Tekla Corporation Stock Exchange Release 27.4.2007 Tekla Corporation's Interim Report January 1-March 31, 2007: Tekla's net sales and operating result remained on a growth track Net sales of Tekla Group for January-March 2007 totaled 13.60 (10.53) million euros. Growth in net sales was approximately 29 percent. The operating profit for the reporting period was approximately twice as good as that for the corresponding period the previous year, 3.78 (1.85) million euros. The operating result percentage for the reporting period was 27.8% (17.6%). Ari Kohonen, President and CEO, comments on the first three months of 2007: - Net sales and result for the first quarter were outstanding. Our main business area, Building & Construction, continued to prosper. The trends in the building industry remained favorable. Our position as a supplier of 3D modeling software strengthened further in all markets, and the number of users of these software products is still growing. The situation was good nearly everywhere; there is still a lot of construction going on in the Middle East, and sales in India are strong as well. North America is our largest market area, and sales have remained at a favorable level there. - As for the other business area, Infra & Energy, the first quarter was softer than in the previous year. This was due to strong sales in the energy industry during the corresponding quarter in 2006. This year, sales will mainly take place during the upcoming quarters. - The sale of the project-based Defence business to Patria has been completed, and the business operations will be transferred to the new owner on May 1, 2007. We announced the signing of the final agreement on April 26, 2007. The business deal will be recognized in the second quarter of 2007, and its effect on Tekla's operating result is approximately 2.3 million euros. For Tekla, this means that we will focus further on product-based software business in the future. - Last week, we announced preliminary information on a strong interim result for January-March. In the software product business, it is possible to react swiftly to fluctuation in demand and the profitability of additional sales is good. The Board estimates that according to currently available information, the net sales of continuing business operations will increase by some 20%. In order to guarantee long-term growth, personnel resources have been increased and will be increased even further. Therefore, costs will increase, but we expect the operating result of the continuing business operations to be clearly better than in the previous year. The Building & Construction business area is spearheading the growth in net sales and operating profit, whereas also Infra & Energy's net sales are expected to experience moderate growth and its result to be positive. - - - Tekla will organize an information conference for analysts and media in connection with the Tekla Capital Market Afternoon on May 3, 2007. - - - TEKLA CORPORATION'S INTERIM REPORT JANUARY 1-MARCH 31, 2007 NET SALES AND PROFITABILITY * Net sales of Tekla Group for January-March 2007 were 13.60 million euros (10.53 million euros for January-March 2006). * Growth in net sales was 29.2%. * Operating result was 3.78 (1.85) million euros. * Operating profit percentage was 27.8 (17.6). * Earnings per share were 0.13 (0.06) euros * Return on investment was 73.1 (44.2) percent. * Return on equity was 54.2 (34.6) percent. FINANCIAL POSITION * Cash flow from operating activities totaled 8.50 (6.82) million euros. * Liquid assets amounted to 23.10 (18.95) million euros on March 31, 2007 and 24.24 million euros on December 31, 2006. * Equity ratio was 46.5 (50.6) percent. * Interest-bearing debts were 0.37 (0.96) million euros. OTHER KEY FIGURES * International operations accounted for 80% (74%) of net sales. * Personnel averaged 373 (310) for January - March. * At the end of March, the number of personnel including part-time staff was 393 (326). * Gross investments in property, plant and equipment were 0.50 (0.32) million euros. * Equity per share was 0.83 (0.71) euros. * On the last trading day of March, trading closed at 8.80 (5.92) euros. NET SALES AND OPERATING RESULT BY BUSINESS AREA (PRIMARY SEGMENT) Million euros Net sales Operating result 1-3/07 1-3/06 change 1-3/07 1-3/06 change Building & 10.62 7.33 3.29 3.85 2.15 1.70 Construction Infra & 2.49 2.73 -0.24 -0.17 0.01 -0.18 Energy *) Defence **) 0.49 0.47 0.02 0.02 -0.03 0.05 Other 0.00 0.00 0.00 0.08 -0.28 0.36 Total 