Elcoteq SE Stock Exchange Release February 7, 2007 at 9.00 am (EET)
ELCOTEQ SES FINANCIAL STATEMENTS BULLETIN JANUARY - DECEMBER 2006
Elcoteq SEs net sales in 2006 increased by roughly 3% on the previous
year to 4,284.3 million euros (4,169.0 million euros in 2005). Operating
income was 43.9 million euros (76.5). Cash flow for the full year
amounted to -20.8 million euros (24.4).
Financial Year 2006
* Net sales rose roughly 3% to 4,284.3 million euros (4,169.0)
* Operating income was 43.9 million euros (76.5)
* Income before taxes was 19.2 million euros (59.3)
* Earnings per share (EPS) were 0.38 euros (1.34)
* Rolling 12-month return on capital employed was 9.1% (17.6%)
* Cash flow after investing activities was -20.8 million euros (24.4)
* Interest-bearing net debt was 128.0 million euros (90.3)
* The Board proposes a dividend of 0.20 euros per share
Final Quarter in 2006
* Net sales totaled 1,104.6 million euros (1,182.0 in fourth quarter of
2005 and 1,169.1 in the third quarter of 2006)
* Operating income was 6.9 million euros (25.5)
* Income before taxes was -0.8 million euros (19.7)
* Earnings per share (EPS) were -0.01 euros (0.48)
* Cash flow after investing activities was 41.2 million euros (5.5)
In preparing the financial statements for 2006 Elcoteq SE has applied the
recognition and measurement principles of the International Financial
Reporting Standards (IFRS), which Elcoteq adopted at the beginning of
2004.
Market Review
The electronics manufacturing services (EMS) market continued to grow
also in 2006, with total growth reaching almost 15%. According to
research company iSuppli, the original design manufacturing (ODM) segment
grew by approximately 15% in 2006 and the traditional EMS business by
about 13%, the main drivers being an increase in outsourcing and strong
growth in the mobile phone market, especially in Asias growth markets
China and India. Roughly one billion new mobile phones were sold
worldwide during 2006, which was some 20% more than one year earlier. The
communications networks market increased by approximately 7% in 2006.
Despite its modest increase in net sales, Elcoteq retained its position
as the worlds fourth largest EMS provider to communications technology
companies in 2006 with a market share of roughly 7%.
Financial Year 2006
Elcoteqs 2006 net sales showed a slight increase on the previous year to
4,284.3 million euros (4,169.0). Operating income amounted to 43.9
million euros (76.5), or 1.0% of net sales. Income before taxes was 19.2
million euros (59.3) and net profit was 12.1 million euros (41.3).
Earnings per share (EPS) were 0.38 euros (1.34).
Net sales were below target especially in terminal products, but also in
the networks business and in all the geographical areas. The modest
growth in net sales was to a great extent due to lower sales to companies
within the Nokia group compared with the previous year, owing to an
unfavorable product mix and intensified competition. Net sales to other
customers than companies belonging to the Nokia and Ericsson groups grew
13% compared with 2005.
Operating income in 2006 did not reach the previous years level and the
operating margin declined owing to lower than forecast production
volumes, strong fluctuations in volumes especially in Europe and the
Americas, tougher competition, and the still weak level of capacity
utilization in the newest manufacturing plants. The strong fluctuations
in volumes and the intensification of competition weakened especially the
profitability of the Terminal Products business area.
The Groups net financial expenses amounted to 23.7 million euros (16.0).
Roughly half of the increase in financial expenses was the result of
higher interest rates in both the euro and foreign currencies. Financial
expenses were also increased by average growth in Elcoteqs debt
portfolio and the sale of accounts receivable.
Fourth-Quarter Net Sales and Result
Fourth-quarter net sales were slightly below the third quarters level
and totaled 1,104.6 million euros (1,182.0 in the fourth quarter of 2005
and 1,169.1 in the third quarter of 2006). The slight decrease on the
previous quarter was attributable to lower production volumes for
Terminal Products in Europe and Asia-Pacific.
