PERLOS CORPORATION STOCK EXCHANGE RELEASE FEBRUARY 6, 2007 AT 8.00 A.M. FINANCIAL STATEMENT BULLETIN 2006: PERLOS CONTINUED RESTRUCTURING ITS OPERATIONS IN 2006 Perlos adjusted its financial reporting as from the Interim Report released on 26 October 2006 due to the divestment of the Healthcare Customer Group. In this financial statement bulletin, the Healthcare Customer Group has been treated as discontinued operations, and its result is presented separately from those of continuing operations. Information on Perlos or the Groups result refer to continuing operations, i.e. the former Telecommunications and Electronics Customer Group. October-December 2006: - The Groups net sales totalled EUR 143.9 million (EUR 200.5 million in 10-12/2005). - The operating result was EUR 4.3 million (EUR 8.3 million). - The result for the review period was EUR 3.9 million (EUR 7.9 million). - Earnings per share (diluted) were 0.07 EUR (EUR 0.15). - Net cash flow from operations was EUR 43.2 million (EUR 26.2 million). - Gross investments amounted to 9.5% (11.7%) of net sales. Year 2006: - The Groups net sales totalled EUR 673.6 million (EUR 614.0 million in 2005). - The operating result exclusive of non-recurring items was EUR 10.7 million (EUR 21.2 million). - The operating result was EUR 32.9 million (EUR 8.9 million). - The result for the report year was EUR 43.6 million (EUR 6.4 million). - Earnings per share (diluted) were EUR 0.82 (EUR 0.12). - Net cash flow from operations was EUR 65.5 million (EUR 19.4 million). - Gross investments amounted to 8.7% (16.2%) of net sales. Dividend: - Perlos Board of Directors will propose to the Annual General Meeting that no dividend be paid for the 2006 financial year. MATTI VIRTANEN, PRESIDENT AND CEO OF PERLOS: - Since taking over my task as the President and CEO of Perlos in December 2006, I have been pleased to find out that the starting points for developing the company are good. Perlos has a healthy and competitive core business, a good clientele, competent personnel, excellent technological expertise and a modern manufacturing capacity. The decisions made on e.g. increasing the manufacturing capacity on the growing markets have been correct, and will enable us to make Perlos the most competitive company it its field. - The biggest challenge currently facing Perlos is its weak profitability, due primarily to the fact that the companys cost structure is too heavy in relation to its current level of net sales. Even though Perlos net sales in 2006 grew by 10% to approximately EUR 673.6 million, the operating result for the financial year was EUR 43.6 million negative. The operating result exclusive of non- recurring items was EUR 10.7 million, and including non- recurring items EUR 32.9 million. - In 2007, we will primarily focus on improving Perlos profitability. We launched a large-scale profitability improvement programme in January with the objective of significantly improving operating result of Perlos' continuing operations exclusive of non-recurring items, compared with 2006. The programme is progressing according to plan, the cost structure has begun to decrease, personnel reductions abroad have been started and co-determination negotiations are already underway in Finland. NET SALES AND RESULT October-December 2006 Perlos net sales in October-December 2006 amounted to EUR 143.9 million (EUR 200.5 million in 10-12/2005). Of the Groups net sales, 37% came from Asia (26%), 49% from Europe (44%) and 14% from North and South America (30%). The operating result was EUR 4.3 million (EUR 8.3 million). The result for the review period was EUR 3.9 million (EUR 7.9 million) and earnings per share amounted to EUR 0.07 (EUR 0.16). The result includes a pre-tax capital gain of EUR 24.4 million from the divestment of the Healthcare Customer Group. Net cash flow from operations totalled EUR 43.2 million (EUR 26.2 million) and cash flow after investments was EUR 79.3 million (EUR 4.4 million). Year 2006 Perlos net sales in 2006 amounted to EUR 673.6 million (EUR 614,0 million in 2005) of which 35% came from Asia (22%), 44% from Europe (51%) and 21% from North and South America (27%). Operating profit exclusive