Electronics Production | August 16, 2006

Lower revenues for Kitron in Q2

Kitron lowered its revenues in the second quarter despite increasing demand. The reason why was Kitrons restructuring and cut-downs in its manufacturing operations which resulted in lowered manufacturing capacity.
The Norwegian EMS provider Kitron's revenues were down 6.3 percent in the second quarter from 52.7 MEUR to 49.15 MEUR.

Operating income was 713 000 euro which is a little lower than the 800 000 euro for the same period last year.

The restructuring work is now done and all material, machines and almost everyone of the 287 employees at the Kilsund factory has now been moved to Hisøy.

Kitron's manufacturing in Lithuania grew 30% during the second quarter which corresponded to about the same growth rate as the business had in the second quarter 2005.

However both the inflow of orders and the order backlog were high during the second quarter.

Furthermore, both the Norwegian and the Swedish EMS operations have experienced a strong increase in demand following production of prototypes during the second quarter. This provides exciting opportunities for future production orders but at the same time has reduced ordinary production capacity to a certain extent. Kitron's EMS operation in Lithuania had a 30 per cent growth compared to the corresponding period last year.

The group's geographic distribution of operating income shows that Norway and Sweden are of equal dimensions for the first half of 2006. Sweden's share of the total turnover is however increasing and represents 47 per cent of the total turnover in the second quarter of 2006 as against 37 per cent of the total turnover during the same period last year. Norway represents 45 per cent during the second quarter of 2006 as against 53 per cent during the same period last year.

The EMS market is expected to experience an annual growth of 10-12 per cent during the period up to 2010. Data and telecom is the leading segment in the electronics industry and it is also this market segment that is expected to contribute most to growth in the EMS market from now on. In addition to general growth in the electronics industry it is also expected that production outsourced to EMS suppliers will increase from 23 per cent in 2005 to 29 per cent in 2010 (Source: ETP - The Worldwide Electronics Manufacturing Services Market, Third Edition). This corresponds well with the trend Kitron has observed in the Nordic EMS market where product proprietors increasingly outsource more links in the value chain.

The second quarter was marked by a strong increase in the demand for production of prototypes, mainly from existing customers. For Kitron this represents exciting signals on potential future production orders. To expand the capacity for production of prototypes it has been decided to establish two NPI (New Product Introduction) centres, one in Norway and one in Sweden.

Kitron's total inflow of orders during the second quarter of 2006 amounted to NOK 477 million. That is an increase of 19 per cent over the order inflow in the second quarter of 2005 (NOK 401 million) and an increase of well over four per cent on the order inflow in the fourth quarter last year (NOK 458 million). The high order inflow shows that Kitron's marketing efforts have paid off and this bodes well for the future.

The restructuring work in Kitron has provided the planned results and is expected to provide further benefits in the time ahead. This, combined with positive development in the market, makes Kitron expect favourable trends in turnover and profitability from now on.

To ensure that Kitron will secure at least its share of the expected growth in the market, the marketing work will focus more than previously on international customers through better utilisation of the company's competitive advantages across the group. In this way capacity and market opportunities will be strengthened.

Kitron will continue to work to identify new improvement opportunities to further strengthen the operation and profitability in 2006.
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