HONKARAKENNE OYJ FINANCIAL STATEMENT RELEASE 27 February 2020 at 9:00 a.m.
HONKARAKENNE OYJ’S FINANCIAL STATEMENT RELEASE 1 JANUARY – 31 DECEMBER 2019
Honkarakenne’s result improved significantly, financial position remained strong.
SUMMARY
Honkarakenne’s operating profit improved by MEUR 1.8 on the previous year, standing at MEUR 3.4 (MEUR 1.6 in 2018). Full-year net sales for 2019 were on a par with the previous year and totalled MEUR 47.5. Honkarakenne’s financial position remained strong with an equity ratio of 56 per cent compared to 61 per cent a year earlier. At the beginning of 2019, the IFRS 16 Leases standard game into force and the change in calculation method had an impact of -7 percentage points on the equity ratio in the opening balance sheet. At the end of 2019, the order book stood 11 per cent higher than at the close of the previous year.
January-December 2019
- Honkarakenne Group's net sales for January-December amounted to MEUR 47.5 (MEUR 48.9 in 2018), a year-on-year decrease of 3%.
- The operating result was MEUR 3.4 (MEUR 1.6). There were no significant adjustment items. Adjusted operating result was MEUR 3.4 (MEUR 1.6).
- Profit before taxes was MEUR 3.2 (MEUR 1.5).
- Earnings per share amounted to EUR 0.40 (EUR 0.20).
July-December 2019
- Honkarakenne Group's net sales for July-December amounted to MEUR 25.8 (MEUR 29.1 in 2018), a year-on-year decrease of 11%.
- The operating result was MEUR 2.6 (MEUR 2.3). There were no significant adjustment items and adjusted operating result was MEUR 2.6 (MEUR 2.3).
- Profit before taxes was MEUR 2.4 (MEUR 2.3).
- Earnings per share amounted to EUR 0.31 (EUR 0.38).
The Board of Directors proposes to the Annual General Meeting that no dividend be paid for the financial year ending 31 December 2019. In addition, the Board proposes the repayment of capital totalling EUR 0.12 per share from the fund for invested unrestricted equity.
In Honkarakenne’s view, both net sales and the result before taxes for 2020 will remain at the same level as in the previous year.
At the end of December, the Group’s order book totalled MEUR 27.6, up 11 per cent on the corresponding period of the previous year, when it stood at MEUR 24.8. The order book includes orders whose delivery date falls within the next 24 months. Some orders may involve terms and conditions relating to financing or building permits.
| KEY INDICATORS | 7–12/ 2019 | 7–12/ 2018 | 1-12/ 2019 | 1-12/ 2018 |
| Net sales, MEUR | 25.8 | 29.1 | 47.5 | 48.9 |
| Operating profit/loss, MEUR | 2.6 | 2.3 | 3.4 | 1.6 |
| Adjusted operating profit/loss, MEUR | 2.6 | 2.3 | 3.4 | 1.6 |
| Profit/loss before taxes, MEUR | 2.4 | 2.3 | 3.2 | 1.5 |
| Adjusted profit/loss before taxes, MEUR | 2.4 | 2.3 | 3.2 | 1.5 |
| Average number of personnel | 156 | 150 | 155 | 147 |
| Personnel in person-years, average | 142 | 139 | 139 | 130 |
| Earnings/share (EPS), EUR | 0.31 | 0.38 | 0.40 | 0.20 |
| Equity ratio, % | 56 | 61 | ||
| Return on equity, % | 20 | 12 | ||
| Shareholders' equity/share, EUR | 2.14 | 1.73 | ||
| Gearing, % | -15 | -23 |
Marko Saarelainen, President and CEO of Honkarakenne Oyj, in connection with the financial statement release:
“Honkarakenne’s result and operating profit improved significantly. Profitability in Finland improved clearly thanks to the development measures taken. The decline in net sales in Russia was offset by some success in Japan and China. At our Karstula factory, we made significant strategic investments to streamline our production process. Despite investments, our financial position remained strong.
In Finland, our net sales remained at the same level as in the previous year and Finland accounted for 66 per cent of the Group’s total net sales. We expanded our domestic sales network and continued to develop our sales practices. We introduced updated processes in both sales and the order-supply chain. We also enhanced the way we monitor our customer experience, and connected it even more closely to leadership. The competitive situation in Finland remained challenging throughout the year and we continued our cost-savings programme in a bid to improve profitability.
In Russia & CIS, our net sales were worse than expected, but the order book was better at the end of 2019 than it had been a year earlier. We intend to focus on projects and regional development.
Favourable trends were seen in our net sales in Global Markets. In Global Markets we continued to make investments in project sales and managed to achieve some success in this area. In July in Japan opened the Asama Prince Hotel holiday village where we supplied the main spa building and timeshare villas. In China we signed a cooperation agreement with regional administration in Dujiangyan City. This agreement seeks to further the construction of a cultural centre in collaboration with Dujiangyan’s twin city Ähtäri. The reorganisation of our operations in Central Europe is progressing according to plan. We analyzed our retail network and based on it we made a regional plan to improve sales.”
NET SALES
Honkarakenne Group’s net sales for the year 2019 decreased by 3 per cent to MEUR 47.5 (MEUR 48.9). In the second half of 2019 the Group’s net sales decreased by 11 per cent to MEUR 25.8 (MEUR 29.1).
