Aspocomp Group Oyj — Annual Report 2014

Feb 26, 2015

ASPOCOMP'S FINANCIAL STATEMENTS 2014

Key figures 2014 in brief

Aspocomp	1-12/2014	1-12/2013	Change
Net sales	21.0 M€	19.3 M€	1.7 M€
EBITDA	-0.3 M€	0.8 M€	-1.1 M€
Operating profit excluding non-recurring items	-0.4 M€	-1.9 M€	1.5 M€
% of net sales	-2.1 %	-9.8 %	7.7 ppts
Operating profit	-2.0 M€	-0.7 M€	-1.2 M€
Earnings per share	-0.31 €	-0.28 €	-0.03 €
Operative cash flow	-0.1 M€	0.7 M€	-0.8 M€
Equity ratio	71.3 %	70.6 %	0.7 ppts

Key figures 10-12/2014 in brief

Aspocomp	10-12/2014	10-12/2013	Change
Net sales	4.1 M€	4.4 M€	-0.3 M€
EBITDA	-1.1 M€	-0.1 M€	-1.0 M€
Operating profit excluding non-recurring items	-0.3 M€	-0.8 M€	0.5 M€
% of net sales	-6.3 %	-18.0 %	11.7 ppts
Operating profit	-1.6 M€	-0.5 M€	-1.1 M€
% of net sales	-39.7 %	-12.0 %	-27.6 ppts
Earnings per share	-0.25 €	-0.24 €	-0.01 €

Outlook for the future

In 2015, net sales are expected to be between EUR 20 and 25 million and operating profit excluding non-recurring items between EUR 0.0 and 2.0 million.

CEO's review:

"Full-year net sales amounted to EUR 21.0 million, a year-on-year increase of EUR 1.7 million. Operating profit excluding non-recurring items increased by EUR 1.5 million from the previous year, but was still EUR -0.4 million in the red. Cash flow from operations amounted to EUR -0.07 million.

Sales growth was very strong in the first half of the year, but deliveries slowed down significantly in the second half. During the review year, the weakest net sales were seen in October-December, EUR 4.1 million. Sales decreased mainly because telecommunications customers had placed overlarge orders at the beginning of the year. In other respects, both the circuit board market and demand remained at a reasonable level.

As part of our new sharpened strategy, Finnish production and development activities were centralized at the Oulu plant. As a result, a decision was made to close the Teuva plant. The company's number of employees will decrease by nearly a third. The restructuring resulted in non-recurring costs of approximately EUR 1.5 million, which were recognized in the company's 2014 result. The enhanced operating model is expected to yield annual savings of approximately EUR 0.9 million.

Under the renewed strategy, Aspocomp focuses on improved services and closer cooperation with customers. We strive to make every effort to facilitate and assist our customers with technology solutions and printed circuit board supplies by utilizing cost-effective and competitive high-volume production lines in Asia. We also provide strong support to our customers with their product development and new product ramp-up. High-speed design, short lead times, flexible production and customized products are characteristic features of R&D series. These products will be delivered mainly from Finland, where we will continue to invest in, develop and maintain the latest and the most demanding production technology.

Customer base expansion has been Aspocomp's main focus in 2014, aiming to reduce our dependence on individual customers and market segments. Acquisition of new customers will continue to play the key role in the future and our goal is to build a more diversified and demand-stable customer base over the next two years."

Net sales and earnings

Financial year 2014

Net sales amounted to EUR 21.0 million, a year-on-year increase of approximately 9 percent. The five largest customers accounted for 63 percent of net sales (67% 1-12/2013). In geographical terms, 89 percent of net sales were generated in Europe (88%), 10 percent in Asia (12%) and 1 percent in North America (0%).

Sales growth was very strong in the first half of the year, but deliveries slowed down significantly in the second half. Sales decreased mainly because telecommunications customers had placed overlarge orders at the beginning of the year. In other respects, both the circuit board market and demand remained at a reasonable level.

