12, divided into
38,975,190 fully paid shares. The company has one series of shares, and all the
shares entitle the shareholder to equal rights in the company.
Salcomps share price fluctuated between EUR 2.13 and EUR 3.69 during the
financial period. The closing price at the end of the year was EUR 2.60 and the
mean price EUR 2.88. Share trading amounted to EUR 88.7 million and consisted
of 29.2 million shares. According to the book-entry system, Salcomp had 949
shareholders at the end of the year. Foreign ownership at the end of the year
was 62.2%.
On September 1, 2006, DWS Investment GmbH, a subsidiary of Deutsche Bank AG,
announced that it had increased its ownership of the share capital and voting
rights of Salcomp Plc to more than 5%. At the time, DWS Investment Gmbh had
acquired a total of 2,039,000 shares, which represents 5.23% of the share
capital and voting rights.
General Meetings
Salcomp held an Extraordinary General Meeting on January 27, 2006. Shareholders
decided unanimously to make several amendments to the Articles of Association
based on the Board of Directors' proposals: including decisions to increase the
number of shares by lowering their counter-book value, to convert shares to
form only one series of shares, to remove the redemption clause, to change the
company form to a public limited company, to change the official name and to
amend the sections regarding advance registration to the Annual General Meeting
and the convening time.
At the Annual General Meeting held on February 7, 2006, matters specified in
the Articles of Association were discussed. Accordingly, the income statement
and the balance sheet were approved, members of the Board and the President and
CEO were discharged from liability, members of the Board and auditors were
selected, and the fees payable to members of the Board and to auditors were
determined.
As proposed by the Board of Directors, a decision was made at the Annual
General Meeting to change the companys domicile entered in the Trade Register
to Salo and to authorize the Board of Directors to increase the companys share
capital by a maximum of EUR 1,663,787 and by 6,595,000 new shares. The Board
used part of the authorization to increase share capital in connection with the
Stock Exchange listing. The Board's remaining unused authorization is EUR
150,107 and 595,000 shares.
The Board's proposal for profit distribution
On February 14, 2006, the Board of Directors adopted a dividend policy whereby
the Board intends to propose annually to the General Meeting of Shareholders
that no more than one-third of the average long-term result be distributed as
dividends, provided that the growth requirements stated in the company strategy
are not jeopardized. The amount of future dividend, if any, will be subject to
the company's future result, its financial position, cash flow, working capital
needs, capital expenditure, terms and conditions of financial agreements and
covenants and other factors.
The Board has decided to propose to the Annual General Meeting of Shareholders
that a dividend of EUR 0.06 per share to be distributed, a total of EUR 2.3
million, and the remainder of the distributable equity to be carried over as
retained earnings.
Dividends determined at the General Meeting shall be distributed to all
shareholders, who on the balancing date of April 3, 2007 have been entered in
the shareholders' register maintained by the Finnish Central Securities
Depository.
Outlook for 2007
According to the estimates published by Salcomp's main customers and to the
various market research companies, the mobile phone market is expected to
increase during 2007 by approximately 10%, compared with 2006. Measured by the
number of units, this would mean approximately 1.1 billion mobile phones, and
therefore, chargers, to be sold in 2007.
The estimated increase in the mobile phone charger market and the strong market
position achieved by Salcomp form a good basis to achieve further increases in
net sales in 2007. Salcomp also aims to increase its market share in mobile
phone chargers even further in 2007. However, following the intense growth
during 2006, net sales are expected to revert to a more moderate growth track
and to grow somewhat faster than the average growth of the mobile phone charger
market. It is estimated that both the operating profit and the earnings per
share will clearly increase from the previous year.
Helsinki, February 8, 2007
Board of Directors
Further information:
Markku Hangasjärvi, President and CEO, tel. +358 40 7310 114
Antti Salminen, CFO, tel. +358 40 535 1216
A briefing for analysts and representatives of the media will be held on
February 8, 2007 at 13:00 at Hotel Vaakuna (10th Floor), Kaivokatu 3, Helsinki.
