CENCORP CORPORATION’S FINANCIAL STATEMENT RELEASE 2012

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Cencorp Corporation     Financial Statement Release  15 February 2013 at 12.00 Finnish time

 

 

CENCORP CORPORATION’S FINANCIAL STATEMENT RELEASE 2012

 

The net sales of Cencorp Corporation’s (“Cencorp”) continuing operations for the reporting period January – December 2012 was EUR 15.4 million (EUR 21.6 million in 2011). The operating profit of continuing operations was EUR -3.9 million  (-4.3), profit for the period EUR -4.8 million (-4.8), earnings per share were EUR -0.01 (-0.01) and EBITDA was EUR -1.6 million (-1.7).

 

GENERAL

 

Cencorp belongs to the Finnish Savcor Corporation (“Savcor”). Savcor Group companies owned approximately 78,9 % of the Cencorp shares on 31 December 2012.
 

More information on principle activities and events during the reporting period can be found in the stock exchange releases published on Cencorp’s website at www.cencorp.com.

 

The Financial Statement Release has been drawn up in compliance with the IAS 34 Interim Financial Reporting standard. In the Financial Statement Release Cencorp has applied the same accounting principles as in the annual report 2011. The Financial Statement Release has not been audited.

 

 

FINANCIAL DEVELOPMENT
 

The two business segments Cencorp reports of are Laser and Automation Applications, and Special Components. The Laser and Automation Applications segment comprises Cencorp’s operations preceded the Face (Telecom) transaction and the Special Components segment the business acquired through the Face (Telecom) transaction in 2010. Since the Guangzhou plant closing announced in May the Special Components segment comprises only special component production at the Beijing plant.

 

The figures in brackets are comparison figures for the corresponding period in 2011, unless stated otherwise. 29 May 2012 Cencorp announced that it exits from its unprofitable decoration business and closes down its plant in Guangzhou, China, producing decoration applications. In consequence of the closing down of the Guangzhou plant and the exit from decoration business Cencorp reports the financial figures relating to the Guangzhou plant’s decoration business as discontinued operations from now on. In Cencorp’s financial reports the profit of discontinued operations is reported on a separate line, apart from continued operations, thus, the income statement, except the discontinued operations item, concern the company’s continued operations only.

 

October - December 2012 (continued operations)

 

- Cencorp Group’s net sales decreased by 34.9 per cent to EUR 3.3 million (EUR 5.1 million).

- EBITDA was EUR -0.8 million(EUR -0.5 million).
- Operating profit was EUR -1.5 million (EUR -1.4 million).

- The Group’s profit before taxes was EUR -1.9 million (EUR -1.2 million).

- Profit for the period was EUR -1.9 million (EUR -1.2 million).
- Earnings per share were EUR -0.005 (EUR -0.003) and diluted earnings per share EUR -0.005 (EUR -0.003).

- Net sales of the Laser and Automation Applications segment decreased by 18.1 per cent to EUR 2.2 million (EUR 2.7 million) and operating profit was EUR -1.1 million (EUR -1.3 million). The segment’s EBITDA was EUR -0.8 million (EUR -0.8 million).
- Net sales of the Special Components segment decreased by 52.7 per cent to EUR 1.1 million (EUR 2.4 million) and operating profit was EUR -0.4 million (EUR -0.1 million). The segment’s EBITDA was EUR -0.03 million (EUR -0.4 million). 

 

January – December 2012 (continued operations)
 

- Cencorp Group’s net sales decreased by 28.5 per cent to EUR 15.4 million (EUR 21.6 million).

- The order book at the end of December stood at ca. EUR 1.4 million (EUR 2.8 million).

- EBITDA was EUR -1.6 million (EUR -1.7 million).
- Operating profit was EUR -3.9 million (EUR -4.3 million).

- The EBITDA and the operating profit include a one-off profit of EUR 1.2 million from the sale of Beijing plant.
- The Group’s profit before taxes was EUR -4.8 million (EUR -4.8 million).

- Profit for the period was EUR -4.7 million (EUR -4.8 million).
- Earning per share were EUR -0.01 (EUR -0.01) and

diluted earnings per share were EUR -0.01 (EUR -0.01).

- The equity ratio at the end of December was 25.2 per cent (51.2 %). Sharp drop in the equity ratio originates, among other things, from write-off of ca. EUR 5.7 million relating to the closing of the Guangzhou plant.

- Net sales of the Laser and Automation Applications segment decreased by 36.2 per cent to EUR 9.6 million (EUR 15.1 million) and operating profit was EUR -3.2 million (EUR -2.5 million). The segment accounted for 69.6 percent of the Group’s net sales. The segment’s EBITDA was EUR -2.4 million (EUR -1.3) million.
- Net sales of the Special Components segment increased by 11.0 per cent to 5.9 million (EUR 6.6 million) and operating profit was EUR -0.7 million (EUR -1.7 million). The segment accounted for 30.4 per cent of the Group’s net sales. The segment’s EBITDA was EUR 0.8 million (EUR -0.4 million).

- The operating profit of the Special Components segment include a one-off profit of EUR 1.2 million from the sale of the Beijing plant. The company continues its operation in the same building as lessee.

 

MARKET OUTLOOK

 

Cencorp is in transition from a company manufacturing only production automation applications and special components into a company that develops and provides Cleantech applications. The company’s objective is to achieve a strong market position as provider, using laser and automation technology, of high-quality photovoltaic modules that are locally produced in different market. The necessary transition phase provided by the company’s strategy is going on and proceeding according to the plans. 

 

On 29 January 2013 Cencorp and Sunweb Solar Energy Holding BV (Sunweb Solar) completed a transaction in which Cencorp acquired Sunweb Solar's photovoltaic module business and related pilot production line, the Sunweb trademark as well as the patents and other intellectual property rights relating to the business.

 

Cencorp’s goal is to manufacture and implement a photovoltaic module production line, based on Cencorp's own layout, in Finland. The location of Cencorp’s photovoltaic module factory will probably be either Mikkeli or Salo. The plant is expected to be ready in early 2014 and according to Iikka Savisalo, Cencorp’s CEO, the plant's turnover will exceed 50 million Euros when operating at full capacity. Sales negotiations on the plant's production capacity are run with several foreign operators.