of non-recurring items was EUR 10.7 million (EUR 21.2 million), and including non- recurring items EUR 32.9 million (EUR 8.9 million). The significant non-recurring items, totalling EUR 43.6 million, are connected with the accounts receivable and inventories of BenQ Mobile as well as the rationalisation of Perlos operations in Finland. The result for the report year was EUR 43.6 million (EUR 6.4 million) and earnings per share amounted to EUR 0.82 (EUR 0.12). The result includes a capital gain of EUR 24.4 million on the divestment of the Healthcare Customer Group. Net cash flow from operations totalled EUR 65.5 million (EUR 19.4 million) and cash flow after investments was EUR 55.7 million (EUR 84.0 million). Discontinued operations The result of the divested Healthcare Customer Group totalled EUR 18.3 million (EUR 1.9 million in 2005). The result includes the capital gain on the divestment of the healthcare business. INVESTMENTS The Groups gross investments in 2006 amounted to EUR 60.4 million (EUR 99.7 million in 2005), representing 8.7% (16.2%) of net sales. In 2006, Perlos focused on scaling up its capacity on the growth markets. The major investments in 2006 comprised the costs of completing the new plants in Reynosa and Beijing and starting the construction of the new plants in Guangzhou and Chennai. Additional investments were made during the year especially in the Shenzhen plants mould manufacturing capacity and in new production technologies. The Groups investment in research and development activities represented about 1% of net sales in 2006. FINANCING The Groups liquid assets at the end of the report period amounted to EUR 28.1 million (EUR 26.4 million in 2005) and unused committed credit limits to EUR 173.1 million (EUR 148.1 million). The Groups net gearing ratio was 0.72 (0.87) and its equity ratio was 37.3% (34.7%). Interest-bearing liabilities amounted to EUR 140.9 million (EUR 189.2 million), of which short-term liabilities accounted for EUR 89.8 million (EUR 108.2 million) and long-term liabilities for EUR 51.1 million (EUR 81.0 million). The net interest-bearing liabilities were EUR 112.8 million (EUR 162.8 million) and the interest cover ratio was 3.3 (8.4) in the report period. PERSONNEL In 2006, the Perlos Group had 13,320 employees on average including temporary workers (9,632 employees in 2005). At the end of the year, the number of personnel inclusive of temporary workers was 12,944 (12,323). Of the total payroll, 4,207 employees (4,729 employees) worked in Europe, 7,612 employees (5,500 employees) in Asia and 1,125 employees (2,094 employees) in North and South America. BOARD OF DIRECTORS Perlos Corporations Annual General Meeting held on 28 March 2006 elected Timo Leinilä, Heikki Mairinoja, Jukka Rinnevaara, Kari O. Sohlberg, Andreas Tallberg, Kari Vuorialho and Petteri Walldén as members of the Board of Directors. Kari O. Sohlberg was elected as the Chairman of the Board. At the Boards organisation meeting, which was held after the Annual General Meeting, Andreas Tallberg was elected as Vice Chairman of the Board and Jukka Rinnevaara, Kari O. Sohlberg and Kari Vuorialho were appointed to the Boards Audit Committee. BOARD AUTHORISATIONS In accordance with the resolutions of the Annual General Meeting held on 28 March 2006, Perlos Board of Directors is authorised to decide on increasing the companys share capital by a maximum of EUR 6,352,457.40 through a rights issue or by taking out a convertible loan, and (a) decide on the acquisition of a maximum of 5,293,714 own shares, and (b) decide on the conveyance of a maximum of 5,293,714 own shares in the companys possession. The authorisations are in force until the next Annual General Meeting. CHANGES IN THE GROUP STRUCTURE During the report period, Perlos established a new subsidiary in Chennai, India. The company opened an office in Chennai during the spring and started the construction of a production facility with about 20,000 square metres in floor space. On 17 July 2006, Perlos announced the signing of a Memorandum of Understanding for the sale of its Healthcare Customer Group to the Swedish private equity investment company Ratos AB. The sale was