2009-02-12 09:30:00 CET
2009-02-12 09:30:02 CET
REGULATED INFORMATION
Affecto Oyj - Financial Statement Release
AFFECTO PLC'S FINANCIAL STATEMENTS BULLETIN 2008
AFFECTO PLC STOCK EXCHANGE RELEASE 12 FEBRUARY 2009 at 10.30
AFFECTO PLC'S FINANCIAL STATEMENTS BULLETIN 2008
GROUP KEY FIGURES
MEUR 10-12/08 10-12/07 2008 2007
Net sales 32.5 37.9 131.6 97.5
Operating result before 2.5 4.9 14.5 13.3
IFRS3 amortization
% of net sales 7.8 13.0 11.0 13.6
Operating result 2.0 3.6 11.8 10.8
% of net sales 6.2 9.6 9.0 11.0
Result before taxes 2.3 3.1 10.5 9.5
Result for the period 1.8 2.2 8.5 7.0
Equity ratio, % 43.0 41.9 43.0 41.9
Net gearing, % 34.7 53.9 34.7 53.9
Earnings per share, eur 0.08 0.10 0.40 0.38
Earnings per share 0.08 0.10 0.40
(diluted), eur 0.38
Equity per share, eur 2.73 2.93 2.73 2.93
Dividend proposal, eur 0.14 0.16
CEO Pekka Eloholma comments:"Year 2008 was good for Affecto. Both net sales, operating profit and earnings
per share are the best in company's history. In addition, our equity ratio
improved and net debt decreased substantially. We improved our business focus
by divesting the non-core subsidiary Contempus.""Net sales grew by 35% to 132 MEUR (97 MEUR) in 2008,partially as a result of
the Component Software acquisition in 2007. Organic growth was approx. 6%.
Operating profit rose to 11.8 MEUR (10.8 MEUR).""The order backlog was approx. 44 MEUR at the end of the year. The order
backlog grew compared to the year ago situation (42 MEUR) despite the
divestment of Contempus.""The fourth quarter net sales were 32.5 MEUR (37.9 MEUR). Operating result was
2.0 MEUR (3.6 MEUR) and was 6% of net sales. Profitability was good especially
in Finland, where the business grew organically by 11%. The quarter was
characterized by the weakening general economy, which affected especially the
Baltic area, where the result was negative. In addition, the strong
devaluation of the Norwegian and Swedish currencies (NOK, SEK) at the year-end
clearly affected the results in euros.""The weakened economic environment makes reliable forecasting more difficult.
Due to the Contempus divestment and the weakened general economy, the net
sales in year 2009 are expected to remain below the level in 2008. The
profitability (EBIT margin) of the whole year 2009 is expected to be below the
profitability in 2008."
Additional information:
CEO Pekka Eloholma, +358 205 777 737
CFO Satu Kankare, +358 205 777 202
SVP, M&A, Hannu Nyman, +358 205 777 761
This report is unaudited. The amounts in this report have been rounded from
exact numbers.
BUSINESS DEVELOPMENT DURING 10-12/2008
Affecto's net sales in 10-12/2008 were 32.5 MEUR (10-12/2007: 37.9 MEUR). Net
sales in Finland were 12.9 MEUR (11.6 MEUR), in Baltic area 5.8 MEUR (7.5
MEUR), 5.3 MEUR in Sweden (6.9 MEUR) and 8.5 MEUR (11.9 MEUR) in Norway &
Denmark. Net sales decreased by 14% due to weak development in Baltic and
Sweden, the currency rates and also the divestment of Contempus. The organic
decrease in sales was approx. 8%, but only -4% when assessed using fixed
currency rates. In local currencies, the business grew 11% in Finland, 5% in
Denmark and 1% in Norway.
The quarter was impacted by the weakening general economy, which affected
especially Baltic area. In addition, the strong devaluation of the Norwegian
and Swedish currencies (NOK, SEK) at the year-end clearly lowered the results
in euros.
Economic situation has weakened rapidly in the Baltic countries, which has
negatively affected Affecto's business.
Sales by geographical segments based on location of assets
Net sales, MEUR 10-12/08 10-12/07 2008 2007
Finland 12.9 11.6 46.2 41.7
Baltic 5.8 7.5 23.6 22.9
Sweden 5.3 6.9 22.3 17.7
Norway & Denmark 8.5 11.9 39.5 15.2
Eliminations - - - -
Group total 32.5 37.9 131.6 97.5
Net sales of BI segment in 10-12/2008 were 19.9 MEUR (21.7 MEUR), Operational
Solutions 9.5 MEUR (13.9 MEUR) and Geographic Information Services 3.1 MEUR
(2.3 MEUR). The Contempus divestment done in September 2008 has decreased
sales in the Operational solutions. The BI segment has experienced organic
growth in all markets except Sweden, where mostly the local capacity
restraints prevented growth.
