2007-11-30 07:35:00 CET
2007-11-30 07:35:00 CET
REGULATED INFORMATION
Neomarkka - Quarterly report
INTERIM REPORT 1.1 - 30.9.2007
Neomarkka Plc STOCK EXCHANGE RELEASE 30.11.2007 1(17)
INTERIM REPORT 1.1 - 30.9.2007
NEOMARKKA IS SHIFTING THE EMPHASIS TOWARDS SYNERGIC INDUSTRIAL INVESTMENTS
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| KEY FIGURES | 1-9/2007 | 1-9/2006 |
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| Turnover, EUR million, of which | 37.0 | 3.6 |
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| - gains and losses from trade of | 5.1 | 3.6 |
| financial assets | | |
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| - cable business turnover | 31.9 | |
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| Operating profit, EUR million, of which | 3.6 | 2.6 |
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| - trade of financial assets | 4.1 | 2.5 |
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| - cable business | -0.5 | |
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| Result for the period EUR million | 1.8 | 1.2 |
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| Earnings per share EUR | 0.29 | 0.20 |
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All the figures for 2007 and 2006 are not comparable as a result of the change
in strategy carried out in 2007 and the consequent acquisition of Reka Cables
Ltd. The 2007 figures take into account the acquisition on 1 June, 2007 and the
subsequent business (1.6 - 30.9.2007). The release of the inventory margin in
accordance with IFRS 3 has been fully recognised in the operating profit and the
result (more on page 2).
MAJOR EVENTS DURING THE PERIOD UNDER REVIEW
Neomarkka renewed its strategy in spring. The aim of the strategy is to target
Neomarkka's investment portfolio at synergic industrial investments. The aim of
the investments is to raise the return on the invested capital by developing the
companies involved. Returns are sought both through dividend flow and an
increase in value.
With the renewed strategy Neomarkka now has two business areas: investment in
securities and industrial private equity investments. Following the change
Neomarkka will adopt segment reporting.
Industrial private equity investments; Cables
The first step in the implementation of the new strategy was the acquisition
from Reka Ltd of the entire share capital of Reka Cables Ltd at the price of EUR
25.8 million. The parties to the deal have also agreed on adjusting the price on
the basis of the trend in Reka Cable's average operating margin in 2007 and
2008. The maximum price adjustment either upwards or downwards is EUR 3.5
million. The allocation of the purchase price is described in the notes and has
been carried out in accordance with IFRS 3.
In June, a 4,000 m2 expansion of Reka Cables Ltd's Riihimäki factory was
completed. In August, the board of directors made a decision of a further EUR
9.6 million investment to medium- and high voltage factory in Riihimäki. The
factory construction and machine purchases process were started immediately and
the production will start in spring 2008.
Production of Reka Cables in Russia began, and deliveries to customers have been
started. During the period under review (1.6. - 30.9.2007) inputs totalled EUR
5.4 million, of which EUR 3.5 million in working capital and EUR 1.9 million in
machinery.
Investments in securities
Neomarkka continues to manage its current financial assets in line with its
existing principles. The assets waiting for investments in accordance with the
new strategy are invested mainly in funds for the moment. In spring, Neomarkka
arranged its hedge fund investments and the financing of its investment
portfolio so that it does not have direct hedge fund investments any more.
Instead, Neomarkka owns bonds issued by Nordea Bank Plc, including a holding in
the eQ Active Hedge Fund. These bonds are constructed so that their share of the
eQ Active Hedge Fund was, on subscription, double the value of the the security,
and the difference was financed with loan funding. Thus the return on the bonds
takes into account the return from the eQ Active Hedge Fund reduced by the costs
arising from the loan.
During the third quarter of the year, stock markets and the value of Neomarkka's
investments in securities fell. Neomarkka's value of investments in securities
fell in July and August. In September the situation improved but in the end of
the review period the valuation was on a lower level than on the second quarter.
Thus the return on investment in securities was unprofitable during the third
quarter of the year.
During the third quarter of the year, Neomarkka sold the equity funds and parts
of the bonds issued by Nordea Bank Plc. On September 30, 2007 Neomarkka owned
EUR 20.8 million's worth of the bonds issued by Nordea Bank Plc (the acquisition
price was EUR 20.0 million in May). These bonds have been recognised as
investments in the balance sheet.
As for private equity the level of investments remained unchanged during the
third quarter of the year.
As a result of the strategy change, Neomarkka's portfolio management relating to
hedge fund investments ended. At the same time the advisory services to the eQ
Bank in relation to the portfolio management of the eQ Active Hedge Fund and
related provisions ended on June 1, 2007. Neomarkka's previous Managing
Director, Samuel von Martens, transferred to the company that acts as advisor to
the eQ Bank in relation to the portfolio management of the eQ Active Hedge Fund.
During the second quarter of the year, the leverage of the company's investment
in securities fell significantly with the hedge fund investment arrangements.
The leverage fell also during the third quarter of the year due to the sales. On
30 September 2007, current receivables included EUR 16.8 million from the sales
of securities. The sum has not been recognised in the table below.
