AFFECTO PLC INTERIM REPORT 4 AUGUST 2010 at 9.30
AFFECTO PLC'S INTERIM REPORT 1-6/2010
GROUP KEY FIGURES
MEUR 4-6/10 4-6/09 1-6/10 1-6/09 2009
Net sales 28.4 26.2 54.2 53.7 103.0
Operational segment result 0.6 2.0 0.7 1.8 4.7
% of net sales 2.2 7.8 1.3 3.4 4.6
Operating profit/loss 0.1 1.5 -0.3 -5.4 -3.6
% of net sales 0.4 5.7 -0.5 -10.1 -3.5
Profit/loss before taxes -0.3 1.2 -1.4 -7.4 -6.3
Profit/loss for the period -0.1 0.8 -1.1 -7.2 -7.1
Equity ratio, % 44.1 41.7 44.1 41.7 42.9
Net gearing, % 45.5 50.7 45.5 50.7 39.1
Earnings per share, eur -0.01 0.04 -0.05 -0.33 -0.33
Earnings per share (diluted), -0.01 0.04 -0.05 -0.33 -0.33
eur
Equity per share, eur 2.50 2.37 2.50 2.37 2.49
CEO Pekka Eloholma comments:
"Second quarter returned the net sales to growth path. Net sales grew 9%
during the quarter, and grew in all areas except Sweden. We managed to offset
the effects of the low first quarter and thus the total net sales of the first
half-year grew."
"The profitability improved compared to the first quarter, although non-
recurring expenses of 0.6 MEUR related to changes in personnel burdened the
result. Finland, Norway and Denmark were profitable, but we made a loss in
Sweden where development actions are ongoing. Profitability as a whole was not
yet on a satisfactory level, and we seek a clearly better outcome for the
remaining part of the year."
"Affecto's order backlog grew to 45.4 MEUR, which is higher than in Q2/2009
(38.1 MEUR) or Q1/2010 (43.1 MEUR). It is the highest level since Q2/2008. The
improved order backlog and the good level of customer activity strengthen our
belief in continuing improvement in business conditions."
"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."
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.
INTERIM REPORT 1-6/2010
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 1-6/2010 were 54.2 MEUR (1-6/2009: 53.7 MEUR). Net
sales in Finland were 22.8 MEUR (23.2 MEUR), in Norway 12.1 MEUR (10.3 MEUR),
in Sweden 7.6 MEUR (8.3 MEUR), in Denmark 5.9 MEUR (6.2 MEUR) and 7.0 MEUR
(6.9 MEUR) in Baltic.
During the second quarter the net sales increased in all other areas except
Sweden, and the effects of the weak first quarter were offset. For the whole
six months, net sales increased in Norway, were about flat on Finland and
Baltic and decreased somewhat in Sweden and Denmark.
In the Nordic countries the business developed normally during the second
quarter, and the market situation improved along the developments in the
general economy. The Nordic BI market strengthened during the period.
The economic situation in the Baltic countries is stabilizing after the crash
year 2009. The weakening of the Baltic economies combined with public sector's
cost saving programs has clearly decreased the demand for IT services, and the
local IT market has not yet recovered.
Net sales by reportable segments
Net sales, MEUR 4-6/10 4-6/09 1-6/10 1-6/09 2009
Finland 11.8 11.4 22.8 23.2 45.0
Norway 6.2 5.1 12.1 10.3 20.2
Sweden 4.1 4.2 7.6 8.3 15.8
Denmark 3.2 3.0 5.9 6.2 11.5
Baltic 3.8 3.0 7.0 6.9 12.2
Eliminations -0.8 -0.6 -1.3 -1.2 -1.6
Group total 28.4 26.2 54.2 53.7 103.0
Net sales of Information Management Solutions business (previously BI and
Operational solutions) in 1-6/2010 were 48.9 MEUR (49.5 MEUR) and net sales of
Geographic Information Services were 5.5 MEUR (4.9 MEUR).
