HONKARAKENNE OYJ HALF YEAR FINANCIAL REPORT 8 August 2019 at 9:00 a.m.
HONKARAKENNE OYJ HALF YEAR FINANCIAL REPORT, 1 JANUARY – 30 JUNE 2019
NET SALES INCREASED AND RESULT IMPROVED SUBSTANTIALLY
Net sales for the first half of 2019 grew by 10 per cent and amounted to MEUR 21.7 (H1 2018: MEUR 19.7). Both operating result and profit before taxes improved substantially. Operating result was MEUR 0.9 (H1 2018: MEUR -0.7). Profit before taxes was MEUR 0.8 (H1 2018: MEUR -0.8).
January - June 2019
- Honkarakenne Group's net sales January-June amounted to MEUR 21.7 (MEUR 19.7 in H1 2018), representing an increase over the same period the previous year of 10%.
- The operating result was MEUR 0.9 (MEUR -0.7). Adjusted operating result was MEUR 0.9 (MEUR -0.7).
- The loss before taxes was MEUR 0.8 (MEUR -0.8).
- Earnings per share amounted to EUR 0.09 (EUR -0.17).
Honkarakenne reiterates its view that net sales in 2019 will be on a par with 2018 and the profit before taxes will be better.
Figures in parentheses refer to the corresponding period of the previous year, unless stated otherwise.
Honkarakenne adopted IFRS 16 Leases 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. The adoption of the standard had a significant impact on the Group’s balance sheet and certain key indicators calculated from the balance sheet. For detailed information on the impacts of the adoption of IFRS 16, see the Reporting section and the Accounting Policies in the notes to the tables section.
| KEY INDICATORS | 1-6/ 2019 | 1-6/ 2018 | 1-12/ 2018 | |
| Net sales, MEUR | 21.7 | 19.7 | 48.9 | |
| Operating profit/loss, MEUR | 0.9 | -0.7 | 1.6 | |
| Adjusted operating profit/loss, MEUR | 0.9 | -0.7 | 1.6 | |
| Profit/loss before taxes, MEUR | 0.8 | -0.8 | 1.5 | |
| Adjusted profit/loss before taxes, MEUR | 0.8 | -0.8 | 1.5 | |
| Average number of personnel | 153 | 144 | 147 | |
| Personnel in person-years, average | 136 | 121 | 130 | |
| Earnings/share (EPS), EUR *) | 0.09 | -0.17 | 0.20 | |
| Equity ratio, % | 51 | 45 | 61 | |
| Return on equity, % | 5 | -12 | 12 | |
| Shareholders' equity/share, EUR *) | 1.83 | 1.37 | 1.73 | |
| Gearing, % | 6 | -9 | -23 |
Marko Saarelainen, President and CEO of Honkarakenne Oyj, in connection with the half year report:
“Net sales developed favourably in Finland and saw year-on-year improvement of 10 per cent. The order intake of detached log houses has developed in a positive direction and continues to grow. In the holiday home segment, the trend in the order intake was slightly negative, but we managed to increase our market share in this segment as well. Going forward, we will focus even more on improving the customer experience and developing the service business.
Net sales in Russia were weaker than expected. The trend in the order intake is strongly negative and steps have been initiated to increase sales efficiency. Our Russian business is traditionally very seasonal and we expect that this year, too, the second half of the year will rectify the situation.
In Global Markets, net sales saw year-on-year growth of 43 per cent. Growth was driven by Asia, where both project and consumer business developed favourably. During the first half of the year, we delivered a project to China. In Japan, we completed a hotel project that was started up last year. Net sales in Europe and from international project sales developed as expected in the first half of the year, but fell slightly short of the previous year. The profitability of Global Markets improved significantly.
We invested in our production facility in Karstula and are modernising its production line. These investments will improve the efficiency of the factory’s production processes and increase the company’s capacity, particularly in urban and project construction. With the ongoing development of the factory, we will ensure that we can continue to provide our customers with safe residential and project construction solutions implemented with state-of-the-art technology. Investment programme seeks to enhance Honkarakenne’s competitiveness in both Finland and exports. The investments also have a positive impact on the environment and occupational safety.”
NET SALES
The Group’s first half year net sales in 2019 increased by 10% to MEUR 21.7 (MEUR 19.7).
