PERLOS CORPORATION STOCK EXCHANGE RELEASE JANUARY 15, 2007 AT 10.00 A.M. PERLOS LAUNCHES A LARGE-SCALE PROFITABILITY IMPROVEMENT PROGRAMME AND RELEASES PRELIMINARY INFORMATION ABOUT 2006 RESULTS In the past few years, Perlos has gone through structural changes which have resulted in the rationalisation of the companys operations to better correspond to demand in the mobile phone industry. Despite the changes, however, the companys profitability is still unsatisfactory. The companys Board of Directors has today taken the decision to launch a profitability improvement programme, with the aim of considerably improving Perlos continuing operations operating profit exclusive of non-recurring items compared with 2006. The company intends to meet this target by boosting the efficiency of its operations and reducing annual expenses by more than EUR 100 million by the end of 2007. The profitability improvement programme concerns all of the companys operations in Europe, Asia and North and South America. Crucial measures for changing Perlos cost structure include boosting the efficiency of production processes, purchasing activities and subcontracting as well as cutting costs related to quality, by improving the quality of the companys operations. The whole companys organisation will also be streamlined and production in Finland will be adapted to demand. As a result of these measures, Perlos estimates that, by the end of 2007, the Group will require about 4,000 less personnel than at present. Perlos predicts that the mobile phone market will continue to grow in Asia, and therefore the company will carry out its ongoing investments in China and India according to plan. According to Matti Virtanen, President and CEO of Perlos, the objective of the profitability improvement programme is to fundamentally renew the companys operating procedures. - Perlos has a healthy and competitive core business, but its cost structure does not correspond to the current level of net sales. I am convinced that, with this process of change, our financial performance will improve and we will simultaneously improve our competitiveness in order to become better and quicker at responding to our customers changing needs, says Virtanen. Co-determination negotiations to be started in Finland Demand for Perlos services in Finland has continued to shrink, and there are no preconditions to continue production operations in the present form. Up until last year, manufacturing operations in Finland accounted for almost a 30 per cent share of net sales from the Groups continuing operations. Due to the above mentioned reasons, Perlos will start co- determination negotiations concerning all personnel in Finland. The negotiations concern approximately 1,400 people. The aim of the negotiations is to actively find different ways to improve profitability. One of the options to be discussed at the negotiations is the discontinuation of production operations in Finland altogether. According to a preliminary estimate, the company will need to cut about 1,200 full-time jobs. An invitation has been issued today to the representatives of the companys personnel to attend the co-determination negotiations. If a decision to discontinue production operations in Finland was made, it is estimated that this would incur non-recurring expenses of EUR 35-40 million. The majority of the expenses would result from write-downs of property, plant and equipment, with no effects on cash flows. At the end of 2006, Perlos Group employed a total of 12,944 people, 5,715 of whom were temporary workers. Of the total number of personnel, 4,207 employees (including 1,105 temporary workers) worked in Europe, 7,612 employees (including 4,605 temporary workers) in Asia and 1,125 employees (including 5 temporary workers) in North and South America. Perlos employed 1,600 people in Finland at the end of 2006. Preliminary information about the companys result in 2006 According to preliminary data, net sales from Perlos continuing operations (earlier the Telecommunications and Electronics customer group) in 2006 amounted to approximately EUR 674 million (EUR 614.0 million in 2005), or 10% more than the previous year. Demand for Perlos services, however, fell at the end of the fourth quarter, leaving net sales for October-December at approximately EUR 144 million (EUR 200.5 million). According to preliminary information, operating profit of continuing operations exclusive of non-recurring items in 2006 was EUR 11-12 million (EUR 21.2 million in 2005). Operating loss amounted to EUR 32-33 million and the last quarter operating loss to EUR 3-4 million. The operating result includes a total of EUR 43.6 million in non-recurring items related to the account receivables and inventories of BenQ Mobile, the rationalisation of Perlos operations in Finland and in the USA and the sale of the Healthcare business. The Groups result in 2006 and in the final quarter will be improved by a profit of approximately EUR 24 million booked from