Affecto's EBIT in 10-12/2008 was 2.0 MEUR (3.6 MEUR). EBIT in Finland was 2.0
MEUR (1.3 MEUR), Baltic EBIT was -0.2 MEUR (1.5 MEUR), EBIT in Sweden was 0.5
MEUR (0.3 MEUR) and EBIT in Norway & Denmark was 0.5 MEUR (1.0 MEUR).
Operating result by geographical segments based on location of assets
Operating result, MEUR 10-12/08 10-12/07 2008 2007
Finland 2.0 1.3 6.6 4.4
Baltic -0.2 1.5 3.1 5.4
Sweden 0.5 0.3 1.8 1.5
Norway & Denmark 0.5 1.0 2.9 1.2
Group management -0.7 -0.6 -2.5 -1.7
Group total 2.0 3.6 11.8 10.8
According to IFRS3 requirements, 10-12/2008 EBIT includes 0.5 MEUR (1.3 MEUR)
of amortization of intangible assets related to acquisitions. A significant
part of the amortization is related to Sweden and Norway & Denmark segments.
The net sales and profitability in Finland was excellent. Also in Sweden and
Norway & Denmark the profitability remained at a good level. The profitability
in Baltic weakened clearly in fourth quarter. In addition to the general
economy, the change of the Baltic management and moving to the new Vilnius
office premises caused approx. 0.2 MEUR non-recurring costs in Q4.
The fluctuation in financial costs between quarters 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. As the interest rates decreased in Q1,
rose in Q2 and decreased in Q3 and Q4, the change had a 0.2 MEUR cost impact
in Q1, 0.6 MEUR profit in Q2, 0.3 MEUR loss in Q3 and 0.9 MEUR loss in Q4,
i.e. net impact on profit before taxes was -0.9 MEUR in period 1-12/2008. In
addition, due to intra-group loans the fourth quarter result includes a
foreign exchange profit of 1.7 MEUR.
Taxes for the period have been booked as taxes. In addition, related to the
divestment of Contempus a 0.6 MEUR positive tax item has been booked related
to deferred taxes on purchase price allocations. The item has no impact on
cash flow. Net profit for the period was 1.8 MEUR, while it was 2.2 MEUR last
year.
Order backlog totaled 44.5 MEUR at the end of period. The order backlog grew
compared both to previous quarter (40.9 MEUR) and previous year (41.6 MEUR
including Contempus).
YEAR 2008
Affecto builds versatile IT solutions for companies and organisations to
improve their efficiency in business and to support the related decision-
making. With Affecto's Business Intelligence solutions organisations are able
to integrate strategic targets with their business management. Business
Intelligence solutions enable the further processing and utilisation of
information generated by ERP and other IT systems. The company also delivers
operational solutions, such as Enterprise Content Management (ECM), for
improving and simplifying processes at customer organisations. Affecto offers
Business Intelligence solutions in its operating areas in the Nordic and
Baltic countries. In Operational solutions, the company has a presence in
Finland and in the Baltic region.
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 2008 were 131.6 MEUR (2007: 97.5 MEUR). Net sales in
Finland were 46.2 MEUR (41.7 MEUR), in Baltic area 23.6 MEUR (22.9 MEUR), 22.2
MEUR in Sweden (17.7 MEUR) and 39.5 MEUR (15.2 MEUR) in Norway & Denmark. Net
sales grew by 35%. The organic sales growth was approx. 6%.
The sales growth was based on good demand for services in all our business
areas during the early part of the year. The customers' decision making
process slowed down in the last few months of the year, as the economic
environment weakened, slowing down the sales growth. Net sales of BI segment
in 2008 was 75.7 MEUR (48.1 MEUR), Operational Solutions 44.1 MEUR (39.9 MEUR)
and Geographic Information Services 11.8 MEUR (9.5 MEUR). The Component
Software acquisition done in 2007 has had impact mostly on the BI segment and
to some extent also to Operational solutions. During 2008 the BI segment has
experienced organic growth in all markets except Sweden, where mostly the
local capacity restrained growth.