concluded on 8 November 2006 after the approval of the competition authorities had been received and other terms and conditions of the transaction had been fulfilled. According to the deal, all of the business operations of Perlos Healthcare Customer Group were sold to Medifiq Healthcare Corporation, which is owned by Ratos AB, Perlos Corporation and the management of the new company. CHANGES IN MANAGEMENT On 16 November 2006, Matti Virtanen, M.Sc. (Eng.), born 1958, was appointed as the President and CEO of Perlos Corporation as from 1 December 2006. The position was previously held by Isto Hantila, M.Sc. (Eng.), who was President and CEO of Perlos until 16 November 2006. Vesa Vähämöttönen, Lic.Sc. (Tech.), born 1966, was appointed to Perlos Executive Board as Senior Vice President, Global Sales & Marketing, as from 7 August 2006. He has also been in charge of Perlos Nokia account as from 7 November 2006, after the previous Head of the Nokia Account, Jarmo Paakkunainen, M.Sc. (Eng.), resigned from Perlos employ. SHARE AND OPTIONS Perlos has one series of shares, and each share entitles its holder to one vote at a general meeting of shareholders. Perlos share is listed on the Nordic List of the Helsinki Stock Exchange. Perlos Corporations share capital at 31 December 2006 was EUR 31,762,288.80 and the number of shares in issue was 52,937,148. The company did not hold any own shares (treasury shares). At 31 December 2006, Perlos Corporation had two share option programmes. A total of 750,000 shares can be subscribed for on the basis of the 2002 share option programme and 1,000,000 shares on the basis of the 2005 share option programme. The A and B warrants attached to the 2002 share option programme are listed on the Main List of the Helsinki Stock Exchange. No shares have been subscribed for on the basis of the 2002 and 2005 warrants. DECREASE OF THE SHARE PREMIUM FUND On 17 July 2006, the National Board of Patents and Registration of Finland approved the decrease of the share premium fund in accordance with the resolution of the Annual General Meeting on 28 March 2006. The cash in the premium fund, a total of EUR 48,781,395.24, was therefore transferred in its entirety to a fund belonging to the companys non-restricted equity, which is administered by the Annual General Meeting. EVENTS AFTER THE BALANCE SHEET DATE On 15 January 2007, Perlos announced a profitability improvement programme with the objective of significantly improving the operating result of Perlos continuing operations, exclusive of non-recurring items, compared with 2006. Perlos intends to achieve this objective by boosting the efficiency of its operations and by 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 all operations. The entire companys organisation will also be streamlined and production in Finland will be adjusted to match demand. As a result of these measures, it is estimated that, by the end of 2007, the Perlos Group will require 4,000 fewer employees than at present. On 22 January 2007, as a part of its profitability improvement programme, Perlos started co-determination negotiations concerning all personnel in Finland for reasons connected with production, finances and the restructuring of operations. The negotiations concern approximately 1,400 people. The aim of the negotiations is to actively find different ways to improve profitability and 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 approximately 1,200 full-time jobs. If a decision to discontinue production operations in Finland were to be 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. OUTLOOK FOR 2007 As a result of the profitability improvement programme initiated in January, Perlos expects the full-year operating result of its continuing operations, exclusive of non-recurring items, to be significantly stronger than in 2006. Development 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. DIVIDENDS Perlos Board of Directors will propose to the Annual General Meeting that no dividend be paid out for 2006. CONSOLIDATED INCOME STATEMENT, IFRS EUR million 10- 10- Change, 1- 1- 12/2006 12/2005 % 12/2006 12/2005 Continuing operations: Net sales 143,9 200,5 -28 % 673,6 