Geographical distribution of net sales:
| DEVELOPMENT OF NET SALES | |||||||
| Distribution of net sales, % | 1-12 /2019 | 1-12 /2018 | |||||
| Finland | 66 % | 63 % | |||||
| Russia & CIS | 11 % | 15 % | |||||
| Global Markets | 24 % | 21 % | |||||
| Total | 100 % | 100 % | |||||
| Net sales, MEUR | 7-12 /2019 | 7-12 /2018 | % change | 1-12 /2019 | 1-12 /2018 | % change | |
| Finland | 16.8 | 17.9 | -6 % | 31.3 | 31.0 | 1 % | |
| Russia & CIS | 3.6 | 5.0 | -29 % | 5.1 | 7.6 | -33 % | |
| Global Markets | 5.5 | 6.3 | -13 % | 11.2 | 10.3 | 9 % | |
| Total | 25.8 | 29.1 | -11% | 47.5 | 48.9 | -3 % | |
Finland also includes billet sales and sale of process byproducts for recycling.
Russia & CIS includes the following countries: Russia, Azerbaijan, Kazakhstan and other CIS countries.
Global Markets includes other countries than the above-mentioned.
At the end of December, the order book was 11% better than a year earlier. At the end of December, the Group’s order book stood at MEUR 27.6. In the corresponding period of the previous year, it was MEUR 24.8.
TRENDS IN PROFIT AND PROFITABILITY
The operating profit for the July-December period was MEUR 2.6 (MEUR 2.3) and the result before taxes was MEUR 2.4 (MEUR 2.3.).
The full-year operating profit for 2019 was MEUR 3.4 (MEUR 1.6) and the result before taxes MEUR 3.2 (MEUR 1.5).
There were no significant adjustment items in year 2019.
Several factors had a positive impact on the Group’s operating result: improved profitability in Finland, improved net sales and profitability in Global Markets, efficiency measures, and effective cost management.
FINANCING AND INVESTMENTS
Honkarakenne had a strong financial position at the end of the review period, with the Group’s equity ratio standing at 56 per cent (61%). Gearing was negative at -15 per cent (-23%). The Group’s net financial liabilities totalled MEUR -1.9 (-2.3); that is, liquid assets exceeded financial liabilities. Liquid assets totalled MEUR 7.1 (4.1). The Group also has a MEUR 4.5 (4.5) bank overdraft facility, which was not in use at the close of either this period or the previous one.
The company put considerable effort into modernising its production line during 2019, and this is reflected in investments. In May, Honkarakenne announced that it would invest MEUR 5.2 in production line upgrades at the Karstula factory. The investment is part of the company’s revised strategy and a continuation to previously decided and initiated production development projects. The investment programme launched in the latter half of 2018 will run until 2020. Honkarakenne will invest a total of MEUR 7.3 in production development during this period. These investments will improve the efficiency of the factory’s production processes and increase the company’s capacity, particularly in urban and project construction. The investment programme seeks to enhance Honkarakenne’s competitiveness in both Finland and exports. The investments will also have a positive impact on both the environment and safety at work. It is expected that the modernised production line will be in use and up to speed in autumn 2020. The investment, which was approved in May, has received European Regional Development Fund (ERDF) support from Finland's structural funds programme Sustainable Growth and Jobs 2014–2020.
The Group’s gross investments totalled MEUR 3.2 in 2019 (MEUR 1.1). The largest of these investments were earmarked for production. We also developed several systems with a view to enhancing operations. Some of these systems were deployed in 2019, while others are expected to be in use sometime during 2020.
BUSINESS AREAS
Full-year net sales in Finland remained on par with the previous year but profitability was better. In the business area, project business including contracts for public and commercial buildings and construction services developed favourably. We grew our sales network in Finland and continued to develop our sales practices in 2019. Updated processes were introduced in both sales and the order-supply chain. We also enhanced the way we monitor our customer experience, and connected it even more closely to leadership. The competitive situation in Finland remained challenging throughout the year and cost-savings programme in a bid to improve profitability was continued. Collection design progressed in line with our strategy. During 2019, we prepared our Finnish detached house and leisure-time campaign collections for their public launch in early 2020. The collections were systematically developed to meet the wishes and requirements of selected customer profiles.
In Russia & CIS net sales were worse than expected but the order book was better at the end of 2019 than it had been a year earlier. The market and economic situation in Russia are challenging and Honkarakenne intends to focus on projects and area development. A new, modern style of architecture was launched in Russia in 2019, and a sales campaign was activated to promote the sale of the new models. The Honka House Day Road Show toured the three Russian cities of Novosibirsk, Kazan and Perm, and also stopped in Almaty, Kazakhstan. Village projects carried out with Honka’s local partner won several awards during the year.
In Global Markets favourable trends were seen in net sales. In Global Markets, Honkarakenne continued to make investments in project sales and has already achieved some success in this area. In Japan in July opened Asama Prince Hotel holiday village where Honkarakenne supplied the main spa building and timeshare villas. We strengthened our Japanese subsidiary’s organisation to better meet the requirements of both dealers and project customers. In China, Honkarakenne signed a cooperation agreement with regional administration in Dujiangyan City. This agreement seeks to further the construction of a cultural centre in collaboration with Dujiangyan’s twin city Ähtäri. The reorganisation of our operations in Central Europe is progressing according to plan. The retail network was analyzed and a regional plan to improve sales was made based on this analysis.
THE SEASONAL NATURE OF OUR BUSINESS
Honkarakenne operates in an industry with a noticeably seasonal nature. In Finland in particular, construction is weighted towards the summer months, meaning that more deliveries are made during the summer and autumn than during the winter season. We seek to balance out the seasonal nature of our business with a variety of marketing measures, such as campaigns and discounts for winter builders.
In 2019, Honkarakenne conducted co-operation negotiations in preparation for seasonal variations that are typical in our industry. It was agreed that employees would work shorter weeks and that the company can lay off clerical and managerial employees for a maximum of 90 days.
RESEARCH AND DEVELOPMENT
R&D mainly focused on the development of technical solutions for public buildings and the further development of Honka Frame.
