AFFECTO PLC FINANCIAL STATEMENTS RELEASE 17 FEBRUARY 2010 at 11.00
AFFECTO PLC'S FINANCIAL STATEMENTS RELEASE 2009
GROUP KEY FIGURES
MEUR 10-12/09 10-12/08 2009 2008
Net sales 27,7 32,5 103,0 131,6
Operational segment result 2,1 2,5 4,7 14,5
% of net sales 7,6 7,8 4,6 11,0
Operating profit/loss 1,6 2,0 -3,6 11,8
% of net sales 5,8 6,2 -3,5 9,0
Profit/loss before taxes 1,4 2,3 -6,3 10,5
Profit/loss for the period 0,3 1,8 -7,1 8,5
Equity ratio, % 42,9 43,0 42,9 43,0
Net gearing, % 39,1 34,7 39,1 34,7
Earnings per share, eur 0,01 0,08 -0,33 0,40
Earnings per share (diluted), 0,01 0,08 -0,33 0,40
eur
Equity per share, eur 2,49 2,73 2,49 2,73
Dividend proposal, eur/share 0,06 0,14
CEO Pekka Eloholma comments:
"Fourth quarter was the best quarter in 2009 regarding both net sales, EBIT
and EBIT margin. Net sales were 27.7 MEUR, EBIT was 1.6 MEUR and EBIT margin
was 6% of net sales."
"The early part of the year was characterized by the restructuring actions in
the Baltic countries and by a weakened market in the Nordic countries. Towards
the year-end we managed to stop the negative earnings development in Baltic.
The Nordic markets seem to have recovered somewhat, although the situation in
Sweden is still challenging."
"The customer activity increased clearly during the fourth quarter, and also
the license sales recovered somewhat. Although the general economy is not yet
at the normal level, the customers are again planning IT investments. This
creates good chances for positive development in 2010."
"The order backlog was approx. 41 MEUR at the end of the period, which is 6
MEUR higher than the previous quarter's backlog of 35 MEUR. The order backlog
is approximately at the same level as at the end of 2007, although slightly
below yearend 2008."
"The net sales are estimated to grow in year 2010. The year 2010 will be
clearly profitable and the profitability (EBIT margin) is estimated to improve
during the year. However, the first quarter is estimated to be weak."
Additional information:
CEO Pekka Eloholma, +358 205 777 737
CFO Satu Kankare, +358 205 777 202
SVP, M&A, IR, Hannu Nyman, +358 205 777 761
This release is unaudited. The amounts in this report have been rounded from
exact numbers.
BUSINESS DEVELOPMENT DURING 10-12/2009
Affecto's net sales in 10-12/2009 were 27.7 MEUR (10-12/2008: 32.5 MEUR). Net
sales in Finland were 12.4 MEUR (13.0 MEUR), in Norway 5.7 MEUR (6.1 MEUR), in
Sweden 4.1 MEUR (5.4 MEUR), in Denmark 2.7 MEUR (2.7 MEUR) and 3.1 MEUR (5.9
MEUR) in Baltic. Net sales decreased by 15% especially due to weak development
in Baltic and Sweden.
In the Nordic countries the fourth quarter continued the trends of earlier
quarters: the customers continue to have interest in Affecto's solutions, but
decision making has slowed down and price pressure has grown. The sales of
third-party licenses recovered somewhat during the quarter along the typical
annual cycle. The general activity level of the customer seems to have grown
during the autumn.
The economic situation in the Baltic countries has remained weak, which has
negatively affected Affecto's business. The preliminary GDP information and
forecasts for the Baltic countries suggest 15-20% decrease in GDP in 2009. The
significant weakening of the Baltic economies combined with public sector's
sizeable cost saving programs has clearly decreased the demand for IT
services. The demand for TIA insurance solutions seems to be recovering
somewhat and Affecto got new orders during the fourth quarter, e.g. from Dina
Försäkringar in Sweden.
Net sales by reportable segments
Net sales, MEUR 10-12/09 10-12/08 2009 2008
Finland 12.4 13.0 45.0 46.4
Norway 5.7 6.1 20.2 29.6
Sweden 4.1 5.4 15.8 22.6
Denmark 2.7 2.7 11.5 10.6
Baltic 3.1 5.9 12.2 24.3
Eliminations -0.4 -0.6 -1.6 -1.9
Group total 27.7 32.5 103.0 131.6
Net sales of BI business in 10-12/2009 were 18.0 MEUR (20.4 MEUR), Operational
Solutions 7.4 MEUR (9.7 MEUR) and Geographic Information Services 2.7 MEUR
(3.0 MEUR). The net sales of the BI business decreased slightly compared to
last year, especially due to the weak development in Sweden. Operational
solutions business continued to grow in Finland, but decreased significantly
in Baltic.
Affecto's EBIT in 10-12/2009 was 1.6 MEUR (2.0 MEUR). Operational segment
result was in Finland 1.5 MEUR (2.0 MEUR), in Norway 0.7 MEUR (0.3 MEUR), in
Sweden 0.1 MEUR (0.8 MEUR), in Denmark 0.3 MEUR (0.4 MEUR) and in Baltic 0.2
MEUR (-0.2 MEUR).
Profitability was good in Finland, Norway and Denmark. The somewhat recovered
license sales had a positive impact on profitability. Profitability weakened
in Sweden. Profitability in Baltic improved thanks to the restructuring
actions taken earlier.