PROFIT
Affecto's EBIT in 2008 was 11.8 MEUR (10.8 MEUR). EBIT in Finland was 6.6 MEUR
(4.4 MEUR), Baltic EBIT was 3.1 MEUR (5.4 MEUR), EBIT in Sweden was 1.8 MEUR
(1.5 MEUR) and EBIT in Norway & Denmark was 2.9 MEUR (1.2 MEUR).
According to IFRS3 requirements, the 2008 EBIT includes 2.7 MEUR (2.5 MEUR) of
amortization of intangible assets related to acquisitions. A significant part
of the amortization is related to Sweden and Norway & Denmark segments. The
divestment of Contempus lowered the amount of immaterial assets in balance
sheet, which has decreased the estimated amortization by 0.4 MEUR per year in
forthcoming years. In year 2009 the IFRS3 amortization is estimated to total
2.1 MEUR and in 2010 approx. 1.9 MEUR based on currency exchange rates in
January 2009.
The profitability in Finland and in Norway & Denmark remained at a good level.
The profitability in Baltic and Sweden weakened in the third quarter. The
Swedish profitability recovered in the fourth quarter, but Baltic made loss in
the fourth quarter due to rapid weakening of general economy and non-recurring
costs.
Affecto sold its office in Vilnius, Lithuania at end of April for approx. 1.3
MEUR resulting in a capital gain of approx. 0.6 MEUR in Baltic segment in Q2.
The change of Baltic management and combining the Vilnius office premises
caused approx. 0.2 MEUR non-recurring costs in Q4.
R&D costs totaled 1.5 MEUR (0.9 MEUR), i.e. 1.1% of net sales (0.9%). The
expenditure has been recognized in income statement, except in Contempus
business, where 0.3 MEUR has been capitalized in balance sheet and
approximately similar amount of earlier capitalizations has been amortized. As
Contempus was sold on 29 September 2008, the group balance sheet does not
contain capitalized R&D items at the end of the reporting period.
The financial costs have grown in 2008, as the interest bearing net debt has
grown in 2007 due to the Component Software acquisition. Over half of the bank
loan has been converted to a fixed-rate loan through an interest swap. The
fluctuation in financial costs between quarters 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. As the interest rates decreased in Q1, rose in Q2
and decreased in Q3 and Q4, the change had a 0.2 MEUR cost impact in Q1, 0.6
MEUR profit in Q2, 0.3 MEUR loss in Q3 and 0.9 MEUR loss in Q4, i.e. net
impact on profit before taxes was -0.9 MEUR in period 1-12/2008. In addition,
due to intra-group loans the fourth quarter result includes a foreign exchange
profit of 1.7 MEUR.
Taxes for the period have been booked as taxes. In addition, related to the
divestment of Contempus a 0.6 MEUR positive tax item has been booked related
to deferred taxes on purchase price allocations. The item has no impact on
cash flow. Net profit for the period was 8.5 MEUR, while it was 7.0 MEUR last
year.
Order backlog totaled approx. 44.5 MEUR at the end of period. The order
backlog grew compared to previous year (41.6 MEUR) despite the divestment of
Contempus. Affecto has a well diversified customer base. The ten largest
customers generated approx. 20% of group revenue in 2008 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 146.6 MEUR
(162.1 MEUR). Equity ratio was 43.0% (41.9%) and net gearing was 34.7%
(53.9%). Translation differences has decreased the consolidated equity by 9.5
MEUR (-0.7 MEUR) during the financial period 2008 mainly due to the weakening
of the Norwegian and Swedish currencies.
The additional consideration for Intellibis AB, acquired in 2006, was
determined to be 3.9 MEUR and was paid during first quarter.
Affecto has sold its office in Vilnius, Lithuania in April for approx. 1.3
MEUR. The company has booked a capital gain of approx. 0.6 MEUR in second
quarter results in Baltic segment. Since 31 December 2007, the property had
been booked in the balance sheet under "Non-current assets held for sale".
After the sale Affecto does not own real estate property.
Affecto sold Contempus AS to Basware on 29 September 2008. Contempus was part
of Affecto's operations in Norway and provided software solutions for
Enterprise Purchase to Payment and Enterprise Content Management solution
areas. Contempus had developed its own Contempus software product range and in
addition to the software sales it also implemented solutions based on that
software. The product business of Contempus was not core business for Affecto.
In Affecto's reporting, Contempus has been reported in the Operational
Solutions and Norway&Denmark segments. The consideration, paid in cash, was
approx. 10.0 MEUR. The divestment created a capital gain of 0.0 MEUR.