Operating income in the fourth quarter was 6.9 million euros (25.5 in the
fourth quarter of 2005 and 16.6 in the third quarter of 2006) and income
before taxes amounted to -0.8 million euros (19.7). The profitability of
Terminal Products weakened compared to the third quarter owing to lower
production volumes especially in Europe. The performance of the
Communications Networks business area declined as a result of changes in
the product mix and costs arising from the ramp-up of certain new
products.
Financing and Cash Flow
Liquidity was good throughout the review period. At the end of December
Elcoteq had unused but immediately available credit limits totaling 293.8
million euros (293.5 million euros at the end of the third quarter and
293.5 million euros at the end of 2005). Of this total, the 230 million
euro syndicated loan is a committed credit limit. There were no open
issues of the companys 200 million euro commercial paper program at
December 31, 2006.
Interest-bearing net debt at the end of December amounted to 128.0
million euros (90.3), and gearing stood at 0.4 (0.3). The solvency ratio
was 26.1% (26.0%). Cash flow from sold accounts receivable was 187.7
million euros (148.8 at the end of 2005 and 183.0 at the end of the third
quarter in 2006). Return on capital employed was 9.1% (17.6%).
In March Elcoteq issued subordinated notes in the nominal amount of 30
million euros and with a maturity of five years. The notes carry a fixed
annual coupon of 5.55%. The company is using the notes to extend the
average maturity of its loan portfolio and to strengthen its financial
structure.
Cash flow after investing activities was -20.8 million euros (24.4) for
the full year 2006, and 41.2 million euros (5.5) for the fourth quarter.
Despite the modest growth in net sales, cash flow in 2006 was negative
owing to weaker income flow, the relatively high level of investments and
to a slight weakening of turnover of working capital. The average
turnover of working capital at the end of 2006 was roughly ten days.
Turnover improved slightly during the fourth quarter compared with the
third quarter but was weaker than one year earlier, due particularly to
fluctuations in production volumes.
Capital Expenditures
Gross capital expenditures on fixed assets in 2006 totaled 116.9 million
euros (123.6) or 2.7% of net sales. Depreciation amounted to 82.7 million
euros (78.2) or 1.9% of net sales. Investments were allocated to
increases in assembly capacity, mainly in Asia-Pacific and Europe.
Capital expenditures in the final quarter amounted to 32.3 million euros
(35.4).
Elcoteq has also increased its manufacturing capacity through operating
leases worth roughly 26.8 million euros (25.2) in 2006.
Personnel
At the end of December the Group employed 23,298 (19,802) people: 705
(869) in Finland and 22,593 (18,933) in other countries. The geographical
distribution of the workforce was as follows: Europe 11,682 (9,984), Asia-
Pacific 7,409 (6,086) and Americas 4,207 (3,732). The average number of
employees directly employed by the company during 2006 was 16,651
(15,242).
Wages, salaries and other personnel expenses in 2006 amounted to 205.9
million euros (202.6).
In March 2006 Elcoteq began personnel negotiations concerning personnel
at the Lohja manufacturing plant, the companys product development unit
and the NPI (New Product Introduction) unit in Finland. The negotiations
were completed in April and resulted in the termination of 65 work
contracts and 15 temporary lay-offs on production and financial grounds.
Environment
Elcoteq has a certified quality and environmental system covering all its
units. The main environmental projects affecting the companys operations
relate to the European Unions new environmental directives on electrical
and electronic equipment. Elcoteq shifted to lead-free manufacturing and
products that comply in full with the RoHS directive in stages as its
customers required, completing this process by July 1, 2006. The
companys environmental performance is described in more detail in a
separate Corporate Responsibility Report to be published in 2007.
Research and Development
Elcoteqs research and development costs in 2006 totaled approximately
6.8 million euros (7.1) or 0.15% of net sales. The companys R&D
activities and expenditures cover, among other things, equipment and
process development for production and production testing needs, research
and development related to the platforms, software, electronics,
mechanics and testing and verification environments for mobile phones,
and the development of radio modules and technologies for mobile phones.