614,0 Operating expenses -148,2 -192,2 -23 % -706,5 605,1 Operating -4,3 8,3 -32,9 8,9 profit/loss Profit/loss after -7,3 5,3 -43,6 2,6 financial items Income tax -3,4 -2,6 0,0 -3,8 Profit/loss from -3,9 7,9 -43,6 6,4 continuing operations Discontinued operations: Profit/loss from 18,9 0,7 18,3 2,0 discontinued operations Profit/loss for 15,0 8,6 -25,3 8,4 the period Income tax has been calculated on the profit for the review period as a proportion of the estimated tax for the whole financial year. Geographical diversity of net sales from continuing operations, % 10- 10- 1- 1- 12/2006 12/2005 12/200612/2005 Europe 49 % 44 % 44 % 51 % Americas 14 % 30 % 21 % 27 % Asia 37 % 26 % 35 % 22 % CONSOLIDATED BALANCE SHEET, IFRS EUR million Assets 12/2006 12/2005 Goodwill 11,6 12,1 Other intangible assets 13,0 16,2 Tangible assets and 222,3 247,1 investments Deferred tax assets 7,0 6,5 Inventories 65,6 117,7 Account and other receivables 75,9 135,1 Cash and cash equivalents 28,1 26,4 Total assets 423,6 561,1 Equity and liabilities 12/2006 12/2005 Shareholders´ equity 155,7 188,2 Defered tax liabilities 0,2 0,7 Interest-bearing long-term 51,1 81,0 liabilities Provisions 5,7 12,5 Interest-bearing short-term 89,8 108,2 liabilities Account payables and other 121,0 170,6 liabilities Total equity and liabilities 423,6 561,1 SOURCE AND APPLICATION OF FUNDS, IFRS EUR million 1-12/2006 1-12/2005 Cash flow from operating activities Operating profit/loss -7,8 13,3 Adjustments 53,2 56,7 Change in working capital 40,7 -37,0 Financial income and expenses -10,8 -7,1 Income taxes paid -9,9 -6,5 Net cash flow from operations 65,5 19,4 Cash flows from investing activities Investments in subsidiaries 0,0 -3,2 Investments in associated -7,8 0,0 companies Purchase of tangible and -60,4 -101,8 intangible assets Proceeds from tangible and 2,4 1,6 intanbigle assets Proceeds from divested 56,0 0,0 operations, net of cash Net cash used in investing -9,8 -103,4 activities 55,7 -84,0 Cash flow from financing activities Change in loans -48,7 67,8 Change in interest-bearing 0,0 1,1 receivables Dividends paid -5,3 -10,6 Net cash generated from -54,0 58,3 financing activities Translation difference -3,4 -0,2 Change in cash and cash 5,1 -25,5 equivalents Cash and cash equivalents 26,4 52,1 1.1. Cash and cash equivalents at 28,1 26,4 end of period Due to acquisitions and sales of subsidiaries and translation differences during the year the amounts in the cash flow statement are not directly reconcilable with the balance sheet figures. COMMITMENTS, IFRS EUR million 1-12/2006 1-12/2005 The future aggregate minimum lease payments under non-cancellable operating 18,3 22,4 leases Guarantees on behalf of third parties as collateral on other commitments 1,4 4,7 Guarantees on behalf of 5,6 0,0 associated companies Nominal values of derivate financial instruments Foreing exchange forwards - related to transaction risk 4,1 7,8 - related to financing 46,3 90,9 Interest rate swaps 25,0 40,0 Commodity derivates 0,4 0,3 Total nominal values 75,8 139,0 The nominal amounts are presented as gross values. Fair values of derivates financial instruments Instruments having a positive fair value - Foreign exchange forwards -- related to transaction risk 0,0 0,1 -- related to financing 0,2 0,4 - Commodity derivatives 0,0 0,0 Instruments having a negative fair value - Foreign exchange forwards -- related to transaction risk -0,1 0,0 -- related to financing -0,2 -2,5 - Interest rate swaps 0,0 -0,6 - Commodity derivatives 0,0 0,0 Total fair values -0,1 -2,6 The fair values are based on quoted market prices. Fair value represents the amount that would be realised, if the derivative contracts were closed on the balance sheet date. All derivative financial instruments are fair valued through the income statement at each balance sheet date. KEY FIGURES, IFRS 10- 10- 1- 1- 12/2006 12/2005 12/2006 12/2005 Continuing operations 13,6 23,4 60,4 99,7 gross investments in fixed assets, EUR million EBITDA *) from 3,0 20,5 8,4 50,3 continuing operations, EUR million EBITDA *) from 2,1 10,2 1,2 8,2 continuing operations, % EBIT from continuing -4,3 8,3 -32,9 8,9 operations, EUR million EBIT from continuing -3,0 