龙年2012年度综论

The Year of the Dragon Annual review 2012

32

The Year of the Dragon 2012

The Year of the Dragon 2012According to the Chinese calendar, the Year of the Dragon is one of the most revered years of all. Those born in this year are said to be innovative and passionate, filled with confidence and willing to venture beyond boundaries. A dragon is not feared in the Chinese culture, but rather regarded as a mighty beast, capable of bringing about good fortune and immense power. More specifically, 2012 is the year of the Water Dragon, a wise and intelligent dragon, with a focus on sensitivity to the needs of others and environmental consciousness.

For The Switch, the year of 2012 took on movement not too unlike that of a dragon with its volatile ups and downs. Overall, the global market continued to be in the slumps. Vertical integration began to give way to a new networked approach. To survive, innovation became key to rise above the shadows.

This year has been a tough one for The Switch – but it has forced us to get even tougher. We thank all of our people, our partners and our customers for their fearlessness in following us as we pursued our strategy. We have fought demons, overcome obstacles and rode the turmoil of the dragon-shaped market together to emerge stronger than ever.

13 Create bestsellers

15 Lower risks

17 Grow confidently

19 Fist of fortune

21 The clan of the dragon

22 Financial overview

3 The Year of the Dragon 2012

5 The wisdom of the dragon

7 Fighter in the wind

9 The hot, the cool and the powerful

11 Challenge of the masters

Table of contentsIf you ignore the dragon, it will eat you.

If you try to confront the dragon, it will overpower you. If you ride the dragon, you will take advantage of its might and power.

54

CEO’s reviewCEO’s reviewLike the Year of the Dragon, we have experienced our share of ups and downs, highs and lows. Yet we can hold our head high with pride thanks to our innovative achievements, hard work and steadfast belief in our strategy during the year.

The Switch significantly strengthened its position in the industry during 2012 by relentlessly promoting the transition to new technology represented by permanent magnet generators (PMG) and full-power converters (FPC). We challenged the industry to drive the costs of renewable energy down. We advocated the advantages of a networked approach. And customers began to take advantage of our flexible business model that complements their core competences.

At the beginning of the year, major customers in China had overstocks of products, so demand was non-existent. This low activity level continued throughout the first half of the year, which led to poor financial performance. Then a burst of wind filled our sails at Husum WindEnergy 2012 with the inaugural presentation of the 3 MW FusionDrive®, our medium-speed integrated gear and generator drive train, jointly developed by The Switch and Moventas.

The Switch secured major orders with new and existing customers who are among the leading wind turbine manufacturers in the world. We were chosen to develop several PMGs at the highest power rating as a demonstration project. We received orders for direct-drive and medium-speed PMGs and FPCs, commissioned our first 5 MW turbines, and sold both generators and motors as ready-made products and under license.

Our direct-drive PMG over 4 MW for GE, originally ScanWind, which went into service at the end of 2011, operated successfully in offshore-like conditions on the coast near Gothenburg, Sweden. This is the third generation of our direct-drive PMG-based drive trains, commissioned already in 2005.

More than ever, the year of 2012 saw us take the limelight as a reliable and reputable partner for world-class wind turbine manufacturers. Our experience is indeed considerable in the quickly maturing wind industry. We’ve found our voice – and are using it to call others to join us on our mission.

New markets opened up for us during the year. The Switch was able to break into the US market with installations of converters that supported our Chinese customers locally. We also installed units in India and Korea.

For 2013, we have new audiences to address. We plan to expand our wind turbine experience into other renewable energy applications, such as energy storage, solar, wave and tidal, as well as for marine, high-speed and variable speed drive train applications. The wind power industry will go through an inevitable transformation. Turbine manufacturers will begin to focus more on their core competences and seek engineering and production partners to support them. Vertical integration will diminish and be replaced by the sharing and optimizing of resources. The Switch is ideally suited to serve these new needs.

We own the space of offering a flexible business platform to our customers. While the bigger players in the market offer only their products, we offer business collaboration. Wind turbine manufacturers have now noticed the value that we can add – making their lives easier.

