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Electronics Production | December 27, 2007

Elcoteq divests its subsidiary in Offenburg

Elcoteq divests its subsidiary in Offenburg and targets to scale down or divest its subsidiary in St. Petersburg.
Elcoteq's production capacity will be rationalized in Germany and Russia as part of the new action plan announced in October 2007. Elcoteq has signed an agreement to divest its German subsidiary Elcoteq Communications Technology GmbH to the German company BAVARIA Industriekapital AG. The sale is subject to the German competition authorities' approval, which is expected in January 2008. Furthermore, Elcoteq targets to scale down or divest its subsidiary in St. Petersburg, Russia during early 2008. In addition to these actions, Elcoteq will implement cost cuts in its other operations in Europe, Asia-Pacific and Americas. These cost cuts combined with the above mentioned actions to rationalize production capacity are expected to result in total one-time costs of roughly 15 million euros. Most of these costs will be recognized in the fourth quarter result of 2007. Cash-out effect from the actions is expected to be insignificant.

Elcoteq estimates that the annual savings from the actions mentioned above will amount to 70 - 80 million euros, with savings coming into effect on a gradual basis from the beginning of the year 2008. The actions are carried out in areas that will not limit the company's service offering or its possibilities for growth.

With the new action plan announced in October 2007 Elcoteq aims at meeting its financial targets by securing a competitive cost structure and by laying ground for the implementation of the IEMS (Integrated Electronics Manufacturing Services) strategy.

Elcoteq's previous action plan that started in the first quarter of 2007 has progressed according to the company's expectations. Furthermore, the company continues to improve its operational efficiency especially in the areas of materials management and asset utilization. Savings from these improvements are not included in the 70 - 80 million euros mentioned above and are expected to represent a significant contribution to the company's target of achieving the two percent operating income level in 2008.

Elcoteq made preparations for a substantial growth in 2007 production volumes on the basis of forecasts from a single customer, with pricing also being based on these higher volumes. However, the ordered volumes have been substantially short of the forecasts throughout the year although being very accurate in the past. Therefore, the big difference between forecasted and ordered volumes has weakened the profitability of this particular business in year 2007. Negotiations with this single customer continue, as informed already in October 2007, and clarification of the operating methods is proceeding.

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