Electronics Production | October 27, 2008

Scanfil report slight decline in turnover in Q3

The Finland-based EMS-provider Scanfil has reported a slight decline in turnover during the 3Q with turnover totalling €56.0 million.
January - September
Turnover for the first nine months of 2008 totalled EUR 164.7 million (170.2 in the corresponding period 2007), while operating profit was EUR 16.6 (13.1) million, which is 10.1 (7.7) % of turnover. Profit for the review period was EUR 13.4 (10.7) million, Earnings per share were EUR 0.23 (0.18)

July – September
Turnover for the third quarter totalled EUR 56.0 million (59.1 in the corresponding period in 2007), while operating profit was EUR 5.2 (5.6) million representing 9,3 (9.4)% of turnover. Earnings per share amounted EUR 0.06 (0.08).

Harri Takanen, President: “The Scanfil Group’s choice to focus on the company’s cost-effectiveness and in this way boost its liquid assets, financial position and solvency has proved to be an ideal solution in the current market situation. Scanfil EMS Oy is a stable supplier that is committed to long-term development of its operations. I believe that this is extremely important in today’s economic situation. Furthermore, Scanfil plc will continue to actively investigate profitable ways to invest the company’s assets. We will also be looking for different ways to participate in new business areas."'

Scanfil EMS Group
No significant changes took place in the markets of Scanfil’s industrial electronics customers in the review period. The international megatrends related to, for example, climate change and energy use had a positive impact on demand. The production volumes of industrial electronics products were at a good level in the review period. Scanfil has focused on the development of its customer relations in industrial electronics and on the acquisition of new customers. The slight decline in the Group’s turnover resulted from overall demand in the market for telecommunications products being lower than that in the previous year. Telecommunications customers accounted for approximately 62 (70%) and industrial electronics customers for approximately 38 (30%) of the review period’s turnover.

The subsidiaries in China accounted for 36 (39%) of the Group’s overall sales, including deliveries to the Group’s other plants. An expansion of more than 5,400 square metres was launched at the Hangzhou production facilities in the third quarter. The Chinese subsidiaries employ 52 (53%) of the Group’s personnel. In all, 74 (74%) of the Group’s personnel were employed by subsidiaries outside Finland on 30 September 2008.

Financial Development
The Group’s turnover in January – September was EUR 164.7 (170.2) million, showing a decrease of 3% over the previous year. Distribution of turnover based on the location of customers was as follows: Finland 50 (42)%, rest of Europe 18 (26)%, Asia 30 (30)%, USA 1 (1)% and the others 1 (1)%.

Scanfil’s measures to develop its operations in line with the principles of continuous improvement have seen good progress. Good results have been achieved in turnaround times, the reliability of deliveries and quality development, especially in the Chinese subsidiaries. Successfully implemented operating models will be applied in all of the Group’s plants. The profitability during the review period was good and operating profit amounted to EUR 16.6 (13.1) million, representing 10.1 (7.7)% of turnover. The result for the review period was EUR 13.4 (10.7) million. Earnings per share were EUR 0.23 (0.18), and return on investment was 16.8 (13.3)%.

Turnover in July – September was EUR 56.0 (59.1) million. Operating profit in the third quarter totalled EUR 5.2 (5.6) million, representing 9,3 (9.4)% of turnover. Earnings per share were EUR 0.06 (0.08). Owing to the business structure, fluctuations in exchange rates have had only a minor impact on performance. The weaker US dollar had a slight positive impact on the financial performance in Europe in the early part of the year. Should the dollar strengthen, it would, in turn, have a slightly weakening effect on performance.

Scanfil Group’s personnel averaged 2,135 (2,116) employees during the review period and the company employed 2,209 (2,142) employees at the end of the review period, of whom 1,641 (1,583) were employed in the company’s foreign plants.

Changes in the Group structure
A business transfer carried out on 1 May 2008 split Scanfil Group’s parent company, Scanfil plc, into Scanfil plc (Finland), an investment company, and its fully-owned subgroup Scanfil EMS Oy (Finland), which engages in contract manufacturing. Scanfil N.V. (Hoboken), located in Belgium and owned 100% by Scanfil plc, has not had any production activities since 2006.

The Scanfil EMS Group consists of parent company Scanfil EMS Oy (Finland), Scanfil (Suzhou) Co., Ltd. and Scanfil (Hangzhou) Co., Ltd. in China, Scanfil Kft. (Budapest) in Hungary and Scanfil Oü (Pärnu) in Estonia. The Scanfil EMS Group holds the entire share capital in all of its subsidiaries. On 17 September 2008, the Hungarian subsidiary, Scanfil Kft., split into a company engaged in manufacturing, Scanfil Kft. and into a real-estate company called Rozália Invest Kft. The change does not affect the Group’s financial performance.

Events after the review period
On 10 October 2008, the company signed a rental agreement on part of the Oulu plant facilities with Nokia Siemens Networks. Nokia Siemens Networks will rent 6,749 square metres of the facilities. Scanfil will continue to actively search for ways to rent out the remaining more than 11,000 square metres or to sell the facilities.

Future Prospects
It has become more difficult to estimate the development of demand. Customer forecasts remain at the predicted level, but we cannot rule out a decline in demand in Scanfil’s customer markets, caused by the financial crisis. Scanfil still stands by its former estimate of turnover in 2008 remaining at the previous year’s level. We expect profitability and operating profit to remain very satisfactory if demand continues at a normal level. A possible decline in demand may have a downward effect on the operating profit level. It is extremely difficult to predict market development. Fierce price competition, the price development of materials and components, as well as fluctuations in demand may affect performance in the last quarter.

Scanfil’s strong financial position gives the company a good relative competitive position on the market. The company can continue to develop its operations in the long term irrespective of uncertainties in the financial markets. The company management strongly believes in the contract manufacturing market expanding as ODM manufacturers continue their outsourcing projects. In the long term, this offers excellent business opportunities to a solvent and cost-effective company. Scanfil is a reliable and long-term partner to both its existing and new customers.
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