Aspocomp Group Oyj — Interim / Quarterly Report 2018

Oct 25, 2018

ASPOCOMP'S INTERIM REPORT JANUARY 1 – SEPTEMBER 30, 2018

Key figures 7-9/2018 in brief

	7-9/2018	7-9/2017	Change *
Net sales	6.7	6.0	0.7
	M€	M€	M€
EBITDA	0.9	0.4	0.5
	M€	M€	M€
Operating result	0.6	0.1	0.5
	M€	M€	M€
% of net sales	8.5	1.6	6.9
	%	%	ppts
Earnings per share	0.08	0.01	0.07
	€	€	€

Key figures 1-9/2018 in brief

	1-9/2018	1-9/2017	Change *
Net sales	20.6 M€	17.6 M€	3.0 M€
EBITDA	2.5 M€	1.2 M€	1.2 M€
Operating result	1.6 M€	0.4 M€	1.2 M€
% of net sales	8.0 %	2.5 %	5.5 ppts
Earnings per share	0.23 €	0.06 €	0.17 €
Operative cash flow	2.4 M€	1.1 M€	1.2 M€
Equity ratio	60.3 %	70.6 %	-10.3 ppts
Order book at the end of period	2.8 M€	2.3 M€	0.5 M€

* The total may deviate from the sum totals due to rounding up and down.

OUTLOOK FOR THE FUTURE

In 2018, net sales are expected to grow approximately 15 percent compared with 2017 and the operating result to be approximately EUR 2 million (Company Announcement, October 16, 2018). In 2017, net sales amounted to EUR 23.9 million and the operating result to EUR 0.8 million.

CEO'S REVIEW

"In July-August, sales remained stable despite the summer season. Customer demand turned to strong growth in September and is expected to remain robust throughout the rest of the year. Third-quarter net sales amounted to EUR 6.7 million, a year-on-year increase of 12 percent. Net sales for the first three quarters increased by 17 percent compared to last year's reference period, amounting to EUR 20.6 million.

The customer segment that generated the strongest growth was the telecommunications network segment, boosted particularly by next-generation 5G technology development projects. Through its products and services, the company supports the development and commercialization phase of several leading technology companies' 5G products. The automotive industry and semiconductor testing segments saw good steady growth, too. The order book at the end of September amounted to EUR 2.8 million, a year-on-year increase of EUR 0.5 million.

The operating result for July-September grew to EUR 0.6 million, representing approximately 8.5 percent of net sales. For the first nine months of the year, operating result amounted to EUR 1.6 million, representing approximately 8 percent of net sales. Profitability has developed very favorably over the year as new technologies have raised the average value of the products.

Cash flow from operations grew to EUR 2.4 million due to a decline in committed working capital to the same level as at the end of 2017."

NET SALES AND EARNINGS

July-September 2018

Third-quarter net sales amounted to EUR 6.7 million (EUR 6.0 million), a year-on-year increase of 12 percent. Sales remained stable in July-August and swung to strong growth in September. Growth was boosted particularly by the telecommunications network segment, but the automotive industry and semiconductor testing segments saw good steady growth, too.

The five largest customers accounted for 54 percent of net sales (55%). In geographical terms, 98 percent of net sales were generated in Europe (96%), 1 percent in Asia (2%) and 1 percent in North America (2%).

The operating result for the third quarter amounted to EUR 0.6 million (EUR 0.1 million). Third-quarter operating result was 8.5 percent of net sales. The operating result improved significantly as new technologies have raised the average added value of the products.

Net financial expenses amounted to EUR 0.0 million (EUR 0.0 million). Earnings per share were EUR 0.08 (EUR 0.01).

The order book at the end of the review period was EUR 2.8 million (EUR 2.3 million), representing a year-on-year increase of about EUR 0.5 million.

January-September 2018

Net sales amounted to EUR 20.6 million (EUR 17.6 million), a year-on-year increase of 16.9 percent.

The five largest customers accounted for 52 percent of net sales (52%). In geographical terms, 97 percent of net sales were generated in Europe (97%), 1 percent in Asia (1%) and 2 percent in North America (2%).

Operating result amounted to EUR 1.6 million (EUR 0.4 million). Profitability developed very favorably during January-September, mainly because new technologies raised the average value of the products.

Net financial expenses amounted to EUR 0.1 million (EUR 0.0 million). Earnings per share were EUR 0.23 (EUR 0.06).

