Elcoteq Swings to loss

Operating income in the second quarter was -19.0 million euros (12.2) and, excluding restructuring costs, -15.9 million euros. Balancing of the customer portfolio continued and sales to almost all the most important customers grew, and the Communications Networks business area's sales and result developed positively. Personnel negotiations concerning the Lohja manufacturing plant and the company's NPI (new product introduction) organization were concluded at the beginning of April. As a result of the negotiations the company made 242 employees redundant on production and financial grounds and decided to close its Lohja plant. Production at the plant ceased at the end of June. Business Areas Elcoteq has two business areas: Terminal Products and Communications Networks. In the second quarter Terminal Products contributed 78% (81%) and Communications Networks 22% (19%) of the Group's net sales. Sales to companies within the Ericsson and Nokia groups during the second quarter amounted to 53% (69%) of Elcoteq's total net sales. These figures do not include business activities with Sony Ericsson. Business with Nokia Siemens Networks is reported as part of the Nokia group. The above figures are not entirely comparable owing to Siemens' communications network business, which has been part of Nokia Siemens Networks since April 1. Net sales of the Terminal Products business area between April and June totaled 752.0 million euros (837.6), down by roughly 10% on the same period last year and about 2% lower than in the first quarter this year. The segment's operating income was -11.4 million euros (20.7) or -1.5% of its net sales. Operating income excluding restructuring costs was -8.4 million euros. Net sales of the Communications Networks business area between April and June were 216.4 million euros (192.0), an increase of approximately 13% on the same period last year and about 17% on the first quarter this year. The segment's operating income was 2.2 million euros (3.2) or 1.0% of its net sales. Operating income excluding restructuring costs was 2.5 million euros. Geographical Areas Elcoteq has three geographical areas: Europe, Asia-Pacific and Americas. Elcoteq's second-quarter net sales were derived from these areas as follows: Europe 50% (58%), Asia-Pacific 28% (27%) and Americas 22% (15%). Geographical Areas Europe's net sales showed a decrease of roughly 20% compared to the same period last year and totaled 481.0 million euros (599.7). Asia-Pacific's net sales remained at last year's level, amounting to 272.1 million euros (272.8) and net sales of Americas increased by 37% on the same period last year to 215.2 million euros (157.1). Compared to the first quarter Europe's net sales declined by approximately 5%, Asia-Pacific's net sales grew by roughly 18% and Americas' net sales remained at the first quarter's level. The increase in Asia-Pacific's net sales was due to good manufacturing volumes in both Communications Networks and Terminal Products, while the decrease in Europe's net sales was mainly attributable to lower than earlier mobile phone manufacturing volumes. Divestments In April Elcoteq SE and Aspocomp Group Oyj concluded an agreement under which funds managed by Conor Venture Partners, Index Ventures and Northzone Ventures became Imbera's new financiers and principal owners. Elcoteq retained a minority stake in Imbera, holding roughly 15% of Imbera's share capital. Elcoteq previously held 50% of Imbera's share capital. The restructuring of Imbera's ownership had no impact on Elcoteq's result. In June Elcoteq agreed on the sale of real estate company Kiinteistö Oy Piiharju, and the manufacturing facility in the Gunnarla district of Lohja, Finland owned by this company. Progress with Action Plan As part of its action plan to improve profitability and competitiveness, Elcoteq has initiated measures to rationalize its operations in Europe and the Americas, and has announced its plan to close its manufacturing plants in Lohja, Finland, and Juarez, Mexico. Production at the Lohja plant has already ceased. The Juarez facility will be run down during 2007 and production for its customers will be moved to Elcoteq's Monterrey plant in Mexico and to China. The one-time restructuring costs related to the action plan amount to approximately 35 million euros, of which 33.1 million euros were recognized in the January-June accounts.