Geographical distribution of net sales:
| Distribution of net sales, % | 1-6/2019 | 1-6/2018 | ||
| Finland | 67 % | 67 % | ||
| Russia & CIS | 7 % | 13 % | ||
| Global Markets | 27 % | 20 % | ||
| Total | 100 % | 100 % | ||
| Net sales, MEUR | 1-6/2019 | 1-6/2018 | change | |
| Finland | 14.5 | 13.1 | 10 % | |
| Russia & CIS | 1.5 | 2.6 | -42 % | |
| Global Markets | 5.8 | 4.0 | 43 % | |
| Total | 21.7 | 19.7 | 10 % | |
Net sales from Contracts with Customers:
| 1-6/2019 | ||||
| Revenue recognition timing, MEUR | Finland | Russia & CIS | Global Markets | Total |
| Point in time | 13.7 | 1.5 | 5.8 | 20.9 |
| Over time | 0.8 | 0.0 | 0.0 | 0.8 |
| Total | 14.5 | 1.5 | 5.8 | 21.7 |
| 1-6/2018 | ||||
| Revenue recognition timing, MEUR | Finland | Russia & CIS | Global Markets | Total |
| Point in time | 10.6 | 2.6 | 4.0 | 17.2 |
| Over time | 2.5 | 0.0 | 0.0 | 2.5 |
| Total | 13.1 | 2.6 | 4.0 | 19.7 |
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 June, the Group’s order book stood at MEUR 28.2, as compared to MEUR 30.0 a year earlier. At the end of June, the order book was 6% lower than a year earlier.
TRENDS IN PROFIT AND PROFITABILITY
Honkarakenne’s result developed favourably. Both the operating result and profit before taxes were MEUR 1.6 better than a year earlier. The operating result for the January–June period was MEUR 0.9 (MEUR -0.7) and the profit before taxes was MEUR 0.8 (MEUR -0.8). There were no adjustment items during the review period.
Higher net sales and a better sales margin in both Finland and exports contributed to the improvement in the operating result and profit. Successful efficiency-boosting measures improved both the sales margin and operating result.
FINANCING AND INVESTMENTS
The financial position of the Group remained good during the report period. Although the adoption of IFRS 16 as from the beginning of 2019 increased financial liabilities in the balance sheet by MEUR 2.1 and had a negative effect on both gearing and equity ratio, the Group’s equity ratio was better than a year earlier. At the end of June, the Group’s equity ratio was 51% (45%) and gearing was 6% (-9%).
At the end of the review period, the Group’s net financial liabilities stood at MEUR 0.6 (MEUR -0.7). Liquid assets totalled MEUR 3.1 (MEUR 3.0). The Group also has a MEUR 4.5 (5.1) bank overdraft facility, MEUR 0.0 of which had been drawn on at the end of the review period (MEUR 0.0).
The Group’s capital expenditure totalled MEUR 2.7 (MEUR 0.6), excluding right-of-use assets as defined in IFRS 16.
During the review period, the company invested heavily in the modernisation of its production line, which is evident in capital expenditure. In May, Honkarakenne announced that it will invest MEUR 5.2 in production line upgrades at the Karstula factory. The investment is part of the company’s new strategy and a continuation to previously decided and initiated production development projects. The investment programme was started in the latter half of 2018 and 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 also have a positive impact on the environment and occupational safety. The modernised production line is estimated to be in efficient production use in summer 2020. The investment was decided on in May and has received European Regional Development Fund (ERDF) support from Finland's structural funds programme Sustainable Growth and Jobs 2014-2020.
MOST SIGNIFICANT EVENTS DURING THE REPORT PERIOD
Flaggings
Honkarakenne Oyj received on 18 January 2019 the following notification pursuant to Chapter 9, Section 5 of the Finnish Securities Market Act: CapMan Oyj’s holding of shares in Honkarakenne shares has fallen below 5 % of total number of shares.
Investments
On 20 May 2019, Honkarakenne announced that it will invest MEUR 5.2 in production line upgrades at the Karstula factory. The investment is part of the company’s new strategy and a continuation to previously decided and initiated production development projects. In total, the company will invest MEUR 7.3 between the years 2018-2020 in upgrades to its Karstula factory. For more information on the investments, see the section Financing and Investments.
PRODUCTS AND MARKETS AREAS
In Finland, net sales developed favourably and saw year-on-year improvement of 10 per cent. The order intake of detached log houses has developed in a positive direction and continues to grow. Customers appreciate good indoor air quality and the ecological friendliness of logs as building materials. In the holiday home segment, the trend in the order intake was slightly negative. The development of the collection focused on renewing the holiday home collection and these efforts resulted favourable development in market share. In Finland, sales network development measures have progressed successfully: both the number of representatives and their expertise have improved. In addition, core business processes, especially the sales process and management of the order-delivery chain, have been overhauled and made more efficient. The focus of the development of functions in Finland has shifted to improving the customer experience and developing the service business.
