VACON SHOWED IMPROVED PROFITABILITY AND STRONG OPERATIONAL CASH FLOW DURING Q4

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1 Vacon Plc, Stock Exchange Release, 13 February 2003 at am Financial Report January - December VACON SHOWED IMPROVED PROFITABILITY AND STRONG OPERATIONAL CASH FLOW DURING Q4 Summary Fourth Quarter Order intake grew 26.4 % compared to the corresponding period in previous year Revenues during the period reached an all-time-high of MEUR 26.4 (MEUR 24.1 in corresponding period in previous year), growth of 9.5 % Operating profit (EBIT) was MEUR 2.8 (MEUR 2.7), growth of 3.7 % Cash flow from operations stayed at a high level, totalling MEUR 3.8 (MEUR 4.3), decrease of 11.6 % Vacon s fourth-quarter results were encouraging. Vacon continues to maintain a balance in its efforts to accelerate revenue growth while maintaining profit level. Vacon s financial profile is good and the cash flow reflects the quality of the company s business. Vacon ended the year with strong net cash position. The pace of recovery in the global manufacturing sector continues to be uneven. No signs of sustainable growth in the drives market are yet visible. It is expected that frequency converter market is growing 5 to 10 % when the market is recovering. Vacon s objective is to grow faster than the market is growing. The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.17 per share be paid, a total of EUR 2.6 million.

2 Result for Result for period January -December : MEUR 10-12/ 10-12/ 1-12/ 1-12/ Growth % Revenues EBITDA Depreciation EBIT Profit before taxes Profit for the period Vacon Group continued to deliver profitable growth. The Group strengthened its market position on all continents. Vacon's improvement in profitability in the fourth quarter compared to last year is a solid indication that our focus on customers - coupled with the programme to improve margins that began in April this year - is bringing results in a difficult economic environment. The depreciation of the capitalized R&D expenses for NX Light and liquid-cooled frequency converters started at the beginning of the third quarter this year and will continue for 5 years. The parent company s total depreciations of capitalization expenses in amounted to EUR 0.45 million. The consolidated operative cash flow was EUR 10.5 million positive (EUR 7.6 million). This is a result of improved handling of trade receivables and inventories. The balance sheet total was EUR 53.1 million, an increase of 7.9 per cent. The equity ratio remained at a strong level of 51.7 per cent. The Group's equity structure and liquidity were further strengthened. Interest-bearing net debt at the end of the period totalled EUR 0.8 (3.5) million and the net gearing was 3.0 % (15.4 %). The return on investment of 30.4 per cent and return on equity of 26.2 per cent remained at a good level. The frequency converter business is a product business, with lead times varying from a few days to several weeks. Vacon has succeeded in cutting lead times still further, improving the company s competitiveness in the market place. Delivery reliability remained at an excellent level throughout the year. The order book at the end of the year totalled EUR 14.8 (6.5) million. Market position Vacon Group revenues by market area were as follows:

3 MEUR 10-12/ % 10-12/ 2001 % 1-12/ % 1-12/ 2001 % Europe North- America Asia and Australia Others Total Vacon's net sales in by distribution channel were: own direct sales 39 per cent, distributors 21 per cent, OEM 22 per cent, and brand label customers 18 per cent. The positive impact of the build-up of the Vacon sales company network in Europe continues to show growth figures despite the weakening market situation. Sales in Asia and Australia have continued to grow in. The company is cautiously optimistic when speaking of market growth in North America. Although the market dropped approximately 15% in, Vacon anticipates a 4-5% recovery in Much of this recovery will happen in the latter part of the year. Cutler-Hammer, Vacon s biggest customer, is, however, expecting to significantly outpace the market. "Cutler-Hammer will introduce many new selling initiatives and new products throughout the year. We will begin by launching several new AF Drive concepts at the AHR Expo in Chicago on January 27,", says Tom Doring, Cutler-Hammer's Business Unit Manager. In the AC drives market, has been a year with declining demand. By following its precision product strategy, however, Vacon has consolidated its position as a supplier of reliable, easy to use AC drives. Despite the decline in the market, it has succeeded in clearly increasing its market share and strengthened its market position. Vacon currently holds about two per cent of the global frequency converter market and believes that this figure will continue to rise. The frequency converter market is still fragmented. The market leader has about 13 per cent of the total market and the thirteen biggest suppliers have a combined market share of 80 per cent. Competition is getting tougher and a restructuring of the sector is going to take place. The drives markets are going through a consolidation phase, with competitors suffering from the difficult economical environment. Some competitors are trying to restructure their drives business, either through divestments or joint ventures. The technology is developing rapidly, which can be seen in terms of higher performance products, a wider range of applications and communications options, and falling product prices. Success in the sector requires continuous development of products and working methods. The market leaders are multinational corporations in the automation and electrical engineering sectors who offer a broad range of products and services. Their products conform to their own internal standards and operating methods. In contrast to Vacon,

