Neways shows resilience with strong turnover and profit recovery

This was the result of a strong recovery in demand across the board in the Electronic Manufacturing Services (EMS) market, and in particular from the semiconductor industry. The profit growth in 2010 was depressed by suppliers at times being unable to meet the strong increase in demand as agreed. This situation has now clearly improved, but has not yet been resolved completely. The order portfolio at year-end 2010 stood at EUR 72.2 million, an increase of 29% compared with year-end 2009. The order portfolio has increased further in the first months of 2011. This gives Neways a good starting position in 2011 to further improve on the results realised in 2010. Group results Turnover and order portfolio Gross turnover was up 33% at EUR 274.0 million (2009: EUR 206.3 million). Internal turnover rose by 9%, but showed a relative drop compared with 2009, largely due to the integration of Neways Industrial Systems and Neways Electronic Assemblies in Son. On a year-on-year basis, net turnover was up 35% at EUR 254.5 million. Demand increased across the entire breadth of the EMS market, with turnover in the semiconductor sector showing the strongest recovery. The order portfolio at year-end 2010 stood at a total of EUR 72.2 million, an increase of 29% compared with year-end 2009 and 7% compared with the end of June 2010. Gross margin The gross margin rose by 34% to EUR 103.9 million in 2010, from EUR 77.4 million in 2009. As a percentage of turnover (40,8%) this was slightly lower than 2009. The shift in the product mix towards activities with a higher added value, such as system construction, development, prototyping and engineering, continued in 2010. Operating expenses The strong increase in demand seen in the past year meant suppliers were not always able to deliver materials as planned, at the expense of efficiency and a temporarily higher than usual cost level. The operating expenses consist largely of personnel costs. These costs increased by 20% compared with 2009 to EUR 70.2 million, but fell as a percentage of net turnover, to 27.6%, from 31.1% in 2009. The average number of FTEs rose to 2,027, up 13.7% compared with 2009. This relates to flexibly deployable employees at all operating companies, both in Western Europe and Eastern Europe, as well as in China. The other costs comprise costs including housing costs, production costs, cost of sales and consultancy costs, which increased in the past financial year, but dropped in relation to the turnover. Operating result and operating margin The operating result came in at EUR 8.4 million in 2010, compared with an operating loss of EUR 5.5 million in 2009 (including EUR 1.5 million in exceptional charges). This resulted in an operating margin of 3.3% in 2010. Financing costs Financing costs fell compared with 2009, by 21% to EUR 0.8 million in 2010, as a result of a lower interest rates and an on average reduction of Neways’ debt position. Net result and earnings per share Net result came in at EUR 5.1 million, compared with a net loss of EUR 5.7 million in 2009. The net earnings per share were up at EUR 0.53 compared with a loss per share of EUR 0.59 in 2009. Outlook For 2011, Neways has identified as key focal points the further optimisation of reciprocal cooperation between Neways operating companies and the further improvement of Neways’ position as a one-stop provider in the EMS market. The company will also aim to serve and retain even more effectively both existing and new large internationally-active clients for the longer term, in addition to further improving the distribution of the activities across cyclical (semiconductor) and less cyclical (defence, medical) market segments. In 2011, the focus for Neways will once again be on more cost-efficient operations and the development of collaborative networks with contract producers, particularly in the EMS market. Neways’ priorities in this context will be to maintain profit margins and market positions. To this end and in line with the trend towards increased outsourcing by Original Equipment Manufacturers (OEMs), Neways is responding to the growing need among OEMs for technological partners who are willing to get intensively involved in the process at an early stage and who can grow in line with their logistical and production demands and wishes. As in 2010, investment in 2011 will focus primarily on replacing existing production lines with more advanced production lines with the latest technologies, test equipment and the expansion of the activities in Slovakia and China. In addition to these regular investments in the operations, Neways will, in the second half of 2011, start the implementation of the new ERP LN system of INFOR, which is in fact the successor to and latest version of the current BaaN IV system. External investments involved in this implementation are estimated at several hundred thousands Euros in 2011. With the strong growth seen in 2010, the demand in the EMS market has returned to the levels seen before the economic crisis. As a result of the recovery in demand, the order portfolio, at EUR 72.2 million as of year-end 2010, is up 29% compared with year-end 2009. This increased further in the first two months of 2011. Combined with the further reduction of inefficiencies in the chain as a result of the material shortages that arose in 2010, further intensification of the outsourcing to Slovakia and China and expansion of components purchasing in China, Neways is in a good starting position to exceed the 2010 results in the full year 2011.