INVESTMENTS AND R&D

Investments during the review period amounted to EUR 2.6 million (EUR 0.7 million). The investments were mainly focused on the acquisition of the production facility and improving the capabilities of the Oulu plant. The investment program to enhance the capabilities of the Oulu plant and increase its capacity, announced in December 2017, is proceeding on schedule and the first equipment is already in production use. With the investment program, the company will be able to respond better to the rise in demand generated by global digitalization and thereby bolster the company's position as a partner to the world's leading technology and semiconductor companies.

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 amounted to EUR 2.4 million (EUR 1.1 million). The increase in cash flow from operations was due to the decline in working capital to the same level as at the end of 2017.

Due to investments of EUR 2.6 million, cash flow was EUR -0.2 million (EUR 0.5 million).

Cash assets amounted to EUR 2.5 million at the end of the period (EUR 0.4 million). Interestbearing liabilities amounted to EUR 4.4 million (EUR 1.0 million) after the company raised a new loan to finance its investments in the Oulu plant. Gearing was 14 percent (4.6%). Noninterest-bearing liabilities amounted to EUR 4.3 million (EUR 3.7 million). At the end of the period, the Group's equity ratio amounted to 60.3 percent (70.6%).

The company also has a EUR 1.0 million credit facility, which was not in use at the end of the review period (EUR 0.0 million). In addition, the company has a recourse factoring agreement, of which EUR 0.0 million was in use (EUR 0.0 million).

PERSONNEL

During the review period, the company had an average of 120 employees (110). The personnel count on September 30, 2018 was 116 (114). Of them, 76 (71) were blue-collar and 44 (43) white-collar employees.

ANNUAL GENERAL MEETING 2018

The decisions of the Annual General Meeting, the authorizations given to the Board of Directors by the AGM and the decisions relating to the organization of the Board of Directors have been published in separate stock exchange releases on March 16, 2018.

SHARES

The total number of Aspocomp's shares at September 30, 2018 was 6,666,505 and the share capital stood at EUR 1,000,000. The company did not hold any treasury shares. Each share is of the same share series and entitles its holder to one vote at a General Meeting and to have an identical dividend right.

A total of 1,198,931 Aspocomp Group Plc. shares were traded on Nasdaq Helsinki during the period from January 1 to September 28, 2018. The aggregate value of the shares exchanged was EUR 3,818,120. The shares traded at a low of EUR 2.30 and a high of EUR 4.48. The average share price was EUR 3.18. The closing price at September 28, 2018 was EUR 3.90, which translates into market capitalization of EUR 25.9 million.

The company had 3,031 shareholders at the end of the review period. Nominee-registered shares accounted for 3.9 percent of the total shares.

OUTLOOK FOR THE FUTURE

In 2018, net sales are expected to grow approximately 15 percent compared with 2017 and the operating result to be approximately EUR 2 million (Company Announcement, October 16, 2018). In 2017, net sales amounted to EUR 23.9 million and the operating result to EUR 0.8 million.

The cornerstones of Aspocomp's growth include, for instance, next-generation 5G telecommunications and government networks, the e-revolution in the automotive industry, the development of testing requirements for semiconductor components as well as the spread of artificial intelligence and mechanical applications in the industry.

A major share of Aspocomp's net sales is generated by quick-turn deliveries and R&D series, and thus the company's order book is short. The company's aim is to systematically expand its services to cover the PCB needs of customers over the entire life cycle and thereby balance out variations in demand and the order book.

ASSESSMENT OF SHORT-TERM BUSINESS RISKS

Dependence on key customers

Aspocomp's customer base is concentrated; around half of sales are generated by a small number of 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. Competition for quick-turn deliveries and short production series accelerated as the market for PCBs weakened, and continues to have a negative impact on both total demand and market prices.

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

Although the Group's liquidity has improved markedly due to the improvement in operating profit, the company still remains dependent on the net sales generated by its key customers. Liquidity risk is managed, if necessary, with a recourse factoring agreement and credit facility.

PUBLICATION OF FINANCIAL RELEASES

Aspocomp Group Plc.'s financial information publication schedule for 2019 is:

• Financial Statements for 2018: Thursday, February 28, 2019
• Interim report January-March 2019 Tuesday, April 30, 2019
• Half-year report for January-June 2019 Thursday, August 8, 2019
• Interim report January-September 2019: Tuesday, October 29, 2019

The interim report will be published at around 9:00 a.m. (EET) on the given date.

Aspocomp's silent period commences 30 days prior to the publication of its financial information.

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, 2017 have been applied in the preparation of this report. However, the company complies with new or amended standards that came into effect as of January 1, 2018.