On the last day of the review period, the Group's investments in securities were
as follows (at market value):
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| EUR Million | 30.9.2007 | 30.6.2007 | 31.12.2006 |
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| Hedge funds* | 20.8 | 33.9 | 75.7 |
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| Listed equities and equity | | | 7.5 |
| funds | 0.0 | 6.3 | |
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| Private equity | 4.0 | 4.0 | 4.1 |
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| Total | 24.8 | 44.2 | 87.3 |
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* Nordea Bank Plc's securities are taken into account under hedge funds.
NET ASSET VALUE AND SHARE PRICE
Neomarkka's net asset value per share on September 30, 2007 was EUR 10.04 (EUR
9.60) and at the end of 2006 EUR 10.04.
Neomarkka Plc's B shares are listed on OMX Nordic Exchange in Helsinki. The
closing price at the end of the review period was EUR 9.65 (EUR 7.60) per share.
On December 31, 2006 the price was EUR 7.76 per share. The share turnover in the
review period was 2,263,490 (1,457,694) shares. The lowest B share quotation was
EUR 7.78 (EUR 7.31) and the highest EUR 9.85 (EUR 9.20).
According to the strategy, the investment portfolio will be targeted at synergic
industrial investments, which will reduce the importance of the net asset value
reporting.
RESULT, BANALNCE SHEET AND FINANCING
This interim report has been drawn up in accordance with the IAS 34 requirements
for interim reports. The acquisition cost calculation for the acquisition of
Reka Cables Ltd has been made in accordance with IFRS 3. With the securites
Neomarkka has applied the same accounting principles in drawing up the interim
report as in its financial statements for 2006. After the acquisition of Reka
Cables Ltd, i.e. as of June 1, 2007, the figures also include items not included
in the 2006 financial statements. These items have been dealt with in accordance
with IFRS standards. The interim report is unaudited.
FINANCIAL RESULT
The consolidated turnover totalled EUR 37.0 million in the review period,
consisting of the gains and losses from the trade of financial assets and the
turnover of the cable business. The gains and losses from the trade of financial
assets totalled EUR 5.1 million (EUR 3.6 million) in the review period. The
turnover in the cable business totalled EUR 31.9 million. The impact of the
cable business on the financial result has been taken into account as of June 1,
2007.
Operating profit for the review period was EUR 3.6 million (EUR 2.6 million), of
which the trade of financial assets accounted for EUR 4.1 million (EUR 2.6
million). The operating loss in the cable business was EUR -0.5 million. The net
result for the review period was EUR 1.8 million (EUR 1.2 million). Earnings per
share were EUR 0.29 (EUR 0.20).
The allocation of the purchase price of Reka Cables Ltd has been carried out in
accordance with IFRS 3. The release of the inventory margin resulting from this
put a strain on the operating profit by EUR 1.7 million and the financial result
by EUR 1.2 million for the period under review.
The turnover of the third quarter of the year totalled EUR 22.8 million. The
gains and losses from the trade of financial assets totalled EUR -0.6 million
and the turnover in the cable business totalled EUR 23.3 million. During the
third quarter of the year, the operating profit was unprofitable, EUR -1.2
million, of which the operating loss in the investments of securities was EUR
-0.7 million and the operating loss in the cable business was EUR -0.6 million.
Without the release of the inventory margin made in accordance with IFRS 3, the
operating profit in the cable business was positive during the third quarter of
the year.
BALANCE SHEET AND FINANCING
At the end of the review period the balance sheet totalled EUR 120.2 million
(EUR 102.9 million). Renewal of the strategy and the subsequent acquisition of
Reka Cables Ltd changed the content of the balance sheet substantially in the
period under review. For instance, the cable business caused the following
changes: non-current assets increased, inventories now include tangible assets
and receivables comprise customer receivables.
The eQ Active Hedge Fund and outside capital underlie the securities issued by
Nordea Bank Plc. At the end of the review period, Neomarkka owned EUR 20.8
million's worth of these securities. The securities are entered as investments
on the balance sheet.
At the end of the review period, the equity per share was EUR 10.04 (9.60) and
the equity ratio was 50.3% (58.2%).
Neomarkka repaid a short-term loan of EUR 40 million to the Kaupthing Bank
during the review period.
The acquisition of Reka Cables Ltd in June was partly financed with long-term
credit of EUR 13.6 million.
Total financing worth EUR 4.2 million was acquired in relation to industrial
investments operating business, of which EUR 3.0 million was used to repay loan.
A credit facility of EUR 3.0 million and a factoring limit of EUR 2.0 million
were acquired. At the end of the period the factoring limit totalled EUR 5.5
million.
INVESTMENTS
Neomarkka acquired the entire share capital of Reka Cables Ltd in the review
period in accordance with its new strategy. The acquisition price was EUR 27.0
million, of which the price for the shares accounted for EUR 25.8 million
(enterprise value EUR 30.0 million less the company's liabilities). The rest of
the acquisition price consists of the asset transfer tax and expert fees.
Other investments made in the review period relate to the cable business,
totalling EUR 4.6 million. Long-term leases signed in connection with the
acquisition of Reka Cables Ltd have been recognised as fixed assets under IFRS.
SHAREHOLDERS' MEETING AND GOVERNANCE
The Annual General Meeting was held on March 22, 2007.
