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Fantastic voyageAnnual report 2009
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Tabl
e o
F co
nTe
nTs _03
Fantastic voyage
_04CEO’s review
_06The wind power business
_08Solar power and other emerging businesses
_10The Design Switch
_12The Production Switch
_14The Proactive Switch
_16Switching on to a fantastic future
Jacques cousteau was always proud of his red sailing cap. It was his trusted thinking cap, as he explored the seven seas in his ship the calypso. For him, each voyage was a fantastic journey into the unknown.
The switch, too, has always been at the forefront of exploration. Right from the start, we have focused on the development of permanent magnet generator (PMG) and full-power converter (FPc) packages for new energy sources like the wind and sun.
Today, an increasing number of wind turbine manufacturers are switching to PMG technology. The way we combine our PMG and FPc packages is unique and offers optimized advantages. our technology ensures reliable grid compliance and maximized energy yield.
let’s put on our thinking caps and generate more power for the future.
Fantastic voyageMore power for the future_18
Interview with the CFO
_20Report by the Board of Directors
_26Group financial statements
_30Parent company financial statements
_34Notes to the financial statements
_36Notes to the income statement
_40Notes to the balance sheet
_49Corporate governance
Outlook 2010 and beyond
• continued emphasis on growing together with our partners• Focus on ramping up mass production of utility-grade power at a competitive price• broader offering for offshore and solar applications• continued improvement of Model Factory concept • Target of achieving industry leadership by 2012 • sales target of eUR 250 million by 2012
Highlights 2009
• sales nearly doubled to eUR 96 million • Installed wind power capacity now close to 3 GW• new products for wind power, solar power and other new energy applications• new PMG factory in lappeenranta• expanded cooperation with several existing and new partners• Variable speed genset business picks up in the Us• launch of 2.5 MW drive train for conventional turbines and next-generation outer rotor direct-drive solution
0
25
50
75
100
-2.0
0.75
3.5
6.2
9.0
2007 2008 2009
Net sales MEUR
-19.0
-13.9
-8.8
-3.7
1.4
6.5
0.0
8.2
16.4
24.6
32.8
41.0
Return on investment %
Equity ratio %
0
33
66
99
132
165
Personnel (average)
EBITDA MEUR
0
25
50
75
100
-2.0
0.75
3.5
6.2
9.0
2007 2008 2009
Net sales MEUR
-19.0
-13.9
-8.8
-3.7
1.4
6.5
0.0
8.2
16.4
24.6
32.8
41.0
Return on investment %
Equity ratio %
0
33
66
99
132
165
Personnel (average)
EBITDA MEUR
_”With nearly 3 GW of installed wind power capacity, The switch is approaching net sales of eUR 100 million after starting operations in november 2006.”
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ceo
’s R
eVIe
W CEO’s review_“We introduced several new products, continued to make improvements to our Model Factory concept and ramped up production simultaneously in several locations.”
Despite the global economic downturn, the wind power industry continued to grow in 2009 and The switch once again had a very busy and successful year. We challenged the industry, initially by making PMG technology the preferred choice and now by enabling optimized PMG and FPc packages to be commer-cially available. additionally, we introduced several new products, continued to make improvements to our Model Factory concept and ramped up production simultaneously in several locations.
as a result, our net sales nearly doubled to eUR 96 million, and our order back-log is strong for 2010 and beyond. The future of our company’s growth looks promising.
one of the key ingredients to our success has been selecting PMG as the base for our solutions. PMG technology is fast becoming the preferred choice of the industry. In fact, the world’s major turbine manufacturers have already switched, or are in the process of switching, to this technology. The switch has been at the forefront in adapting this technology for wind power since the start of the company in 2006. any turbine manufacturer today can now eas-ily replace a conventional-technology-based generator with The switch ready-made PMG to gain immediate benefits when it comes to meeting future-proof grid compliance.
among our most important product launches over the year is our high-speed 2.65 MW PMG, which has all the makings of becoming the future industry workhorse. We also launched an outer rotor 1.65 MW generator, which repre-sents the next-generation technology. as a result, we now have the industry’s most comprehensive portfolio of standard drive trains, representing nearly 3 GW of installed capacity.
This means that we can now offer customers an even faster time to market. Upgrading existing drive trains or developing new, modern turbines is much easier than before. our focus will continue to be on making PMG the com-mercially viable option for wind, as demand for more capacity and grid reli-ability increases. Moreover, based on our proven platform for wind, we will take advantage of our technology to respond to grid compliance and maximized energy output in solar applications.
Jukka-Pekka MäkinenPresident and CEO
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The
WIn
D Po
WeR
bU
sIn
ess
Wind turbine technology will continue to develop rapidly in the coming years, with europe and china consolidating their position as the hub of this high-tech industry. Wind turbines and offshore installations are becoming bigger and more powerful than anyone could have anticipated. The challenge is to keep on track with this growth, while enabling a viable mass production of effective drive train solutions.
The switch DriveTM – an integrated PMG and FPc package – easily meets the needs of modern wind turbines ranging from 500 kW to 5 MW and higher. compared with a conventional double-fed system, PMGs deliver exceptional efficiency in the partial load range, thereby increasing revenues for wind power producers.
at the same time, less is more in drive train design. The switch outer rotor PMG, for example, is a direct-drive solution that effectively integrates the me-chanics within the generator and eliminates the need for a gearbox. The payoff is improved reliability and maintainability over the entire turbine life cycle.
not only does The switch deliver the most extensive offering of PMGs — direct driven, medium speed, and high speed — to oeM customers globally, our production capacity is superior to that of any competitor, which allows for mass volume deliveries with accelerated time to market.
accordingly, in 2009, The switch signed repeat orders for its wind power gen-eration components from scanwind, which was acquired by Ge energy later in the year, and key chinese customers. The switch will provide scanwind with drive train packages that combine a direct-drive 4.25 MW PMG with a FPc for offshore wind turbine installations.
Direct-drive solutions are rapidly becoming the preferred technology for off-shore installations, as they combine outstanding reliability with the potential for megawatt-scale power output. For example, countries with an extensive shoreline, like the Us, are waking up to this immense potential.
The wind power business_”The switch DriveTM easily meets the needs of modern wind turbines ranging from 500 kW to 5 MW and higher.”
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sola
R P
oW
eR a
nD
oTh
eR e
MeR
GIn
G bU
sIn
esse
s
The solar industry is becoming more cost competitive as a source of energy generation. Recent technology and installation innovations have helped solar power increase its share of the electricity market.
The switch is fully committed to this development curve. our long-term goal is to leverage our proven power generation expertise and become best of breed in solar inverter solutions. The switch has applied its proven technology for large-scale wind power generation to its inverter solutions. For the solar indus-try, this results in outstanding performance and reliability.
every feature of The switch inverters has been designed to match the rigor-ous new grid requirements and maximize the energy produced from the sun, even with partial or uneven radiation. This allows the inverters to harvest more power from the photovoltaic panels and to produce more energy to be fed into the grid.
In the past year, The switch has also continued to invest in the development of its emerging businesses portfolio, which includes electrical machines, variable speed gensets and fuel cell applications. on this front, increased cooperation with leading universities of technology and oeMs enables The switch to capi-talize on technological breakthroughs.
Solar power and other emerging businesses
_”The switch inverters have been designed to match the rigorous new grid requirements.”
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The
DesI
Gn s
WIT
ch
our customers value our leading innovation, our unique cooperation philoso-phy and our willingness to reach new heights together. We not only design our products in cooperation with our customers, but also share our knowledge and expertise.
In 2009, we continued to develop new PMG and FPc packages for wind power and new energy applications. Key product launches were the 2.5 MW high-speed, 1.25 MW medium-speed and 1.5 MW direct-drive solutions, all of which are now being tested on-site in wind turbines. We also brought to market a new outer rotor PMG, with integrated mechanics and next-generation design for improved reliability and maintainability.
With this new offering, we now have the most comprehensive portfolio of standard permanent magnet (PM) drive train solutions in the market. opera-tional turbine availability rates are over 97% and grid support features ensure the highest electricity quality. Moreover, with only minor changes, our solu-tions can be used to upgrade existing turbine drive trains in record time – with an immediate increase in efficiency.
our manufacturing plants in lappeenranta and Vaasa, Finland, and hudson, Us, enable the switch to large-volume production swiftly and effortlessly. This has a clear impact on unit pricing and speed to market. We also offer extensive simulation and prototype testing services, including field quality testing up to 5 MW and finite element method design analysis.
