Harju Elekter Group financial results, 1-12/2024

The fourth-quarter results of Harju Elekter continued to be affected by low order volumes. Although the decline in orders could be foreseen as early as the spring of 2024, it had a larger-than-expected impact on fourth-quarter revenue, which declined significantly. The decline in revenue presented a challenge in terms of covering overhead costs and maintaining profitability. However, further reductions in overhead costs, in particular staff costs, would have affected competence and limited opportunities for the sustainable growth of business volumes. Nevertheless, the group continues to operate in savings mode, carefully considering each expense and investment.

On the positive side, the volume of sales orders increased in the fourth quarter. As previously predicted, its impact will not be noticeable until the peak production season, which will be in the second and third quarters of 2025. Therefore, the low season in economic results is expected to continue in the first quarter.

Although the results of the preceding financial year fall short of expectations, it should be noted that the group has managed to exceed the revenue and operating profit of 2024 on only two occasions in the past. However, this is no reason to be satisfied. It is the priority of the Management Board to improve performance results in the coming years. The new strategic plan approved by the Supervisory Board at the beginning of 2025 creates the necessary prerequisites for achieving this objective, considering both market trends and growth opportunities for electrification.

The Management Board of Harju Elekter will propose the distribution of dividends in the notice for calling a general meeting, based on the business volumes at the beginning of the year and the forecast for 2025.

Revenue and financial results

The fourth quarter was challenging for the Group, but the stability achieved in the preceding months helped to maintain a positive result for the full year. Quarterly revenue decreased by 41% year-on-year, amounting to 30.0 (2023 Q4: 50.7) million euros, reflecting the stabilization of order volumes and adaptation to changing market conditions. The revenue for the reporting year was 174.7 (2023: 209.0) million euros. Although the revenue decreased, the Group maintained a strong market position despite a challenging economic environment.

	Q4	Q4	+/-	12M	12M	+/-
(EUR´000)	2024	2023		2024	2023
Revenue	29,963	50,737	-40.9%	174,712	209,014	-16.4%
Gross profit	1,778	4,218	-57.8%	20,899	23,588	-11.4%
EBITDA	-724	1,920	-137.7%	10,358	12,444	-16.7%
Operating profit (-loss) (EBIT)	-1,726	758	-327.7%	6,408	8,078	-20.7%
Profit (-loss) for the period	-2,303	135	-1805.9%	3,175	5,160	-38.5%
Earnings per share (EPS) (euros)	-0.12	0.01	-1300.0%	0.17	0.28	-39.3%

The Group’s operating expenses decreased across all cost categories in 2024 compared to the previous year, primarily due to the decline in revenue and corresponding cost savings. In the fourth quarter, expenses decreased by 37.8% to 31.4 (2023 Q4: 50.4) million euros. The largest reduction came from the cost of sales, which decreased by 39.4% to 28.2 million euros. Meanwhile, distribution costs declined by 15.2%, amounting to 1.1 million euros, and administrative expenses dropped by 20.4% to 2.1 million euros. On an annual basis, total operating expenses amounted to 167.7 (2023: 200.9) million euros, marking a 16.5% decline. The decrease in expenses was slightly lower than the drop in revenue, as certain fixed costs remained despite the reduction in sales volumes.

Depreciation expenses for fixed assets declined by 13.8% in the reporting quarter, reaching 1.0 million euros, and by 9.5% annually, totaling 4.0 million euros. This decrease was due to the alignment and revaluation of depreciation periods for fixed assets within the group. However, lower order volumes led to a slight increase in the share of depreciation costs in operating expenses. The labour cost ratio to revenue increased to 28.5% (2023 Q4: 20.6%) in the reporting quarter and to 21.4% (2023: 19.1%) annually. Comparing the quarters labour costs decreased by 18.6% and on yearly bases by 6.6% due to workforce adjustments in the production units in Estonia, Finland, and Lithuania.  Labour costs amounted to 8.5 (2023 Q4: 10.5) million euros in the fourth quarter and 37.3 (2023: 39.9) million euros annually.

