Electronics Production | August 02, 2005

Scanfil improves second quarter

Finnish EMS Provider Scanfil PLC has released its interim report for January - june 2005. Turnover for the first six months of 2005 amounted to EUR 161.4 million (153.8 in the corresponding period of 2004).
Operating profit totalled EUR 13.3 (14.1) million, representing 8.2 (9.1)% of turnover. Profit for the review period was EUR 10.1 (10.1) million. Earnings per share amounted to EUR 0.17 (0.17). Return on equity was 17.7 (19.8)% and equity ratio was 57.5 (57.9)%.

Demand grew in the market, particularly toward the end of the review period, and Scanfil Group's turnover increased by 5% during the first half of the year compared with the corresponding period last year. The second-quarter turnover of EUR 85.4 million is the highest turnover ever achieved by Scanfil in any quarter. It represents growth of 11.8% compared with the corresponding period in 2004.

Due to the cost-efficiency of operations, the company's profitability also improved during the second quarter, and despite the tough price competition in the market the operating profit in the first half of the year was satisfactory, corresponding to 8.2 (9.1)% of turnover. Telecommunications customers accounted for approximately 77% and industrial electronics customers for approximately 23% of the turnover.

The delivery volumes of wireless communications network base station products have been clearly higher than in the corresponding period last year. The demand has been strong, particularly in the second quarter of the period. Despite the increased deliveries, the growth of turnover in euro is still held back by the price competition in the market, the more cost-efficient product structures of new products, and the relocation of production to lower-cost countries. The demand for industrial electronics products has developed favourably in the review period.

Even though Scanfil's profitability has improved from the first quarter of the year, the profitability level is slightly lower than in the first half of last year. The development of profitability has been slowed down by the continuous decrease of ADSL product prices and deliveries. The ADSL product group's share of Scanfil's turnover is predicted to contract further during the rest of the year. The profitability of the ADSL products is, however, expected to improve toward the end of the year, after the completion of the planned transfers of production to plants with lower production costs.

The development of Scanfil's international operations is proceeding in accordance with the selected strategy. An expansion of production facilities, approximately 1,700 m2, was opened at the Suzhou plant in the second quarter, and a new building of about 6,000 m2 will soon be completed at the Hangzhou plant. Plans for a 5,000 m2 expansion of the Estonian plant have been completed, and it has been decided to expand the manufacturing facilities in Hungary by about 5,000 m2.

On 30 June 2005, Scanfil plc purchased the 15% minority share of Chinese minority shareholders in Scanfil Hangzhou Co., Ltd. The purchase price was slightly lower than the balance sheet value of the minority share. After the purchase, Scanfil plc's share of ownership in Scanfil Hangzhou Co., Ltd is 100%.

It is predicted that the network market will still experience some growth compared to the previous year. The market for industrial electronics contract manufacturing is also expected to grow from last year, as the outsourcing trend continues.

Visibility is still low in the market, and it is hard to predict how the demand will develop during the second half of the year. Due to the rapidly changing demand, the development of turnover and profitability was slightly better than expected in the second quarter. Turnover for the full year is forecast to reach at least last year's level, but the growth depends on the development of the market in the latter half of the year. Profitability for the full year is expected to be at a satisfactory level.
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