The Group's R&D expenditure in January-December was 0.5% of net sales (0.5%). The Group did not capitalise any research and development costs during the financial year.
PERSONNEL
In the review year, the Group employed a total of 139 people (130) on average in terms of person-years, a year-on-year increase of 9. The Group had an average of 155 (147) employees during the report year. At the end of the year, the Group had 158 (147) employees.
EXECUTIVE GROUP
Honkarakenne strengthened its Executive Group by appointing a new member in December 2019: Sanna Huovinen, Vice President, Marketing. The Executive Group now consists of Marko Saarelainen (President & CEO), Leena Aalto (CFO and Vice President, Finance), Jari Fröberg (Vice President, Production), Sanna Huovinen (Vice President, Marketing), and Jari Noppa (Vice President, Finland).
HONKARAKENNE OYJ’S 2019 ANNUAL GENERAL MEETING, BOARD OF DIRECTORS, AND AUDITORS
The Annual General Meeting of Honkarakenne Oyj was held at the company’s office in Tuusula on 12 April 2019. The AGM approved the parent company's and the consolidated Financial Statements, and discharged the members of the Board of Directors and the CEO from liability for 2018. The AGM decided not to pay a dividend for the 2018 financial year.
Timo Kohtamäki, Arimo Ristola, Helena Ruponen, Kari Saarelainen and Kyösti Saarimäki were re-elected as Board members. At the Board's organisational meeting, Arimo Ristola was elected Chairman of the Board. At the same meeting, the Board decided that it will not establish committees.
The AGM re-elected Ernst & Young Oy, a firm of authorised public accountants, as the company’s auditor with Authorised Public Accountant Elina Laitinen as principal auditor.
AUTHORISATIONS OF THE BOARD OF DIRECTORS
On 12 April 2019, the AGM decided that the Board of Directors will be authorised to acquire a maximum of 400,000 of the company’s own B shares with assets included in the company’s unrestricted equity. In addition, the AGM authorised the Board to decide on a rights issue or bonus issue and on granting special rights to shares referred to in Section 1 of Chapter 10 of the Limited Liability Companies Act in one or more instalments. By virtue of the authorisation, the Board may issue a maximum total of 1,500,000 new shares and/or relinquish old B shares held by the company, including those shares that can be issued by virtue of special rights. Both authorisations will remain in force until the next Annual General Meeting, however expiring at the latest on June 30, 2020.
SHARES, SHARE CAPITAL AND OWN SHARES
During the review period, the total number of Honkarakenne Oyj shares amounted to 6,211,419, of which 300,096 were Series A shares and 5,911,323 Series B shares. The company’s share capital remained unchanged and was EUR 9,897,936.00. Each B share carries one (1) vote and each A share carries twenty (20) votes. Hence, Honkarakenne’s shares in aggregate at the end of the review period carried a total of 11,913,243 votes.
Honkarakenne’s Series B shares are quoted in the Small Cap list of NASDAQ OMX Helsinki Ltd under the short name HONBS. The highest price of the Series B share in trading was EUR 4.28 and the lowest EUR 1,98. The closing price was EUR 4.20. The value of trading in Series B shares was MEUR 5.8 with a turnover of 2.1 million shares.
Honkarakenne has not acquired its own shares during the report period. At the end of the report period, the Group held 364,385 of its Honkarakenne B shares with a total purchase price of EUR 1,381,750.23. These shares represent 5.87% of the company's all shares and 3.05% of all votes. The purchase cost has been deducted from shareholders' equity in the consolidated financial statements.
CORPORATE GOVERNANCE
In 2019 Honkarakenne Oyj followed the Limited Liability Companies Act and the Finnish Corporate Governance Code 2015 for listed companies issued by the Finnish Securities Market Association. The company’s website, www.honka.com, provides more information on the corporate governance systems.
NEAR-TERM RISKS AND UNCERTAINTIES
Demand for Honkarakenne’s products is significantly affected by the general economic trends, exchange rates, consumers’ confidence in their own finances and competition in the industry. If demand falls sharply, this could have significant impacts on the company’s earnings trend.
The industrial action launched by the Industrial Union in January 2020 stopped work at the company’s factory in Karstula. The strike will cause delays and postponements in the company’s deliveries until the spring. The strike may have a negative impact on Honkaranne’s result for the first half-year and full year.
The spread of coronavirus can create uncertainty in the market and may affect Honkarakenne's business.
Russia is one of Honkarakenne’s major business areas. Sanctions associated with the Ukrainian situation and the general economic situation in Russia are causing instability in the Russian market. This might also have significant effects on Honkarakenne’s business.
The assessment of amounts in the balance sheet is based on current assessments by the management. If these assessments are changed, this may result in changes to the company’s result
REPORTING
This report contains statements that relate to the future, and these statements are based on hypotheses that the company's management hold currently as well as on the decisions and plans that are currently in place. Although the management believes that the hypotheses relating to the future are well-founded, there is no guarantee that the said hypotheses will prove to be correct.
The financial statements release has not been audited and the figures have not been examined by the auditor.
Figures in parentheses refer to the corresponding period of the previous year, unless stated otherwise.
Honkarakenne complies with the Guidelines on Alternative Performance Measures (APM) issued by the European Securities and Markets Authority (ESMA). An APM is a financial measure of performance other than a financial measure defined or specified in IFRS. For this reason, the term “adjusted” is used instead of “without non-recurring items”. As adjustment items, the company classifies significant business transactions that are considered to affect comparisons between different reporting periods. Such transactions include significant reorganisation expenses, significant impairment losses or reversals thereof, significant capital gains and losses on assets, and other significant non-customary income or expenses.
This release has been drafted in accordance with IAS 34. This release should be read together with the 2018 financial statements. The financial statements for 2019 have been drafted in accordance with the same accounting principles applied in the 2018 financial statements, with the exception of standards and interpretations that have come into force on 1 January 2019 or thereafter.