Our vision is to be the partner for multi-megawatt renewable power generation when it comes to efficient electricity production and consumption.

The wisdom of the dragon

that if you want to

CLIMB HIGH,

The dragon teaches you

you have to do it against the wind.Jukka-Pekka MäkinenPresident and CEO

76

Wind pow

er business report

Wind power business reportThe wind power industry, which is the main focus of The Switch, continued to crawl along. Not only did this pose an ongoing challenge for us, it forced other players to operate with losses, completely give up on their wind development plans or file for bankruptcy.

Although the market remained sluggish, it is clear that our reputation as a provider of key wind turbine components, especially PMGs, has continued to grow.

PMGs became the technology of choice in new turbines, resulting in volume deliveries to our customers. We are now nearing the mark of having installed products in 4,000 turbines, which helped to confirm our leadership position in the wind power industry.

The main reasons for this, based on customer feedback, are the high level of technical competence and the flexible approach that The Switch offers. Customers have been impressed by our ability to provide technical concepts, to give professional support, and to respond in a very short time. Technical changes carried out during the year have now enabled a much higher quality product with faster delivery times.

FusionDrive® was definitely a highlight during the year. This integrated medium-speed gear and generator combination drew attention by being the first of its kind on the market. In April, Germany-based DeWind, a subsidiary of Daewoo Shipbuilding and Marine Engineering Co Ltd placed the first commercial order. The real-life size 3 MW FusionDrive® was revealed at Husum WindEnergy 2012 in September.

In October, PROKON placed another order for ten direct-drive 3 MW PMG and FPC packages. This order signified that the wind industry still has strong players who believe modern technology can make a difference with high efficiencies.

The Switch delivered a wide scope of wind turbine key components, ranging from 750 kW in India to 5 MW for China’s Chongqing Haizhuang Windpower Equipment Co., Ltd. We keep innovating and engineering, and are currently involved in development projects for turbines beyond 8 MW.

Inquiries for converters picked up as the year progressed. The Switch upgraded its 3.15 MW FPC at the start of 2012 by placing it into a more compact enclosure with the highest possible power density. The design is now ready with preliminary specifications.

A good opening into the US market came with the deliveries of 1.5 MW and 2.5 MW FPCs, which successfully passed UL requirements. The Switch also gained experience from the Indian market during 2012 after installing a generator and converter package in 2011. The site and grid conditions in India were exceptionally demanding, which demonstrated our ability to match strict grid code requirements and move beyond specifications.

The Switch also broke into a new business area of energy storage with its first order from SustainX. This solution, based on compressing air, may prove to be vital technology in solving energy storage to support the stable integration of wind parks into the rest of the electricity supply.

We strongly believe that the wind industry is here to stay and will be a solid and sustainable business for us. The outlook for 2013 remains optimistic with economic forecasts projecting a change for the better in the overall wind market.

Fighter in the wind

When

the winds of change

WALLS

WINDMILLS.

Panu Kurronen Permanent Magnet Generator Product Manager

Jussi Paakkunainen Full-Power Converter Product Manager

98

Solar power and m

arine business report

Solar power business report Solar remained a strategic focus for The Switch in its emerging business portfolio. The global solar photovoltaic market continued to outpace wind by growing an additional 5% year-over-year, reaching 29 GW from 27.7 GW in 2011. Although this figure was slightly lower than original forecasts of 30 GW for the year, regional growth in Asia Pacific alone is estimated to reach 13.5 GW in 2013. This optimism is fueling the industry, allowing new technologies to break through and drive the costs of solar energy down.

The Switch solar inverters offer a unique outdoor solution that boasts utility-grade performance with the same reliability and improved LCOE already achieved for wind. The rugged design and totally self-contained liquid-cooling system that offers simplified, cost-effective installation and maintenance has now gained considerable attention from the market.

