Elcoteq net sales in 2008 declined about 15%

Profitability increased even with lower sales, although being negative. Year 2008 was exceptionally challenging due to the major changes in the customer structure. Full-year operating income was -20.4 million euros (-96.3) and excluding restructuring expenses it was -6.9 million euros (-46.1). Cash flow developed positively towards the end of the year and was 46.6 million euros positive in the fourth quarter of 2008. Full-year cash flow after investing activities was -99.7 million euros (-11.1). The estimated total assembly value of the global electronics market grew by roughly 5% at the annual level and exceeded the landmark figure of 1,000 billion US dollars in 2008. The electronics manufacturing services (EMS) market alone was valued at 186 billion US dollars in 2008, based on the average estimates of industry market research data providers Electronic Trend Publications (ETP), iSupply, and Technology Forecasters (TFI). This represents annual EMS market growth of about 11%. Apart from the growing general electronics market, EMS growth was driven by greater usage of outsourcing in electronics manufacturing - a trend that is expected to continue in the future as well. Elcoteq's 2008 net sales declined on the previous year and amounted to 3,443.2 million euros (4,042.9). Operating income was -20.4 million euros (-96.3), representing -0.6% (-2.4%) of net sales. Income before taxes was -52.9 million euros (-122.8) and net income was -65.9 million euros (-108.4). Earnings per share (EPS) amounted to -2.02 euros (-3.37). Earnings include 13.5 million euros (50.2) in restructuring expenses. The decline was mainly in the Personal Communications Business Area where a structural change in the customer portfolio is under way. Net sales by the Home Communications Business Area clearly rose as a result of the flat TV (FTV) assembly acquisition while net sales by Communications Networks Business Area were down slightly due to the divestment of loss-making German operations in January 2008. Operating income for 2008 was negative but clearly better than in 2007. In view of the fact that net sales were 600 million euros lower than in the previous year, this is a positive development. The company has been able to offset to a great extent the effects of the sales decline with the cost savings achieved through the Action Plans initiated in February 2007. However, the change in customer structure has been more intense than originally anticipated. Therefore the company has not been able to utilize its manufacturing resources in the most optimal manner. Both the Personal Communications and Communications Networks Business Areas reported positive operating income. Operating income reported by the Home Communications Business Area was negative mainly due to low sales at the beginning of the year and foreign exchange losses incurred in Brazil. The Group's net financial expenses amounted to 32.4 million euros (26.1). The increase was mainly due to the higher usage of credit lines to finance the extraordinarily high inventory levels. Fourth-quarter net sales in 2008 grew compared to the third quarter, as expected, and amounted to 889.1 million euros (1,062.4 million euros in the fourth quarter of 2007 and 740.5 in the third quarter of 2008). Operating income in the fourth quarter was -11.8 million euros (-24.9 in the fourth quarter of 2007 and 0.3 in the third quarter of 2008) and income before taxes was -25.2 million euros (-31.2). Operating income exclusive of restructuring expenses in the fourth quarter was positive at 1.7 million euros. At the end of December 2008, Elcoteq had cash and unused but immediately available credit lines totaling 165.9 million euros (186.9 million euros in the third quarter of 2008 and 389.2 million euros at the end of 2007). Higher usage of credit lines resulted from lower sold account receivables and financing of excess inventories. These credit limits included a 230 million euros syndicated, committed credit facility of which 70 million euros was unused. Negotiations are under way to extend the syndicated committed credit facility beyond year 2009. Furthermore, the company will not use its option to prepay the 60 million euros subordinated notes in December 2009, but it will maintain the prepayment option until December 2011 according to the loan terms. At the end of December, the Group's interest-bearing net debt amounted to 238.5 million euros (144.5) and gearing was 1.8 (0.7). The solvency ratio was 14.2% (18.1%). Cash flow from sold accounts receivable amounted to 101.1 million euros (226.5 million euros at the end of 2007 and 115.4 at the end of the third quarter of 2008). Return on capital employed (ROCE) was -3.1% (-19.6%). Cash flow after investing activities in 2008 was -99.7 million euros (-11.1), while it was 46.6 million euros positive in the fourth quarter. The company managed to clearly reduce inventory levels during the last quarter. Full-year cash flow was impacted by the unusually high levels of finished goods and component inventories especially in the second and third quarters. A particular cause for this excess inventory was that a Personal Communications customer had provided overly optimistic forecasts for the second and third quarters. It had been agreed that these