Aspocomp Group Plc adjusted its 2018 opening statement of financial position due to the adoption of the following new and amended IFRS standards: Amendments to IFRS 9 Financial Instruments and the new IFRS 15 Revenue from Contracts with Customers.

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments introduced new requirements for the classification and measurement of financial assets. In summary, it includes revised guidance on the classification, recognition and measurement of financial assets, new general hedge accounting requirements and a new expected credit loss model for calculating impairment on financial assets. Furthermore, IFRS 9 requires disclosures.

Aspocomp does not have significant amounts of financial instruments except customer receivables and interest rate derivatives. Aspocomp does not apply hedge accounting as defined by IFRS.

Aspocomp applies the simplified approach to recognize lifetime expected credit losses for its trade receivables and amounts due from customers under long-term projects as required or permitted by IFRS 9. In general, the application of the expected credit loss model of IFRS 9 resulted in earlier recognition of credit losses for the respective items regarding overdue receivables for which the Group has not previously recognized generic credit loss provisions. Following this, the Group has made an adjustment of EUR -0.05 million in retained earnings and trade receivables as at January 1, 2018.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 Revenue from Contracts with Customers establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers (effective for financial periods beginning on or after January 1, 2018 in the EU). IFRS 15 superseded IAS 18 Revenue, IAS 11 Construction Contracts and the related interpretations. The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers with an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e., when control of the good or service underlying the particular performance obligation is transferred to the customer. These principles are applied using the following five steps:

• 1. Identify the contract(s) with a customer
• 1. Identify the performance obligations in the contract
• 1. Determine the transaction price
• 1. Allocate the transaction price to the performance obligations in the contract
• 1. Recognize revenue

The Group does not engage in project sales or recognize revenue on the basis of percentage of completion. The bulk of the Group's sales comprise ordinary orders and deliveries of

products, and such revenue is recognized in accordance with the criteria of the delivery terms as currently in force. On the other hand, the Group has agreed on consignment warehousing with certain customers, which may mean that the recognition of revenue from such performance obligations may result in the earlier timing of earnings, with revenue being recognized when the product arrives in the warehouse.

Furthermore, IFRS 15 requires extensive disclosures.

Aspocomp has adopted IFRS 15 Revenue from Contracts with Customers as of January 1, 2018.

Aspocomp Group Plc's financial reporting and transition. The effect is based on earlier revenue recognition. The adoption of the standard had an impact of EUR 0.1 million on shareholders' equity in the Group's opening balance sheet of January 1, 2018, and EUR 1.0 million on net sales for January-December 2017. In addition, in the statement of financial position, trade receivables of EUR 1.0 million and inventories of EUR -0.8 million were adjusted following the IFRS 15 adoption.

IFRS 16 Leases standard (application from January 1, 2019)

The upcoming standard will replace IAS 17 and its interpretations. Above all, IFRS 16 provides guidance for the lessee and defines principles for the accounting treatment of a rental agreement as an asset and a liability (lease obligation). In the income statement, the cost of rental agreements will be presented as depreciations and financing expenses instead of rental expenses.

The implementation of the standard into the Group's reporting is in progress. The application of the standard will be carried out with a simplified approach and therefore the comparative information will not be adjusted for the previous financial year. Lease liability is determined based on the present value of the remaining lease payments using the rate of interest of additional credit at the time of application. The standard contains two exemptions regarding short-term (less than 12 months) or low-value leases, both of which will also be applied in the Group's reporting.

Right-of-use assets recognized by the Group from January 1, 2019 onwards will consist mainly of rented offices. The amount of right-of-use assets to be recognized for the Group will be low and the impacts arising from implementation of the standard will not be material. In the balance sheet, the lease liability is presented as long-term and short-term interest-bearing liabilities.

PROFIT AND LOSS STATEMENT

July-September

1 000 €	7-9/2018		7-9/2017	Change
Net sales	6,746	100%	6,012	100%	12%
Other operating income	1	0%	1	0%	-33%
Materials and services	-3,079	-46%	-3,155	-52%	-2%
Personnel expenses	-1,755	-26%	-1,486	-25%	18%
Other operating costs	-1,060	-16%	-1,018	-17%	4%
Depreciation and amortization	-277	-4%	-258	-4%	7%
Operating result	576	9%	95	2%	505%
Financial income and expenses	-37	-1%	-16	0%
Profit/loss before tax	539	8%	79	1%	583%
Income taxes	-1	0%	0	0%
Profit/loss for the period	538	8%	78	1%	586%
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:
Remeasurements of employee
benefits	0	0%	0	0%
Currency translation differences	2	0%	-3	0%
Total other comprehensive income	2	0%	-3	0%
Total comprehensive income	539	8%	76	1%	615%
Earnings per share (EPS)
Basic EPS	0.08 €		0.01 €		700%
Diluted EPS	0.08 €		0.01 €		700%