In 2008, The Switch installed its first solar inverter for Solar Systems in Australia. Since 2010, solar inverters have been operating continuously at our factory in Vaasa, Finland. In June 2012, we successfully completed all the required testing to obtain the prestigious TÜV certification. In the summer of 2011, we installed our first installation in Israel and field testing was finalized in 2012.

Marine business report The marine business consists of two distinct sectors where The Switch solutions provide exceptional advantages: marine, as well as wave and tidal.

For wave and tidal, The Switch offers opportunities to embrace proven cutting-edge technology. In 2011, we delivered a PMG and FPC package for the Wello Penguin, a unique wave power application. In the latter half of 2012, we developed a prototype for a tidal application, taking advantage of the tidal stream to turn the rotor. The drive train was successfully tested back-to-back according to time schedules.

For onboard marine applications, the biggest advantages of The Switch technology are energy efficiency and low operational costs. We use permanent magnet (PM) technology for propulsion and other machinery, as well as onboard generators. For winch applications, The Switch technology enables better torque with a wider speed range.

Because fuel prices have gone up and the economy is slow, shipping freight profits have come down considerably. This is putting more pressure on ship owners, who are starting to concentrate on increasing energy efficiency and lowering operational costs.

Ship owners can save hundreds of thousands of euros each year by transitioning to variable speed PM technology because fuel consumption is lower, motor size is more compact and maintenance costs are lower.

The Switch has started a development project during the year, taking the VSG technology also to onboard applications. The ships will have variable speed applications, controlled by smart grids that optimize overall efficiency as well as lower fuel consumption and emissions.

The hot, the cool and the powerful

ONLY THE MAN who crosses the river at night

knows the value of the LIGHT OF DAY.

Mika Koli Marine Business Development Manager

Benny NybergSolar Power Business Development Manager

1110

Variable speed genset and high-speed business report

Variable speed genset business reportWith the rapid growth in demand for reliable electricity and the deregulation of utilities, variable speed genset (VSG) electrical drive trains are becoming more widespread throughout the Northeastern region of the US. Therefore, the market for VSGs grew nicely during 2012 and got an unexpected boost in interest in the aftermath of Hurricane Sandy. Inquiries increased particularly from building owners in the hard-hit area.

New York State and other major Northeastern utilities approved The Switch during 2012 as a preferred supplier of VSGs. This is thanks to the proven energy efficiency and reliability from installations, such as the one in 2009 for One Penn Plaza in Manhattan.

VSGs are ideal for distributed or on-site power generation. An entire VSG system includes a natural gas-fired engine, a PMG, a heat collection system and a VSG converter. Our optimized VSG electrical drive train package, consisting of a PMG and VSG converter, meets the strictest grid interconnection requirements and provides high-quality electricity.

The Switch made a significant VSG delivery to Gateway in White Plains, New York, in 2012; a subsequent delivery will be made in spring 2013 to Yonkers, New York. Moreover, longtime customer Tecogen became more active, doubling the number of orders placed during the year.

Political decisions may swing in the US. But natural gas will undoubtedly remain favored on political agendas, since gas prices are low and it is categorized as green energy with low emissions. This gives The Switch VSGs a promising future.

High-speed business report The Switch high-speed business focuses on high-speed motors and special industrial applications. Our products are an ideal choice for oil and gas, energy or other industrial applications that involve compressors or rotating machines that work above 4,000 rpms. Our extensive experience is particularly appropriate for integrated high-power motors in compressors and pumps.

Our second-generation solid rotor induction machine designs are under development to increase performance and broaden speed and power ranges, while offering improved mechanical strength to better handle vibrations.

The Switch optimized drive train is a speed-controlled solution that eliminates the need for a gearbox, thereby improving efficiency.

The most prominent project was the development of a high-power compressor for Swiss MAN TURBO, based on a feasibility study and prototypes, which has now led to a licensing agreement with them. The Switch was selected, as no other supplier could match the requirements. The unique technology secures the success already in numerous installations, for example, in gas storage applications. The technology is capable of surviving also in the subsea application with aggressive gases straight out of the well. The first units are being built to be installed on the seabed.