An extraordinary shareholders' meeting was called to decide on the Reka Cables
Ltd deal, on the new board of directors and on certain amendments to the
Articles of Association was held on June 1, 2007.
The extraordinary shareholders' meeting approved the agreement concerning the
acquisition of the share capital of Reka Cables Ltd signed on May 10, 2007 by
Neomarkka Plc and the implementation of the deal.
The extraordinary shareholders' meeting also approved proposed amendments to the
Articles of Association. The amendments related to the reorientation of
Neomarkka's business and to some rearrangements caused by the new Companies Act
624/2006 taking effect on July 21.
The extraordinary shareholders' meeting confirmed the number of the members of
the Board of Directors as six, electing the following persons as new members of
the Board from June 1, 2007: Jorma Wiitakorpi from Porvoo as chairman of the
Board, Matti Lainema from Helsinki as vice chairman and as members Ilpo Helander
from Espoo, Pekka Soini from Helsinki, Hannu Anttila from Espoo and Taisto Riski
from Oulu.
The Board of Directors elected its members Hannu Anttila and Taisto Riski as
members of the Audit Committee.
The Managing Director of Neomarkka changed in May. Markku E. Rentto was
appointed Managing Director as of May 10, 2007. Sari Tulander was appointed
Chief Financial Officer as of May 11
PERSONNEL
The Group employed an average of 135 people (4). The average number of personnel
takes into account the personnel relating to the cable business from the
beginning of June. Group personnel numbered 288 on September 30, 2007, of which
284 were in the cable business.
GROUP STRUCTURE AND SHAREHOLDERS
Neomarkka Plc is the parent company in a Group that includes the fully owned
subsidiaries Novalis Plc and Alnus Ltd with their subsidiaries. The domicile of
the Group companies is Hyvinkää.
At the end of the review period, Neomarkka Plc had 13,132 (14,188) shareholders.
The biggest shareholder Reka Ltd bought 1.1 million Neomarkka B shares from
Metsäliitto Cooperative on May 23, 2007. The purchase price was EUR 10.45
million, equivalent to EUR 9.50 per share. After the deal, Reka Ltd's ownership
share was 50.76% (32.49%) of all shares and 65.77% (53.09%) of all votes.
Neomarkka Plc is thus part of the Reka Group. Reka Ltd's domicile is Hyvinkää.
The aggregate ownership of the ten biggest shareholders at the end of the review
period was 59.59% (57.99%) of all shares and 71.90% (70.80%) of all votes.
MAJOR EVENTS AFTER THE REVIEW PERIOD
The cable business achieved its new sales record in October. The turnover of
EUR 10.8 million in October was the highest in the history of the Reka Cables
Ltd.
Neomarkka acquired a share of 30% from Nestor Cables Ltd in October. Nestor
Cables is a new company, which produce fibre and copper-cable products as well
as instrumentation cables. The market areas of Nestor Cables Ltd are the Nordic
and Baltic Countries.
Assets from the sales of equity funds and part of the bonds issued by Nordea
Bank Plc have been mainly invested in short-term investments and interest funds.
A part of the assets have been directed to acquire the machinery and equipment
for Riihimäki factory's expansion.
In November Reka Cables Ltd started the co-operation negotiations concerning
factories in Hyvinkää and in Riihimäki due to the seasonal fluctuation of the
demand. The outcome of the negotiations was lay-offs in the winter time instead
of dismissals.
BUSINESS RISKS IN THE NEAR FUTURE AND HEDGING
With the updated strategy carried out in 2007, future risk factors will be more
closely related to the trends in the business operations of a small number of
portfolio companies and to normal business risks. In accordance with the
previous strategy Neomarkka's risk was based on a widely distributed market
risk. As far as the distributed market risk is concerned, changes in the value
of investments underlying the eQ Active Hedge Fund will have a substantial
impact on Neomarkka's financial result.
The most significant risks of Reka Cables Ltd are the fluctuation in raw
material costs and more rapid changes than previously in the order book
situation. Partial price hedging is used in purchases of metals. Major
currencies are partially hedged against foreign exchange fluctuation. In order
to be aware of the risks and prepare for them, Reka Cables Ltd has carried out
an extensive risk-charting process.
Nestor Cables Ltd's risks are based on the cable business risks and the risks
involved in when establishing a new company. Neomarkka will support the
establishing of the company through active Board working and synergic
operations.
Cap options are being used for hedging against interest rate risks.
Comments made in this report that do not refer to actual facts that have already
taken place are future estimates. Such estimates include expectations concerning
market trends, growth and profitability, and statements that include the terms
'will be', 'will improve', 'expect', or a similar expression. Since these
estimates are based on current plans and estimates, they involve risks and
uncertainty factors which may lead to results differing substantially from
current statements. Such factors include 1) operating conditions, e.g. continued
success in production and consequent efficiency benefits, availability and cost
of production inputs, demand for new products, changing circumstances in respect
of the acquisition of capital under acceptable conditions; 2) circumstances in
the sector such as the intensity of demand for products, the competition,
current and future market prices for the Group's products and related pricing
pressures, the financial situation of the Group's customers and competitors,
competitors' possible new competing products and 3) the general economic
situation such as economic growth in the Group's main geographical market areas
or changes in exchange rates and interest rates.
