In terms of profitability, the second quarter of 2022 turned out to be the most difficult in the history of Harju Elekter. Persistent supply chain problems, in particular in the form of rising material prices and shortages involving several components, affected the profitability. The Group was forced to critically reassess all ongoing works, agreements, and their potential profitability for the coming periods. In addition to the increase in production costs, several projects turned out to be more complex and unprofitable than originally planned, exacerbated by the inefficiencies arising from supply constraints and rising fees for skilled labour.
We have taken a number of steps to cope with the challenges posed by world events. We will continue to reorganise production to ensure efficiency in the face of disrupted supply chains. The relief obtained from framework contract price negotiations has not yet fully been reflected in second quarter results and is more likely to be seen in the second half of the year. On the positive side, the order book is covered for a long period, which is also characterised by continued growth in revenues. The green transition trend and the pressure to ramp up electrification continue to intensify, accelerating investment in electricity networks to ensure reliability and modernisation.
Financial Results
The consolidated revenue for the second quarter of 2022 was 41.9 (Q2 2021: 36.3) million euros, and the revenue for the first half of the year was 79.2 (6M 2021: 67.0) million euros. Comparing both periods, revenue increased in most business areas. Manufacturing and sales of electrical equipment accounted for the majority of the increase, rising by 4.9 million euros in the reporting quarter in yearly comparison and 9.8 million euros in the six-month comparison.
EUR’000
Q2
Q2
+/-
6M
6 M
+/-
2022
2021
2022
2021
Revenue
41,914
36,310
15.4%
79,235
67,028
18.2%
Gross profit
963
4,306
-77.6%
3,949
8,151
-51.6%
EBITDA
-1,953
1,638
-219.2%
-2,022
3,124
-164.7%
Operating profit/loss (-) (EBIT)
-3,048
651
-568.2%
-4,174
1,168
-457.4%
Profit/loss (-) for the period
-3,197
488
-755.1%
-4,491
785
-672.1%
Incl. attributable to owners of the parent company
-3,209
485
-761.6%
-4,517
795
-668.2%
Earnings per share (EPS) (euros)
-0.18
0.03
-700%
-0.25
0.04
-725.0%
The Group's operating expenses increased by 26.5% during quarterly and 6 months comparison. The operating expenses in total for the reporting quarter were 45.2 (Q2 2021: 35.8) million euros, and for the first half of the year 83.6 (6M 2021: 66.0) million euros. The majority of the increase in operating expenses was due to the increase in the cost of sales, up 28% in the comparison of both periods. The increased costs of goods and services sold exceeded the growth rate of revenue by 12.6 percentage points. The increase in distribution costs and administrative expenses was lower than the increase in revenue. Distribution costs increased by 0.2 million to 1.5 million euros quarter-on-quarter, making up 3.4% of the Group's operating expenses and 3.6% of revenue. Administrative expenses increased by 0.3 million euros to 2.8 million euros quarter-on-quarter, accounting for 6.1% of the Group's operating expenses and 6.6% of revenue. The total distribution costs for the first half of the year were 2.9 and administrative expenses were 5.4 million euros. Labour costs increased with quarterly and half-yearly comparison, being 9.1 (Q2 2021: 7.6) and 17.9 (6M 2021: 14.9) million euros, respectively. A majority of the growth in labour costs and average wages was attributed to the significant increase in staff and wage pressure due to labour shortages in all markets.
The gross profit for the Q2 was 963 (Q2 2021: 4,306) thousand euros and the gross profit margin was 2.3% (Q2 2021: 11.9%). The consolidated operating loss (EBIT) was -3,048 (Q2 2021: operating profit 651) thousand euros. The operating margin for the second quarter was -7.3% (Q2 2021: 1.8%). The net loss for the Q2 was -3,197 (Q2 2021: net profit 488) thousand euros of which the share of the owners of the parent company was -3,209 (Q2 2021: 485) thousand euros. The earnings per share were -0.18 euros (Q2 2021: 0.03) in the second quarter. The gross profit for the first half of the year was 3,949 (6M 2021: 8,151) thousand euros and the gross profit margin was 5.0% (6M 2021: 12.2%). During the first six months, the operating loss (EBIT) was -4,174 (6M 2021: operating profit 1,168) thousand euros. In total, the Group's net loss for the first half of the year was -4,491 (6M 2021: net profit 785) thousand euros and earnings per share was -0.25 (6M 2021: 0.04) euros.
Core Business and Markets
The Group's core business, production, accounted for 89.3% of the Group's consolidated revenue. Thanks to the growth in sales volumes of companies manufacturing electrical equipment and the support of large-scale special-order work, the sales volume of the production segment increased by 18.3% to 37.4 million euros in the reporting quarter.
Sales of the reporting quarter to the Estonian market remained at the same level as last year, being 6.9 million euros. In six months, revenue increased by 15.1% to 13.8 million euros. The increase was mainly due to the increase in sales of hermetic distribution transformers and distribution cabinets. The Estonian market accounted for 16.4% (Q2 2021: 19.0%) of the consolidated revenue in the reporting quarter.
In the comparison of markets, the sales growth was the highest for the Finnish market. In the reporting quarter, revenue was 3.7 million euros more than the year before, totaling 22.1 million euros. In six months, 38.8 (6M 2021: 33.0) million euros were earned from the Finnish market. The majority of the sales volume in the reporting quarter consisted of the sale of substations to Finnish electricity network companies. The lower-than-usual six-month revenue in the previous year were mainly affected by a decrease in orders due to the snowy and cold winter, the start of new long-term orders, as well as some supply constraints and material shortages. In the reporting quarter, more than half, or 52.6% (Q2 2021: 50.6%) of Harju Elekter's products and services were sold to the Group's largest market.