Operational segment result by reportable segments
Operational segment 10-12/09 10-12/08 2009 2008
result, MEUR
Finland 1.5 2.0 5.1 6.9
Norway 0.7 0.3 2.3 2.9
Sweden 0.1 0.8 0.9 2.9
Denmark 0.3 0.4 0.9 1.2
Baltic 0.2 -0.2 -2.7 3.2
Other -0.7 -0.7 -1.8 -2.5
Operational segment result 2.1 2.5 4.7 14.5
IFRS3 Amortization -0.5 -0.5 -2.1 -2.7
Impairment of Goodwill - - -6.2 -
Operating profit/loss 1.6 2.0 -3.6 11.8
The restructuring costs 1.2 MEUR in Baltic in 1-12/2009 are included in the
operational segment result of the Baltic segment (-1.7 MEUR in Q1, +0.4 MEUR
in Q2 and +0.2 MEUR in Q4). The goodwill impairment of 6.2 MEUR is reported
separately.
According to IFRS3 requirements, 10-12/2009 EBIT includes 0.5 MEUR (0.5 MEUR)
of amortization of intangible assets related to acquisitions.
R&D costs 10-12/2009 totaled 0.2 MEUR (0.1 MEUR), i.e. 0.7% of net sales
(0.3%). The costs have been recognized as an expense in the income statement.
Taxes for the period have been booked as taxes. Net profit for the period was
0.3 MEUR, while it was 1.8 MEUR last year. Tax expense in fourth quarter was
increased by the effects of the changes in Lithuanian corporate income tax
rate, decreasing the recognized deferred tax asset in the balance sheet.
YEAR 2009
Affecto builds IT solutions that enable organisations to integrate strategic
targets with their business management. Our business intelligence solutions
utilise information generated by ERP and other IT systems and process it
further. Affecto also delivers operational solutions for improving and
simplifying processes at customer organizations and offers geographic
information services.
Affecto is headquartered in Helsinki, Finland. The company has subsidiaries in
Finland, Sweden, Norway, Denmark, Estonia, Lithuania, Latvia and Poland.
NET SALES
Affecto's net sales in 1-12/2009 were 103.0 MEUR (1-12/2008: 131.6 MEUR). Net
sales in Finland were 45.0 MEUR (46.4 MEUR), in Norway 20.2 MEUR (29.6 MEUR),
in Sweden 15.8 MEUR (22.6 MEUR), in Denmark 11.5 MEUR (10.6 MEUR) and 12.2
MEUR (24.3 MEUR) in Baltic. Net sales decreased by 22% especially due to weak
development in Baltic and Sweden, the currency rates and also the divestment
of Contempus in September 2008. The organic change in sales was approx. -17%,
and -15% when assessed using fixed currency rates (NOK, SEK).
The past year was a period of uncertainty also for many of our Nordic
customers, whose own businesses were affected by the recession. The general
market situation was reflected as slow decision making and grown price
pressure. After summer vacations, the business activity returned to the normal
level more slowly than usually. Sales of consulting work developed moderately
during the year, but the sales of third-party licenses were clearly lower than
usually. In general, Affecto's business units in Finland, Norway and Denmark
performed rather well, while Sweden clearly missed its targets.
The economic situation has weakened significantly in the Baltic countries,
which has negatively affected Affecto's business. The preliminary GDP
information for the Baltic countries suggest a 15-20% decrease in GDP in 2009.
The significant weakening of the Baltic economies combined with public
sector's sizeable cost saving programs has clearly decreased the local demand
for IT services. Affecto reacted to the changing markets in April, when a
major restructuring action was taken in Baltic.
Net sales of BI business in 1-12/2009 were 66.8 MEUR (77.6 MEUR), Operational
Solutions 27.2 MEUR (44.6 MEUR) and Geographic Information Services 10.2 MEUR
(11.8 MEUR). The BI business has experienced organic growth (measured in local
currency) in Denmark, contracted somewhat in Finland and Norway, and
contracted substantially in Sweden. Operational solutions business continued
to grow in Finland especially regarding ECM solutions, but decreased
significantly in Baltic. The Contempus divestment in September 2008 has also
contributed to decrease in net sales. The net sales of GIS services decreased,
partially due to the focusing decisions made.
PROFIT
Affecto's EBIT in 1-12/2009 was -3.6 MEUR (11.8 MEUR). Operational segment
result was in Finland 5.1 MEUR (6.9 MEUR), in Norway 2.3 MEUR (2.9 MEUR), in
Sweden 0.9 MEUR (2.9 MEUR), in Denmark 0.9 MEUR (1.2 MEUR) and in Baltic -2.7
MEUR (3.2 MEUR). Profitability weakened in almost all segments, most in Baltic
and Sweden. The result in Baltic includes 1.2 MEUR expenses related to
restructuring. The goodwill impairment of 6.2 MEUR is reported separately.
According to IFRS3 requirements, 1-12/2009 EBIT includes 2.1 MEUR (2.7 MEUR)
of amortization of intangible assets related to acquisitions. A significant
part of the amortization is related to Sweden, Norway and Denmark segments. In
year 2010 the IFRS3 amortization is estimated to total 1.9 MEUR and in 2011
approx. 1.9 MEUR based on currency exchange rates at the end of reporting
period.
R&D costs totaled 0.4 MEUR (1.5 MEUR), i.e. 0.4% of net sales (1.1%). The
costs have been recognized as an expense in income statement.