Salcomp's Annual Report 2006 will be published in March, week 11, and the
January-March interim review on May 3, 2007.
CONSOLIDATED INCOME STATEMENT
(EUR 1 000)
1-12/ 1-12/ Change
2006 2005 %
Net sales 259 049 156 028 66.0%
Cost of sales -228 794 -133 172 71.8%
Gross margin 30 255 22 856 32.4%
Other operating income 363 344 5.6%
Sales and marketing expenses -1 981 -1 680 17.9%
Administrative expenses -7 503 -4 989 50.4%
Research and development expenses -5 421 -4 052 33.8%
Other operating expenses -240 -22 990.5%
Operating profit 15 473 12 457 24.2%
Financial income 276 143 92.4%
Financial expenses -4 547 -4 375 3.9%
Profit before tax 11 202 8 225 36.2%
Income tax expense -3 573 -2 460 45.2%
Profit for the period 7 629 5 766 32.3%
CONSOLIDATED INCOME STATEMENT
(EUR 1 000)
10-12/ 10-12/ Change
2006 2005 %
Net sales 78 642 48 617 61.8%
Cost of sales -67 598 -42 053 60.7%
Gross margin 11 044 6 564 68.3%
Other operating income 84 97 -13.0%
Sales and marketing expenses -571 -445 28.3%
Administrative expenses -2 393 -1 310 82.6%
Research and development expenses -1 285 -1 298 -1.0%
Other operating expenses -185 -28 560.5%
Operating profit 6 694 3 579 87.0%
Financial income 32 55 -42.3%
Financial expenses -1 115 -1 752 -36.3%
Profit before tax 5 611 1 883 198.0%
Income tax expense -966 -564 71.3%
Profit for the period 4 645 1 319 252.1%
CONSOLIDATED BALANCE SHEET
(EUR 1 000)
31.12.2006 31.12.2005 Change%
Non-current assets
Property, plant and equipment 19 141 17 075 12.1%
Goodwill 66 412 66 412 0.0%
Other intangible assets 1 227 296 314.3%
Deferred tax assets 3 024 2 829 6.9%
89 804 86 612 3.7%
Current assets
Inventories 21 918 24 987 -12.3%
Trade and other receivables 54 922 30 722 78.8%
Cash and cash equivalents 7 845 5 726 37.0%
84 685 61 435 37.8%
Total assets 174 489 148 046 17.9%
Equity
Share capital 9 833 8 285 18.7%
Share issue 0 105
Premium fund 22 035 5 934 271.3%
Retained earnings 21 113 13 877 52.1%
52 981 28 200 87.9%
Non-current liabilities
Deferred tax liabilities 8 195 6 012 48.3%
Interest-bearing liabilities 43 797 0
Provisions 40 40 0.0%
52 752 6 052 771.7%
Current liabilities
Trade and other payables 60 351 53 179 13.5%
Interest-bearing current 8 405 60 615 -86.1%
liabilities
68 756 113 794 -39.6%
Total equity and liabilities 174 489 148 046 17.9%
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(EUR 1 000)
Attributable to equity holders of the parent
Share Share Permium Trans- Re- Total
capital issue fund lation tained equity
diffe- ear-
rences nings
Equity at 8 236 150 41 110 -480 -27 785 21 231
Jan 1, 2005
Translation 0 0 0 1 098 0 1 098
differences
Profit for 0 0 0 0 5 766 5 766
the period
Losses covered 0 0 -35 277 0 35 277 0
from Premium Fund
Total recognized 0 0 -35 277 1 098 41 043 6 864
income and expense
for the period
Share issue 49 -45 101 0 0 105
Equity at 8 285 105 5 934 618 13 258 28 200
Dec 31, 2005
Translation 0 0 0 -392 0 -392
differences
Profit for 0 0 0 0 7 629 7 629