 

Negotiations with Avery Dennison Corporation (Avery Dennison), a US based company, on acquiring Avery Dennison's Conductive Back Sheet business have not yet been completed.

 

Cencorp has announced that it has signed a Memorandum of Understanding on delivering Conductive Back Sheets (CBS) to one of the leading Chinese photovoltaic module manufacturers. The value of the Memorandum of Understanding is expected to be at its minimum ca. EUR 20 million over the next three years. Based on the latest written estimate given by the customer mass production of CBS components will commence in the first half of the year 2013. The Memorandum of Understanding is non-binding. However, in regard to the Memorandum of Understanding on delivering CBS to the Chinese photovoltaic module manufacturer, the estimated minimum value of EUR 20 million for the next three years will probably stay non-binding even though the actual Memorandum of Understanding turns into a binding supply contract. In this business sector customers do not give binding order estimations.

 

In the company’s strategy Cencorp has emphasized its growth being based on new Cleantech solutions and applications for new energies, in particular. Cencorp’s Cleantech strategy, if realized, will remarkably change the company’s cost structure and the targets set for the near future. As Cencorp is now in a strong transition phase, following the new strategy, Cencorp cannot assess how the change in company’s business focus will impact the company, due to which Cencorp has decided not to give any financial guidance for the time being, as stated in the release of 21 August 2012. As the transition phase is still continuing Cencorp does not give any financial guidance either in 2013. 

 

Cencorp’s future outlook will be highly dependent on the company’s ability to reach the targeted market position in the global photovoltaic module market as well as on the company’s long-term and short-term financing. Cencorp’s goal is to reach strong market position as provider of locally produced high-quality photovoltaic modules. Risks are handled in more detail in the item Risk management, risks and uncertainties of this financial statement release.

 

 

LONG-TERM OBJECTIVES FOR MANAGING DIRECTOR

 

On 21 August 2012 Cencorp’s Board of Directors published its long-term financial and other objectives for Managing Director as follows:

  • Thorough but fast transition from a company manufacturing only production automation applications and special components into a company that develops and provides Cleantech applications with a strong market position as provider, using laser and automation technology, of locally in different market areas produced, high-quality photovoltaic modules.
  • Cencorp’s goal is to increase its shareholder value with growth and profitability. Cencorp aims for growth in Cleantech business where the company has good possibilities to achieve a strong global position and faster growth.
  • Laser and Automation Applications segment has its main focus on the life cycle management of systems and equipments with growth expectations for service business.
  • In the long run Cencorp is aiming for remarkable growth in its net sales with net sales target of more than EUR 200 million for 2016, provided the company has sufficient capital with growth coming mainly from Cleantech operations, especially from solar photovoltaic and fuel cell applications.

 

The long-term objectives set for the Managing Director involve also risks and the long-term objectives should not be considered as the company’s financial guidance. Even though the objectives are based on market knowledge and technical surveys, the risks are significant and it is not certain if the Managing Director reaches all or part of the targets set for him.

 

MANAGING DIRECTOR IIKKA SAVISALO’S REVIEW

In the last quarter of the fiscal year 2012 demand for Cencorp products was low. However, at the end of the fiscal year the markets seemed to start picking up. As a result of the statutory negotiations, run in the second quarter, the organization became leaner enabling it better to adjust its operations for lower demand. Extra savings were generated by outsourcing the production of almost all products in the area of Cencorp’s Laser and Automation Applications. The outsourcing project, that took almost two years, was successful creating base for improving profitability. Major investments in the Cleantech business and particularly in the development of next generation photovoltaic modules, related components and production automation started showing concrete results at the end of the year.

 

The company’s own capital and financing position was strengthened in December 2012 as the convertible bond of EUR 1.5 million was fully subscribed. Additionally, a decision of The Finnish Funding Agency for Technology and Innovation – Tekes to give a loan of about EUR 3 million for Cencorp’s Cleantech business had a positive impact in company’s financing position.

 

Cencorp is focusing on taking advantage of the technology transition stage going on in the global solar energy business and bringing new products and solutions using the latest photovoltaic technology in the further growing market.  As the first solar photovoltaic product, Cencorp introduces next generation Conductive Back Sheet, used in photovoltaic modules, in the market. Further to this Cencorp has announced on 5 November 2012 that it has signed a Memorandum of Understanding with a major Chinese photovoltaic module manufacturer on delivering Conductive Back Sheets. Deliveries and relating cash flow is expected to start during the first half of 2013.

 

Cencorp utilizes its production automation knowhow of 30 years, in addition to its CBS technology. With the support of Sunweb Solar’s technology and market knowledge that Cencorp acquired at the end of January 2013 Cencorp has designed a fully automated production line to manufacture next generation CBS solar modules in an extremely competitive way. Automation process can be very well adapted to production of next generation solar modules. Fully automated production line designed by Cencorp enables profitable module production regardless of labor costs, close to final installation. Europe continues to be the leading market area for photovoltaic modules and Cencorp views there will be also European buyers for its production lines.

 

Cencorp is seeking to become a market leader in the field of CBS photovoltaic production technology. The company has started building its first full size photovoltaic module pilot production line for the company’s own use. The production line will be presented to the customers that are interested in automated solar module production. The module factory's final location will be either Mikkeli or Salo. In 2013 Cencorp will launch a collection of photovoltaic modules with advanced and modern design. The intention is to manufacture modules also at potential licensees’ plants worldwide, in addition to Cencorp’s own plant. The company estimates the first commercial photovoltaic module deliveries to start at the year-end of 2013. Cencorp also expects to sign its first contract on delivering module production line in the course of 2013.

 

 

OPERATING ENVIRONMENT

Cencorp mainly operates in industries applying electronics and Cleantech technology. Its main geographical market areas are Europe, North America, South America and Asia. Cencorp’s key customers for laser and automation applications operate globally and require local service. The global electronics industry, including the manufacture of mobile phones, is mostly concentrated in Asia, the domestic market area for the special components manufactured by Cencorp.

 

Special Components

In the near future the focus of Cencorp’s Special Components business will be in component manufacturing for next generation solar modules. The investment at the Beijing plant to enable mass production of large roll-to-roll Conductive Back Sheets is almost completed. Cencorp is confident that its Beijing plant will be one of the world’s most competitive plants of its kind. Cencorp’s Memorandum of Understanding (MOU) on delivering CBS components to one of the leading solar module manufacturer is one proof of this. The MOU was announced on 5 November 2012. Cencorp has also started negotiations with several other leading solar module manufacturers. According to external experts' estimations the demand for CBS components will grow very fast in the next five years. Cencorp views the company will get a remarkable market share in the photovoltaic market provided it has sufficient capital to increase required capacity.

