Efore Plc Financial Statements Release January 1,

Efore Plc Financial Statements Release   February 13, 2019    at 09:00 a.m. Efore Plc Financial Statements Release January 1, 2018 -  December 31, 2018 This release is a summary of Efore's Financial Statements report January-December 2018. The full report is a PDF file attachment to this stock exchange release and is available on the company's website at the address www.efore.com . July – December 2018 in brief:  - Net sales totalled EUR 27.8 million (EUR 30.5 million) - Operating profit was EUR -3.3 million (EUR -0.9 million) - Adjusted operating profit was EUR -2.7 million (EUR -0.9 million) - Earnings per share were EUR -0.06 (EUR -0.01) Financial year 2018 in brief:   - Net sales totalled EUR 52.4 million (EUR 69.9 million) - Operating profit was EUR -7.2 million (EUR -0.2 million) - Adjusted operating profit was EUR -6.7 million (EUR -0.2 million) - Earnings per share were EUR -0.14 (EUR -0.01) - The Board of Directors proposes that no dividend will be distributed

* Telecom business net sales included approximately EUR 2 million of sales of components to Wuxi Hodgen Technology with no margin. ** The Group has revised Industrial and Telecommunication net sales classification to better reflect the current management structure. Comparative information has been restated accordingly. This revision has no material impact on the reported amounts in Telecom nor Industrial net sales or changes between prior periods.

Estimate of financial development in 2019 financial period The target for 2019 is to achieve over EUR 70 million net sales, clearly positive EBITDA (adjusted for items affecting comparability) and positive cash flows from operating activities. Vesa Leino, CEO:

As we expected after the first half 2018, the most significant positive change during the second half compared to the first was in the cashflow from operating activities. In addition also second half year EBIT improved from first half remaining however clearly negative. EBIT was partly impacted by more expensive component purchases in order to mitigate availability challenges and the inventory value impairment done in the end of 2018.

In Q3 review published on 28 November 2018 we reported July-September cashflow from operating activities having turned to EUR 0.8 million positive. Similar development continued through the rest of the year and second half cashflow from operating activities was EUR 2.5 million. First half cashflow from operating activities was EUR -5.3 million.

Orders in both Telecom and Industrial businesses increased after the first half as was expected. However, due to the challenges in component availability we were not able to deliver all the orders as planned by the end of the year. The second half net sales was EUR 27.8 million which is clearly better than first half. Our target is that we are able to clear delayed orders in Industrial business early in 2019 and in Telecom business by the end of April 2019.

Demand in Telecom business picked up clearly during the third quarter and same positive development continued during the rest of the year. New Efore products developed for small base stations were launched to the market during the summer which affected positively to the development of net sales in Telecom business.  

Industrial business net sales grew compared to the first half. During the early second half Efore launched Strato EVO products designed especially indoor, architectural and outdoor lighting. These products will have more substantial impact on net sales in 2019.

Industrial business product range was expanded also by bringing to the market new generation product MHE (Modular High Efficiency). MHE has 97% efficiency ratio making it an excellent product for high energy conversion power supply market. Product ramp-up of MHE was delayed to the beginning of 2019. MHE product impact to net sales and profitability will be visible during 2019.

In February 2018 Efore announced to investigate different structural alternatives to secure the long-term profitability of the Telecom business and 27 November 2018 letter of intent was signed with a Chinese power supply partner. Negotiations related to structural arrangements in Telecom business and expanding the product offering have proceeded well and target is still to complete the arrangement in Q1 2019.

In the end of 2018 Efore organized the rights issue which was successfully completed and as a result we collected the EUR 11 million gross proceeds as planned. Proceeds are used to further progress in strategy implementation and to strengthen Efore financial position and net working capital.   

In the end of 2018 after successful rights issue completion we also completed the acquisition of Powernet International Oy. Efore DC Systems business and Powernet business have in the beginning of 2019 been consolidated and are now managed as one Digital Power Systems business line. The unit forms a strong platform based on Finnish know-how dating back years, on which Efore can build new and growing business. The acquisition further shifts Efore’s focus towards higher value-added products and solutions built on high level of expertise and strengthens Efore’s capabilities in solution life cycle management.

July - December net sales and result The net sales in July – December totalled EUR 27.8 million (EUR 30.5 million). Industrial business net sales decreased 0.7% year-on-year totaling to EUR 17.2 million (EUR 17.3 million). The decrease in net sales was primarily due to the demand of certain key customers being lower than anticipated and planned product launches moving from the second half of year 2018 to the beginning of the year 2019.

Telecom business net sales decreased 19.7 % year-on-year totaling to EUR 10.6 million (EUR 13.2 million). The second half net sales was over 30 % higher than the first half net sales but still lower than second half 2017. The market situation in the Telecom business improved after a challenging first half of the year.

