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STOCK EXCHANGE RELEASE 23 Jul 2009

Pöyry's Interim Report 1 January - 30 June 2009

PÖYRY PLC          Interim Report 23 July 2009 at 8:30 a.m.
 
The Pöyry Group's net sales for the period under review were EUR 361.8 million (414.2 in the corresponding period 2008). Profit before taxes was EUR 10.4 (53.1) million. Profit before taxes includes EUR 7.7 million non-recurring expenses related to adaptation measures.
 
The Group's consolidated balance sheet is healthy. The equity ratio was 40.0 (44.9) per cent and the net debt/equity ratio (gearing) -6.8 (-31.2) per cent.
 
Earnings per share were EUR 0.10 (0.61) and the return on investment 9.2 (52.3) per cent.
 
The order stock decreased by EUR 5.0 million during the period under review to EUR 534.1 million. The number of personnel declined to 6946 at the end of the review period (7924 at the end of 2008). The impact of the adaptation measures in the current capacity meets the plan of 12 per cent capacity reduction.
 
Pöyry's net sales for 2009 are estimated to decrease and profit before taxes is estimated to decrease significantly compared with 2008. This assessment does not take into account possible acquisitions during 2009.
 
The interim report has been prepared in accordance with the IAS 34 following the same accounting principles as in the annual financial statements for 2008. From the beginning of 2009, the Group adopted the amended IAS 1 Presentation of the Financial Statements standard and IFRS 8 Operating Segments standard. The amended standards have no significant impact on the presentation of the interim report.
 
The data in this interim report are unaudited.
 
Business groups (Operating segments)
 
Energy
 
Net sales for the period under review were EUR 112.4 (120.2) million. Operating profit was EUR 6.6 (13.9) million including EUR 1 million non-recurring expenses.
 
Demand for energy-related services remained fairly stable in Europe. In other geographical regions, demand weakened and project go-ahead decisions were postponed. Project margins also declined slightly due to increased competition. The capacity was adjusted during the period under review and the capacity declined by about 150 persons in the business group's office network.
 
In spite of the slow-down in decision-making on investment projects, the order stock remained stable at EUR 190.9 million (196.4 at the end of 2008). The most important new projects were the EPC contract with the Styrian Utility Steweag/Steg for rehabilitation of the 110 kV substation Neudorf/Werndorf in Austria (EUR 6.5 million), the service contract with Verbund APG for the rehabilitation of the 220 kV substation Ybbsfeld in Austria (EUR 2.7 million) and the owner's engineering services contract by OMV Power International GmbH for an 800 MW combined cycle power plant project in Haiming, Germany (EUR 6 million).
 
Forest Industry
 
Net sales for the period under review were EUR 102.5 (152.7) million. Operating profit was EUR -5.0 (28.6) million. The operating profit for the period under review was affected by about EUR 6 million non-recurring expenses relating to personnel reductions.
 
Demand for engineering services for new pulp and paper projects in the Forest Industry business group remained weak during the period under review. The downturn has impaired forest industry companies' profitability and hampered the availability of investment financing globally. For this reason, projects have been postponed, preparations for new projects have been delayed and the number of consulting assignments has declined. Capacity was adapted to reduced demand in several countries, including Finland, Brazil, North America, Russia and Sweden. The personnel reductions during the period under review equal a capacity of 750 persons and were partly implemented with temporary lay-offs.
 
The business group's order stock declined to EUR 63.4 million (86.3 at the end of 2008). The most important new projects were the permitting services contract with Paroc Oy Ab, Finland, for a greenfield mineral wool plant in Chudovo, Russia (EUR 1.5 million) and engineering services for Investlesprom's Segezha pulp mill in Russia (EUR 6 million). The business group signed a long-term service agreement with Larox Corporation, Finland, for the supply of engineering and project services.
 
The President and CEO of Pöyry PLC, Mr. Heikki Malinen assumed the duties of the President of the Forest Industry business group as of 24 April 2009 beside his own position.
 
Transportation
 
Net sales for the period under review were EUR 59.8 (50.2) million. Operating profit amounted to EUR 4.5 (3.5) million.
 
Demand for services related to transportation systems continued to be good during the period under review. Demand related to road and rail-bound transportation systems was particularly brisk with an increased activity in large concession type projects being carried out by contractors. The business group continued to strengthen its position in local and international markets.
 
