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Electronics Production | January 15, 2007

Perlos axe 4000 Globally

Perlos, one of Finland's largest EMS-providers and a major supplier for Nokia, launches a large-scale profitability improvement programme, which includes big lay-offs in Finland.
In the past few years, Perlos has gone through structural changes which have resulted in the rationalisation of the company's operations to better correspond to demand in the mobile phone industry. Despite the changes, however, the company's profitability is still unsatisfactory.

The company's Board of Directors has today taken the decision to launch a profitability improvement programme, with the aim of considerably improving Perlos' continuing operations' operating profit exclusive of non-recurring items compared with 2006. The company intends to meet this target by boosting the efficiency of its operations and reducing annual expenses by more than EUR 100 million by the end of 2007. The profitability improvement programme concerns all of the company's operations in Europe, Asia and North and South America.

Crucial measures for changing Perlos' cost structure include boosting the efficiency of production processes, purchasing activities and subcontracting as well as cutting costs related to quality, by improving the quality of the company's operations. The whole company's organisation will also be streamlined and production in Finland will be adapted to demand. As a result of these measures, Perlos estimates that, by the end of 2007, the Group will require about 4,000 less personnel than at present.

Perlos predicts that the mobile phone market will continue to grow in Asia, and therefore the company will carry out its ongoing investments in China and India according to plan.
According to Matti Virtanen, President and CEO of Perlos, the objective of the profitability improvement programme is to fundamentally renew the company's operating procedures.
- Perlos has a healthy and competitive core business, but its cost structure does not correspond to the current level of net sales. I am convinced that, with this process of change, our financial performance will improve and we will simultaneously improve our competitiveness in order to become better and quicker at responding to our customers' changing needs, says Virtanen.

Co-determination negotiations to be started in Finland
Demand for Perlos' services in Finland has continued to shrink, and there are no preconditions to continue production operations in the present form. Up until last year, manufacturing operations in Finland accounted for almost a 30 per cent share of net sales from the Group's continuing operations.

Due to the above mentioned reasons, Perlos will start co-determination negotiations concerning all personnel in Finland. The negotiations concern approximately 1,400 people. The aim of the negotiations is to actively find different ways to improve profitability. One of the options to be discussed at the negotiations is the discontinuation of production operations in Finland altogether. According to a preliminary estimate, the company will need to cut about 1,200 full-time jobs. An invitation has been issued today to the representatives of the company's personnel to attend the co-determination negotiations.

If a decision to discontinue production operations in Finland was made, it is estimated that this would incur non-recurring expenses of EUR 35-40 million. The majority of the expenses would result from write-downs of property, plant and equipment, with no effects on cash flows.
At the end of 2006, Perlos Group employed a total of 12,944 people, 5,715 of whom were temporary workers. Of the total number of personnel, 4,207 employees (including 1,105 temporary workers) worked in Europe, 7,612 employees (including 4,605 temporary workers) in Asia and 1,125 employees (including 5 temporary workers) in North and South America. Perlos employed 1,600 people in Finland at the end of 2006.

Preliminary information about the company's result in 2006
According to preliminary data, net sales from Perlos' continuing operations (earlier the Telecommunications and Electronics customer group) in 2006 amounted to approximately EUR 674 million (EUR 614.0 million in 2005), or 10% more than the previous year. Demand for Perlos' services, however, fell at the end of the fourth quarter, leaving net sales for October-December at approximately EUR 144 million (EUR 200.5 million).
According to preliminary information, operating profit of continuing operations exclusive of non-recurring items in 2006 was EUR 11-12 million (EUR 21.2 million in 2005). Operating loss amounted to EUR 32-33 million and the last quarter operating loss to EUR 3-4 million.
The operating result includes a total of EUR 43.6 million in non-recurring items related to the account receivables and inventories of BenQ Mobile, the rationalisation of Perlos' operations in Finland and in the USA and the sale of the Healthcare business.

The Group's result in 2006 and in the final quarter will be improved by a profit of approximately EUR 24 million booked from the divestment of Perlos' Healthcare customer group. The preliminary data is unaudited and is not based on financial statements approved by the Board of Directors. Perlos will publish a release on the 2006 financial statements on 6 February 2007.

Outlook for 2007
As a result of the profitability improvement programme to be started today, Perlos expects the full-year operating result exclusive of non-recurring items to be significantly stronger than in 2006. Improvement measures are expected to improve the result during the second half of the year. However, profitability is predicted to be weak early in the year, and the first-quarter operating result exclusive of non-recurring items is estimated to be negative.
Due to the change in the BenQ customer relationship and the foreseeable decrease in demand in Finland, full-year net sales are expected to fall short of the 2006 figure by about a quarter. Net sales in January-March are forecast to fall by about a third from the previous year.

Perlos Corporation is a global design and manufacturing partner for the telecommunications and electronics industry. The service offering covers the whole product life cycle from industrial design to manufacturing, logistics and new product versions. The production facilities are located in Asia, Europe and the Americas and the company is headquartered in Finland. In 2005, Perlos Corporation's net sales amounted to EUR 666,8 million. The company employs roughly 13,000 people worldwide. Perlos share (POS1V) is traded on the Helsinki Stock Exchange.

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