13.60 10.53 3.07 3.78 1.85 1.93 *) The Energy & Utilities and Public Infra business areas were merged at the beginning of 2007. The comparison figures for 2006 have been calculated in accordance with the new grouping of business areas. **) Defence has been treated as a discontinued business for the comparison period as well. NET SALES AND RESULT BY QUARTER IN 2007 AND 2006 Million euros 1-3/07 10-12/06 7-9/06 4-6/06 1-3/06 Net sales 13.60 15.49 11.71 12.05 10.53 Operating profit (loss) 3.78 4.79 3.88 3.10 1.85 Profit (loss) before taxes 4.02 4.71 4.08 3.03 1.95 Profit (loss) for the period 2.93 3.51 2.90 2.32 1.43 BUSINESS AREAS Building & Construction Tekla's Building & Construction business area (B&C) develops and markets the Tekla Structures software product for model-based design of steel and concrete structures as well as the management of fabrication and construction. The trends in the building industry have remained favorable in all key market areas. Demand for modeling systems in the industry continues to increase, and product modeling is strengthening its foothold in structural design and other stages of the building process. Tekla's market position as a supplier of 3D modeling software continued strengthening in all markets and the numbers of users were on the increase. The net sales of B&C amounted to 10.62 (7.33) million euros for January-March 2007. Net sales increased by approximately 45% compared to the previous year. Its operating result was 3.85 (2.15) million euros. B&C's operating profit percentage for the reporting period was 36.3% (29.3%). International operations accounted for 95% (96%) of B&C's net sales in January-March 2007. North America, the United Kingdom and France were the largest markets. With regard to the key market areas, the highest proportional growth in Q1 net sales was seen in the Middle East, India, North America and Western Europe. By far the most of B&C's net sales is generated by the product offering for structural steel engineering. Sales of B&C's other products developed according to plans as well during the first quarter, and personnel resources have been increased and will be further increased to guarantee favorable development. During the reporting period, Tekla joined the Business Software Alliance. The BSA is a global association that aims to reduce software piracy and promote a legal network environment. Infra & Energy The Energy & Utilities and Public Infra business areas merged into a new business area, Infra & Energy as of the beginning of 2007. Infra& Energy focuses on the development and sales of model-based software solutions that support its customers' core processes. The key customer industries (products in brackets) are energy distribution (Tekla Xpower), infrastructure management (Tekla Xcity, Tekla Xstreet) and water supply (Tekla Xpipe). Structural changes in the energy industry and end users' growing expectations of the reliability of energy distribution and customer service increase the need for developing and renewing network information systems. Tekla has a firm market position in the industry in the Nordic countries and the Baltic States. In Finland, increasing regional collaboration will increase the public sector's need to develop geographic information systems. Tekla's market position is strong in large and medium-sized Finnish municipalities. The net sales of I&E amounted to 2.49 (2.73) million euros for January-March 2007. Net sales decreased by 8.8%. I&E's operating result for the reporting period was -0.17 (0.01) million euros. International operations accounted for 31% (30%) of net sales. I&E's operating profit percentage was -6.8% (0.4%). I&E's first quarter was softer than in the previous year. This was due to strong sales in the energy industry during the corresponding quarter in 2006. This year, sales will mainly take place during the upcoming quarters. As for I&E's other products, sales and product projects with customers proceeded according to plans. The majority of net sales consists or additional and service sales to existing customers. New customers are mainly expected from among Swedish energy companies as well as Finnish and Swedish water utilities. New business opportunities in Eastern Europe are being explored with local partners. The customer base in the infrastructure management sector is expected to expand with the adoption of regional services in Finland. Defence The Defence business area develops reconnaissance, command and control systems in close