The operating result was EUR -2.0 million (EUR -0.7 million 1-12/2013) including nonrecurring items. Operating profit excluding non-recurring items was EUR -0.4 million (EUR - 1.9 million 1-12/2013), a year-on-year increase of EUR 1.5 million.

Non-recurring items were costs associated with the exchange of the CEO, EUR 0.2 million, expenses related to the closing of the Teuva factory, EUR 1.2 million, and the Oulu plant restructuring costs, EUR 0.2 million.

Net financial expenses for the review period amounted to EUR 0.1 million (EUR 0.1 million 1- 12/2013). Earnings per share were EUR -0.31 (EUR -0.28).

October-December 2014

Fourth-quarter net sales amounted to EUR 4.1 million, a year-on-year decrease of approximately EUR 0.3 million. The five largest customers accounted for 41 percent of net sales (65% 10-12/2013). In geographical terms, 93 percent of net sales were generated in Europe (87%), 5 percent in Asia (13%) and 2 percent in North America (0%).

Fig. 1 Quarterly net sales 2014 and 2013(M€)

The operating result was EUR -1.6 million (EUR -0.5 million 10-12/2013).

Fourth-quarter operating profit excluding non-recurring items was EUR 0.5 million higher than a year earlier.

Net financial expenses amounted to EUR 0.0 million (EUR 0.0 million 10-12/2013). Earnings per share were EUR -0.25 (EUR -0.24).

Cash flow from operations amounted to EUR 0.4 million.

Fig. 2 Quarterly operating result excluding non-recurring items in 2014 and 2013 (M€, %)

Fig. 3 Quarterly operating result and operating margin in 2014 and 2013 (M€, %)

Investments and R&D

Investments during the review period amounted to EUR -0.9 million (EUR 1.9 million 1- 12/2013).

The bulk of the investments comprised the last installments of those initiated in 2013. The investments were mainly earmarked for capability improvement at the Oulu plant.

R&D costs comprise general production development costs. These costs do not fulfill the IAS 38 definition of either development or research and are therefore booked into plant overheads.

Cash flow and financing

Cash flow from operations for the review period was EUR -0.07 million (EUR 0.7 million 1- 12/2013).

Cash flow after investments was EUR -0.9 million (EUR -1.1 million 1-12/2013) for the review period.

Cash assets amounted to EUR 0.7 million at the end of the period (EUR 2.4 million 12/2013). Interest-bearing liabilities amounted to EUR 1.2 million (EUR 2.0 million 12/2013). Gearing was 5 percent (-3%). Non-interest-bearing liabilities amounted to EUR 3.0 million (EUR 3.2 million). At the end of the period, the Group's equity ratio was 71 percent (71%).

The company also has a EUR 0.5 million credit facility. The credit facility was not in use on the closing date.

Personnel

During the review period, the company had an average of 148 employees (152 in 2013). The personnel count on December 31, 2014 was 144 (152 in 12/2013). Of them, 100 (107) were non-salaried and 44 (45) salaried employees.

Changes in the Management

Mikko Montonen, M.Sc. (Tech.), was appointed the President and Chief Executive Officer of Aspocomp on February 27, 2014. Mr. Montonen started in his position on May 15, 2014.

Changes in the Group's strategy and structure

On October 9, 2014 Aspocomp announced its renewed strategy, according to which the company seeks growth in new customer groups and markets as well as cost efficiency by making greater use of carefully selected and cost-effective production lines in Asia. Furthermore, in Finland the company is looking into combining production and development activities and focusing on the latest and most challenging technologies as well as the production of quick-turn and R&D series.

As part of Aspocomp's strategic transformation the company announced on November 20, 2014 that it had decided to close the Teuva plant in order to better meet customer demand throughout the product life cycle and improve its own factory's utilization and profitability. By combining production and development in Finland, the company aims to achieve annual savings of approximately EUR 0.9 million. It is expected that the closing of the Teuva plant will not affect the company's net sales or its development in the coming years. Write downs and redundancies resulted in a one-time cost of about EUR 1.5 million.