 

Even though Cencorp’s growth expectations lie mainly on photovoltaic module components, the company also provides tens of millions of NFC, RFID, WIFI and other flexible circuits used in mobile devices. Cencorp believes it has become the leading manufacturer of NFC (Near Field Communication) antennas. Cencorp estimates that as NFC antennas become more commonly used in mobile phone, Cencorp’s own antenna production will also grow.

 

Laser and Automation Applications

Demand for automation equipment that started to slow down in the second quarter, continued declining also in the third quarter, due to which Cencorp’s result turned negative despite leaner organization and lower cost structure. In order to decrease the influence of strong cycles relating to demand for automation applications, business development is gradually being focused more and more towards life cycle management. The demand for life cycle management services continued to be at reasonable level also throughout the last quarter. Cencorp’s operations in North America made a profitable full-year EBITA. The company believes that the market outlook for life cycle management services continue to be positive particularly in the North American market.   

 

Demand for automation applications started recovering slowly at the end of the third quarter and positive trend continued throughout the fourth quarter. Even our customers were more active than before, Cencorp did not manage to get any major new orders in the field of electronics automation industry by the end of the year. According to Cencorp’s experience customers postponed orders because of general uncertain economic situation. However, value of the company’s order book is estimated to increase into acceptable level in the near future. An order of EUR 0.6 million for odd-form automation solutions, Cencorp received from a European customer, supports also this assumption. Cencorp’s laser and automation applications have been updated and are now competitive and the company finds no obstacle for growing demand, at least in terms of product portfolio.

 

Besides the traditional depaneling, laser materials processing and odd-form assembly Cencorp has started designing equipment used in photovoltaic module production. The company believes that demand for automated module production lines will very soon start growing fast due to the technological shift. Cencorp estimates that its automation applications designed for solar module production, will generate positive cash flow already in the fiscal year 2013.

 

 

FINANCING

Cash flow from business operations before investments in January – December was EUR -0.5 million (EUR -1.9 million). Trade receivables at the end of the reporting period were EUR 2.0 million (EUR 6.4 million). Net financial items amounted to EUR -0.8 million (EUR -0.6 million).

 

At the end of December, the equity ratio was 25.2 per cent (51.2 %) and equity per share was EUR 0.01 (EUR 0.05). At the end of the reporting period, the Group’s liquid assets totaled EUR 0.6 million (EUR 0.3 million) unused export credit limits, bank guarantee limits and factoring loans amounted to EUR 1.7 million (EUR 1.1 million). Sharp drop in the equity ratio originates, among other things, from write-off of ca. EUR 5.7 million relating to the closing of the Guangzhou plant.

 

As previously announced, Cencorp’s financing position has been tight and it involves risks. The loan arrangement of about EUR 3 million made with Tekes in December 2012 and the EUR 1.5 million convertible bond subscribed in December 2012 have positive effects in Cencorp's financing position. However, the Cencorp’s ongoing transition into a company that develops and provides Cleantech applications requires major investments. According to estimates available, the company's financing position continues to be tight until the transition phase has been completed successfully.

 

Cencorp has commenced preparing a share issue. The objective of the share issue is to finance establishing of photovoltaic module business plan. Cencorp will inform later on the terms and schedule of the share issue. The company is also negotiating different kind of financing arrangements with other investors in order to realize its business plan.

 

Cencorp agreed with its financers on amendment of the financial agreements and announced on 3 December 2012 that:

- Sampo Pankki Oyj’s financial facility agreement totaling EUR 4 million was continued until the end of June 2013;

- the maturity date of a convertible bond of some EUR 1.2 million from Savcor Group Oy was extended until the end of June 2013; and

- the maturity date of a loan of EUR one million from Savcor Invest BV (former AC Invest BV), a daughter company of Savcor Group Oy, was extended until the end of June 2013.
 

According to estimates available, the company’s financing position will continue to be tight. According to the opinion of Cencorp management the working capital of the company is not sufficient to complete the ongoing investment plan, based on the company’s strategy, for next twelve (12) months. From the company’s point of view, one of the most important risks is sufficiency of working capital. Cencorp has loans which will be due in following twelve (12) months. Cencorp’s operational conditions will be highly dependent on whether Cencorp manages to rearrange the loans. Therefore the company has, in addition to the above-mentioned measures, started negotiations with its main financiers and owners on measures to strengthen the financing position until the company’s cash flow is expected to return to positive. By these actions Cencorp believes to secure sufficiency of working capital for next twelve (12) months.With these actions Cencorp believes that the company has secured sufficient working capital for the next twelve months and will be able to complete its strategic investments.

 

 

RESEARCH AND DEVELOPMENT

The Group’s research and development costs during the January-December period amounted to EUR 1.5 million (EUR 1.3 million) or 9.4 (6.0) per cent of net sales.

 

INVESTMENTS

Gross investments during the January – December period amounted to EUR 1.8 million (EUR 1.2 million). The largest investments were EUR 1.3 million in development costs.

 

PERSONNEL

At the end of December the Group employed 168 (328) people, out of which 56 persons worked in Finland, 103 persons in China and 9 persons in other countries. During the reporting period, salaries and fees totalled EUR 5.1 million (EUR 5.2 million).

 

Anssi Jansson, Vice President, Sales & Marketing in the Laser and automation segment, resigned on 19 November 2012 from Cencorp Corporation to set off on new challenges. For the moment Cencorp will not hire anyone to succeed Anssi Jansson. Laser and automation segments' resources will be rearranged and the segment's operations will be further developed according to the company's new strategy with focus on renewable energy solutions, especially on photovoltaic applications.

 

 

SHARES AND SHAREHOLDERS

Cencorp’s share capital amounts to EUR 3 425 059.10. The number of shares is 342 161 270. The company has one series of shares, which confer equal rights in the company. Cencorp did not own any of its own shares at the end of the financial year.

 

The company had a total of 4509 shareholder at the end of December 2012, and 44.7 per cent of the shares were owned by foreigners. The ten largest shareholders held 89.5 percent of the company’s shares and voting rights on 31 December 2012.

