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Electronics Production | February 10, 2005

Elcoteq, Net Sales up and Result Improved

Elcoteq's net sales increased 32% to MEUR 2,953.7 (MEUR 2,235.7) in 2004. Income before taxes was MEUR 59.0 (MEUR 22.5) and net income for the year was MEUR 39.8 (MEUR 20.7). Earnings per share (EPS) were EUR 1.31 (EUR 0.70).
2004 was a year of growth in the EMS market. Strong growth in mobile phone sales, coupled with increased delivery volumes in communications network equipment, created favorable conditions for EMS providers. Roughly 650 million mobile phones were sold in 2004, which represents growth of approximately 25% on the previous year. The size of the communications network market grew simultaneously by almost 10% from EUR 110 billion to EUR 120 billion.

Operating income amounted to 71.4 (MEUR 30.5). Operating income in 2004 included three one-time items which had an aggregate positive impact of MEUR 14.4 on Elcoteq's result. These were the operating profit, MEUR 10.0, on the divestment of the Industrial Electronics business, MEUR 2.3 from the settlement of the dispute related to VAT payable by Elcoteq's 70%-owned Shenzhen GKI company, and MEUR 2.1 arising from the reduction of Elcoteq's disability pension obligation under the Finnish Employees Pension Act (TEL). The aggregate impact of these items on Elcoteq's net income for the year was MEUR 7.3.

The end-markets for mobile phones and network equipment are forecast to grow by 5-10% in 2005. Growth in the EMS sector is expected to be even higher, however, because the degree of outsourcing is forecast to rise somewhat from the present level of about 40%. In addition to manufacturing, customers are increasingly outsourcing other functions as well, such as product design. Demand is rising all the time, especially for original design manufacturing (ODM) services, which cover the entire value chain of the product from design to after-sales service.

The EMS and ODM markets are forecast to grow further in the years ahead. The traditional EMS business is expected to expand by 10% a year between 2004 and 2007 and the ODM business by an annual average of about 20%.

Underlying the growth in net sales were good demand for mobile phones and increased delivery volumes of network equipment. Growth was especially strong in the Americas, where net sales more than tripled compared to 2003. Net sales in Europe rose approximately 30%, whereas net sales in Asia-Pacific grew only slightly. The business operations (Marconi and Tellabs) acquired at the end of 2003 contributed MEUR 145 to Elcoteq's consolidated net sales.

The Group's net financial expenses totaled MEUR 11.3 (MEUR 7.5). Factors contributing to the growth in financial expenses included an increase in loan capital, the syndicated loan raised at the year end, and an increase in the securitization limit for sold accounts receivable.
Elcoteq has two business areas: Terminal Products and Communications Network Equipment. In 2004 net sales of Terminal Products contributed 78% (80%) and net sales of Communications Network Equipment 21% (15%) of Elcoteq's consolidated net sales.
Elcoteq's largest customers in 2004 were companies within the Nokia and Ericsson groups and accounted for 73% (78%) of Elcoteq's net sales. This figure does not include business activities with Sony Ericsson.

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