4,1 -4,9 1,5 operations, % Net sales from 143,9 200,5 673,6 614,0 continuing operations, EUR million Net sales from 3,1 14,5 42,7 52,8 discontinued operations, EUR million Equity ratio, % 37,3 34,7 37,3 34,7 Gearing 0,72 0,87 0,72 0,87 Interest-bearing net 112,8 162,8 112,8 162,8 liabilities, EUR million ROE, % p.a. 40,5 18,7 -14,7 4,6 ROI, % p.a. 32,7 16,7 5,3 8,0 Interest cover ratio 9,2 7,2 3,3 8,4 Earnings per share, EUR 0,28 0,16 -0,48 0,16 Earnings per share, 0,28 0,16 -0,48 0,16 diluted, EUR Earnings per share from -0,07 0,15 -0,82 0,12 continuing operations, EUR Earnings per share from 0,36 0,13 0,35 0,04 discontinued operations, EUR Shareholders´ equity 2,94 3,55 2,94 3,55 per share, EUR Shareholders´ equity 2,94 3,55 2,94 3,55 per share, diluted, EUR Personnel of continuing operations - average for the 7 473 7 864 7 746 6 705 period - end of period 7 229 7 679 7 229 7 140 - average including 13 616 13 062 13 320 9 632 workforce - end of period 12 944 12 889 12 944 12 323 including workforce *) Earnings before interest, taxes, depreciation and amortisation STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY, IFRS EUR million Change in Sha Shar Hedg Othe Tran Reta Total Min Total shareholders' re e ing r slat ined ori equity 1- cap issu rese rese ion earn ty 12/2005 ita e rve rves diff ings Int l prem eren ere ium cies st SHAREHOLDERS' 31,8 48,7 -0,4 0,7 -1,6 96,2 175,4 0,0 175,4 EQUITY 31.12.2004 Cash flow hedging - Increase 0,1 0,1 0,1 - Profit/loss of fair value revaluation - Deferred 0,1 0,1 0,1 taxes's share of period movements Change in 6,1 4,4 10,5 10,5 translation difference Other changes 2,2 0,2 2,4 2,4 Net 0,0 0,0 0,2 2,2 6,1 4,5 13,0 13,0 profit/loss recoqnised directly to shareholders' equity Profit/loss 8,8 8,8 0,4 9,2 for the period Total profits 0,0 0,0 0,2 2,2 6,1 13,3 21,8 0,4 22,2 and losses Dividend - -10,6 -10,6 distribution 10,6 Share premium 0,1 1,0 1,1 1,1 SHAREHOLDERS' 31,8 48,8 -0,2 2,9 4,5 100, 187,8 0,4 188,2 EQUITY TOTAL 0 31.12.2005 Change in Sha Shar Hedg Othe Tran Reta Total Min Total shareholders' re e ing r slat ined ori equity 1- cap issu rese rese ion earn ty 12/2006 ita e rve rves diff ings Int l prem eren ere ium cies st SHAREHOLDERS' 31,8 48,8 -0,2 2,9 4,5 100, 187,8 0,4 188,2 EQUITY 0 31.12.2005 Cash flow hedging - Increase - Profit/loss 0,2 0,2 0,2 of fair value revaluation - Deferred taxes's share of period movements Change in -3,5 -3,5 0,0 -3,5 translation difference Other changes - 50,2 1,4 1,4 48,8 Net 0,0 - 0,2 50,2 -3,5 0,0 -1,9 0,0 -1,9 profit/loss 48,8 recoqnised directly to shareholders' equity Profit/loss - -25,1 - -25,3 for the period 25,1 0,2 Total profits 0,0 - 0,2 50,2 -3,5 - -27,0 - -27,2 and losses 48,8 25,1 0,2 Dividend -5,3 -5,3 -5,3 distribution Share premium SHAREHOLDERS' 31,8 0,0 0,0 53,1 1,0 69,6 155,5 0,2 155,7 EQUITY TOTAL 31.12.2006 The Interim Report for January-March 2007 will be published on April 26, 2007. Vantaa, February 5, 2007 PERLOS CORPORATON Board of Directors ADDITIONAL INFORMATION: - A news conference for analysts and media will be held today, February 6, 2007 at 9:30 in Restaurant G.W. Sundmans, Eteläranta 16, Helsinki. Welcome. - President and CEO Matti Virtanen, tel. +358 9 2500 7200 is available today, February 6 at 14:00 15:00 Finnish time. - Perlos will arrange a conference call and web presentation for analysts, media and investors today, February 6, at 8.30 A.M. US Eastern time / 1.30 P.M. UK time / 3.30 P.M. Finnish time. You can participate over the telephone or through Perlos Internet site. The results will be presented by Mr. Matti Virtanen, President and CEO. The conference call and presentation will be held in English. To participate in the conference call, please dial +44 (0)20 7162 0125, 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. Perlos Corporation's net sales amounted to EUR 673,6 million in 2006. The company employs approximately 13,000 people worldwide. Perlos share (POS1V) is traded on the Helsinki Stock Exchange. DISTRIBUTION Helsinki Stock Exchange Media www.perlos.com
FINANCIAL STATEMENT BULLETIN 2006: PERLOS CONTINUED RESTRUCTURING ITS OPERATIONS IN 2006
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