Commentary from the management
2023 will remain in Harju Elekter's history as a year of transformation. We managed to turn the deep loss of the previous year into a strong profit, while achieving the largest operating profit in the Group's history and a satisfactory net profit despite increased interest rates.
The fourth quarter results were weaker than usual due to the seasonality of the business, but compared to the same period last year, the results have continued to improve. In particular, we can be content with the change in operating profit (EBIT), which remained at a satisfactory level even after the year-end revaluation of the profitability of the projects and assets. Instead of losses in 2022, the Group earned both operating and net profit in 2023.
The year was marked by a number of fundamental decisions and pivotal changes to be proud of. The merger of the Estonian subsidiaries was more successful than expected, as demonstrated by the strong financial results. We can also be proud of the Lithuanian manufacturing company, which by today has grown to become the largest unit in the Group, and which we can commend for the strongest financial performance among all companies of the Group. In Finland, which continues to be our principal market, we exited from lower-volume business lines last year and focused on core activities and the strengthening thereof. Although the anticipated forecasts of turning the Swedish unit profitable did not materialise in the reporting year, we will continue our determined work towards making the company profitable in 2024.
As a whole, the structural reforms launched at the end of 2022 and introduced last year, as well as the implementation of the Strategic Action Plan, have been successful. In the spring, we will start setting the strategic targets for the Group's next growth period, driven by the need to increase the Group's EBIT margin and, in line with the expectations of shareholders, by the continued desire to increase the dividend. The Group's central strategic objective in the coming years will be profitable growth.
Revenue and financial results
The Group's revenue in the fourth quarter was 50.7 million euros, similar to the previous year's revenue result of 50.0 million euros. However, in a full year comparison, we achieved faster increase in revenue at 19.2% per year. This was underpinned by strong framework agreements and increased demand for the Group's services. In total, the Group's revenue for 2023 was 209.0 (2022: 175.3) million euros.
| EUR '000 | Q4 | Q4 | +/- | 12M | 12M | +/- | |
| 2023 | 2022 | 2023 | 2022 | ||||
| Revenue | 50,737 | 49,978 | 1.5% | 209,014 | 175,293 | 19.2% | |
| Gross profit | 4,218 | 2,517 | 67.6% | 23,588 | 12,269 | 92.3% | |
| EBITDA | 1,920 | -943 | 303.6% | 12,444 | 217 | 5634.6% | |
| Operating profit/loss (-) (EBIT) | 758 | -2,063 | 136.7% | 8,078 | -4,546 | 277.7% | |
| Profit/loss (-) for the period | 135 | -2,482 | 105.4% | 5,160 | -5,567 | 192.7% | |
| Earnings per share (EPS) (euros) | 0.01 | -0.14 | 105.3% | 0.28 | -0.31 | 191.7% |
The Group's operating expenses decreased by 2.9% comparing the fourth quarters, being a total of 50.4 million euros. Lower costs were observed in all cost groups, especially in distribution costs and administrative expenses. Labour costs, on the other hand, increased by 15%.
Distribution costs were 1.3 (Q4 2022: 1.4) and administrative expenses 2.7 (Q4 2022: 3.0) million euros in the quarter. The total distribution costs of the year were 5.3 (2022: 5.6) million euros and administrative expenses 10.1 (2022: 11.2) million euros.
Labour costs increased in both periods, being 10.5 (Q4 2022: 9.1) and 39.9 (2022: 34.4) million euros, respectively. The majority of the increase in labour costs originates from staff growth, and the growth in average wages was influenced by wage pressure from the overall economy.
The gross profit for the quarter was 4,218 (Q4 2022: 2,517) thousand euros and the gross profit margin was 8.3% (Q4 2022: 5.0%). The fourth quarter operating profit (EBIT) was 758 (Q4 2022 operating loss: -2,063) thousand euros and the operating margin was 1.5% (Q4 2022: -4.1%). Net profit for the fourth quarter was 135 (2022: -2,520) thousand euros, which is 0.01 euros per share. This is a significant improvement compared to the fourth quarter of 2022, when net profit per share was -0.14 euros.
The gross profit for the year was 23,588 (2022: 12,269) thousand euros and the gross margin was 11.3% (2022: 7.0%). During the year, operating profit (EBIT) of 8,078 (2022: operating loss -4,546) and net profit of 5,160 (2022: net loss -5,544) thousand euros were earned. Net profit per share was 0.28 (2022: net loss per share -0.31) euros.
Core business and markets
The Group's core business, Production, accounted for 94.0% (Q4 2022: 92.5%) of the revenue of the quarter. The production segment's revenue increased by 3.2% quarterly and by 25.6% annually, amounting to 47.7 and 197.9 million euros respectively.