 

The largest shareholders on 31 December 2012

 

  Shares Votes
1. SAVCOR GROUP LIMITED 133 333 333 39,0
2. SAVCOR GROUP OY 119 235 078 34,8
3. SAVCOR INVEST BV 17 499 999 5,1
4. KESKINÄINEN ELÄKEVAKUUTUSYHTIÖ ETERA 16 389 735 4,8
5. GASELLI CAPITAL OY 11 000 000 3,2
6. GASELLI CAPITAL PARTNERS OY 2 050 000 0,6
7. PAASILA MATTI 1 990 416 0,6
8. JOKELA MARKKU 1 987 519 0,6
9. PARPOLA VILLE 1 478 759 0,4
10. FT CAPITAL OY 1 428 570 0,4
Others 35 762 861 10,5
TOTAL 342 161 270 100,0

 

Savcor Group Oy announced on 20 April 2012 that it has acquired AC Capital’s subsidiary AC Invest B.V. (currently Savcor Invest B.V.) who owned approximately 5.1 percent of Cencorp Corporation’s shares, resulting in Savcor Group’s ownership in Cencorp Corporation increasing into 78.9 percent.

 

The members of the Board of Directors and the President and CEO, either directly or through companies under their control, held a total of 270 068 410 shares in the company on 31 December 2012, representing about 78.9 percent of the company’s shares and voting rights. Iikka Savisalo, Cencorp’s Managing Director, either directly or through companies under his control, held a total of 270 068 410 shares in the company, 8,931,000 options connected to bond I/2010 and 21,428,571 options connected to bond I/2012.

 

The price of Cencorp’s share varied between EUR 0.05 and 0.12 during the January – December period. The average price was EUR 0.08 and the closing price at the end of December EUR 0.06. A total of 18.3 million Cencorp shares were traded at a value of EUR 1.5 million during the January – December period. The company’s market capitalization at the end of December stood at EUR 20.5 million.

 

No share options were granted to the company’s management during the reporting period excluding the below mentioned options connected to bond I/2012 that were subscribed by SCI Invest Oy which is under control of Iikka Savisalo and Tuukka Savisalo, who is responsible for photovoltaic module development at Cencorp. On 31 December 2012, the company had 8,931,000 options connected to bond I/2010 with a subscription period ending on 25 May 2015. Savcor Group Oy holds the options connected to bond I/2010. On 31 December 2012 the company hold 21,428,571 options connected to bond I/2012 with subscription period ending on 7 September 2014. Options connected to bond I/2012 are held by SCI Invest Oy and Savcor Group Oy.
 

 

SHARE ISSUE AUTHORIZATIONS IN FORCE

1,069,000 shares remain under the authorization given by Cencorp’s Annual General Meeting on 28 April 2009 to issue 10,000,000 new shares in Cencorp.
 

Cencorp’s Extraordinary General Meeting held on 30 January 2012 decided to authorize the Board of Directors to issue 100,000,000 new shares. There were no other resolutions made at the Extraordinary General Meeting. 78,571,429 shares remain under the authorization. In the first half of 2013, 4,000,000 shares, under the authorization, will be issued in a directed share issue for Sunweb Solar to pay part of the purchase price of the transaction carried out in January.  

 

DECISIONS BY THE ANNUAL GENERAL MEETING

Cencorp Corporation's Annual General Meeting was held on 19 April 2012 in Mikkeli, Finland. The AGM approved the 2011 financial statements and discharged the members of the Board and the President and CEO from liability for the financial year 2011. According to the Board's proposal, it was decided that no dividend for the financial year 2011 will be distributed. It was also decided that the loss for the financial period that ended on 31 December 2011 will be entered in retained earnings. The AGM elected Hannu Savisalo, Iikka Savisalo and Ismo Rautiainen as the members of the Board of Directors of Cencorp Corporation.

 

At its organizing meeting following the AGM, Cencorp's Board of Directors elected Hannu Savisalo as the Chairman and Ismo Rautiainen as the Vice Chairman of the Board. The Board of Directors decided, due to the scope of the company's business, that it is not necessary to establish any separate Board committees. The Board of Directors further stated that Ismo Rautiainen is independent of the company and also of the company's significant shareholders.

 

The AGM decided that an annual remuneration of EUR 40,000 will be paid to the Chairman and to the Vice Chairman of the Board, and EUR 30,000 to the members of the Board of Directors. Ernst & Young Oy, Authorized Public Accounting Firm, continues as the company auditor and Mikko Rytilahti, APA, as the responsible auditor.

 

 

MAIN TERMS OF THE MEMORANDUM OF UNDERSTANDING SIGNED WITH SUNWEB SOLAR

On 29 January 2013 Cencorp announced that the company and Sunweb Solar  completed a transaction through which Cencorp acquired Sunweb Solar's photovoltaic module business and related pilot production line, the Sunweb trademark as well as the patents and other intellectual property rights relating to the business. The purchase price amounting to ca. one million Euros is paid partly in cash and partly in Cencorp shares. Purchase price paid in Cencorp shares is 4,000,000 registered Cencorp shares, which are, as a part of the transaction, valued at the price of EUR 0.12 per share. Purchase price paid in cash amounts to EUR 450,000. Sunweb Solar agrees not to sell its Cencorp shares received as purchase price payment before 31 December 2013.

 

 

MAIN TERMS OF THE MEMORANDUM OF UNDERSTANDING SIGNED WITH AVERY DENNISON

On 21 August Cencorp announced that the company and Avery Dennison Corporation (”Avery Dennison”), a US based company, have signed a Memorandum of Understanding (MOU) according to which Cencorp acquires Avery Dennison’s Conductive Back Sheet (CBS) business and related intellectual property rights. The MOU is non-binding. The purchase price stated in the MOU is USD 500,000 cash and 6,711,409 Cencorp shares. Avery Dennison agrees not to sell its Cencorp shares received as purchase price payment within 12 months from the effective date of the definitive purchase agreement. Cencorp will separately enter into agreements with the key persons that were involved with the business being acquired to join Cencorp team. Negotiations with Avery Dennison are still going on. The risks related to the non-binding MOU signed with Avery Dennison have been handled in more detail in the item “Risk management, risks and uncertainties” of this financial statement release.

