VärmeKyl Grossisten Scandinavia AB (publ) Interim Report 1 st January- 31 st March 2007

Transcription

1 VärmeKyl Grossisten Scandinavia AB (publ) Interim Report 1 st January- 31 st March 2007 Performance in line with plan, despite moderate Q1 demand Värmekyl Grossisten, VKG, posted net sales of SEK 73.4 million (SEK 14.9 m) for the period from 1 st January to 31 st March. The company posted an operating loss for the period from 1 st January to 31 st March of SEK 7.8 million (SEK 0.4 m) and a loss after tax of SEK 6.1 million (SEK 0.3 m). Earnings per share totalled SEK (SEK 0.02). Warm weather meant that market demand was weaker than expected during the first quarter of The quarter saw VKG incur substantial expansion costs designed to enable a continued high growth rate. Earlier forecasts a turnover for 2007 as a whole of over SEK 530 million and an operating profit of over SEK 50 million - stand. Events after the end of the period: The company s comprehensive reorganisation into a Production side and a Sales side was completed in May and VKG will meet the autumn with a stronger organisation and increased efficiency on both the sales and production fronts. On the 21 st of May, the Board of Directors of VKG resolved that the company s Vice President, Johan Engquist, will be leaving the company with immediate effect. Engquist has acted as Operations Manager since the autumn of 2006 and has been responsible for the company s overall selling activities. The new Marketing and Sales Manager is Lars Byström, one of the founders of VKG, who has also been appointed Vice President of VKG in conjunction with the appointment to his new role. Byström was the company s Marketing and Sales Manager until the autumn of 2006.

2 The President s Statement: Operations Demand has been relatively low during the first quarter of 2007, even taking into account the time of year, says Hagge Rilegård, President of VKG. At the same time, we have grown substantially in terms of our workforce, not least on the production side, and this means carrying costs until the revenues start coming in. The first quarter is traditionally poor in our industry and the warm winter has lowered demand still further. This does, however, apply across the entire industry and the VKG Group will, in our opinion, continue to take market shares in the air heating for consumers, heat pumps for commercial premises, installation and service sectors. For the first time in the company s history, we have failed to exceed our forecasts, but we have still posted net sales, gross margins and operating results that are in line with budgeted figures. There is every indication that demand and market growth will, as in previous years, continue to be good on a whole year basis, which means that we can look forward to a good second half of the year. The driving forces behind profitable growth continue to look strong at both macro and micro levels. The private market accounts, as planned, for approximately 75% of the combined net sales during the first quarter, with the Corporate Market accounting for 25%. The air heating side continues to perform relatively well, not least since the successful introduction of the Nordic air heating pump developed by LG Electronics. VKG is continuing to take market shares, but growth levels in the industry fell short of industry forecasts in the first quarter of Geothermal heating for private customers is performing slightly below expectations. VKG is the dominant player in Greater Stockholm and we are looking forward to a good autumn and winter. Geothermal heating for commercial customers is exceeding expectations. We have taken a number of prestigious orders during Q1 and the first part of Q2, which shows that we are on the right track. Hot air stoves have exceeded expectations on the partnership side and have performed slightly less well on the direct sales to consumers front, whilst sales of energy-saving windows are performing below plan. Measures are now being put in place to boost this product area s sales to planned levels. Installation and servicing are working well and we are now investing heavily in expanding our servicing capacity. The relatively low demand during the first quarter has meant we have suffered a degree of excess capacity on the installation front. The number of VKG Partners is continuing to increase, and now includes all Bauhaus and K-rauta department stores nationwide. Recruitment We are recruiting vigorously for our telemarketing and field sales operations. After an initial period of high staff turnover in Stockholm in the telemarketing function, we are now seeing stability and efficiency there. Telemarketing is becoming an important tool in terms of our efforts to even out the severe seasonal fluctuations from which we, in common with the rest of the industry, are suffering next year. We have also recruited managerial personnel for the production side and the accounts and finance function.

