Electronics Production | August 28, 2007

Neways results to record level in 1st half 2007

Netherland based EMS-provider Neways Electronics International N.V. booked a net profit of EUR 7.8 million in the first half of 2007, an increase of 66%.
The improved product mix, capacity utilisation and efficiency boosted the operational margin to 8%, from 6.4% in the first half of 2006, well above the minimum margin target of 7%. Turnover increased by 24% to EUR 138.6 million. This increase was entirely organic. All market segments of the Electronic Manufacturing Services (EMS) showed turnover growth. The outlook for the remainder of the year is positive. The order portfolio increased to EUR 73.1 million, up more than 13% compared with the close of the 1st half of 2006.

Gross turnover increased by almost 26% to EUR 152.1 million. Net turnover was up 24% at EUR 138.6 million, from EUR 111.7 million in the first half of 2006. The stronger increase in gross turnover is proof that the Neways companies increasinglyoperate jointly as a one-stop provider for their clients. All market segments showed turnover growth. The Semiconductor, Automotive, Industrial and Defense segments showed especially strong growth.
Net turnover per market segment
EUR mln H1 2007 % H2 2006 % H1 2006 %
Industrial 43 31 40 31 33 29
Semiconductor 40 29 34 27 31 28
Medical 34 24 33 26 31 28
Automotive 8 6 6 5 6 5
Defense 4 3 3 2 2 2
Telecom 3 2 4 3 3 3
Other 7 5 7 6 6 5

The order portfolio stood at EUR 73.1 million at the end of June 2007, up more than 13% from EUR 64.5 million at the end of June 2006. The order portfolio increased in most market segments.

The increase in turnover was accompanied by a 22% increase in the gross margin to EUR 57.3 million. As a percentage of turnover, the gross margin fell to 41.3%, from 41.9%. This drop in percentage terms was due to the composition of the turnover, including the increased activities in system construction.

Total operational costs (including personell costs) increased by 16%, a lower increase in relative terms than the increase in turnover due to improved internal efficiency and better capacity utilisation. This raised the operating result by more than 56% to EUR 11.1 million. The operational margin rose to 8.0%, from 6.4%, well above the minimum margin target of 7%.

Pre-tax profit came in at EUR 10.4 million, an increase of 58% compared with the same period last year. Interest charges were up 40% due to the higher capital uptake related to the financing of the strong growth in the first half of 2007 and higher interest rates than in the first half of 2006.

The tax burden came in at 25%. This resulted in an increase in net profit of 66% to EUR 7.8 million. As a percentage of turnover, net profit increased to 5.6%, from 4.2%. Net earnings per ordinary share increased to EUR 0.84, up 65% from EUR 0.51.

Key operational developments
As a one-stop-provider, Neways is benefiting from the increasing demand from clients for life cycle management. The international development of OEMs (Original Equipment Manufacturers) and the increased demand from OEMs for outsourcing mean that Neways is increasingly also taking over the development, engineering and testing of electronic systems. Moreover, the demand for electronic (operating) systems of OEMs is becoming more specialist and more complex. Neways is therefore moving ever further away from its original role as capacity provider and towards that of know-how-intensive, tactical and strategic partner for its clients. The growing demand for SMOI (Supplier Managed Owned Inventory) has also further intensified partnerships and client ties in this context.

In the past six months there has been a strong increase in the development and engineering activities and system construction. In addition, the cooperation between the Neways companies has been strengthened. Whenever possible, they are more and more frequently acting jointly as a one-stop provider, both for existing clients and potential new clients. In the past six months, this has resulted in more joint orders and various new clients. Neways has also started to reduce the number of suppliers and has made better arrangements with suppliers. The contracting out of production to own facilities in Eastern Europe and China is growing steadily. Of an average number of employees of 2,275 (FTEs), the number in Eastern Europe and China is now 907. This is an increase of more than 11% compared with the first half of 2006.

Neways will continue to focus on the further expansion and improvement of the one-stop provider concept. This means, among other things, that a great deal of attention will be devoted to the strengthening of the development branch, the expansion of the activities in the field of system construction and the intensification of reciprocal cooperation between the Neways companies. A strong focus on the expansion of the activities in market segments such as Medical and Defence will further reduce the dependency on the relatively cyclical Semiconductor segment. In the coming years, Neways will also continue to focus on organic growth combined with suitable acquisitions.

An additional focal point is an increase in returns by further improving the product mix and capacity utilisation, reduction of the number of suppliers and outsourcing production activities to Neways operating companies in Eastern Europe and China.

The outlook for the 2nd half of 2007 is positive. The order portfolio is up 13% compared with the end of June 2006 and up 11% compared with year-end 2006. For the full year 2007, we expect organic turnover growth of at least 12% with a substantially higher net profit than the EUR 11.2 million recorded in 2006.
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