Challenges in the availability of material and components continued in the second half of the year and had a negative impact on both net sales development as well as partially in profitability in all businesses. Profitability was further impacted by EUR 0.6 million inventory value impairment done in the end of 2018. The operating profit July – December improved from the first half of the year totaling to EUR -3.3 million but staying below the second half of 2017 (EUR -0.9 million). The main reasons for the negative result development were the low level of net sales and challenges in the availability of components, which delayed some deliveries in both Telecom and Industrial businesses from 2018 to 2019. 

Net sales and result of the full year

Net sales totalled EUR 52.4 million (EUR 69.9 million).

Industrial business net sales decreased 7.2 % on a year-on-year basis totaling to EUR 33.7 million (EUR 36.3 million). Due to demand of certain key customers being lower than anticipated and the phasing of planned product launches as well as changes in exchange rates adversely affected the net sales development of Industrial business.

Telecom business net sales decreased 44.2 % year-on-year totaling to EUR 18.7 million (EUR 33.6 million). The challenging market situation in Telecom business as well as challenges in the availability of material and components affected negatively to development of net sales in Telecom business. The operating profit was EUR -7.2 million (EUR -0.2 million). The main reason for the negative result development was the low level of net sales. The operating profit includes EUR 0.8 million impairments of capitalized product development costs and EUR 0.6 million inventory value impairment done in the end of 2018.

Business development Industrial business                                         

Efore Industrial business was strengthened in December 2018 by the acquisition of the entire share capital of Powernet International Oy, a company specializing in developing and manufacturing customized power supplies and systems. With this acquisition, Efore shifts its focus towards higher value-added products and solutions. These include, for example, customized power supply solutions and turnkey-projects for railway industry.

The introduction of MHE-rectifier that has a 97% efficiency ratio was extremely well received by the market. However, due to component availability, the first volume deliveries have been delayed and will begin in early 2019. By the end of 2018, MHE had developed a strong order book which provides a solid foundation for revenue growth in 2019.

Digital Power and Light product portfolio was expanded through new product introductions. Multiple new customer specific products built on existing platforms were delivered to key customers. In addition, we introduced a new high voltage (200 W) product family designed specifically for digital displays and home medical equipment. In line with Efore capabilities, we also introduced high IP-class products to be utilized in demanding conditions such as humid environments, surgical operating rooms and demanding automation solutions.

In spring 2018, a new higher-power Strato EVO product family was also introduced and the first products were delivered during the second half of the year. Specifically designed for indoor, architectural and outdoor lighting, Strato EVO products are a continuation of the successful Strato family. Thanks to these price competitive and fully programmable power supplies customers can reduce the number of stock keeping units and simultaneously respond faster to market demand.

At the end of the financial year, we also started deliveries of a new higher power (1500 W) power supplies. These products are used, among others, in sports stadium and airport lighting. The interest for the 1500 W has seen clearly increased which supports the higher power product strategy and provides a strong foundation for revenue growth in 2019.

Telecom business

Telecom business had a very mixed year. In the first half, revenue was clearly below the level of 2017 and also full year revenue was below 2017 but in the second half Telecom revenue improved due to growing demand and exceeded the first half. Due to the relatively fast recovery in demand, revenue growth was limited by component availability issues especially during the second half.

The telecommunication market is still going through a transformation phase which places new requirements to the industry players. In response to the market change, Efore has been focusing its product development investments primarily on smaller base station products already since 2017. The product portfolio has also been extended to include products that can be used regardless of specific network technology. Products based on 5G technology will play a key role in future network expansions.

System products designed for both telecommunication and industrial markets will play a more prominent role in Efore's future product offering. In this context, system products refer to more comprehensive solutions which will include in addition to Efore current products also e.g. electromechanics and cabling. The development of these products will draw on our experience and in-house expertise gained from development of rectifier systems.

Other developments

Due to the component shortage, Efore was not able to deliver all the products to customers according to their needs. Consequently, purchases had to be made at spot price which increased product costs. The Company will continue its efforts to secure the availability of components. Moreover, operational capability of the Tunisia plant will be developed further by investing in production equipment and quality assurance.

The Group continued to develop its operational activities. As a part of this process, the organizational structure was renewed at the beginning of 2018 by moving to a business line based organization. In the new business line organization, Efore has two businesses, Industrial business and Telecom business. The Industrial business consists of two product lines: Digital Power & Light and Systems. Telecom business has one product line, Telecom. The new organization structure enables Efore to be more customer oriented, as well as to further improve operational efficiency and ability to capitalize on new business opportunities.

