ASPOCOMP’S INTERIM REPORT JANUARY 1 – JUNE 30, 2007

of shares and votes of the currently registered 49,905,130 shares would amount to 8.02 percent.

 

On May 25, 2007, the stake of Varma Mutual Pension Insurance Company in Aspocomp Group Oyj’s shares and votes decreased below the 5 percent threshold to 3.79 percent. The amount of shares and votes held by Varma was 1,890,607.

 

On June 20, 2007, the stake of Sampo Life Insurance Company Limited in the company’s shares and votes decreased below the 10 percent threshold to 9.24 percent, or 4,611,372 shares and votes.

 

The Extraordinary General Meeting of January 19, 2007, authorized the Board of Directors to decide on issuing 50,000,000 new shares and conveying the 200,000 Aspocomp shares held by the company. The authorization is valid for two years from the date of the decision of the meeting. Based on the authorization, a total of 29,823,078 new shares were subscribed for in a rights issue that ended in April 2007, increasing the total amount of company shares to 49,905,130. Trading with the new shares commenced on the Helsinki Stock Exchange on April 20, 2007.

 

The Annual General Meeting of May 10, 2007 authorized the Board to decide on issuing and/or granting a maximum of 40,000,000 new shares and conveying and/or receiving a maximum of 200,000 Aspocomp shares held by the company. The new shares can be issued and the company’s own shares conveyed either against payment (rights issue) or for free (bonus issue) to the company’s shareholders in proportion to their holding, or by means of a directed issue, waiving the pre-emptive subscription right of shareholders, if there is a weighty financial reason for the company to do so. The authorization also includes the right to grant special rights, as specified in Article 1 of Chapter 10 of the Companies Act, to receive new shares in the company or Aspocomp shares held by the company against payment such that either the share subscription price will be paid in cash or the subscriber’s receivables will be offset against the subscription price. In addition, the authorization includes the right to decide on a bonus issue to the company itself such that the number of shares issued to the company can amount to no more than one-tenth (1/10) of all the company’s shares. The Board of Directors has the right to decide on other particulars of the share issues and the granting of special rights. The authorizations are valid for two years from the date of the decision of the Annual General Meeting. They do not cancel previous unexercised share issue authorizations.

 

Kaupthing Bank Oyj, which has been a market maker in Aspocomp shares, discontinued market making in Aspocomp shares until further notice on May 11, 2007. Kaupthing has provided bids and offers for Aspocomp shares such that the maximum difference between a bid and offer price is 2 percent of the bid. Bids or offers include at least 1,000 shares. Since Aspocomp shares trade below 0.50 euros and the minimum tick size is 1 cent, it is not possible to provide bids and offers at less than 2 percent of the share price.

 

 

RIGHTS OFFERING

 

On March 16, 2007, the Board of Aspocomp Group Oyj decided on a rights issue whereby the shareholders of Aspocomp were entitled to subscribe for three new shares for every two old shares. A total of 29,823,078 new shares were offered for subscription at a subscription price of EUR 0.84 per share. The offer shares represented approximately 150 percent of the total shares and voting rights of the company prior to the offering and 60 percent after the offering. The share issue was based on the authorization granted by the Extraordinary General Meeting of January 19, 2007.

 

In the secondary subscription any investor could subscribe for any offer shares that had been left unsubscribed for on the basis of the subscription rights. The company received an underwriting commitment for the full amount of the offering from a group of investors comprising 2M Ventures Oy, Ajanta Oy, Avenir Rahastoyhtiö Oy, E. Öhman J:or Fondkommission AB, Oy Hammaren & Co Ab, Varma Mutual Pension Insurance Company Ltd, Oy Finvestock Ab, Ramsay & Tuutti Oy Ab and Sampo Life Insurance Company.

 

The subscription period commenced on March 26, 2007. It expired on April 12, 2007 with respect to the subscription rights, and on April 13, 2007 with respect to the secondary subscription. A total of 27,221,343 shares were subscribed for in the primary subscription and a total of 2,601,735 shares in the secondary subscription. New equity raised by the offering was approximately EUR 25 million prior to the deduction of fees and expenses. The total number of Aspocomp’s shares increased to 49,905,130 shares and trading with all shares commenced on the Helsinki Stock Exchange on April 20, 2007.

 

Evli Bank Plc, Corporate Finance acted as the Manager of the share issue.

