MARTELA CORPORATION INTERIM REPORT 20 OCTOBER 2010, 08.30 a.m. MARTELA CORPORATION INTERIM REPORT, 1 JANUARY - 30 SEPTEMBER 2010 Consolidated revenue for January-September amounted to EUR 74.4 million (71.1), which was a year-on-year increase of 4.6 per cent. Revenue for the third quarter increased to EUR 26.1 million (25.8), which was a year-on-year increase of 0.9 per cent. Operating profit for January-September was EUR 0.4 million (0.4), and for the third quarter EUR 2.0 million (1.2). The cash flow from operating activities in January-September came to EUR -1.6 million (9.5). The equity ratio was 56.9 per cent (58.1) and gearing was -17.9 per cent (-31.5). On 29 September 2010, Martela Corporation acquired the business operations of Martela A/S, its long-term partner and importer of its products in Denmark. The deal reinforces Martela Corporation's role and position as a supplier of comprehensive services on the Danish market. The revenue of Martela A/S's business to be acquired was approximately EUR 4.0 million in 2009. The business will be handed over to Martela on 1 November 2010. The operations of Pa-Ri Materia Oy, acquired by Martela Corporation in June, were transferred to Martela on 1 August 2010, and in August 2010, Martela Corporation founded a subsidiary in Hungary. Key figures -------------------------------------------------------------------------------- | | 7-9 | 7-9 | 1-9 | 1-9 | 1-12 | -------------------------------------------------------------------------------- | EUR million | 2010 | 2009 | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net revenue | 26.1 | 25.8 | 74.4 | 71.1 | 95.3 | -------------------------------------------------------------------------------- | Change in revenue % | 0.9 | -15.8 | 4.6 | -28.9 | -32.5 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Operating profit excluding | 2.0 | 1.2 | 0.4 | 0.4 | 0.8 | | non-recurring items | | | | | | -------------------------------------------------------------------------------- | Operating profit % | 7.5 | 4.6 | 0.5 | 0.6 | 0.8 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on investment, % | | | 1.5 | 1.9 | 2.3 | -------------------------------------------------------------------------------- | Return on equity, % | | | -1.3 | 0.0 | 0.4 | -------------------------------------------------------------------------------- | Equity to asset ratio, % | | | 56.9 | 58.1 | 57.4 | -------------------------------------------------------------------------------- | Gearing, % | | | -17.9 | -31.5 | -33.9 | -------------------------------------------------------------------------------- | Earnings per share, eur | | | -0.07 | 0.00 | 0.03 | -------------------------------------------------------------------------------- | Earnings per share (diluted), | | | -0.07 | 0.00 | 0.03 | | eur | | | | | | -------------------------------------------------------------------------------- | Average staff | | | 594 | 639 | 636 | -------------------------------------------------------------------------------- | Revenue/employee (EUR 1.000) | | | 125.2 | 111.3 | 149.9 | -------------------------------------------------------------------------------- Accounting policies This interim report has been prepared in accordance with IFRS recognition and measurement principles, but not all the IAS 34 requirements have been complied with. The interim report should be read in conjunction with the 2009 financial statements. Market Fewer office buildings were completed in Finland this year (January-June) than last year (-14%). In the same period, more building permits were issued (+53%) than the previous year and new office building starts were also markedly up on 2009 (+155%). Group structure In August 2010, Martela Corporation established a subsidiary in Hungary. No other changes have taken place in the group structure. Segment reporting The segments presented in the interim report comply with the company's segment division. The comparison period figures have also been rendered in the same way. The business segments are based on the