PROFIT
Affecto's EBIT in 1-6/2010 was -0.3 MEUR (-5.4 MEUR) and the operational
segment result was 0.7 MEUR (1.8 MEUR). Operational segment result was in
Finland 1.6 MEUR (3.0 MEUR), in Norway 0.8 MEUR (1.1 MEUR), in Sweden -0.5
MEUR (0.7 MEUR), in Denmark 0.4 MEUR (0.5 MEUR) and in Baltic -0.1 MEUR (-2.6
MEUR).
The businesses in Finland, Norway and Denmark made profit, but profitability
was not satisfactory enough. Resource utilization was not quite optimal, which
lowered profitability. Some ongoing projects progressed slower than planned,
which had negative impact on net sales and profitability. Business in Sweden
remained loss-making.
The second quarter EBIT includes an approx. 0.6 MEUR non-recurring expense
related to some changes in personnel. The EBIT of the comparison period
Q2/2009 included +0.3 MEUR effect from reversal of the Baltic restructuring
provision.
Operational segment result by reportable segments
Operational segment 4-6/10 4-6/09 1-6/10 1-6/09 2009
result, MEUR
Finland 1.0 1.3 1.6 3.0 5.1
Norway 0.3 0.3 0.8 1.1 2.3
Sweden -0.2 0.4 -0.5 0.7 0.9
Denmark 0.3 0.2 0.4 0.5 0.9
Baltic -0.0 0.1 -0.1 -2.6 -2.7
Other -0.8 -0.3 -1.4 -0.8 -1.8
Operational segment result 0.6 2.0 0.7 1.8 4.7
IFRS3 Amortization -0.5 -0.5 -1.0 -1.0 -2.1
Impairment of Goodwill - - - -6.2 -6.2
Operating profit/loss 0.1 1.5 -0.3 -5.4 -3.6
According to IFRS3 requirements, 1-6/2010 EBIT includes 1.0 MEUR (1.0 MEUR) of
amortization of intangible assets related to acquisitions. In year 2010 the
IFRS3 amortization is estimated to total 1.9 MEUR and in 2011 approx. 1.9
MEUR.
R&D costs 1-6/2010 totaled 0.5 MEUR (0.1 MEUR), i.e. 1.0% of net sales (0.3%).
The costs have been recognized as an expense in the income statement.
Taxes corresponding to the result for the review period have been entered as
tax expense. Net profit for the period was -1.1 MEUR, while it was -7.2 MEUR
last year.
The order backlog was approx. 45 MEUR at the end of the period, which is 2
MEUR higher than the previous quarter's backlog of 43 MEUR. 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 131.2 MEUR
(12/2009: 136.3 MEUR). Equity ratio was 44.1% (12/2009: 42.9%) and net gearing
was 45.5% (12/2009: 39.1%). Translation differences have increased the
consolidated equity by 2.4 MEUR during 1-6/2010 due to the strengthening of
the Norwegian and Swedish currencies.
The financial loans were 38.5 MEUR (12/2009: 40.4 MEUR) at the end of
reporting period. The company's cash and liquid assets were 14.0 MEUR
(12/2009: 19.5 MEUR). The interest-bearing net debt was 24.4 MEUR (12/2009:
20.9 MEUR). Affecto's bank loan has covenants based on net debt, result and
cash flow. In June Affecto agreed with the bank about changes to the covenants
for the period of year 2010 and fulfilled the changed covenants on 30 June
2010.
Cash flow from operating activities for the reported period was -2.2 MEUR (-
2.2 MEUR) and cash flow from investments was -0.5 MEUR (-0.5 MEUR).
Investments in non-current assets excluding acquisitions were 0.6 MEUR (0.6
MEUR).
Based on decision by the Annual General Meeting held on 25 March 2010, Affecto
has distributed dividends of 1.3 MEUR (previous year 3.0 MEUR). Dividend was
paid on 13 April 2010.
