Vacon Plc Interim Report 1 January

Vacon Plc, Stock Exchange Release, 27 October 2009 at 9.30 am

July-September summary:

Order intake totalled MEUR 57.1, a decline of -26.6 % from the corresponding period in the previous year (MEUR 77.8).
Revenues totalled MEUR 62.1, a decline of -16.3 % (MEUR 74.2).
Operating profit was MEUR 3.4, down -62.6 % (MEUR 9.1).
Cash flow from operations was MEUR 10.8 (MEUR 6.4).
Earnings per share were EUR 0.19 (EUR 0.37), a decline from the previous year of -48.6 %.

January-September summary:

Order intake totalled MEUR 192.5, a decline of -19.6 % from the corresponding period in the previous year (MEUR 239.3).
Revenues totalled MEUR 207.8, a decline of -4.7 % (MEUR 218.1).
Operating profit was MEUR 18.2, down -32.8 % (MEUR 27.1).
Cash flow from operations was MEUR 25.0 (MEUR 16.8).
Earnings per share were EUR 0.83 (EUR 1.19), a decline from the previous year of -30.3 %.

The global recession weakened demand for AC drives in most market segments during the first nine months of 2009. AC drive investments to improve energy efficiency and in renewable energy generation remained brisk especially in Asia, but they were not able to compensate for the decline in orders in other market segments and areas. Vacon does not expect the AC drive market to decline any further in the final quarter of 2009.

A major order that Vacon was expecting in July 2009 from one of Vacon’s largest customers was not received in the third quarter and this, coupled with normal seasonal fluctuation, reduced the order intake to EUR 57.1 (77.8) million. The comparable order intake, excluding the impact of the delayed order and normal seasonal fluctuation, was at almost the same level in the third quarter as in the first half of the year.

Vacon’s deliveries to the mentioned above have started up again and they are expected to slightly improve Vacon’s order intake and revenues in the final quarter of 2009 compared to the third quarter.

Revenues totalled EUR 62.1 million, a decline of 18 % from the second quarter and some 16 % from the corresponding quarter in the previous year. The fall in revenues was due to the reduction in orders received and the delayed major order.

The operating profit margin in the third quarter was 5.5 % (12.3 %), compared with 10.1 % in the first quarter of this year and 10.3 % in the second quarter. The main factors in the weakening of profitability were fixed costs, which remained at almost the same level as in the first half of the year, and the decline in revenues.

Vacon has initiated measures to achieve annual cost savings of EUR 5 million. The company aims at savings especially in the procurement of external services and in personnel costs.

On 14 September 2009 Vacon began negotiations affecting office staff at its operations in Finland, examining the means available to adjust its operations to weaker market conditions. As the result of these negotiations Vacon decided to lay off 160 office staff for fixed periods. Each office worker affected by the negotiations will be laid off for 7 working days in 2009 and for a maximum of 30 working days in 2010. It was also agreed that the need for layoffs will be reviewed quarterly. The targeted savings are roughly equal to the need to reduce costs by some 30 man-years during 2009 - 2010.

The balance sheet remained strong. The company has paid particular attention to the management of working capital. The cash flow from operations was EUR 10.8 million (EUR 6.4 million in July-September 2008). Intensified control of trade receivables and stocks helped achieve this improvement.

Vacon Interim Report January-September 2009 (PDF)

Presentation (PDF)

Risks and uncertainties in the near future

The most significant risks for Vacon in the near future relate to the weakening of general demand and intensifying competition on price. Vacon’s order book has always been short term in nature, so there are no major risks connected with the timing of deliveries or their cancellation. Vacon has thousands of customers worldwide. The ten largest customers account for just under half of Vacon’s revenues. Vacon does not finance customer projects and is also continuously assessing the creditworthiness of its customers and their ability to pay their debts.

Vacon is able to adjust its production capacity to market demand. The company estimates that its cash funds and available credit facilities are sufficient to ensure its liquidity.