Group's internal organisational structure and internal financial reporting. Sales between segments are reported as part of the segments' revenue. The segments' results are their operating profits, because tax items and financial items are not allocated to the segments. The Group's assets and liabilities are not allocated or monitored by segment in the internal financial reporting. Revenue and the operating result are as recorded in the consolidated financial statements. Business Unit Finland is responsible for sales, marketing, service production and manufacturing in Finland. Martela has an extensive sales and service network covering the whole of Finland, with a total of 27 sales centres. The Business Unit has a logistics centre in Nummela. Business Unit Sweden and Norway is responsible for sales in Sweden and Norway, handled through about 70 dealers. In addition, the Business Unit has its own sales and showroom facilities at three locations: Stockholm and Bodafors in Sweden and Oslo in Norway. The Business Unit's logistics centre and order handling are also located in Bodafors. Business Unit Poland is responsible for the sales and distribution of Martela products in Poland and eastern Central Europe. Sales in Poland are organized via the sales network maintained by the Business Unit and as of August 2010, a Martela subsidiary has operated in Hungary. The company has altogether 7 sales centres in Poland. The Business Unit's principal export countries are Ukraine, the Czech Republic and Slovakia, in each of which sales are handled by established dealers. Business Unit Poland is based in Warsaw, where it has its logistics centre and administration. Revenue Net revenue for January-September was EUR 74.4 million (71.1), which was an increase of 4.6 per cent on the previous year. The revenue of Business Unit Sweden and Norway was up by 5.9 per cent, while that of Business Unit Poland was down by 24.1 per cent, calculated in local currencies. The overall effect of exchange rate movements on consolidated revenue was approximately +3 percentage points. Third-quarter revenue rose to EUR 26.1 million (25.8), an increase of 0.9 per cent. Revenue by segment -------------------------------------------------------------------------------- | EUR mil. | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | | Business | Business | Business | Other | Total | | | unit | unit | unit | segments | | | | Finland | Sweden & | Poland | | | | | | Norway | | | | -------------------------------------------------------------------------------- | 1.1.2010-30.9.2010 | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | External Revenue | 49.5 | 12.9 | 6.2 | 5.8 | 74.4 | -------------------------------------------------------------------------------- | Internal Revenue | 0.0 | 0.5 | 0.0 | 11.3 | 11.8 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total 2010 | 49.5 | 13.4 | 6.2 | 17.1 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 1.1.2009-30.9.2009 | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | External Revenue | 47.5 | 11.1 | 7.4 | 5.1 | 71.1 | -------------------------------------------------------------------------------- | Internal Revenue | 0.0 | 0.3 | 0.1 | 12.6 | 13.0 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total 2009 | 47.5 | 11.4 | 7.5 | 17.7 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | External revenue | 4.2 | 15.6 | -16.4 | 14.4 | 4.6 | | change % | | | | | | -------------------------------------------------------------------------------- Other Segments includes P.O. Korhonen Oy, Kidex Oy and Business Unit International, which is responsible for export markets. Change in external revenue and percentage of consolidated revenue -------------------------------------------------------------------------------- | | 1-9 | 1-9 | | | 1-12 | | -------------------------------------------------------------------------------- | EUR million | 2010 | 2009 | Change | Percenta | 2009 | Percentag | | | | | % | ge | | e | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Business unit | 