Runtech was one of our main customers for high-speed motors during 2012 with volume orders for paper machine vacuum systems. We also received our first reference in the chemical industry from the German compressor systems company FIMA.

This market is prepared for something new. Now is our time to move ahead again.

Challenge of the masters

If a thing's WORTH DOING,

it’s worth DOING WELL.

Giulio MartorelliHigh-Speed Business Development Manager

Risto Ahvo Variable Speed Genset Business Development Manager

1312

Predictable time-to-m

arket with the latest technology

Predictable time-to-market with the latest technologyOne of the main drivers to create bestsellers is predictable time-to-market with the latest technology. We have worked actively this year to streamline our processes to have very short lead times in customer projects. Based on our extensive experience, we know how much time it takes and we can speed up the delivery time for converters and generators. We’re also able to provide smaller volumes with quicker turnaround.

There has been a huge shift towards bigger and better onshore and offshore turbines with the world moving towards a multi-megawatt future. The further wind power technology advances, the better and more reliable it gets, and the higher the power ranges can go. To reach this goal in an economically viable manner, we help our customers transition to the latest PMG and FPC technology and create bestsellers by lowering the cost of energy. Therefore, our focus is to design PMGs and FPCs to be more compact and lighter in weight.

Research and development at The Switch has progressed alongside ongoing customer projects. We offer an option for high-speed, medium-speed and direct-drive generators as best suit the end applications of our customers.

With hundreds of PMGs and FPCs running successfully in the field, we have real evidence that we know how to design, manufacture and further refine the products for series production. Customers have been highly impressed with our technical competence and have given it a world-class rating. Some of the largest global turbine manufacturers have carried out comprehensive audits, resulting in the assurance that our processes match their expectations.

The grid performance of our FPCs is now thoroughly field proven with an abundance of documentation and data to support faultless operation in all kinds of environments. Our FPC series has been optimized to meet evolving market needs with better reliability. FPCs delivered to the US during the year received ETL certification, which was a big step in breaking into the North American market.

New grid regulations have come to China. We know the requirements well and have proven in tens of turbine tests that we can fulfill them. Europe is targeting one standard that will combine all international regulations into one in the future. We are actively working on grid performance in order to be ahead of the standards.

The Switch has been proactively optimizing its PMG designs, including the usage of magnet materials. This guarantees that our offering is highly price competitive. A new FPC generation is being planned to offer customers various options for different climates, from tropical to arctic.

When looking at the many inquiries from business areas outside wind, we can utilize our knowledge to help renewable energy, energy storage and other industrial applications gain from the unique properties of our PMGs, such as high torque at zero speed.

Create bestsellers

contribute

their firewoodcan they build up A STRONG FIRE.

ONLY WHEN ALL

Jari Kemppi CTO

1514

Scale your operations by networking

Scale your operations by networkingEmbracing a networked approach has been the hallmark of The Switch organization from the start. It has given us unlimited tangible and intangible resources for design, production and after-sales support.

With an industry average of 50% overcapacity, our scalable engineering and production give customers the opportunity to move from fixed costs to controllable overhead – ultimately lowering risks. It helps them stay at the forefront of change despite industry, technology and market cyclicality.

During 2012, we continued to fine-tune our successful Model Factory concept, which allows our customers to move into new production areas quickly, flexibly and effectively. This proprietary production concept ensures ramp up or ramp down as required by customers. Customers can then specialize in what they do best, while tapping into expertise, scalability and speed.

The Switch Model Factory concept is particularly appealing because we offer customers easy preplanned localization. The concept is scalable, allowing customers to move quickly from prototype to mass production. It is not only applicable to complete products, but also to components and subassemblies.

We currently operate four of our own factories and five Model Factories, which work within a shared knowledge network of suppliers and customers for closer collaboration. We are preparing to expand into other regions, following customers and markets as they evolve.

The Switch operations in China developed significantly. Our Lu’an facility was successfully audited by our customers and is a real example of our commitment and footprint in Asia.

