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Electronics Production | October 23, 2008

Elcoteq post lower 3Q net sales

Elcoteq's third quarter net sales totalled €740.5 million. Third quarter operating income was positive, and totalled €0.3 million. As forecast, net sales were lower than in the second quarter of 2008, but operating income remained at the same level (€0.6 million in April-June 2008).
Cash flow after investing activities in the third quarter was € -66.7 million, and was affected by the continued high levels of finished goods and component inventory. These inventories, which are under customer's liability, will decline during the fourth quarter.

At the end of September, Elcoteq had unused but immediately available credit limits totalling €127.5 million (€237.5 million at the end of June 2008). This difference is a result of the financing needed for the extraordinarily high inventories. These credit limits included a €230 million syndicated, committed credit facility of which €90 million was unused. The solvency ratio was 15.9% (19.4%) and gearing was 1.7 (0.7).

Personnel
At the end of September 2008, Elcoteq employed 21,404 people (24,986). The geographical distribution of the workforce was as follows: Europe 9,118 (11,217), Asia-Pacific 6,060 (8,378) and the Americas 6,226 (5,391). The average number of employees on the company's direct payroll in January-September was 17,598 (19,359).

Progress with the Action Plans and the IEMS Strategy
In October, personnel negotiations were started at the Salo unit in Finland to address the possible closure or restructuring of part of the operations of this unit, as well as the possible consequent temporary layoffs, the alteration of employment relationships to part-time contracts or the termination of employment contracts on production or financial grounds. Personnel in PDS (Product Development Services) are not affected. The company estimates that these possible actions will affect no more than some 40 people. Personnel adjustments are also being carried out in some other locations, mainly through reductions in the numbers of indirectly-employed staff.

Elcoteq's plan to divest the St. Petersburg plant has been revised. The company sees strong growth opportunities in Russia, especially in the Home Communications Business Area. New production in the St. Petersburg plant is expected to be ramped up during the first quarter of 2009.

Prospects
Full-year net sales are expected to be at lower level than in 2007, based on weaker-than-expected development in the Personal Communications Business Area and a temporary decline in sales during the third quarter. The current forecast is for operating income to improve substantially in 2008 compared to 2007. The company has previously forecast that the Group's operating income is expected to be at the level of 1% towards the end of the year. As a result of the weaker general market outlook, the company expects that operating income will improve from the quarter three level, but may not reach the level of 1%. Fourth quarter net sales are expected to be higher than in the third quarter of 2008.

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