Honkarakenne adopted IFRS 16 Leases on 1 January 2019 using a simplified procedure whereby the impact of the standard’s application is presented in the opening balance sheet dated 1 January 2019 and the comparison figures for the prior year are not adjusted.
IFRS 16 particularly changes the accounting treatment of contracts that were previously classified as other leases, as the standard as a rule requires lessees to recognise all lease contracts in the balance sheet. At the commencement date of the contract, a right-of-use asset and a lease liability are recognised in the balance sheet, measured at the present value of the remaining lease payments. In the statement of comprehensive income, depreciation on right-of-use assets and interest expenses on lease liabilities are recognised instead of lease expenses.
As a result of the adoption of IFRS 16, EUR 2.1 million in right-of-use assets and lease liabilities were recognised in the balance sheet on 1 January 2019. Honkarakenne’s equity ratio consequently weakened by 7 percentage points, gearing was down 21 percentage points and return on investment decreased by one percentage point. In addition to the balance sheet impact, adoption of IFRS 16 has an effect on Honkarakenne’s statement of comprehensive income. As from the beginning of 2019, Honkarakenne recognises a depreciation charge on the right-of-use asset instead of lease expenses in the statement of comprehensive income, which affects operating profit, and an interest expense related to the lease liability, which impacts on financial items. The change has no significant impact on Honkarakenne’s result, but improves operating profit and increases financial expenses.
Adoption of IFRS 16 also impacts the presentation of cash flows. Lease payments were previously included in cash flow from operating activities in their entirety, while after the implementation of IFRS 16 only the interest expenses related to lease contracts are presented in the cash flow from operating activities. The remainder of the lease payments for lease contracts entered in the balance sheet are presented as repayments of the lease liability in the cash flow from financing activities.
For detailed information on the impacts of the adoption of IFRS 16, see the Accounting Policies in the notes to the tables section.
Other revised standards and interpretations that came into force on 1 January 2019 did not have a material impact on the figures presented for the review period.
Reporting in 2020
Honkarakenne will change its reporting and from the beginning of 2020, divide its net sales data into two parts. Russia & CIS and Global Markets, previously presented as separate geographical sales areas, will be merged. Net sales data will be reported in the following sections: Finland and Exports.
EVENTS AFTER THE REPORTED FINANCIAL PERIOD
Honkarakenne has no significant events after the reported financial period.
PROPOSAL OF THE BOARD OF DIRECTORS ON THE USE OF PROFIT FUND
Although the parent company does not have any distributable earnings, it does have distributable equity of MEUR 2.1. The parent company posted a profit of MEUR 3.5 for the financial year.
The Board of Directors proposes to the Annual General Meeting that no dividend be paid for the financial year ending 31 December 2019. In addition, the Board proposes the repayment of capital totalling EUR 0.12 per share from the fund for invested unrestricted equity.
THE OUTLOOK FOR 2020
In Honkarakenne’s view, both net sales and the result before taxes for 2020 will remain at the same level as in the previous year.
BASIS FOR THE OUTLOOK
The company's outlook for 2020 is based on the existing order book and market development as well as the development measures taken in the company.
ANNUAL GENERAL MEETING
Honkarakenne Oyj’s Annual General Meeting will be held on Friday, 24 April 2020 from 14:00 onwards in Tuusula.
HONKARAKENNE OYJ
Board of Directors
Further information:
Marko Saarelainen, President and CEO, tel. +358 (0)40 542 0254, marko.saarelainen@honka.com or
Leena Aalto, Vice President - Finance, CFO, tel. +358 (0)40 769 4590, leena.aalto@honka.com
This and previous releases are available for viewing on the company’s website at www.honka.com/en/investor-relations/.
During week 14, Honkarakenne will publish the Board of Directors’ Report and the complete Financial Statements for 2019, as well as a separate Corporate Governance Statement on the company’s website at www.honka.com. The half year financial report for 2020 will be published on 20 August 2020.
DISTRIBUTION
NASDAQ OMX Helsinki
Key media
Financial Supervisory Authority
www.honka.com
Under its Honka® brand, Honkarakenne manufactures high-quality, healthy and ecological detached houses, holiday homes and public buildings using Finnish solid wood. The company has delivered 85,000 buildings to more than 50 countries. House packages are made in Finland, the companys’s own factory is located in Karstula, Finland. In 2019, the Honkarakenne Group had net sales of MEUR 47.5, of which exports accounted for 34%. www.honka.com
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | ||||
| Unaudited | 7-12/2019 | 7-12/2018 | 1-12/2019 | 1-12/2018 |
| MEUR | ||||
| Net sales | 25.8 | 29.1 | 47.5 | 48.9 |
| Other operating income | 0.2 | 0.2 | 0.4 | 0.3 |
| Change in inventories | -1.5 | -1.0 | -0.2 | -0.6 |
| Work performed for own purposes and capitalised | 0.0 | 0.0 | 0.0 | 0.1 |
| Materials and services | -14.9 | -18.4 | -30.0 | -32.3 |
| Employee benefit expenses | -4.0 | -3.8 | -8.3 | -7.6 |
| Depreciations and amortisation | -1.0 | -0.6 | -1.8 | -1.2 |
| Impairment | 0.0 | -0.1 | 0.0 | -0.1 |
| Other operating expenses | -2.0 | -3.0 | -4.2 | -5.8 |
| Operating profit/loss | 2.6 | 2.3 | 3.4 | 1.6 |
| Financial income | 0.0 | 0.1 | 0.1 | 0.1 |
| Financial expenses | -0.2 | -0.2 | -0.3 | -0.4 |
| Share of associated companies' result | -0.1 | 0.1 | 0.0 | 0.1 |
| Profit/loss before taxes | 2.4 | 2.3 | 3.2 | 1.5 |
| Taxes | -0.6 | -0.1 | -0.9 | -0.3 |
| Profit/loss for the period | 1.8 | 2.2 | 2.3 | 1.2 |
| Other comprehensive income | ||||
| Translation differences | 0.0 | 0.0 | 0.1 | 0.1 |
| Total comprehensive income for the period | 1.8 | 2.2 | 2.4 | 1.3 |
| Result for the period attributable to | ||||
| Equity holders of the parent | 1.8 | 2.2 | 2.3 | 1.2 |
| Non-controlling interest | 0.0 | 0.0 | 0.0 | 0.0 |
| 1.8 | 2.2 | 2.3 | 1.2 | |
| Comprehensive income attributable to | ||||
| Equity holders of the parent | 1.8 | 2.2 | 2.4 | 1.3 |
| Non-controlling interest | 0.0 | 0.0 | 0.0 | 0.0 |
| 1.8 | 2.2 | 2.4 | 1.3 | |
| Calculated from the result for the period attributable to equity holders of parent Earnings/share (EPS): | ||||
| Basic, EUR | 0.31 | 0.38 | 0.40 | 0.20 |
| Diluted, EUR | 0.31 | 0.38 | 0.40 | 0.20 |
Honkarakenne Oyj has two series of shares: A shares and B shares, which have different right to dividend. Profit distribution of 0.20 EUR per share will be paid first for B shares, then 0.20 EUR per share for A shares, followed by equal distribution of remaining profit distribution between all shares.