In Vaasa and Lappeenranta, Finland, The Switch focused on improving its prototype process. Many new types of projects, such as VSGs, came through during the year. A significant swing in the workload occurred in May with the comeback in Chinese demand, and work picked up towards the end of the year.

To stay ahead of market needs, we plan to evolve the Model Factory concept into dynamic agile manufacturing thinking. If the Model Factory has provided a very systematic way to make consistent instructions for production technology and localization, agile manufacturing builds partnerships among R&D, suppliers and customers.

PROKON’s direct-drive generator is a concrete example of applying agile manufacturing thinking. The generator design came from The Switch and the generator parts came from suppliers in different countries. This led to an outstanding finished product.

In agile manufacturing, customers, suppliers and suppliers’ suppliers share the same goal and the same viable solution. It is a way of working based on give and take. This takes our Model Factory concept to a higher level, creating a more dynamic way of collaborating. Agile manufacturing makes vertical integration even more obsolete.

Lower risks

Sseem always to favor

Pertti Kurttila Vice President, Supply Chain

1716

Business model to com

plement custom

er strategy

Business model to complement customer strategyThanks to our unique and flexible business model, we were able to survive this market slump and reach a reasonable level of deliveries in the latter half of the year.

The Switch flexible business model allows our customers to carefully manage their risks, complement their capabilities with additional expertise – and grow confidently.

This business model gives customers several options. We can manufacture a complete and ready-to-use product for our customers. Or they can insource specific components or even acquire licenses. Whatever way they choose, we provide a platform for collaboration that allows customers to advance step by step with products and processes that support them with greater profitability.

Flexibility has been built into the company’s way of working from the first day onwards. During 2012, especially given the severity of the global economic downturn, more and more customers have come to appreciate the value of our flexible business model as they have done away with their own vertical integration. Today, customers have a strong desire to replicate this concept for their own success.

The FusionDrive® project is an excellent example of the flexible business model that The Switch offers. All R&D and testing work was carried out as a joint project with Moventas, although sales happen independently. Another example in 2012 was the ability to leverage our cost advantage by using Chinese production for parts and complete machines. And this flexibility has opened up many other opportunities.

The reasons why customers value flexibility are different. In the West, customers look to us to share the load and outsource responsibilities. In the East, customers want to jump on the fast track to establish their own manufacturing and produce high-quality products with Western know-how, enabling them to quickly build their own or jointly branded products.

Today more than ever before, customers must think differently to survive. They have come to realize that it is not good to have everything in their own hands. Vertical integration is dead. Therefore, they have chosen to work with The Switch as part of their own processes.

For 2013, The Switch will continue to enhance its flexible business model by shortening time-to-market, allowing customers to focus on the areas of their business that bring them the greatest results, and enabling them to gradually localize their offering.

Grow confidently

A tree that does not bend with the wind

will be broken by the wind.

Jixiang Hao Technical Account Manager

Reijo Takala Vice President, Wind Power

Miika ReinikkaKey Account Director

1918

CFO’s financial overview

CFO’s financial overviewBefore the start of 2012, forecasts called for the year to pick up with new orders in wind and other renewables. Although the actual number of new wind power installations in Europe particularly and the US remained considerably high in 2012, these were granted permits and financed already prior to the year in review. So instead, the tranquil season continued.

At the start of 2012, we adjusted ourselves to the realities of the sluggish market in the wind industry, which dampened the mood throughout the company and the industry as a whole.

Some of our wind competitors experienced huge operational losses, while others filed for bankruptcy, and this also occurred to our customers. Wind parks shrunk in size due to minimized risks, and projects that were won were smaller in general.

To survive the continued market downturn, The Switch relied heavily on its own strategic choices that were made when the company was established. Our five key strategic choices are: being the best in our selected business of new energy, working collaboratively for greater effectiveness and profitability, lowering the cost of energy, choosing a networked approach, and working with people who can innovate.