The Group's largest target markets are Estonia, Finland, Sweden, and Norway, where a total of 78.4% (Q4 2022: 89.7%) of the Group's products and services were sold in the quarter.
In the fourth quarter, 5.2 (Q4 2022: 7.6) million euros were earned from Estonia, which was 2.4 million euros less than a year earlier. Compared to year before, the revenue decreased by 9.4 million to 20.9 million euros. The decrease in revenue in both periods is mostly related to the termination of the retail and project-based sale of electrical products in Estonia but sales of electrical equipment to contract customers also decreased. The increased volume in the previous year originated mainly from the contract for hermetic distribution transformers and distribution cabinets. The Estonian market accounted for 10.3% (Q4 2022: 15.2%) of the revenue of the quarter.
Compared to the quarters, revenue in Finland decreased by 7.7% to 19.6 (Q4 2022: 21.3) million euros. Revenue growth was hindered by a decline in investment in electricity networks due to regulatory changes in network charges. During the year, a total of 83.3 (2022: 81.8) million euros were earned from Finland, mainly from the supply of package substations and low-voltage distribution equipment. The Group's largest market sold 38.7% (Q4 2022: 42.5%) of Harju Elekter products and services in the reporting quarter.
The revenue of the Swedish market increased due to the rise in the sale of substations and the growth of project business, being 9.2 (Q4 2022: 7.1) in the quarter and 32.5 (2022: 22.8) million euros in the summary of the year. Sweden accounted for 18.1% (Q4 2022: 14.2%) of the revenue of the reporting quarter.
Revenue from the Norwegian market was 5.7 (Q4 2022: 8.9) in the quarter, and 33.8 (2022: 21.8) million euros during the year. Revenue was mainly generated from the production of frequency converter systems and electrical and automation panels for the maritime and shipping sector. The Norwegian market accounted for 11.3% (Q4 2022: 17.8%) of the revenue of the reporting quarter.
Revenue from other markets increased by 5.8 to 11.0 million euros year-on-year. Revenue increased mainly from the Germany and Netherlands markets. In annual comparison, revenue from other markets increased by 20.0 million euros to 38.5 million euros. Most of the growth came from sales to the USA, where frequency converter equipment and MCC systems were shipped to the United States Steel Corporation's Big River Steel plant. Other markets accounted for 21.6% (Q4 2022: 10.3%) of the revenue of the reporting quarter.
Investments
During the reporting period, the Group invested a total of 6.9 (2022: 15.2) million euros in non-current assets, incl 5.2 (2022: 1.8) in investment properties, 1.4 (2022: 12.9) in property, plant, and equipment and 0.4 (2022: 0.5) million euros in intangible assets. Most of the investments during the reporting period were made in the construction of the production building to be rented out to Reimax Electronics OÜ in the Allika Industrial Park, which was completed at the end of the year. In addition, investments were made in other real estate objects, production technology equipment, and production and process management systems.
The value of the Group's non-current financial investments totalled 29.2 (31.12.22: 23.7) million euros as of the reporting date. The main part of the revaluation of financial assets in 2023 came from the estimated fair value change of OÜ Skeleton Technologies Group's investment, which increased by 5.4 million euros to 27.2 million euros. The fair value of listed securities increased by 0.1 million euros during the year, compared to a decrease by 0.7 million euros a year earlier. There were no acquisitions or sales of listed securities during the year.
Share
The company's share price on the last trading day of the reporting quarter on the Nasdaq Tallinn Stock Exchange closed at 4.97 euros. As of 31 December 2023, AS Harju Elekter Group had 11,164 shareholders. During the quarter, the number of shareholders decreased by 105 and increased by 580 during the entire year.
Dividend Proposal
In coordination with the Supervisory Board, the Group's Management Board will propose to pay dividends to the shareholders 0.13 euros per share, totalling 2.4 million euros and representing 47% of consolidated net profit in 2023.