The Board of Directors and authorizations given to the Board

The Annual General Meeting held on April 24, 2014 decided to set the number of Board members at four and re-elected the current members of the Board – Mr. Johan Hammarén,

Mr. Tuomo Lähdesmäki, Ms. Päivi Marttila and Mr. Kari Vuorialho – for a term of office ending at the closing of the following Annual General Meeting.

In its organization meeting on April 24, 2014, the Board of Directors of Aspocomp Group Plc. elected Päivi Marttila as Chairman of the Board and re-elected Johan Hammarén as Vice Chairman. Board committees were not established as the extent of the company's business did not require it.

The Annual General Meeting 2013 decided to authorize the Board of Directors to decide on the issuance of shares and the issuance of options and other special rights entitling to shares as referred to in Chapter 10, Section 1 of the Companies Act in one or more transactions as follows:

The number of shares to be issued based on the authorization may in total amount to a maximum of 4,000,000 shares. The Board of Directors decides on all the terms and conditions of the issuances of shares and options and other special rights entitling to shares. The authorization concerns both the issuance of new shares and the transfer of treasury shares. The issuance of shares and options and other special rights entitling to shares as referred to in Chapter 10, Section 1 of the Companies Act may be carried out in deviation from the shareholders' pre-emptive rights (directed issue).

The authorization cancels the authorization given by the General Meeting on December 20, 2011 to decide on the issuance of shares and the issuance of special rights entitling to shares. The authorization is valid until June 30, 2015.

Shares

The company has one series of shares, and each share carries one vote. The total number of Aspocomp's shares at December 31, 2014 was 6,406,505 and the share capital stood at EUR 1,000,000. The company did not hold any treasury shares.

During the period from January 1 to December 31, 2014 a total of 2,965,939 Aspocomp Group Plc. shares were traded on NASDAQ OMX Helsinki Ltd. The aggregate value of the shares exchanged was EUR 3,529,717. The shares traded at a low of EUR 0.95 and a high of EUR 1.66. The average share price was EUR 1.19. The closing price at December 31, 2014 was EUR 1.04, which translates into market capitalization of about EUR 6.7 million.

The company had a total of 3,332 shareholders on December 31, 2014. Nominee-registered shares accounted for approximately 7 percent of the total shares.

Aspocomp's business operations

Aspocomp sells and manufactures PCBs and offers related design and logistics services. The company's own manufacturing unit in Oulu comprises the core of its business operations. The Oulu plant focus on prototype and quick-turn deliveries and the commercialization of new PCB technologies in cooperation with customers' product design departments. In addition, operating as a service business, Aspocomp provides technology solutions and more competitive products.

Aspocomp's customers are companies that design and manufacture telecom systems and equipment, industrial and automotive electronics, and healthcare systems.

The Oulu plant manufactures HDI (High Density Interconnection), multilayer and special material PCBs. It is capable of very fast deliveries, even in the case of structurally complex PCBs. Aspocomp's HDI product development and commercialization are centralized in Oulu. In addition, the Oulu plant develops technologies for heat management on PCBs.

Electronics supply chains are occasionally hit by disturbances that result in urgent needs. For instance, PCB deliveries might be hindered by overdemand, accidents, natural catastrophes or holiday seasons. Furthermore, problems with deliveries of any of the components assembled on PCBs could lead to layout changes in PCBs. Fulfilling urgent needs due to such changes is difficult and cost-ineffective for high-volume PCB suppliers that manufacture long series. In such situations, the Oulu plant can step in to plug these urgent high-volume needs.

In addition to its in-house manufacture, Aspocomp also offers PCB trading services to its customers. These services include the selection of the most suitable high-volume manufacturer, provision of the technical specifications of the product, quality assurance and logistics services. These trading services round out Aspocomp's own manufacturing, enabling customers to cost-effectively buy their PCBs from a single provider over the entire life cycle of a product. Aspocomp's own production operations in Oulu keep it up to date on developments in PCB technology — customers can thus rest assured that the company will provide them with the best knowledge and service.