 

 

 

MAIN TERMS OF THE MEMORANDUM OF UNDERSTANDING SIGNED WITH A MAJOR CHINESE SOLAR PHOTOVOLTAIC (PV) MODULE MANUFACTURER ON DELIVERING CONDUCTIVE BACK SHEETS

On 5 November 2012 Cencorp announced that the company has signed a Memorandum of Understanding on delivering Conductive Back Sheets (CBS) to one of the leading Chinese PV (photovoltaic) module manufacturers. The value of the Memorandum of Understanding is expected to be at its minimum ca. EUR 20 million over the course of next three years. The Memorandum of Understanding is non-binding. As a result of the evaluation process the customer became convinced of Cencorp's technology and production capability and decided to sign with Cencorp a Memorandum of Understanding determining preliminary commercial terms between the companies for the next three years. In the Memorandum of Understanding the companies agreed for example on the following:

  - Cencorp prepares to increase its capacity to meet the customer's growing demands.

  - The customer commits itself to purchase the volumes together agreed upon. The customer's current capacity need corresponds to deliveries of ca. EUR 20 million in the course of next three years.

  - The customer commits itself to run required certification for the CBS.

  - Cencorp commits itself to further develop the product and its competitiveness.

  - Besides the cooperation in manufacturing the parties agree to cooperate in product development and marketing as well as in new innovations to enhance the parties' competitiveness in solar modules and related production technologies.

 

According to the customer's latest written estimate received from the customer at the end of January 2013 CBS mass deliveries commences during the first half of 2013.

 

The risks related to the non-binding MOU signed with the Chinese solar photovoltaic module manufacturer have been handled in more detail in the item “Risk management, risks and uncertainties” of this financial statement release.

 

 

MAIN TERMS OF THE CONVERTIBLE BOND

In order to secure the financing required to strengthen Cencorp’s capital structure the company issues convertible bond with the maximum amount of EUR 1,500,000. The bond was subscribed by SCI Invest Oy, a company under control of Cencorp’s CEO Iikka Savisalo, and Savcor Group Oy. Simultaneously Cencorp issues options with maximum amount of 21,428,571, connected to the bond, free of charge. One (1) stock option is issued per each subscribed loan capital amount of EUR 0.07. The convertible bond is issued in deviation from the shareholders' pre-emptive subscription rights to those current Cencorp shareholders who directly on the record day of 31 July 2012 own at least one million (1,000,000) Cencorp’s shares or who otherwise are approved by the Board of Directors. Convertible bond can also be subscribed against a loan receivable from Cencorp, undisputed on the record day, by converting the loan’s capital or interest into convertible bond according to the terms of the convertible bond. Loan period starts as of the payment of a loan to the company and ends on 7 September 2014 when the convertible bond will be due in its entirety pursuant to the loan terms. The shareholders' pre-emptive subscription rights are being deviated from as the stock options are issued to secure financing required to strengthen Cencorp’s capital structure cost effectively and considering the size of the financing. Thus, there is, from the company’s point of view, a weighty financial reason to issue the stock options.

 

An annual interest of eight (8) % will be paid on the convertible bond from the withdrawal of the bond. A holder of the bond has a right to subscribe an amount of shares, equivalent to the bondholders’ shareholding percentage at the time, in Cencorp’s possible future share issues with subscription period ending latest by 7 September 2014, at a subscription price that is 10 % lower than the subscription price in the share issue in question. The holder of the bond is entitled to converse the promissory note into the shares of the Company. One (1) stock option pursuant to the promissory note entitles the bond holder to subscribe for one (1) new share of the company. Based on the subscriptions made pursuant to the stock options, the Company shall issue in maximum of 21.428.571 new company shares. The Company has one (1) class of shares.

 

MAIN TERMS OF THE TEKES LOAN ARRANGEMENT

The Finnish Funding Agency for Technology and Innovation - Tekes gives Cencorp a loan, of ca. EUR 3 million, to develop business and production model relating to the design and production of cost effective photovoltaic modules as well as to the development of module components. The loan can amount maximum to 50 percent of the project's total costs which are estimated to be ca. EUR 6 million. The loan will be withdrawn in the course of the years 2013 and 2014. The loan period is ten years.

 

Among other things, the Tekes funding decision is subject to capital investments, amounting totally to EUR 3 million at the minimum, to be made in Cencorp during the period from 20 September 2012 to 30 June 2013. Half of the required investments was already secured on 3 December 2012 as Savcor Group Oy and SCI Invest Oy, a company under the control of Iikka Savisalo, the CEO of Cencorp, subscribed totally 1.5 million Euros of Cencorp's convertible bond which is a capital loan.

 

 

RISK MANAGEMENT, RISKS AND UNCERTAINTIES

Cencorp’s Board of Directors is responsible for the control of the company’s accounts and finances. The Board is responsible for internal control, while the President and CEO handles the practical arrangement and monitors the efficiency of internal control. Business management and control are taken care of using a Group-wide reporting and forecasting system.

 

The purpose of risk management is to ensure that any significant business risks are identified and monitored appropriately. The company’s business and financial risks are managed centrally by the Group’s financial department, and reports on risks are presented to the Board of Directors as necessary.

Due to the small size of the company and its business operations, Cencorp does not have an internal auditing organization or an audit committee.

 

The sufficiency of the company’s financing and working capital involve risks that are handled in more detail in the item Financing of this financial statement release. Realization of a share issue, which the company announced on 21 August 2012, involves risks. It is not secured that the company will be able to collect capital to finance the establishing of photovoltaic module business plan. If the share issue doesn’t materialize as planned, there is a risk that the establishment of Cencorp’s Cleantech strategy will be postponed or even fail, partly or totally.

 

As it is difficult to make forecasts in an industry that is dependent on economic cycles, the biggest business risks are related to fluctuations in the demand for products and to the adjustment of operations to meet demand.

 

In terms of profitability, the most essential risks are related to the achievement of a sufficient invoicing volume in both business segments and the success achieved with the programs underway at Cencorp to improve profitability, such as improvements in productivity and business flexibility through outsourcing production.

 

In terms of operations, the biggest risks are related to outsourcing in-house equipment production to contract manufacturers, in particular to whether the production chain efficiency targets are achieved as planned.
 