January-September

1 000 €	1-9/2018		1-9/2017		Change	1-12/2017
Net sales	20,588	100%	17,618	100%	17%	23,924	100%
Other operating income	19	0%	22	0%	-15%	24	0%
Materials and services	-9,453	-46%	-8,444	-48%	12%	-11,350	-47%
Personnel expenses	-5,559	-27%	-4,665	-26%	19%	-6,294	-26%
Other operating costs	-3,129	-15%	-3,285	-19%	-5%	-4,385	-18%
Depreciation and amortization	-820	-4%	-808	-5%	2%	-1,074	-4%
Operating result	1,645	8%	438	2%	275%	845	4%
Financial income and expenses	-84	0%	-41	0%	105%	-53	0%
Profit/loss before tax	1,561	8%	397	2%	293%	792	3% 2%
Income taxes	-2	0%	-4	0%		477
Profit/loss for the period	1,559	8%	393	2%	296%	1,269	5%
Other comprehensive income Items that will not be reclassified to profit or loss Items that may be reclassified subsequently to profit or loss: Remeasurements of employee	0	0%	0	0%		0	0%
benefits	0	0%	0	0%		-41	0%
Currency translation differences	1	0%	2	0%	-	5	0%
Total other comprehensive income	1	0%	2	0%	-	-36	0%
Total comprehensive income	1,560	8%	396	2%	294%	1,233	5%
Earnings per share (EPS) Basic EPS	0.23 €		0.06 €		283%	0.19 €
Diluted EPS	0.23 €		0.06 €		283%	0.19 €

CONSOLIDATED BALANCE SHEET

1 000 €	9/2018	9/2017	Change	12/2017
Assets
Non-current assets
Intangible assets	3,281	3,247	1%	3,268
Tangible assets	4,095	2,204	86%	2,572
Available for sale investments	15	15	0%	15
Deferred income tax assets	3,501	3,017	16%	3,501
Total non-current assets	10,892	8,484	28%	9,356
Current assets
Inventories	2,521	2,200	15%	1,922
Short-term receivables	5,936	4,805	24%	5,842
Cash and bank deposits	2,546	445	472%	384
Total current assets	11,002	7,451	48%	8,145
Total assets	21,894	15,935	37%	17,504
Equity and liabilities
Share capital	1,000	1,000	0%	1,000
Reserve for invested non-restricted equity	4,482	4,472	0%	4,478
Remeasurements of employee benefits	-41	0		-41
Retained earnings	7,752	5,780	34%	6,659
Total equity	13,193	11,253	17%	12,096
Long-term financing loans	3,527	727	385%	1,003
Other non-current liabilities	405	357	14%	402
Deferred income tax liabilities	21	19	11%	21
Short-term financing loans	832	234	256%	508
Trade and other payables	3,916	3,346	17%	3,473
Total liabilities	8,701	4,682	86%	5,408
Total equity and liabilities	21,894	15,935	37%	17,504

CONSOLIDATED CHANGES IN EQUITY

January-September 2018

1000 €	Share capital	Other reserve	Remeasuremet s of empolyee benefits	Translation differences	Retained earnings	Total equity
Balance at Jan. 1, 2018	1,000	4,478	-41	4	6,655	12,096
Comprehensive income
Comprehensive income for the period					1,559	1,559
Other comprehensive income for the period, net of tax
Translation differences				1		1
Total comprehensive income for the period	0	0	0	1	1,559	1,560
Business transactions with owners
Dividends paid					-467	-467
Share-based payment		4				4
Business transactions with owners, total	0	4	0	0	-467	-463
Balance at September 30, 2018	1,000	4,482	-41	5	7,748	13,193
January-September 2017
Balance at Jan. 1, 2017	1,000	4,255	0	-1	5,386	10,639
Comprehensive income
Comprehensive income for the period					393	393
Other comprehensive income for the period, net of tax
Translation differences				2		2
Total comprehensive income for the period	0	0	0	2	393	396
Business transactions with owners
Share-based payment		217				217
Business transactions with owners, total	0	217	0	0	0	217
Balance at September 30, 2017	1,000	4,472	0	1	5,779	11,253