In Russia & CIS, net sales were weaker than expected. The trend in the order intake is strongly negative and steps have been initiated to increase sales efficiency. Honkarakenne’s Russian business is traditionally very seasonal and we expect that this year, too, the second half of the year will rectify the situation. Although the Russian market and financial situation are challenging and the sales periods have lengthened, Honkarakenne still believes in the opportunities of its products in Russia and seeks to ensure net sales in the latter half of the year by focusing on projects and area development projects.
In Global Markets, net sales developed well and posted a year-on-year improvement of MEUR 1.7. During the first half of the year, a project was delivered to China and new consumer business sales were made in Japan in line with expectations. Net sales in Europe and from international project sales developed as expected in the first half of the year, but fell slightly short of the previous year. The reorganisation of functions in Central Europe continued. The profitability of Global Markets improved significantly. Local marketing campaigns were carried out in Global Markets.
RESEARCH AND DEVELOPMENT
In the January–June period, the Group's R&D expenditure totalled MEUR 0.1 (MEUR 0.1), representing 0.6% of net sales (0.6%). The Group did not capitalise any development expenditure during the report period.
PERSONNEL
In the first half of the year, the Group’s number of personnel grew, especially in the case of white-collar employees. During the first half of the year, the Group employed a total of 136 (121) people on average in terms of person-years, and a total of 153 (144) people on average in terms of employment contracts.
The company has conducted co-operation negotiations in Finland in preparation for cyclical variations that are typical in our industry. The negotiations agreed on temporary lay-offs of 90 days at most and/or working time arrangements for all of the company’s personnel groups in Finland. The lay-off authorisations are valid until 30 April 2020.
EXECUTIVE GROUP
No changes were made to the Executive Group in the review period. The Executive Group consists of Marko Saarelainen (President & CEO), Leena Aalto (CFO and Vice President, Finance), Jari Fröberg (Vice President, Production), 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. In January-June, the highest price of the Series B share in trading was EUR 2.61 and the lowest EUR 1,98. The closing price was EUR 2.34. The value of trading in Series B shares was MEUR 1.6 with a turnover of 0.7 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. At the end of report period 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
Honkarakenne Oyj follows 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.
Russia is one of Honkarakenne’s major business areas. The 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.
EVENTS AFTER THE REVIEW PERIOD
Honkarakenne does not have any significant events after the review period to report on.
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.
This half-year financial report has been drafted in accordance with IAS 34. The half-year financial report should be read together with the 2018 financial statements. This half-year financial report 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 half-year financial report 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 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.
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.
OUTLOOK FOR 2019
Honkarakenne reiterates its view that net sales in 2019 will be on a par with 2018 and the profit before taxes will be better.
BASIS FOR THE OUTLOOK
The company’s outlook for 2019 is based on the management’s judgements, the assessments of local representatives, the order book and available perspectives on market development.
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.
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 2018, the Honkarakenne Group had net sales of MEUR 48.9, of which exports accounted for 37%. www.honka.com