Thanks to our strong belief in these, we have continued to grow our reputation and have become even more appreciated as a reliable partner for major wind turbine manufacturers globally. Other new energy business areas where we intend to grow have also noticed our results.

By year-end, it was clear that we have a wider range of new customers who are collaborating with us on a broader base of projects, which is positive news. The ball is now again in our court as we look forward to delivering on their expectations.

Although the current slowdown in the Western markets will be felt for some time, forecasts now call for demand to revive in China, which should influence our results later in 2013 or into 2014.

We ended the year below our projections with net sales of MEUR 43. Still, we were able to secure a MEUR 12 financing package from our existing debt partners who have solid confidence in our ability to persevere. Luckily, our business is not based on leveraging. Instead, our scalable business model gives us more freedom to move when the market is as squeezed as it has been.

We are looking at ways to proactively take part in the ongoing industry transformation and are seeking to grow The Switch. And we are also open to new opportunities for expansion.

As we move forward, everything we are doing is supporting our strategic targets. We are asking ourselves how our actions improve our competitive position. We know we cannot save our way out of the problem, but rather need to be wise about our investments. We are finding ways to be fast, efficient and cost effective to constantly add value to our customers.

That’s why we have reason to be confident in our solid foundation for a bright future ahead.

Fist of fortune

To attract good fortune, spend a new coin on an old friend, share an old pleasure with a new friend, and lift up the heart of a true friend by writing his name on the wings of a dragon.

Dag SandåsCFO

2120

The Switch was chosen by the Global Cleantech Cluster

Association as the 2012 Later Stage Award Global Best of Wind

winner, which reflects our positive contribution to the green economy

with our unique innovations.

Jukka-Pekka Mäkinen became an

European Wind Energy Association

Board Member, which will give The Switch a better opportunity

to influence the European wind community and share our

experience and knowledge to help

the industry develop.

The SwitchiansToday’s challenging times require innovative thinking. The Switch believes that having a great business during unpredictable times is based on talented people – our experts, The Switchians – who know how to innovate and add value for better end results.

Our flexible business model provided a much higher degree of stability for our personnel in 2012. This is very much unlike how the situation would be for a conventional company faced with the same economic downturn in its main business area. So, the decreased revenue was not as volatile on the number of employees as it could have been.

The Switch used its extended networks in a versatile manner, growing and decreasing according to the workload. This offered exceptional employment protection for the personnel in the company, and gave solid proof that scalable resources really do work, both up and down.

In all, customers were highly satisfied with the great design teams, The Switch flexibility and our competence to make conceptual designs that match requirements when standard solutions do not work from an electrical or mechanical point of view.

On average, The Switch employed 211 persons during the year; approximately 60 of those were employed in China.

The Switch established sales representation in Italy to cover the local market as well as to develop the high-speed business. In China, operations were strengthened with new recruits for customer support.

Although China will no longer grow as quickly as it once did, it is still the largest market by far with solid growth plans. Europe was relatively stable throughout the year, and The Switch is clearly gaining traction here. India is also looking promising. In the US, the question of the extended production tax credit (PTC) kept the market indecisive about new investments.

The Switchians have the ability to see beyond the hard times and really embrace the strategy and values of the company. When they live according to these beliefs, they can manage through the hard times, while keeping up a positive spirit.

For 2013, The Switchians will continue to offer value to customers by placing emphasis on problem solving and by providing the highest level of expertise on technical and quality issues.

The clan of the dragonThe Sw

itchians

To prosper for a year, grow wheat.To prosper for ten years, grow trees. To prosper for a hundred years, grow people.

2322

return on investment (ROI) -6.8% (-6.4%). The equity ratio was 34.8% (44.9%) and net gearing ratio 24.7% (-51.5%).

In the autumn of 2012, The Switch was approved for a financing package of MEUR 12 in total. MEUR 4 was a subordinated bond-loan from the main owners of the company. The interest-bearing debt at the end of the year was MEUR 10.7 (3.3).