The Design Switch highlights 2009
• new designs include 1.25 MW medium-speed, 1.5 MW direct-drive and 2.5 MW high-speed machine packages. The latter two are set to become the industry workhorse
• order from scanwind for 4.25 MW direct-drive PMG and FPc packages to target offshore development
• Portfolio of standard PMG solutions is now the most comprehensive in the market
The Design Switch_“We now have the most comprehensive portfolio of standard PMG drive train solutions in the market.”
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The
PRo
DUcT
Ion
sW
ITch
In 2009, we initiated parallel manufacturing of both generators and converters in cooperation with our partners. successful ramp-up of mass production and large-volume deliveries enabled us to become a market leader in FPcs.
Thanks to the Model Factory concept, we are able to set up production in new locations easily. This is because series production is already planned in pro-totype phase. In most cases, our partners handle the ramp-up to mass pro-duction. by combining our expertise with that of our partners, we meet the demand for large volumes with the speed and efficiency you expect from a genuine international player.
all processes, from R&D through supply chain management to continuous quality monitoring and improvement, are monitored in real time. We also offer extensive hands-on training for manufacturing personnel to further accelerate production ramp-up. our expanding partner network ensures our customers’ needs, locally and globally, are met effectively, with no risk of capacity limita-tions.
The Production Switch highlights 2009
• launch of ultra-modern, PMG production facility in lappeenranta, Finland
• signing of manufacturing agreement with scanfil to expand FPc production in china, commencing in Q2 2010
• Mass production ramped up simultaneously in four locations using our Model Factory approach
• annual generator and converter production capacity is now 5.5 GW
The Production Switch _“We meet demand for large volumes with the speed and efficiency you expect from a genuine international player.”
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The switch is dedicated to the highest achievable reliability and productivity. To this end, our customers’ personnel receive extensive training for effective startup and maintenance of the equipment over the entire life cycle. This is complemented by our on-site maintenance capabilities and sophisticated re-mote diagnostics and support.
Today, we have nearly 3 GW of installed capacity globally, with extensive on-site testing and analysis in all environments. In fact, we are constantly collect-ing performance data from varied harsh operating environments. Thanks to this growing knowledge base, we can address our customers’ on-site service and maintenance requirements more effectively.
our after-sales services include maintenance operations, spare part supply as well as technical support and consultation. our customers have direct access to our top specialists, and also benefit from our 24/7 online support. We are actively developing our after-sales service capability on a global basis and to-day are backed by a service partner network spanning 44 countries.
The Proactive Switch highlights 2009
• service agreement with Us-based Magnetech Industrial services enabling strong generator and converter after-sales support in north america
• opening of beijing office to provide better after-sales support to customers in the region
• customers enjoy direct access to our top specialists and 24/7 online support
The Proactive Switch_“We have nearly 3 GW of installed capacity globally, with extensive on-site testing and analysis in all environ-ments.”
The
PRo
acT
IVe
sWIT
ch
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The switch is fully committed to bringing about a better world. When looking after our employees’ well being or just designing better technologies for to-morrow’s energy needs, we are setting our course in line with our fundamental values – to be seriously relaxed, dynamically different and always willing to explore new challenges.
In 2009, The switch santa brought gifts and cheers to victims of the sichuan earthquake in china. This was the second time santa has visited the region. We also continued to sponsor local sports clubs and youth organizations in Finland, and took concrete measures to improve our employees’ well being.
Switching on to a fantastic futureour strength lies in our people – in their desire and ability to succeed in an ever-changing environment. at The switch, we have done away with conventional workplace hierarchies, so we can better change the world one turbine at the time.
Moreover, we have further developed our quality control and management systems in the past year. For us, quality extends across a product’s entire life cycle. our quality management system complies with Iso 9001:2000 stand-ards. In fact, every step we take forward is geared to maximizing power output and ensuring 100% customer satisfaction. That means generating more power for a fantastic future.
sWIT
chIn
G o
n T
o a
Fa
nTa
sTIc
FU
TUR
e _“our strength lies in our people – in their desire and ability to succeed in an ever-changing environment.”
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InTe
RVIe
W W
ITh
Th
e cF
o
Dag sandås, cFo of The switch corporation, has good reason to be more than pleased. Despite the tough economic climate in 2009, The switch managed to nearly double its net sales. “We once again had a fantastic year, with net sales nearly doubling to eUR 96 million,” he says with satisfaction.
The company also managed to post a tidy profit, which is quite a feat for any company after just three years of operations. “We officially achieved our first year of genuine operating profit, amounting to eUR 6.2 million, which is a true accomplishment for any company so early in its journey. We could have posted a substantial gain already in 2008, but this was dampened due to accounting reasons.”
Perhaps an even better indicator of success was the ability to adapt to a vola-tile market situation. “The market situation forced us to alternate between ramping up production and then slowing it down during the year. but in the end, this only proved the adaptability of our business model. I’m pleased to say that we did not have any net debt at the end of the year.”
The outlook for The switch in 2010 and beyond is promising. “Global growth in wind power is projected at a two-digit pace, and our sales are expected to grow strongly, too. I believe we are well on our way to achieving our net sales target of eUR 250 million by 2012. To reach our target, we have to focus on developing and expanding our operations in china. This includes also finding a banking partner who will enable us to balance our funding and earnings in the chinese market.”
“overall, I believe we are exceptionally well positioned to grow along with our partners and to make the most of our opportunities in wind power and other new energy applications.”
Interview with the CFO_“We once again had a fantastic year, with net sales nearly doubling to eUR 96 million.”
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‘
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The markets for The SwitchThe rapid market growth combined with a technology transition in the market further improved the position of The switch. The growing size of the wind power market is boosting the demand and top turbine compa-nies as well as newcomers to the industry are increasingly adopting PMG technology. The market outlook for renewable energy, and wind especially, will remain strong as govern-ments are expected to continue to fight glo-bal warming.
Wind power is expected to progress from onshore to offshore. as increasing levels of power are being generated from wind, the industry needs to ensure that both onshore and offshore wind power plants are operating as efficiently and cost effectively as possible. The focus is now on customizing operations and maintenance strategies to reduce costs, mitigate risk and increase turbine and com-ponent reliability and lifetime.
Products for the wind power sector domi-nated sales for The switch. still, the current liquidity crisis is impacting both renewable energy and utility companies. The market sit-uation has changed, though, as the markets are favoring well-established companies.
The most successful market for The switch was china. The switch gained good field ex-perience in china with generators and con-verters. a good number of new customer projects with related prototype development and zero-series production were started. The cooperation with Dongfang electrical Ma-
chinery co., ltd was taken to the next level as the large factory in Deyang is nearing its completion. This gives a good base for the en-tire product range of wind power generators. For FPcs The switch already took the position as market leader. china’s ability to impose central planning on energy production and related industries, combined with pragmatic market-based mechanisms, puts it ahead of both the Us and other countries. Plus, the country can coordinate its energy policy with climate change, enabling it to trump other nations. The switch is well positioned when chinese turbine manufacturers expand their businesses to the Us and europe.
Sales and performance The switch’s consolidated turnover was MeUR 96.4 (2008: 53.7). The turnover of the parent company, The switch engineering oy, was MeUR 1.5 (7.6).
consolidated ebITDa was MeUR 8.2 (3.0), while the ebITDa for The switch engineering oy was MeUR -5.1 (-2.6). consolidated ebIT was MeUR 6.2 (0.4), while the ebIT for The switch engineering oy was MeUR -5.3 (-2.7). The consolidated financial result was MeUR 3.8 (-0.3), and the financial result of The switch engineering oy was MeUR 0.6 (0.1).
The projects that were partially booked ac-cording to percentage of completion (Poc) at the beginning of the financial year, and have been delivered during the year, have been finalized in accordance with Poc. For those projects that were partially booked according to Poc at the beginning of the financial year,
and have not been delivered during the year, the Poc has been reversed and the projects will be booked when delivered.
The currency exchange rates had no major ef-fect on the end result.
Balance sheet and financingThe consolidated balance sheet totalled MeUR 43.7 (33.5), with a total balance value of MeUR 24.3 (18.7) in The switch engineering oy. The consolidated operational cash flow was a positive MeUR 1.4 (3.1). on the Group level, cash on hand and in banks was MeUR 5.1 (5.5). In The switch engineering oy, cash on hand and in banks was MeUR 3.9 (2.4).
The consolidated remaining goodwill aris-ing from the original business transfers in connection with the establishment of The switch was MeUR 3.2 (3.6). Goodwill has been determined on the basis of a business plan approved by the board of Directors, the principles of which have been approved by in-dependent external consultants. Goodwill is depreciated over ten years.