PROSPETCS FOR THE NEAR FUTURE
The operating result in the cable business is expected to improve this year
compared to the previous year. Prospects in the cable industry are positive,
growth is expected to continue and the market situation is expected to remain
good on condition that no significant negative changes will take place in the
overall economic situation on main markets in the Nordic countries and Russia.
The seasonal demand in the wintertime will however be lower. The prices of the
principal raw materials (copper, aluminium and plastics) will be very volatile.
Investments in hedge funds will be reduced.
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| CONSOLIDATED INCOME STATEMENT(IFRS) | | | |
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| | 1.7. | 1.7. -30.9. | 1.1. | 1.1 |
| | -30.9. | | -30.9. | .-30.9. |
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| EUR 1,000 euroa | 2007 | 2006 | 2007 | 2006 |
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| Industrial business | 23,347 | 0 | 31,890 | 0 |
| turnover | | | | |
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| Gains and losses from the | -557 | 1,898 | 5,077 | 3,558 |
| trade of financial assets | | | | |
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| TURNOVER | 22,790 | 1,898 | 36,967 | 3,558 |
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| Change in inventories of | -563 | 0 | -1,417 | 0 |
| finished products and | | | | |
| production in progress | | | | |
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| Production for own use | 1 | 0 | 11 | 0 |
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| Materials and services | -17,517 | 0 | -23,231 | 0 |
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| Personnel expenses | -2,892 | -112 | -4,109 | -388 |
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| Depreciation and | -836 | -4 | -1,117 | -25 |
| impairment | | | | |
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| Other operating expenses | -2,218 | -119 | -3,529 | -591 |
| and income | | | | |
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| | -24,025 | -235 | -33,392 | -1,004 |
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--------------------------------------------------------------------------------
| Operating profit/loss | -1,235 | 1,663 | 3,575 | 2,554 |
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| Financial income and | -481 | -415 | -1,464 | -1,168 |
| expenses | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Result before taxes | -1,716 | 1,248 | 2,111 | 1,386 |
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| Taxes | 597 | -305 | -343 | -154 |
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| result for the period | -1,119 | 943 | 1,768 | 1,232 |
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| Distribution: | | | | |
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| to parent company owners | -1,119 | 943 | 1,768 | 1,232 |
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| to minority | 0 | 0 | 0 | 0 |
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| Earnings per share after | -0.19 | 0.16 | 0.29 | 0.20 |
| and before dilution, EUR | | | | |
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| Number of shares | 6,020,360 | 6,020,360 | 6,020,360 | 6,020,360 |
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| CONSOLIDATED BALANCE SHEET (IFRS) | | |
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| EUR 1,000 | 30.9.2007 | 31.12.2006 |
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| ASSETS | | |
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| NON-CURRENT ASSETS | | |
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| Intangible assets | 3,429 | 0 |
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| Tangible assets | 23,660 | 51 |
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| Other non-current assets | 12 | 0 |
--------------------------------------------------------------------------------
| Goodwill | 4,471 | 0 |
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| Deferred tax assets | 542 | 0 |
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| TOTAL NON-CURRENT ASSETS | 32,114 | 51 |
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| CURRENT ASSETS | | |
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| Inventories | 20,146 | 0 |
--------------------------------------------------------------------------------
| Financial assets held for trading | 0 | 226 |
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| Other financial assets at fair value | 21,921 | 86,806 |
| through profit and loss | | |
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| Other financial assets available for sale | 4,001 | 4,112 |
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| Other current receivables | 39,130 | 8,429 |
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| Cash in hand and at bank | 2,884 | 3,324 |
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| TOTAL CURRENT ASSETS | 88,082 | 102,897 |
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| ASSETS | 120,196 | 102,948 |
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| SHAREHOLDERS´EQUITY | | |
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| Share capital | 24,082 | 24,082 |
--------------------------------------------------------------------------------
| Share premium | 66 | 66 |
--------------------------------------------------------------------------------
| Reserved fund | 1,221 | 1,221 |
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| Retained earnings | 11,971 | 9,897 |
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| Other unrestricted equity | 21,327 | 21,327 |
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| Result for the period | 1,768 | 3,880 |
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| TOTAL SHAREHOLDERS' EQUITY | 60,435 | 60,473 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| LIABILITIES | | |
--------------------------------------------------------------------------------
| Deferred tax liabilities | 4,211 | 1,632 |
--------------------------------------------------------------------------------
| Provisions | 646 | 0 |
--------------------------------------------------------------------------------
| Non-current liabilities | 23,488 | 0 |
--------------------------------------------------------------------------------
| Current liabilities | 31,416 | 40,843 |
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| TOTAL LIABILITIES | 59,761 | 42,475 |
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| SHAREHOLDERS´EQUITY AND LIABILITIES | 120,196 | 102,948 |