49.5 | 47.5 | 4.2 | 66.5 % | 63.9 | 67.0% | | Finland | | | | | | | -------------------------------------------------------------------------------- | Business unit | 12.9 | 11.1 | 15.6 | 17.3 % | 15.8 | 16.6 % | | Sweden & Norway | | | | | | | -------------------------------------------------------------------------------- | Business unit | 6.2 | 7.4 | -16.4 | 8.4 % | 9.5 | 9.9 % | | Poland | | | | | | | -------------------------------------------------------------------------------- | Other segments | 5.8 | 5.1 | 14.4 | 7.8 % | 6.2 | 6.5 % | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | 74.4 | 71.1 | 4.6 | 100.0 % | 95.3 | 100.0 % | -------------------------------------------------------------------------------- Consolidated result Cumulative operating profit excluding non-recurring items (2009 and 2010) was EUR 0.4 million (0.4). Profit for the third quarter was EUR 2.0 million (1.2). Profit before taxes was EUR 0.1 million (0.1), and profit after taxes was EUR -0.3 million (0.0). Operating profit excluding non-recurring items was 0.5 per cent of revenue (0.6). Operating profit by segment -------------------------------------------------------------------------------- | | 1-9 | 1-9 | 1-12 | -------------------------------------------------------------------------------- | EUR million | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Business Unit Finland | 2.0 | 2.8 | 3.9 | -------------------------------------------------------------------------------- | Business Unit Sweden & Norway | -0.4 | -0.9 | -1.0 | -------------------------------------------------------------------------------- | Business Unit Poland | -1.0 | -0.3 | -0.7 | -------------------------------------------------------------------------------- | Other Segments | 0.1 | 0.0 | -1.0 | -------------------------------------------------------------------------------- | Other | -0,3 | -1.2 | -0.4 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | 0.4 | 0.4 | 0.8 | -------------------------------------------------------------------------------- Other segments includes P.O. Korhonen Oy, Kidex Oy and Business Unit International, which is responsible for export markets. The item “Others” includes non-allocated Group functions and non-recurring sales gains and losses. Financial position The Group's financial position is strong. Interest-bearing liabilities at the end of the period amounted to EUR 6.8 million (9.5) and net liabilities were EUR -5.4 million (-9.9). The gearing ratio at the end of the year was -17.9 per cent (-31.5), and the equity ratio was 56.9 per cent (58.1). Net financial expenses were EUR -0.2 million (-0.3). The cash flow from operating activities in January-September was EUR -1.6 million (9.5). The balance sheet total at the end of September was EUR 53.5 million (54.6). Capital expenditure The Group's gross capital expenditure for January-September was EUR 3.1 million (1.7) and mainly concerned production replacements and IT investments. Personnel The Group employed an average of 594 (639) persons, a decrease of 7.0 per cent. Average personnel by region -------------------------------------------------------------------------------- | | 1-9 | 1-9 | 1-12 | -------------------------------------------------------------------------------- | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Finland | 445 | 486 | 479 | -------------------------------------------------------------------------------- | Scandinavia | 54 | 62 | 62 | -------------------------------------------------------------------------------- | Poland | 90 | 90 | 94 | -------------------------------------------------------------------------------- | Russia | 5 | 1 | 1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Group total | 594 | 639 | 636 | -------------------------------------------------------------------------------- Product development and the Martela collection Product development and the management of Martela's collection are the responsibility of two Group-level organisations. Brand & Product Portfolio is responsible for