The gross profit for the fourth quarter was 1,778 (2023 Q4: 4,218) thousand euros, and the gross profit margin was 5.9% (2023 Q4: 8.3%). Operating loss (EBIT) for the fourth quarter was -1,726 (2023 Q4 operating profit: 758) thousand euros, leading to an operating margin of -5.8% (2023 Q4: 1.5%). The net loss was -2,303 (2023 Q4 net profit: 135) thousand euros, and net loss per share was -0.12 (2023 Q4: 0.01) euros. The results were mainly influenced by the slower adjustment of production costs to lower order volumes, especially as sales volumes have grown rapidly in recent years.

For the full year, the Group achieved a positive result, although weaker fourth-quarter figures reduced overall profitability compared to the previous year. In 2024, gross profit was 20,899 (2023: 23,588) thousand euros, and the gross profit margin improved to 12.0% (2023: 11.3%). Operating profit (EBIT) amounted to 6,408 (2023: 8,078) thousand euros, and net profit was 3,175 (2023: 5,160) thousand euros. Net profit per share was 0.17 (2023: 0.28) euros. Although the volume of work and the number of orders decreased in the second half of the year, the normalization of the market establishes the prerequisites for more stable growth in the future. Compared to 2023, the results were also affected by the fact that last year’s settlement of the dispute over the framework contract for hermetic distribution transformers led to higher profitability, lessening of previous reserves, and a short-term rise in profits.

Core business and markets

Sales of electrical equipment, which constitute the group’s main area of business, reached 26.6 (2023 Q4: 46.7) million euros in the reporting quarter, representing a 43.0% decrease. For the full year, the revenue from electrical equipment totaled 161.2 (2023: 194.7) million euros, a 17.2% decline compared to the previous year. The main reasons for the decline were the decrease in outsourcing service orders due to the cooling of the global economy and the decline in demand in the substation market due to regulatory changes.

The Group’s four main target markets—Estonia, Finland, Sweden, and Norway—accounted for 85.6% (2023 Q4: 78.4%) of total revenue in the reporting quarter. Year-over-year, revenue growth was recorded only in Estonia, being 23.0 (2023: 20.9) million euros, while other key markets showed signs of stabilization following high activity levels in previous years.

In Estonia, revenue remained at the previous year’s level in the fourth quarter, reaching 5.3 (2023 Q4: 5.2) million euros. Growth was mainly driven by higher sales of compact substations to electricity distribution network customers, as well as a low comparison base from mid-2023, when the new framework agreement was still gaining momentum.

In Finland, revenue for the last quarter was 12.4 (2023 Q4: 19.6) million euros, marking a 36.7% decline compared to the previous year. On an annual basis, revenue fell by 19.7%, amounting to 66.9 (2023: 83.3) million euros. The decline was primarily due to lower demand in the compact substation segment, which was affected by regulatory changes in the electricity network sector, as well as weak market conditions for electric vehicle chargers and the Group’s exit from the solar panel resale segment.

In Norway, revenue decreased by 42.9% in the fourth quarter, reaching 3.3 (2023 Q4: 5.7) million euros. Over the full year, revenue declined by 22.1%, amounting to 26.3 (2023: 33.8) million euros. The decline was primarily due to a high comparison base from the previous year, when the Lithuanian production unit experienced near maximum capacity workload due to the project-based nature of the sector.

In Sweden, a similar trend was observed as in other Scandinavian markets, with revenue declining by 49.2% in the fourth quarter to 4.7 (2023 Q4: 9.2) million euros. Annual revenue amounted to 26.0 (2023: 32.5) million euros. The main reason for the decline was a change in the business strategy, which involved discontinuing EPC projects, or turnkey solutions, and shifting focus to factory-made solutions.

