VTI Technologies Oy's consolidated financial statements for 2008

Financial highlights of 2008

• Net sales decreased to EUR 67.6 million (net sales in 2007: EUR 73.5 million).
• Operating loss for 2008 was EUR -3.0 million (2007: profit of EUR 4.6 million) representing -4 percent of net sales (2007: 6%).
• EBITDA was EUR 5.9 million (2007: EUR 13.0 million)
• Cash flow from operating activities was EUR 8.9 million (2007: EUR 10.0 million).
• Investments activity (cash based) was high at EUR 16.3 million (2007: EUR 11.0 million).
• The financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS). 

Introduction

VTI Technologies is the global market leader of low-g acceleration sensors for automotive industry applications and cardiac rhythm management. VTI is also strong in various instrument applications and is successfully building its business in new consumer related applications.

The company's sensor design and production are based on 3D MEMS (Micro Electro-Mechanical Systems) technology which enables a wide range of cost effective high performance products and solutions. The objective is to increase market share substantially in applications for portable devices and instruments and to maintain the position as the leading supplier of low-g acceleration sensors for the medical and automotive industry.

VTI’s strong position is based on solid technology knowledge, customer understanding and innovative products. Production is based on high quality processes in VTI's own and sub-suppliers facilities ensuring cost effective production in high volumes.   

Sharp downturn in automotive markets

Net sales decreased by 8 percent and  totaled EUR 67.6 million (2007: EUR 73.5 million). Sales of the Automotive segment decreased by 15 percent to EUR 53.5 million. Sales in Medical & Instruments and Portable Devices segments increased by 34 percent to EUR 14.1 million.

Operating result turned out at loss of EUR -3.0 million (2007: EUR 4.6 million) representing -4 percent of net sales (2007: 6%). EBITDA was EUR 5.9 million (2007: EUR 13.0 million).

Business environment  

VTI is the biggest pure MEMS company within the 30 largest global MEMS suppliers. The global close to three-billion-euro market of micro-electro-mechanical (MEMS) sensors is very fragmented by products and applications. VTI has been the market leader of low-g accelerometers in automotive active safety systems as well as in motion sensing for cardiac rhythm management devices since mid 90's. These both applications have been growing significantly and have been the basis for VTI's successful growth until 2008.

New MEMS sensor applications especially in consumer electronics are strongly emerging and represented in 2008 more than 1/3 of the total MEMS sensor market. VTI was able to increase sales in these applications (Portable Devices) by 37 percent in 2008 compared to 2007.

In the coming years, significant growth is expected for MEMS sensors. The most significant volume outlook is in consumer electronics, where the CAGR until 2012 is forecasted to be close to 20 percent in revenue and nearly double in volume annually. The strong price erosion will be matched with improved efficiency by using of new packaging technology (wafer level packaging) and moving from 150mm wafer processes to the 200mm wafer diameter.

MEMS technology will also be used to a growing extent in medical equipment and instruments in the future. These markets are already well established EUR 1 billion markets.

The automotive MEMS sensor growth is driven by increasing penetration of applications like vehicle stability control (ESC) as well as other new and more demanding applications in spite of the strong fluctuations in global car production. Market penetration of ESC in Europe is 50 percent and estimated to grow to 75 percent by 2012. In the USA ESC systems will become mandatory from 2012 onwards, pushing penetration from today’s 56 percent towards 100 percent over the coming years. EU made a similar decision in March 2009 to be further ratified by the Council of Ministries.

IFRS reporting

VTI is reporting the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS). The date of transition to IFRS was January 1, 2005. Figures before 2005 were prepared according to the Finnish Accounting Standards (FAS). The major differences between FAS and IFRS are related to goodwill amortization and capitalization of development costs. In comparison to FAS both had a positive impact on the reported operating result of the group. 

Net sales decreased due to automotive weakness

VTI Group's net sales declined by 8 percent in 2008 and were EUR 67.6 million (2007: EUR 73.5 million). Net sales of the Automotive segment decreased by 15 percent and were EUR 53.5 million (2007: EUR 63.0 million). Net sales of the Medical and Instrument segment grew by 34 percent being EUR 12.0 million (2007: EUR 8.9 million). Portable Devices segment sales grew by 37 percent and totaled EUR 2.1 million (2007: EUR 1.6 million). The market areas in which VTI had the highest net sales in 2008 were Europe, Asia and North America.