management of the collection and brand, and Product Development and Marketing is responsible for the development of innovative products and the Group's marketing communications. The first half of 2010 saw the launch of some interesting new products. A larger James+ chair was added to the James task chair range. The versatile range of adjustments possible with this task chair, which is designed by Iiro Viljanen, enhance the wellbeing of the chair's user. The MyBox desk and the Book space divider/shelf, previously presented as concepts, are now in production. These new products share the characteristics of versatility and new and innovative thinking. The MyBox desk, designed by Iiro Viljanen, has a lid that can be closed to protect the work items on the desk, with the lid's upper surface at the same time serving as a fresh desk top that can be used for a meeting, for example. Designed by Pekka Toivola, Book combines the characteristics of a space divider and a storage unit in a new way. The overall look and scope can be easily varied by combining the elements in various ways. In Finland, the service product range was expanded at the beginning of the year with an innovative addition to the services available for office premises. This consisted of a new system for keeping track of office furniture for inventory and other purposes. The system is based on radio frequency identification (RFID) and is a unique way of managing office property. The new system has been very well received by our customers. Shares During January-September, 892,466 (624,743) of the company's A shares were traded on NASDAQ OMX Helsinki Ltd, corresponding to 25.1 per cent (17.6) of all A shares. The value of trading turnover was EUR 6.3 million (4.3), and the share price was EUR 7.13 at the beginning of the year and EUR 6.59 at the end of the third quarter. During January-September the share price was EUR 8.60 at its highest and EUR 6.26 at its lowest. At the end of September, equity per share was EUR 7.46 (7.82). Treasury shares The company did not purchase any of its own shares in January-September. On 30 September 2010, Martela owned a total of 67,700 Martela A shares, purchased at an average price of EUR 10.65. Martela's holding of treasury shares corresponds to 1.6 per cent of all shares and 0.4 per cent of all votes. Acquisition of shares for the share-based incentive scheme and the management of the scheme have been outsourced to an external service provider, Evli Alexander Management Oy. These shares were entered under equity in the consolidated financial statements for 2009. On 30 September 2010, 57,625 shares under the incentive scheme were still undistributed. 2010 Annual General Meeting The Annual General Meeting of Martela Corporation was held on Tuesday 16 March 2010. The AGM approved the financial statements for 2009 and discharged the members of the Board of Directors and the Managing Director from liability. The AGM decided, in accordance with the Board of Directors' proposal, to distribute a dividend of EUR 0.45 per share. Heikki Ala-Ilkka, Tapio Hakakari, Jori Keckman, Heikki Martela, Pekka Martela, Jaakko Palsanen and new member Pinja Metsäranta were elected as members of the Board of Directors. KPMG Oy Ab, Authorised Public Accountants, was elected as the company's auditor. The AGM also approved the Board of Directors' proposals, detailed in the meeting notice, to authorise the Board to acquire and/or dispose of Martela shares. The AGM decided, in accordance with the Board of Directors' proposal, to amend the company's Articles of Association (with respect to delivery of the meeting notice). The new Board of Directors convened after the Annual General Meeting and elected Heikki Ala-Ilkka as Chairman and Pekka Martela as Vice Chairman. Short-term risks The greatest risk to profit performance is related to the continuation of general economic uncertainty and the consequent effects on the overall demand for office furniture. More information on risks is given in the company's annual report. Outlook for 2010 The period of low demand that started in the beginning of 2009 has continued in 2010. This will have an effect on the company's revenue and operating profit in 2010. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (EUR 1000) 2010 2009 2010 2009 2009 1-9 1-9 7-9 7-9 1-12 Revenue 74.360 71.108 26.070 25.825 95.349 Other operating income 0.202 0.620 0.053 0.232 0.746 Employee benefits expenses -19.723 -19.733 -6.132 -5.819 -25.988 Operating expenses -52.510 -49.277 -17.432 -18.245 -66.206 Depreciation and impairment -1.969 -2.290 -0.599 -0.805 -3.109 Operating profit/loss 0.360 0.428 1.960 1.188 0.793 Financial income and expenses -0.211 -0.280 -0.102 -0.092 -0.365 Profit/loss before taxes 0.149 0.148 1.858 1.096 0.427 Income tax -0.448 -0.140 -0.645 -0.304 -0.291 Profit/loss for the period -0.299 0.008 1.213 0.792 0.137 Other comprehensive income Translation differences 0.239 0.020 0.109 0.102 0.077 Total comprehensive income -0.060 0.028 1.322 0.894 0.214 Basic earnings per share, eur -0.07 0.00 0.30 0.20 0.03 Diluted earnings per share, eur -0.07 0.00 0.30 0.20 0.03 Allocation of net profit for the period: To equity holders of the parent -0.299 0.008 1.213 0.792 0.137 Allocation of total comprehensive income To equity holders of the parent -0.060 0.028 1.322 0.894 0.214 GROUP BALANCE SHEET (EUR 1000) 30.9.2010 31.12.2009 30.09.2009 ASSETS Non-current assets Intangible assets 1.775 0.716 0.766 Tangible assets 12.068 11.862 12.173 Investments 0.010 0.038 0.039 Deferred tax assets 0.314 0.262 0.301 Loan receivables 0.017 0.000 0.000 Pension receivables 0.197 0.197 0.072 Investment properties 0.600 0.600 0.600 Total 14.981 13.675 13.951 Current assets Inventories 11.221 9.408 8.950 Receivables 15.115 13.210 12.320 Financial assets at fair value 1.104 1.094 1.089 through profit and loss Cash and cash equivalents 11.067 18.211 18.323 Total 38.507 41.923 40.682 Total assets 53.488 55.598 54.633 EQUITY AND LIABILITIES Equity Share capital 7.000 7.000 7.000 Share premium account 1.116 1.116 1.116 Other reserves 0.117 0.117 0.117 Translation differences -0.170 -0.409 -0.466 Retained earnings 22.559 24.672 24.543 Treasury shares -1.212 -1.200 -1.200 Share-based incentives 0.640 0.466 0.420 Total 30.050 31.762 31.530 Non-current liabilities Interest-bearing liabilities 2.457 3.518 6.548 Other liabilities 0.240 0.000 0.000 Deferred tax liability 1.637 1.305 1.286 Total 4.334 4.823 7.834 Current liabilities Interest-bearing 4.343 5.008 2.916 Non-interest bearing 14.761 14.006 12.353 Total 19.104 19.014 15.269 Total liabilities 23.438 23.837 23.103 Equity and liabilities, total 53.488 55.598 54.633 STATEMENT OF CHANGES IN EQUITY (EUR 1000) Equity attributable to equity holders of the parent Share Share Other Trans. Retained Treasury Total capital premium reserves diff. earnings shares account and share- based inc. 01.01.2009 7.000 1.116 0.117 -0.486 27.605 -1.610 33.742 Tot.compr.income 0.020 0.008 0.028 Dividends -2.390 -2.390 Share-based inc. -0.260 0.410 0.150 30.09.2009 7.000 1.116 0.117 -0.466 24.963 -1.200 31.530 1.1.2010 7.000 1.116 0.117 -0.409 25.138 -1.200 31.762 Tot.compr. income 0.239 -0.299 -0.060 Dividends -1.814 -1.814 Share-based inc. 0.174 -0.012 0.162 30.09.2010 7.000 1.116 0.117 -0.170 23.199 -1.212 30.050 CONSOLIDATED CASH FLOW STATEMENT (EUR 1000) 2010 2009 2009 1-9 1-9 1-12 Cash flows from operating activities Cash flow from sales 73.569 81.905 104.678 Cash flow from other operating income 0.172 0.363 0.489 Payments on operating costs -74.722 -71.131 -92.273 Net cash from operating activities before financial items and taxes -0.981 11.137 12.894 Interest paid -0.221 -0.385 -0.516 Interest received 0.029 0.156 0.166 Other financial items -0.031 0.016 -0.002 Taxes paid -0.429 -1.438 -1.780 Net cash from operating activities (A) -1.633 9.486 10.762 Cash flows from investing activities Capital expenditure on tangible and intangible assets -2.446 -1.537 -1.663 Proceeds from sale of tangible and intangible assets 0.462 1.268 1.004 Net cash used in investing activities (B) -1.984 -0.269 -0.659 