EMPLOYEES
The number of employees was 907 persons at the end of the reporting period
(944). 381 employees were based in Finland, 118 in Norway, 96 in Sweden, 54 in
Denmark and 258 in the Baltic countries. The average number of employees
during the period was 909 (1023).
Fredrik Prien was appointed as the country manager in Sweden and he started in
March. Member of the executive management team, COO Åge Lönning left the
company at the end of April. The Nordic country managers and the Baltic area
manager joined the management team. The executive team comprises now Pekka
Eloholma, Satu Kankare, Jukka Nortio, Hilkka Remes-Hyvärinen, Stig-Göran
Sandberg, Ray Byman, Håvard Ellefsen, Claus Kruse, Rene Lykkeskov and Fredrik
Prien.
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.
Finland
In 4-6/2010 net sales in Finland were 11.8 MEUR (11.4 MEUR). Operational
segment result was 1.0 MEUR (1.3 MEUR). The business developed rather
uneventfully ja net sales grew by 4% compared to previous year. The profit was
below last year, mostly due to the ECM solutions business area. During the
period new orders were received e.g. from VR, DNA, Neste Oil and Bank of
Finland.
The growth of IT services market in Finland is forecast to be approx. 2% in
2010 (Marketvisio's estimate, April 2010). However, Affecto's focus segments
are expected to experience a higher growth in software sales (BI 7%, ECM 6%).
Norway
The net sales in 4-6/2010 were 6.2 MEUR (5.1 MEUR) and operational segment
result was 0.3 MEUR (0.3 MEUR). The business developed rather well in Norway
and grew by 23%. The growth in Euros was helped by the strengthening of the
Norwegian krone (NOK), but also the organic growth was good. The business
conditions in Norway have continued to develop positively. Due to expected
growth in demand, the company has been active in hiring new employees, which
has lowered profitability. New contracts were received e.g. from Santander,
Statoil and Telenor.
Sweden
In 4-6/2010 the net sales in Sweden were 4.1 MEUR (4.2 MEUR) and operational
segment result -0.2 MEUR (0.4 MEUR). Fredrik Prien started as the new country
manager in March and the local organization has been under development.
Especially the sales organization is being strengthened. The business was loss-
making e.g. due to changes in personnel, and is estimated to continue at loss
in the second half of the year.
Denmark
The net sales in 4-6/2010 were 3.2 MEUR (3.0 MEUR) and operational segment
result was 0.3 MEUR (0.2 MEUR). In Denmark, the net sales grew by 6% and the
profitability remained at last year's level. The customers' activity remained
on a good level and the market is expected to continue developing positively.
New orders were received e.g. from Novo Nordisk, SDC and VKR.
Baltic (Lithuania, Latvia, Estonia, Poland)
The Baltic business mostly consists of projects related to large customer-
specific systems. Public sector entities in the Baltic countries and insurance
companies also outside Baltic area are significant customer segments.
In 4-6/2010 the Baltic net sales were 3.8 MEUR (3.0 MEUR). Operational segment
result was -0.0 MEUR (0.1 MEUR). The growth of 26% is to some extent caused by
some relatively large license deals. The local IT market in the Baltic
countries has not recovered much from the effects of the financial crisis,
yet. The price competition is tight. The IT investments from the public sector
have decreased due to government cost saving programs. The development of the
local business environment is uncertain, and the EU has great importance in
financing both public and also private investments. GDP is estimated to
slightly grow in most of the Baltic countries in 2010.
During the period an agreement was signed with Mutual & Federal Insurance
Company of South Africa for the implementation of next phase of their TIA ERP.
The customer is going to order the project in phases. The size of the current
first phase is estimated to be approx. 2 million euro and the estimated
duration is slightly over one year.
Some new projects were received during the period, mostly from public sector
entities, including Estonian Ministry of Justice and Lithuanian Environmental
Protection Agency.
Review by business lines
Information management solutions business contains the previously separately
reported Business intelligence (BI) and Operational Solutions businesses.
