Harju Elekter Group financial results, 1-3/2024

*Commentary from the management*

Harju Elekter’s 2024 began with more modest results than in the year before. In the longer term, however, it was still a strong first quarter. Despite our efforts to minimise seasonality, the Q1 and Q4 results tend to be weaker than the Q2 and Q3 results. In this year as well, the significant increase in production volumes started in March, and based on orders is expected to continue until the end of autumn.

The biggest contribution to the financial results originated from production in Lithuania, and from production in Estonia to some extent. The Finnish production unit has a number of activities ahead to restore its profitability, and we can be increasingly optimistic about the Swedish unit’s return to profitability, which has taken longer time than anticipated. Amendments to the Finnish national energy network regulations that govern distribution networks had a significant economic impact on sales results in Estonia and Finland, resulting in reduced investments for the current and coming years.

On 11 March this year, the Regulation of the European Parliament and of the Council banning the use of fluorinated greenhouse gases (SF6) in electrical equipment from 2026 entered into force. For Harju Elekter, this will very likely mean that a number of electricity grid contracts will be amended or cancelled in 2025. As equipment manufacturers are only starting up their production of SF6-free equipment, a shortage situation could emerge in the market, affecting both the availability of equipment and leading to a sharp increase in prices. This, in turn, will lead to significant fluctuations in the volume of orders for complex substations before and after the commissioning date of said equipment.

By today, we have completed the restructuring commenced in the second half of 2022, which transformed the management of the Group and its subsidiaries, sharpened the focus on core activities, and provided for other important steps to be ready for the implementation of the new strategic development plan. There is no development without growth, which is why we will keep looking for opportunities to continue profitable growth in both existing and new locations.

*Revenue and financial results*

The Group's revenue in the first quarter was 46.8 million euros, representing a 3.3% growth compared to the same period last year. Sales of electrical equipment showed stable growth and made a significant contribution to the company's revenue, amounting to 42.2 million euros and accounting for 90.3% of total quarterly revenue. The majority of electrical equipment sales consisted of substations, low-voltage distribution equipment, technical buildings, and subcontracting services.

EUR ’000   *3M* *3M* *+/-*   *2024* *2023*  
Revenue   46,775 45,269 3.3%
Gross profit   4,836 5,386 -10.2%
EBITDA   1,941 2,382 -18.5%
Operating profit (EBIT)   976 1,309 -25.4%
Profit for the period   361 749 -51.8%
Earnings per share (EPS) (euros)   0.02 0.04 -50.0%

The Group's operating expenses in the reporting quarter totaled 45.7 (Q1 2023: 43.8) million euros. The main part of the increase in operating expenses came from a 5.2% rise in the costs of goods sold and services, which lagged behind the growth rate of revenue by 1.9 percentage points in the first quarters.

Marketing expenses decreased by 11.8% to 1.2 million euros, representing 2.6% of both the Group's operating expenses and revenue. Administrative expenses decreased by 2.4% to 2.5 million euros compared to previous quarters, representing 5.5% of the Group's operating expenses and 5.4% of revenue for the reporting quarter. Labour costs increased by 5.7% compared to previous quarters, amounting to 10.0 million euros.

While revenue increased, profitability declined compared to the previous year. The three-month gross profit was 4.8 (2023 Q1: 5.4) million euros, resulting in a gross profit margin of 10.3% (2023 Q1: 11.9%). Operating profit (EBIT) amounted to 1.0 (2023 Q1: 1.3) million euros, with an operating margin of 2.1% (2023 Q1: 2.9%). Net profit for the first quarter was 0.4 (2023 Q1: 0.7) million euros. Earnings per share for the first quarter were 0.02 (2023 Q1: 0.04) euros.

*Core business and markets*

The Group's core business, Production, accounted for 94.9% of the revenue of the quarter. The production segment’s revenue increased by 4.2%, amounting to 44.4 million euros.

The Group's largest target markets, Estonia, Finland, Sweden, and Norway, together accounted for 80.6% of total revenue in the first quarter, representing a significant increase compared to the previous year (2023 Q1: 75.3%).

Estonia and Finland markets were more modest compared to the previous year. In the reporting quarter, revenue from Estonia amounted to 4.5 (2023 Q1: 5.0) million euros, comprising 9.6% (2023 Q1: 10.9%) of consolidated revenue. Sales of substations and cable distribution cabinets to electricity distribution sector clients decreased, while rental income from real estate properties increased. From the Finnish market, revenue amounted to 17.0 million euros, which is 8.9% less than the previous year. The majority portion of the revenue decline was due to reduced sales of electrical equipment and electrical works. Sales of substations to electricity distribution sector customers and electric vehicle chargers remained modest.