The financial loans were 43.9 MEUR (46.9 MEUR) as at 31 December 2008. The
company's cash and liquid assets were 23.6 MEUR (13.0 MEUR). The interest-
bearing net debt was 20.4 MEUR (33.9 MEUR).
Cash flow from operating activities for the reported period was 14.7 MEUR
(10.4 MEUR) and cash flow from investments was +3.3 MEUR (-28.3 MEUR).
Investments in non-current assets excluding acquisitions were 2.7 MEUR (1.4
MEUR) during the period.
Affecto has distributed dividends of 3.4 MEUR (previous year 1.7 MEUR) from
the profit of the year 2007. Dividend was paid on 10 April 2008.
EMPLOYEES
The number of employees was 1079 persons at the end of the reporting period
(1129). Approx. 370 employees were based in Finland, 120 in Sweden, 160 in
Norway & Denmark, and 430 in the Baltic countries. The average number of
employees during the period was 1136 (897). The divestment of Contempus
reduced the number of employees by approx. 55 in Norway and Sweden.
Personnel turnover increased somewhat during the early 2008, but slowed down
towards the year-end.
During 2008 the Affecto University training program was launched, the goal of
which is to deepen and widen the skills of employees, and especially sharing
the key knowledge and best practices.
BUSINESS REVIEW
2008 was a period of integration and internal development for Affecto. Affecto
focused its operations in September by divesting Contempus, a non-core
business. The business has mainly grown rather steadily, although the general
economic outlook has clearly weakened during the autumn. The Baltic area has
weakened the most of the group's operating areas. The customers' decision
making seems to have slowed down towards the end of the year, which has
resulted in lower order backlog compared to mid-2008.
The group's business is managed through four country units. Finland, Baltic,
Sweden and Norway & Denmark are also the primary IFRS segments.
Finland
In 2008 net sales in Finland were 46.2 MEUR (41.7 MEUR). EBIT was 6.6 MEUR
(4.4 MEUR). The year was excellent as a whole. The business developed rather
steadily during the period and the demand for various services was reasonably
good. Demand for BI services continued versatile. The customers' interest for
ECM solutions, part of Operational solutions, seems have grown during the year
especially in the public sector. The profitability of the Geographic
Information Services was better than last year.
The growth of IT services market in Finland is rather moderate, but the growth
of our focus segments like BI is expected to exceed the average market growth
rate. The customers' activity has so far continued to be relatively good
despite rapidly slowing economy. However, the decision making has slowed down
and the price pressure has grown. In 2008, new orders were received from,
among others, Ministry of Education, Finnish Defense Forces, Nokia, VR Group,
City of Helsinki, KEVA Pension Insurance, Nokia Siemens Networks, Metso
Automation, City of Turku, Stora Enso and Ramirent.
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 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 2008 the Baltic net sales were 23.6 MEUR (22.9 MEUR). Baltic EBIT was 3.1
MEUR (5.4 MEUR). The subsidiary in Poland, being in build-up phase, made minor
loss and the profitability in Latvia was weaker than in the other countries.
Towards the end of the year, profitability weakened also in Lithuania. In
Latvia the company received a negative verdict from Supreme court in the
litigation mentioned in our annual report 2007. The cost impact of approx. 0.1
MEUR was booked to Q1 result.
The year was twofold. The business developed favorably in the early part, and
the resource utilization rate was good in all countries. The public sector
entities in the Baltic countries continued to invest in IT systems. General
wage inflation in the Baltic countries is estimated to have been up to 15%,
which has also contributed to cost pressure. At the end of the year, the
economic outlook in the Baltic countries clearly weakened compared to
overheated situation in early 2008.
As examples of the most significant new projects in 2008, Affecto will
deliver an IT solution to Lithuanian Ministry of Education to improve
processes of education institutions and an EMCS system (Excise Movement and
Control System) to Latvian State Revenue Service.
The order backlog offers resource utilization for the next few months, but the
weakening of the bank and insurance sector and the public sector may decrease
IT investments, which may have negative impact on new project sales. The
governments are estimated to have decreased their IT investment plans as part
of general expenditure cuts.
During the last quarter the management model in Baltic was streamlined and Mr.
Stig-Göran Sandberg was appointed as the area manager for Baltic.
Sweden
In addition to Affecto's previous Swedish operations, the segment includes the
Swedish BI operations of Component Software since September 2007.
In 2008 the net sales in Sweden were 22.3 MEUR (17.7 MEUR) and EBIT 1.8 MEUR
(1.5 MEUR). The reported EBIT includes approx. 1.1 MEUR of IFRS3 amortization.