Cencorp's transition from a company manufacturing only production automation applications and special components into a company that develops and provides Cleantech applications with a strong market position as provider, using laser and automation technology, of locally in different market areas produced, high-quality photovoltaic modules, involves risks. Even though Cencorp's strategy and objectives are based on market knowledge and technical surveys,the risks are significant and it is not certain if the company reaches all or part of the targets set for it. Cencorp's future outlook will be highly dependent on the company's ability to reach the targeted market position in the global photovoltaic module market as well as on the company's long-term financing. Cencorp's goal is to reach strong market position as provider of locally produced high-quality photovoltaic modules.

 

The execution of the non-binding Memorandum of Understanding signed with Avery Dennison involves risks. The final terms of the transaction are still under negotiations and realization of the acquisition is not yet certain. Additionally, the transaction is still subject to several issues such as due diligence and especially to Cencorp’s short and long-term financing required to run the business being acquired. Thus, Cencorp is not yet able to estimate possible realization, effective date neither acquisition’s influence in Cencorp nor risks relating to the transaction. Cencorp will announce further information on the matter as soon as the negotiations have been finished.

 

The execution of the non-binding Memorandum of Understanding signed with a major Chinese photovoltaic module manufacturer involves risks. The final terms of an agreement are still under negotiations, thus execution of the agreement is not yet guaranteed. Additionally, the agreement is subject to Cencorp's short-term and long-term financing which is still under negotiation. Thus, Cencorp is not yet able to estimate the agreement's possible execution, effective date neither the agreement's impact in Cencorp nor the final risks relating to it. However, in regard to the Memorandum of Understanding on delivering CBS to the Chinese photovoltaic module manufacturer, the estimated minimum value of EUR 20 million for the next three years will probably stay non-binding even though the actual Memorandum of Understanding turns into a binding supply contract. In this business customers do not give binding order estimations.

 

The long-term objectives set for the Managing Director involves also risks and the long-term objective should not be considered as the company’s financial guidance. Even though the objectives are based on market knowledge and technical surveys, the risks are significant and it is not certain if the Managing Director reaches all or part of the targets set for him.

 

The Tekes loan arrangement involves risks. Among other things, the Tekes funding decision is subject to capital investments, amounting totally to 3 million Euros at the minimum, to be made in Cencorp during the period from 20 September 2012 to 30 June 2013. Half of the required investments was already secured on 3 December 2012 as Savcor Group Oy and SCI Invest Oy, a company under the control of Iikka Savisalo, the CEO of Cencorp, subscribed totally 1.5 million Euros of Cencorp's convertible bond which is a capital loan.

 

Other risks connected to Cencorp have been presented in more detail in the Annual Report for 2011.
 

 

GOVERNANCE PRINCIPLES

Cencorps Board of Directors handled and approved the company’s Corporate Governance Statement on 15 February 2013. The statement describes the main features of the internal control and risk management related to the company’s financial reporting process, and the operations and composition of the Board of Directors, including information on the President and CEO.

 

The Annual Report for the financial year 2012 will be published on 26 March 2013 at www.cencorp.com and will include the Financial Statements, the Report of the Board of Directors and the Auditors Report.

 

The companys Corporate Governance Statement will be published as a separate report in the same connection. It is also available on the company’s website.

 

 

THE BOARD OF DIRECTORS’ PROPOSAL CONCERNING THE DISTRIBUTION OF PROFIT

The Board of Directors proposes to the Annual General Meeting that the loss for the period ended on 31 December 2012 be entered in retained earnings and that no dividend be paid.

 

In Mikkeli, 15 February 2013

 

Cencorp Corporation

 

BOARD OF DIRECTORS

 

For more information please contact:

Cencorp: Iikka Savisalo, President and CEO, tel. +358 40 521 6082, iikka.savisalo@savcor.com

 

Cencorp Corporation’s annual report for 2012 will be published on 26 March 2013 and an interim report for January – March 2013 on 15 May 2013. Cencorp’s annual general meeting will be held on 29 April 2013.

 

Distribution:

NASDAQ OMX, Helsinki

Main media

www.cencorp.com

 

 

 

 

 

Consolidated statement of comprehensive income  
(unaudited)          
           
           
1 000 EUR   10-12/2012 10-12/2011 1-12/2012 1-12/2011
Continuing operations        
Net sales   3 312 5 090 15 441 21 608
Cost of sales -3 335 -4 874 -14 731 -19 859
Gross profit -23 216 710 1 748
           
Other operating income 365 70 1 791 130
Product development expenses -470 -290 -1 458 -1 288
Sales and marketing expenses -619 -626 -2 072 -1 987
Administrative expenses -595 -624 -2 669 -2 717
Other operating expenses -179 -138 -235 -157
           
Operating profit -1 520 -1 391 -3 932 -4 271
           
Financial income -875 242 380 1 012
Financial expenses 523 -54 -1 224 -1 583
           
Profit before taxes from continuing operations -1 872 -1 204 -4 776 -4 843
           
Income taxes -1 37 26 -6
           
Profit/loss for the period from continuing operations -1 872 -1 166 -4 750 -4 848
           
Discontinued operations        
Profit/loss after tax for the period from discontinued operations 473 -723 -8 606 -2 667
           
Profit/loss for the period -1 399 -1 889 -13 356 -7 516
           
Profit/loss attributable to:        
Shareholders of the parent company -1 399 -1 889 -13 356 -7 516
           
Earnings/share (diluted), eur -0,004 -0,006 -0,04 -0,02
Earnings/share (basic), eur -0,004 -0,006 -0,04 -0,02
           
Continuing operations:        
Earnings/share (diluted), eur -0,005 -0,003 -0,01 -0,01
Earnings/share (basic), eur -0,005 -0,003 -0,01 -0,01
           
           
Other comprehensive income        
           
Translation difference 34 563 93 794
Other comprehensive income 0 0 0 0
           
Total comprehensive income for the period -1 366 -1 326 -13 263 -6 721
           
Total comprehensive income attributable to:        
Shareholders of the parent company -1 366 -1 326 -13 263 -6 721
           
           

 

 

Consolidated statement of financial position  
(unaudited)      
       
       
1 000 EUR   31.12.2012 31.12.2011
       
ASSETS      
       
Non-current assets    
Property, plant and equipment 6 688 16 305
Consolidated goodwill 2 967 2 967
Other intangible assets 2 979 3 337
Available-for-sale investment 10 10
Deferred tax assets 9 10
Total non-current assets 12 652 22 629
       