The fluctuation in financial costs is explained to a large extent by changes
in the fair value of the interest swap taken, which changes have no effect on
actual cash flow. The interest rate changes have caused 0.2 MEUR income in 1-
12/2009. In addition, due to intra-group loans the first quarter result
includes a foreign exchange loss of 0.9 MEUR, as the Norwegian krone (NOK)
strengthened from the year-end's bottom level.
Taxes for the period have been booked as taxes. Net profit for the period was
-7.1 MEUR, while it was 8.5 MEUR last year.
The order backlog was approx. 41 MEUR at the end of the period, which is 6
MEUR higher than the previous quarter's backlog of 35 MEUR. The order backlog
is approximately at the same level as at the end of 2007, although somewhat
below yearend 2008. Affecto has a well diversified customer base. The ten
largest customers generated approx. 20% of group revenue in 2009 and the
largest customer corresponded to 4% of net sales.
FINANCE AND INVESTMENTS
At the end of the reporting period, Affecto's balance sheet totaled 136.3 MEUR
(12/2008: 146.6 MEUR). Equity ratio was 42.9% (12/2008: 43.0%) and net gearing
was 39.1% (12/2008: 34.7%). Translation differences have increased the
consolidated equity by 5.0 MEUR during 1-12/2009 mainly due to the
strengthening of the Norwegian krone (NOK).
The financial loans were 40.4 MEUR (12/2008: 43.9 MEUR) as at 31 December
2009. The company's cash and liquid assets were 19.5 MEUR (12/2008: 23.6
MEUR). The interest-bearing net debt was 20.9 MEUR (12/2008: 20.4 MEUR).
Affecto's bank loan has covenants based on net debt, result and cash flow, and
Affecto has received a waiver from the bank although Affecto did not fulfill
all the covenants in its year 2009 financial statements.
Cash flow from operating activities for the reported period was 2.5 MEUR (14.7
MEUR) and cash flow from investments was -0.9 MEUR (3.3 MEUR). Investments in
non-current assets excluding acquisitions were 1.0 MEUR (2.7 MEUR) during the
period.
Based on decision by the Annual General Meeting held on 3 April 2009, Affecto
has distributed dividends of 3.0 MEUR (previous year 3.4 MEUR) from the profit
of the year 2008. Dividend was paid on 21 April 2009.
EMPLOYEES
The number of employees was 911 persons at the end of the reporting period
(1079). Approx. 370 employees were based in Finland, 105 in Sweden, 110 in
Norway, 60 in Denmark, and 270 in the Baltic countries. The average number of
employees during the period was 974 (1 136).
Jukka Nortio was appointed in June as Affecto's Senior Vice President,
Marketing & Communications. Åge Lönning was appointed in September as the
acting managing director of Affecto's Swedish subsidiary. Ray Byman was
appointed in October as the country manager for Finland.
The lower than normal utilization rate was also utilized e.g. for employees'
competence development, both through self-service activities and through the
competence development programme Affecto University.
BUSINESS REVIEW BY AREAS
The group's business is managed through five country units. Finland, Norway,
Sweden, Denmark and Baltic are also the reportable segments. The business in
Nordic countries has mainly developed rather moderately, although the general
economic environment and outlook has remained rather weak.
Finland
In 1-12/2009 net sales in Finland were 45.0 MEUR (46.4 MEUR). Operational
segment result was 5.1 MEUR (6.9 MEUR). Net sales of Operational solutions
increased, but sales of BI and GIS services decreased.
During the early part of the year, customers were postponing decisions, and
after the summer vacations the business activity returned to the normal level
more slowly than usually. The customers' activity level is estimated to have
grown during the late autumn. However, the decision making is still rather
slow. The public sector seems to be active especially regarding ECM solutions.
Examples of the largest customer agreements received in 2009: Affecto will
build an IT system for the Academy of Finland (project value approx. 1.7
MEUR), and Affecto will build the new budgeting system for Finnish State
(project value 1.5 MEUR + maintenance).
The growth of IT services market in Finland is forecast to be 2% in 2010
(Marketvisio's estimate, September 2009). However, Affecto's focus segments
are expected to experience a higher growth in software sales (BI 5%, ECM 6%).
Norway
The net sales in 1-12/2009 were 20.2 MEUR (29.6 MEUR) and operational segment
result was 2.3 MEUR (2.9 MEUR). The decrease in net sales in euro was
significantly impacted by the divestment of Contempus in late 2008 and the
depreciation of the Norwegian krone (NOK) at end of 2008. The BI business in
Norway decreased by only 5% if measured in local currency. Profitability has
been good.
The business has mainly developed steadily, but still weaker than in the
previous year. Sales of consulting work grew during the year despite the
challenging environment, where uncertainty caused customers to slow down their
IT investments. The weak general economy affected the sales of third party
licenses, which remained below targets.
The largest agreement of the year was made with Norwegian government agency
responsible for Labour and Welfare (NAV). Affecto will deliver the data
warehouse and BI solution that will be used for statistics and management of
the data related to the Norwegian pension system. The estimated value of the
agreement is 1.3-1.9 MEUR.
Sweden
In 1-12/2009 the net sales in Sweden were 15,8 MEUR (22.6 MEUR) and
operational segment result 0.9 MEUR (2.9 MEUR). The strong depreciation of the
Swedish krona (SEK) has had a major impact on euro-denominated figures. There
have been no major changes in the business environment during the period, and
the environment has been challenging the whole year. Investment decision
making has slowed down and IT budgets are smaller than earlier. The increased
price pressure has increased uncertainty regarding customer relationships. In
addition, the competition in the tightened in the fragmented market.