The order stock increased clearly, amounting to EUR 157.0 million (130.9 at the end of 2008) at the end of the period under review. The order stock in the second quarter continued to increase with medium-sized new orders in Europe and Latin America. The most important new projects were the engineering contract with the Swiss federal railway SBB for a new operation control centre (EUR 3.5 million), design contracts with Strabag AG for road rehabilitation programmes in Romania (EUR 3.2 million), two design contracts with the Finnish Road Administration for road projects in Southern Finland (EUR 2 million), the design contracts with the Finnish Rail Administration for the Helsinki Metropolitan Area Ring Rail Line in Finland (EUR 1 million), the services contract by the Swiss federal road office (ASTRA) for traffic management systems (EUR 1.7 million) and the contract with the Metro Company of Sao Paulo, Brazil for the extension of the city's metro with a new Line 4 (EUR 3 million).
 
Water & Environment
 
Net sales for the period under review were EUR 43.0 (41.9) million. Operating profit was EUR 2.3 (2.1) million.
 
Demand for services related to environmental infrastructure projects remained stable during the period under review. The business group continued to strengthen its position in its European core markets.
 
The order stock amounted to EUR 75.5 million at the end of the period under review (76.8 at the end of 2008). The demand was good especially in Germany. The most important new projects received during the period under review were the water and sanitation and training programme assignments in Tanzania and Niger (EUR 3.7 million) and technical assistance services for the main waste water treatment plant in Paris (EUR 3 million).
 
Construction Services
 
Net sales for the period under review were EUR 42.9 (48.3) million. Operating profit was EUR 3.3 (6.1) million. The operating profit was depressed by non-recurring items of about EUR 0.5 million related to personnel reductions.
 
Investment activity in the office and commercial building sectors was still weak. In spite of this, the business group's net sales remained at a good level owing to intensified sales and marketing efforts. Despite tightening competition, the business group succeeded in strengthening its position in the Finnish market and maintain satisfactory profitability. Baltic operations were curtailed. The operations of Shanghai Kang Dao Construction Company acquired in China have been integrated with the business group and Pöyry's operation in the country thus strengthening Pöyry's position on the Chinese market. The amount of personnel in the business group was adapted and the capacity decreased by about 140 persons. The reduction was partly implemented with temporary lay-offs.
 
The order stock remained stable, amounting to EUR 46.1 (48.3 at the end of 2008) million. The business group's order stock increased by several small-scale assignments. The most important new projects were the contract with Oy Primula Ab for the implementation of the company's production and logistics project at Järvenpää, Finland, and the contracts with Länsimetro Oy for the Western Metro extension in Helsinki, Finland (EUR 1.3 million).
 
Acquisitions
 
Energy
 
Pöyry expanded its operations in May 2009 by acquiring the entire share capital of Aquarius International Consultants Pty Ltd, an Australian engineering and marine consulting firm. Aquarius International Consultants employs ten experts in its headquarters in Perth, Western Australia. The engineering services of Aquarius International Consultants include offshore structural, naval architecture and marine operations and it has a clientele of international oil companies. The company's annual net sales are EUR 1.3 million and its business is profitable. The company has been consolidated into Pöyry as of 1 May 2009.
 
Construction Services
 
Pöyry expanded its real estate consulting and engineering operations in China in August 2008 by acquiring the entire share capital of Shanghai Kang Dao Construction Company Ltd. The Chinese authorities approved the acquisition in March 2009. Shanghai Kang Dao Construction Company is primarily engaged in project management for industrial and commercial real estate development and construction projects. The company employs 27 experts. Pöyry has consolidated the result and balance sheet of the company as of 1 March 2009.
 
Pöyry acquired the remaining 30 per cent of the Finnish architectural design and real estate consulting firm Pöyry Evata Oy. The company and its subsidiary Pöyry Architects Oy have been consolidated 100 per cent into Pöyry as of 1 July 2007.
 
Order stock
 
The Group's order stock remains good. It decreased by EUR 5.0 million during the period under review, totalling EUR 534.1 million at the end of June. At the end of 2008 the order stock was EUR 539.1 million.
 
Personnel
 
The capacity in the Group decreased to the equivalent of 6946 full-time employees (7924 at the end of 2008). The capacity was adapted in particular in the Forest Industry business group but also in the Construction Services and Energy business groups. About half of the capacity reduction was implemented with temporary arrangements.
 