Vacon’s balance sheet includes goodwill of EUR 8.1 million, most of which is related to the company acquisition at the beginning of 2008. The company tests goodwill for impairment annually.

The availability of raw materials and components and changes in their prices can affect the profitability and scale of the company’s business. Purchase agreements for raw materials and components are mainly annual agreements, which contain price and exchange rate clauses for changes in the global market prices of raw and other materials. Changes in the global economic situation may harm the business opportunities for some component suppliers.

Some of the most significant financial risks affecting the result are foreign exchange risks. Exchange rate fluctuations may have an impact on business, although the international expansion of business operations reduces the relative importance of individual currencies. The biggest exchange rate risks against the euro relate to the US dollar and the Chinese renmimbi.

Prospects for 2009

Vacon does not expect the AC drive market to weaken further during the final quarter of 2009. According to Vacon’s estimates, the AC drive market in 2009 will show a significant decline from 2008. AC drive investments to improve the energy efficiency of electric motor drives and in renewable energy generation are increasing, but investments to improve industrial processes and in new building are falling. Vacon has about a 4 % market share. The global sales network, the renewal of the product selection, and the relatively low market share, coupled with a flexible organization support the development of Vacon’s business even in difficult market conditions. Vacon will continue to adapt its investments in growth to the prevailing market situation so as to secure its profitability.

Vacon estimates that its 2009 revenues will decline more than five per cent from the 2008 figure. Profitability and earnings per share are expected to be lower than in 2008. Return on equity (ROE) to fall below 30 %.

Next financial reporting

Vacon will publish its financial statements for 2009 at 9.30 am on 3 February 2010.

Formal statement

This release contains certain forward-looking statements that reflect the current views of the company's management. Due to the nature of these statements, they contain risks and uncertainties and are subject to changes in the general economic situation and in the company's business sector.

Vacon in brief

Vacon’s operations are driven by a passion to develop, manufacture and sell the best AC drives in the world — and nothing else. AC drives are used to control electric motors and in renewable energy generation. Vacon has R&D and production units in Finland, the USA, China and Italy, and sales offices in more than 25 countries. In 2008 Vacon had revenues of EUR 293.2 million and globally employed 1,200 people. The shares of Vacon Plc (VAC1V) are quoted on the main list of the Helsinki stock exchange.

Vacon’s long-term goals are to achieve revenues of EUR 500 million and an operating profit percentage (EBIT %) of more than 14 % by the end of 2012. An annual target of more than 30 % has been set for return on equity (ROE).

Driven by Drives, www.vacon.com

Vaasa, 27 October 2009

VACON PLC

Board of Directors

For more information please contact:

Mr Vesa Laisi, President and CEO, phone: +358 (0)40 8371 510
Ms Eriikka Söderström, CFO and Vice President, Finance & Control, phone: +358 (0)40 8371 443

Conference for media and analysts

Vacon will hold a briefing for analysts and the media at 11.30 am on 27 October 2009 in the Vaakuna meeting room at the Sokos Hotel Vaakuna, entrance at Asema-aukio 2, Helsinki.

Dial-in conference for investors and investment analysts

A dial-in conference in English for investors and investment analysts will be held at 3.00 pm on 27 October 2009. President and CEO Vesa Laisi, Executive Vice President Heikki Hiltunen and Eriikka Söderström, CFO and Vice President, Finance and Control, will participate in the conference. Lines can be booked ten minutes before the conference by calling the service number +44 207 162 0025. The conference ID code is “Vacon Oyj”. To hear a recording of the conference, available for three working days, call +44 207 031 4064, ID code 824277.

Conference link: http://wcc.webeventservices.com/view/wl/r.htm?e=172560&s=1&k=14896C8603DB67F53B0D50994D84EC9E&cb=blank

Distribution
NASDAQ OMX Helsinki Exchange
Financial Supervision Authority
Main media

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