The local management in Sweden was changed in September and Åge Lönning was
appointed as the acting country manager. Fredrik Prien has been appointed as
the country manager as of 1.3.2010.
Denmark
The net sales in 1-12/2009 were 11.5 MEUR (10.6 MEUR) and operational segment
result was 0.9 MEUR (1.2 MEUR). Net sales in Denmark grew compared to the last
year, but the profit weakened. The business has developed along the weakened
general economy: the customers' decision making has slowed down and price
pressure has grown. The large BI project for Danish Tax Authority continued.
The Danish market is estimated to have become more active during autumn 2009.
Baltic (Lithuania, Latvia, Estonia, Poland)
The Baltic business mostly consists of projects related to large customer-
specific systems. Projects may be larger and tender processes longer than in
Finland or the other Nordic countries. The business is mostly classified as
Operational solutions, but also includes BI solutions. Public sector entities
in the Baltic countries and insurance companies also outside Baltic area are
significant customer segments.
In 1-12/2009 the Baltic net sales were 12.2 MEUR (24.3 MEUR). Operational
segment result was -2.7 MEUR (3.2 MEUR). The Baltic economies have suffered a
lot from the economic crisis. The IT investments from the public sector have
decreased due to government cost saving programs. The price competition has
increased in the local markets in the Baltic countries.
Affecto published in April a goal to reduce the personnel in Baltic countries
by some 130 employees. The business in Latvia and Poland was to be cut
significantly, and to some extent also in Lithuania. For the costs of the
actions a reserve of 1.7 MEUR was recognized in the first quarter result. The
planned actions were mostly carried out during the second quarter. As one part
of the actions, a part of Latvian business planned to be terminated was
divested to Tieto in June. The total restructuring costs were approx. 1.2 MEUR
and the unused amount of reserve has been reversed.
We estimate that the already taken actions enable profitable business in
Baltic, assuming that the national economies continue at the current or
improved level. GDP forecasts for the Baltic countries still indicate slight
contracting in 2010, although the first positive estimates have already been
published. The development of the local business environment is very
uncertain, and the EU has great importance in financing both public and also
private investments. Estonia's possible entrance to the Euro area at the end
of 2010 may improve the market in Estonia. Also the market for TIA insurance
solutions seems to be recovering.
Review by business lines
Business intelligence (BI) net sales decreased by 14% to 66.8 MEUR (77.6 MEUR)
in 1-12/2009. The weakened general economy has had limited impact on the BI
business so far and the effects been largest in Sweden. There have been
effects also in other countries, but to lesser extent. Slower investment
decisions and smaller IT budgets have led to growing price pressure from
customers. The sales of third party software licenses have been lower than
earlier.
Customers see BI solutions as tools for improving their own efficiency and
controllability, which may maintain the interest to invest in BI solutions
also during periods of weaker economic growth. However, the weakness in
general economy may also affect the BI investments. Gartner has estimated the
BI solutions continue to be one of the key IT investment areas and average
annual global growth of BI and analytics software license markets to exceed 8%
until year 2013. Gartner has also forecast that the Nordic BI/DW services
market would annually grow 6-8% in 2010-2013.
Net sales of Operational Solutions in 1-12/2009 decreased by 39% to 27.2 MEUR
(44.6 MEUR). The net sales in Baltic decreased significantly, as sales
decreased both for the local projects and for insurance sector export
projects. The Norwegian Contempus subsidiary was divested in September 2008,
which has contributed to the decrease. In Finland, the business grew and
especially the demand for ECM solutions was good.
Net sales of the Geographic Information Services business were 10.2 MEUR (11.8
MEUR) in 1-12/2009. The GIS services business developed well. The scope of
offered services has also been widened to include GIS related consulting
services. Net sales were also affected by the focus of travel, tourism and
outdoors customer segments in the map and publishing business. The effects of
the focusing and the streamlining activities done in 2008 led to improving
profitability.
ANNUAL GENERAL MEETING AND GOVERNANCE
The Annual General Meeting of Affecto Plc, which was held on 3 April 2009,
adopted the financial statements for 1.1.-31.12.2008 and discharged the
members of the Board of Directors and the CEO from liability. Approximately 27
percent of Affecto's shares and votes were represented in the Meeting. The
Annual General Meeting decided that a dividend of EUR 0.14 per share be
distributed for the year 2008.
Aaro Cantell, Pyry Lautsuo, Heikki Lehmusto, Esko Rytkönen and Haakon Skaarer
were re-elected as members of the Board of Directors. Immediately after the
Annual General Meeting the organization meeting of the Board of Directors was
held and Aaro Cantell was re-elected Chairman of the Board. The APA firm KPMG
Oy Ab was elected auditor of the company with Reino Tikkanen, APA, as auditor
in charge.
According to the Articles of Association, the General Meeting of Shareholders
annually elects the Board of Directors by a majority decision. The term of
office of the board members expires at the end of the next Annual General
Meeting of Shareholders following their election. The Board appoints the CEO.
The Articles of Association do not contain any special rules for changing the
Articles of Association or for issuing new shares.
THE AUTHORIZATIONS GIVEN TO THE BOARD OF DIRECTORS
The Board did not use the authorizations given by the previous Annual General
Meeting. Those authorizations ended on 3 April 2009.