Statement of financial position
 
The Group's consolidated balance sheet is healthy. The equity ratio at the end of the review period was 40.0 (41.7 at the end of 2008) per cent. The Group's liquidity is good. The net debt/equity ratio (gearing) was -6.8 (-38.5) per cent. At the end of the review period the Group's cash and cash equivalents were EUR 123.6 (203.7) million, interest bearing liabilities EUR 111.4 (122.5) million and net cash EUR 12.2 (81.2) million. The Group had long-term unused overdraft facilities at the end of the review period amounting to EUR 113.8 (93.1) million.
 
Capital expenditure
 
The Group's capital expenditure for the period under review totalled EUR 7.1 (11.2) million, of which EUR 4.2 (5.3) million were investments in company acquisitions.
 
Principal short term risks and uncertainties
 
The principal short term risks and uncertainties relate to the prolongation of the global financial crisis and economic downturn. These risks and uncertainties primarily relate to the energy, forest industry and construction services operating segments of the Group.
 
If the weak demand and investment activity will continue, they may cause the profitability to decrease further. In order to reduce the risk, the measures to adapt the operations and to streamline the cost base are continued throughout the Group.
 
Risks and uncertainties also relate to the accelerated adaptation measures and changes in the organisation and operating model being implemented in the Forest Industry business group.
 
A detailed report on the Group's most significant risks and risk management is given in the Financial Statements of 2008.
 
Share capital and shares
 
The total number of shares at the end of 2008 was 58 878 602. In April 2009 12 000 new shares were subscribed with stock options 2004A and 2004B pursuant to the stock option programme 2004 of Pöyry PLC. In July 2009 8 108 shares were subscribed with stock options 2004A. Following the registration of the subscribed shares, the total number of shares will increase to 58 898 710.
 
Option programme 2004
 
Pöyry PLC issued in 2004 stock options to the management of the Group as well as to a wholly-owned subsidiary of Pöyry PLC. The number of stock options is 550 000, entitling to subscription of four shares each, i.e. a total of 2 200 000 shares in Pöyry PLC.
 
The share subscription periods are the following: for stock options 2004A (660 000 shares) between 1 March 2007 and 31 March 2010; for 2004B (660 000 shares) between 1 March 2008 and 31 March 2011; and for 2004C (880 000 shares) between 1 March 2009 and 31 March 2012. All stock options have been issued and their receipt confirmed.
 
At the end of 2008, 399 756 new shares had been subscribed with 69 532 stock options 2004A and 30 407 stock options 2004B. During the period under review 12 000 new shares were subscribed with 1 500 stock options 2004A and 1 500 stock options 2004B. After the period under review 8 108 new shares have been subscribed with 2 027 stock options 2004A.
 
Performance share plan 2008-2010
 
In December 2007, the Board of Directors of Pöyry PLC approved a share-based incentive plan for key personnel. The plan comprises three earning periods, which are the calendar years 2008, 2009 and 2010. The rewards will be paid partly (50 per cent) in the company's shares and partly (50 per cent) in cash in 2009, 2010 and 2011. The criteria for the reward pay outs for the years 2008 and 2009 are the Group's earnings per share (EPS) and net sales.
 
At the time of approval of the pay outs for the earning period 2008, the incentive plan included 287 persons. For the earning period 2008, the payout ratio was 180.89 per cent corresponding to a value of 433 454 shares. The payments were made to the participants in April 2009. The value of the plan for the earning period 2009 will correspond to the value of 400 000 shares if the performance of the Group is in line with the earnings criteria for target performance set by the Board of Directors. If the Group's performance exceeds the target and reaches maximum performance, as defined by the Board, the value of the plan can reach up to the value of 800 000 shares for the earning period 2009. The incentive plan for the earning period 2009 includes approximately 300 persons. As of April 2009, 92.8 per cent of the grants have been allocated for the earning period 2009.
 
The fair value of the reward is expensed until the target group is entitled to the reward and the shares are freely transferable. The fair value of the share is the share price on the date at which the target group has agreed to the conditions of the plan reduced by the estimated dividends. The fair value of the cash proportion is remeasured at each reporting date based on the share price at the reporting date.
 
Authorisation to issue shares
 
The Annual General Meeting (AGM) on 10 March 2008 authorised the Board of Directors to decide on issuing new shares and to convey the company's own shares held by the company in one or more tranches. The share issue can be carried out as a share issue against payment or without consideration on terms to be determined by the Board of Directors and in relation to a share issue against payment at a price to be determined by the Board of Directors. A maximum of 11 600 000 new shares can be issued. A maximum of 5 800 000 own shares held by the company can be conveyed. The authorisation is in force for three years from the decision of the AGM.
 