Working capital management will still play a significant role in the fast growing company, but The switch Group managed to finance its activities during the year despite the growth in turnover. at the end of December, trade re-ceivables were MeUR 13.8 (4.3). The receiva-bles turn rate was 52 (29) days at year end. In-ventory turn rate was 45 (34) days. The trade payables at the end of the year were MeUR 10.4 (11.3). The trade payables turn rate was 60 (96) days. net working capital increased
from MeUR 3.4 to MeUR 11.3 due to growth in turnover and ability to pay suppliers on time.
consolidated return on equity (Roe) was 29.5% (-4.2%) and consolidated return on investment (RoI) 6.5% (2.4%). The equity ra-tio was 41.0% (38.4%) and net gearing ratio -9.8% (-35.4%).
The interest bearing debt at the end of the year was MeUR 3.0 (2.2).
The share capital of the company was eUR 4,996,344. The nominal value for the shares is eUR 1 per share. no new shares were issued during the financial year.
Two product development projects were ap-proved by TeKes (Valtiokonttori) in 2008, and are receiving grants over two upcom-ing years. The total costs will reach MeUR 3, and TeKes will provide grants for 50% of the costs. at the end of 2009, a total of MeUR 0.8 of the grants had been received.
Investmentsno major investments were made during the financial year.
capital expenditure was mainly made in test equipment and machinery for the lappeen-ranta and Vaasa facilities (MeUR 1.0).
Corporate structure and organization developmentTo better support the goal of developing the structure and business activities of The switch Group, The switch high Power con-verters oy and The switch electrical Ma-chines oy were merged into one business on December 31, 2009. as part of this process, The switch electrical Machines oy’s company name was changed to The switch Drive sys-tems oy. as part of the merger, all assets, li-abilities and obligations of The switch high Power converters oy were transferred to The switch Drive systems oy. all activities of The
Report by the Board of DirectorsJanuary 1, 2009 - December 31, 2009
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2009 2008 2007 2009 2008 2007
Turnover, MeUR 96.4 53.7 20.0 1.5 7.6 1.8operating profit, MeUR 6.2 0.4 -2.6 -5.3 -2.7 -1.3operating profit, % of turnover 6.4 0.8 -13.2 -350.5 -36.0 -72.6Return on equity, % 29.5 -4.2 -1.9 -0.7equity ratio, % 41.0 38.4 35.4 61.7 80.5 59.7
Group Parent company
Key figures
0
25
50
75
100
-2.0
0.75
3.5
6.2
9.0
2007 2008 2009
Net sales MEUR
-19.0
-13.9
-8.8
-3.7
1.4
6.5
0.0
8.2
16.4
24.6
32.8
41.0
Return on investment %
Equity ratio %
0
33
66
99
132
165
Personnel (average)
EBITDA MEUR
0
25
50
75
100
-2.0
0.75
3.5
6.2
9.0
2007 2008 2009
Net sales MEUR
-19.0
-13.9
-8.8
-3.7
1.4
6.5
0.0
8.2
16.4
24.6
32.8
41.0
Return on investment %
Equity ratio %
0
33
66
99
132
165
Personnel (average)
EBITDA MEUR
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Jorma laukkanen, olli Pyrhönen, Dag sandås, Reijo Takala and anders Troedson. Jorma laukkanen resigned in october 2009.
PersonnelThe number of people employed by the Group increased steadily during the financial period. The recruitment focus has been on experi-enced management and specialist recruit-ments.
The average number of people employed by the Group during the financial period was 161 (108). For the parent company, The switch engineering oy, the average was 14 (10). on December 31, 2009, the Group employed 197 people (130), 17 (14) of them on The switch engineering oy payroll.
The sum of wages, salaries and other remu-neration paid during the financial period was MeUR 7.6 (4.9); in The switch engineering oy, the sum was MeUR 1.8 (1.3).
a result-based pay system applies to every employee. The system is based on Group-specific metrics.
Product launchesThe switch has developed individually tai-lored PMG and FPc packages to meet the needs of today’s wind turbine applications, solar and fuel cell applications, solid rotor motors for high-speed industrial applications and PM motors and generators for low- or medium-speed industrial applications, as well as variable speed gensets.
by adding several new models to its offering, The switch is the first company to provide a complete portfolio of PM-based generator packages specifically designed for maximized wind power generation. The latest additions
include an outer rotor generator, a modern-style 2.5 MW drive train, and a double-fed option.
The introduction of the newest generator model combines the benefits of a PM and direct-drive solution with an outer rotor. The simple, straightforward design integrates the main shaft, main bearings, gearbox and me-chanical brake into a single generator combi-nation. The outer rotor significantly reduces the weight of a direct-drive application. The generator shares a common bearing with the turbine itself, and the turbine’s brake system has been integrated as part of the generator. The gain is realized in simplicity, and fewer components – and therefore, higher reliabil-ity. The generator’s cast-iron body facilitates high volume production. The switch outer rotor prototypes were shipped to Dongfang electrical Machinery co., ltd. The first orders of the outer rotor generator will be installed in the mountainous region of Mongolia where they will operate in extreme conditions and at very low temperatures.
another new offering was the redesigned 2.5 MW drive train for conventional turbines. This PMG and FPc package has been developed for manufacturers who aim to upgrade their ex-isting wind turbine offerings without making substantial changes to their proven designs.
as many wind power turbine manufacturers have selected double-fed induction genera-tor (DFIG) technology, originally due to lower costs and preference, The switch offered 1.5 MW and 2 MW packages specifically designed for these manufactures to help them tap into higher power ratings. The switch double-fed option comes with modular power conversion packages and well-matched generators for exceptional flexibility.
Cooperation agreementsIn summer 2008, The switch and its chinese partner Dongfang electrical Machinery co., ltd (DFeM) entered into a cooperation agree-ment to combine world-class technology in PMGs from The switch with DFeM’s vast pro-duction capabilities. according to a contract signed in December 2009, the enterprise will take off with 2.2 MW wind power genera-tors manufactured in DFeM’s new factory in Deyang, in the southwest sichuan Province in china.
The new factory has been inaugurated dur-ing 2009 and enables DFeM to produce up to 2,000 PMGs per year in the range of 1 MW to 6 MW. With this mass production capacity at hand, The switch and its partnering company DFeM are ready to supply the fast-growing market for megawatt-class PM machines.
DFeM is part of the china state-owned Dong-fang electric corporation (Dec) that is spe-cialized in power equipment manufacturing. The chinese central Government has nomi-nated Dec as one of the key state-owned en-terprises for the national economy.
effective april 1, 2009, The switch entered an agreement with Magnetech Industrial serv-ices, Inc. (MIs) for the servicing of wind tur-bines in north america. MIs is a leader in the repair, remanufacture and maintenance of commercial and industrial electro-mechanical equipment. Wind turbines are among some of the many types of heavy equipment in which MIs is specialized, providing compre-hensive up-tower and in-shop services for wind turbine equipment.
on september 17, 2009, The switch signed a manufacturing agreement with Mecanova oy, Finland. The manufacturing agreement
ReP
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pletion of the merger.
In september 2009, The switch engineering oy opened a sales office in barcelona, spain. The company has also a sales office in ham-burg, Germany.
on December 31, 2009, the companies within the Group and their General Managers were as follows:
_The switch engineering oy, Mr. Jukka-Pekka Mäkinen, President and ceo
_The switch Drive systems oy, Mr. Jukka-Pekka Mäkinen, Managing Director
_The switch controls and converters Inc, Mr. anders Troedson, Managing Director
_The lu’an switch electrical Power Produc-tion equipment co., ltd, Mr. Jukka-Pekka Mäkinen, Managing Director
_The switch holdings, ltd, Mr. Jukka-Pekka Mäkinen, Managing Director
_The switch Wind Power systems (beijing) co., ltd, Mr. Jukka-Pekka Mäkinen, Managing Director
Until the annual General Meeting, the mem-bers of the board of Directors were Dirk hei-denreich, Veijo Karppinen, Jukka-Pekka Mäk-inen, Vesa laisi, harri ollila, Kaj Rönnlund and Jarmo saaranen. The annual General Meeting re-elected the old members. at its organiza-tion meeting, it re-elected Veijo Karppinen as its chairman. Dag sandås acted as secretary to the board.
The compilation of the Management team of the Group was not changed during the financial period. The Management team was headed by the ceo, Mr. Jukka-Pekka Mäkinen. The members were Pertti Kurttila,
0
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75
100
-2.0
0.75
3.5
6.2
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2007 2008 2009
Net sales MEUR
-19.0
-13.9
-8.8
-3.7
1.4
6.5
0.0
8.2
16.4
24.6
32.8
41.0
Return on investment %
Equity ratio %
0
33
66
99
132
165
Personnel (average)
EBITDA MEUR
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formalized and expanded the existing re-lationship. Mecanova supports The switch Model Factory concept by manufacturing subassemblies and selected larger final as-semblies for The switch FPcs. This collabo-ration brings more flexibility and sustainable growth.
on september 17, 2009, The switch signed a manufacturing agreement with scanfil oyj, Finland, to produce FPcs in china. The agree-ment scales up the operations in china, which allows The switch to expand both capacity and ability to be a local producer according to customers’ needs.