Sales to the Swedish market decreased by 43% compared to the reporting quarters and by 19% compared to six months, being 3.5 and 9.3 million euros, respectively. The benchmark for the Swedish market was high, as the Swedish subsidiary had more projects underway than usual in the local market in the same period last year. Sweden accounted for 8.3% (Q2 2021: 16.9%) of the consolidated revenue of the reporting quarter.
Order volumes in the shipping sector in Norway are recovering. During the reporting quarter, 2.9 million euros worth of Group products and services were sold on the Norwegian market, which was 45% more than in the same period of the previous year. Compared to six months, revenue doubled to 7.4 million euros. Revenue increases in both periods are due to low order volume in the comparison periods. The Norwegian market accounted for 6.9% (Q2 2021: 5.5%) of the quarter's revenue.
Investments
During the reporting period, the Group invested a total of 2.2 (6M 2021: 3.9) million euros in non-current assets, incl 1.2 (6M 2021: 0.2) million euros in investment properties, 0.7 (6M 2021: 3.5) million euros in property, plant, and equipment and 0.3 (6M 2021: 0.2) million euros in intangible assets. Most of the investments during the reporting period were directed to the construction of the Laohotell III production and warehouse complex, in the Allika Industrial Park, which today is filled with tenants. In addition, investments were made in production technology equipment and production and process management systems.
The value of the Group's non-current financial investments totaled 23.6 (31.12.21: 25.2) million euros as of the reporting date. The main change were the partial sale of securities and the decrease in fair value of 0.9 million euros in the first half of the year. A total of 1.3 (6M 2021: 1.0) million euros was received from the partial sale of listed securities during the first half of the year, of which the realized profit was 0.32 (6M 2021: 0.27) million euros. Harju Elekter increased its stake in the technology company IGL-Technologies Oy from 5.5% to 10% by 0.2 million euros.
Share
The company's share price on the last trading day of the reporting quarter on the Nasdaq Tallinn Stock Exchange closed at 5.43 euros. As of 30 June 2022, AS Harju Elekter had 9,842 shareholders. The number of shareholders increased during the reporting quarter by 97.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
EUR'000
30.06.2022
31.12.2021
30.06.2021
ASSETS
Current assets
Cash and cash equivalents
629
574
1,576
Trade and other receivables
31,134
33,689
27,215
Prepayments
1,729
1,844
1,366
Inventories
38,185
27,437
24,623
Total current assets
71,677
63,544
54,780
Non-current assets
Deferred income tax assets
762
690
575
Non-current financial investments
23,596
25,222
21,259
Investment properties
24,647
23,903
23,328
Property, plant and equipment
25,794
26,654
24,879
Intangible assets
7,711
7,544
7,224
Total non-current assets
82,510
84,013
77,265
TOTAL ASSETS
154,187
147,557
132,045
LIABILITIES AND EQUITY
Liabilities
Borrowings
20,398
16,912
15,292
Prepayments from customers
8,558
4,659
1,919
Trade and other payables
27,615
24,490
22,208
Tax liabilities
3,525
3,156
2,946
Current provisions
551
35
73
Total current liabilities
60,647
49,252
42,438
Borrowings
14,158
11,426
9,469
Other non-current liabilities
33
33
65
Total non-current liabilities
14,191
11,459
9,534
TOTAL LIABILITIES
74,838
60,711
51,972
Equity
Share capital
11,352
11,352
11,176
Share premium
1,601
1,601
804
Reserves
17,913
18,716
15,173
Retained earnings
48,595
55,315
53,080
Total equity attributable to the owners of the parent company
79,461
86,984
80,233
Non-controlling interests
-112
-138
-160
Total equity
79,349
86,846
80,073
TOTAL LIABILITIES AND EQUITY
154,187
147,557
132,045
CONSOLIDATED STATEMENT OF PROFIT AND LOSS
Unaudited
EUR'000
Q2
Q2
6M
6M
2022
2021
2022
2021
Revenue
41,914
36,310
79,235
67,028
Cost of sales
-40,951
-32,004
-75,286
-58,877
Gross profit
963
4,306
3,949
8,151
Distribution costs
-1,515
- 1,315
-2,866
-2,529
Administrative expenses
-2,764
-2,437
-5,429
-4,654
Other income
322
188
378
360
Other expenses
-54
-91
-206
-160
Operating profit/loss (-)
-3,048
651
-4,174
1,168
Finance income
34
51
74
68
Finance costs
-111
-60
-230
-158
Profit/loss (-) before tax
-3,125
642
-4,330
1,078
Income tax
-72
-154
-161
-293
Profit/loss (-) for the period
-3,197
488
-4,491
785
Profit /loss (-) attributable to:
Owners of the parent company
-3,209
485
-4,517
795
Non-controlling interests
12
3
26
-10
Earnings per share
Basic earnings per share (euros)
-0.18
0.03
-0.25
0.04
Diluted earnings per share (euros)
-0.18
0.03
-0.25
0.04
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited
EUR'000
Q2
Q2
6M
6M
2022
2021
2022
2021
Profit/loss (-) for the period
-3,197
488
-4,491
785
Other comprehensive income
Items that may be reclassified to profit or loss
Impact of exchange rate changes of a foreign subsidiaries
-86
19
-65
-4
Items that will not be reclassified to profit or loss
Gain on sales of financial assets
169
221
320
265
Net gain/loss (-) on revaluation of financial assets