The Affecto name has been adopted in Sweden in early 2008. The integration of
Swedish operations and the adoption of the name "Affecto" is estimated to have
caused approx. 0.2 MEUR costs in Q1. The integration work was finalized during
the first quarter, when the BI units in Stockholm moved to common premises.
The business in Sweden has developed moderately well in 2008. The customers'
activity has remained reasonable, with the exception of increased weakness in
the finance sector. Slower investment decisions and smaller IT budgets have
led to growing price pressure from customers.
During 2008 new orders were received from e.g. Folksam, Astra Zeneca,
Apoteket, ICA, Upplysingscentralen and Svenska Spel.
Demand for experienced BI resources has been high in 2008, which has increased
personnel turnover. Number of employees decreased during the year, partially
due to issues related to the integration process in Sweden. In addition, the
divestment of Contempus decreased headcount by 15.
Norway & Denmark
The net sales in 2008 were 39.5 MEUR (15.2 MEUR) and EBIT was 2.9 MEUR (1.2
MEUR). The reported EBIT was negatively affected by an IFRS3 amortization of
1.2 MEUR. Affecto had operations in Norway and Denmark only since beginning of
September 2007 (four months).
Business Intelligence business developed positively and especially the growth
of consulting services was good. The efforts to widen the service offering
scope have continued, especially regarding Microsoft and SAP technologies. A
new office was opened in Bergen in Norway during the autumn. The number of
employees in BI business has grown modestly. The Affecto name has been adopted
both in Denmark and Norway in early 2008. During the period, new orders were
received from e.g. Danish Tax Authority, Bank Santander, Kredittillsynet,
Kommuneholding, Jyske Bank, EDB, Telenor and Norwegian Directorate for
Immigration.
The Contempus business, part of Operational Solutions, developed steadily and
grew compared to previous year. Contempus was sold to Basware in September.
Business review by secondary segments 2008
Business intelligence (BI) net sales grew by 57% to 75.7 MEUR (48.1 MEUR). The
growth is explained to large extent by the acquisition of Component Software
in late 2007, but also the organic growth has been good. The efforts to widen
the service offering scope have continued, especially regarding Microsoft and
SAP technologies in Norway. The weakened general economy did not yet affect
the BI business very significantly, except in Sweden. Slower investment
decisions and smaller IT budgets have led to growing price pressure from
customers.
Customers see BI solutions as tools for improving their own efficiency and
controllability, which may maintain the interest to invest in BI solution also
during periods of weaker economic growth. However, the weakness in general
economy may also slow the growth in BI investments. The most recent growth
estimates for general IT services in Nordic countries in 2009 are about 3%.
Gartner estimated in January 2009 the BI solutions to be one of the key
investment areas and annual global BI license market average growth to exceed
7% until year 2012.
Net sales of Operational Solutions grew by 11% and was 44.1 MEUR (39.9 MEUR).
The insurance solution projects in South Africa, Denmark and Poland continued,
but neared completion. Affecto has established a subsidiary in Poland in order
to be able to offer its insurance sector related services also there. In
Finland, especially the demand for ECM solutions was good and the utilization
rate of project resources was good. The Norwegian Contempus subsidiary was
divested at end of September.
Net sales of the Geographic Information Services business were 11.8 MEUR (9.5
MEUR). The sale of digital geographic content and related services grew. Co-
operation negotiations with employees were initiated in September for
improving the efficiency of the unit, and 6 employees were fired as the
result.
CHANGES IN GROUP STRUCTURE
Affecto sold Contempus AS with its subsidiaries on 29 September 2008 to
Basware.
In 2008 the Affecto subsidiary companies in Nordic countries have been
organized so that in each country there is one operational company, owned by
the group parent company.
ANNUAL GENERAL MEETING AND GOVERNANCE
The Annual General Meeting of Affecto Plc, which was held on March 31, 2008,
adopted the financial statements for 1.1.-31.12.2007 and discharged the
members of the Board of Directors and the CEO from liability. Approximately 31
percent of Affecto's shares and votes were represented in the Meeting. The
Annual General Meeting decided that a dividend of EUR 0.16 per share be
distributed for the year 2007.
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
PricewaterhouseCoopers Oy was re-elected auditor of the company with Merja
Lindh, APA, as auditor in charge.
The Annual General Meeting accepted the Board's proposals for issuing stock
options (Stock options 2008) and for changing the terms of the Stock options
2006. The Annual General Meeting accepted the Board's proposals for the
authorisations given to the Board of Directors.
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.