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||
| Unaudited | 1-6 /2019 | 1-6 /2018 | 1-12 /2018 |
| MEUR | |||
| Net sales | 21.7 | 19.7 | 48.9 |
| Other operating income | 0.1 | 0.1 | 0.3 |
| Change in inventories | 1.3 | 0.4 | -0.6 |
| Work performed for own purposes and capitalised | 0.0 | 0.1 | 0.1 |
| Materials and services | -15.2 | -13.9 | -32.3 |
| Employee benefit expenses | -4.2 | -3.8 | -7.6 |
| Depreciations and amortisation | -0.8 | -0.6 | -1.2 |
| Impairment | 0.0 | 0.0 | -0.1 |
| Other operating expenses | -2.1 | -2.8 | -5.8 |
| Operating profit/loss | 0.9 | -0.7 | 1.6 |
| Financial income | 0.1 | 0.1 | 0.1 |
| Financial expenses | -0.2 | -0.2 | -0.4 |
| Share of associated companies' result | 0.1 | 0.0 | 0.1 |
| Profit/loss before taxes | 0.8 | -0.8 | 1.5 |
| Taxes | -0.3 | -0.3 | -0.3 |
| Profit/loss for the period | 0.5 | -1.0 | 1.2 |
| Other comprehensive income | |||
| Translation differences | 0.1 | 0.1 | 0.1 |
| Total comprehensive income for the period | 0.6 | -0.9 | 1.3 |
| Result for the period attributable to | |||
| Equity holders of the parent | 0.5 | -1.0 | 1.2 |
| Non-controlling interest | 0.0 | 0.0 | 0.0 |
| 0.5 | -1.0 | 1.2 | |
| Comprehensive income attributable to | |||
| Equity holders of the parent | 0.6 | -0.9 | 1.3 |
| Non-controlling interest | 0.0 | 0.0 | 0.0 |
| 0.6 | -0.9 | 1.3 | |
| Calculated from the result for the period attributable to equity holders of parent Earnings/share (EPS): | |||
| Basic, EUR | 0.09 | -0.17 | 0.20 |
| Diluted, EUR | 0.09 | -0.17 | 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 | 30.6.2019 | 30.6.2018 | 31.12.2018 |
| MEUR | |||
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 12.3 | 8.3 | 8.1 |
| Goodwill | 0.1 | 0.1 | 0.1 |
| Other intangible assets | 0.2 | 0.3 | 0.2 |
| Investments in associated companies | 0.3 | 0.3 | 0.3 |
| Receivables | 0.1 | 0.1 | 0.1 |
| Deferred tax assets | 2.0 | 2.0 | 2.0 |
| 15.0 | 11.2 | 10.8 | |
| Current assets | |||
| Inventories | 6.0 | 5.7 | 4.6 |
| Trade and other receivables | 3.3 | 4.6 | 2.1 |
| Cash and cash equivalents | 0.0 | 0.0 | 0.0 |
| 3.1 | 3.0 | 4.1 | |
| Total assets | 12.4 | 13.4 | 10.8 |
| Assets | 27.4 | 24.5 | 21.6 |
| Shareholders’ equity and liabilities | 30.6.2019 | 30.6.2018 | 31.12.2018 |
| Equity attributable to equity holders of the parent company | |||
| Share capital | 9.9 | 9.9 | 9.9 |
| Share premium account | 0.5 | 0.5 | 0.5 |
| Fund for invested unrestricted equity | 8.0 | 8.0 | 8.0 |
| Own shares | -1.4 | -1.4 | -1.4 |
| Translation differences | 0.2 | 0.1 | 0.1 |
| Retained earnings | -6.5 | -9.1 | -7.0 |
| 10.7 | 8.0 | 10.1 | |
| Non-controlling interests | 0.0 | 0.0 | 0.0 |
| Total equity | 10.7 | 8.0 | 10.1 |
| Non-current liabilities | |||
| Deferred tax liability | 0.1 | 0.1 | 0.1 |
| Provisions | 0.2 | 0.2 | 0.2 |
| Financial liabilities | 2.9 | 1.9 | 1.3 |
| 3.2 | 2.2 | 1.6 | |
| Current liabilities | |||
| Trade and other payables | 12.2 | 13.4 | 9.0 |
| Current tax liabilities | 0.3 | 0.2 | 0.3 |
| Provisions | 0.1 | 0.2 | 0.2 |
| Current financial liabilities | 0.9 | 0.5 | 0.5 |
| 13.5 | 14.3 | 9.9 | |
| Total liabilities | 16.7 | 16.5 | 11.5 |
| Total equity and liabilities | 27.4 | 24.5 | 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 | -1019 | -1019 | 0 | -1019 | ||||||
| Translation difference | 53 | 53 | 53 | |||||||
| Total equity 30.6.2018 | 9898 | 520 | 8034 | 59 | -1382 | -9142 | 7987 | 5 | 7992 | |
| Equity attributable to equity holders of the parent | ||||||||||
| a) | b) | c) | d) | e) | f) | Total | g) | Total equity | ||
| Total equity 1.1.2019 | 9898 | 520 | 8034 | 102 | -1382 | -7046 | 10126 | 5 | 10131 | |
| Profit/loss for the period | 509 | 509 | 0 | 509 | ||||||
| Translation difference | 61 | 61 | 61 | |||||||
| Other items | 6 | 6 | -5 | 1 | ||||||
| Total equity 30.6.2019 | 9898 | 520 | 8034 | 163 | -1382 | -6531 | 10702 | 0 | 10702 | |
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
Change in minority interest
During the review period, Honkarakenne redeemed the Honkarakenne Sarl minority interest and now fully owns all Group subsidiaries.