Operations developmentThe development of the eRP project was con-tinued throughout the financial period. The switch strives to build an environment that supports the organization and growth to the maximum extent in accordance with the stra-tegic business targets. based on the defined strategic business needs and expectations, a decision was made to review the current IT landscape and identify key areas to address. This resulted in an IT roadmap. Furthermore a finance roadmap has been built for the years to come.
The switch beijing moved into new premises in spring 2009.
To support the future production strategy, a systematic steering approach for the logistics and manufacturing process was continued. The lappeenranta and Vaasa Model Factories clearly focus on technology-driven specializa-tion, which provides support and knowledge for mass production ramp-up. The planned factories in china are based on market de-mand and built for mass production.
The Model Factory in lappeenranta was in-augurated in May. This factory specializes in the final assembly and testing of generators up to 20 tons for wind power applications and high-speed motors for industrial applications. The location was supported by the availabil-ity of local well-educated personnel. as The switch does not invest in buildings, the fac-tory is owned by lappeenranta municipality.
a Group-level quality program was performed during 2008 and 2009. The aim was to im-plement a quality management system in ac-cordance with Iso 9001. The Iso 9001 certifi-cate for the Finnish units was received from Det norske Veritas in December 2008, and for the Us unit in 2009.
Environmental considerations and social responsibilityThe switch Group’s solutions will contribute to the battle against climate change and con-serve energy resources. The products of The switch Group transform un-tapped energy into electricity and enable the efficient use of it.
customers use The switch state-of-the-art products and systems as part of their own machines or systems in wind turbine and other renewable energy applications.
The switch was one of several Finnish-based companies that were behind a special yearly visit with santa claus at an orphanage in Deyang, china. The company donated money to purchase winter clothes and toys for chil-dren in the area. Deyang is home to Dongfang electrical Machinery co., ltd, a key partner for The switch in china. In May 2008, the city was heavily damaged by a magnitude 7.9 earthquake.
Risk assessmentThe switch operates in an extremely fast growing segment. as a business in general, renewable energy component technology does not have any significant correlation with overall economic trends. To minimize risks related to this, however, the company has undergone vigorous development efforts to establish a degree of flexibility to allow prof-itable operation even during periods of rapid growth.
The biggest single risk is the Us dollar, as one of the Group company’s revenue is generated in the Us. still, the majority of the deliveries has been made to countries in europe and asia in euros, and the customer base is wide. Thus, risks related to currency can be man-aged to a great extent.
operational risks and risks arising from fi-nancing and eventual damages are highly limited.
aon was employed as an external insurance broker firm to streamline and optimize the insurance program for the Group.
The auditorsThe firm of authorized public accountants KPMG oy ab served as auditors, with Mr. hans bertell, aPa, as the principal auditor.
Events after December 31, 2009 and preview of 2010The Iso 9001 certificate for the lu’an unit is expected to be received from Det norske Ver-itas in March 2010.
In January 2010, labor negotiations were fi-nalized in lappeenranta. The reason behind the action was purely product specific. Tem-
porary lay-offs for blue collar employees were planned for periods of 1-4 weeks.
on February 2, 2010, The switch teamed up with Moventas oy, Finland, to design an opti-mized drive train and gear solution of interna-tionally high standards for Dongfang electric corporation (Dec ) to sell on the chinese mar-ket. The switch will deliver its medium-speed PMG and FPc package. Moventas will provide the gear solution. The two companies will col-laborate closely on integrating the design of the electrical drive train and the gear box, so that the configuration works as an optimized package. The first prototype will be delivered to Dec in october 2010.
The most significant focus for the coming year is to develop the local manufacturing and final assembly concept for our PMGs and FPcs in china in cooperation with local part-ners.
olli Pyrhönen, cTo, will return to his profes-sorship at the University of Technology in lappeenranta by the end of February 2010. he will continue to work part time for The switch as Research Manager.
The biggest operational challenge for the fi-nancial year is to deliver all orders already in-cluded in the order book at year-end.
Furthermore, the implementation of sourc-ing, assembly and logistics operations in chi-na is of utmost importance.
The underlying market, especially the wind power market, is expected to show a two-dig-it growth over the coming years. The switch will continue to grow along with its custom-ers. Turnover, profitability and earnings per share are expected to grow during 2010.
Board proposal for distribution of profitThe board of Directors proposes to the an-nual General Meeting that no dividend should be paid for the financial year of Janu-ary 1 – December 31, 2009 and that the prof-it of eUR 569,030.13 should be retained in shareholders’ equity.
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GRo
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BALANCE SHEET
ASSETS
currency eURo notes Dec. 31, 2009 Dec. 31, 2008
FIXeD asseTs
Intangible assets 9
Development expenses 1,845,990 2,093,994
Intangible rights 554,013 457,300
Group goodwill 3,241,411 3,646,587
other capitalized long-term expenses 566,077 312,612
6,207,491 6,510,493
Tangible assets 9
buildings 1,401,219 1,592,756
Machinery and equipment 2,200,412 1,609,038
other tangible assets 36,795 0
3,638,426 3,201,794
Investments 107,830 107,830
FIXED ASSETS TOTAL 9,953,747 9,820,117
cURRenT asseTs
Inventories
Finished goods and work in progress 4,943,331 1,516,560
Raw materials 2,957,315 5,891,524
advance payments 104,471 164,683
8,005,117 7,572,767
current receivables 11
Trade receivables 13,846,692 4,349,032
other receivables 2,793,900 1,908,778
Prepayments and accrued income 4,050,403 4,341,443
20,690,995 10,599,253
cash on hand and in banks 5,064,568 5,544,213
CURRENT ASSETS TOTAL 33,760,679 23,716,233
ASSETS TOTAL 43,714,426 33,536,350
INCOME STATEMENT
currency eURo notes Jan. 1 - Dec. 31, 2009 Jan. 1 - Dec. 31, 2008
neT sales 1 96,406,816 53,683,547
change in inventories of finished goods
and work in progress 3,426,772 1,256,458
Production for own use 436,043
other operating income 3 242,052 272,836
Raw materials and services
Purchases during the financial year -63,220,781 -42,765,343
change in inventory -2,994,421 5,379,753
external services -7,413,850 -1,688,278
-73,629,053 -39,073,868
Personnel expenses
Wages and salaries -7,581,366 -4,878,384
social security expenses
Pension expenses -1,110,039 -923,801
other social security expenses -420,793 -302,552
-9,112,198 -6,104,737
Depreciation
Depreciation according to plan -2,031,328 -2,554,992
-2,031,328 -2,554,992
other expenses 5 -9,577,531 -7,052,636
oPeRaTInG ResUlT 6,161,574 426,608
Financial income and expenses 7 -729,566 -515,609
PRoFIT (loss) beFoRe aPPRoPRIaTIons anD TaXes 5,432,008 -89,001
appropriations
change in provisions -11,701 -13,348
Taxes
change in deferred tax liability -596,286 -17,212
Income taxes -1,052,900 -213,239
RESULT FOR THE FINANCIAL YEAR 3,771,121 -332,800
[ 28 ] [ 29 ]
GRo
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CASH FLOW STATEMENT
currency eURo Dec. 31, 2009 Dec. 31, 2008
operating result 6,161,573.54 426,608.00
corrections:
Depreciation and amortization 2,031,327.81 2,554,992.00
Financial income and expenses -615,637.23 -515,609.00
Taxes -399,450.88 0.00