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| BALANCING ACCOUNT OF SHAREHOLDERS´EQUITY (IFRS) | |
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| EUR 1,000 | Share | Share | Reserve | Retained | Other | Total |
| | capital | premiu | fund | profit | unrestrict | |
| | | m | | | ed equity | |
--------------------------------------------------------------------------------
| Opening | 24,082 | 66 | 1,221 | 11,703 | 21,327 | 58,399 |
| balance | | | | | | |
| 1.1.2006 | | | | | | |
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| Changes | | | | | | |
--------------------------------------------------------------------------------
| Dividends | | | | -1,806 | | -1,806 |
| paid | | | | | | |
--------------------------------------------------------------------------------
| Result for | | | | 1,232 | | 1,232 |
| the period | | | | | | |
--------------------------------------------------------------------------------
| BALANCE | 24,082 | 66 | 1,221 | 11,129 | 21,327 | 57,825 |
| 30.9.2006 | | | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EUR 1,000 | Share | Share | Reserve | Retained | Other | Total |
| | capital | premiu | fund | profit | unrestrict | |
| | | m | | | ed equity | |
--------------------------------------------------------------------------------
| Opening | 24,082 | 66 | 1,221 | 13,777 | 21,327 | 60,473 |
| balance | | | | | | |
| 1.1.2007 | | | | | | |
--------------------------------------------------------------------------------
| Changes | | | | | | |
--------------------------------------------------------------------------------
| Dividends | | | | -1,806 | | -1,806 |
| paid | | | | | | |
--------------------------------------------------------------------------------
| Result for | | | | 1,768 | | 1,768 |
| the period | | | | | | |
--------------------------------------------------------------------------------
| BALANCE | 24,082 | 66 | 1,221 | 13,739 | 21,327 | 60,435 |
| 30.9.2007 | | | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CONSOLIDATED CASH FLOW STATEMENT (IFRS) |
--------------------------------------------------------------------------------
| | 1.1 -30.9. | 1.1 -30.9. |
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| EUR 1,000 | 2007 | 2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| OPERATING ACTIVITIES | | |
--------------------------------------------------------------------------------
| Payments received from operating activities | 181,220 | 11,670 |
--------------------------------------------------------------------------------
| Payments paid on operating activities | -125,618 | -7,738 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| INVESTING ACTIVITIES | | |
--------------------------------------------------------------------------------
| Acquisition of subsidiaries and new | -26,969 | 0 |
| business | | |
--------------------------------------------------------------------------------
| Change in tangible assets | -3,509 | -65 |
--------------------------------------------------------------------------------
| Change in other intangible assets | -499 | 0 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| FINANCING ACTIVITIES | | |
--------------------------------------------------------------------------------
| Increase in liabilities | 19,253 | 0 |
--------------------------------------------------------------------------------
| Decrease in liabilities | -43,235 | 0 |
--------------------------------------------------------------------------------
| Dividends paid | -1,806 | -1,806 |
--------------------------------------------------------------------------------
| Other changes in equity | 60 | 0 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| CASH FLOW FOR THE PERIOD | -1,103 | 2,061 |
--------------------------------------------------------------------------------
| Liquid funds at beginning of the period | 3,987 | 1,144 |
--------------------------------------------------------------------------------
| LUQUID FUNDS AT END OF PERIOD | 2,884 | 3,205 |
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NOTES TO THE ACCOUNTS
This interim report has been drawn up in accordance with IAS 34 requirements
concerning interim reporting. The acquisition cost calculation for Reka Cables
Ltd has been made in accordance with IFRS 3. The interim report is unaudited.
PRINCIPLES FOR DRAWING UP THE REPORT
In drawing up this interim report, Neomarkka has applied the same principles for
securities as in its 2006 financial statements with the exception of the changes
listed below. After the acquisition of Reka Cables Ltd on June 1, 2007 the
figures also include items not included in the 2006 financial statements. These
items have been dealt with in accordance with the IFRS. The acquisition of Reka
Cables Ltd has been dealt with in accordance with IFRS 3.
The figures for Reka Cables Ltd have been taken into account from the time of
acquisition on June 1, 2007.
The following new standards, changes in standards and application of
interpretations which have been found important for the Group have been adopted
in 2007:
- IFRS 7 Financial instruments; information and complementary changes to be
presented in the financial statements IAS 1, Presentation of financial
statements - information on equity to be disclosed in the financial statements.
IFRS 7 requires that new notes are to be presented on financial instruments. The
standard has no impact on the classification or measurement of the Group's
financial instruments.
- IFRIC 9 Reassessment of embedded derivatives. The interpretation requires an
assessment of whether contracts contain embedded derivatives that must be
separated from the host contract and dealt with as stand-alone derivatives.
- IFRIC 10 Interim financial reporting and impairment. IFRIC 10 forbids the
reversal of an impairment loss possibly made on goodwill in an interim report on
a later closing date during the reporting period.
These new standards and interpretations that have been adopted do not have a
material impact on the reported income statement, balance sheet and notes.
The following interpretations are compulsory in 2007 but do not have major
significance in terms of the Group:
- IFRIC 7 on applying the restatement approach under IAS 29 Financial reporting
in hyperinflationary economies.
- IFRIC 8 IFRS 2: scope.
Goodwill is the part of acquisition cost exceeding the Group's share of the
identifiable net asset value of a subsidiary, associate company of joint venture
purchased at the time of acquisition. The Reka Cables Ltd deal brought goodwill
to the Group. This goodwill will be tested for impairment annually or more often
if there is reason to believe that the value has decreased.