| CONSOLIDATED STATEMENT OF FINANCIAL POSITION | ||||
| Unaudited | ||||
| EUR '000 | 31.12.2023 | 31.12.2022 | ||
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | 1,381 | 9,152 | ||
| Trade and other receivables | 38,837 | 31,612 | ||
| Prepayments | 1,071 | 1,126 | ||
| Inventories | 36,834 | 37,068 | ||
| Total current assets | 78,123 | 78,958 | ||
| Non-current assets | ||||
| Deferred income tax assets | 731 | 1,008 | ||
| Non-current financial investments | 29,244 | 23,731 | ||
| Investment properties | 28,856 | 24,756 | ||
| Property, plant, and equipment | 34,067 | 35,740 | ||
| Intangible assets | 7,354 | 7,244 | ||
| Total non-current assets | 100,252 | 92,479 | ||
| TOTAL ASSETS | 178,375 | 171,437 | ||
| LIABILITIES AND EQUITY | ||||
| Liabilities | ||||
| Borrowings | 19,387 | 24,385 | ||
| Prepayments from customers | 18,870 | 16,827 | ||
| Trade and other payables | 23,159 | 24,502 | ||
| Tax liabilities | 3,308 | 3,478 | ||
| Current provisions | 140 | 2,103 | ||
| Total current liabilities | 64,864 | 71,295 | ||
| Borrowings | 23,481 | 20,732 | ||
| Other non-current liabilities | 32 | 0 | ||
| Total non-current liabilities | 23,513 | 20,732 | ||
| TOTAL LIABILITIES | 88 377 | 92 027 | ||
| Equity | ||||
| Share capital | 11,655 | 11,523 | ||
| Share premium | 3,306 | 2,509 | ||
| Reserves | 23,055 | 17,768 | ||
| Retained earnings | 51,982 | 47,771 | ||
| Total equity attributable to the owners of the parent company | 89,998 | 79,571 | ||
| Non-controlling interests | 0 | -161 | ||
| Total equity | 89,998 | 79,410 | ||
| TOTAL LIABILITIES AND EQUITY | 178,375 | 171,437 |
| CONSOLIDATED STATEMENT OF PROFIT AND LOSS | |||||||||
| Unaudited | |||||||||
| EUR '000 | Q4 | Q4 | 12M | 12M | |||||
| 2023 | 2022 | 2023 | 2022 | ||||||
| Revenue | 50,737 | 49,978 | 209,014 | 175,293 | |||||
| Cost of sales | -46,519 | -47,461 | -185,426 | -163,024 | |||||
| Gross profit | 4,218 | 2,517 | 23,588 | 12,269 | |||||
| Distribution costs | -1,260 | -1,449 | -5,320 | -5,578 | |||||
| Administrative expenses | -2,657 | -3,037 | -10,112 | -11,194 | |||||
| Other income | 495 | 2 | 314 | 308 | |||||
| Other expenses | -38 | -96 | -392 | -351 | |||||
| Operating profit/loss (-) | 758 | -2,063 | 8,078 | -4,546 | |||||
| Finance income | 456 | 5 | 97 | 78 | |||||
| Finance costs | -624 | -433 | -2,103 | -809 | |||||
| Profit/loss (-) before tax | 590 | -2,491 | 6,072 | -5,277 | |||||
| Income tax | -455 | 9 | -912 | -290 | |||||
| Profit/loss (-) for the period | 135 | -2,482 | 5,160 | -5,567 | |||||
| Profit /loss (-) attributable to: | |||||||||
| Owners of the parent company | 135 | -2,520 | 5,160 | -5,544 | |||||
| Non-controlling interests | 0 | 38 | 0 | -23 | |||||
| Earnings per share | |||||||||
| Basic earnings per share (euros) | 0.01 | -0.14 | 0.28 | -0.31 | |||||
| Diluted earnings per share (euros) | 0.01 | -0.14 | 0.28 | -0.30 | |||||
| CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | ||||||||
| Unaudited | ||||||||
| EUR '000 | Q4 | Q4 | 12M | 12M | ||||
| 2023 | 2022 | 2023 | 2022 | |||||
| Profit/loss (-) for the period | 135 | -2,482 | 5,160 | -5,567 | ||||
| Other comprehensive income (loss) | ||||||||
| Items that may be reclassified to profit or loss | ||||||||
| Impact of exchange rate changes of a foreign subsidiaries | -212 | -47 | -139 | -208 | ||||
| Items that will not be reclassified to profit or loss | ||||||||
| Gain on sales of financial assets | 0 | 0 | 0 | 320 | ||||
| Net gain/loss (-) on revaluation of financial assets | -3,266 | 20 | 5,516 | -726 | ||||
| Total comprehensive income (loss) for the period | -3,478 | -27 | 5,377 | -614 | ||||
| Other comprehensive income (loss) | -3,343 | -2,509 | 10,537 | -6,181 | ||||
| Total comprehensive income (loss) attributable to: | ||||||||
| Owners of the Company | -3,343 | -2,547 | 10,537 | -6,158 | ||||
| Non-controlling interests | 0 | 38 | 0 | -23 | ||||
Priit Treial
CFO and Member of the Management Board
+372 674 7400