cooperation with the Finnish Defence Forces. The Defence business area is treated as a discontinued business in the Interim Report. The business area's net sales in January-March 2007 amounted to 0.49 (0.47) million euros. Its operating result was 0.02 (-0.03) million euros and operating profit percentage 4.1 (-6.4). Tekla announced the sale of the Defence business to Patria on April 26, 2007. The business will be transferred to Patria on May 1, 2007. In connection with the transaction, slightly more than 20 Defence employees will transfer to Patria. Tekla will recognize the business deal in the second quarter of 2007. The impact of the sale on the operating result is some 2.3 million euros. Tekla has also a possibility to receive an additional price depending on the sales development of the transferred business. FOCUSING ON SOFTWARE PRODUCT BUSINESS As a consequence of the above-mentioned sale of the Defence business and the formation of the new Infra & Energy business area, Tekla will focus further on the software product business. The company develops and sells software products to select customer industries in the international market. Tekla's software products are meant for professional use in supporting the customers' core businesses. Focusing on the software product business facilitates more uniform processes in product development and e.g. customer relationship management. PRODUCT DEVELOPMENT A decision has been made to change the name of Tekla's software development unit (Software Production). The new name, Product Development, better describes Tekla's increasing focus on the development of its own products and abandonment of the development of customer-specific information system projects. Product projects where product features are developed in cooperation with individual customers and customer groups continue as a part of the I&E business area's product-based solution offering. In the first quarter of 2007, product development for the building sector focused on the annual main version of Tekla Structures, which was launched in mid-April. Version 13 contains improvements concerning e.g. software performance and usability. In connection with the launch of the version it was also announced that in the future, Tekla will move from releasing three versions to releasing two versions per year. The annual main version will be released in the spring and an intermediate version towards the end of the year. As for Tekla Xpower and Tekla Xpipe software, focus was on the main versions which will be completed in June, featuring improved calculation and other electrotechnical properties. Development of the Tekla Xcity and Tekla Xstreet software products continued in close cooperation with customers. Tekla Xcity will be supplemented with improvements that facilitate system integration. PERSONNEL AND ORGANIZATION Personnel The Group personnel averaged 373 (310) for January-March 2007; on average 132 (102) worked outside Finland. In these figures, the number of part-time staff has been converted to correspond to full-time work contribution. At the beginning of the year, Tekla personnel totaled 365 (324) including part-time staff, and at the end of March 393 (326), of whom 137 (104) worked outside Finland. Largest increases to personnel have taken place in product development and sales. Senior Management Members of the Tekla Management Team as of the beginning of 2007 are: Ari Kohonen, President and CEO; Heikki Multamäki, Executive Vice President (responsible for Tekla's business development); Risto Räty, Executive Vice President (Building & Construction); Kai Lehtinen, Senior Vice President (Infra & Energy); Petri Raitio, Senior Vice President (Product Development); Leif Granholm, Senior Vice President (Tekla Nordic); Harald Lundberg, Vice President (Tekla Information Management); Anneli Bergström, Vice President (Human Resources); and Timo Keinänen, CFO. SHARE AND OWNERSHIP STRUCTURE Shares and Share Capital The total number of Tekla Corporation shares at the end of March 2007 was 22,586,200, of which the company owned 69,600. The total nominal value of those was 2,088 euros, representing 0.3% of the total share capital and the total number of votes. A total of 220,702.46 euros had been used for acquiring the company's own shares, and their market value was 612,480 euros on March 31, 2007. The nominal value of the share is 0.03 euros. At the end of the period, share capital stood at 677,586 euros. Share Price Trends and Trading The highest quotation