Three product development projects for The Switch were approved by TEKES in 2009, 2010 and 2011, and the company will receive grants for the next three years. The total budgets of the projects are MEUR 10.2 of which TEKES will fund 35%. In February 2013, a new project with a total budget of MEUR 0.7 was approved by TEKES.

PersonnelThe average number of people employed by the Group during the financial period was 211 (248). On December 31, 2012, the Group employed 210 persons (226).

The change in the personnel number is mainly due to the cooperation negotiations with all personnel in Finland, which were started in the end of 2011. The cooperation negotiations were part of the measures to adjust the company’s operations and cost structure to meet the current demand.

Financial overview January 1, 2012 - December 31, 2012

The marketsThe international renewable energy market grew moderately in 2012. The major factors that contributed to this was the decline in the Chinese market with a counterbalancing effect from the growth in certain emerging markets in renewable energy, such as Brazil, Italy, Sweden, Poland and Romania. In the wind power technology market, demand continued to develop positively for PMGs and FPCs. This further solidified the market position of The Switch. Established turbine companies along with newcomers in the field are transferring to the use of PMGs in increasing numbers. And this trend is expected to continue in the coming years.

An ever-growing portion of the world’s energy is being generated by wind power. The industry must ensure that both the onshore and offshore wind power business is as efficient and profitable as possible. This can be seen at The Switch through its focus on cutting costs, minimizing risks as well as increasing the reliability and total lifetime of both turbines and components. The size of wind turbines is continuing to grow, which can be seen in the rising demand for larger wind power turbine and component designs.

Wind power installations are increasingly being built onshore as well as offshore. The technology used offshore is continuously being developed so that applicability to the harsh sea conditions can be ensured. This will also affect the overall timetable for the progress of offshore wind energy.

Intensified competition in the wind power market led to more mergers and consolidation in 2012 in the wind turbine manufacturing chain. During the year, the possibility to get financing has become more difficult, which has also had a negative impact on the growth of the wind power market.

Growth in China, the main market for The Switch, has been explosive in recent years. In 2011, however, the trend changed and growth slowed. The reason for this was technical and quality issues related to grid connection. In addition to occurring faults, a significant number of the installed turbines were not even connected to the grid. This considerably reduced the number of new installations in China, which affected many of the suppliers, including The Switch.

The price of rare earth materials used in PMGs rose dramatically in the summer of 2011, making the deployment of PMG technology a challenge

Revenue

EBIT

EBIT, % of revenue

Return on investment

Equity ratio

for the markets and drove PMG customers to actively explore other technology options. The price of rare earth materials has since calmed down, and has even clearly decreased. This provides a good opportunity in the future for the competitive use of PMGs.

In 2012, the debt crisis in the EU forced several European countries to review their spending. This had an impact on renewable energy and the rise of wind power. Furthermore, it weakened the financing ability of companies in the industry.

Sales and performanceThe consolidated financial report has been prepared in accordance to the International Financial Reporting Standards (IFRS).

The Switch’s consolidated revenue was MEUR 43.2 (2011: 93.8).

Consolidated EBITDA was MEUR -6.5 (0.2), and consolidated EBIT was MEUR -8.8 (-2.0). The consolidated financial result was MEUR -6.6 (-1.2).

InvestmentsInvestments during the financial year totaled MEUR 1.1 and were mainly directed towards machinery and equipment in the Lappeenranta and Vaasa, Finland, factories.

Balance sheet and financingThe consolidated balance sheet totaled MEUR 46.4 (57.7). The consolidated operational cash flow was MEUR -13.3 (11.4). On the Group level, cash on hand and in banks was MEUR 7.2 (13.6).

At the end of December, trade receivables were MEUR 13.6 (11.6). The turn rate of trade receivables was 116 (89) days at year-end. The inventory value was MEUR 7.2 (12.9) at year-end and inventory turn rate was 154 (60) days. The trade payables at the end of the year were MEUR 7.1 (9.9). The turn rate of trade payables was 104 (82) days.

Consolidated return on equity (ROE) was -60.9% (-6.1%) and consolidated

Financial overview

www.theswitch.com