 

 

STOCK OPTIONS AND CONVERTIBLE DEBENTURE LOAN

 

As part of the financing arrangement for the minority share acquisition in China, and on the basis of the authorization from the Extraordinary General Meeting of January 19, 2007, the Board of Directors of Aspocomp resolved on March 21, 2007 to issue 4,000,000 warrants to Standard Chartered Bank (Hong Kong) Limited in deviation from shareholders’ pre-emptive subscription rights. Each warrant entitles its holder to subscribe for one share in the company. As a result, the total number of the company’s shares can increase by a maximum of 4,000,000 shares. The warrants may be exercised from October 3, 2008 (or earlier if a person or entity will acquire over 30 percent of the company’s shares) until March 31, 2010. Following the share offering described above, the Board of Directors noted on April 18, 2007, that the share subscription price on the basis of the warrants granted to Standard Chartered Bank (Hong Kong) Limited will be approximately EUR 1.13 per share.

 

Aspocomp also made a commitment to Standard Chartered Bank not to issue, without its consent, more than 40,000,000 shares on the basis of the authorization from the Extraordinary General Meeting of January 19, 2007. In addition, Aspocomp undertook to reserve 10,000,000 shares of the authorization for a possible share issue on commercially acceptable terms. The issue would take place in the event Standard Chartered Bank requests it within 120 days prior to the repayment of the loan granted for the minority acquisition in China, scheduled for September 2008. The schedule for the possible issue may change if the term of the loan is extended.

 

Following the share offering described above, the Board of Directors resolved on April 18, 2007 to amend the subscription prices of the convertible debenture loan I/2006 and the stock options issued by Aspocomp. The subscription price of convertible debenture loan I/2006 was reduced by EUR 0.43 to EUR 2.1407 per share. In order to reduce the subscription price, the Board resolved to entitle the holders of the loan to subscribe for a total of 804,810 new shares of the company. As a result of the amendment, each book-entry issued for the loan entitles the holder to convert the book-entry into 467 shares of the company instead of the current 389 shares of the company.

 

As part of the incentive scheme for Aspocomp’s management, the Board of Directors decided on May 10, 2007 to distribute stock options – which were issued by the Annual General Meeting held on April 10, 2006 – to the Group’s key personnel. The shareholding scheme and the financial performance-linked subscription rights aim to align the objectives of executives and other shareholders.

 

The Board of Directors distributed a total of 310,000 stock options 2006B and 25,000 stock options 2006A to key personnel of the Group. The beginning of the share subscription period for stock options 2006B is subject to attainment of the targets set for the Group’s cash flow. The Board of Directors decided on the financial targets for stock options 2006A in the spring of 2006. The share subscription period with stock options 2006A is from May 1, 2008 to May 31, 2010 and with stock options 2006B from May 1, 2009 to May 31, 2011.

 

The share subscription price with stock options 2006B is EUR 0.84 (average share turnover-weighted price on the Helsinki Stock Exchange in April 2007). The subscription price with stock options 2006A changed due to the share issue carried out in March-April 2007 such that with stock options 2006A the subscription price of shares is EUR 2.47 and a total of 1.387 shares in the company can be subscribed for with one stock option. When shares are subscribed for, the total number of shares will be rounded down to a full number. The total subscription price will be calculated using the rounded number of shares. After this change, a maximum of 429,970 shares in the company can be subscribed for with stock options 2006A, instead of 310,000 shares, and the company’s share capital can rise by a maximum of EUR 429,970, instead of EUR 310,000. Annual dividends paid are deducted from the subscription price.

 

The Board of Directors also decided on a separate share-based incentive scheme covering about 10 senior executives. Benefits, if any, will be paid in January 2008 at the latest.

 

 

PERSONNEL

 

During the review period, the Aspocomp Group had an average of 2,472 employees (3,328). The personnel count on June 30, 2007 was 2,406 (3,397). Of them, 1,609 (2,372) were non-salaried and 797 (956) salaried employees. 2,381 (2,348) personnel worked in PCB production and 25 (24) in Group administration.

 

Personnel by region, average

 

                   1-6/2007        change, %         1-6/2006

Europe                  575            -18.0              701

Asia                  1,897            -27.8            2,627

Total                 2,472            -25.7            3,328

 

 

The personnel reduction in Asia was mainly attributable to the sale of the older technology plant in China. The Group continued to implement the HR development process, adopted last year, to achieve consistency in operating methods and documentation in different countries.