other adjustments 11,701.00 0.00
change in working capital
change in inventories -432,350.22 -6,629,625.00
change in current interest-free receivables -10,091,741.00 -7,032,645.00
change in current interest-free liabilities 2,462,289.04 13,308,000.00
change in provisions 2,289,735.99 986,498.00
cash FloW FRoM oPeRaTInG acTIVITIes 1,417,448.08 3,098,219.00
cash FloW FRoM InVesTMenTs -2,164,957.97 -4,344,223.00
cash flow before financing -747,509.89 -1,246,004.00
change in non-current liabilities 350,923.76 996,690.00
change in current interest-bearing receivables 397,500.00 -1,537,169.00
change in equity / share issue 0.00 809,138.00
share premium reserve 0.00 6,248,226.48
cash FloW FRoM FInancInG 748,423.76 6,516,885.48
cash flow after financing 913.87 5,270,881.48
liquid funds on Jan. 1, 2009 5,544,213.00 1,097,076.00
effect of currency conversion -480,559.21 -823,744.48
liquid funds on Dec. 31, 2009 5,064,567.66 5,544,213.00
Decrease / increase in liquid funds 913.87 5,270,881.48
BALANCE SHEET
SHAREHOLDERS’ EQUITY AND LIABILITIES
currency eURo notes Dec. 31, 2009 Dec. 31, 2008
shaReholDeRs’ eQUITy 12
share capital 4,996,344 4,996,344
share premium reserve 8,175,519 8,175,519
Retained earnings -2,110,471 -2,695,179
Result for the financial year 3,771,121 -332,800
SHAREHOLDERS’ EQUITY TOTAL 14,832,512 10,143,884
PRoVIsIons 14 3,838,219 1,525,081
lIabIlITIes
non-current liabilities 15
capital loan 350,697 350,697
other loans 1,598,432 1,230,295
Deferred tax liability 613,499 17,213
2,562,628 1,598,205
current liabilities 15
loans from credit institutions 1,048,409 650,909
advances received 7,507,184 5,834,563
Trade payables 10,422,396 11,265,081
other liabilities 426,046 171,589
accruals and deferred income 3,077,033 2,347,038
22,481,068 20,269,180
LIABILITIES TOTAL 25,043,694 21,867,385
SHAREHOLDERS’ EQUITY AND LIABILITIES TOTAL 43,714,426 33,536,350
[ 30 ] [ 31 ]
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INCOME STATEMENT
currency eURo notes Jan. 1 - Dec. 31, 2009 Jan. 1 - Dec. 31, 2008
neT sales 2 1,510,489.78 7,592,297.84
other operating income 4 2,799,773.95 1,843,028.36
Raw materials and services
Raw materials
Purchases during the financial year -10,332.35 -17,385.92
external services -1,020,978.16 -7,387,203.81
RAW MATERIALS AND SERVICES TOTAL -1,031,310.51 -7,404,589.73
Personnel expenses
Wages and salaries -1,826,721.89 -1,257,491.40
social security expenses
Pension expenses -246,911.00 -266,696.76
other social security expenses -69,513.45 -65,139.74
PERSONNEL EXPENSES TOTAL -2,143,146.34 -1,589,327.90
Depreciations and reduction in value
Depreciation -178,558.24 -102,189.50
DEPRECIATIONS AND REDUCTION IN VALUE TOTAL -178,558.24 -102,189.50
other expenses 6 -6,250,118.05 -3,073,646.62
oPeRaTInG ResUlT -5,292,869.41 -2,734,427.55
Financial income and expenses 8
other interest and financial income
From Group companies 265,463.56 183,233.97
From others 79,604.53 161,083.21
Interest and other financial expenses
For Group companies -66,146.70 -139,434.56
For others -399,993.14 -158,163.70
FINANCIAL INCOME AND EXPENSES TOTAL -121,071.75 46,718.92
PRoFIT (loss) beFoRe eXTRaoRDInaRy ITeMs, aPPRoPRIaTIons anD TaXes
-5,413,941.16 -2,687,708.63
extraordinary items
Group contribution received 6,185,267.71 2,889,881.76
PRoFIT (loss) beFoRe aPPRoPRIaTIons anD TaXes 771,326.55 202,173.13
Income taxes -202,296.42 -57,149.78
RESULT FOR THE FINANCIAL YEAR 569,030.13 145,023.35
BALANCE SHEET
ASSETS
currency eURo notes Dec. 31, 2009 Dec. 31, 2008
FIXeD asseTs
Intangible assets 10
Immaterial rights 109,129.00 109,129.00
other capitalized long-term expenses 23,065.15 31,552.58
132,194.15 140,681.58
Tangible assets 10
buildings 1,388,704.34 1,576,560.71
Machinery and equipment 38,427.94 59,230.65
1,427,132.28 1,635,791.36
Investments
holdings in Group undertakings 6,799,037.31 6,799,037.31
other shares and undertakings 107,830.00 107,830.00
6,906,867.31 6,906,867.31
FIXED ASSETS TOTAL 8,466,193.74 8,683,340.25
cURRenT asseTs
Receivables
non-current receivables 11
non-current receivables from Group companies 2,060,053.49 1,777,775.63
current receivables 11
Trade receivables 1,925,431.31 570,948.85
Receivables from Group companies 6,952,848.94 2,474,503.55
loan receivables 0.00 410.69
other receivables 8,442.62 191,768.17
Prepaid expenses and accrued income 940,707.00 2,638,391.07
9,827,429.87 5,876,022.33
cash on hand and in banks 3,936,405.11 2,384,143.98
CURRENT ASSETS TOTAL 15,823,888.47 10,037,941.94
ASSETS TOTAL 24,290,082.21 18,721,282.19
[ 32 ] [ 33 ]
PaR
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BALANCE SHEET
SHAREHOLDERS’ EQUITY AND LIABILITIES
currency eURo notes Dec. 31, 2009 Dec. 31, 2008
shaReholDeRs’ eQUITy 13
share capital 4,996,344.00 4,996,344.00
share premium reserve 8,175,518.96 8,175,518.96
Retained earnings -498,682.57 -643,705.92
Result for the financial year 569,030.13 145,023.35
SHAREHOLDERS’ EQUITY TOTAL 13,242,210.52 12,673,180.39
lIabIlITIes 15
non-current liabilities
loans from Group companies 0.00 500,000.00
other loans 725,928.00 302,000.00
725,928.00 802,000.00
current liabilities
advances received 2,157,142.70 1,052,010.89
Trade payables 227,020.04 350,209.65
loans from Group companies 6,788,541.19 2,976,605.48
other current liabilities 219,638.61 69,637.78
accrued expenses and deferred income 16 929,601.15 797,638.00
10,321,943.69 5,246,101.80
LIABILITIES TOTAL 11,047,871.69 6,048,101.80
SHAREHOLDERS’ EQUITY AND LIABILITIES TOTAL 24,290,082.21 18,721,282.19
CASH FLOW STATEMENT
currency eURo Dec. 31, 2009 Dec. 31, 2008
operating result -5,292,869.41 -2,734,427.55
corrections:
Depreciation and amortization 178,558.24 102,189.50
Financial income and expenses -91,611.08 -297,138.71
Taxes -57,149.78 0.00
other adjustments 0.00 0.00
change in working capital
change in inventories 0.00 0.00
change in current interest-free receivables -2,141,504.02 -4,655,716.79
change in current interest-free liabilities 525,841.89 4,147,360.63
change in provisions 0.00 0.00
cash FloW FRoM oPeRaTInG acTIVITIes -6,878,734.16 -3,437,732.92
cash FloW FRoM InVesTMenTs -38,588.27 -3,986,766.94
cash flow before financing -6,917,322.43 -7,424,499.86
change in non-current receivables -282,277.86 1,920,528.12
change in non-current interest bearing receivables -1,809,903.52 -276,277.02
change in non-current liabilities -76,072.00 -797,669.75
change in current interest-bearing receivables 4,550,000.00 -1,271,891.60
Dividend to shareholders 0.00 0.00
change in equity / share issue 0.00 809,138.00
share premium reserve 0.00 6,248,226.48
Group contributions 6,185,267.71 2,889,881.76
cash FloW FRoM FInancInG 8,567,014.33 9,521,935.99
cash flow after financing 1,649,691.90 2,097,436.13
liquid funds on Jan. 1, 2009 2,384,143.98 0.00
effect of currency conversion -97,430.77 286,707.85
liquid funds on Dec. 31, 2009 3,936,405.11 2,384,143.98
Decrease / increase in liquid funds 1,552,261.13 2,384,143.98
[ 34 ] [ 35 ]
Notes concerning the preparation of the financial state-mentsIn addition to the parent company, the consolidated financial state-ments include the subsidiary companies The switch Drive systems oy, The switch controls and converters Inc., The switch holdings, ltd, The switch Wind Power systems (beijing) co., ltd and The lu’an switch electrical Power Production equipment co., ltd.
The official financial statements are published in Finnish. The an-nual report can be ordered from:
The switch engineering oy yrittäjänkatu 11 FI-65380 Vaasa
The principles of valuation and accruals in the GroupThe consolidated financial statementsThe consolidated financial statements combine the economic ac-tivities of all the companies in the Group. The transactions of the permanent branch office in Germany have been entered in the par-ent company’s ledger.
The consolidated financial statements have been prepared using the acquisition cost method. The identifiable assets and liabilities of the acquired companies have been valued at fair value at the time of acquisition. The difference between the price paid for the company and its net assets valued at fair value constitutes the goodwill that will be depreciated over ten years according to plan.