Current assets      
Inventories   2 693 4 184
Trade and other non-interest-bearing receivables 2 695 7 402
Cash and cash equivalents 583 317
Total current assets 5 971 11 903
       
Assets classified as held for sale 79 0
       
Total assets   18 702 34 532
       
       
EQUITY AND LIABILITIES    
       
Equity attributable to shareholders of the parent company    
       
Share capital   3 425 3 425
Other reserves   43 691 43 344
Translation difference 677 584
Retained earnings   -43 091 -29 735
Total equity   4 703 17 618
       
Non-current liabilities    
Non-current loans   2 095 0
Deferred tax liabilities 26 34
Total non-current liabilities 2 121 34
       
Current liabilities      
Current interest-bearing liabilities 4 731 8 475
Trande and other payables 6 850 8 196
Current provisions   257 209
Total current liabilities 11 839 16 880
       
Liabilities directly associated with assets classified as held for sale 40 0
       
Total liabilities   14 000 16 914
       
Equity and liabilities total 18 702 34 532
       

 

 

Consolidated statement of cash flows    
(unaudited)      
         
         
1 000 EUR   1-12/2012 1-12/2011
         
Cash flow from operating activities      
Income statement profit/loss from continuing operations before taxes   -4 776 -4 843
Income statement profit/loss from discontinued operations before taxes   -8 606 -2 667
Income statement profit/loss before taxes   -13 382 -7 510
Non-monetary items adjusted on income statement      
  Depreciation and impairment  + 8 682 3 949
  Gains/losses on disposals of non-current assets  +/- -655 88
  Unrealized exchange rate gains (-) and losses (+)  +/- 108 -507
  Other non-cash transactions  +/- -1 181 62
  Financial income and expense  + 845 1 003
  Interest gains   - 0 0
  Taxes   - 0 0
Total cash flow before change in working capital   -5 583 -2 915
         
Change in working capital      
  Increase (-) / decrease (+) in inventories   827 520
  Increase (-) / decrease (+) in trade and other receivables   4 863 1 957
  Increase (+) / decrease (-) in trade and other payables   -162 -524
Change in working capital   5 529 1 953
         
Adjustment of financial items and taxes to cash-based accounting      
  Interest paid  - -257 -429
  Interest received  + 4 14
  Other financial items  - -258 -397
  Taxes paid  - 18 -120
Financial items and taxes   -492 -932
NET CASH FLOW FROM BUSINESS OPERATIONS   -547 -1 894
         
         
CASH FLOW FROM INVESTING ACTIVITIES      
Investments in tangible and intangible assets  - -1 757 -1 424
Proceeds on disposal of tangible and intangible assets  + 4 465 70
Repayment of loan receivables  + 0 1 468
NET CASH FLOW FROM INVESTMENTS   2 708 114
         
         
CASH FLOW FROM FINANCING ACTIVITIES      
Proceeds from share issue  + 0 862
Proceeds from  non-current borrowings  + 1 559 0
Stock options of the convertible bond  + 347 0
Proceeds from current borrowings  + 5 404 10 083
Repayment of current borrowings  - -9 174 -10 244
Dividends paid  - 0 -4
NET CASH FLOW FROM FINANCING ACTIVITIES   -1 865 697
         
         
INCREASE (+) OR DECREASE (-) IN CASH FLOW   296 -1 083
         

 

Consolidated statement of changes in equity    
(unaudited)            
             
             
1 000 EUR Share capital Other reserves Translation difference Distribu-table non-restricted equity fund Retained earnings Total
31.12.2011 3 425 4 908 584 38 436 -29 735 17 618
Stock options of the convertible bond 0     347   347
Translation difference, comprehensive income - - 93 - - 93
Profit/loss for the period - - - - -13 356 -13 356
31.12.2012 3 425 4 908 677 38 783 -43 091 4 703
             
             
             
             
             
1 000 EUR Share capital Other reserves Translation difference Distribu-table non-restricted equity fund Retained earnings Total
31.12.2010 3 425 4 908 -210 35 104 -22 082 21 145
Directed issue - - - 3 332 - 3 332
Decrease from share issue - - - - -137 -137
Translation difference, comprehensive income - - 794 - - 794
Profit/loss for the period - - - - -7 516 -7 516
31.12.2011 3 425 4 908 584 38 436 -29 735 17 618
             
             
             

 

Segment information          
(unaudited)          
             
The segment information for profit/loss numbers and balance sheet per 31 December 2012 include only continuing operations. Information regarding discontinued operations is given in attachment "Discontinued operations".
             
The Group has two reporting segments: Laser and Automation Applications, and Special Components. The Laser and Automation Applications segment comprises Cencorp’s former business and the Special Components segment the business acquired through the Face transaction in 2010. The segment information presented by the Group is based on the management’s internal reporting and the organisational structure.
1 000 EUR   10-12/2012 10-12/2011 1-12/2012 1-12/2011
Net sales          
  Laser and Automation Applications   2 224 2 714 9 624 15 079
  Special Components   1 123 2 375 5 858 6 581
  Eliminations   -35 0 -41 -53
  Total   3 312 5 090 15 441 21 608
Operating profit          
  Laser and Automation Applications   -1 078 -1 281 -3 221 -2 517
  Special Components   -442 -111 -712 -1 706
  Eliminations   0 0 1 -49
  Total   -1 520 -1 391 -3 932 -4 271
EBITDA          
  Laser and Automation Applications   -765 -844 -2 401 -1 283
  Special Components   -39 354 812 -387
  Eliminations   0 0 1 -49
  Total   -803 -490 -1 588 -1 718
Profit/loss for the period          
  Laser and Automation Applications   -1 269 -1 198 -3 644 -2 969
  Special Components   -629 51 -1 120 -1 978
  Eliminations   25 -20 14 99
  Total   -1 872 -1 166 -4 750 -4 848
Assets          
  Laser and Automation Applications   27 995 30 611 27 995 30 611
  Special Components   10 964 25 962 10 964 25 962
  Assets classified as held for sale   79 - 79 -
  Eliminations   -20 336 -22 040 -20 336 -22 040
  Total   18 702 34 532 18 702 34 532
Liabilities          
  Laser and Automation Applications   11 873 8 965 11 873 8 965
  Special Components   8 003 15 174 8 003 15 174
  Liabilities directly associated with assets held for sale 40 - 40 -
  Eliminations   -5 917 -7 225 -5 917 -7 225
  Total   14 000 16 914 14 000 16 914
Investments          
  Laser and Automation Applications   437 123 849 729
  Special Components   254 40 989 463
  Assets classified as held for sale   0 - 4 -
  Total   690 163 1 842 1 191
Depreciation          
  Laser and Automation Applications   168 191 675 977
  Special Components   313 359 1 434 1 214
  Total   481 550 2 109 2 192
Impairment          
  Laser and Automation Applications   145 247 145 257
  Special Components   90 105 90 105
  Total   235 351 235 361

