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Electronics Production | October 24, 2008

PartnerTech improves results in Q3

Sweden based EMS-provider PartnerTech today presented results for this year's third quarter. Net sales totaled SEK 571.1 million (618.9) for the third quarter. The 7.7% decline from the third quarter of 2007 was due primarily to lower volumes at the Åtvidaberg Customer Center (Sweden) and the customer center in the UK.
Market Trends
The need for contract manufacturing is being driven by stiffer global competition and more intensive marketing as product owners increasingly concentrate on the needs and requirements of the market. Thus, contract manufacturing has evolved a great deal in recent years to the point that it now provides complete technical and service know-how that includes leading-edge skills in production-related areas. Customers are looking for close proximity of production and the market, as well as low-cost production in Asia and Eastern Europe for more mature products.

Customers want to have a manufacturing partner nearby that can ensure them access to expertise in the initial production phase, including product development, prototype manufacture and new product introduction. A local organization is also needed for management of logistics and distribution. But as volumes rise and products mature, it becomes more cost-effective to relocate production to low-cost countries in Asia or Eastern Europe. The production of electronics is a driving force for such relocation, given that they can be managed and distributed fairly easily. Due to the size and complexity of complete products and systems containing software and mechanical components, they must be manufactured close to the customer and its market. As a result, they cannot be produced as effectively at a greater distance. Owing to environmental and transport cost considerations, Eastern and Central Europe are becoming the low-cost alternative for Western Europe, while China is playing that role for other Asian countries.

Thus, in order to satisfy the needs and preferences of customers, an efficient production structure with a local presence, the opportunity for low-cost production, and a flexible, highly developed supply chain is required. Only then can customers take full advantage of the economies of scale that a contract manufacturer offers. An additional trend is toward an expansion of the contract manufacturer's offering so that it can serve as a complete partner.

PartnerTech is one of the few business-to-business contract manufacturers that have broad, far-reaching know-how when it comes to electronics, mechanics and their combination. Given our expertise, proximity to the market and ongoing improvements, we are well positioned to meet the prevailing needs of the market.

Third quarter of 2008
Net sales totaled SEK 571.1 million (618.9) for the third quarter. The 7.7% decline from the third quarter of 2007 was due primarily to lower volumes at the Åtvidaberg Customer Center (Sweden) and the customer center in the UK. The decrease from the first and second quarters of 2008 was a normal seasonal variation. The third quarter includes the July-August vacation period, when sales are generally lower. There were no major direct effects of the financial crisis during the period. But due to uncertainty in the market, PartnerTech has increased our vigilance and preparation to be able to quickly adapt to a changed situation.

The group's operating profit for the third quarter was SEK 10.2 million (14.4). The measures and changes that PartnerTech has launched proceeded on schedule and generated expected savings during the quarter. Nevertheless, the impact was limited somewhat by costs associated with the measures. Return on operating capital was 4.5% (5.9) for the third quarter.

The third quarter profit after tax of SEK 4.7 million (7.4) represented earnings per share after tax of SEK 0.37 (0.57). Cash flow after investments was SEK 34.8 million (-80.2). Positive cash flow was due primarily to a decrease in working capital with SEK 30.7 million and repayment of income tax of SEK 10.2 million.

First nine months of 2008
Net sales for the first nine months of 2008 were SEK 1 877.8 million (1,984.2). The 5.4% decline from the first nine months of 2007 was chiefly the result of lower demand at the customer centers in Åtvidaberg and Finland.

The group's operating profit for the first nine months was SEK 9.2 million (69.1). The decrease from the first nine months of 2007 was primarily due to lower sales, organizational adaptation costs, and the fact that action programs and other adaptations take a while to make an impact. The appreciating Polish zloty had a negative effect on nine-month earnings. Meanwhile, the recent appreciation of the U.S. dollar and euro had a positive effect on earnings. The effect on earnings after translation of foreign Group companies’ income statements is positive. But our assessment is that the net impact was limited, given that exchange-rate effects were eliminated by currency clauses in agreements with PartnerTech's customers. The divestment of units during the first quarter boosted operating earnings by more than SEK 3 million.

Return on operating capital was 1.3% (9.5) for the first nine months. Net financial expense for the first nine months was SEK -10.2 million (-13.4). Lower net borrowing had a positive effect on net financial expense. The loss after tax of SEK -1.4 million (41.7) represented earnings per share after tax of SEK -0.11 (3.25). Positive cash flow after investments of SEK 33.3 million (23.6) was due primarily to lower working capital.

Human Resources
The number of full-time employees averaged 1,697 (1,916) for the first nine months. The group had 1,653 (1,827) full-time employees at the end of September. New staff reductions were made at most units in the third quarter. The number of employees decreased by a total of 65 since the end of the previous quarter.

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