Intra-group business transactions, receivables, liabilities, non-real-ized margins and intra-group distribution have been eliminated in the consolidation.
The income statement of the Group companies, whose business currency or financial statement currency is not the euro, has been translated into euros using the average rate for the financial year; balance sheets use the rate on the balance sheet date. Translation differences for foreign currency loans have been recorded in the income statement. Translation differences arising from different exchange rates used in the income statement and balance sheet
and translation exchanges arising from applying the acquisition cost method have been recorded in the unrestricted equity.
The principles of fixed asset valuation The fixed assets are valued at their variable acquisition cost less ac-cumulated depreciation. The acquisition cost of the fixed assets of the company is depreciated according to plan. The planned deprecia-tion is calculated on the basis of the estimated economic life.
The principles of depreciation in the Group according to plan and any changes
Goodwill is depreciated over ten years. The investments of the Group in long-term product development and the long life-span of the products as investment commodities have been taken into consid-eration in determining the depreciation period. Goodwill has been determined on the basis of a business plan approved by the board of Directors, the principles of which have been approved by independent external consultants.
expenses generating income over three or more years have been acti-vated as long-term expenses and will be depreciated over five years.
InventoriesInventories are entered in the balance sheet at the acquisition cost or the net realizable value, whichever is lower. The acquisition cost has been determined using the FIFo method.
Current assets Trade and other debtors as well as accrued income have been re-corded in the balance sheet at the nominal value or the estimated net realizable value, whichever is lower.
Pension expensesThe pension security of the personnel has been arranged by an ex-ternal pension insurance company. Pension expenses are recorded as annual costs.
Notes to the financial statements December 31, 2009
ITeM GRoUP esTIMaTeD lIFeTIMe
DePRecIaTIon MeThoD
Intangible assets 5 years straight-line depreciation
computer programs 5 years straight-line depreciation
Testing machines 5 years straight-line depreciation
Machinery and equipment 8 years straight-line depreciation
office equipment and other assets 8 years straight-line depreciation
buildings 10 years straight-line depreciation
Goodwill 10 years straight-line depreciation
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REVENUES BOOKED ACCORDING TO THE PERCENTAGE OF COMPLETION METHOD
The projects that were partially booked according to Poc at the beginning of the financial year, and have been delivered during the year, have been finalized in accordance with Poc. For projects that were partially booked ac-cording to Poc at the beginning of the financial year, and have not been delivered during the year, the Poc has been reversed and the projects will be booked when delivered. at the closing date, one project was partially booked in accordance with Poc. This project has been delivered to the customer in January 2010. all products produced as a series are booked when delivered.
1. GRoUP 2009 2008
net sales from Poc projects 2,489,395 41,148,592
other net sales 93,917,421 12,534,955
NET SALES TOTAL 96,406,816 53,683,547
Revenue from Poc projects, which have not been delivered to the customers, booked for the current financial period and earlierfinancial periods:
2009470,273
20089,075,236
Unbooked revenue from long-term projects: 2009 2008
Poc projects 394,461 14,754,038
other projects 92,067,674 80,657,044
ORDER BACKLOG TOTAL 92,462,135 95,411,082
2. PaRenT coMPany 2009 2008
net sales from Poc projects 1,193,240 7,338,061
other net sales 317,250 254,237
NET SALES TOTAL 1,510,490 7,592,298
CHANGES IN RESERVES 2009 2008
Group
changes in reserves for long-term projects 0 -112,498
change in warranty provision 2,286,936 1,637,579
2,286,936 1,525,081
Revenue from Poc projects, which have not been delivered to thecustomers, booked for the current financial period and earlierfinancial periods:
2009237,511
20088,302,864
Unbooked revenue from long-term projects: 2009 2008
Poc projects 199,222 8,046,780
3. oTheR oPeRaTInG IncoMe 2009 2008
Group
other operating income 242,052 272,836
4. oTheR oPeRaTInG IncoMe 2009 2008
Parent company
other operating income from Group companies 2,791,902 1,826,192
other operating income 7,872 16,836
OTHER OPERATING INCOME TOTAL 2,799,774 1,843,028
5. oTheR oPeRaTInG eXPenses 2009 2008
Group
Rental expenses 1,324,038 804,835
sales and marketing expenses 605,524 588,084
Travel expenses 1,794,327 1,388,237
other operating expenses 5,853,642 3,596,182
OTHER OPERATING EXPENSES TOTAL 9,577,531 6,377,337
6. oTheR oPeRaTInG eXPenses 2009 2008
Parent company
Rental expenses 1,179,282 739,308
expenses for machinery and equipment 511,802 171,476
sales and marketing expenses 556,531 523,404
hardware and software expenses 514,254 185,082
other operating expenses 3,488,249 1,454,377
OTHER OPERATING EXPENSES TOTAL 6,250,118 3,073,647
[ 38 ] [ 39 ]
7. FInancIal IncoMe anD eXPenses 2009 2008
Group
Financial income
Interest income 92,521 1,585
other financial income 34,997 36,168
FINANCIAL INCOME TOTAL 127,518 37,753
Financial expenses
Interest expenses -202,606 -163,462
other financial expenses -654,477 -389,900
FINANCIAL EXPENSES TOTAL -857,084 -553,362
FINANCIAL INCOME AND EXPENSES TOTAL -729,566 -515,609
8. FInancIal IncoMe anD eXPenses 2009 2008
Parent company
Financial income
Interest income from Group companies 265,464 160,624
Interest income from others 79,604 459
other financial income from Group companies 0 183,234
FINANCIAL INCOME TOTAL 345,068 344,317
Financial expenses
Interest expenses to Group companies -66,147 -139,435
Interest expenses to others -24,646 -48,736
other financial expenses to Group companies -231,266
other financial expenses to others -144,081 -109,428
FINANCIAL EXPENSES TOTAL -466,140 -297,599
FINANCIAL INCOME AND EXPENSES TOTAL -121,072 46,718
Auditors fees and services (1,000 euro) Group Parent company
2009 2008 2009 2008
audit fees 30 30 2 5
Tax advisory fees 10 2 8 0
other fees 200 25 192 15
TOTAL 240 57 202 20
Extraordinary items Parent company
Group contribution received from subsidiaries have been booked as extraordinary items.
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NOTES REGARDING THE PERSONNEL
Group
average number of employees during the financial year
2009 2008
blue-collar employees 31 16
White-collar employees 130 92
TOTAL 161 108
Parent company
average number of employees during the financial year
2009 2008
White-collar employees 14 10
TOTAL 14 10
Management salaries and fees
salaries and fees to the President and his Deputy during the financial period was 594,097 euro.
salaries and fees to members of the board of Directors have not been paid during the financial period.
[ 40 ] [ 41 ]
9. asseTs
Group
Intangible assetsDevelopment
costsIntangible
rightsOther long-term
expenditures Goodwill TOTAL
acquisition costs Jan. 1, 2009 5,300,718 777,428 445,133 4,051,763 10,575,042
additions 681,596 185,866 382,053 0 1,249,515
Disposals -9,473 -14,324 -1,760 0 -25,556
acquisition costs Dec. 31, 2009 5,972,842 948,970 825,427 4,051,763 11,799,001
accumulated depreciation and amortization Jan. 1, 2009 -3,206,724 -320,746 -132,505 -405,176 -4,065,151
Financial period depreciation -920,127 -74,212 -120,192 -405,176 -1,519,707
accumulated depreciationDec. 31, 2009 -4,126,852 -394,958 -252,697 -810,352 -5,584,859
book value Dec. 31, 2009 1,845,990 554,012 566,077 3,241,411 6,207,491
book value Dec. 31, 2008 2,093,994 457,300 312,612 3,646,587 5,368,033
Tangible assets Buildings and structures Machinery and equipment TOTAL
acquisition costs Jan. 1, 2009 1,681,883 2,102,368 3,784,251
additions 33,745 999,331 1,033,076
Disposals -63,581 -28,865 -92,446
acquisition costs Dec. 31, 2009 1,652,046 3,072,834 4,724,881
accumulated depreciation and amortization Jan. 1, 2009 -89,127 -515,387 -604,514
Disposals and reclassifications of accumulated depreciation 1,921 -15,516 -13,595
Financial period depreciation -163,621 -341,520 -505,141
accumulated depreciation Dec. 31, 2009 -250,827 -872,423 -1,123,250
book value Dec. 31, 2009 1,401,219 2,200,412 3,601,631
book value Dec. 31, 2008 1,592,756 1,609,038 3,201,794
Production machines and equipment on Dec. 31, 2009 1,576,284 1,576,284
Production machines and equipment on Dec. 31 2008 1,354,297 1,354,297
10. asseTs
Parent company
Intangible assetsOther long-term
expendituresIntangible
rights TOTAL
acquisition costs Jan. 1, 2009 39,677 109,129 148,806
additions 1,485 0 1,485
acquisition costs Dec. 31, 2009 41,162 109,129 150,291
accumulated depreciation and amortization Jan. 1, 2009 -8,124 0 -8,124
Financial period depreciation -9,973 0 -9,973
accumulated depreciation Dec. 31, 2009 -18,097 0 -18,097
book value Dec. 31, 2009 23,065 109,129 132,194
book value Dec. 31, 2008 31,553 109,129 140,682
Tangible assetsBuildings and
structuresMachinery and
equipment TOTAL
acquisition costs Jan. 1, 2009 1,665,354 66,715 1,732,069
additions 33,745 33,745
Disposals -60,257 -14,127 -74,384
acquisition costs Dec. 31, 2009 1,638,842 52,587 1,691,430
accumulated depreciation and amortization Jan. 1, 2009 -88,794 -7,484 -96,278
Disposals and reclassifications of accumulated depreciation 1,921 565 2,486
Financial period depreciation -163,265 -7,241 -170,506
accumulated depreciation Dec. 31, 2009 -250,138 -14,159 -264,298
book value Dec. 31, 2009 1,388,704 38,428 1,427,132
book value Dec. 31, 2008 1,576,561 59,231 1,635,791
Production machines and equipment on Dec. 31, 2009 15,156 15,156
Production machines and equipment on Dec. 31, 2008 15,298 15,298
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Group companiesGroup company shares
in other companiesParent company shares
in other companies
The switch Drive systems oy 100% 100%
The lu’an switch electrical Power Production co., ltd 100% 100%
The switch Wind Power systems (beijing) co., ltd 100% 0%
The switch holdings, ltd 100% 100%
Parent company share capital consists of 4,996,344 shares. one share equals one vote.