Efforts to reduce the balance sheet were continued and as a part of improving cost efficiency, Telecom business product development operations in Sweden were discontinued and centralized to Finland and China during the financial year. Measures to adapt the fixed cost structure and improve operational efficiency were also continued during the second half of the year.

Short-term risks and factors of uncertainty The overall economic development may have an effect on Efore’s business environment. Due to the nature of its business, Efore is facing some notices of defects, and their final outcome cannot be predicted. Based on the current information, these claims are not expected to have a material impact on the financial position of the Efore Group.

The most significant business risks are related to the market success of key customers’ products. The progress of Efore’s product development projects depends partly on the customers’ project schedules. Furthermore, demand fluctuations typical in the market cause rapid changes in Efore’s business.

The lead times for component deliveries have become longer, and there are occasionally challenges in the availability of certain components. This may have an impact on Efore’s delivery capability also in the future. Efore estimates that the component shortage will continue until 2020.

Expanding the product portfolio to system-level solutions in the Industrial business may lead to an increased product liability risk.

The rights offering in the end of year 2018 improved significantly Efore’s solvency and decreased gearing. However, there are some risks related to the adequacy of financing. The Company is aiming to manage these risks by the active planning and implementation of different options.

Market outlook

In the Industrial business, power supplies for LED lighting, measuring equipment, healthcare equipment and infrastructure continue to offer several growth opportunities. Efore will be investing in customer segments where high reliability and long product life-cycles are key business drivers. The product development efforts of Efore’s Telecom business customers are increasingly focused on 5G-technology. The new products introduced to the market by Efore support both current technology as well as future 5G-technology. Therefore, the new product solutions introduced to the market by Efore create opportunities for growth.

Board of Directors’ proposal for the distribution of dividend

The Board of Directors will propose to the Annual General Meeting on April 11, 2019 that no dividend will be distributed.

Events after the end of the Financial year Skandinaviska Enskilda Banken AB’s share of ownership and votes in Efore Plc went below 5 per cent on 2 January 2019.

The following persons have been appointed on 14 January 2019 as members of Efore Plc’s Shareholders’ Nomination Board: - Jussi Capital Oy: Jarkko Takanen - Rausanne Group: Jarmo Malin - Jaakko Heininen and related parties: Jaakko Heininen In addition, Tuomo Lähdesmäki, Chairman of the Board of Efore Plc, is a member of the Nomination Board. At the constitutive meeting of the Nomination Committee Jarkko Takanen was elected chairman.

The Shareholders' Nomination Board of Efore Plc has prepared proposals on the composition of the Board of Directors and the remuneration of the Board of Directors to the Annual General Meeting to be held on 11 April 2019. Proposals were published in Stock Exchange Release on 16 January 2019 as follows:

- The Nomination Board proposes to the Annual General Meeting that four (4) members be elected to the Board of Directors

- The Nomination Board proposes that Tuomo Lähdesmäki, Matti Miettunen, Taru Narvanmaa and Antti Sivula be re-elected as members of the Board for a term starting at the end the General Meeting at which he or she has been elected and expires at the closing of the Annual General Meeting 2020. Marjo Miettinen, who has been a member of the Board of Efore since 2013, has announced that she is not available for re-election to the Board for time management related reasons

- All Board member candidates are considered to be independent of the company and its major shareholders

- The candidate information relevant for serving in the Board of Directors is presented at the company website www.efore.com - The Nomination Board proposes to the Annual General Meeting that the remuneration paid to the members of the Board of Directors and the Chairman of the Board of Directors be increased so that the fee of the Chairman would be 3,750 euro per month (in 2018: 3,500 euro) and the fee of other Board members 2,000 euro per months (in 2018: 1,750 euro). In addition, the Nomination Board proposes that the Board member functioning as Chairman of the Audit Committee be paid 750 euro per month in the upcoming term (in 2018: no separate fee)

- In addition, the Nomination Board proposes that travel expenses are payable against receipt

- The proposals of the Nomination Board will be included in the notice to the Annual General Meeting

EFORE PLC Board of Directors For further information please contact Mr. Vesa Leino, CEO, tel. +358 40 759 8956, on 13 February 2019 at 12:00-13:30.

DISTRIBUTION Nasdaq Helsinki Oy Principalmedia Efore Group Efore is an international Group which develops and produces demanding power products. Efore's head office is based in Finland and its sales, marketing and R&D functions are located in Europe and China. The Group also has a sales and marketing unit in the United States. In the financial year ended on December 2018, consolidated net sales totalled EUR 52.4 million and the Group's personnel averaged 406. The parent company's share is quoted on the Nasdaq Helsinki Ltd.

www.efore.com

Attachment

• Financial Statements Release 2018