4 for many competitors frequency converters only make a marginal contribution to the net sales of the entire group. Some of the key features of Vacon s strategy are customer-oriented operations, the ability to respond promptly, focusing on its core competence, continuous development of expertise, and unbeatable quality. In fact, these factors, coupled with expert, motivated personnel, are vital to the company's success. Vacon is systematically building a network of partners, consisting of customers, suppliers, universities and its own specialist expertise, to develop ever better frequency converters to control public sector and industrial processes. Vacon is well placed to benefit from recent trends in its business environment. Group structure The Group established a sales company in Belgium at the beginning of the year and the opening ceremonies for Vacon's sales company in Norway took place at the beginning of April. Vacon s network of its own sales companies has now grown to cover the main AC drives markets in Europe. In December 2001 agreement was reached to raise Vacon's holding in the Group company Vacon Traction Oy, located in Tampere, from 65 per cent to 90 per cent by purchasing shares from other shareholders. This took place in January. In April the local shareholders of Vacon Drives UK Ltd, in other words the local management, acquired another 10 per cent of the shares in the sales company, increasing their share holding from 20 per cent to 30 per cent by executing the call options agreed when the sales company was established. In October Vacon and former Vacon President Veijo Karppinen established VNT Management Oy to administer the fund which will be established. The fund will invest in power electronics used in distributed energy production and electricity quality field, and in special electric motors. Vacon Plc owns 74 % of the shares, and Mr Karppinen the remaining 26 %. Research and development Vacon continues to invest strongly in product development to further strengthen its position as technology leader in application and customer specific AC drives. Growth expectations are based on four different NX product models (NX Light, NXS, NXP and NX Liquid Cooled) that utilize the same platform. NX Light was launched during the year, as were power extensions of NXS and NXP. The first deliveries were made of engineered drives based on Vacon liquid cooled technology for the steel industry. This demonstrates not only the capabilities of our technology but also that end users with the most demanding requirements have given us their approval as a supplier of frequency converters.

5 Vacon entered into a collaborative product development relationship with Rockwell Automation, a leading industrial automation and drives supplier, in high-power and high-performance variable speed drives. This brings together complementary technologies to improve the performance of variable speed drives. Investments Gross investments by the Group during the year totalled EUR 4.7 (7.5) million. The largest investments were in testing facilities for high power AC drives, which will provide future growth potential for Vacon Group. Other investments were allocated to tools for NX products, the product development laboratory and information technology. In the second half of the year no R&D expenses have been capitalized. A total of EUR 0.6 (1.8) million has been capitalized in the income statement of the parent company for the R&D expenses for NX Light and liquid-cooled frequency converters, in the same way as the previous year. No further capitalization regarding these two development projects will be made. The total capitalization of R&D expenses at group level for is EUR 0.8 (2.1) million. Organization and Personnel Vacon further sharpened its focus on profitable growth by reinforcing its organizational structure Autumn. The new structure simplified operations, improved efficiency and will provide superior value propositions to customers. The number of parent company personnel increased by 8 during the year to 315 at the end of the year. At year-end 111 persons worked in the Group's subsidiaries, an increase of 9 from the beginning of the year. New employees were hired mainly in R&D and sales. Workforce turnover was minimal. The entire Group had 426 employees at the end of. Shareholders During a total of 4,599,195 shares were traded with a value of EUR 44.5 million. The company's share price on the Helsinki Exchanges ranged between EUR 5.60 and EUR The share price on the closing date was EUR, which gave a market value of EUR million. Divident Proposal The parent company's distributable equity is EUR 23.0 million. Distributable consolidated equity is EUR 19.5 million. The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 0.17 per share be paid, a total of EUR 2.6 million.