Reporting was changed in 2010 to match the current management model. The net
sales of Information management solutions in 4-6/2010 were 25.6 MEUR (24.2
MEUR). The business developed steadily during the period.
The demand for Business intelligence (BI) solutions develops along the general
economy. Customers' general activity level has improved and they are
restarting investments put on hold last year. 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.
The demand for ECM solutions in Finland was good, but some of the ongoing
projects progressed slowly and lowered profitability. The net sales in Baltic
increased clearly, as the business is recovering from the crisis in the
previous year.
Net sales of the Geographic Information Services business in 4-6/2010 were 3.0
MEUR (2.6 MEUR). The GIS services business continued to develop favorably. The
order intake grew and the demand for GIS solutions seems to have grown. The
customers are also interested in consulting services related to e.g.
developing GIS strategies.
ANNUAL GENERAL MEETING AND GOVERNANCE
The Annual General Meeting of Affecto Plc, which was held on 25 March 2010,
adopted the financial statements for 1.1.-31.12.2009 and discharged the
members of the Board of Directors and the CEO from liability. Approximately 49
percent of Affecto's shares and votes were represented in the Meeting. The
Annual General Meeting decided that a dividend of EUR 0.06 per share will be
distributed for the year 2009.
In addition, the Meeting decided to amend Section "9 Notice of Meeting" of the
Articles of Association, and decided to lower the share premium reserve of the
parent company Affecto Plc by transferring the entire capital into the reserve
of invested unrestricted equity.
Aaro Cantell, Pyry Lautsuo, Heikki Lehmusto, Esko Rytkönen and Haakon Skaarer
were re-elected as members of the Board of Directors, and Jukka Ruuska was
elected as a new member. 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 and Jukka Ruuska as Vice-Chairman. The APA
firm KPMG Oy Ab was elected auditor of the company.
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 25 March 2010.
The complete contents of the new authorizations given by the Annual General
Meeting held on 25 March 2010 have been published in the stock exchange
release regarding the Meetings' decisions.
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 Board did not use the
authorization by the end of the review period.
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. Based on the authorization the company has
acquired 26 474 own shares by 30 June 2010.
SHARES AND TRADING
The company has only one share series, and all shares have similar rights. As
at 30 June 2010, Affecto Plc's share capital consisted of 21 516 468 shares
including treasury shares and the shares owned by Affecto Management Oy. The
company owns 63 212 treasury shares, excluding the shares owned by Affecto
Management Oy, which corresponds to 0.3% of all shares.
In 1-6/2010, the highest share price was 2.70 euro, lowest price 2.02 euro,
average price 2.41 euro and closing price 2.31 euro. Trading volume was 5.15
million shares, corresponding to 48% (annualized) of the number of shares at
the end of period. The market value of shares was 49.6 MEUR at the end of the
period excluding the treasury shares.
SHAREHOLDERS
The company had a total of 2131 owners on 30 June 2010 and the foreign
ownership was 34%. 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. 10.3%
(9.7% shares and 0.6% options).
SHARE BASED INCENTIVE PLANS
The Board of Directors of Affecto decided in June to establish a new share-
based incentive plan, when the company's management invests in Affecto shares
through Affecto Management Oy, owned by the management. The purpose of the
plan is to commit the Participants to the Company by encouraging them to
acquire and hold the Company's shares, and this way increase the Company's
shareholder value in the long run. The number of shares to be acquired is a
maximum total of 870 000 shares. Affecto Management Oy will finance the
acquisition by the managers' own capital investments and by a max. 1.6 MEUR
interest-bearing loan provided by Affecto. The plan will be valid until the
announcement of the Affecto's Q3/2013 interim report. By 30 June 2010, Affecto
Management Oy has acquired 86 844 shares. Affecto Management Oy has been
consolidated to the group balance sheet.
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 remained high 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.
Approximately 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.
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.
EVENTS AFTER THE REVIEW PERIOD
The decision of the Annual General Meeting on 25 March 2010 to lower the share
premium reserve was implemented on 27 July 2010 by transferring the entire
capital into the reserve of invested unrestricted equity.