There was a significant growth in the Norwegian market, where revenue doubled to 9.3 million euros, primarily from the sale of low-voltage equipment to maritime sector customers. The Norwegian market accounted for 19.9% of consolidated revenue in the reporting quarter. Revenue from the Swedish market also slightly increased, reaching 6.9 (2023 Q1: 6.5) million euros, indicating stable development in this market segment.

*Investments*

During the reporting period, Harju Elekter invested a total of 0.7 (Q1 2023: 0.6) million euros in non-current assets, including 0.4 (2023 Q1: 0.3) million euros in investment properties, 0.1 (2023 Q1: 0.3) million euros in property, plant, and equipment and 0.2 (2023 Q1: 0.1) million euros in intangible assets. The investments primarily focused on extensive renovation and reconstruction works in the Keila Industrial Park, aimed at meeting the long-term needs of a tenant, Prysmian Group Baltics. Additionally, investments were made in production technology equipment and production and process management systems.

The total value of the Group's long-term financial investments as of the reporting date was 29.3 (31.12.23: 29.2) million euros.

*Shares*

The company's share price on the last trading day of the reporting quarter on the Nasdaq Tallinn Stock Exchange closed at 4.79 euros. As of 31 March 2024, AS Harju Elekter Group had 11,103 shareholders.

*CONSOLIDATED STATEMENT OF FINANCIAL POSITION*        
Unaudited        
EUR '000 *31.03.2024* *31.12.2023* *31.03.2023*  
ASSETS        
*Current assets*        
Cash and cash equivalents 1,444 1,381 1,028  
Trade and other receivables 49,050 38,837 37,627  
Prepayments 1,400 1,071 1,945  
Inventories 35,900 36,834 44,704  
*Total current assets* *87,794* *78,123* *85,304*  
*Non-current assets*        
Deferred income tax assets 868 731 1,002  
Non-current financial investments 29,313 29,244 23,767  
Investment properties 28,922 28,856 24,766  
Property, plant, and equipment 33,549 34,067 35,042  
Intangible assets 7,440 7,354 7,284  
*Total non-current assets* *100,092* *100,252* *91,861*  
*TOTAL ASSETS* *187,886* *178,375* *177,165*  
LIABILITIES AND EQUITY        
*Liabilities*        
Borrowings 22,576 19,387 18,366  
Prepayments from customers 20,946 18,870 21,310  
Trade and other payables 27,432 23,159 31,888  
Tax liabilities 2,978 3,308 3,033  
Current provisions 150 140 1,950  
*Total current liabilities* *74,082* *64,864* *76,547*  
Borrowings 23,207 23,481 20,412  
Other non-current liabilities 32 32  
*Total non-current liabilities* *23,239* *23,513* *20,412*  
*TOTAL LIABILITIES* *97,321* *88,377* *96,959*  
*Equity*        
Share capital 11,655 11,655 11,523  
Share premium 3,306 3,306 2,509  
Reserves 23,261 23,055 17,815  
Retained earnings 52,343 51,982 48,552  
*Total equity attributable to the owners of the parent company* *90,565* *89,998* *80,399*  
Non-controlling interests -193  
*Total equity* *90,565* *89,998* *80,206*  
*TOTAL LIABILITIES AND EQUITY* *187,886* *178,375* *177,165*  

*CONSOLIDATED STATEMENT OF PROFIT AND LOSS*            
Unaudited                        
EUR '000 *3M* *3M*         *2024* *2023*        
Revenue 46,775 45,269        
Cost of sales -41,939 -39,883        
*Gross profit* *4,836* *5,386*        
Distribution costs -1,195 -1,356        
Administrative expenses -2,517 -2,580        
Other income 19 18        
Other expenses -167 -159        
*Operating profit* *976* *1,309*        
Finance income 92 75        
Finance costs -590 -549        
*Profit before tax* *478* *835*        
Income tax -117 -86        
*Profit for the period * *361* *749*        
*Profit attributable to:*            
Owners of the parent company 361 781            Non-controlling interests -32        
*Earnings per share*            
Basic earnings per share (euros) 0.02 0.04           Diluted earnings per share (euros) 0.02 0.04        

*CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME*    
Unaudited                
EUR '000 *3M* *3M*     *2024* *2023*    
*Profit for the period* *361* *749*    
*Other comprehensive income*        
Items that may be reclassified to profit        
Impact of exchange rate changes of a foreign subsidiaries 106 -41    
Items that will not be reclassified to profit        
Gain on sales of financial assets    
Net gain on revaluation of financial assets 70 36    
*Total comprehensive income for the period* *176* *-5*    
*Other comprehensive income* *537* *744*    
*Total comprehensive income attributable to:*        
Owners of the Company 537 776        Non-controlling interests -32            

Priit Treial
CFO and Member of the Management Board
+372 674 7400

*Attachment*

· HEG Interim Report Q1 2024