of the share in January-March 2007 was 9.20 (6.10) euros, the lowest 7.60 (3.38) euros. The average quotation was 8.43 (4.74) euros. On the last trading day of March, trading closed at 8.80 (5.92) euros. A total of 3,494,944 (5,103,040) Tekla shares changed hands in January-March 2007, amounting to 15.5% (23%) of the entire share capital. Flagging Announcements According to a notification by Fidelity International Ltd and its subsidiaries dated March 19, 2007, their holdings in Tekla Corporation had decreased below the 5% threshold to 4.09%. At the end of March, Fidelity International and its subsidiaries announced that their holdings had crossed above the 5% threshold after the security lending ended on March, 23, 2007. According to the notification, the new holdings amounted to 8.37%. ANNUAL GENERAL MEETING Tekla Corporation's Annual General Meeting on March 15, 2007 adopted the financial statements, consolidated income statement and balance sheet for 2006. The Annual General Meeting also discharged the CEO and the Board members from liability. The Annual General Meeting also approved the Board's proposal that a dividend of 0.20 euros plus an extra dividend of 0.20 euros due to Tekla's anniversary, in total of 0.40 euros per share, be distributed for the financial period 2006. Ari Kohonen, Esa Korvenmaa, Olli-Pekka Laine (Vice Chair), Heikki Marttinen (Chair) and Erkki Pehu-Lehtonen were re-elected Board members until the conclusion of the Annual General Meeting in 2008. Timo Keinänen was re-elected deputy member of the Board. Juha Kajanen is the Tekla personnel representative on the Board and Pirjo Lundén his personal deputy. PricewaterhouseCoopers were re-elected as auditors, with Markku Marjomaa, Authorized Public Accountant, as the auditor in charge. The AGM renewed the Board's authorizations regarding the increase of the company's share capital and transferring the company's treasury shares. In addition, the AGM authorized the Board to acquire a maximum of 500,000 Tekla shares. SHORT-TERM RISKS AND UNCERTAINTY FACTORS Possible risks and uncertainty factors associated with Tekla's business may include the softening of the market situation and the general economic situation. In the software product business, it is possible to react swiftly to fluctuation in demand and the profitability of additional sales is good. The majority of net sales comprises of sales of licences entitling to use software products. Fluctuation in their demand can be rapid and significant. The company has not observed such risks, since software sales are geographically diverse and individual customers do not account for a significant proportion of the net sales. OUTLOOK FOR 2007 The Board estimates that according to currently available information, the net sales of continuing business operations will increase by some 20%. In order to guarantee long-term growth, personnel resources have been increased and will be increased even further. Therefore, costs will increase, but the operating result of the continuing business operations is estimated to be clearly better than in the previous year. The Building & Construction business area is spearheading the growth in net sales and operating profit, whereas also Infra & Energy's net sales are expected to experience moderate growth well and its result to be positive. In the financial statements bulletin in February, the Tekla Board of Directors estimated the net sales of the continuing business operations to increase by some 15% with operating profit exceeding that of 2006. NEXT FINANCIAL REPORT Tekla Corporation's Interim report for January-June 2007 will be published on August 3, 2007. Espoo, April 27, 2007 TEKLA CORPORATION Board of Directors For additional information, please contact: Ari Kohonen, President and CEO, Tel. +358 30 661 1468, +358 50 641 24, ari.kohonen (at) tekla.com Timo Keinänen, CFO, Tel. +358 30 661 1773, +358 400 813 027, timo.keinanen (at) tekla.com Distribution: Helsinki Exchanges, main media Enclosures: Consolidated income statement, balance sheet (condensed) and cash flow statement (condensed) Calculation of reconciliation of equity Notes to the Interim Report CONSOLIDATED FINANCIAL STATEMENTS (unaudited) CONSOLIDATED INCOME STATEMENT Q1/ Q1/ Change, 1-12/ Million euros 2007 2006 % 2006 Continuing operations: Net sale 13.11 10.06 30.3 47.64 Other operating income 0.24 0.18 1.02 Change in inventories of finished goods and in work in progress 0.05 0.00 0.02 Raw material and consumables used -0.58 -0.40 -2.01 Employee compensation and benefit expense -6.10 -5.12 -21.70 Deprecation -0.30 -0.30 -1.19 Other operating expense -2.66 -2.54 -10.40 Operating profit(loss) 3.76 1.88 100.0 13.38 % of net sales 28.68 18.69 28.09 Financial income 0.50 0.22 1.06 Financial expenses -0.26 -0.12 -0.91 Profit(loss) before taxes 4.00 1.98 102.0 13.53 % of net sales 30.51 19.68 28.40 Income taxes -1.08 -0.52 -3.55 Result for the period from continuing operations 2.92 1.46 100.0 9.98 Discontinued operations: Result for the period from discontinued operations 0.01 -0.03 0.18 Result for the period 2.93 1.43 104.9 10.16 Attributable to the equity holders of the Company Earnings per share for profit attributable to the equity holders of the Company: Earning per share (EUR) 0.13 0.06 0.45 Earnings are not diluted. Earnings per share from continuing operations attributable to the equity holders of the Company: Earning per share (EUR) 0.13 0.06 0.44 Earnings are not diluted. Earnings per share from discontinued operations attributable to the equity holders of the Company: Earning per share (EUR) 0.00 0.00 0.01 Earnings are not diluted. CONDENSED BALANCE SHEET Change, Million euros 3/2007 3/2006 % 12/2006 Assets Non-current assets Property, plant and equipment 1.64 1.77 1.74 Goodwill 0.10 0.10 0.10 Intangible assets 0.75 0.41 0.49 Other financial assets 0.30 0.30 0.30 Receivables 0.53 0.00 0.56 Deferred tax assets 0.24 0.32 0.36 Non-current assets, total 3.56 2.90 22.8 3.55 Current assets Inventories 0.08 0.02 0.04 Trade and other receivables 12.89 9.21 10.90 Other financial assets 14.08 12.23 18.60 Cash and cash equivalents 9.07 6.79 5.69 Current assets, total 36.12 28.25 27.9 35.23 Assets held for sale 0.76 0.68 0.97 Assets total 40.44 31.83 27.0 39.75 Equity and liabilities Equity Share capital 0.68 0.68 0.68 Share premium account 8.89 8.89 8.89 Other own capital 1.13 1.31 1.22 Retained earnings 7.89 5.08 13.93 Equity total 18.59 15.96 16.5 24.72 Non-current liabilities Provisions 0.68 0.83 0.83 Interest bearing liabilities 0.11 0.59 0.27 Non-current liabilities total 0.79 1.42 -44.4 1.10 Current liabilities Trade and other payables 19.35 13.58 12.17 Tax liabilities 1.07 0.16 0.80 Current interest bearing liabilities 0.27 0.37 0.43 Current liabilities total 20.69 14.11 46.6 13.40 Liabilities total 21.48 15.53 38.3 14.50 Liabilities related to assets held for sale 0.37 0.34 0.53 Equity and liabilities total 40.44 31.83 27.0 39.75 CALCULATION OF RECONCILIATION OF EQUITY Share Fair Acc. Share prem. Res. value transl Ret. cap. acct fund res. diff. earn. Total Equity January 1, 2007 0.68 8.89 1.33 0.10 -0.21 13.93 24.72 Translation differences -0.05 0.04 -0.01 Available-for-sale financial assets -0.04 -0.04 Payment of dividend -9.01 -9.01 Net profit for the period 2.93 2.93 Equity March 31, 2007 0.68 8.89 1.33 0.06 -0.26 7.89 18.59 Share Fair Acc. Share prem. Res. value transl Ret. cap. acct fund res. diff. earn. Total Equity January 1, 2006 0.68 8.89 1.33 0.04 -0.05 6.32 17.21 Translation differences -0.01 -0.11 -0.12 Available-for-sale financial assets 0.00 Payment of dividend -2.56 -2.56 Net profit for the period 1.43 1.43 Equity March 31, 2006 0.68 8.89 1.33 0.04 -0.06 5.08 15.96 CONDENSED CASH FLOW STATEMENT Q1/ Q1/ Change, 1-12/ Million euros 2007 2006 % 2006 Cash flows from operating activities 8.50 6.82 13.01 Cash flows from investing activities: Investments -0.50 -0.32 -1.33 Sale of intangible assets and property, plant and equipment 0.00 0.00 0.13 Purchases of available-for-sale financial assets -15.35 -15.94 -48.64 Proceeds from sale of available-for-sale financial assets 17.74 15.36 43.84 Interests received from available-for-sale financial assets 0.22 0.08 0.40 Net cash used in/from investing activities 2.11 -0.82 -5.60 Cash flows from financing activities: Payment of dividend -9.01 -2.56 -2.70 Repayments of long-term debt -0.31 -0.35 -0.59 Payments of finance lease liabilities 0.00 -0.02 -0.06 Net cash used in financing activities -9.32 -2.93 -3.35 Net decrease/increase in cash and cash equivalents 1.29 3.07 4.06 Cash and cash equivalents at beginning of the period 7.78 3.72 109.1 3.72 Cash and cash equivalents at end of the period 9.07 6.79 33.6 7.78 The cash and cash equivalents in the cash flow statement include: Cash and cash equivalents 9.07 6.79 5.69 Available-for-sale financial assets, cash equivalents 0.00 0.00 2.09 NOTES TO THE INTERIM REPORT This interim report has been prepared in accordance with the IFRS principles of accounting and