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Electronics Production | July 17, 2009

Note: sales decreased 28% in 1H

The Sweden-based EMS-provider Note reported a sales decrease of 28% to SEK 641,2 (896,5) million. The profit after tax was SEK -24.5 (15.7) million. Salesfor the 2Q decreased by 33% to SEK 312,1 (469,2) million. The 2Q-profit after tax was SEK -16.0 (8.2) million.

"The first half-year featured the sharply deteriorated demand that we and many of our customers noticed at the end of last year. In the short term, the recession is exerting an adverse effect on our volumes. Accordingly, year-to-date sales were down 28% year on year. In the second quarter, sales were somewhat weaker than expected, due partly to a generational changeover brought forward in Telecom, and partly to destocking ahead of extended vacation stoppages by many of our customers. However, there are wide variations in demand between sectors. The biggest sales downturn was to customers in Telecom, down 49% year on year. With support from newly acquired Nearsourcing centres, the sales reduction to industrial customers were limited to a level 18% lower than the previous year", stated Note's CEO Knut Pogost. Sales and profits; January - June Demand in the first half-year was characterised by the deteriorated manufacturing cycle apparent back at the end of last year. Reduced activity in manufacturing and destocking had a negative effect on NOTE’s ongoing production and deliveries. In the first halfyear, sales reduced by 28% to SEK 641.2 (896.5) m. Extra sales from newly acquired units were SEK 38 m, or some 6% of sales. Thus in like-for-like terms, sales were down 33%. Demand in NOTE’s largest customer segment, Industrial, is usually fairly stable. However, in like-forlike terms, Industrial saw a 24% sales downturn. Major contributors to this reduction include sharply reduced demand from investment-intensive sectors like the mining and raw materials industries. Demand from customers in the Telecom business segment is inherently more volatile, due to factors including short product life-cycles in this sector. Sales in Telecom have performed weakly in the past three quarters. This is due partly to the recession, and partly to a generational changeover in key product groups. In the first half-year, sales to customers in Telecom reduced by 49%. After the methodical, long-term build-up of the groupwide sourcing function in Gdansk, sourcing coordination has improved significantly. This completed strategic initiative made the planned contribution to cutting the cost of purchasing operations and reduced the costs of electronic components and other production materials. The transfer of labour-intensive production to the group’s units in cost-efficient countries began last year. This generated substantial staffing changes and downsizing of organisational resources, primarily in our Swedish business. Compared to the midpoint of last year, staffing in Sweden reduced by 230, or 36%. This initiative has made a significant positive change to the group’s cost structure. In like-for-like terms, costs in the period were down 20% year on year. Approximately SEK 8 m (26%) of the restructuring provision, created in the fourth quarter of last year largely for staff downsizing, was utilised. Shorter working hours have been introduced at several units as another savings measure against reducing production and sales volumes. Capacity utilisation in several production plants was lower than last year. Despite extensive cost-cutting, volume reductions meant that gross margins weakened to 5.9% (10.1%). Continued rationalization and firm cost control reduced overheads by over 12%, but as a result of non-recurring costs associated with the change of CEO in June, overall, they were somewhat above the previous year’s level.
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