inventories, financed by the company but the customer's liability, would be run down during the second quarter of 2008, but lower than expected customer demand resulted in the consumption of inventory being slower than anticipated. Even though the cash flow is not yet at the target level, the inventory levels are heading back to normal. The Group's gross capital expenditures on fixed assets in 2008 amounted to 71.4 million euros (67.2), or 2.1% of net sales. Depreciation was 78.9 million euros (79.8), representing 2.3% of net sales. Investments were primarily earmarked for production machinery. In the fourth quarter, investments amounted to 9.9 million euros (27.8). No new operating lease contracts were made in 2008 (in 2007 equipment purchase value amounted to approximately 3.4 million euros). Net sales of the Personal Communications Business Area in 2008 were somewhat lower than expected at 2,222.2 million euros (2,777.8). Operating income in this segment was 19.6 million euros (-30.2), 1% of net sales and excluding restructuring expenses, it was 25.5 million euros. Fourth-quarter net sales in 2008 amounted to 465.2 million euros (750.1) and the segment's operating income to 6.7 million euros (-1.9). Despite the challenging market conditions in the EMS market during 2008, Elcoteq was able to hold on to its share as the third largest EMS provider in the global Personal Communications business. Elcoteq's position was particularly strong in handset manufacturing. Services were stepped up in box build and after market services. The main achievement of 2008 was the broadening of the customer portfolio. Compared to 2007, the deliveries to Research in Motion (RIM) increased substantially whereas deliveries to Nokia continued to decline. In order to secure future growth and profitability, the Personal Communications Business Area seeks to increase its efforts to win business from selected new customers. Net sales of the Home Communications Business Area in 2008 amounted to 517.3 million euros (434.2). The segment's operating income was -4.6 million euros (-10.9); excluding restructuring expenses, it was -2.5 million euros. Fourth-quarter net sales in 2008 amounted to 218.8 million euros (99.8) and the segment's operating income was -4.1 million euros (3.2). In September, the company acquired Philips' FTV assembly operations in Juarez, Mexico. FTV production is an industry segment that is expected to show strong growth but also tight competition in the future. Elcoteq considers FTVs to be a strategic product segment. Previously the company only provided service solutions for printed circuit board assemblies (PCBA) and various subassemblies, but with the Juarez acquisition the service offering of Home Communications expanded to the complete final assembly of FTVs. The Juarez deal included long-term cooperation agreements with Philips and a major new customer, Funai Electric Co., Ltd. New customer accounts were also acquired in other parts of the plant network as existing customers expanded their production operations into new product segments. Net sales of the Communications Networks Business Area in 2008 declined by about 15% on the previous year and amounted to 703.7 million euros (831.0). The decline was mainly due to the divestment of Offenburg plant. The segment's operating income was 1.6 million euros (-17.3); excluding restructuring expenses, it was 7.0 million euros. Fourth-quarter net sales in 2008 amounted to 205.2 million euros (212.5) and the segment's operating income was -5.1 million euros (-17.2). During 2008, the efficiency of the Communications Networks Business Area improved continuously. Some structural changes, such as the phase out of Offenburg and St. Petersburg customers, were also made. The Business Area expanded its activities in India, where the customer portfolio was broadened by new customer wins and its reputation grew because of the competitive service offering. The Communications Networks Business Area has decided to extend its market focus into infrastructure products, targeting business opportunities where customers can benefit from the existing set-up, service offering and competences in radio frequency technology as the world gets more and more wireless. Wireless meters and products to control buildings are just some examples of potential business that Communications Networks has started to explore. At the end of December, the Group employed 18,830 (24,222) people: 217 (260) in Finland and 18,613 (23,962) elsewhere. The geographical distribution of the workforce was as follows: Europe 8,607 (10,936), Asia-Pacific 5,027 (7,598) and the Americas 5,196 (5,688). The average number of Elcoteq employees on the company's direct payroll in 2008 was 17,401 (19,131). On January 15, 2009, the company announced a restructuring plan that includes several measures, including personnel reductions. The company estimates, that the personnel reductions are likely to be in the scale of 5,000 persons, including both indirect and direct employees, calculated from the 2008 third quarter personnel level of 21,000. Some measures were already carried out in December. These reductions will be completed by the end of the first quarter of 2009. Wages, salaries and other personnel expenses in 2008 amounted to 193.0 million euros (206.2).