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Electronics Production | July 21, 2010

Elcoteq Q2 loss narrows

Significant improvement from previous quarter as operating result improves, cash flow turns positive and net debt decreases considerably.

Finland based EMS provider Elcoteq presented net sales 332.3 million euros in the second quarter 2010 (436.0 in April - June 2009). Operating loss were -6.9 million euros (-11.5). Operating loss excluding restructuring costs were 3.0 million euros (-11.0). Loss before taxes were -1.7 million euros (-23.4). For the first 6 months 2010, net sales were 552.9 million euros (906.0 in January - June 2009). Operating loss were -19.8 million euros (-49.8). Operating loss excluding restructuring costs were -13.6 million euros (-35.7). Income before taxes were 61.3 million euros (loss -73.3). "During the past six months we have signed over ten new customer accounts with both large and smaller companies for a large variety of different types of services that cover the whole life cycle of products. We also have successfully started manufacturing LED lighting products for Philips in China and will expand their production to other Elcoteq locations in the second half of 2010”, Elcoteq's President and CEO Jouni Hartikainen said. ”We also successfully concluded the divestment of the St. Petersburg production facility and managed to reduce the net debt by 26% from the first quarter of 2010”, Jouni Hartikainen continued. ”A major disappointment in early July 2010 was Sharp's decision to put the KIN smartphone deliveries on hold after a rapid and successful ramp-up. We are presently in discussions with the customer on how to continue the cooperation. During the latter half of the year, our focus will be on further improving our profitability and continuing to strengthen the balance sheet", Jouni Hartikainen concluded. Net sales of the Consumer Electronics SBU in the second quarter were 251.7 million euros (328.1). The segment's operating income was 1.3 million euros (loss -4.6) and excluding restructuring costs 4.3 million euros (loss -4.6). The Consumer Electronics SBU made strong progress in reducing operating costs, expanding service content and developing the business mix towards higher margin products. Net sales of the System Solutions SBU in April-June were 80.6 million euros (107.9). The decline was mainly due to the divestment of Ericsson-related operations in Tallinn, Estonia to Ericsson in July 2009. The segment's operating income was 1.7 million euros (1.5) and excluding restructuring costs 2.6 million euros (1.9). On May 19, Elcoteq and Optogan CJSC completed the transaction whereby Optogan acquired 100 percent of the shares in Elcoteq's subsidiary in St. Petersburg, Russia including its premises and personnel of about 40 employees but excluding any customer agreements. The transaction reduces Elcoteq's total costs by approximately 2 million euros on an annual basis and had a considerable positive impact on the second-quarter cash flow. Elcoteq has now consolidated all European electronics manufacturing and after market service activities to its units in Pécs, Hungary and Tallinn, Estonia. The company bases component purchases and resource commitments on customers' forecasts. Sudden changes in customers' demand may cause the company to have excess inventories which are under customers' liability but which the company may have to finance for a certain period of time. The company makes a significant part of its purchases and sales in currencies other than the euro and currency fluctuations may result in deviations from business plans. The ability to provide the right service offering to customers is a key element in keeping existing customers and winning new customers. Under the changing market conditions, a failure to identify and respond to the customer requirements may prevent the company from achieving its strategic objectives and the above operative targets. The company's key short-term operative challenges are to increase sales, proactively manage fixed costs according to sales fluctuations and significantly improve.
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