3 Acquisitions VKG is conducting ongoing discussions with regard to acquisitions. We intend to concentrate on fewer, larger acquisitions over the next few years, alongside the smaller complementary acquisitions that we make. Forecast for 2007 Regarding the seasonal variations in our industry, the second quarter will show a god increase in turnover but an operating loss. We expect a high demand in the third and fourth quarter and the earlier forecasts for 2007 stands. The future The cost of heating or cooling is accounting for an increasingly large percentage of both households and companies budgets in Sweden and the rest of the Nordic region. The energy savings market in Sweden alone is worth approximately SEK 15 billion per annum, with heating pumps accounting for between SEK 8 and 10 billion of that total. The segments are growing at different rates ranging from the stagnant market in geothermal heating for the consumer, to a growth rate of 30-35% in air heating, and of over 100% on the buildings and servicing sides. The driving forces for growth look to be strong and durable at both a macro and a micro level. The replacement and servicing markets are, in particular, developing strongly, as are the markets for heat pumps for commercial premises and hot air stoves. VKG believes that we are driving the changes in the market s structure. The old crafts structure, with numerous, small niche players on the retail side is changing. Customers on both the private and the corporate side are keen to have strong suppliers who take responsibility for the entire value chain, and who are in for the long haul. Economies of scale mean that players who can handle large purchases, massive marketing, efficient installation and offer long-term guarantees/service undertakings will be more profitable than smaller players. The industry is in the midst of a vigorous and rapid consolidation process and VKG is a leading player in the change management process. We are in the process of expanding our product range, in order not only to make better use of our vigorous marketing and to reach more customers, but to increase sales volumes per customer. Q saw us introduce hot air stoves from the Dutch firm, Barbas, and energy-saving windows from the Swedish firm, Grundels. In both cases, we have the exclusive distribution rights for the products. VKG is becoming a complete energy-saving partner for its customers. We have taken several steps towards realising our strategy that of consolidating the heavily fragmented energy-saving industry in Sweden. Our healthy organic growth and our acquisitions are enabling us to link together the value chain, from purchasing, through marketing and sales to consumers and corporate customers, to installation and service. The economies of scale continue to be clear and on a whole year basis, we will grow strongly while maintaining good profitability, despite a poorer performance in certain individual months and quarters. We would, as usual, like to thank all our existing customers, shareholders and employees for their faith in us and, at the same time, to welcome new and future customers, shareholders and employees on board. Our ongoing journey together will continue to be an exciting one!

4 Turnover and net profit/loss Net sales during the first quarter totalled SEK 74.3 million (SEK 14.9 m). The Group posted an operating loss of SEK 7.8 million (SEK 0.4 m) and a loss before tax of SEK 8.6 million (SEK 0.4 m). Investments and depreciation Investments in tangible and intangible fixed assets during the quarter totalled SEK 3.4 million (SEK 0.1 m). Depreciation totalled SEK 1.5 million (SEK 0). Financial position, cash flow and equity/assets ratio The Group s net debt at the period end totalled SEK 10.2 million, corresponding to a deterioration of SEK 0.8 million since the beginning of the year. The cash flow for the period totalled SEK 4.6 million (SEK 3.9 m). The Group s shareholders equity increased during the period by SEK 52 million and totalled SEK 91.3 million at the period end, yielding an equity/assets ratio of 50.7%. The corresponding figure at the beginning of the year was 37.2%. Acquisitions Solina Bergvärme AB Solina Bergvärme AB was acquired in January This acquisition is important in order to secure our drilling capacity, which is a crowded sector in the geothermal energy industry. The total cost of the acquisition was SEK 27.9 million, of which the fair value of shares issued totals SEK 11,5 million. The fair value of net assets acquired totals SEK 6.0 million, yielding a goodwill item of SEK 21.9 million. The effect on the Group s liquid assets of the acquisition totalled SEK 8.6 million. Solina Bergvärme AB contributed SEK 3.0 million in revenues and a net loss of SEK 1.1 million to the Group between the acquisition date and 31 st March Other acquisitions Kvalitetskyla i Göteborg AB, an installation company based on the west coast of Sweden, was acquired in February The acquisition enables VKG to secure its own resources in the field of installation and servicing of air heating solutions. Klimatteknik Solsta AB, which has installation and service technicians in Värmland and central Sweden, was also acquired in February Klimatteknik Solsta is also an important player in the context of VKG s geographic expansion and fits in well with VKG s focus on increased sales in central Sweden. VKG Tempiq AB was acquired in February The acquisition gives VKG the exclusive sales rights for BARBAS hot air stoves. The total cost of other acquisitions is SEK 14.4 million, of which the fair value of shares issued totals SEK 7.7 million. The fair value of net assets acquired totals SEK 4.4 million, yielding a goodwill item of SEK 10.0 million. The effect on the Group s liquid assets of the acquisitions is SEK 1.5 million. The other acquisitions contributed SEK 1.3 million in revenues and a net loss of SEK 0.5 million to the Group between the acquisition dates and 31 st March Assets and liabilities acquisition The assets and liabilities of Gävle Luftbehandling AB, which operates in the fields of installation and servicing for air heating and cooling, were acquired in February Their capacity will be utilised both in relation to corporate customers and with regard to installation and servicing work for air heating solutions on behalf of private customers. Significant events An issue comprising a maximum of 400,000 warrants to subscribe was approved at the Extraordinary General Meeting of the company held on 31 st January Every warrant would grant entitlement to subscribe for one share in the company. The warrants would be issued in two classes, C and D, with terms of one year and two years, respectively. The warrants would be issued at market rates, based on the Black & Scholes valuation formula for options. Current and new employees of the Group would