| CONSOLIDATED BALANCE SHEET Unaudited | 31.12.2019 | 31.12.2018 |
| MEUR | ||
| Assets | ||
| Non-current assets | ||
| Property, plant and equipment | 11.6 | 8.1 |
| Goodwill | 0.1 | 0.1 |
| Other intangible assets | 0.3 | 0.2 |
| Investments in associated companies | 0.3 | 0.3 |
| Receivables | 0.1 | 0.1 |
| Deferred tax assets | 1.6 | 2.0 |
| 14.0 | 10.8 | |
| Current assets | ||
| Inventories | 4.4 | 4.6 |
| Trade and other receivables | 2.4 | 2.1 |
| Cash and cash equivalents | 7.1 | 4.1 |
| 13.9 | 10.8 | |
| Total assets | 27.9 | 21.6 |
| Shareholders’ equity and liabilities | 31.12.2019 | 31.12.2018 |
| Equity attributable to equity holders of the parent company | ||
| Share capital | 9.9 | 9.9 |
| Share premium account | 0.5 | 0.5 |
| Fund for invested unrestricted equity | 8.0 | 8.0 |
| Own shares | -1.4 | -1.4 |
| Translation differences | 0.2 | 0.1 |
| Retained earnings | -4.7 | -7.0 |
| 12.5 | 10.1 | |
| Non-controlling interests | 0.0 | 0.0 |
| Total equity | 12.5 | 10.1 |
| Non-current liabilities | ||
| Deferred tax liability | 0.1 | 0.1 |
| Provisions | 0.2 | 0.2 |
| Financial liabilities | 4.4 | 1.3 |
| 4.7 | 1.6 | |
| Current liabilities | ||
| Trade and other payables | 9.6 | 9.0 |
| Current tax liabilities | 0.1 | 0.3 |
| Provisions | 0.2 | 0.2 |
| Current financial liabilities | 0.8 | 0.5 |
| 10.7 | 9.9 | |
| Total liabilities | 15.4 | 11.5 |
| Total equity and liabilities | 27.9 | 21.6 |
STATEMENT OF CHANGES IN EQUITY abridged Unaudited | |||||||||||||||||||||
| EUR thousand | Equity attributable to equity holders of the parent | ||||||||||||||||||||
| a) | b) | c) | d) | e) | f) | Total | g) | Total equity | |||||||||||||
| Total equity 1.1.2018 | 9898 | 520 | 8034 | 5 | -1382 | -8123 | 8953 | 4 | 8957 | ||||||||||||
| Profit/loss for the period | 1176 | 1176 | 0 | 1176 | |||||||||||||||||
| Translation difference | 96 | 96 | 96 | ||||||||||||||||||
| Adoption of new standards | -99 | -99 | -99 | ||||||||||||||||||
| Total equity 31.12.2018 | 9898 | 520 | 8034 | 102 | -1382 | -7046 | 10126 | 5 | 10131 | ||||||||||||
| EUR thousand | Equity attributable to equity holders of the parent | ||||||||||||||||||||
| a) | b) | c) | d) | e) | f) | Total | g) | Total equily | |||||||||||||
| Total equily 1.1.2019 | 9898 | 520 | 8034 | 102 | -1382 | -7046 | 10126 | 5 | 10131 | ||||||||||||
| Profit/loss for the period | 2321 | 2321 | 2321 | ||||||||||||||||||
| Translation difference | 63 | 63 | 63 | ||||||||||||||||||
| Redemption of minority interest | 5 | 5 | -5 | 0 | |||||||||||||||||
| Share based incentive scheme | 24 | 24 | 24 | ||||||||||||||||||
| Total equity 31.12.2019 | 9898 | 520 | 8034 | 164 | -1382 | -4696 | 12539 | 0 | 12539 | ||||||||||||
a) Share capital
b) Share premium account
c) Fund for invested unrestricted equity
d) Translation difference
e) Own shares
f) Retained earnings
g) Non-controlling interests
| CONSOLIDATED STATEMENT OF CASH FLOWS abridged Unaudited | 1.1.- 31.12.2019 | 1.1.- 31.12.2018 |
| MEUR | ||
| Cash flow from operating activities | 5.0 | 3.8 |
| Cash flow from investing activities, net | -3.1 | -1.0 |
| Total cash flows from financing activities | 1.1 | -1.8 |
| Proceeds from borrowings | 2.0 | 0.0 |
| Repayment of borrowings | -0.5 | -1.8 |
| Other financial items | -0.4 | -0.0 |
| Change in cash and cash equivalents | 3.0 | 1.0 |
| Cash and cash equivalents at the beginning of the year | 4.1 | 3.1 |
| Cash and cash equivalents at the close of the year | 7.1 | 4.1 |
NOTES TO THE REPORT
Accounting policies
This financial statement release has been drafted in accordance with IAS 34. The financial statements release should be read together with the 2018 financial statements. Financial statements has been drafted in accordance with the same accounting principles applied in the 2018 financial statements, with the exception of standards and interpretations that have come into force on 1 January 2019 or thereafter. The effect of new standards and interpretations is described in more detail below under “new standards and interpretations.”