Cash flows from financing activities Proceeds from short-term loans 0.000 0.008 0.008 Repayments of short-term loans -0.430 -0.611 -0.781 Repayments of long-term loans -1.428 -1.427 -2.273 Dividends paid and other profit distribution -1.813 -2.390 -2.390 Net cash used in financial activities (C) -3.671 -4.421 -5.436 Change in cash and cash equivalents (A+B+C) -7.289 4.796 4.667 (+ increase, - decrease) Cash and cash equivalents at the beginning of period 19.304 14.620 14.620 Translation differences 0.156 -0.004 0.017 Cash and cash equivalents at the end of period 12.171 19.412 19.304 SEGMENT REPORTING (EUR 1 000) Segment revenue 2010 2009 2010 2009 2009 1-9 1-9 7-9 7-9 1-12 Business unit Finland external 49.480 47.479 17.191 16.624 63.898 internal 0.000 0.000 0.000 0.000 0.000 Business unit Sweden and Norway external 12.859 11.122 4.004 3.296 15.834 internal 0.545 0.321 -0.103 0.178 0.457 Business Unit Poland external 6.212 7.431 2.880 3.300 9.465 internal 0.000 0.044 0.000 0.024 0.015 Other segments external 5.809 5.076 1.995 2.605 6.151 internal 11.307 12.601 3.942 4.482 16.464 Total external revenue 74.360 71.108 26.070 25.825 95.348 Segment operating profit/loss 2010 2009 2010 2009 2009 1-9 1-9 7-9 7-9 1-12 Business Unit Finland 2.021 2.816 1.250 0.839 3.854 Business Unit Sweden and Norway -0.375 -0.932 0.051 -0.207 -0.966 Business Unit Poland -1.019 -0.300 -0.132 -0.029 -0.668 Other segments 0.113 0.053 0.266 0.301 -0.985 Other -0.380 -1.209 0.525 0.284 -0.442 Total operating profit/loss 0.360 0.428 1.960 1.188 0.793 Other segments include P.O. Korhonen Oy, Kidex Oy and Business Unit International, which is responsible for export markets. The item “Other” includes non-allocated Group functions and non-recurring sales gains and losses. TANGIBLE ASSETS 1.1-30.9.2010 Land Buildings Machinery Other Work in areas & equipment tangibles progress Acquisitions 0.000 0.041 0.836 0.000 0.955 Decreases 0.000 -0.073 -0.110 0.000 0.000 TANGIBLE ASSETS 1.1-30.9.2009 Land Buildings Machinery Other Work in areas & equipment tangibles progress Acquisitions 0.000 0.102 1.154 0.067 0.096 Decreases -0.023 -0.706 0.000 0.000 0.000 RELATED PARTY AND SHARE-BASED INCENTIVE PROGRAMME The CEO and the group's management and some key-persons are included in a long- term incentive scheme, extending from 2010 to the end of 2012. KEY FIGURES/RATIOS 2010 2009 2009 1-9 1-9 1-12 Operating profit/loss 0.360 0.428 0.793 - in relation to revenue 0.5 0.6 0.8 Profit/loss before taxes 0.149 0.148 0.427 - in relation to revenue 0.2 0.2 0.4 Profit/loss for the period -0.299 0.008 0.137 - in relation to revenue -0.4 0.0 0.1 Basic earnings per share, eur -0.07 0.00 0.03 Diluted earnings per share, eur -0.07 0.00 0.03 Equity/share, eur 7.46 7.82 7.88 Equity ratio 56.9 58.1 57.4 Return on equity * -1.3 0.0 0.4 Return on investment * 1.5 1.9 2.3 Interest-bearing net-debt, eur million -5.4 -9.9 -10.8 Gearing ratio -17.9 -31.5 -33.9 Capital expenditure, eur million 3.1 1.7 2.2 - in relation to revenue, % 4.2 2.4 2.3 Personnel at the end of period 611 620 606 Average personnel 594 639 636 Revenue/employee, eur thousand 125.2 111.3 149.9 Key figures are calculated according to formulae as presented in Annual Report 2009. * When calculating return on equity and return on investment the profit/loss for the period has been multiplied in interim reports. CONTINGENT LIABILITIES 30.9.2010 31.12.2009 30.9.2009 Mortgages and shares pledged 14.836 14.480 14.487 Other commitments 0.385 0.256 0.299 RENTAL COMMITMENTS 7.168 7.971 7.015 DEVELOPMENT OF SHARE PRICE 2010 2009 2009 1-9 1-9 1-12 Share price at the end of period, EUR 6.59 7.41 7.13 Highest price, EUR 8.60 8.00 8.00 Lowest price, EUR 6.26 5.21 5.21 Average price, EUR 7.16 6.91 6.98 This interim report has not been audited Martela Oyj Board of Directors Heikki Martela Managing Director For more information, please contact Heikki Martela, Managing Director, tel. +358 50 502 4711 Mats Danielsson, Finance Director, tel. +358 50 394 8575 Distribution NASDAQ OMX Helsinki Main news media www.martela.com