valuation; however, the report does not fully comply with all the requirements of the IAS 34 (Interim Financial Reporting) standard (so called condensed tables, except for segment information). The same accounting policies and methods of computation have been followed in the interim financial statements as in the annual financial statements for 2006. The amendments and interpretations to published standards as well as new standards, effective January 1, 2007, are presented in detail in the financial statement for 2006. The adopted standards had no such effect on the basis of preparation of financial statements that the presented comparison figures should be amended regressively. Use of estimates When preparing the interim report, the Group's management is required to make estimates and assumptions influencing the content of the interim report, and it must exercise its judgment regarding the application of accounting policies. These estimates are based on the management's best knowledge, but it is possible that actual results may ultimately differ from the estimates used in the interim report. Tax losses carried forward are recognized as deferred tax assets only to the extent that it is probable that future taxable profits will be available against which unused tax losses can be utilized. Actual results could differ from those estimates. Financial indicators 3/2007 3/2006 12/2006 Earnings per share (EPS), EUR 0.13 0.06 0.45 Earnings per share from continuing operations (EPS), EUR 0.13 0.06 0.44 Earnings per share from discontinued operations (EPS), EUR 0.00 0.00 0.01 Equity/share, EUR 0.83 0.71 1.10 Interest-bearing liabilities 0.37 0.96 0.69 Equity ratio, % 46.5 50.6 63.4 Net gearing, % -122.2 -112.7 -95.2 Return on investment, % 73.1 44.2 63.1 Return on equity, % 54.2 34.6 48.5 Number of shares, end of period 22,516,600 22,516,600 22,516,600 Number of shares, average 22,516,600 22,516,600 22,516,600 Gross investments, MEUR 0.50 0.32 1.33 % of net sales 3.81 3.18 2.79 Personnel, on average 373 310 324 Non-current assets held for sale and discontinued operations Defence business Tekla announced the sale of the Defence business to Patria on April 26, 2007. The business will be transferred to Patria on May 1, 2007. In connection with the transaction, slightly more than 20 Defence employees will transfer to Patria. Tekla will recognize the business deal in the second quarter of 2007. The impact of the sale on the operating result is some 2.3 million euros. Tekla has also a possibility to receive an additional price depending on the sales development of the transferred business. Income and result, Defence Q1/ Q1/ 1-12/ 2007 2006 2006 Income 0.49 0.47 2.14 Expenses -0.47 -0.50 -1.90 Profit before taxes 0.02 -0.03 0.24 Taxes -0.01 -0.06 Profit after taxes 0.01 -0.03 0.18 Result for the period from discontinued operations 0.01 -0.03 0.18 Balance sheet, Defence 3/2007 3/2006 12/2006 Property, plant and equipment 0.09 0.11 0.10 Intangible assets 0.03 0.04 0.03 Inventories 0.07 0.02 0.02 Trade and other current receivables 0.57 0.51 0.82 Assets total 0.76 0.68 0.97 Trade and other payables 0.36 0.34 0.47 Tax liabilities 0.01 0.00 0.06 Liabilities total 0.37 0.34 0.53 Cash flow statement, Defence Q1/ Q1/ 1-12/ 2007 2006 2006 Cash flows from operating activities 0.15 -0.21 -0.14 Cash flows from investing activities *) 0 0 0 Cash flows from financing activities 0 0 0 Total cash flow 0.15 -0.21 -0.14 *) At Tekla the investments are made centralized and not allocated to the businesses. Collaterals, contingent liabilities and other commitments 3/2007 3/2006 12/2006 Collaterals for own commitments Business mortgages (as collateral for bank guarantee limit) 0.50 0.50 0.50 Pledged funds 0.07 0.03 0.08 Other contingent liabilities Guarantees 0.06 0.06 0.07 Leasing and rental agreement commitments Premises 3.09 3.92 3.38 Others 0.78 0.77 0.87 Total 3.87 4.69 4.25 Derivative contracts Currency forward contracts: Fair value 0.08 0.00 0.06 Nominal value of underlying instruments 5.70 1.65 3.85 The Group makes derivative contracts to hedge against the exchange rate risks of prospective sales agreements. Forward contracts and currency options are stated at fair value, and related foreign exchange gains and losses are recognized in the income statement. The derivative contracts hedge sales in US dollars.
Tekla Corporation s Interim Report January 1-March 31, 2007: Tekla s net sales and operating result remained on a growth track
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