The decision made by the AGM was published in its entirety in a Company Announcement on 10 March 2008.
 
During the period under review, the Board has resolved on a directed share issue by conveying without consideration a total of 216 727 of the company's own shares to persons included in the company's performance share plan for 2008 in accordance with the terms and conditions of the plan. The Board of Directors of Pöyry PLC further resolved on a directed share issue by conveying a total of 10 000 of the company's own shares held by the company to persons included in the company's incentive plan. The directed share issues do not affect the company's share capital or the total number of shares of the company. After these directed share issues, the maximum number of shares that may be conveyed is 5 573 273 shares.
 
Authorisation to acquire the company's own shares
 
The AGM on 10 March 2008 authorised the Board of Directors to decide on acquiring a maximum of 5 800 000 of the company's own shares. On 10 March 2008, the Board of Directors resolved to exercise the authorisation for the implementation of the Performance share plan 2008-2010 described above. On the basis of this authorisation, 148 529 of the company's own shares were acquired in 2008. On 3 February 2009, the Board of Directors resolved to commence acquiring the company's own shares based on the above-mentioned authorisation. The shares may be acquired to develop the company's capital structure, to be used as payment in corporate acquisitions or when the company acquires assets related to its business and as part of the company's incentive programmes in a manner and to the extent decided by the Board of Directors, and to be transferred for other purposes, or to be cancelled. Based on the resolution by the Board of Directors, 139 000 of the company's own shares were acquired between 5 February and 4 March 2009.
 
The AGM on 10 March 2009 authorised the Board of Directors to decide on acquiring the company's own shares with distributable funds on the terms given below for the purposes mentioned in the previous paragraph with the following terms. A maximum of 5 800 000 shares can be acquired. The company's own shares can be acquired in accordance with the decision of the Board of Directors either through public trading or by public offer at their market price at the time of purchase. The acquisition of shares reduces the company's distributable shareholders' equity. The authorisation is in force for 18 months from the decisions of the AGM.
 
The decision made by the AGM was published in its entirety in a Company Announcement on 10 March 2009.
 
On 10 March 2009, the Board of Directors decided to exercise the authorisation and to commence the acquisition of the company's own shares mentioned in the first paragraph under this headline. By the end of June 2009, 64 818 of the company's own shares have been acquired based on this authorisation. The average price of the shares acquired in 2009 was EUR 8.88. Furthermore, Pöyry PLC has acquired from its subsidiary 8 914 Pöyry PLC shares.
 
Of the above mentioned directed share issue of 216 727 own shares related to the earnings period 2008 of the performance share plan 2008-2010, 215 641 shares had been transferred to the recipients and thus the total amount of own shares held by the company on 30 June 2009 was 373 177, representing 0.6 per cent of all shares and 0.6 per cent of all votes.
 
Invested free equity reserve
 
The AGM on 10 March 2009 resolved to lower the legal reserve and the share premium reserve by transferring the entire capital of the reserves in the aggregate amount of EUR 50 420 234.49 into the reserve for invested unrestricted equity. The transfer is under registration.
 
Dividend
 
The Annual General Meeting decided that a dividend of EUR 0.65 be distributed per outstanding share for 2008 (EUR 0.65 for 2007), totalling EUR 38.0 million. The dividend was paid on 20 March 2009.
 
Share trading and price
 
The company's shares are listed on NASDAQ OMX in Helsinki. The average trading price during the period under review was EUR 9.03, with a high of EUR 10.65 and a low of EUR 7.55. A total of 12.8 million of the company's shares were traded, equalling 21.9 per cent of the total number of shares and corresponding to a turnover of EUR 116.1 million.
 
Prospects
 
Energy
 
The Energy business group's market position is stable, although the weakened demand and tightened competition make it challenging to maintain the business group's profitability. However, the reduced energy consumption coupled with the low level of crude oil prices and natural gas margins as well as a lack of financing continue to postpone investment decisions. Prospects for hydropower projects in the medium term, specifically in emerging markets, remain strong. Changes in the energy supply structure and environmental legislation create demand for renewable energy and energy efficiency, particularly in the EU, and are expected to drive demand also for consulting services. The nuclear power renaissance is clearly picking up speed, not only within the European markets but also in new markets, such as the Middle East and Asia. Adaptation measures designed to safeguard profitability continue in the Energy business group. The Energy business group's operating profit is estimated to decrease clearly in 2009 including non-recurring expenses, when the positive effect on earnings of the non-recurring income from the sale of Polartest Oy's shares is not taken into account in the operating profit.
 