The complete contents of the new authorizations given by the Annual General
Meeting held on 3 April 2009 have been published in the stock exchange release
regarding the Meetings' decisions. The Board did not use the authorizations.
The Annual General Meeting decided to authorize the Board of Directors to
decide to issue new shares and to convey the company's own shares held by the
company in one or more tranches. The share issue may be carried out as a share
issue against payment or without consideration on terms to be determined by
the Board of Directors and in relation to a share issue against payment at a
price to be determined by the Board of Directors. A maximum of 4 200 000 new
shares may be issued. A maximum of 2 100 000 own shares held by the company
may be conveyed. In addition, the authorization includes the right to decide
on a share issue without consideration to the company itself so that the
amount of own shares held by the company after the share issue is a maximum of
one-tenth (1/10) of all shares in the company. The authorization shall be in
force until the next Annual General Meeting.
The Annual General Meeting decided to authorize the Board of Directors to
decide to acquire the company's own shares with distributable funds. A maximum
of 2 100 000 shares may be acquired. The authorization shall be in force until
the next Annual General Meeting.
SHARES AND TRADING
The company has only one share series, and all shares have similar rights. As
at 31 December 2009, Affecto Plc's share capital consisted of 21 516 468
shares. The company owns 36 738 treasury shares, which corresponds to 0.2% of
all shares.
In 1-12/2009, the highest share price was 2.67 euro, lowest price 1.82 euro,
average price 2.15 euro and closing price 2.22 euro. Trading volume was 10.1
million shares, corresponding to 47% of the number of shares at the end of
period. The market value of shares was 47.7 MEUR at the end of the period.
OPTIONS
During the review period, 306 132 options 2006C, 291 428 options 2008A and
340 000 options 2008B have been given to key personnel.
SHAREHOLDERS
The company had a total of 2283 owners on 31 December 2009 and the foreign
ownership was 22%. The list of the largest owners can be viewed in the
company's web site. Information about ownership structure and option programs
is included as a separate section in the financial statements. The ownership
of board members, CEO and their controlled corporations totaled approx. 9.9%
(9.3% shares and 0.6% options).
ASSESSMENT OF RISKS AND UNCERTAINTIES
The changes in the general economic conditions and the operating environments
of its customers have direct impact in Affecto's markets. The competition in
the markets also tightens continuously. This could have a negative effect on
the business, operating results and financial condition of Affecto.
The general economic downturn may decrease the overall customer demand for
services, increase price pressure from customers and lengthen offer processes
at customers. Also the competitors' eagerness to complain about public
procurement decisions may increase, which may cause delays in projects or
interrupt the project delivery work. The continuing downturn may lead into
decrease in utilization rate of consultants.
The economic downturn may weaken customers' liquidity, also in the public
sector. The risks related to receivables have grown especially in the Baltic
countries.
Affecto's balance sheet includes a material amount of goodwill. Goodwill has
been allocated to cash generating units. Cash generating units, to which
goodwill has been allocated, are tested for impairment both annually and
whenever there is an indication that the unit may be impaired. Potential
impairment losses may have material effect on reported profit and value of
assets.
Affecto's bank loan has covenants based on net debt, result and cash flow.
Breach of covenant may lead to higher financing costs or even the termination
of the loan. Affecto needs to refinance the loan latest in 2012, when the
current loan comes due. It is not certain that a new loan facility can be
received with the same or better conditions than the current loan.
Affecto's success depends also on good customer relationships. Affecto has a
well diversified customer base. Although none of the customers is critically
large for the whole group, there are large customers in various countries who
are significant for local business in the country.
Affecto's order backlog has traditionally been only for a few months, which
decreases the reliability of longer-term forecasts. Slower investment decision
making, postponing or cancellation of customers' IT investments may have
negative impact on Affecto's profitability.
Approx a half of Affecto's business is in Sweden, Norway and Denmark, thus the
development of the currencies of these countries (SEK, NOK and DKK) may have
impact on Affecto's profitability.
Affecto's continued success is very much dependent on its management team and
personnel. The loss of the services of any member of its senior management or
other key employee could have a negative impact on Affecto's business and the
ability of the company to implement its strategy. In addition, Affecto's
success depends on its ability to hire, develop, train, motivate and retain
skilled professionals on its staff.
Affecto sells third party software licenses as part of its solutions. The
license sales have most impact on the last month of each quarter and
especially in the fourth quarter. This increases the fluctuation in sales
between quarters and increases the difficulty of accurately forecasting the
quarters. Affecto had license sales of approx. 8 MEUR in 2009.
The damage risks of Affecto are normally related to personnel, property,
processes and data processing. The realization of these risks might lead to
injuries of personnel, property damages or interruption of business. In the
operations the target of Affecto is to prevent these risks to realize by
quality operations and anticipatory risk management actions. The realization
of such risks is mainly prevented by guidelines for occupational health, work
safety and information security as well as emergency plan. The damage risks,
which cannot be prevented by own actions, are covered with adequate
insurances.
Currently, corporate tax rates in Latvia and Lithuania are below those of
several other member states of the European Union, and therefore Latvia and
Lithuania provide a favorable environment for commercial enterprises.