| CONSOLIDATED STATEMENT OF CASH FLOWS abridged Unaudited | 1.1.- 30.6.2019 | 1.1.- 30.6.2018 | 1.1.- 31.12.2018 |
| MEUR | |||
| Cash flow from operating activities | 2.1 | 1.8 | 3.8 |
| Cash flow from investing activities, net | -2.6 | -0.6 | -1.0 |
| Total cash flows from financing activities | -0.4 | -1.3 | -1.8 |
| Proceeds from borrowings | 0.0 | 0.0 | 0.0 |
| Repayment of borrowings | -0.2 | -1.3 | -1.8 |
| Repayment of lease liabilities | -0.2 | 0.0 | 0.0 |
| Change in cash and cash equivalents | -1.0 | -0.1 | 1.0 |
| Cash and cash equivalents at the beginning of period | 4.1 | 3.1 | 3.1 |
| Cash and cash equivalents at the close of period | 3.1 | 3.0 | 4.1 |
NOTES TO THE REPORT
Accounting policies
This half-year financial report has been drafted in accordance with IAS 34. The half-year financial report should be read together with the 2018 financial statements. This half-year financial report 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 half-year financial report has not been audited and the figures have not been examined by the auditor. The figures in the release are rounded, so the sum of individual figures may differ from the amount shown.
Honkarakenne Oyj: Impacts of the adoption of IFRS 16 and adjusted opening balance sheet 1 January 2019
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. Honkarakenne will next estimate the incremental borrowing rate in connection with the financial statements for 2019.
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 Dec 2018 | IFRS 16 adoption | 1 Jan 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 |
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.
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.
Segments
Honkarakenne has three geographical operating segments that have been combined into one segment for reporting purposes. Geographically, sales are 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.
| Property, plant and equipment | |||
| Unaudited | |||
| MEUR | 30.6.2019 | 30.6.2018 | 31.12.2018 |
| Cost 1.1. | 49.1 | 48.6 | 48.6 |
| Increase | 5.0 | 0.4 | 0.9 |
| Disposals | 0.9 | 0.0 | -0.4 |
| Cost 30.6. | 53.2 | 49.0 | 49.1 |
| Accumulated depreciation 1.1. | -41.0 | -40.0 | -40.0 |
| Accumulated depreciation of disposals | 0.9 | 0.0 | 0.3 |
| Depreciation for the period | -0.8 | -0.6 | -1.3 |
| Accumulated depreciation 30.6. | -40.9 | -40.7 | -41.0 |
| Carrying amount 1.1. | 8.1 | 8.5 | 8.5 |
| Carrying amount 30.6. | 12.3 | 8.3 | 8.1 |
The adoption of IFRS 16 Leases has impacted on the Group’s tangible assets. The adoption of the standard and its impacts are described in detail in the accounting principles.
| Contingent liabilities | |||
| Unaudited | 30.6.2019 | 30.6.2018 | 31.12.2018 |
| MEUR | |||
| For own loans | |||
| - Mortgages | 8.1 | 13.3 | 7.6 |
| - Other quarantees | 2.4 | 3.5 | 2.5 |
| Off-balance sheet lease contracts | 0.0 | 0.2 | 0.2 |
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 report period, ordinary business transactions with related parties were made as follows: sales of goods and services to related parties amounted to EUR 70 thousand and purchases from related parties to EUR 319 thousand. At the end of the review period, receivables from related parties amounted to EUR 11 thousand and liabilities to related parties to EUR 8 thousand.
| Key indicators | 1-6/ | 1-6/ | 1-12 | |
| Unaudited | 2019 | 2018 | 2018 | |
| Earnings/share (EPS) | euro | 0.09 | -0.17 | 0.20 |
| Return on equity | % | 5 | -12 | 12 |
| Equity ratio | % | 51 | 45 | 61 |
| Shareholders equity/share | euro | 1.83 | 1.37 | 1.73 |
| Net financial liabilities | MEUR | 0.6 | -0.7 | -2.3 |
| Gearing | % | 6 | -9 | -23 |
| Gross investments | MEUR | 2.7 | 0.6 | 1.1 |
| % of net sales | 12 | 3 | 2 | |
| Order book | MEUR | 28.2 | 30.0 | 24.8 |
| Average number of personnel | White-collar | 85 | 78 | 79 |
| Blue-collar | 68 | 66 | 67 | |
| Total | 153 | 144 | 147 | |
| Personnel in person-years, average | White-collar | 80 | 74 | 76 |
| Blue-collar | 56 | 47 | 54 | |
| Total | 136 | 121 | 130 | |
| Adjusted number of shares (’000) | At period-end | 5847 | 5847 | 5847 |
| Average during period | 5847 | 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 | ||