This financial statement release has not been audited and the figures have not been examined by the auditor.
The figures presented in the release have been rounded, so the sum of individual figures may differ from the amount shown.
Unless otherwise stated, figures in parentheses refer to the corresponding period of the previous year.
Segments
In 2019 Honkarakenne had three geographical operating segments that have been combined into one segment for reporting purposes. Geographically, sales were divided as follows: Finland, Russia & CIS and Global Markets. The internal reporting of the management is in line with IFRS reporting. For this reason, separate reconciliations are not presented.
Alternative Performance Measures
Honkarakenne complies with the Guidelines on Alternative Performance Measures (APM) issued by the European Securities and Markets Authority (ESMA). An APM is a financial measure of performance other than a financial measure defined or specified in IFRS. For this reason, the term “adjusted” is used instead of “without non-recurring items”. As adjustment items, the company classifies significant business transactions that are considered to affect comparisons between different reporting periods. Such transactions include significant reorganisation expenses, significant impairment losses or reversals thereof, significant capital gains and losses on assets, and other significant non-customary income or expenses.
In Honkarakenne’s view, Alternative Performance Measures provide significant additional information to management, investors, securities analysts and other parties on Honkarakenne’s result of operations, financial position and cash flows, and are frequently used by analysts, investors and other parties. Return on equity, equity ratio, net financial liabilities and gearing are presented as supplementary key figures, as in the company’s view they are useful indicators for assessing Honkarakenne’s ability to acquire financing and pay its debts. In addition, gross investments and R&D expenditure provide additional information on needs related to Honkarakenne’s cash flow from operating activities.
New standards and interpretations
Adoption of IFRS 16 Leases
IFRS 16 Leases came into effect on 1 January 2019.The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. The new standard replaces IAS 17 and related interpretations, and it ushers in significant changes, especially for lessees.
Honkarakenne adopted IFRS 16 Leases on 1 January 2019 using a simplified procedure whereby the impact of the standard’s application is presented in the opening balance sheet dated 1 January 2019 and the comparison figures for the prior year are not adjusted. Lessor accounting remains largely unchanged compared to the guidance under IAS 17 and thus the adoption of the standard does not have an effect on the accounting treatment of lease contracts in which Honkarakenne is the lessor.
Prior to the adoption of IFRS 16, lease contracts were classified as either finance leases or operating leases. A lease was classified as a finance lease if it transferred substantially all the risks and rewards incidental to ownership of the leased asset to the lessee. Commitments related to finance leases were recognised as liabilities and discounted using the interest rate implicit in the lease, while an equivalent asset was recognised in tangible assets. Similarly, lease payments were apportioned between financial expenses and repayments of the lease liability. In previous financial periods, lease payments for non-finance lease contracts were recognised as lease expenses in the statement of comprehensive income in accordance with IAS 17.
IFRS 16 particularly changes the accounting treatment of contracts that were previously classified as other leases, as the standard as a rule requires lessees to recognise all lease contracts in the balance sheet. At the commencement date of the contract, a right-of-use asset and a lease liability are recognised in the balance sheet, measured at the present value of the remaining lease payments. In the statement of comprehensive income, depreciation on right-of-use assets and interest expenses on lease liabilities are recognised instead of lease expenses.
A significant share of Honkarakenne’s lease contracts were previously classified as operating leases under IAS 17. Business premises, cars and office equipment leased by Honkarakenne have been treated as operating leases.
In transition to IFRS 16, Honkarakenne has recognised lease liabilities for these leases based on the present value of the remaining lease payments on 1 January 2019, discounted using the incremental borrowing rate at the date of application. Honkarakenne measures the right-of-use asset at an amount equal to the lease liability at the date of initial application, which means that the transition has not had an impact on equity. Furthermore, Honkarakenne does not have any prepayments on leases or accrued lease payments that would have an impact on the initial recognition of the right-of-use asset.
Honkarakenne has open-ended lease contracts for business premises in particular. The lease term for open-ended leases is based on management’s assessment of the lease term, which takes into consideration factors such as the costs relating to the termination of the lease and the importance of the underlying asset to Honkarakenne’s operations. At the date of initial application, management estimated that the lease term for the majority of the open-ended lease contracts for business premises was from two to four years.
Honkarakenne has applied two recognition exemptions included in IFRS 16. Honkarakenne has not recognised right-of-use assets and lease liabilities for short-term leases with a lease term of no more than 12 months or for leases of low value assets. Honkarakenne has also used a practical expedient under the simplified transition approach whereby the lessee does not recognise lease contracts that end within 12 months from the date of the initial application if they do not contain a purchase option. In addition, Honkarakenne applies the expedient whereby the standard is not applied to lease contracts for intangible assets.