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.
As a normal seasonality effect, the summer vacations will weaken the net sales
and the profitability in the third quarter.
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 11.30 at Restaurant
Savoy, Eteläesplanadi 14, Helsinki.
www.affecto.com
-----
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) 4-6/10 4-6/09 1-6/10 1-6/09 2009
Net sales 28 423 26 174 54 155 53 700 103 006
Other operating income 0 10 14 15 27
Changes in inventories of -98 -81 -47 -89 -351
finished goods and work in
progress
Materials and services -5 978 -4 657 -10 462 -9 389 -19 775
Personnel expenses -16 946 -14 940 -33 696 -32 582 -59 660
Other operating expenses -4 440 -4 093 -8 570 -9 055 -16 983
Other depreciation and -341 -382 -694 -768 -1 466
amortisation
IFRS3 amortisation -499 -527 -990 -1 044 -2 081
Impairment - - - -6 208 -6 304
Operating profit/loss 122 1 504 -290 -5 421 -3 587
Finance costs (net) -398 -285 -1 062 -2 005 -2 684
Profit/loss before income tax -276 1 219 -1 352 -7 425 -6 271
Income tax 161 -374 295 257 -868
Profit/loss for the period -115 845 -1 057 -7 168 -7 139
Profit/loss for the period
attributable to:
Equity holders of the Company -114 845 -1 056 -7 168 -7 139
Minority interest -1 - -1 - -
Earnings per share
(EUR per share):
Basic -0.01 0.04 -0.05 -0.33 -0.33
Diluted -0.01 0.04 -0.05 -0.33 -0.33
CONSOLIDATED COMPREHENSIVE
INCOME STATEMENT
(1 000 EUR) 4-6/10 4-6/09 1-6/10 1-6/09 2009
Profit/loss for the period -115 845 -1 057 -7 168 -7 139
Other comprehensive income:
Translation difference 541 291 2 393 2 305 5 001
Total Comprehensive income for 426 1 136 1 336 -4 863 -2 138
the period
Total Comprehensive income
attributable to:
Equity holders of the Company 427 1 136 1 337 -4 863 -2 138
Minority interest -1 - -1 - -
CONSOLIDATED BALANCE SHEET
(1 000 EUR) 6/2010 6/2009 12/2009
Non-current assets
Property, plant and equipment 2 016 2 503 2 102
Goodwill 71 340 67 413 69 415
Other intangible assets 8 931 10 269 9 585
Deferred tax assets 1 994 2 260 1 648
Available-for-sale financial assets 19 54 54
Derivative financial instruments - 16 11
Trade and other receivables 116 162 175
84 416 82 677 82 992
Current assets
Inventories 634 1 034 685
Trade and other receivables 30 994 28 318 32 049
Current income tax receivables 1 145 1 069 1 047
Available-for-sale financial assets - 92 -
Restricted cash and cash equivalents - 325 -
Cash and cash equivalents 14 021 16 660 19 525
46 794 47 499 53 306
Total assets 131 210 130 176 136 298
Equity attributable to equity holders
of the Company
Share capital 5 105 5 105 5 105
Share premium 25 404 25 404 25 404
Reserve of invested non-restricted 21 188 21 188 21 188
equity
Other reserves 346 243 264
Treasury shares -365 -106 -106
Translation differences -2 849 -7 938 -5 242
Retained earnings 4 611 6 926 6 955
53 439 50 822 53 568
Minority interest 204 - -
Total shareholders' equity 53 643 50 822 53 568
Non-current liabilities
Borrowings 34 453 38 434 36 444
Derivative financial instruments 973 852 252
Deferred tax liabilities 2 875 3 082 3 011
Trade and other payables 786 629 733
39 086 42 997 40 440
Current liabilities
Borrowings 4 000 4 000 4 000
Trade and other payables 33 308 30 551 37 058
Current income tax liabilities 875 1 184 487
Derivative financial instruments - 177 408
Provisions 298 446 337
38 481 36 358 42 290
Total liabilities 77 567 79 354 82 730
Total shareholders' equity and 131 210 130 176 136 298