Mr. Darius Lazauskas has been appointed as a member of the group management
team in February. Stig-Göran Sandberg was appointed as the manager responsible
for Baltic business in October, when Kestutis Uzpalis and Darius Lazauskas
retired from Affecto. In October, Affecto's executive management team was
announced to comprise Pekka Eloholma, Satu Kankare, Åge Lönning and Hannu
Nyman.
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 31 March 2008.
The complete contents of the new authorizations given by the Annual General
Meeting held on 31 March 2008 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 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.
The board has not used the authorizations by 31 December 2008.
SHARES AND TRADING
The company has only one share series, and all shares have similar rights. As
at 31 December 2008, 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 1-12/2008, the highest share price was 4.33 euro, lowest price 2.00 euro,
average price 3.32 euro and closing price 2.13 euro. Trading volume was 8.2
million shares, corresponding to 38% of the number of shares at the end of
period. The market value of shares was 45.8 MEUR at the end of the period.
SHAREHOLDERS
Arendals Fossekompani ASA flagged on 24 June 2008 and 23 October 2008 that its
direct holdings will increase to approximately 5.53% due to subsidiary
mergers. The total ownership of Arendals Fossekompani group (5.53%) has not
changed since the flagging notice of 27 August 2007.
Case Asset Management AB flagged on 11 September 2008 that the holdings of
funds managed by it, had exceeded 5%.
The company had a total of 1266 owners on 31 December 2008 and the foreign
ownership was 29%. The list of the largest owners can be viewed in the
company's web site. Information about ownership structure and option program
is included as a separate section in the financial statements. The ownership
of board members, CEO and their controlled corporations totaled approx. 6.0%
(5.7% shares and 0.3% options).
ASSESSMENT OF RISKS AND UNCERTAINTIES
Affecto operates in markets that are directly affected by changes in the
general economic conditions and the operating environments of its customers.
The competition in the market tightens continuously. Inflation has picked up
in all Affecto's countries especially regarding salaries, which has increased
the challenge of maintaining good profitability. This could have a negative
effect on the business, operating results and financial condition of Affecto.
The general economic downturn may lead to a decrease in 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 project
starts or interrupt the project delivery work. The economic downturn may
weaken customers' liquidity, also in the public sector.
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.
Acquisition of Component Software in 2007 has increased the amount of (third
party) licenses sold and their relative share of Affecto's net sales. This
will increase the fluctuation in sales between quarters and will increase the
difficulty of accurately forecasting the quarters. Affecto had license sales
of approx. 12 MEUR in 2008. The license sales have most impact on the last
month of each quarter and especially in the fourth quarter.
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 can not 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.
DIVIDEND PROPOSAL
Distributable funds of the parent company of the group on 31 December 2008 are
32 960 860.03 euros. Board of Directors proposes that from the financial year
2008 a dividend of 0.14 euros per share will be paid, a total of 3 007 162.20
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 goodand in the opinion of the Board of Directors proposed distribution of profit
does not risk the liquidity of the company.
FUTURE OUTLOOK
The weakened economic environment makes reliable forecasting more difficult.
Due to the Contempus divestment and the weakened general economy, the net
sales in year 2009 are expected to remain below the level in 2008. The
profitability (EBIT margin) of the whole year 2009 is expected to be below the
profitability in 2008.