 

 

Discontinued operations      
(unaudited)      
         
29 May 2012 Cencorp announced that it exits from its unprofitable decoration business and closes down its plant in Guangzhou, China, producing decoration applications. In consequence of the closing down of the Guangzhou plant and the exit from decoration business Cencorp reports the financial figures relating to the Guangzhou plant’s decoration business as discontinued operations from now on.
         
The results and major classes of assets and liabilities of Savcor Face (Guangzhou) Technolgies Co., are as follows:
         
1 000 EUR   1-12/2012 1-12/2011
         
Revenue   1 878 4 857
Expenses   -5 174 -7 608
Other opeating income   585 0
Loss recognised on the remeasurement to fair value   -5 833 0
Operating profit   -8 544 -2 751
Finance costs   -62 84
Profit/loss before tax from discontinued operation   -8 606 -2 667
Income tax   0 0
Profit/loss after tax from discontinued operation   -8 606 -2 667
         
Assets      
Property, plant and equipment   0 -
Inventories   0 -
Trade and other non-interest-bearing receivables   39 -
Cash and cash equivalents   40 -
Assets classified as held for sale   79  
         
Liabilities      
Trande and other payables   40 -
Provisions   0 -
Liabilities directly associated with assets classified as held for sale   40  
Net assets directly associated with disposal group   39  
         
Cumulative translation difference   -2 094  
         
         
Savcor Face (Guangzhou) Technolgies Co., Ltd:n net cash flow:      
         
1 000 EUR   1-12/2012 1-12/2011
         
Operating   17 -35
Investing   -20 -179
Financing   0 -236
Net cash flow   -3 -450
         
Earnings/share (basic), from discontinued operations   -0,03  
Earnings/share (diluted) from discontinued operations   -0,03  

 

 

 

Key figures        
(unaudited)        
         
         
1 000 EUR 10-12/2012 10-12/2011 1-12/2012 1-12/2011
         
Net sales 3 312 5 090 15 441 21 608
Operating profit -1 520 -1 391 -3 932 -4 271
% of net sales -45,9 -27,3 -25,5 -19,8
EBITDA -803 -490 -1 588 -1 718
% of net sales -24,3 -9,6 -10,3 -8,0
Profit before taxes -1 871 -1 204 -4 776 -4 843
% of net sales -56,5 -23,6 -30,9 -22,4
         
Balance Sheet value 18 702 34 532 18 702 34 532
Equity ratio, %  25,2 51,2 25,2 51,2
Net gearing, % 132,7 46,3 132,7 46,3
Gross investments 690 163 1 842 1 191
% of net sales 20,8 3,2 11,9 5,5
Research and development costs 470 290 1 458 1 288
% of net sales 14,2 5,7 9,4 6,0
         
Order book 1 438 2 793 1 438 2 793
         
Personnel on average 171 330 241 343
Personnel at the end of the period 168 328 168 328
         
Non-interest-bearing liabilities 6 850 8 196 6 850 8 196
Interest-bearing liabilities 6 825 8 475 6 825 8 475
         
Share key indicators        
Earnings/share (basic) 0,00 -0,006 -0,04 -0,02
Earnings/share (diluted) 0,00 -0,006 -0,04 -0,02
Earnings/share (basic), from continuing operations -0,005 -0,003 -0,01 -0,01
Earnings/share (diluted) from continuing operations -0,005 -0,003 -0,01 -0,01
Equity/share 0,01 0,05 0,01 0,05
P/E ratio -14,67 -16,30 -1,54 -4,02
Highest price 0,09 0,1 0,12 0,20
Lowest price 0,05 0,07 0,05 0,07
Average price 0,07 0,08 0,08 0,12
Closing price 0,06 0,09 0,06 0,09
Market capitalisation, at the end of the period, MEUR 20,5 30,8 20,5 30,8
         
         
Calculation of Key Figures        
         
         
EBITDA, %: Operating profit + depreciation + impairment
  Net sales      
         
Equity ratio, %: Total equity x 100    
  Total assets - advances received  
         
Net gearing, %: Interest-bearing liabilities - cash and cash equivalents  
  and marketable securities x 100  
  Shareholders' equity + minority interest   
         
Earnings/share (EPS): Profit/loss for the period to the owner of the parent company
  Average number of shares adjusted for share issue 
  at the end of the financial year  
         
Equity/share: Equity attributable to shareholders of the parent company
  Undiluted number of shares on the balance sheet date
         
         
P/E ratio: Price on the balance sheet date  
  Earnings per share    
         

 

Change in intangible and tangible assets  
(unaudited)    
     
     
1 000 EUR 31.12.2012 31.12.2011
     
Includes tangible assets, consolidated goodwill and other intangible assets    
     
Carrying amount, beginning of period 22 609 23 835
  Depreciation and impairment -8 026 -3 516
  Additions 1 842 1 191
  Disposals -3 763 -158
  Discontinued operations 0 -
  Exchange rate difference -28 1 256
Carrying amount, end of period 12 634 22 609
     
     
     
     
       
Commitments and contingent liabilities  
(unaudited)    
     
     
1 000 EUR 31.12.2012 31.12.2011
     
Loans from financial institutions 1 247 5 206
 Promissory notes secured by pledge 12 691 12 691
 Mortgages on real estate 0 5 413
     
Factoring loan and export credit limit 1 090 833
 Trade receivables 695 833
 Promissory notes secured by pledge 12 691 12 691
     
Operating leases    
 Payable within one year  50 60
 Payable over one year 38 83
     
Commitments    
 Payable within one year  922 206
 Payable over one year 849 302
     
Commitments discontinued operations    
 Payable within one year  0 580
 Payable over one year 0 4 017