Automotive sales decreased

The sales of Automotive segment dropped in 2008 by 15 percent on the comparison period and totaled EUR 53.5 million (2007: EUR 63.0 million). The global new light vehicle sales decreased due to the global economical recession. Car registrations in the key markets decreased by 6 percent to 61.5 million leading to lower sales. Especially US car sales decreased strongly. At the same time the global ESC market penetration increased from 31 percent to 34 percent, which means about 600 000 more ESC systems sold in 2008.

The Automotive customer segment serves the automotive industry with motion and pressure sensors, used in applications such as vehicle stability control (ESC), electronic parking brake (EPB), hill start assistance (HSA), anti-lock braking systems (ABS), electronically controlled suspension (ECS) and various alarm and control applications. VTI sensors are being used by the majority of automotive manufacturers and ESC is the main application of its products.

Automotive segment is expected to grow significantly after the current market weakness. This is mainly due to the increased demand for vehicle stability control systems (ESC) and increase of VTI's product offering in this segment.

Medical and Instruments sales healthy growth

Medical and Instruments segment grew by 34 percent in 2008 with net sales of EUR 12.0 million (2007: 8.9 million). VTI has been able to win new customers in cardiac rhythm management and is also expanding the range of medical applications with pressure sensors. The instruments business has also been growing steadily and further growth is expected based on signed development contracts with global system customers, who need very accurate and robust technology in vibration measurement.

Portable Devices sales growth

The net sales of Portable Devices segment grew in 2008 by 37 percent to EUR 2.1 million (2007: EUR 1.6 million). The main increase in sales was generated with altimeters and barometers in personal navigation devices (PND) and motion sensors in various sports and wellness applications. VTI started at the end of 2008 the sampling of the new 3-axis accelerometer CMA3000, which is the world's smallest and lowest power consuming 3-axis accelerometer. Several design wins have already been booked for shipments in 2009 and main volume increase is expected in 2010.

Profitability

Operating result in 2008 decreased to a EUR -3.0 million loss representing -4 percent of sales (2007: EUR 4.6 million and 6 percent of sales). Gross margin declined in 2008 to EUR 16.9 million representing 25 percent of sales (2007: EUR 22.6 million and 31 percent of sales) due to higher production costs. This was mainly due to the fact that production downsizing efforts did not affect the costs quickly enough thus increasing the relative production costs. Also changes in the product mix and launch of new products with higher initial production costs had an impact on the production costs.

Overhead costs increased to EUR 19.9 million (2007: EUR 17.9 million). Research and development activities were strong but related costs EUR 8.2 million were lower than in the previous year (2007: EUR 8.6 million) mainly due to increased amount of development expense capitalizations. Sales and marketing expenses grew from EUR 4.2 million to 6.2 million as marketing resources and efforts were increased to serve the increasing number of clients. Administrative expenses increased to EUR 5.4 million from EUR 5.1 million in the previous year. 

EBITDA decreased due to low sales and was EUR 5.9 million (2007: EUR 13.0 million).

Non-recurring Items

Income statement for 2008 includes non-recurring costs on the following lines:

Non-recurring items consist of restructuring and other related costs.

New asset light manufacturing strategy

New manufacturing strategy was approved by Board of Directors in 2008. According to the asset light manufacturing strategy new consumer electronics products will in the future be manufactured by a manufacturing partner with high volume and low cost capabilities thus ensuring strongly reduced capital expenditures as well as high scalability of the production volumes. The negotiations relating to the partner selection are already very far advanced.

Capital expenditure in 2008 was EUR 16.3 million (2007: EUR 11.0 million). Capital expenditure included tangible investments of EUR 10.8 million (2007: EUR 9.4 million) mainly into build up of production capacity for the new products to be launched in 2009. Intangible capital expenditure included capitalized development costs and other IP-related items which amounted to EUR 5.5 million (2007: EUR 1.6 million). Other investments were mainly related to machinery and equipment improving production performance and capacity in element manufacturing as well as assembly lines.

Manufacturing of the automotive products will be concentrated to Finland and thus the Mexican assembly operations will be relocated to Finland during 2009. This will mean clear savings in production overhead costs.

Cash flow weakened slightly but capital structure remained strong

Net cash flow from operating activities was EUR 8.9 million (2007: EUR 10.0 million). Working capital decreased by EUR 4.7 million. Cash based capital expenditure grew in 2008 and were EUR 16.3 million (2007: EUR 11.0 million).