liabilities
CONSOLIDATED CASH FLOW STATEMENT
(1 000 EUR) 1-6/2010 1-6/2009 2009
Cash flows from operating activities
Result for the period -1 057 -7 168 -7 139
Adjustments to profit for the period 2 548 10 142 13 390
1 491 2 975 6 251
Change in working capital -2 932 -2 770 937
Interest and other finance cost paid -774 -1 170 -2 160
Interest and other finance income received 67 223 251
Income taxes paid -20 -1 420 -2 770
Net cash generated from operating -2 168 -2 163 2 509
activities
Cash flows from investing activities
Purchases of tangible and intangible assets -586 -623 -971
Proceeds from sale of tangible and 6 77 87
intangible assets
Proceeds from sale of Available-for-sale 41 - -
financial assets
Net cash used in investing activities -539 -546 -884
Cash flow from financing activities
Share issue of Affecto Management Oy* 203 - -
Repayments of borrowings -2 000 -1 500 -3 500
Purchase of treasury shares** -83 - -
Dividends paid to the company's -1 289 -3 007 -3 007
shareholders
Net cash generated in financing activities -3 169 -4 507 -6 507
(Decrease)/increase in cash and cash -5 876 -7 216 -4 883
equivalents
Cash and cash equivalents at the beginning 19 525 23 554 23 554
of the period
Foreign exchange effect on cash 372 322 854
Cash and cash equivalents at the end of the 14 021 16 660 19 525
period
* Affecto Group management's investment to incentive arrangement
** Includes shares in Affecto Plc acquired by Affecto Management Oy.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Equity attributable to equity holders of the
Company
(1 000 EUR) Share Share ReserveOther Trea- Trans- Ret. Minor Total
capi- premium of reserv sury lat. earn- ity equity
tal investe es shares diff. ings inter
d non- est
restric
ted
equity
Shareholders' 5 105 25 404 21 188 264 -106 -5 242 6 955 - 53 568
equity 1
January 2010
Total compre- 2 393 -1 056 -1 1 336
hensive
income
Share options 82 82
Purchase of -60 -60
treasury
shares
Dividends -1 289 -1 289
paid
Management -199 205 6
incentive
plan*
Shareholders' 5 105 25 404 21 188 346 -365 -2 849 4 611 204 53 643
equity 30
June 2010
Equity attributable to equity holders of the
Company
(1 000 EUR) Share Share Reserv Other Trea- Trans- Ret. Minor Total
capi- premium e of reserv sury lat. earn- ity equity
tal invest es shares diff. ings inter
ed non- est
restri
cted
equity
Shareholders' 5 105 25 404 21 188 176 -106 -10 243 17 101 - 58 625
equity 1
January 2009
Total compre- 2 305 -7 168 -4 863
hensive
income
Share options 66 66
Dividends -3 007 -3 007
paid
Shareholders' 5 105 25 404 21 188 243 -106 -7 938 6 926 - 50 822
equity 30
June 2009
* Group management's incentive plan (Affecto Management Oy).
2. Notes
2.1. Basis of preparation
This condensed interim financial information has been prepared in accordance
with IAS 34, Interim financial reporting. The condensed interim financial
report should be read in conjunction with the annual financial statements for
the year ended 31 December 2009.
The group has adopted the following new and revised standards starting from 1
January 2010: Revised IFRS 3 Business Combinations and amended IAS 27
Consolidated and Separate Financial Statements. In other material respects,
the same accounting policies have been applied as in the 2009 annual
consolidated financial statements.
2.2. Segment information
Affecto's reporting segments are based on geographical locations and are
Finland, Norway, Sweden, Denmark and Baltic.