 

Management was restructured in Thailand and new management was appointed for the Chinese plant due to the new focus on HDI PCB production. In addition, the Group-wide recruiting process was honed.

 

On May 4, 2007, Aspocomp issued a notice on statutory labor co-determination negotiations in Finland. The negotiations concerned about 350 employees at Aspocomp Group Oyj and Aspocomp Oy, excluding personnel at the Oulu production unit. The negotiations were concluded on June 15, 2007. As a result, a total of 237 personnel, consisting of 183 non-salaried and 54 salaried employees, were made redundant. Production at the Group’s Salo plant was closed down on July 14, 2007, and employment of its 215 personnel will be terminated during 2007.

 

 

BOARD OF DIRECTORS AND AUDITORS

 

The Annual General Meeting of May 10, 2007 decided that the number of Board members is seven and re-elected the current members of the Board: Aimo Eloholma, Johan Hammarén, Tapio Hintikka, Tuomo Lähdesmäki, Yoshiki Sasaki, Anssi Soila and Kari Vuorialho. The meeting re-elected PricewaterhouseCoopers Oy as the company’s auditor for the 2007 financial year.

 

In addition, the meeting decided that the remunerations of the members of the Board will remain the same as in 2006. An annual remuneration of EUR 35,000 will be paid to the chairman of the Board, EUR 25,000 to the deputy chairman and EUR 15,000 to the members. The annual remuneration will be paid such that 60 percent is paid in cash and the remaining 40 percent is, according to the authorization of the annual general meeting, used to buy shares in the company for conveyance to Board members after the release of the Group’s second quarter results. EUR 1,500 per meeting will be paid to the chairman and EUR 1,000 per meeting to the other members. EUR 1,500 per meeting will be paid to the members of the Board of Directors residing abroad. EUR 500 will be paid for each committee meeting. The members of the Board residing outside of the Greater Helsinki Area are reimbursed for reasonable travel and lodging costs. The auditor will be paid according to invoice.

 

At its organization meeting held on May 10, 2007, the Board of Directors of Aspocomp Group Oyj re-elected Tuomo Lähdesmäki as Chairman of the Board and Yoshiki Sasaki as Vice Chairman. The Board of Directors appointed Aimo Eloholma, Tapio Hintikka, Tuomo Lähdesmäki and Kari Vuorialho as members to the Compensation and Nomination Committees. Johan Hammarén, Yoshiki Sasaki and Anssi Soila were elected as members of the Audit Committee.

 

 

GROUP RESTRUCTURINGS

 

On April 17, 2007, Aspocomp announced that the technology development of Imbera Electronics Oy, the R&D joint venture of Aspocomp Group Oyj and Elcoteq SE, has reached the industrialization and commercialization stage. The companies signed and closed a transaction to broaden Imbera’s ownership base, extend its exposure to the market and secure its financing. Imbera’s new financiers and major owners are funds managed by Index Ventures, Northzone Ventures and Conor Venture Partners. The funds made investments in Imbera Electronics Inc, a new US-based parent company of Imbera Electronics Oy that was incorporated for this investment.

 

Aspocomp and Elcoteq remain Imbera’s minority shareholders through a share exchange with Imbera Electronics Inc. After the arrangement, Aspocomp and Elcoteq each own approximately 15 percent of Imbera’s share capital. Imbera’s operative management remained unaffected and gained a minority holding in the company.

 

Aspocomp signed a 10-year worldwide manufacturing license agreement for the current Imbera technology. The ownership arrangement will have no impact on Aspocomp’s financial result. Imbera Electronics Oy was set up jointly by Aspocomp and Elcoteq in 2002 to develop Integrated Module Board assembly technology.

 

The Board of Directors of Aspocomp Group Oyj decided on May 10, 2007 to merge the subsidiary Aspocomp Oy with its parent company. The merger plan was entered into the Finnish Trade Register on June 5, 2007 and the planned registration date for the implementation of the merger is September 30, 2007. The merger will have no effect on the Aspocomp Group’s financial statement figures.