Furthermore, the income tax regulation of Latvia and Lithuania allow for local
businesses to structure their operations in a cost-efficient way. For example,
certain software development activities are treated as so-called creative
activities, which is cost beneficial for the enterprises. When joining the
European Union on 1 May 2004, Latvia and Lithuania committed to the ongoing
harmonization of the laws and regulations of the member states. At present,
the European Union leaves regulation relating to taxation to the discretion of
its member states. However, there can be no assurances that the European Union
will not impose requirements on its member states to harmonize their taxation
system which, in the case of Latvia and Lithuania, could result in an increase
in corporate tax rates and restrictions on the opportunities of local business
to structure their operations to the extent currently possible. Furthermore,
there can be no assurances that Latvia and Lithuania will not independently
decide to implement tax reforms or that the interpretation of current tax laws
by courts or fiscal authorities will not be changed retroactively with similar
effects. Harmonization imposed by the European Union or domestic tax reforms
or changes in the interpretation of current tax laws by courts or fiscal
authorities in Latvia and Lithuania could have a material adverse effect on
the business, operating results and financial condition of Affecto.
In seeking future growth, the strategy of Affecto is partially based on
expansion through acquisitions of other operators in the IT services market.
The inability to find new target companies or the lower than expected
profitability of acquisitions made, could have a material adverse effect on
the business, operating results and financial condition of Affecto.
The board of directors and the audit committee is responsible for Affecto's
internal control and risk management. Company's management is responsible for
and performs practically the internal control and risk management.
EVENTS AFTER THE REVIEW PERIOD
UB Rahastoyhtiö Oy flagged on 12 January 2010 that its ownership in Affecto
had decreased below 5%. CapMan Public Market fund flagged on 12 January 2010
that its ownership in Affecto had exceeded 10%.
Fredrik Prien was appointed as the country manager for Sweden as of 1 March
2010.
Group Executive Team was modified in February 2010.
DIVIDEND PROPOSAL
Distributable funds of the parent company of the group on 31 December 2009 are
40 293 931.53 euros. Board of Directors proposes that from the financial year
2009 a dividend of 0.06 euros per share will be paid, a total of 1 288 783.80
euros with the outstanding number of shares at the end of the financial
period, and the rest is carried forward to the retained earnings account. No
material changes have taken place in respect of the company's financial
position after the balance sheet date. The liquidity of the company is good
and in the opinion of the Board of Directors proposed distribution of profit
does not risk the liquidity of the company.
FUTURE OUTLOOK
The net sales are estimated to grow in year 2010. The year 2010 will be
clearly profitable and the profitability (EBIT margin) is estimated to improve
during the year. However, the first quarter is estimated to be weak.
The company does not provide exact guidance for net sales or EBIT development,
as single projects and timing of license sales may have large impact on
quarterly sales and profit.
Affecto Plc
Board of Directors
It is possible to order Affecto's stock exchange releases to be delivered
automatically by e-mail. Please visit the Investors section of the company
website: www.affecto.com
A briefing for analysts and media will be arranged at 12:00 at Restaurant
Savoy, Eteläesplanadi 14, Helsinki.
www.affecto.com
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Financial information:
1. Consolidated income statement, consolidated comprehensive income statement,
balance sheet, cash flow statement and statement of changes in shareholders'
equity
2. Notes
3. Key figures
1. Consolidated income statement, consolidated comprehensive income statement,
balance sheet, cash flow statement and statement of changes in shareholders'
equity
CONSOLIDATED INCOME STATEMENT
(1 000 EUR) 10-12/09 10-12/08 2009 2008
Net sales 27 737 32 492 103 006 131 565
Other operating income 11 57 27 902
Changes in inventories of -126 -228 -351 -287
finished goods and work in
progress
Materials and services -6 278 -7 069 -19 775 -25 317
Personnel expenses -14 362 -16 914 -59 660 -69 818
Other operating expenses -4 433 -5 446 -16 983 -20 962
Other depreciation and -338 -349 -1 466 -1 620
amortisation
IFRS3 amortisation -505 -538 -2 081 -2 653
Impairment -94 - -6 304 -
Operating profit/loss 1 613 2 005 -3 587 11 808
Finance costs (net) -228 261 -2 684 -1 341
Profit/loss before income tax 1 385 2 266 -6 271 10 467
Income tax -1 105 -473 -868 -1 963
Profit/loss for the period 280 1 793 -7 139 8 503
Profit/loss for the period
attributable to:
Equity holders of the Company 280 1 793 -7 139 8 503
Earnings per share (EUR per share):
Basic 0,01 0.08 -0,33 0.40
Diluted 0,01 0.08 -0,33 0.40
CONSOLIDATED COMPREHENSIVE
INCOME STATEMENT
(1 000 EUR) 10-12/09 10-12/08 2009 2008
Profit/loss for the period 280 1 793 -7 139 8 503
Other comprehensive income:
Available-for-sale financial - -16 - -16
assets
Translation difference 538 -6 227 5 001 -9 472
