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Electronics Production | February 07, 2007

Elcoteq axe 500 in Finland,<br>possible closure of Lohja plant

Elcoteq estimates that the need for possible personnel reductions could apply to at most about 500 people in Finland in all employee categories. Elcoteq has roughly 23,000 employees worldwide, approximately 700 of whom work in Finland.
Elcoteq has today convened a meeting of the employee representatives of its companies in Finland for statutory personnel negotiations to address the possible restructuring of operations in the units, the termination of certain operations or units, and the possibility on production or financial grounds of redundancies, semi-retirement or the termination of employee contracts resulting from this action. One alternative under discussion in the negotiations will be the closure of the Lohja manufacturing plant. In the negotiations the company will assess the means by which it will ensure the Group's long-term profitability and competitiveness.

The company estimates that the need for possible personnel reductions could apply to at most about 500 people in Finland in all employee categories. Elcoteq has roughly 23,000 employees worldwide, approximately 700 of whom work in Finland.

Elcoteq announced in December 2006 that it would initiate an action plan aimed at accelerating the implementation of strategic action to improve the company's competitiveness, profitability and cost-efficiency. The target set was to achieve annual savings in the amount of 20 million euros. These savings will require structural changes such as the reorganization and streamlining of operations, processes and personnel resources, especially in Europe and the Americas. Elcoteq is evaluating the various alternatives for implementing the changes.

The company is preparing for one-time costs of roughly 20 million euros from the action plan in 2007, most of which are likely to be recognized during the first quarter of the year. The savings gained by the program will start to become visible in Elcoteq's result in the second half of 2007.

In addition to the action plan intended to achieve savings of around 20 million euros, Elcoteq is also undertaking several other measures designed to raise its profitability and competitiveness. The company will continue its global program of production efficiency enhancing measures that applies to all its manufacturing plants in Europe, Asia-Pacific and the Americas. A central objective of this program is to achieve more efficient and flexible use of fixed assets. The program will also help to ensure that the resources of the manufacturing plants match current demand.
Furthermore, the company will adopt a new contract and invoicing model in Europe from May 1, 2007, after which most of the European customer and supplier agreements and invoicing will be handled in the name of the Group's international office in Zug, Switzerland. The new invoicing model is expected to reduce the company's effective tax rate.

In the absence of precedents in this matter and based on an preliminary ruling issued by the Finnish tax authorities, Elcoteq and external tax experts do not consider the Finnish tax risk related to this matter to be significant.

Last December Elcoteq's Board of Directors announced that it would propose to the forthcoming Annual General Meeting that Elcoteq's domicile and registered office be transferred to Luxembourg. The aim of the transfer is to support the company's globalization strategy and European identity, and to create a structural base for improving the company's competitiveness. The Board's proposal is part of the action plan initiated to improve Elcoteq's competitiveness.

"Streamlining our operations and raising efficiency is essential to improving the company's profitability and competitiveness. We must respond to the changes in our markets and demand even though at times this can mean difficult decisions. I believe that through this action plan we will be able to improve our profitability this year already," says President and CEO Jouni Hartikainen.

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