Investments

During the reporting year, Harju Elekter invested a total of 3.8 (2023: 6.9) million in non-current assets, including 1.8 (2023: 5.2) million in investment properties, 0.9 (2023: 1.4) million in property, plant, and equipment, and 1.1 (2023: 0.4) million euros in intangible assets. The investments included large-scale renovation and reconstruction work at the Keila industrial park, aimed at meeting the needs of the long-term tenant. Additionally, production technology assets were acquired, and production and process management systems were developed.

As of the reporting date, the value of the Group’s long-term financial investments was 27.7 (31.12.23: 29.2) million euros. In the second quarter, most of the listed securities were sold. The fair value of securities declined both in the reporting quarter and throughout the year, decreasing by a total of 71 thousand euros.

Share

The company's share price on the last trading day of the reporting quarter on the Nasdaq Tallinn Stock Exchange closed at 4.58 euros.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
(EUR´000)				31.12.2024		31.12.2023
ASSETS
Current assets
Cash and cash equivalents				3,773		1,381
Trade and other receivables				29,606		38,837
Prepayments				2,096		1,071
Inventories				19,845		36,834
Total current assets				55,320		78,123
Non-current assets
Deferred income tax assets				687		731
Non-current financial investments				27,717		29,244
Investment properties				29,432		28,856
Property, plant, and equipment				32,420		34,067
Intangible assets				8,121		7,354
Total non-current assets				98,377		100,252
TOTAL ASSETS				153,697		178,375
LIABILITIES AND EQUITY
Liabilities
Borrowings				9,839		19,387
Prepayments from customers				11,600		18,870
Trade and other payables				17,472		23,159
Tax liabilities				3,260		3,308
Current provisions				270		140
Total current liabilities				42,441		64,864
Borrowings				20,184		23,481
Other non-current liabilities				39		32
Total non-current liabilities				20,223		23,513
Total liabilities				62,664		88,377
Equity
Share capital				11,655		11,655
Share premium				3,306		3,306
Reserves				23,135		23,055
Retained earnings				52,937		51,982
Total equity attributable to the owners of the parent company				91,033		89,998
TOTAL LIABILITIES AND EQUITY				153,697		178,375

CONSOLIDATED STATEMENT OF PROFIT AND LOSS
Unaudited

(EUR´000)		Q4 2024	Q4 2023	12M 2024	12M 2023
Revenue		29,963	50,737	174,712	209,014
Cost of sales		-28,185	-46,519	-153,813	-185,426
Gross profit		1,778	4,218	20,899	23,588
Distribution costs		-1,069	-1,260	-4,710	-5,320
Administrative expenses		-2,116	-2,657	-9,213	-10,112
Other income		93	495	281	314
Other expenses		-412	-38	-849	-392
Operating profit (-loss)		-1,726	758	6,408	8,078
Finance income		5	456	116	97
Finance costs		-613	-624	-2,436	-2,103
Profit (-loss) before tax		-2,334	590	4,088	6,072
Income tax		31	-455	-913	-912
Profit (-loss) for the period		-2,303	135	3,175	5,160
Earnings per share
Basic earnings per share (euros)		-0.12	0.01	0.17	0.28
Diluted earnings per share (euros)		-0.12	0.01	0.17	0.28

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited

(EUR´000)		Q4 2024	Q4 2023	12M 2024	12M 2023
Profit (-loss) for the period		-2,303	135	3,175	5,160
Other comprehensive income
Items that may be reclassified to profit or loss
Impact of exchange rate changes of a foreign subsidiaries		98	-212	108	-139
Items that will not be reclassified to profit or loss
Gain on sales of financial assets		0	0	185	0
Revaluation of financial assets		-6	-3,266	-71	5,516
Total comprehensive income (-loss) for the period		92	-3,478	222	5,377
Other comprehensive income (-loss)		-2,211	-3,343	3,397	10,537

Priit Treial
CFO and Member of the Management Board
+372 674 7400

priit.treial@harjuelekter.com

Attachment

• HEG Interim Report Q4 2024