As a result of the adoption of IFRS 16, EUR 2.1 million in right-of-use assets and lease liabilities were recognised in the balance sheet on 1 January 2019.Honkarakenne’s equity ratio consequently weakened by 7 percentage points, gearing was down 21 percentage points and return on investment decreased by one percentage point. In addition to the balance sheet impact, adoption of IFRS 16 has an effect on Honkarakenne’s statement of comprehensive income. As from the beginning of 2019, Honkarakenne recognises a depreciation charge on the right-of-use asset instead of lease expenses in the statement of comprehensive income, which affects operating profit, and an interest expense related to the lease liability, which impacts on financial items. The change has no significant impact on Honkarakenne’s result but improves operating profit and increases financial expenses.
Adoption of IFRS 16 also impacts the presentation of cash flows. Lease payments were previously included in cash flow from operating activities in their entirety, while after the implementation of IFRS 16 only the interest expenses related to lease contracts are presented in the cash flow from operating activities. The remainder of the lease payments for lease contracts entered in the balance sheet are presented as repayments of the lease liability in the cash flow from financing activities.
New accounting policies
Lease liability
At the commencement date of the lease, Honkarakenne recognises a lease liability measured at the present value of the remaining lease payments that have not been paid at that date. The lease payments included in the measurement of the lease liability consist of the payments for the right to use the underlying asset during the lease term that have not been paid at the commencement date of the lease. The payments include fixed payments less any lease incentives receivable and variable lease payments that depend on an index or a rate and which are initially measured using the index or rate as at the commencement date. A lease contract may also involve payments of penalties for terminating the lease. Honkarakenne accounts for the termination penalty in the lease payments if the termination option may be exercised during the lease period. VAT is not included in the measurement of the lease liability.
Leases are discounted using the interest rate implicit in the lease if said interest rate can be determined easily. If the interest rate implicit in the lease cannot be determined easily, the incremental borrowing rate may be used. According to the standard, the incremental borrowing rate is defined as the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
At the time of adoption, the implicit interest rate of Honkarakenne’s current lease contracts could not be determined easily, and thus future minimum rents were discounted using the estimated incremental borrowing rate. The company estimates the incremental borrowing rate annually in connection with the preparation of the financial statements and applies this incremental borrowing rate until the next financial statements are prepared. At the time of adoption, Honkarakenne estimated the incremental borrowing rate to be 2.5 per cent. In connection with the financial statemenst for 2019 the company estimated the incremental borrowing rate to be 2.5 per cent. Honkarakenne will next estimate the incremental borrowing rate in connection with the financial statements for 2020.
Right-of-use asset
Honkarakenne recognises a right-of-use asset from a lease contract at the commencement date of the lease, that is, the date on which the lessor makes the underlying asset available for use by Honkarakenne. The right-of-use asset is measured at cost less any accumulated depreciation and impairment losses and adjusted for any remeasurement of the lease liability. The initial cost of the asset includes the amount of lease liability recognised, and lease payments made at or before the commencement date less any lease incentives received and initial direct costs incurred. Honkarakenne also considers the possible restoration costs of the underlying asset in the measurement of cost.
Short-term leases and leases of low-value assets
Honkarakenne does not recognise leases of low-value assets under IFRS 16 in the balance sheet, but instead recognises an expense on these lease contracts over the lease term in the statement of comprehensive income.
Honkarakenne does not recognise leases with a lease term of less than 12 months – that is, short-term leases under IFRS 16 – in the balance sheet. Such lease contracts are recognised over the lease term as lease expenses in the statement of comprehensive income. In determining whether a contract fulfils the criteria of a short-term lease, Honkarakenne takes into account the length of the contract as in the case of other contracts, that is, considering any extension and termination options and whether it is reasonably certain such options will be exercised. If a lease contains a purchase option, Honkarakenne does not consider it to be a short-term lease.
Significant judgements
IFRS 16 requires lessees to determine the lease term as the non-cancellable period of a lease, accounting for any option to extend or terminate the lease if the use of such option is reasonably certain. Honkarakenne has assessed extension options as part of the lease period on a lease-by-lease basis.
Honkarakenne has open-ended lease contracts for business premises in particular. For such contracts, management evaluates the lease term on a lease-by-lease basis. In evaluating the lease term, Honkarakenne considers factors such as any significant leasehold improvements undertaken over the lease term, costs relating to the termination of the lease and the importance of the underlying asset to Honkarakenne’s operations, taking into account whether the underlying asset is a specialised asset, the location of the underlying asset and the availability of suitable alternatives. Management will reassess the lease terms in future periods to ensure that the lease term reflects the current circumstances.
IFRS 16-adjusted opening balance sheet
| CONSOLIDATED BALANCE SHEET | |||||
| ASSETS | 31.12.2018 | IFRS 16 adoption | 1.1.2019 | ||
| Non-current assets | |||||
| Property, plant and equipment | 8.1 | 2.1 | 10.2 | ||
| Intangible assets | 0.3 | 0.3 | |||
| Deferred tax assets | 2.0 | 2.0 | |||
| Other non-current assets | 0.4 | 0.4 | |||
| Total non-current assets | 10.8 | 2.1 | 12.9 | ||
| Total current assets | 10.8 | 10.8 | |||
| Total assets | 21.6 | 2.1 | 23.7 | ||
| SHAREHOLDERS' EQUITY AND LIABILITIES | |||||
| Total equity | 10.1 | 10.1 | |||
| LIABILITIES | |||||
| Non-current liabilities | |||||
| Financial liabilities | 1.3 | 1.7 | 3.0 | ||
| Other payables | 0.3 | 0.3 | |||
| Total non-current liabilities | 1.6 | 1.7 | 3.3 | ||
| Current liabilities | 0.0 | ||||
| Trade and other payables | 9.0 | 9.0 | |||
| Financial liabilities | 0.5 | 0.4 | 0.9 | ||
| Other payables | 0.4 | 0.4 | |||
| Total current liabilities | 9.9 | 0.4 | 10.3 | ||
| Total liabilities | 11.5 | 2.1 | 13.6 | ||
| Total shareholders’ equity and liabilities | 21.6 | 2.1 | 23,7 | ||
| IFRS 16 BRIDGE STATEMENT | |||||
| Lease liabilities 31 December 2018 | 0.2 | ||||
| Short-term contracts | 0.0 | ||||
| Low-value contracts | 0.0 | ||||
| Finance leasing debt (IAS 17) | 0.0 | ||||
| Determining the lease term | 2.3 | ||||
| Discount factor | -0.3 | ||||
| Lease liability 1 January 2019 | 2.1 | ||||
Other revised standards and interpretations
Other revised standards and interpretations that came into force on 1 January 2019 did not have a material impact on the figures presented for the review period.