Total Comprehensive income for 818 -4 450 -2 138 -985
the period
Total Comprehensive income
attributable to:
Equity holders of the Company 818 -4 450 -2 138 -985
CONSOLIDATED BALANCE SHEET
(1 000 EUR) 12/2009 12/2008
Non-current assets
Property, plant and equipment 2 102 2 715
Goodwill 69 415 72 614
Other intangible assets 9 585 11 093
Deferred tax assets 1 648 2 031
Available-for-sale financial assets 54 54
Derivative financial instruments 11 20
Trade and other receivables 175 220
82 992 88 747
Current assets
Inventories 685 1 148
Trade and other receivables 32 049 32 166
Current income tax receivables 1 047 206
Available-for-sale financial assets - 295
Restricted cash and cash equivalents - 518
Cash and cash equivalents 19 525 23 554
53 306 57 886
Total assets 136 298 146 633
Equity attributable to equity holders
of the Company
Share capital 5 105 5 105
Share premium 25 404 25 404
Reserve of invested non-restricted 21 188 21 188
equity
Other reserves 264 176
Treasury shares -106 -106
Translation differences -5 242 -10 243
Retained earnings 6 955 17 101
Total shareholders' equity 53 568 58 625
Non-current liabilities
Borrowings 36 444 40 424
Derivative financial instruments 252 715
Deferred tax liabilities 3 011 3 388
Trade and other payables 733 803
40 440 45 330
Current liabilities
Borrowings 4 000 3 500
Trade and other payables 37 058 37 556
Current income tax liabilities 487 1 442
Derivative financial instruments 408 179
Provisions 337 -
42 290 42 677
Total liabilities 82 730 88 007
Total shareholders' equity and 136 298 146 633
liabilities
CONSOLIDATED CASH FLOW STATEMENT
(1 000 EUR) 2009 2008
Cash flows from operating activities
Result for the period -7 139 8 503
Adjustments to profit for the period 13 390 7 077
6 251 15 581
Change in working capital 937 4 198
Interest and other finance cost paid -2 160 -2 812
Interest and other finance income received 251 651
Income taxes paid -2 770 -2 968
Net cash generated from operating 2 509 14 651
activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash - -3 925
Purchases of tangible and intangible assets -971 -2 741
Proceeds from sale of tangible and 87 1 665
intangible assets
Sale of business/subsidiaries, net of cash - 8 346
Net cash used in investing activities -884 3 345
Cash flow from financing activities
Repayments of borrowings -3 500 -3 000
Dividends paid to the company's -3 007 -3 437
shareholders
Net cash generated in financing activities -6 507 -6 437
(Decrease)/increase in cash and cash -4 883 11 559
equivalents
Cash and cash equivalents at the beginning 23 554 12 974
of the period
Foreign exchange effect on cash 854 -979
Cash and cash equivalents at the end of the 19 525 23 554
period
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(1 000 EUR) Share Share Reserve Other Trea- Trans- Ret. Total
capitalpremium of reserves sury lat. earn- equity
invested shares diff. ings *
non-
restrict
ed
equity
Shareholders' 5 105 25 404 21 188 176 -106 -10 243 17 101 58 625
equity 1
January 2009
Total 5 001 -7 139 -2 138
comprehensive
income
Share options 88 88
Dividents paid -3 007 -3 007
Shareholders' 5 105 25 404 21 188 264 -106 -5 242 6 955 53 568
equity 31
December 2009
(1 000 EUR) Share Share Reserve Other Trea- Trans- Ret. Total
capitalpremium of reserves sury lat. earn- equity
invested shares diff. ings *
non-
restrict
ed
equity
Shareholders' 5 105 25 404 21 188 108 -106 -771 12 035 62 964
equity 1
January 2008
Total -16 -9 472 8 503 -985
comprehensive
income
Share options 84 84
Dividents paid -3 437 -3 437
Shareholders' 5 105 25 404 21 188 176 -106 -10 243 17 101 58 625
equity 31
December 2008
* Affecto has not had a minority share in 2008 or 2009.
2. Notes
2.1. Basis of preparation
This report has been prepared in accordance with the IFRS recognition and
measurement principles. This report does not comply with all of the
requirements of IAS 34 Interim Financial Reporting. The report should be read
in conjunction with the annual financial statements for the year 2008.
The group has adopted the following new and revised standards starting from 1
January 2009: IFRS 8 Operating Segments and IAS 1 Presentation of Financial
Statements. In other material respects, the same accounting policies have been
applied as in the 2008 annual consolidated financial statements.
2.2. Segment information
Affecto has changed its internal reporting. Since the beginning of 2009
Affecto's reporting segments are based on geographical locations and are
Finland, Norway, Sweden, Denmark and Baltic. Corresponding information for
prior periods disclosed in this report has been restated.
Segment sales and result
(1 000 EUR) 10-12/09 10-12/08 2009 2008
Total sales
Finland 12 435 13 000 45 003 46 432
Norway 5 703 6 081 20 152 29 597
Sweden 4 144 5 372 15 823 22 573
Denmark 2 716 2 687 11 494 10 564
Baltic 3 140 5 914 12 163 24 289
Eliminations -402 -562 -1 628 -1 890
Group total 27 737 32 492 103 006 131 565
Operational segment result
Finland 1 516 2 045 5 096 6 886
Norway 705 305 2 286 2 877
Sweden 113 757 887 2 890
Denmark 342 393 886 1 157
Baltic 190 -223 -2 699 3 151
Other -749 -734 -1 754 -2 500
Total operational segment 2 117 2 543 4 702 14 461
result
IFRS amortisation -504 -538 -2 081 -2 653
Impairment of Goodwill - - -6 207 -
Operating profit/loss 1 613 2 005 -3 587 11 808
The impairment of Goodwill is allocated to assets of Baltic segment.
The operational segment result in Baltic includes 1.2 MEUR restructuring
costs.