CONSOLIDATED CASH FLOW STATEMENT

1 000 €	1-9/2018	1-9/2017	1-12/2017
Profit for the period	1,559	393	1,269
Adjustments	914	843	644
Change in working capital	5	-47	-1,023
Received interest income	0	2	2
Paid interest expenses	-92	-45	-51
Paid taxes	-2	-4	-5
Cash flow from operating activities	2,385	1,141	836
Investments	-2,618	-653	-962
Proceeds from sale of property, plant and equipment	8	35	35
Cash flow from investing activities	-2,610	-618	-928
Increase in financing	3,321	0	373
Decrease in financing	-468	-537	-356
Dividends paid	-467	0	0
Stock options exercised	0	201	201
Cash flow from financing activities	2,387	-336	217
Change in cash and cash equivalents	2,162	187	126
Cash and cash equivalents at the beginning of period	384	258	258
Cash and cash equivalents at the end of period	2,546	445	384

	Q3/2018	Q2/2018	Q1/2018	Q4/2017	Q3/2017
Net sales, M€	6.7	7.7	6.1	6.3	6.0
Operating result before depreciation
(EBITDA), M€	0.9	1.1	0.6	0.7	0.4
Operating result (EBIT), M€	0.6	0.8	0.3	0.4	0.1
of net sales, %	9%	10%	5%	6%	2%
Profit/loss before taxes, M€	0.5	0.8	0.3	0.4	0.1
of net sales, %	8%	10%	4%	6%	1%
Net profit/loss for the period, M€	0.5	0.8	0.3	0.9	0.1
of net sales, %	8%	10%	4%	14%	1%
Equity ratio, %	60%	58%	61%	69%	71%
Gearing, %	14%	22%	22%	9%	5%
Gross investments in fixed assets, M€	0.6	0.6	1.4	0.3	0.3
of net sales, %	10%	7%	23%	5%	5%
Personnel, end of the quarter	120	116	115	113	114
Earnings/share (EPS), €	0.08	0.12	0.04	0.13	0.01
Equity/share, €	1.98	1.90	1.79	1.81	1.69

KEY FINANCIAL INDICATORS

The Alternative Performance Measures (APM) used by the Group

Aspocomp presents in its financial reporting alternative perfomance measures, which describe businesses' financial performance and its development as well as investments and return on equity. In addition to accounting measures which are defined or specified in IFRS, alternative performance measures complement and explain presented information. Aspocomp presents in its financial reporting the following alternative performance measures:

EBITDA	=	Earnings before interests, taxes, depreciations and amortizations
		EBITDA indicates the result of operations before depreciations, financial items and income taxes. It is an important key figure, as it shows the profit margin on net sales after operating expenses are deducted.
Operating result	=	Earnings before income taxes and financial income and expenses presented in the IFRS consolidated income statement. The operating result indicates the financial profitability of operations and their development.
Profit/loss before taxes	=	The result before income taxes presented in the IFRS consolidated statements.
Equity ratio, %	=	Equity x 100 Total assets - advances received
Gearing, %	=	Net interest bearing liabilities x 100 Total equity Gearing indicates the ratio of capital invested in the company by shareholders and interest-bearing debt to financiers. A high gearing ratio is a risk factor that may limit a company's growth opportunities and financial latitude.
Gross investments	=	Acquisitions of long-term intangible and tangible assets (gross amount).
Order book	=	Undelivered customer orders at the end of the financial period.
Cash flow from operating activities	=	Profit for the period + non-cash transactions +- other adjustments +- change in working capital '+ interest income - interest expenses -taxes

CONTINGENT LIABILITIES

	1 000 €	9/2018	9/2017	12/2017
Business mortgage		4,000	2,000	2,000
Operating lease liabilities		54	472	477
Other liabilities		1,234	21	21
Total		5,287	2,493	2,498

All figures are unaudited.

Espoo, October 25, 2018

Board of Directors of Aspocomp Group Plc.

For further information, please contact Mikko Montonen, President and CEO, tel. +358 40 5011 262, mikko.montonen(at)aspocomp.com.

ASPOCOMP – A SERVICE COMPANY SPECIALIZING IN PCB TECHNOLOGIES

A printed circuit board (PCB) is used for electrical interconnection and as a component assembly platform in electronic devices. Aspocomp provides PCB technology design, testing and logistics services over the entire lifecycle of a product. The company's own production and extensive international partner network guarantee cost-effectiveness and reliable deliveries.

Aspocomp's customers are companies that design and manufacture telecommunication systems and equipment, automotive and industrial electronics, and systems for testing semiconductor components for security technology. The company has customers around the world and most of its net sales are generated by exports.

Aspocomp is headquartered in Espoo and its plant is in Oulu, one of Finland's major technology hubs.

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.