11. sPecIFIcaTIon oF ReceIVables
Parent company Group
Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2008
Non-current receivables
Receivables from Group companies 2,060,053 1,777,776
NON-CURRENT RECEIVABLES TOTAL 2,060,053 1,777,776
Current receivables
Trade receivables 1,925,431 570,949 13,846,692 4,349,032
Receivables from Group companies
Trade receivables 3,075,680 1,133,583
Prepaid expenses and accrued income 297,208 311,052
loan receivables 2,086,181 276,277
other receivables 1,493,781 753,592
6,952,849 2,474,504
other receivables 8,443 192,179 2,793,900 1,908,778
Prepaid expenses and accrued income 940,707 2,638,391 4,050,403 4,341,443
CURRENT RECEIVABLES TOTAL 9,827,430 5,876,022 20,690,994 10,599,253
12. chanGes In consolIDaTeD eQUITy 2009 2008
Restricted equity
share capital Jan. 1 4,996,344 4,187,206
share issue 0 809,138
share capital Dec. 31 4,996,344 4,996,344
RESTRICTED EQUITY TOTAL 4,996,344 4,996,344
Non-restricted equity
Free invested equity reserve on Jan. 1 8,175,519 1,927,292
Investment in free invested equity reserve 0 6,248,227
Free invested equity reserve on Dec. 31 8,175,519 8,175,519
Result from previous financial years, Jan. 1 -3,027,979 -2,460,810
Translation difference -9,049 -234,369
changes in booking principles and corrections 646,722
other changes 279,833
Result from previous financial years, Dec. 31 -2,110,471 -2,695,179
Result for the financial year 3,771,121 -332,800
NON-RESTRICTED EQUITY TOTAL 9,836,168 5,147,540
SHAREHOLDERS’ EQUITY TOTAL 14,832,512 10,143,884
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13. chanGes In PaRenT coMPany eQUITy 2009 2008
Restricted equity
share capital Jan. 1 4,996,344 4,187,206
share issue 0 809,138
share capital Dec. 31 4,996,344 4,996,344
RESTRICTED EQUITY TOTAL 4,996,344 4,996,344
Non-restricted equity
Free invested equity reserve on Jan. 1 8,175,519 1,927,292
Investment in free invested equity reserve 0 6,248,226
Free invested equity reserve on Dec. 31 8,175,519 8,175,519
Result from previous financial years, Jan. 1 -498,683 -643,706
Result from previous financial years, Dec. 31 -498,683 -643,706
Result for the financial year 569,030 145,023
NON-RESTRICTED EQUITY TOTAL 8,245,867 7,676,836
SHAREHOLDERS’ EQUITY TOTAL 13,242,211 12,673,180
Calculation of distributable funds Dec. 31 2009 2008
Parent company
Free invested equity reserve 8,175,519 8,175,519
loss from previous financial periods -498,683 -643,706
Financial year profit 569,030 145,023
Distributable equity Dec. 31 8,245,867 7,676,836
14. PRoVIsIons 2009 2008
Group
Warranty provisions 3,838,219 1,380,784
other provisions 144,297
TOTAL 3,838,219 1,525,081
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15. lIabIlITIes sPecIFIcaTIon
Parent company Group
Dec. 31, 2009 Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2008
Non-current liabilities
liabilities from Group companies 500,000
capital loans 350,697 350,697
Product development loans 725,928 302,000 725,928 302,000
loans from financial institutions 658,593 706,657
other non-current liabilities 213,911 221,637
Deferred tax liability 613,499 17,213
NON-CURRENT LIABILITIES TOTAL 725,928 802,000 2,562,627 1,598,204
Current liabilities
loans from financial institutions 1,048,409 650,909
advanced payments 2,157,143 1,052,011 7,507,184 5,834,563
accounts payables 227,020 350,210 10,422,396 11,265,081
other current liabilities 219,639 69,638 426,046 171,589
accrued expenses 929,601 797,638 3,077,033 2,347,038
Parent company liabilities from Group companies
advanced payments from Group companies 658,472 1,919,484
accounts payables to Group companies 1,231,901 1,050,059
other liabilities to Group companies 4,550,000 7,062
accrued expenses to Group companies 348,168
6,788,541 2,976,605
CURRENT LIABILITIES TOTAL 10,321,944 5,246,102 22,481,068 20,269,180
LIABILITIES TOTAL 11,047,872 6,048,102 25,043,695 21,867,384
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Other commitments Parent company Group
2009 2008 2009 2008
bank guarantees (company mortgage is used as security) 548,528 5,041,584 4,250,000
other commitments (company mortgage is used as security) 4,994,893 2,022,528 5,202,893 5,332,028
Guarantee limit (company mortgage is used as security) 9,022,528 9,000,000 9,022,528 13,000,000
Finnvera oyj 500,000 500,000
On behalf of Group companies 8,000,000 8,000,000
Leasing contracts Parent company Group
2009 2008 2009 2008
nominal amount of rents according to leasing contracts 2,916,625 2,262,782 3,031,925 2,324,774
Payable within one year 818,242 367,757 873,759 391,897
Payable later 2,098,383 1,895,025 2,158,166 1,932,877
Other rental contracts Parent company Group
2009 2008 2009 2008
Payable within one year 1,120,800 1,120,800 1,510,200 1,480,734
Payable later 8,966,400 10,087,200 11,432,600 12,912,803
TOTAL 10,087,200 11,208,000 12,942,800 14,393,537
Contingent liabilities not booked Parent company Group
2009 2008 2009 2008
Interest for capital loans not booked as cost 95,277
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Contingent liabilities
Guarantees given for contingent liabilities and other commitments
Group Dec 31, 2009 Dec 31, 2008
company mortgage, 2 bearer instruments, each 50,000 100,000 100,000
company mortgage, 11 bearer instruments, each 100,000 900,000 900,000
company mortgage, 3 bearer instruments, each 250,000 750,000 750,000
company mortgage, 36 bearer instruments, each 500,000 18,000,000 18,000,000
19,750,000 19,750,000
Guarantees given for contingent liabilities and other commitments
Parent company Dec 31, 2009 Dec 31, 2008
company mortgage, bearer instrument 1-6, each 500,000 3,000,000 3,000,000
company mortgage, bearer instrument 7-10, each 500,000 2,000,000 2,000,000
company mortgage, bearer instrument 11-24, each 500,000 7,000,000 7,000,000
12,000,000 12,000,000
16. Key ITeMs InclUDeD In accRUeD eXPenses 2009 2008
Group
salaries including social security expenses 1,989,008 1,582,335
Taxes 853,571 230,451
Interest 113,929 0
others 120,526 534,252
TOTAL 3,077,033 2,347,038
Parent company
salaries including social security expenses 717,185 730,481
Taxes 204,246 57,150
others 8,170 10,007
TOTAL 929,601 797,638
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The switch engineering corporation applies the guidelines and provisions of its articles of as-sociation and the Finnish companies act. ac-cording to Finnish law, the Finnish companies act and the company’s articles of association, the control and management of The switch engineering is divided among the shareholders represented at the annual General Meeting, the board of Directors and the President.
