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Electronics Production | February 17, 2009

PartnerTech net sales for Q4 levelled, Medical segment decreased 17,6%

Fourth quarter net sales were SEK 651.2 million (659.5), in line with the same period of 2007.The group's operating profit for the quarter grew to SEK 19.4 million (-86.6). Sales for the Medical Equipment business segment decreased by SEK 83.4 million or 17.6% to SEK 390.3 million (473.7). The main cause was lower demand by some of the segment's customers.
Financial figures in 4Q
The measures and changes implemented in 2008 generated annual cost savings of SEK 100 million, the target that PartnerTech had announced at the beginning of the year, as of the fourth quarter. Return on operating capital was 8.6% (-35.8) during the fourth quarter. Net financial expense was SEK -9.1 million (-3.1). The increase from the fourth quarter of 2007 was due largely to translation of foreign interest-bearing liabilities to Swedish kronor, particularly the currency's lower euro exchange rate.

In addition, changes in the value of interest rate derivatives not included in hedge accounting contributed SEK -3.5 million to net financial expense during the quarter. Fourth quarter profit after tax rose to SEK 6.6 million (-66.5), representing earnings per share after tax of SEK 0.52 (-5.25). Due to a conservative assessment of deferred tax assets, tax on pretax profit was relatively high for both the quarter and the year. Cash flow after investments for the fourth quarter was SEK 22.9 million (43.4). Cash flow stemmed primarily from the operating profit and from lower working capital. Divestments, particularly of the Gdynia unit, boosted cash flow by SEK 8.1 million.

Financial figures for 2008
Net sales for 2008 were SEK 2,529.0 million (2,643.6). The difference between 2007 and 2008 was slight, given that 2008 divestments reduced sales by SEK 59.8 millions. Exchange rate differences from translation of foreign group companies reduced net sales by SEK 19.9 million. The group's operating profit for 2008 was SEK 28.5 million (-17.7). The difference between 2007 and 2008 was due to the planned impact of the action program and other adjustments.

The weakness of the Swedish krona had a negative impact on 2008 sales. But the total effect on net operating earnings was substantially eliminated by currency clauses in customer agreements. Divestments of a number of units boosted operating earnings by approximately SEK 4.9 million. Return on operating capital was 3.1% (-1.8) for the year. Net financial expense for 2008 was SEK -19.3 million (-16.5). The reason for the increase was the same as in the case of the fourth quarter. Earnings per share after tax totaled SEK 0.41 (-1.96).

Sales Trends for the business segments
Terminals/Machine Solutions was again the business segment whose sales increased.. Sales for the year rose by SEK 67.4 million or 11.3% to SEK 666.1 million (598.7). The increase was due to higher demand by a number of the segment's big customers. Fourth quarter growth was in line with the average for the year.

Sales for the Medical Equipment business segment decreased by SEK 83.4 million or 17.6% to SEK 390.3 million (473.7). The main cause was lower demand by some of the segment's customers. The decline slowed down to some extent in the fourth quarter, and the situation was not unequivocal, given that some customers were very strong during the year.

Sales for Industry/Telecom, the biggest segment, decreased by SEK 98.6 million or 6.3% to SEK 1,472.6 million (1,571.2). The decrease from 2007 was the result of lower demand by some of the segment's customers, as well as divestment of the Järfälla and Åbo units.

Human resources
The number of full-time equivalent employees averaged 1,680 (1,886) in 2008. Divestment of units and the action program carried out during the year reduced the number of full-time equivalent employees by 185. The group had 1,596 (1,781) fulltime equivalent employees on December 31. No restructuring provisions were set aside for this purpose, given that notices of termination were issued incrementally.

Notices were issued in the fourth quarter at the Åtvidaberg, Sweden and Vantaa, Finland units for approximately 60 employees, most of whom will leave the company in the first half of 2009. Due primarily to PartnerTech's plans to divest or phase out mechanical component production at Åtvidaberg, notices for an additional 54 employees were issued in January 2009. Notices for 35 employees were also issued at the Vellinge, Sweden unit in January. Most of them will be leaving the company in the second and third quarters of 2009.

Restructuring & other measures
The action program that PartnerTech launched in 2007 to carry out a series of organizational and operational changes was completed in 2008. The main focus was on improving profitability and expanding customer service. The effort also reached its target of SEK 100 million annual cost savings as of the fourth quarter.

As a result of divestments and the action program, the number of employees decreased by 185 during the year. The organizations of each customer center became more process-oriented and assembled a dedicated team for every customer. Furthermore, PartnerTech's product development function was incorporated into the various customer centers, while its sales structure was decentralized to ensure greater local proximity.

Most of PartnerTech's units took measures during the year to make joint processes and production flows more efficient. Meanwhile, the company strengthened its production expertise in order to offer higher performance and more advanced skills in its four primary areas of proficiency. Thus, PartnerTech's main production units for electronic components, mechanical components, encapsulation and system integration are continuing to develop Centers of Excellence. PartnerTech also reviewed and streamlined its industrial structure during the year, phasing out its smaller, non-strategic units: Järfälla (Sweden), Gdynia (Poland), Åbo (Finland) and electronic component production in Åtvidaberg (Sweden). Furthermore, the company decided in early 2009 to divest its Poole unit, which is part of its UK subsidiary, as well as mechanical components production in Åtvidaberg.

PartnerTech will now continue to pursue its ongoing change processes in order to ensure a long-term competitive offering. By means of improved processes, upgraded purchasing procedures and greater presence in the market the company will strengthen the services it provides to its customers. Finally, PartnerTech is planning to broaden its logistics and after-sales services while seeking additional production opportunities in Asia and, above all, Eastern Europe.

Challenges & Opportunities
PartnerTech has seen clear indications of slowing demand in early 2009. Completed and planned cost adjustments will gradually deal with this decline in sales but will despite this initially affect margins. Thus, market instability and the recession will pose challenges for both PartnerTech and the sector but will also create opportunities. During a recession, many businesses look for contract manufacturers with which they can partner in order to become more competitive and enhance their ability to act.

Financial Targets
Despite current sector and market conditions, PartnerTech has adjusted its long-term financial targets as follows:
• Annual growth: at least 10% (previously 15-20%)
• Operating margin: at least 7% (previously 7-8%)
• Return on operating capital: at least 20% (previously 30%)
• Equity/assets ratio: at least 30% (unchanged)

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