Outlook for the future

As Aspocomp's business is still dependent on prototypes and quick-turn deliveries, the company's order book is very short. As a result, business development is difficult to predict and profit forecasts involve significant uncertainties.

In 2015, net sales are expected to be between EUR 20 and 25 million and operating profit excluding non-recurring items between EUR 0.0 and 2.0 million.

Assessment of short-term business risks

Dependence on key customers

Aspocomp's customer base is concentrated; the majority of sales are generated by a small number of key customers. Aspocomp does not as yet have enough medium-sized customers and still remains too dependent on its key customers. This exposes the company to significant fluctuations in demand.

Market trends

Although Aspocomp is a marginal player in the global electronics market, changes in global PCB demand also have an impact on the company's business. A prolonged downturn has increased competition in quick-turn deliveries and short production series and has had a negative impact on both demand and prices. Correspondingly, overdemand for PCBs increases the need for quick-turn deliveries and decreases competition in short series, as high-volume manufacturers seek to optimize their capacity utilization ratios.

Aspocomp's main market area comprises Northern and Central Europe. In case Aspocomp's clients would transfer their R&D and manufacturing out of Europe, demand for Aspocomp's offerings might weaken significantly.

Liquidity and financial risks

Aspocomp's liquidity is based on the Group's cash assets, the cash flow generated by business operations, and external financing. The Group's liquidity will be tight during the next few months due to the expenses related to the closing of the Teuva factory.

Board of Directors' dividend proposal and Annual General Meeting

According to the financial statements dated on December 31, 2014 the parent company's distributable funds totaled approximately EUR 10.7 million.

The Board of Directors will propose to the Annual General Meeting to be held on March 26, 2015, that no dividend be paid for the financial year January 1, 2014 – December 31, 2014 and that the loss of the parent company, EUR 3,557,491.98, be transferred to the company's retained earnings account.

Publication of the financial statements and Report of the Board of Directors

Aspocomp's financial statements and Corporate Governance Statement for 2014 will be released in full with the Annual Report on Thursday, March 5, 2015. The Corporate Governance Statement 2014 is also available on the company's website at www.aspocomp.com/governance.

Publication of financial releases

Aspocomp Group Plc.'s financial information publication schedule for 2015 is:

• Interim report for January-March: Tuesday, April 28, 2015
• Interim report for January-June: Thursday, August 20,2015

Interim report for January-September: Thursday, October 29, 2015

Interim reports will be published at around 9:00 a.m. (EET).

Summary of Financial Statements and Notes

Accounting policies

The reported operations include the Group's parent company, Aspocomp Group Plc.

All figures are unaudited. The interim report has been prepared in accordance with IAS 34, Interim Financial Reporting. The accounting principles that were applied in the preparation of the financial statements of December 31, 2013 have been applied in the preparation of this report. However, as of January 1, 2014 the company has applied the following new or modified standards. The amendments do not have an impact on the consolidated financial statements.

• Amendment to transition rules of IFRS 10, 11 and 12 (adjustment of comparison data)
• IFRS 10, Consolidated Financial Statements: control
• IFRS 12, Disclosure of Interests in Other Entities
• IAS 36 (revised), Impairment of Assets

Profit and Loss Statement

January - December

1 000 €	1-12/2014		1-12/2013	Change
Net sales	20,994	100%	19,333	100%	9%
Other operating income	55	0%	82	0%	-33%
Materials and services	-7,988	-38%	-8,209	-42%	-3%
Personnel expenses	-7,232	-34%	-6,878	-36%	5%
Other operating costs	-6,124	-29%	-3,523	-18%	74%
Depreciation and amortization	-1,658	-8%	-1,540	-8%	8%
Operating profit	-1,953	-9%	-735	-4%	166%
Financial income and expenses	-73	0%	-52	0%	38%
Profit before tax	-2,025	-10%	-788	-4%	157%
Income taxes	32	0%	-984	-5%
Profit for the period	-1,994	-9%	-1,772	-9%	13%
Other comprehensive income
Items that will not be reclassified to
profit or loss	0	0%	0	0%
Items that may be reclassified
subsequently to profit or loss:
Currency translation differences	-9	0%	-4	0%	125%
Total other comprehensive income	-9	0%	-4	0%	125%
Total comprehensive income	-2,002	-10%	-1,776	-9%	13%
Earnings per share (EPS)
Basic EPS	-0.31 €		-0.28 €		11%
Diluted EPS	-0.31 €		-0.28 €		11%