Drawing up principles for the cable business (as far as they differ from those
applied in the securities or are missing)
- Measurement of fixed assets: Fixed assets are recognised in the balance sheet
at direct acquisition cost reduced by planned depreciation on a straight line
basis over the useful life of the fixed asset items concerned. The depreciation
period and depreciation on fixed assets included in the balance sheet through
financial leases are recognised according to the length of the leases and IFRS
regulations.
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| Deprciation periods | | |
--------------------------------------------------------------------------------
| Other non-current liabilities | 10 | years |
--------------------------------------------------------------------------------
| Machinery and equipment | 5 - 15 | years |
--------------------------------------------------------------------------------
| Intangible rights | 5 | years |
--------------------------------------------------------------------------------
| Buildings and structures | 10 - 15 | years |
--------------------------------------------------------------------------------
- Measurement of inventories: Inventories are presented in accordance with the
FiFo principle at acquisition cost, at replacement cost if lower or at probable
sales price. The value of inventories includes variable costs and the fixed
costs of purchase and production.
- Derivatives: The price hedges applied in purchasing metals and foreign
exchange hedges are recognised in the balance sheet at the time of entering the
contract at acquisition cost, after which they are measured at fair value. The
Group does not apply hedge accounting under IAS 39. Changes in the fair value of
metal and foreign exchange hedges are recorded under other expenses and income
in the income statement and are recognised in the balance sheet through profit
and loss. In interest rate hedges, swaps are recognised on the balance sheet at
acquisition cost, after which they are recognised at fair value. Changes in the
fair value of interest rate hedges are recognised under financial income and
expenses and taken into account in the balance sheet through profit and loss.
Any acquisition cost for interest rate caps or other options is recognised as an
expense item at the time of acquisition. Benefits from options are recognised
when the option is being used (e.g. the interest rate cap is actualised).
Recognition in the income statement and the balance sheet is recorded as
described above in accordance with the item concerned.
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| SEGMENT REPORTING | | | |
--------------------------------------------------------------------------------
| EUR 1,000 | INVESTMENT | INDUSTRIAL | TOTAL |
| | IN | INVESTMENTS; | |
| | SECURITIES | CABLES | |
--------------------------------------------------------------------------------
| Industrial business | 0 | 31,890 | 31,890 |
| turnover | | | |
--------------------------------------------------------------------------------
| Gains and losses from the | 5,077 | 0 | 5,077 |
| trade of financial assets | | | |
--------------------------------------------------------------------------------
| TURNOVER | 5,077 | 31,890 | 36,967 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Segment operating profit | 4,123 | -548 | 3,576 |
--------------------------------------------------------------------------------
| Unallocated items | | | -1 |
--------------------------------------------------------------------------------
| OPERATING PROFIT | | | 3,575 |
--------------------------------------------------------------------------------
| | | | |
--------------------------------------------------------------------------------
| Segment assets | 42,995 | 73,729 | 116,724 |
--------------------------------------------------------------------------------
| Unallocated assets | | | 3,472 |
--------------------------------------------------------------------------------
| TOTAL ASSETS | 42,995 | 73,729 | 120,196 |
--------------------------------------------------------------------------------
| | | | |
--------------------------------------------------------------------------------
| Segment liabilities | 2,084 | 20,821 | 22,905 |
--------------------------------------------------------------------------------
| Unallocated liabilities | | | 36,855 |
--------------------------------------------------------------------------------
| TOTAL LIABILITIES | 2,084 | 20,821 | 59,761 |
--------------------------------------------------------------------------------
| | | | |
--------------------------------------------------------------------------------
| ASSETS - LIABILITIES | 40,911 | 52,908 | 60,435 |
--------------------------------------------------------------------------------
IFRS 3 has been observed in the recognition of margin under inventories in the
process of allocating the cost of acquisition of Reka Cables Ltd. The release of
the inventory margin has adverse effect of EUR 1.7 million on the operating
profit and EUR 1.2 million on the net result for the period under review.
TURNOVER AND RESULT TAKING REKA CABLES INTOACCOUNTAS OF THE BEGINNING OF THE
FINANCIAL PERIOD
If Reka Cables Ltd had been acquired at the turn of the year and the figures
taken into account for the full period under review, Neomarkka's turnover for
the period 1.1.-30.9.2007 would have been EUR 77.3 million and the result for
the period EUR 3.2 million. The release of the inventory margin resulting from
purchase price allocation would be fully allocated by the end of the reporting
period. The release of the inventory margin had adverse effect of EUR 0.9
million and is included in the result for the period.
--------------------------------------------------------------------------------
| CHANGE IN TANGIBLE ASSETS | | |
--------------------------------------------------------------------------------
| EUR 1,000 | 1-9/2007 | 1-12/2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Book value at beginning of period | 51 | 15 |
--------------------------------------------------------------------------------
| Investment | 7,552 | 65 |
--------------------------------------------------------------------------------
| Decrease | -3 | -11 |
--------------------------------------------------------------------------------
| Depreciation | -985 | -18 |
--------------------------------------------------------------------------------
| Impairment | 0 | 0 |
--------------------------------------------------------------------------------
| Translation difference and other changes | 17,044 | 0 |
--------------------------------------------------------------------------------
| BOOK VALUE AT END OF PERIOD | 23,660 | 51 |
--------------------------------------------------------------------------------
Tangible assets transferred with the acquisition of Reka Cables Ltd have been
recognised in the translation difference and other changes.