5 be entitled to subscribe. No subscription has occurred and all warrants have expired. The Board of Directors intends to contact the shareholders again at a later date with regard to a revised warrants programme. In February 2007, the Board of Directors of VKG, with the support of a mandate issued by the Extraordinary General Meeting of the company held on 22 nd June 2006, decided to implement a directed share issue comprising 500,000 shares. The shares have been invested in the London-based Oyster European Small Cap Fund at the market price on the trading day of SEK per share, and have yielded a total of SEK 28.9 million for the company. In March 2005, VKG signed a partnership with the Finnish company, Lämpö Plus OY agreement, regarding the sale of heat pumps in Finland. The agreement came with an initial order for 3,000 air heating pumps. The agreement entails the transfer to Finland by VKG, in close cooperation with Lämpö Plus, of know-how in relation to its successful concept in Sweden, involving massive marketing, sound business systems, and efficient installation and servicing. An option agreement whereby VKG may Lämpö Plus OY, provided that VKG discovers no hindrances to an acquisition of this kind, was also signed in conjunction with the launch of the partnership. The possible future difference in the acquisition balance is reported as a contingent liability and totals a discounted current value of SEK 3.9 million. VKG signed a nationwide partnership agreement with Bauhaus during the quarter. The partnership will mean exposure for VKG in all of Bauhaus 15 department stores in Sweden. Bauhaus will also, under its own auspices, be selling LG Electronics full range of Nordic climate-adapted air heating pumps, packaged with installation by VKG. The partnership initially covers the whole of Sweden and the two companies intend to expand it into to other countries in the Nordic region. Forecast for 2007 Regarding the seasonal variations in our industry, the second quarter will show a god increase in turnover but an operating loss. We expect a high demand in the third and fourth quarter and the earlier forecasts - a turnover for 2007 as a whole of over SEK 530 million and an operating profit of over SEK 50 million - stand. Significant events after the period-end The location of the registered offices of the company was changed to Sollentuna at the Annual General Meeting of the company held on 25 th April The Annual General Meeting also elected Lars Grönberg as a board member and authorised the Board to approve the new issue of shares, on one or more occasions, in return for cash payment and/or with provisions regarding payment in kind or offset, or otherwise with provisions, and, in connection therewith, to deviate from the shareholders preferential rights. The total number of shares that may be issued under the provisions of this mandate may not exceed 1,700,000. In May, the Board of Directors of VKG resolved that the company s Vice President, Johan Engquist, will be leaving the company with immediate effect. Engquist has acted as Operations Manager since the autumn of 2006 and has been responsible for the company s overall selling activities. The new Marketing and Sales Manager is Lars Byström, one of the founders of VKG, who has also been appointed Vice President of VKG in conjunction with the appointment to his new role. Performance by business area Private Market The Private Market is engaged in sales, installation and servicing activities for private customers. The division posted net sales for Q1 of SEK 60.2 million (SEK 14.9 m) and an operating loss of SEK 7.9 million (SEK 0.4 m). Sales to other business areas are made on strictly market terms.