Forest Industry
 
The Forest Industry business group's market position is stable. Go-ahead decisions of new pulp and paper projects and chemical industry projects have been postponed. Investment activity is not expected to recover during 2009. Preliminary study work for new investment projects continues in certain areas, notably in Russia and Brazil. In Latin America, the volume of investments is not expected to recover in the short term, but longer term prospects are positive. Demand for local services in the forest industry sector has decreased, while it has remained stable in other industrial sectors. Demand for management consulting services has declined and is increasingly focused on improving forest industry companies' profitability, including efficiency improvement and energy savings. In response to the changed market situation, the business group continues efficiency improvement measures. Apart from other adaptation measures, the business group's organisation and operation model has been changed to better serve the current demand. The Forest Industry business group's operating profit is weakened by poor demand for its services and by non-recurring expenses related to adaptation measures. The Forest Industry business group's operating profit in 2009 is estimated to be negative, including non-recurring items.
 
Transportation
 
In an effort to counter the negative recession effects to economies, many national governments continue to invest in large infrastructure projects. These investments represent the core areas of the Transportation business group. The impact of this on the transportation business has been positive, and is expected to continue in a similar pattern as the stimulus packages that have been announced take effect. In particular, Western Europe and Latin America remain buoyant. Investments in Eastern Europe may be negatively impacted in the future in the event of a prolonged recession as these governments may find the cost of the investments more than they are able to sustain. The business group's order stock has clearly increased during the period under review and the operations are expected to remain stable. The Transportation business group's operating profit is expected to improve in 2009.
 
Water & Environment
 
The global market conditions for the Water & Environment business group remain stable. The flow of new assignments, mainly from public sector clients, is expected to continue. Reduced demand by industrial clients, mainly in the mining sector, will be compensated by an increase in demand for the public sector. Stimulus packages in different parts of the world are expected to lead to new orders. Scarcity of clean water and environmental degradation in emerging countries, combined with continued urbanisation will be key drivers for the business group's service offerings, resulting in steady demand growth. The Water & Environment business group's operations are expected to remain stable and its operating profit is estimated to improve in 2009.
 
Construction Services
 
Investment decisions have continued to be postponed until a later date, particularly in business and office construction, and also in the industry sector. Relatively stable demand is expected to continue as far as infrastructure projects and consulting services are concerned. The business group maintains a strong market position in these areas, and the business group's order book has remained healthy despite the difficult market situation. Capacity adaptation measures and cost-saving programmes launched by the business group's units will be pursued to ensure profitability. Because of the deteriorating market situation and non-recurring expenses due to adaptation measures the Construction Services business group's operating profit is estimated to decline clearly in 2009.
 
Group
 
The economic downturn will have a clear impact on investment demand worldwide during 2009. In the Pöyry Group, the impacts have most clearly been felt in the Forest Industry business group's operations and profitability, though the business group's market position remains strong. The duration of the downturn and all of its impacts are difficult to foresee. Pöyry continues its group-wide efficiency improvement measures, which are launched to protect the Group's profitability and to adapt the capacity to match market conditions. The aim of these measures is to concentrate competences, improve the efficiency of operations and to cut costs. The cost saving target for fixed expenses on an annual basis is about EUR 30 million compared with the 2008 cost base. The target excludes one-off restructuring expenses.
 
Corporate acquisitions are a central part of Pöyry's growth strategy. Pöyry's strong balance sheet and good liquidity create opportunities for participating in corporate restructurings. Acquisitions will be made in cases where the target company offers strategic advantages and supports Pöyry's objectives.
 
Pöyry's net sales for 2009 are estimated to decrease and profit before taxes is estimated to decrease significantly compared with 2008. This assessment does not take into account possible acquisitions during 2009.
 
Vantaa, Finland, 22 July 2009
 
PÖYRY PLC
Board of Directors
 
PÖYRY PLC
 
Heikki Malinen
President and CEO
 
Teuvo Salminen
Deputy to President and CEO
 
Additional information:
Heikki Malinen, President and CEO, Pöyry PLC
tel. +358 10 33 21307
Esa Ikäheimonen, CFO, Pöyry PLC
tel. +358 10 33 21586
Satu Perälampi, VP, Corporate Communications and IR, Pöyry PLC
tel. +358 10 33 23002
 
 
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