6 Vacon s main shareholders at the end of were as follows: Number of Shares Holding, % Nordea Bank Nominee reg. * 4,269, Ahlström Capital Oy 1,832, Vaasa Engineering Oy 631, Tapiola Mutual Pension Insurance Company 584, Karppinen Veijo 494, Niemelä Harri 399, Tapiola Group 390, Holma Mauri 382, Koskinen Jari 356, Ehrnrooth Martti 312, Others 5,494, TOTAL 15,150, *Nordea Bank Nominee reg. Fidelity Funds 2,227, Goldman Sachs Funds 375, Others 1,666, TOTAL 4,269, At the end of the review period members of the Board of Directors and the President held a total of 1,314,000 shares, or 8.7 % of the total share stock. Prospects Many economists are forecasting the emergence of a volatile economy with a quarterly pattern of short upward and downward movements. Vacon believes most of the markets it serves will experience growth over the next several years. In this changing environment, Vacon will focus on serving customers better than its competitors, gaining market share, improving cash flow, investing in innovations and maintaining solid improvements in its overall financial performance. Vacon has solid revenues and a healthy profitability outlook. The new NX product family is the primary driver in growth. Vacon's profitability outlook remains strong, reflecting the successful implementation of the margin improvement programme launched in. During 2003 Vacon is expected to return to higher growth than in. Vacon's object for growth in net sales in 2003 is 10 to 20 per cent, with better profitability than in year. Vacon has systematically developed its sales network to cover the entire industrial world. Vacon is known in more than 100 countries, and in nine years it has built a strong reputation as a supplier of reliable, easy to use products. New customer relations and its own sales companies create a firm foundation for the growth of operations in the coming year as well.

7 Next report The following three Interim Reports will be published in 2003: January - March, Tuesday, 29 April at am. January - June, Tuesday, 5 August at am. January - September, Tuesday, 28 October at am. A briefing for analysts will be held in Helsinki on each of these dates. The Annual General Meeting of Vacon Plc will be held on Thursday, 20 March 2003 at 3.00 pm in Vacon Plc premises, Runsorintie 7, Vaasa, Finland. 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. Vaasa, 13 February 2003 VACON PLC Board of Directors For more information please contact: Mr. Vesa Laisi, President, Vacon Plc Tel: +358 (0) , vesa.laisi@vacon.com Distribution: Helsinki Exchanges Media

8 Consolidated income statement, MEUR 10-12/ 10-12/ / 1-12/ 2001 Revenues EBITDA EBIT Financial income and expenses Profit before extraordinary items, taxes and minority interest Taxes Minority interest Profit for the period Consolidated balance sheet, MEUR 1-12/ 1-12/2001 ASSETS Fixed assets Intangible assets Tangible assets Investments Current Assets Inventories Short-term receivables Cash and equivalents Total SHAREHOLDERS EQUITY AND LIABILITIES Shareholders equity 1) Minority interest Group reserves Long-term liabilities Current liabilities Total Includes equity loans of MEUR 1.6 in and MEUR 2.0 in 2001 Consolidated cash flow statement, MEUR 1-12/ 1-12/2001 Net cash flow from operations Cash flow used in investment activities, net Financing total Cash flow after financing

9 Per share data (pro forma) (pro forma) Earnings per share, EUR Shareholders equity per share, EUR Dividend per share, EUR 1) Dividend pay-out ratio, % 1) Effective dividend yield, % 1) Price/earnings-ratio Share price information: Lowest during the period (EUR) Highest during the period (EUR) Closing price at the end of the period (EUR) Average price for the period (EUR) Market value of shares, EUR million Number of shares traded 4,599,195 6,240, ,041 Number of shares traded, % Adjusted average number of shares during financial period 15,150,000 15,150,000 13,722,242 11,721,500 11,721,500 Number of shares at end of financial period 15,150,000 15,150,000 15,150,000 11,721,500 11,721,500 1) The dividend is the Board of Directors proposal to the Annual General Meeting.

10 Financial ratios (pro forma) (pro forma) Revenues, MEUR Revenues, increase % Operating profit, MEUR Operating profit, increase % Operating profit, % of revenues Profit/loss before appropriations and taxes, MEUR Profit/loss before appropriations and taxes, % of revenues Return on equity, % Return on investment, % Net interest bearing debt, MEUR Net gearing (%) Equity ratio(%) (excluding capital loans) Gross investments in fixed assets and shares, MEUR Gross investments in fixed assets and shares, % of revenues Research and development expenditure, MEUR ) Research and development expenditure, % of revenues ) Personnel at end of period Order book ) R&D expenditures were not separately identified for 1998 Commitments and contingencies, MEUR 1-12/ 1-12/2001 Company mortgages Guarantees Leasing contracts Contingent liabilities, total

11 Consolidated income statement per quarter, MEUR 10-12/ 7-9/ 4-6/ 1-3/ 1-12/ 1-9/ 1-6/ 1-3/ Revenues EBIT Profit before extraordinary items, appropriations and taxes Vacon Plc PL 25 (Runsorintie 7) Vaasa Tel +358 (0) Fax +358 (0)