 

 

EXPANSION IN ASIA

 

On February 15, 2007, Aspocomp announced that the total investment in the minority acquisition and product capacity expansion related to the Chinese subsidiary as well as in the India plant project is currently estimated to amount to about EUR 170 million. According to the estimates released on March 15, 2007, the investment in India will amount to about EUR 100 million, of which about EUR 80 million is earmarked for building and machinery and EUR 20 million for working capital, interest and start-up costs.

 

On March 16, 2007, Aspocomp entered into an agreement to acquire the 49 percent minority interest in ACP Electronics Ltd, Aspocomp’s Suzhou, China based joint venture, from the Group’s Taiwanese partner Chin-Poon Holdings. The net purchase price was EUR 37.8 million. The gross transaction price of EUR 44.6 million was reduced by Chin-Poon’s equipment purchase from ACP Electronics, valued at EUR 6.8 million. Since the equipment was not suitable for HDI technology production, Aspocomp was unable to use it. As the Group aims to increase HDI printed circuit board production capacity in China, the plant facility is scheduled to be upgraded into an HDI PCB plant during 2008.

 

On March 21, 2007, Aspocomp agreed on a EUR 40 million credit facility with Standard Chartered Bank (Hong Kong) Limited to purchase the 49 percent minority share in ACP Electronics Ltd. The loan was drawn down in full in connection with the minority share purchase, finalized on April 4, 2007, and it has an 18-month term with an option for the lender to extend it by another 18 months. The maximum effective annual interest of the loan, calculated at the reference interest rate of April 4, is 12.9 percent including interest, related structuring fee and a possible additional fee of up to EUR 2 million, described below. As part of the arrangement, Aspocomp granted Standard Chartered Bank 4 million warrants that entitle the bank to subscribe for 4 million shares in Aspocomp. Depending on the Aspocomp share price, the company may have an obligation at the end of the loan period to pay Standard Chartered Bank a fee of up to EUR 2 million.

 

Aspocomp has previously announced that it will be active in the industry’s consolidation trend. On June 15, 2007 the company declared that it is negotiating on potential cooperation with strategic partners in order to enable its growth in Asia and to finance its planned investment program. A possible choice for strategic partnership will also affect the timing of plant start-up in India. The Group will also continue negotiations with alternative plant project financiers. The duration of the partnership and financing negotiations cannot be estimated and the company cannot guarantee their outcome.

 

 

ASPOCOMP S.A.S.

 

With its decisions of June 19, 2007, the French Supreme Court upheld the former decisions of the Rouen appellate court, announced in March 2005, in the legal case initiated by Aspocomp S.A.S’s former employees against Aspocomp Group Oyj. The case relates to the closing of the heavily unprofitable Aspocomp S.A.S. in 2002 and the dismissals that ensued.

 

According to the decisions of the Rouen appellate court, Aspocomp Group Oyj was ordered to pay EUR 10.1 million, plus by annual interest of about 7 per cent, to 388 former employees of Aspocomp S.A.S. To date, the interest amounts to approximately EUR 2.1 million.

 

A French bank, Credit Industriel et Commercial, had earlier given a performance bond guarantee to the former employees for payment according to the decision of the Supreme Court. Nordea Bank Finland Plc had given the French bank an on-demand bank guarantee for the same sum, which sum Aspocomp had undertaken to indemnify.

 

The counter obligation of Aspocomp to Nordea has been converted into a bank loan. The interest rate of the loan is based on the monthly Euribor interest rate and will initially be 6.2 percent annually. The decision of the French Supreme Court will thus not essentially weaken Aspocomp’s immediate liquidity.

 

 

NEGATIVE SHARE CAPITAL OF ASPOCOMP GROUP OYJ’S SUBSIDIARY ASPOCOMP OY

 

On August 9, 2007, the Board of Directors of Aspocomp Group Oyj confirmed the write-offs that resulted from the closing down of the Salo plant in the bookkeeping of Aspocomp Group Oyj’s subsidiary Aspocomp Oy. As a result, the equity of Aspocomp Oy is estimated at EUR -18.1 million. A notice regarding the loss of equity has been entered into the Finnish Trade Register.

 

The merger of Aspocomp Oy into Aspocomp Group Oyj is expected to come into force on September 30, 2007. Due to the merger, the shareholders’ equity of Aspocomp Group Oyj is estimated to amount to EUR 35.3 million.