6 Corporate Market The Corporate Market is engaged in sales, planning, installation and servicing activities for companies, the public sector, commercial property owners, etc. The division posted net sales for Q1 of SEK 19.0 million (SEK 0) and an operating profit of SEK 0.1 million (SEK 0). Sales to other business areas are made on strictly market terms. Employees The Group had a total of 212 (15) employees, as of 31 st March The average number of employees during the period was 179 (13). Share capital The company had a total of 16,977,500 (13,812,500) outstanding shares at the end of the quarter. Earnings per share before dilution totalled SEK 0.38 (SEK 0.02) and earnings per share after dilution totalled SEK 0.37 (SEK 0.02). Parent Company The Parent Company, Värmekyl Grossisten Scandinavia AB (publ), is an operating company that sells and installs energy-saving products. The Parent Company is also responsible for the Group-wide management and administration. The Parent Company posted net sales for the period of SEK 47.5 million (SEK 11.0 m), an operating loss of SEK 5.0 million (-SEK 1.1 m) and a loss before tax of SEK 5.6 million (-SEK 1.1 m). Audit The Interim Report has not been subject to an audit by the company s auditors. Both a Swedish and an English language version of this report have been prepared. The Swedish version shall, in the event of any discrepancies between the two, take precedence. Accounting principles This Interim Report has been prepared in accordance with IAS 34 and in accordance with recommendation RR 31 of the Swedish Financial Accounting Standards Council, and, with regard to the Parent Company, in accordance with recommendation RR 32 of the same body. The accounting principles applied correspond to those presented in the 2006 Annual Accounts. The comparison period for Q has been adjusted with regard to the transition to IFRS. The change entailed a reduction of SEK 1.5 million in net sales and of SEK 1.5 million in the operating profit/loss. The change is attributable to revenue recognition in accordance with IAS 18. Reporting dates Interim Reports for 2007 will be published on 20 th July and 23 rd October. The Preliminary Financial Statement for 2007 will be published on 5 th February Sollentuna, 31 st May 2007 Värmekyl Grossisten Scandinavia AB (publ) Hagge Rilegård President/CEO Please address any questions in connection with the Interim Report to: Hagge Rilegård Tomas Thorsbrink President/CEO CFO Mob. +46 (0) Mob. +46 (0)

7 Consolidated Income Statement Net sales Work performed by the company for its own use and capitalised Other income Goods for resale Other external costs Staff overheads Depreciation and write-downs of tangible and intangible assets Other operating expenses Operating profit/loss Financial items, net Profit/loss before tax Income tax Net profit/loss for the period Profit/loss attributable to: Parent Company s shareholders Minority shareholdings Earnings per share, SEK - before dilution effects after dilution effects Calculation of earnings per share Profit/loss attributable to Parent Company s shareholders Average number of shares before dilution, thousand Average number of warrants, thousand Average number of shares after dilution, thousand Margins (per cent) Operating margin -10.5% 2.9% 8.2% Net financial items margin -1.0% -0.3% -0.6% Profit margin -11.5% 2.6% 7.6% Taxes 3.3% -0.7% -1.8% Net margin -8.3% 1.9% 5.8%

8 Consolidated Balance Sheet Assets Goodwill Intangible assets Tangible fixed assets Total fixed assets Inventories Accounts receivable and other receivables Liquid assets Total current assets Total assets Shareholders equity Share capital Other capital contributed Profit carried forward inc. net profit/loss for the period Total shareholders equity Liabilities Interest-bearing long-term liabilities Deferred tax liabilities Other provisions Total long-term liabilities Accounts payable and other liabilities Current tax liabilities Interest-bearing current liabilities Other provisions Total current liabilities Total liabilities Total shareholders equity and liabilities Equity/assets ratio 50.7 % 37.2 % Debt/equity ratio (multiple) Net debt

9 Cash Flow Statements Profit/loss after financial items Interest income received Financial expenses paid Adjustments for items not included in the cash flow Tax paid Cash flow from operating activities before change in working capital Cash flow from change in working capital Change in inventories Change in operating receivables Change in operating liabilities Cash flow from operating activities Investment activities Acquisition of operations Acquisition of tangible and intangible fixed assets Sale of tangible fixed assets Acquisition of intangible fixed assets Cash flow from investment activities Financial activities Payment from issue less issue costs Payment from warrants Loans raised Amortisation of loans Cash flow from financial activities Cash flow for the period Liquid assets at beginning of period Liquid assets at end of period

10 Changes in the Group s shareholders equity Amount at year-end, New issue less issue costs Warrants 375 Net profit/loss for the year Amount at year-end, New issue less issue costs Warrants Net profit/loss for the year Amount at period-end, Business area - Private Market External Net sales Inter-business areas sales Net sales between business areas Other revenues Operating profit/loss Operating margin, % -13.2% 2.9% 8.7% Business area - Corporate Market External Net sales Inter-business areas sales Net sales between business areas Other revenues Operating profit/loss Operating margin, % 0.6% - 7.3%