Other notes to the report
Events with related parties
The Group’s related parties consist of subsidiaries and associated companies; the company's management and any companies in which they exert influence; and those involved in the Saarelainen shareholder agreement and any companies controlled by them. The management personnel considered to be related parties comprise the Board of Directors, President & CEO, and the company's Executive Group. The pricing of goods and services in transactions with related parties conforms to market-based pricing.
During the financial year, ordinary business transactions with related parties were made as follows: sales of goods and services to related parties amounted to MEUR 0.2 (MEUR 0.2) and purchases from related parties to MEUR 0.5 (MEUR 0.4). Financial statements of the Group include MEUR 0.0 (MEUR 0.0) liabilities to related parties and MEUR 0.0 (MEUR 0.0) receivables from related parties. In 2019 or 2018 no bad debts were recognised from related parties.
In 2010 and 2011, the parent company Honkarakenne Oyj granted a long-term loan total of MEUR 0.9 to Honka Management Oy. The parent company has made write-offs of MEUR 0.3 in 2018 on this loan, but hte write-offs was reversed in 2019. The write-offs or reverse of write-offs had no effect on the consolidated financial statements.
| Property, plant and equipment | ||
| Unaudited | ||
| MEUR | 31.12.2019 | 31.12.2018 |
| Cost 1.1. | 49.1 | 48.6 |
| Increase | 5.4 | 0.9 |
| Disposals | -6.9 | -0.4 |
| Cost 31.12. | 47.5 | 49.1 |
| Accumulated depreciation 1.1. | -41.0 | -40.0 |
| Accumulated depreciation of disposals | 6.9 | 0.3 |
| Depreciation for the period | -1.8 | -1.3 |
| Accumulated depreciation 31.12. | -35.9 | -41.0 |
| Carrying amount 1.1. | 8.1 | 8.5 |
| Carrying amount 31.12. | 11.6 | 8.1 |
The adoption of IFRS 16 Leases has impacted the Group’s tangible assets. The adoption of the standard and its impacts are described in detail under “New standards and interpretations”.
Own shares
Honkarakenne has not acquired its own shares during the report period. At the end of the report period, the Group held 364,385 of its Honkarakenne B shares with a total purchase price of EUR 1,381,750.23. These shares represent 5.87% of the company's all shares and 3.05% of all votes. The purchase cost has been deducted from shareholders' equity in the consolidated financial statements.
| Contingent liabilities | |||||
| Unaudited | 31.12.2019 | 31.12.2018 | |||
| MEUR | |||||
| For own loans | |||||
| - Mortgages | 8.1 | 7.6 | |||
| - Other quarantees | 2.5 | 2.5 | |||
| Off-balance sheet lease contracts | 0.0 | 0.2 | |||
| Key indicators | |||||
| 1-12/ | 1-12/ | ||||
| Unaudited | 2019 | 2018 | |||
| Earnings/share (EPS) | euro | 0.40 | 0.20 | ||
| Return on equity | % | 20 | 12 | ||
| Equity ratio | % | 56 | 61 | ||
| Shareholders equity/share | euro | 2.14 | 1.73 | ||
| Net financial liabilities | MEUR | -1.9 | -2.3 | ||
| Gearing | % | -15 | -23 | ||
| Gross investments | MEUR | 3.2 | 1.1 | ||
| % liikevaihdosta | 7 | 2 | |||
| Order book | MEUR | 27.6 | 24.8 | ||
| Average number of personnel | White-collar | 87 | 79 | ||
| Blue-collar | 66 | 67 | |||
| Total | 155 | 147 | |||
| Personnel in person-years, average | White-collar | 83 | 76 | ||
| Blue-collar | 57 | 54 | |||
| Total | 139 | 130 | |||
| Adjusted number of shares (’000) | At period-end | 5847 | 5847 | ||
| Average during period | 5847 | 5847 | |||
Gross investments are presented without IFRS 16 right-of-use assets.
Own shares held by the Group are excluded from the number of shares.
| Calculation of key indicators | ||
| Profit / loss for the period attributable to equity holders of parent | ||
| Earnings/share (EPS): | --------------------------------------------------------------------------------- | |
| Average number of outstanding shares | ||
| Profit / loss before taxes – taxes | ||
| Return on equity %: | --------------------------------------------------------------------------------- | x 100 |
| Total equity, average | ||
| Shareholders’ equity | ||
| Shareholders equity/share: | --------------------------------------------------------------------------------- | |
| Number of outstanding shares at the close of period | ||
| Total equity | ||
| Equity ratio, %: | --------------------------------------------------------------------------------- | x 100 |
| Balance sheet total - advances received | ||
| Net financial liabilities: | Financial liabilities – cash and cash equivalents | |
| Financial liabilities – cash and cash equivalents | ||
| Gearing, %: | --------------------------------------------------------------------------------- | x 100 |
| Total equity | ||