Segment assets
(1 000 EUR) 12/2009 12/2008
Finland 40 751 39 806
Norway 23 176 24 027
Sweden 25 126 23 634
Denmark 16 210 14 785
Baltic 8 561 18 091
Total segment assets 113 824 120 343
Unallocated assets 22 474 26 291
Total assets 136 298 146 633
Sales by business lines
(1 000 EUR) 10-12/09 10-12/08 2009 2008
BI 18 019 20 415 66 802 77 584
Operational Solutions 7 404 9 690 27 244 44 613
Geographic Information 2 694 2 983 10 168 11 774
Services
Eliminations -380 -596 -1 207 -2 406
Group total 27 737 32 492 103 006 131 565
2.3. Borrowings
1 000 EUR 31.12.2009 31.12.2008
Interest-bearing non-current liabilities
Loans from financial institutions, non-current 36 444 40 424
portion
Loans from financial institutions, current 4 000 3 500
portion
40 444 43 924
The facility agreement of the group includes financial covenants based on net
debt, result and cash flow. Breach of covenants might lead to an increase in
cost of debt or cancellation of the facility agreement. As at 31 December
2009, the group did not fulfill all the covenants. The group has received a
waiver from the bank already during financial year 2009 regarding the possible
breach of covenants as at 31 December 2009. Due to the waiver, the maturity of
the loan has been presented based on the facility agreement.
2.4. Contingencies and commitments
The future aggregate minimum lease payments under non-cancelable operating
leases:
1 000 EUR 31.12.2009 31.12.2008
Not later than one (1) year 3 013 2 832
Later than one (1) year, but not later than 2 310 3 552
five (5) years
Later than five (5) years - -
Total 5 323 6 384
Guarantees:
1 000 EUR 31.12.2009 31.12.2008
Debt secured by a mortgage
Financial loans 40 500 44 000
The above-mentioned debts are secured by bearer bonds with capital value of
52.5 million euro. The bonds are held by Nordea Pankki Suomi Oyj and secured
by a mortgage on company assets of the group companies. In addition, the
shares in Affecto Finland Oy and Affecto Norway AS have been pledged to secure
the financial loans above.
Other securities given on own behalf: 31.12.2009 31.12.2008
Pledges 241 432
Other guarantees 67 56
Pledges consist of current receivables amounting to 98 TEUR and non-current
receivables 143 TEUR.
2.5. Derivative contracts
1 000 EUR 31.12.2009 31.12.2008
Interest rate swaps:
Nominal value 17 000 34 000
Fair value -659 -894
Interest rate cap:
Nominal value 8 000 8 000
Fair value 11 20
3. Key figures
10-12/09 10-12/08 2009 2008
Net sales, 1 000 eur 27 737 32 492 103 006 131 565
EBITDA, 1 000 eur 2 549 2 892 6 265 16 081
Operational segment result, 2 117 2 543 4 702 14 461
1 000 eur
Operating result, 1 000 eur 1 613 2 005 -3 587 11 808
Result before taxes, 1 000 eur 1 385 2 266 -6 271 10 467
Net income for equity holders of 280 1 793 -7 139 8 503
the parent company,
1 000 eur
EBITDA, % 9.2 % 8.9 % 6.1 % 12.2 %
Operational segment result, % 7.6 % 7.8 % 4.6 % 11.0 %
Operating result, % 5.8 % 6.2 % -3.5 % 9.0 %
Result before taxes, % 5.0 % 7.0 % -6.1 % 8.0 %
Net income for equity holders of 1.0 % 5.5 % -6.9 % 6.5 %
the parent company, %
Equity ratio, % 42.9 % 43.0 % 42.9 % 43.0 %
Net gearing, % 39.1 % 34.7 % 39.1 % 34.7 %
Interest-bearing net debt, 20 919 20 371 20 919 20 371
1 000 eur
Gross investment in non-current 161 1 145 971 2 741
assets (excl. acquisitions),
1 000 eur
Gross investments, % of sales 0.6 % 3.5% 0.9 % 2.1 %
Research and development costs, 181 101 433 1 468
1 000 eur
R&D -costs, % of sales 0.7 % 0.3 % 0.4 % 1.1 %
Order backlog, 1 000 eur 41 108 44 467 41 108 44 467
Average number of employees 918 1 097 974 1 136
Earnings per share, eur 0.01 0.08 -0.33 0.40
Earnings per share (diluted), 0.01 0.08 -0.33 0.40
eur
Equity per share, eur 2.49 2.73 2.49 2.73
Average number of shares, 21 480 21 480 21 480 21 480
1 000 shares
Number of shares at the end of 21 480 21 480 21 480 21 480
period, 1 000 shares
Calculation of key figures
EBITDA = Earnings before interest, taxes,
depreciation, amortization and impairment
Operational segment result = Operating profit before amortisations on
fair value adjustments due to business
combinations (IFRS3) and Goodwill
impairments
Equity ratio, % = Shareholders' equity *100
________________________________
Total assets - advances received
Gearing, % = Interest-bearing liabilities - *100
cash, bank receivables and
securities held as financial asset
__________________________________
Shareholders' equity
Interest-bearing net debt = Interest-bearing liabilities - cash
and bank receivables
Earnings per share (EPS) = Result for the period to equity holders
of the Company
______________________________________
Adjusted average number of shares
during the period
Equity per share = Shareholders' equity
______________________________________
Adjusted number of shares at the end of
the period
Market capitalization = Number of shares at the end of period
(excluding treasury shares) x share
price at closing date
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