the divestment of Perlos Healthcare customer group. The preliminary data is unaudited and is not based on financial statements approved by the Board of Directors. Perlos will publish a release on the 2006 financial statements on 6 February 2007. Outlook for 2007 As a result of the profitability improvement programme to be started today, Perlos expects the full-year operating result exclusive of non-recurring items to be significantly stronger than in 2006. Improvement measures are expected to improve the result during the second half of the year. However, profitability is predicted to be weak early in the year, and the first-quarter operating result exclusive of non-recurring items is estimated to be negative. Due to the change in the BenQ customer relationship and the foreseeable decrease in demand in Finland, full-year net sales are expected to fall short of the 2006 figure by about a quarter. Net sales in January-March are forecast to fall by about a third from the previous year. PERLOS CORPORATION Matti Virtanen President and CEO Additional information: - A news conference for analysts and media will be held today, January 15, 2007 at 11:30 Finnish time, in Airport Business Plaza, Meeting Room JFK, Äyritie 12 C, 01510 Vantaa, Finland. Welcome. - President and CEO Matti Virtanen is available 14.00 15.30 Finnish time, tel. +358 9 2500 7200. - CFO Juha Torniainen, is available at 14.00 15.30 Finnish time, tel +358 9 2500 7218. Perlos will arrange a conference call and web presentation for analysts, media and investors today January 15, 2007, at 9.30 A.M. US Eastern time / 2.30 P.M. UK time / 4.30 P.M. Finnish time. The conference will be hosted by Mr. Matti Virtanen, CEO. You can participate over the telephone or through Perlos Internet site. To participate in the conference call, please dial +44 (0) 207 162 0025, using the code Perlos, a few minutes before the beginning of the conference. PERLOS IN BRIEF Perlos Corporation is a global design and manufacturing partner for the telecommunications and electronics industry. The service offering covers the whole product life cycle from industrial design to manufacturing, logistics and new product versions. The production facilities are located in Asia, Europe and the Americas and the company is headquartered in Finland. In 2005, Perlos Corporation's net sales amounted to EUR 666,8 million. The company employs roughly 13,000 people worldwide. Perlos share (POS1V) is traded on the Helsinki Stock Exchange. DISTRIBUTION Helsinki Stock Exchange Principal media www.perlos.com ANNEX Perlos operations in Finland In 2006, Perlos production operations in Finland were concentrated into two factories located in Northern Karelia with a combined floor space of 36,000 square metres. The factories focus on the manufacture of plastic and metal components for mobile phones as well as the painting and assembly of mobile phones. The facilities in Northern Karelia also carry out the design and manufacture of injection moulds and automated assembly lines. Perlos also has three other business locations in Finland: its head office in Vantaa, a product development centre in Turku and research and development functions in Ylöjärvi. At the end of 2006, Perlos employed a total of 1,600 people in Finland. Of the 1,400 people whom the co- determination negotiations concern, 1,243 worked in North Karelia, 89 in Vantaa, 15 in Turku and 53 in Ylöjärvi. The company does not have any temporary workers in Finland. Perlos operations in other countries Asia The majority of Perlos factory floor space is located in China, where the company has three factories: two in Beijing and one in Guangzhou. In addition, Perlos manufactures injection moulds in Shenzhen. Perlos is currently constructing a fourth factory in China, also in Guangzhou, and a new factory in Chennai, India. The total floor space of the Asian factories in about 115,000 square metres, of which 55,000 square metres is under construction. In Asia, Perlos has also a product development centre in Singapore and offices in Tokyo and Taipei. At the end of 2006, Perlos employed a total of 7,612 people in the Asia region, of whom 4,605 were temporary workers. Europe In addition to the facilities in Finland, Perlos European business locations include a 22,000 square metre factory in Komárom, Hungary, and a product development centre in Lund, Sweden. At the end of 2006, Perlos employed a total of 4,207 people in Europe, (including Finland), of whom 1,105 were temporary workers. North and South America Perlos factories in the Americas region are located in Reynosa, Mexico, and Manaus, Brazil. Their combined floor space is about 27,000 square metres. The company also has an office in Fort Worth, Texas, USA. At the end of 2006, Perlos employed a total of 1,125 people in North and South America, of whom 5 were temporary workers.
PERLOS LAUNCHES A LARGE-SCALE PROFITABILITY IMPROVEMENT PROGRAMME AND RELEASES PRELIMINARY INFORMATI
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