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Electronics Production | August 06, 2009

PKC's net sales down 42.7% in 1H/2009

PKC Group's net sales in the January-June period decreased by 42.7% from the previous year to €99.6 million (€173.7 million in Jan.-Jun. 2008).
Operating profit was EUR 5.5 million negative (19.0 million positive) and profit before taxes was EUR 6.4 million negative (17.1 million positive). The result is burdened by approximately EUR 4.8 million in non-recurring expenses. Cash flows after investing activities during the report period were EUR 27.4 million (16.3 million).

Harri Suutari, President & CEO: ”The continuing decline in production volumes in our customer sectors, particularly in the heavy commercial vehicle industry, led to a negative operating profit during the first half. The order bookings and delivery volumes for commercial vehicles exceeded the production volumes during the second quarter. This indicates that the production volumes should not further decrease from the currently exceptionally low level. Continued rationalisation measures and inputs in R&D puts trust in the continuous improvement of the PKC competitive position. Due to the current market situation, the supplier base in the commercial vehicle industry is going through radical change, in turn opening up new possibilities for PKC.”

Operating environment
Wiring Harnesses
The deliveries and new orders of heavy trucks saw a very sharp decline during the first half of the year in all of the market areas in comparison to the same period a year earlier. In Europe, the main market, the volume of deliveries and the value of the new orders received by customers reached only a third of what it had been a year earlier. In South America, deliveries fell by a third but new orders fell by half.

The company's customers succeeded in reducing their stocks of finished trucks, causing the production volumes of wiring harnesses to fall behind from the truck delivery volumes. PKC deliveries for the truck industry only decreased by approximately 43%, which was due to the increased market share. Deliveries for the machinery industry in Europe reached approximately one-third compared to the previous year. The production and deliveries of recreational products were halved in North America.

PKC is participating in several competitive bid processes concerning new customer relationships. Success in these processes might lead to new long-term delivery relationships and the subsequent strengthening of the company's market position.

Electronics
With the exception of the Asian markets, industrial investments fell significantly early on in the year, reducing the Group's industrial electronics deliveries by approximately 30%.

Net Sales & Financial Performance
April-June 2009
Consolidated net sales from April-June amounted to €45.8 million (88.6 million), down 48.3% on the same period a year earlier. Consolidated operating profit totalled €5.6 million negative (9.6 million positive), accounting for 12.2% negative of net sales (10.9% positive). Depreciations amounted to €2.8 million (2.1 million). Financial income and expenses were €1.1 million negative (0.2 million negative). Profit before taxes was €4.5 million negative (9.8 million positive). Profit for the report period totalled €4.1 million negative (7.4 million positive). Diluted earnings per share were €0.25 negative (0.42 positive). The result in the second quarter was burdened by €4.5 million in non-recurring rationalisation expenses.

January-June 2009
Consolidated net sales from January-June amounted to EUR 99.6 million (173.7 million), down 42.7% on the same period a year earlier. Consolidated operating profit totalled EUR 5.5 million negative (19.0 million positive), accounting for 5.5% negative of net sales (10.9% positive). Depreciations amounted to EUR 5.5 million (4.0 million). Financial income and expenses were EUR 0.9 million negative (1.9 million negative). Profit before taxes was EUR 6.4 million negative (17.1 million positive). Profit for the report period totalled EUR 7.4 million negative (12.1 million positive). Earnings per share were EUR 0.45 negative (0.67 positive).

Net sales generated by the Wiring Harnesses business in the report period amounted to EUR 74.9 million (138.7. million), or 46.0% less than in the comparative period. The segment's share of consolidated net sales was 75.2% (79.8%). It generated an operating profit of EUR 6.9 million negative (12.1 million positive), equivalent to 9.2% negative of the segment's net sales (8.7% positive). The result of the Wiring Harnesses business in the first half was burdened in total by EUR 4.8 million in non-recurring rationalisation expenses.

Net sales generated by the Electronics business decreased by 30.2% to EUR 24.8 million positive (35.0 million positive). The segment's share of consolidated net sales was 24.9% (20.2%). It generated an operating profit of EUR 1.4 million positive (6.9 million positive), equivalent to 5.6% of the segment's net sales (19.6%).

Personnel
During the report period, the Group had an average payroll of 4,768 employees (5,638). At the end of the report period, the Group's personnel numbered 4,320 employees (5,722), of whom 3,677 (4,901) worked abroad and 643 (821) in Finland.

Personnel cuts have been made at various units within the Group. A total of EUR 2.4 million in non-recurring expenses arising from the termination of employee contracts was recorded in the first half.

As a result of the co-determination negotiations concluded in January 2009, it was decided to temporarily lay off almost the entire personnel of PKC Group Oyj's Kempele unit, a total of 250 people, with the duration of the layoffs varying between a week and longer periods, as well as 60 employees at PKC Electronics Oy's Raahe factory for a maximum of three months.

As a result of the co-determination negotiations concluded in May 2009, it was decided to terminate the employment contracts of 128 employees of the PKC Group Oyj's Kempele unit in two phases.

As a result of the co-determination negotiations concluded in June 2009, it was decided to temporarily lay off approximately 45 employees at the PKC Group Oyj's Kempele unit. The temporary layoffs were a continuation of the co-determination negotiations concluded in January and the duration of the layoffs varies from one to six weeks per employee. The temporary layoffs will be carried out by the end of December.

As a result of the co-determination negotiations concluded in August PKCElectronis shall layoff 60 employees for an indefinite period. Lay-offs shall be carried out in phases by the end of December.

Outlook for the future
“It is currently difficult to estimate how long the economic downturn will last. We estimate that the low predictability in the demand in commercial vehicle industry and general uncertainty of financing will keep the demand for wiring harnesses exceptionally low”, a statement says.

The company also estimates that demand for electronics design and manufacturing services in the market will weaken compared to last year. They predict that the full-year net sales will decrease substantially and for operating profit to be negative. The full year estimation contains significantly more uncertainty than usual due to the customer segments' exceptionally short outlooks.

Thanks to the low need for capital expenditures and decrease of working capital, cash flows after investments are expected to be positive. PKC's balance sheet, liquidity and good customer relationships all enable improvement in PKC's relative competitive position.

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