 

 

AMENDMENTS TO THE ARTICLES OF ASSOCIATION

 

Due to the new Companies Act, the Extraordinary General Meeting of January 19, 2007, decided to amend the Articles of Association such that Article 3, which concerns the minimum and maximum share capital, Article 4, which concerns the number of shares, and Article 16, which concerns the redemption obligation, were deleted. In addition, the numbering of Articles 5, 9, 13 and 15 of the Articles of Association was changed. The Articles were amended as specified in the invitation to the company’s Extraordinary General Meeting, published as a stock exchange release on December 22, 2006.

 

 

DIVIDEND POLICY

 

The Board of Directors of Aspocomp Group Oyj defined a new long-term dividend policy for the company on March 15, 2007. According to the policy, Aspocomp aims to pay dividends amounting to no less than 30 percent of the profit for each financial year once the company’s profitability has been restored and it has reached its gearing and equity ratio goals. It is likely that the Board will not propose dividend payments in the near future. The Annual General meeting of May 10, 2007, decided not to pay dividends for 2006.

 

 

OUTLOOK FOR THE FUTURE

 

Aspocomp’s main priority in 2007 is to focus the company’s resources on developing its market position and competitiveness, serving the main global customers, increasing cost-effectiveness as well as securing the liquidity and financing of the Aspocomp Group. These are subject to successful partnership negotiations or financial arrangements.

 

The Group is currently negotiating on potential cooperation with strategic and financial partners in order to enable its growth in Asia and to finance its planned investment program. Successful completion of these negotiations is vital to the future operation of the company. The duration of the on-going partnership and financing negotiations cannot be estimated and the company cannot guarantee their outcome.

 

The Chinese plant facility to be vacated in 2007 by the former minority shareholder is currently planned to be upgraded into an HDI PCB plant during 2008. The possible outcome of the strategic partnership or financing negotiations will affect the timing of plant start-up in India and the upgrade of the Chinese plant.

 

The planned expansion of HDI PCB production capacity in India and China is forecast to have a visible positive effect on the company’s net sales starting 2008, provided Aspocomp obtains financing and provided the investments are completed on schedule. The investments required for the expansion are estimated to result in a significant increase in the company’s indebtedness and markedly higher financing costs.

 

The full-year net sales of the Aspocomp Group from continuing operations and excluding the sold plant in China are forecast to decrease compared to the previous year. Profitability, excluding one-off items, is anticipated to improve on 2006; however, the full-year 2007 result is expected to be markedly unprofitable. Aspocomp Group Oyj’s liquidity will remain weak.

 

The Aspocomp Group’s consolidated cash flow from continuing operations is estimated to improve and to reach break-even during the fourth quarter of 2007. However, liquidity of Aspocomp Group Oyj will still remain weak.

 

 

RISKS AND UNCERTAINTIES RELATED TO THE BUSINESS OF ASPOCOMP

 

In addition to the normal business risks as well as the risks announced in the annual report 2006 and the offering memorandum of the rights issue of March 2007, the company’s short-term risks are mainly related to Aspocomp Group Oyj’s financing and liquidity. Securing the liquidity and financing of the Aspocomp Group depend on the success of partnership negotiations or financial arrangements. Successful completion of these negotiations is vital to the future operation of the company. The duration of the on-going partnership and financing negotiations cannot be estimated and the company cannot guarantee their outcome.

 

 

ACCOUNTING POLICIES

 

This interim report has been prepared in accordance with IAS 34.

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED CHANGES IN EQUITY,

JANUARY-JUNE 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

All figures are unaudited.

 

Helsinki, August 9, 2007

 

 

ASPOCOMP GROUP OYJ

 

 

Board of Directors

 

Maija-Liisa Friman

President and CEO

 

 

For further information, please contact CEO Maija-Liisa Friman, tel. +358 9 7597 0711.

 

Distribution:

The Nordic Exchange

Major media

www.aspocomp.com

 

 

Some statements in this stock exchange release are forecasts and actual results may differ materially from those stated. Statements in this stock exchange release relating to matters that are not historical facts are forecasts. All forecasts involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performances or achievements of the Aspocomp Group to be materially different from any future results, performances or achievements expressed or implied by such forecasts. Such factors include general economic and business conditions, fluctuations in currency exchange rates, increases and changes in PCB industry capacity and competition, and the ability of the company to implement its investment program and to continue to expand its business outside the European market.