Segment sales and result
(1 000 EUR) 4-6/10 4-6/09 1-6/10 1-6/09 2009
Total sales
Finland 11 840 11 411 22 824 23 167 45 003
Norway 6 217 5 075 12 129 10 331 20 152
Sweden 4 069 4 198 7 617 8 281 15 823
Denmark 3 217 3 028 5 891 6 203 11 494
Baltic 3 833 3 038 6 969 6 874 12 163
Eliminations -753 -576 -1 275 -1 156 -1 628
Group total 28 423 26 174 54 155 53 700 103 006
Operational segment result
Finland 1 035 1 323 1 585 3 005 5 096
Norway 344 298 769 1 061 2 286
Sweden -183 384 -549 697 887
Denmark 268 243 430 518 886
Baltic -8 76 -109 -2 623 -2 699
Other -836 -291 -1 425 -828 -1 754
Total operational segment 620 2 031 700 1 830 4 702
result
IFRS amortisation -499 -527 -990 -1 043 -2 081
Impairment of Goodwill - - - -6 207 -6 207
Operating profit/loss 122 1 504 -290 -5 421 -3 587
The impairment of Goodwill in 2009 was allocated to the assets of Baltic
segment. The operational segment result of Baltic segment for period 1-6/2009
included a restructuring provision amounting to 1.4 MEUR. The result for year
2009 included 1.2 MEUR realized restructuring costs.
Business Intelligence and Operation Solutions business lines, previously
reported as separate business lines, have been combined to a Information
Management Solutions business line in the beginning of year 2010. Updated
reportable business lines are in line with the current management model of
Affecto Group.
Sales by business lines
(1 000 EUR) 4-6/10 4-6/09 1-6/10 1-6/09 2009
Information Management Solutions 25 578 24 190 48 913 49 458 93 147
Geographic Information Services 2 967 2 615 5 465 4 940 10 168
Eliminations -122 -631 -222 -699 -308
Group total 28 423 26 174 54 155 53 700 103 006
2.3. Changes in intangible and tangible assets
(1 000 EUR) 1-6/10 1-6/09 1-12/09
Carrying amount at the beginning of period 81 104 86 422 86 422
Additions 589 623 971
Disposals -1 -113 -156
Impairments - -6 208 -6 304
Depreciation and amortization for the period -1 687 -1 810 -3 548
Exchange rate differences 2 283 1 271 3 716
Carrying amount at the end of period 82 286 80 185 81 102
2.4. Share capital, share premium, reserve of invested non-restricted equity
and treasury shares
(1 000 EUR) Number of Share Share Reserve of Treasury
shares capital premium invested shares
outstanding non-
restricted
equity
1 January 2009 21 479 730 5 105 25 404 21 188 -106
30 June 2009 21 479 730 5 105 25 404 21 188 -106
1 January 2010 21 479 730 5 105 25 404 21 188 -106
Purchase of treasury -113 318 - - - -259
shares
30 June 2010 21 366 412 5 105 25 404 21 188 -365
At the end of reporting period Affecto Plc owned 63 212 treasury shares. In
addition to that Affeto Management Oy, included in consolidated accounts,
owned 86 844 shares in Affecto Plc. The amount of registered shares was 21 516
468 shares.
2.5. Interest-bearing liabilities
1 000 EUR 30.6.2010 31.12.2009
Interest-bearing non-current liabilities
Loans from financial institutions, non-current 34 453 36 444
portion
Loans from financial institutions, current 4 000 4 000
portion
38 453 40 444
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. In June Affecto agreed
with the bank about changes to the covenants for the period of year 2010 and
fulfilled the changed covenants on 30 June 2010. Based on this, the maturity
of the loan has been reported based on the facility agreement.
2.6. Earnings per share
Calculation of earnings per share and diluted earnings per share is based on
the figures below.