The Annual General Meetinga General Meeting of The switch engineering corporation shareholders is held at least once a year. The annual General Meeting of the share-holders shall be held within six months from the end of the financial period. The meeting shall present the annual accounts and the audit re-port. The meeting shall decide on:
• The adoption of the income statement and the balance sheet, as well as the consolidated income statement and the consolidated balance sheet in the parent company• Measures necessary for the profit or loss shown on the adopted balance sheet• The discharge from liability for the members of the board of Directors and the President• other matters, which under the articles of as-sociation, fall under the authority of the General Meeting
Under the articles of association, an invitation to a General Meeting must be distributed by registered mail, or otherwise proven in written form no earlier than four weeks and no later than one week prior to the date specified in chapter 3a, §11 of the companies act.
The Board of DirectorsThe switch engineering oy’s board of Directors has a minimum of three and a maximum of sev-en members. The term of office of a member of the board of Directors shall commence from the annual General Meeting at which the member was elected and end at the close of the next an-nual General Meeting. The board is elected by a
General Meeting. In 2009, the board had seven members. The board elects a chairman from among its members. The board of Directors is responsible for the administration of the com-pany and the proper organization of its opera-tions. The board steers and supervises the com-pany’s operations and decides on policies, goals and strategies of major importance.
CommitteesThe switch engineering oy’s board of Directors can set up committees. any committee would be subordinate to the board of Directors and would make recommendations to the board of Directors for decision-making.
The switch engineering oy’s board of Directors has set up a nomination and remuneration com-mittee in 2009.
The Board’s rules of procedureThe principles applied by the board in its regular work are set out in the rules of procedure ap-proved by the board. These rules were approved in 2009. The board considers all the matters stipulated to be the responsibility of a board of directors by legislation, other provisions and the company’s articles of association. The most important of these are the annual and interim financial statements, the matters to be put before General Meetings of shareholders, the appointment of the President and ceo and the organization of financial supervision in the com-pany. The board is also responsible for consid-ering any matters that are so far-reaching with respect to the quality of the Group’s operations that they cannot be considered to fall within the scope of the Group’s day-to-day administration, such as approval of the Group’s strategic plan and long-term goals, approval of the Group’s annual business plan and budget, decisions concerning investments, acquisitions or divest-ments that are significant or that deviate from the Group’s strategy, decisions to raise loans and the granting of security or similar collateral commitments when their size is significant, risk
management principles, the Group’s organiza-tional structure, appointment of the company’s Management team, approval of remuneration and pension benefits, monitoring and assess-ing the performance of the President and ceo and approval of the company’s management principles and steering systems. In addition to matters requiring its decision, the board is also given updates at its meetings on the Group’s operations, financial position and risks.
Appointment of the Board of Directors and meetingsThe board of Directors is responsible for ensur-ing that a proposal to be put before a General Meeting concerning the election of a new mem-ber to the board, and of which it is aware, is published in the notice of meeting and that the proposed individual has given his/her written consent.
The board of Directors convenes six to eight times a year following a predetermined sched-ule. In addition to these meetings, the board convenes as necessary. In 2009, the board of Directors convened nine times.
Shares and shareholdersThe parent company has 4,996,344 shares with a nominal value of eUR 1 each. each share car-ries one vote. The company maintains the reg-ister of the company’s shares. The switch engi-neering oy owns none of its own shares.
The President and CEOThe board of Directors appoints a President for the Group who is also its chief executive officer. The President and ceo is in charge of the day-to-day management of the company and its ad-ministration in accordance with the company’s articles of association, the Finnish companies act and the instructions of the board of Direc-tors. he is assisted in this work by a Manage-ment team. The President and ceo of the com-pany is Mr. Jukka-Pekka Mäkinen.
Corporate governanceThe Switch Engineering Oy
sIGnaTURes
Vaasa, March 10, 2010
Veijo Karppinenchairman of the board
Vesa laisi
Kaj Rönnlund
Jukka-Pekka MäkinenPresident and ceo
Dirk heidenreich
harri ollila
Jarmo saaranen
aUDIToRs’ enDoRseMenT
The above financial statements have been prepared in accordance with generally accepted accounting principles in Finland. our auditors’ report has been issued today.
Vaasa, March 11, 2010
KPMG oy ab
hans bertellaPa
[ 50 ] The switch annual Report 2008
The Executive Vice President and Deputy to CEOThe board of Directors appoints, if necessary, one or several executive vice presidents. The board has appointed Mr. Dag sandås to be ex-ecutive Vice President and Deputy to the ceo.
The Management teamThe company’s Management team comprised the President and ceo, the chief Financial offic-er, the chief Technology officer, the Group Vice President Wind Power, the Group Vice President emerging businesses, the Group Vice President logistics and supply chain, and the Group Vice President electrical Machines. The compilation of the Management team evolves over time, fol-lowing the strategic aspects of the development of The switch Group.
Management team members are appointed by the company’s board of Directors, which also approves their remuneration and other terms of employment. The Management team was chaired by the President and ceo. It considered strategic issues related to the Group and its businesses, as well as major investments and divestments, product policy, the Group’s struc-ture and corporate steering systems, and it su-pervised the company’s operations. The heads of the businesses in the Management team were each fully responsible for their respective businesses and/or functions.
The Corporate ManagementThe company’s corporate Management in-cludes, in addition to the members of the Man-agement team, other directors and managers in charge of processes and/or functions. corpo-rate Management meetings are chaired by the President and ceo and their composition varies depending on the business issues under consid-eration. There are two types of meetings held in connection with Management team meet-ings: corporate Development Projects board meetings (cDPb) and Technology Development board meetings (TDb). corporate Management meetings prepare proposals for the company’s board of Directors to deal with product develop-ment projects, process improvements, business
issues, quality, information management and other development issues, and to handle rela-tions with stakeholders.
Managing Directors of the subsidiariesThe Managing Directors of the Group’s subsidi-aries are responsible for ensuring that the local resources are correctly dimensioned to meet the needs of the business and/or functions; that the subsidiary’s personnel development needs are met; that the subsidiary’s operations fulfill the requirements stipulated in the Group’s quality system; and that these operations comply with the respective country’s legal requirements and with good business practice.
Remuneration of the Board of Directors The annual General Meeting decides annually on the fees to be paid to the members of the board of Directors for one term of office at a time. The board prepares a fee proposal, if applicable, for the decision of the annual General Meeting.
The remuneration paid to the President and ceo and other members of the Management team, and the principles underlying it, are determined by the board of Directors. The remuneration paid to the President and ceo and the other members of the Management team consists of a monthly salary and a bonus. The bonuses paid to the members of the Management team are based on the achievement of the company’s strategic targets. Incentive schemes and remunerationThere is an incentive program for the Manage-ment team and for all employees of The switch engineering not having a personal bonus sys-tem. The program is a result-based pay sys-tem, and the results are determined by Group or company specific metrics, driving for growth, improved profitability and improved operational processes.
There are no option schemes within The switch engineering Group. all changes in wages, sala-ries, incentives and other types of remuneration are approved according to the grandfathering principle.
Internal supervisionResponsibility for the management of the com-pany and its proper organization lies with the board of Directors. In practice, it is the President and ceo’s task to ensure the proper organiza-tion of the company’s internal supervision, risk management, internal audit and accounting supervision mechanisms, assisted by the Man-agement team. The instructions and guidelines apply to the entire Group or to individual busi-nesses.
The company’s financial progress is reviewed monthly through a Group-wide reporting sys-tem. This includes an income statement, bal-ance sheet information, cash flow reports, key indicators, and events of importance to the company’s operations.
Risk managementThe purpose of risk management is to ensure that the company’s business objectives are reached and that the company remains a going concern. The risk management function ana-lyzes the risks faced by the company’s various businesses and units. It also defines the risk management principles applied throughout the Group and develops risk management methods and insurance schemes. areas of responsibility have been defined in the organization to cover different risks.
an external insurance broker firm is employed for streamlining and optimizing the insurance program for the Group.
The external auditThe company has one cPa-authorized auditor, who is an auditing firm. The auditor is elected by the annual General Meeting to audit the ac-counts for the ongoing financial year and this firm’s duties cease at the close of the subse-quent annual General Meeting. The auditor is responsible for auditing the consolidated and parent company’s financial statements and ac-counting records as well as the administration of the parent company. In 2009, the annual General Meeting appointed the firm of public accountants KPMG oy ab as The switch engi-neering corporation’s auditors.
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