October- December

1 000 €	10-12/2014		10-12/2013	Change
Net sales	4,086	100%	4,403	100%	-7%
Other operating income	11	0%	61	1%	-82%
Materials and services	-1,389	-34%	-1,898	-43%	-27%
Personnel expenses	-1,537	-38%	-1,772	-40%	-13%
Other operating costs	-2,315	-57%	-904	-21%	156%
Depreciation and amortization	-478	-12%	-420	-10%	14%
Operating profit	-1,622	-40%	-530	-12%	206%
Financial income and expenses	-43	-1%	-11	0%	299%
Profit before tax	-1,665	-41%	-541	-12%	208%
Income taxes	61	1%	-971	-22%
Profit for the period	-1,604	-39%	-1,513	-34%	6%
Other comprehensive income
Items that will not be reclassified to
profit or loss	0	0%	0	0%
Items that may be reclassified
subsequently to profit or loss:
Currency translation differences	-4	0%	-3	0%	22%
Total other comprehensive income	-4	0%	-3	0%	22%
Total comprehensive income	-1,608	-39%	-1,516	-34%	6%
Earnings per share (EPS)
Basic EPS	-0.25 €		-0.24 €		4%
Diluted EPS	-0.25 €		-0.24 €		4%

Consolidated Balance Sheet

1 000 €	12/2014	12/2013	Change
Assets
Non-current assets
Intangible assets	3,061	3,105	-1%
Tangible assets	2,889	4,003	-28%
Available for sale investments	15	15	-1%
Deferred income tax assets	2,311	2,259	2%
Total non-current assets	8,277	9,382	-12%
Current assets
Inventories	2,050	2,615	-22%
Short-term receivables	3,872	3,434	13%
Cash and bank deposits	735	2,380	-69%
Total current assets	6,657	8,429	-21%
Total assets	14,934	17,810	-16%
Equity and liabilities
Share capital	1,000	1,000	0%
Reserve for invested non-restricted equity	4,030	3,955	2%
Retained earnings	5,625	7,627	-26%
Total equity	10,655	12,582	-15%
Long-term financing loans	536	1,279	-58%
Employee benefits	118	266	-56%
Deferred income tax liabilities	8	16	-49%
Short-term financing loans	704	744	-5%
Trade and other payables	2,914	2,923	0%
Total liabilities	4,279	5,228	-18%
Total equity and liabilities	14,934	17,810	-16%

Consolidated Changes in Equity

January-December 2014
1000 €	Share capital	Other reserve	Translation differences	Retained earnings	Total equity
Balance at Jan. 1, 2014	1,000	3,955	6	7,622	12,582
Comprehensive income
Comprehensive income for the period				-1,994	-1,994
Other comprehensive income for the period, net of tax
Translation differences			-9		-9
Total comprehensive income for the period	0	0	-9	-1,994	-2,002
Business transactions with owners
Share-based payment		76		0	76
Business transactions with owners, total		76		0	76
Balance at 31-Dec-2014	1,000	4,030	-3	5,628	10,655
January-December 2013
Balance at Jan. 1, 2013	1,000	3,896	9	9,394	14,299
Comprehensive income
Comprehensive income for the period				-1,772	-1,772
Other comprehensive income for the period, net of tax
Translation differences			-4		-4
Total comprehensive income for the period	0	0	-4	-1,772	-1,776
Business transactions with owners
Share-based payment		59		0	59
Business transactions with owners, total	0	59		0	59
Balance at 31-Dec-2013	1,000	3,955	6	7,622	12,582