4-6/10 4-6/09 1-6/10 1-6/09 1-12/09
Profit attributable to equity holders -114 845 -1 056 -7 168 -7 139
of the company (1 000 EUR)
Weighted average number of shares
(1 000):
In calculation of earnings per share 21 472 21 480 21 476 21 480 21 480
Dilution effect of share options 0 0 0 0 0
In calculation of diluted earnings 21 472 21 480 21 476 21 480 21 480
per share
Earnings per share (EUR per share)
Basic -0.01 0.04 -0.05 -0.33 -0.33
Diluted -0.01 0.04 -0.05 -0.33 -0.33
2.7. Contingencies and commitments
The future aggregate minimum lease payments under non-cancelable operating
leases:
1 000 EUR 30.6.2010 31.12.2009
Not later than one (1) year 2 927 3 013
Later than one (1) year, but not later than 2 025 2 310
five (5) years
Total 4 952 5 323
Guarantees:
1 000 EUR 30.6.2010 31.12.2009
Debt secured by a mortgage
Financial loans 38 500 40 500
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: 30.6.2010 31.12.2009
Pledges 69 241
Other guarantees 1 378 67
Pledges consist of current receivables.
Other guarantees are mostly securities issued for customer projects. These
guarantees include both bank guarantees secured by parent company of the group
and guarantees issued by the parent company directly to the customer.
2.8. Derivative contracts
1 000 EUR 30.6.2010 31.12.2009
Interest rate swaps:
Nominal value 20 250 17 000
Fair value -973 -659
Interest rate cap:
Nominal value - 8 000
Fair value - 11
2.9. Related party transactions
Key management compensation and remunerations to the board of directors
(1 000 EUR) 1-6/10 1-6/09 1-12/09
Salaries and other short-term employee 1 506 1 463 2 407
benefits
Post-employment benefits 220 156 364
Termination benefits 604 - 47
Share-based payments 23 23 34
Total 2 353 1 642 2 852
3. Key figures
4-6/10 4-6/09 1-6/10 1-6/09 2009
Net sales, 1 000 eur 28 423 26 174 54 155 53 700 103 006
EBITDA, 1 000 eur 962 2 413 1 394 2 599 6 265
Operational segment result, 621 2 031 700 1 830 4 702
1 000 eur
Operating result, 1 000 eur 122 1 504 -290 -5 421 -3 587
Result before taxes, 1 000 eur -276 1 219 -1 352 -7 425 -6 271
Net income for equity holders of -114 845 -1 056 -7 168 -7 139
the parent company,
1 000 eur
EBITDA, % 3.4 % 9.2 % 2.6 % 4.8 % 6.1 %
Operational segment result, % 2.2 % 7.8 % 1.3 % 3.4 % 4.6 %
Operating result, % 0.4 % 5.7 % -0.5 % -10.1 % -3.5 %
Result before taxes, % -1.0 % 4.7 % -2.5 % -13.8 % -6.1 %
Net income for equity holders of -0.4 % 3.2 % -1.9 % -13.3 % -6.9 %
the parent company, %
Equity ratio, % 44.1 % 41.7 % 44.1 % 41.7 % 42.9 %
Net gearing, % 45.5 % 50.7 % 45.5 % 50.7 % 39.1 %
Interest-bearing net debt, 24 432 25 774 24 432 25 774 20 919
1 000 eur
Gross investment in non-current 236 233 586 623 971
assets (excl. acquisitions),
1 000 eur
Gross investments, % of sales 0.8 % 0.9 % 1.1 % 1.2 % 0.9 %
Research and development costs, 273 58 537 134 433
1 000 eur
R&D -costs, % of sales 1.0 % 0.2 % 1.0 % 0.3 % 0.4 %
Order backlog, 1 000 eur 45 422 38 090 45 422 38 090 41 108
Average number of employees 906 989 909 1 023 974
Earnings per share, eur -0.01 0.04 -0.05 -0.33 -0.33
Earnings per share (diluted), eur -0.01 0.04 -0.05 -0.33 -0.33
Equity per share, eur 2.50 2.37 2.50 2.37 2.49
Average number of shares, 21 472 21 480 21 476 21 480 21 480
1 000 shares
Number of shares at the end of 21 366 21 480 21 366 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
-----