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. Income statement, balance sheet, cash flow statement and statement of
changes in shareholders' equity
2. Notes
3. Key figures
1. Income statement, balance sheet, cash flow statement and statement of
changes in shareholders' equity
CONSOLIDATED INCOME STATEMENT
(1 000 EUR) 10-12/08 10-12/07 2008 2007
Net sales 32 492 37 907 131 565 97 474
Other operating income 57 11 902 80
Changes in inventories of -228 -51 -287 109
finished goods and work in
progress
Materials and services -7 069 -8 571 -25 317 -19 851
Personnel expenses -16 914 -18 433 -69 818 -48 635
Other operating expenses -5 446 -5 590 -20 962 -14 651
Other depreciation, amortization -349 -355 -1 620 -1 231
and impairment charges
IFRS3 amortization -538 -1 288 -2 653 -2 536
Operating result 2 005 3 630 11 808 10 758
Finance costs (net) 261 -489 -1 341 -1 300
Result before income tax 2 266 3 141 10 467 9 458
Income tax -473 -894 -1 963 -2 477
Result for the period 1 793 2 248 8 503 6 981
Attributable to:
Equity holders of the Company 1 793 2 248 8 503 6 981
Minority interest 0 0 0 0
Earnings per share for result
attributable to the equity
holders of the Company
(EUR per share)
Basic 0.08 0.10 0.40 0.38
Diluted 0.08 0.10 0.40 0.38
CONSOLIDATED BALANCE SHEET
(1 000 EUR) 12/2008 12/2007
Non-current assets
Property, plant and equipment 2 715 1 939
Goodwill 72 614 84 196
Other intangible assets 11 093 18 249
Deferred tax assets 2 031 2 297
Available-for-sale financial assets 54 64
Derivative financial instruments 20 35
Trade and other receivables 220 190
88 747 106 970
Current assets
Inventories 1 148 1 792
Trade and other receivables 32 166 38 724
Current income tax receivables 206 166
Available-for-sale financial assets 295 106
Restricted cash and cash equivalents 518 659
Cash and cash equivalents 23 554 12 974
57 886 54 421
Non-current assets held for sale 0 679
Total assets 146 633 162 070
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 176 108
Treasury shares -106 -106
Translation differences -10 243 -771
Retained earnings 17 101 12 035
58 625 62 964
Minority interest 0 0
Total shareholders' equity 58 625 62 964
Non-current liabilities
Borrowings 40 424 43 906
Derivative financial instruments 715 0
Deferred tax liabilities 3 388 5 159
Trade and other payables 803 532
45 330 49 597
Current liabilities
Borrowings 3 500 3 000
Trade and other payables 37 556 45 103
Current income tax liabilities 1 442 1 407
Derivative financial instruments 179 0
42 677 49 510
Total liabilities 88 007 99 107
Total shareholders' equity and 146 633 162 070
liabilities
CONSOLIDATED CASH FLOW STATEMENT
(1 000 EUR) 2008 2007
Cash flows from operating activities
Result for the period 8 503 6 981
Adjustments to profit for the period 7 077 7 842
15 581 14 823
Change in working capital 4 198 -1 312
Interest and other finance cost paid -2 812 -1 689
Interest and other finance income received 651 364
Income taxes paid -2 968 -1 751
Net cash generated from operating 14 651 10 434
activities
Cash flows from investing activities
Acquisition of subsidiaries, net of cash -3 925 -26 967
Purchases of tangible and intangible assets -2 741 -1 410
Proceeds from sale of tangible and 1 665 35
intangible assets
Sale of business/subsidiaries, net of cash 8 346 44
Net cash used in investing activities 3 345 -28 299
Cash flow from financing activities
Paid expenses on issue of share capital 0 -777
Proceeds from borrowings 0 48 400
Repayments of borrowings -3 000 -20 531
Dividends paid to the company's -3 437 -1 698
shareholders
Net cash generated in financing activities -6 437 25 394
(Decrease)/increase in cash and cash 11 559 7 530
equivalents
Cash and cash equivalents at the beginning 12 974 5 485
of the period
Foreign exchange effect on cash -979 -42
Cash and cash equivalents at the end of the 23 554 12 974
period
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 21 188 108 -106 -771 12 035 62 964
equity 1
January 2008
Translation -9 472 -9 472
differences
Available-for- -16 -16
sale financial
assets
Result for the 8 503 8 503
period
Income and -16 -9 472 8 503 -985
expenses
recognised
directly in
equity
Share options 84 84
Dividends paid -3 437 -3 437
Shareholders' 5 105 25 404 21 188 176 -106 -10 243 17 101 58 625
equity 31
December 2008
(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 1 960 11 -106 -35 6 752 39 092
equity 1
January 2007
Translation -736 -736
differences
Available-for- 9 9
sale financial
assets
Result for the 6 981 6 981
period
Income and 9 -736 6 981 6 254
expenses
recognised
directly in
equity
Share options 88 88
Dividents paid -1 698 -1 698
Issue of share 19 228 19 228
capital
Shareholders' 5 105 25 404 21 188 108 -106 -771 12 035 62 964
equity 31
December 2007
* Affecto has not had a minority share in 2007 or 2008.
2. Notes
2.1. Basis of preparation
This report has been prepared in accordance with the IFRS recognition and
measurement principles and applying the same accounting policies as in the
2007 annual consolidated financial statements. Forthcoming standards and
interpretations are presented in the accounting policies in Annual Report 2007
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 2007.
The initial accounting for Component Software Group ASA, acquired in August
2007, has been completed during the year 2008. Completion of the initial
accounting did not change the allocation of the cost of business combination
to the assets and liabilities acquired and there was no change in the total
amount of goodwill reported provisionally.