the period
Total recognized 0 0 0 -392 7 629 7 237
income and expense
for the period
Share issue 1 548 -105 16 101 0 0 17 544
Equity at 9 833 0 22 035 226 20 887 52 981
Dec 31, 2006
CONSOLIDATED CASH FLOW STATEMENT
(EUR 1 000)
1-12/ 1-12/ Change
2006 2005 %
Cash flow before change in working 20 618 16 985 21.4%
capital
Change in working capital -10 765 -1 305 725.1%
Financial items and taxes -6 000 -4 911 22.2%
Net cash flow from operating 3 853 10 769 -64.2%
activities
Cash flows from investing activities -8 574 -6 441 33.1%
Cash flow before financing -4 721 4 328 -209.1%
Change of borrowings -8 622 -5 433 58.7%
Paid share issue 16 962 105
Net cash flow from financing 8 340 -5 328 -256.5%
activities
Change in cash and cash equivalents 3 619 -1 000 -461.9%
Cash and cash equivalents 5 726 6 135 -6.7%
at the beginning of the period
Translation correction to -1 500 591 -353.8%
cash and cash equivalents
Cash and cash equivalents 7 845 5 726 37.0%
at the end of the period
KEY FIGURES
1-12/ 1-12/ Change
2006 2005 %
Sold chargers, Mpcs 230.5 152.2 51.4%
Average sales price, EUR 1.12 1.03 8.7%
Net sales, MEUR 259.0 156.0 66.0%
EBITDA, MEUR 20.7 17.2 20.3%
EBITDA%, % 8.0% 11.0%
Operating profit, MEUR 15.5 12.5 24.4%
Operating profit percentage, % 6.0% 8.0%
Earning per share, EUR 0.20 0.18 11.1%
Equity per share, EUR 1.36 0.86 58.1%
Return on equity, % 18.8% 23.3% -19.3%
Return on capital employed, % 16.2% 14.3% 13.3%
Return on net assets, % 54.1% 68.0% -20.4%
Equity ratio, % 30.5% 19.1% 59.7%
Gearing, % 83.7% 194.6% -57.0%
Capital expenditure, MEUR 9.4 9.0 4.1%
Capital expenditure, % of net 3.6% 5.8% -37.6%
sales
Personnel on average 7 567 5 050 49.8%
Personnel at end of period 7 910 6 304 25.5%
Number of shares on average 37 808 067 32 839 450
Number of shares at the end of 38 975 190 32 839 450
period
Highest share price, EUR 3.69
Lowest share price, EUR 2.13
Average share price, EUR 2.88
Traded shares, Mpcs 29.2
Traded shares, MEUR 88.7
LIABILITIES
(EUR 1 000)
1-12/ 1-12/ Change
2006 2005 %
For own dept
Company and real estate 170 000 168 000 10.4%
mortgages
Others 254 386 108.0%
Leasing and rental liabilities 5 291 7 546 38.2%
175 545 175 932 -0.2%
DERIVATE INSTRUMENTS 1-12/ 1-12/
(EUR 1 000) 2006 2005
Value of underlying currency options 4 750 5 282
Market value of currency options 41 -157
Value of underlying interest rate options 15 000 0
Market value of interest rate options 56 0
Value of underlying interest rate swap 15 000 0
contracts
Market value of interest rate swap 45 0
contracts
QUARTERLY INFORMATION
10-12/ 7-9/ 4-6/ 1-3/ 10-12/ 7-9/
06 06 06 06 05 05
Sold chargers, 69 587 60 464 52 255 48 160 45 815 42 560
kpcs
Net sales, kEUR 78 642 67 445 59 020 53 942 48 617 44 731
Operating profit, 6 694 4 505 220 4 054 3 580 4 160
kEUR
Operating profit 8,5% 6,7% 0,4% 7,5% 7,4% 9,3%
percentage, %
Average sales 1,13 1,12 1,13 1,12 1,06 1,05
price, EUR
Salcomp Plc Financial Statements Release for 2006
| Source: Salcomp Oyj