The capital structure weakened slightly but remained strong. Gearing was 37 percent (2007: 25%) and equity ratio 58 percent (2007: 68%). Net interest-bearing liabilities were EUR 26.8 million (2007: EUR 19 million). Liquidity remained good throughout the whole year.

Active product development continued

Research and development expenses in the income statement 2008 were EUR 8.2 million (2007: EUR 8.6 million). According to the IFRS standards, development expenses of some major development projects are capitalized thus lowering the R&D expenses in the income statement. The capitalized amount in 2008 was EUR 4.0 million (2007: EUR 1.2 million). Gross R&D expenses (excluding impact of capitalized expenses) in 2008 were EUR 12.2 million (2007: EUR 9.8 million) representing 18 percent of the net sales (2007: 13%). 

New products and product versions were developed of which the most important was introduction of the world's smallest and lowest power consuming 3-axis accelerometer (CMA3000). After the new digital platform products launched in year 2007 targeting the automotive segment, the CMA3000 is targeting motion measurement and control applications in portable consumer electronics. Enabled by wafer level packaging, removing the need for a plastic housing, the size is small (2x2x0.9 mm3) and with its ultra-low power consumption it is ideal for continuous usage in small battery powered devices, such as mobile phones, gaming devices and sports electronics. 

Another example of the successful development work in 2008 was the launch of miCoach system introduced by Adidas and Samsung with VTI's sensing solution enabling this advanced training aid. The system provides the user with real time feedback and a self adapting training schedule based on the true fitness levels achieved in the course of the exercises. The miCoach system consists of a mobile phone developed by Samsung and a web-based training tool, heart rate belt and shoe attachable stride sensor developed by Adidas. The stride sensor includes an ultra low power consuming SCA3000 acceleration sensor supplied by VTI Technologies, enabling the calculation of the user's speed and distance during exercise. 

Personnel decreased

VTI Group employed 692 full time employees at the end of 2008 (2007: 733 people). Total number of personnel decreased by 41 people. Direct labor decreased by 45 people and salaried personnel increased by 4. At the year-end, 442 people worked in Finland, 220 in Mexico, 20 in China, 5 in the US, 3 in Germany and 2 in Japan. The average number of personnel was 736 people during the year (2007: 692 people).

The marketing and sales resources were increased to service the increasing number of clients and new business. Overall the increase in head count was freezed in the latter part of the year with the deterioration of the economical climate. The production and related personnel was strongly downsized in the latter part of the year both in Finland and in Mexico with several weeks of production stoppage in the end of the year. Downsizing continued in the beginning of 2009.

Changes in the Group structure

Control of Beijing Orisens Co. Ltd. in China grew from 76.2 percent to 100 percent in 2008. At the same time, the company also changed its name to Beijing VTI Sensor Co., Ltd.

Shares and shareholders

VTI's largest shareholder is EQT III Private Equity Fund.

Board of Directors and Management

The Annual General Meeting elected the following persons as members of the Board of Directors of VTI Technologies Oy: Peter Grafoner, Kurt Hellström and Christian Sinding. Joonas Kettunen was elected as deputy member of the Board of Directors. Peter Grafoner was elected as the Chairman of the Board.

Raimo Puntala was elected as new member of the Board of Directors in the Extraordinary General Meeting on 19 June 2008.

The President and CEO was Markku Hirvonen.

Auditors

PricewaterhouseCoopers Oy has been the auditor of VTI Technologies Oy during 2008 fiscal year. Kari Lydman, Authorized Public Accountant, was the responsible auditor.

Board of Directors proposal for profit distribution

At the end of the year 2008 the shareholders´ equity for VTI Group was EUR 73.0 million. VTI Technologies Oy's, the parent company's equity was EUR 45.5 million.

The Board of Directors proposes to the Annual General Meeting that no dividends are distributed.

Vantaa, 9th of March 2009

VTI Technologies Oy
Board of Directors

Further information

Ilkka Virtanen, CFO, VTI Technologies Oy, ilkka.virtanen@vti.fi, tel. +358 40 545 0151

VTI in Brief

VTI Technologies is a leading supplier of acceleration, inclination, motion and pressure sensor solutions for automotive, medical, instrument and consumer applications. VTI develops and produces silicon-based capacitive sensors using its proprietary 3D MEMS (Micro Electro-Mechanical System) technology.

Related files:

• Appendices