2.2. Segment information
Primary reporting format - geographical segments based on location of assets
Segment result:
(1 000 EUR) 10-12/08 10-12/07 2008 2007
Total sales
Finland 12 922 11 612 46 234 41 707
Baltic countries 5 775 7 486 23 614 22 918
Sweden 5 315 6 906 22 262 17 654
Norway & Denmark 8 481 11 904 39 455 15 195
Eliminations - - - -
Group total 32 492 37 907 131 565 97 474
Segment result (operating
result)
Finland 1 969 1 325 6 574 4 406
Baltic countries -237 1 520 3 092 5 390
Sweden 508 334 1 792 1 468
Norway & Denmark 500 1 004 2 850 1 199
Group management -735 -553 -2 500 -1 705
Group total 2 005 3 630 11 808 10 758
Secondary reporting format - business segments
Segment revenue:
(1 000 EUR) 10-12/08 10-12/07 2008 2007
Total sales
BI 19 864 21 715 75 665 48 093
Operational Solutions 9 515 13 869 44 125 39 900
Geographic Information 3 112 2 324 11 774 9 481
Services
Other (incl. - - - -
eliminations)
Group total 32 492 37 907 131 565 97 474
2.3. Contingencies and commitments
The court case in Latvia, explained in financial statements 2007, has been
finalized and the contingent asset did not materialize. The matter did not
have a material impact on profit.
The future aggregate minimum lease payments under non-cancelable operating
leases:
1 000 EUR 31.12.2008 31.12.2007
Not later than one (1) year 2 832 3 013
Later than one (1) year, but not later than 3 552 5 197
five (5) years
Later than five (5) years - -
Total 6 384 8 210
Guarantees:
1 000 EUR 31.12.2008 31.12.2007
Debt secured by a mortgage
Financial loans 44 000 47 000
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: 31.12.2008 31.12.2007
Pledges 432 855
Other guarantees 56 55
Pledges given on own behalf consist of restricted cash of 0.1 MEUR and short-
term receivables 0.3 MEUR.
Derivative contracts
1 000 EUR 31.12.2008 31.12.2007
Interest rate swaps:
Nominal value 34 000 23 500
Fair value -894 35
Interest rate cap:
Nominal value 8 000 -
Fair value 20 -
3. Key figures
10-12/08 10-12/07 2008 2007
Net sales, 1 000 eur 32 492 37 907 131 565 97 474
EBITDA, 1 000 eur 2 892 5 274 16 081 14 525
Operating result before IFRS3 2 543 4 918 14 461 13 294
amortization, 1 000 eur
Operating result, 1 000 eur 2 005 3 630 11 808 10 758
Result before taxes, 1 000 eur 2 266 3 141 10 467 9 458
Net income for equity holders of 1 793 2 248 8 503 6 981
the parent company, 1 000 eur
EBITDA, % 8.9 % 13.9 % 12.2 % 14.9 %
Operating profit before IFRS3 7.8 % 13.0 % 11.0 % 13.6 %
amortization, %
Operating result, % 6.2 % 9.6 % 9.0 % 11.0 %
Result before taxes, % 7.0 % 8.3 % 8.0 % 9.7 %
Net income for equity holders of 5.5 % 5.9 % 6.5 % 7.2 %
the parent company, %
Equity ratio, % 43.0 % 41.9 % 43.0 % 41.9 %
Net gearing, % 34.7 % 53.9 % 34.7 % 53.9 %
Interest-bearing net debt, 20 371 33 933 20 371 33 933
1 000 eur
Gross investment in non-current 1 145 465 2 741 1 410
assets (excl. acquisitions),
1 000 eur
Gross investments, % of sales 3.5 % 1.2 % 2.1 % 1.4 %
Research and development costs, 101 460 1 468 910
1 000 eur
R&D -costs, % of sales 0.3 % 1.2 % 1.1 % 0.9 %
Order backlog, 1 000 eur 44 467 41 560 44 467 41 560
Average number of employees 1 097 1 119 1 136 897
Earnings per share, eur 0.08 0.10 0.40 0.38
Earnings per share (diluted), eur 0.08 0.10 0.40 0.38
Equity per share, eur 2.73 2.93 2.73 2.93
Average number of shares, 1 000 21 480 21 480 21 480 18 533
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 and amortization
Equity ratio, % = Shareholders' equity + minority *100
interest
________________________________
Total assets - advances received
Gearing, % = Interest-bearing liabilities - *100
cash, bank receivables and
securities held as financial asset
__________________________________
Shareholders' equity + minority
interest
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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