--------------------------------------------------------------------------------
| CONTINGENT LIABILITIES | | |
--------------------------------------------------------------------------------
| EUR 1,000 | 30.9.2007 | 31.12.2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| On own behalf | | |
--------------------------------------------------------------------------------
| Corporate mortgages | 15,000 | 0 |
--------------------------------------------------------------------------------
| Guarantees | 13,600 | 0 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Other commitments, own | | |
--------------------------------------------------------------------------------
| Leasing liabilities tangible assets | 90 | 0 |
--------------------------------------------------------------------------------
Investment commitments
Investment commitments on tangible assets were EUR 7.8 million on September 30,
2007 (EUR 0.0 million on December 31, 2006). Investment commitments are related
to the expansion of Riihimäki's factory.
--------------------------------------------------------------------------------
| DERIVATIVE CONTRACTS | | |
--------------------------------------------------------------------------------
| EUR 1,000 | 30.9.2007 | 31.12.2006 |
--------------------------------------------------------------------------------
| | | |
--------------------------------------------------------------------------------
| Nominal values | | |
--------------------------------------------------------------------------------
| Foreign exchange derivatives | | |
--------------------------------------------------------------------------------
| Currency forward contracts | 2,000 | 21,120 |
--------------------------------------------------------------------------------
| Raw material derivatives | | |
--------------------------------------------------------------------------------
| Price hedging for metals | 1,398 | 0 |
--------------------------------------------------------------------------------
| | | |
--------------------------------------------------------------------------------
| Fair values | | |
--------------------------------------------------------------------------------
| Foreign exchange derivatives | | |
--------------------------------------------------------------------------------
| Currency forward contracts | 10 | -90 |
--------------------------------------------------------------------------------
| Raw material derivatives | | |
--------------------------------------------------------------------------------
| Price hedging for metals | 8 | 0 |
--------------------------------------------------------------------------------
Consolidated loans have been partly hedged with interest rate caps. A cap of
4.5% has been acquired for the EUR 3 million loan for three years and a cap of
4.7% for the EUR 6.8 million loan for three years. The original interest rate
base for the hedged EUR 3 million loan is the 6-month Euribor and that for the
EUR 6.8 million loan the 12-month Euribor.
--------------------------------------------------------------------------------
| BUSINESS WITH THE RELATED PARTIES (REKA | | |
| GROUP) | | |
--------------------------------------------------------------------------------
| EUR 1,000 | 1-9/2007 | 1-12/2006 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Sales to Reka Group | 5 | 0 |
--------------------------------------------------------------------------------
| Dividends to Reka Group | -587 | -587 |
--------------------------------------------------------------------------------
| Acquisition of Reka Cables Ltd | -25,803 | 0 |
--------------------------------------------------------------------------------
| Other purchases from Reka Group | -3,721 | 0 |
--------------------------------------------------------------------------------
| Sales receivables and other receivables | 0 | 0 |
| at end of period | | |
--------------------------------------------------------------------------------
| Non-current debts (financial leases) at | 5,294 | 0 |
| end of period | | |
--------------------------------------------------------------------------------
| Other debts at end of period | -1 | 0 |
--------------------------------------------------------------------------------
| Guarantees given | 0 | 0 |
--------------------------------------------------------------------------------
| Guarantees received | 1,768 | 0 |
--------------------------------------------------------------------------------
The changes after the acquisition of the share capital of Reka Cables Ltd have
been completed in accordance with the terms of the deal. Other purchases include
the acquisition of machinery and equipment to Alnus Ltd. The machinery and
equipment are used at the Riihimäki factory of Reka Cables Ltd. Guarantees
received include the quarantee given by Reka Ltd for a Reka Cables Ltd´s loan
from the Nordic Investment Bank. This guarantee will continue. No costs will be
incurred by Reka Cables Ltd through the guarantee.
ACQUISITION OF REKA CABLES LTD
Neomarkka bought the entire share capital of Reka Cables Ltd from Reka Ltd
through a deal carried out on June 1, 2007. The price was paid in cash. Apart
from the purchase price, the acquisition cost includes EUR 1.2 million in
experts' fees relating to the deal and asset transfer tax. The following assets
and liabilities were recorded under IFRS 3.
