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© cacaroot dreamstime.com Business | July 28, 2016

Kontron: Demand remains weak

Kontron AG has missed the customary seasonal second quarter revenue recovery and therefore withdrew the guidance for the total year.
Revenues for the second quarter were only slightly higher than in the first quarter of 2016. Compared to the second quarter of 2015, they were down 16.2 percent from EUR 108.5 million to EUR 90.9 million. Order intake, at EUR 104.6 million, boosted by our Avionics / Transportation / Defense (ATD) business unit, was, by contrast, 4.5 percent higher than in the comparative quarter of 2015 (EUR 100.1 million). Order backlog came to EUR 270.2 million at the end of the second quarter of 2016. This represents a 16.2 percent decline on the figure seen as of June 30, 2015 (EUR 322.4 million).

Revenue weakness is visible in all three business units: ATD revenues came to EUR 22.7 million in the second quarter, following EUR 28.9 million in the comparative period of the prior year, a 21.4 percent decrease. Communication closed the quarter with revenues of EUR 22.3 million, also below the level of the comparable quarter of the prior year. The development of Industrial was also negative, with revenues falling by 14.0 percent to EUR 45.9 million.

Gross margin for the second quarter reflects the general decline in revenues and, at just 18.6 percent, was significantly below our long-standing target of 25 percent, due also to the impairment losses recorded. In light of the revised revenues and earnings guidance, an impairment test was performed as of June 30, 2016. This test resulted in a need to recognize impairment losses of EUR 60.9 million on goodwill and of EUR 6.0 million on property, plant and equipment.

EBIT adjusted by restructuring cost, one time cost and write offs based on the impairment test fell to EUR minus 10.0 million in the second quarter of 2016 compared to EUR minus 1.8 million in the second quarter of 2015.

Kontron has identified market related and internal difficulties as reasons for the continued weak performance:

"Partially the challenging market situation, that our customers are currently facing and affecting Kontron indirectly. Demand was lower as predicted. This has a direct impact on Kontron’s revenues because the framework agreements in place are being drawn down to a lesser extent than expected, as well as on order intake.

Furthermore over the past couple of months Kontron changed its sales structural setup and parts of its product portfolio, to provide especially its midsized and small size customers with standard products, also with the support of distribution partners. However, the measures taken to reorganize are not yet showing full effect. On top of this, the implementation of several individual projects has unexpectedly been postponed into the second half of the year or even next year. Here, the development cycles are taking longer than expected."

To steer against the revenue weakness and to adjust costs, Kontron is presently starting a comprehensive program of actions.

Kontron expects for the second half of the year 2016 a slightly higher revenue than in the first six months .
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