Consolidated Cash Flow Statement

1 000 €	1-12/2014	1-12/2013
Profit for the period	-1,994	-1,772
Adjustments	1,591	1,501
Change in working capital	410	1,100
Received interest income	1	2
Paid interest expenses	-87	-99
Paid taxes	14	-19
Operational cash flow	-64	713
Investments	-864	-1,874
Proceeds from sale of property, plant and equipment	67	12
Cash flow from investments	-797	-1,862
Increase in financing	0	2,130
Decrease in financing	-784	-557
Cash flow from financing	-784	1,573
Change in cash and cash equivalents	-1,645	424
Cash and cash equivalents at the beginning of period	2,380	1,955
Cash and cash equivalents at the end of period	735	2,380

Key Financial Indicators

	Q4/2014	Q3/2014	Q2/2014	Q1/2013	Q4/2013
Net sales, M€	4.1	4.9	6.6	5.5	4.4
Operating result before depreciation
(EBITDA), M€	-1.1	0.0	0.3	0.6	-0.1
Operating result (EBIT), M€	-1.6	-0.4	-0.1	0.2	-0.5
of net sales, %	-40%	-9%	-2%	3%	-12%
Profit/loss before taxes, M€	-1.7	-0.4	-0.1	0.2	-0.5
of net sales, %	-41%	-9%	-2%	3%	-12%
Net profit/loss for the period, M€	-1.6	-0.4	-0.1	0.2	-1.5
of net sales, %	-39%	-9%	-2%	3%	-34%
Equity ratio, %	71%	74%	69%	72%	71%
Gearing, %	5%	5%	12%	4%	-3%
Gross investments in fixed assets, M€	0.3	0.3	0.0	0.2	0.1
of net sales, %	7%	7%	0%	3%	2%
Personnel, end of the quarter	144	144	144	150	152
Earnings/share (EPS), €	-0.25	-0.06	-0.02	0.03	-0.24
Equity/share, €	1.66	1.91	1.97	1.99	1.96
Formulas and definitions

Equity/share, € =	Equity attributable to shareholders
	Number of shares at the end of period
	Equity	x 100
Equity ratio, % =	Total assets - advances received
	Net interest bearing liabilities	x 100
Gearing, % =	Total equity
Earnings/share (EPS), € =	Profit attributable to equity shareholders
	Adjusted weighted average number of shares outstanding
	Earnings before interests, taxes,
EBITDA =	depreciations and amortisations

Contingent Liabilities

1 000 €	12/2014	12/2013
Business mortgage	4,000	4,000
Operating lease liabilities	1,199	1,622
Other liabilities	40	23
Total	5,239	5,645

All figures are unaudited.

Espoo, February 26, 2015

Board of Directors of Aspocomp Group Plc.

For further information, please contact Mikko Montonen, CEO, tel. +358 20 775 6860, mikko.montonen(at)aspocomp.com.

Aspocomp – PCB technology company

Aspocomp develops and sells PCB manufacturing services, focusing on the end-to-end fulfillment of customers' PCB needs. Our seasoned professionals help customers to create the most optimal PCB designs, both in terms of performance and cost. Our trimmed production lines produce the most challenging designs with the shortest lead-times in the industry. Operating as a service business, we provide one-stop access to technology solutions and competitive products for all PCB technologies.

A printed circuit board (PCB) is the principal interconnection method in electronic devices. PCBs are used for electrical interconnection and as a component assembly platform in most electronic applications. Aspocomp's PCBs are used in many applications, such as telecommunication networks and devices, automotive electronics, security and medical systems, chipset development and industrial automation.

www.aspocomp.com

Some statements in this stock exchange release are forecasts and actual results may differ materially from those stated. Statements in this stock exchange release relating to matters that are not historical facts are forecasts. All forecasts involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performances or achievements of the Aspocomp Group to be materially different from any future results, performances or achievements expressed or implied by such forecasts. Such factors include general economic and business conditions, fluctuations in currency exchange rates, increases and changes in PCB industry capacity and competition, and the ability of the company to implement its investment program.