--------------------------------------------------------------------------------
| EUR 1,000 | Acquiree´s | Fair value | Fair value |
| | acrrying | | |
--------------------------------------------------------------------------------
| | amount before | adjustments | |
| | combination | | |
--------------------------------------------------------------------------------
| Net assets acquired | | | |
--------------------------------------------------------------------------------
| Intangible assets | 24 | 3,490 | 3,514 |
--------------------------------------------------------------------------------
| Tangible assets | 13,603 | 3,511 | 17,114 |
--------------------------------------------------------------------------------
| Investments | 74 | 0 | 74 |
--------------------------------------------------------------------------------
| Inventories | 17,726 | 1,661 | 19,387 |
--------------------------------------------------------------------------------
| Deffered tax assets | 157 | 0 | 157 |
--------------------------------------------------------------------------------
| Current receivables | 18,962 | 0 | 18,962 |
--------------------------------------------------------------------------------
| Cash in hand and at bank | 660 | 0 | 660 |
--------------------------------------------------------------------------------
| Other current liabilities | -28,609 | 0 | -28,609 |
--------------------------------------------------------------------------------
| Deferred tax liability | -1,012 | -2,252 | -3,264 |
--------------------------------------------------------------------------------
| Provisions | -509 | 0 | -509 |
--------------------------------------------------------------------------------
| Other non-current | -5,025 | 0 | -5,025 |
| liabilities | | | |
--------------------------------------------------------------------------------
| Net assets acquired | | | 22,460 |
--------------------------------------------------------------------------------
| Goodwill ARISING ON ACQUISITION | | 4,515 |
--------------------------------------------------------------------------------
| TOTAL CONSIDERATION, SATISFIED BY CASH | | 26,975 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net cash outflow arising on acquisition: | | |
--------------------------------------------------------------------------------
| Cash consideration paid | -26,975 |
--------------------------------------------------------------------------------
| Cash and cash equivalents acquired | 660 |
--------------------------------------------------------------------------------
| Net cash outflow arising on acquisition: | | -26,315 |
--------------------------------------------------------------------------------
The allocation of the acquisition cost is preliminary. The changes in the fair
values of intangible assets consist of customer relations (EUR 2.8 million) and
product brands and trademarks (EUR 0.7 million). The goodwill consists of
personnel, experts' fees in the acquisition process, asset transfer tax and
other goodwill.
NET ASSET VALUE CALCULATION
The company's net asset value is calculated by deducting liabilities from
assets. The net asset value (assets less liabilities) totalled EUR 60.4 million
(EUR 57.8 million) on September 30, 2007. The net asset value per share is
obtained by dividing the company's net asset value by the number of shares. On
September 30, 2007 the number of shares was 6,020,360, and the net asset value
per share was EUR 10.04 (EUR 9.60).
According to the strategy, the investment portfolio is targeted at synergic
industrial investments, which will reduce the importance of net asset value
reporting.
INVESTMENTS IN SECURITIES
Investments in securities were distributed on September 30, 2007 as in the table
below. Direct investments in hedge funds were given up. For reasons of
comparability, investments in the securities issued by Nordea Bank Plc are
presented in the table below as if they were a direct investment in eQ Active
Hedge Fund.
--------------------------------------------------------------------------------
| EUR 1,000 | Number | Market value | Acquisition |
| | | | value |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Hedge funds | | | |
--------------------------------------------------------------------------------
| Ind eQ Active / Nordea | | 5,242 | 5,000 |
--------------------------------------------------------------------------------
| Ind eQ Active / Nordea | | 15,595 | 15,000 |
--------------------------------------------------------------------------------
| Total hedge funds | | 20,837 | 20,000 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Money market funds | | 1,084 | 1,082 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| TOTAL FINANCIAL ASSETS AT FAIR VALUE THROUGH | 21,921 | 21,082 |
| PROFIT AND LOSS, Neomarkka Oyj | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| PRIVATE EQUITY | | |
--------------------------------------------------------------------------------
| Oulun Puhelin Oyj | 746,250 | 3,081 | 3,081 |
--------------------------------------------------------------------------------
| Satakunnan Puhelin Oy | 81,700 | 920 | 920 |
--------------------------------------------------------------------------------
| OTHER FINANCIAL ASSETS AVAILABLE FOR SALE, | 4,001 | 4,001 |
| Novalis Oyj | | |
--------------------------------------------------------------------------------
| (subsidiary fully owned by Neomarkka Plc) | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| TOTAL INVESTMENT IN SECURITIES | 25,922 | 25,083 |
--------------------------------------------------------------------------------
CALCULATION FORMULAS FOR INDICATORS
--------------------------------------------------------------------------------
| Gains and losses | = | Turnover + other operating income - purchase of |
| from the trade of | | securities +/- change in inventories |
| financial assets | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Earnings per share | = | Profit for the review period belonging to parent |
| (EPS) EUR | | company owners / |
--------------------------------------------------------------------------------
| | | Number of shares, adjusted for share issues |
| | | (average) |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Equity ratio % | = | Shareholders' equity + minority | X 100 |
| | | interest less deferred tax assets / | |
--------------------------------------------------------------------------------
| | | Balance sheet total - advances received | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Return on equity % | = | Financial result for the period / | X 100 |
| (ROE) | | | |
--------------------------------------------------------------------------------
| | | Shareholders' equity average | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Equity per share, | = | Shareholders´equity - minority interest less |
| EUR | | deffered taxes / |
--------------------------------------------------------------------------------
| | | Adjusted number of shares at the end of period |
--------------------------------------------------------------------------------
Helsinki 30.11.2007
Neomarkka Plc
Board of Directors
pp. Sari Tulander
CFO
FURTHER INFORMATION:
Managing Director Markku E. Rentto, tel. +358 40 500 1858
DISTRIBUTION
OMX Nordic Exchange Helsinki
Main media
www.neomarkka.fi
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