Business Area Performance
Elcoteq has two business areas: Terminal Products and Communications
Networks. In 2006 Terminal Products contributed 82% (82.5%) and
Communications Networks 18% (17.5%) of Elcoteqs consolidated net sales.
In 2006 companies belonging to the Nokia and Ericsson groups accounted
for altogether 66% (69%) of Elcoteqs net sales. In addition to these
companies, Elcoteqs top five customers include RIM, Sony Ericsson and
Thomson.
Terminal Products
Net sales of the Terminal Products business area in 2006 grew roughly 2%
on the previous year to 3,512.1 million euros (3,439.0). The segments
operating income was 68.4 million euros (95.0) or 1.9% of net sales. Net
sales in the final quarter of the year totaled 898.6 million euros
(999.5) and the segments operating income was 13.2 million euros (32.2).
Home communications products grew clearly as a proportion of Terminal
Products total net sales compared with 2005. Concerning customers,
development was particularly positive with RIM and Philips.
In order to respond more effectively to the needs of its different
customers and to boost its global sales and business development, Elcoteq
has established two new sales and business development organizations
within Terminal Products. These are Personal Communications, which
includes mobile phones, and Home Communications, which covers products
such as set-top boxes and electronics for flat-screen TVs.
The central goal of Terminal Products in 2007 is to broaden and balance
its customer base, and to raise profitability especially in the
manufacturing of home communications products. Elcoteq expects that net
sales of its Terminal Products business area will grow at the same pace
as the EMS market during 2007.
Communication Networks
Net sales of the Communications Networks business area in 2006 rose
roughly 6% on the year before to 772.3 million euros (730.1). The
segments operating income was 22.4 million euros (23.2) or 2.9% of its
net sales. Net sales in the fourth quarter of 2006 amounted to 206.0
million euros (182.6) and the segments operating income was 5.7 million
euros (2.9).
Elcoteq and Andrew Corporation signed a global long-term manufacturing
supply agreement which further strengthens Elcoteqs position as a
strategic partner to Andrew Corporation in Europe and the Americas. The
agreement is expected to raise Elcoteqs net sales by some 80 million
euros in 2007. As part of the agreement Elcoteq acquired Andrews
manufacturing operations in Arad, Romania, along with the plants
machinery, equipment and inventories. Roughly 8 million euros of the
acquisition price was paid in September. The remainder of the acquisition
price could be substantially lower than the 15 million euros estimated at
the time of acquisition (see enclosure 8).
Elcoteq expects net sales of the Communications Networks business area to
grow clearly and its market position to strengthen during 2007. Elcoteq
intends to raise the profitability of Communications Networks and
increase its business volume so that its contribution to the Groups net
sales in clearly higher than at present.
Geographical Areas
Elcoteq has three geographical areas: Europe, Asia-Pacific and Americas.
In 2006 the geographical areas contributed to the Groups net sales as
follows: Europe 57% (56%), Asia-Pacific 25% (26%) and Americas 18% (18%).
Europe
Net sales from the geographical area Europe totaled 2,425.4 million euros
(2,345.0).
To simplify its corporate structure Elcoteq SE incorporated some of its
operations in Finland into two subsidiaries on October 1, 2006: one is
principally responsible for the Groups support functions and the other
for the Lohja manufacturing plant and the Finnish New Product
Introduction (NPI) center. Incorporation did not change Elcoteqs
organizational structure based on business and geographical areas, or the
status of its employees or reporting responsibilities in Finland or
elsewhere.
Elcoteq increased its capacity in Pecs, Hungary, by leasing a further
7,000 square meters of storage and production space. The extra capacity
raised the number of employees in Hungary by roughly 10%. The company
also expanded into Romania, following the agreement with Andrew
Corporation, and began the manufacture of products for Andrew Corporation
and PCTL at its plant in St. Petersburg, Russia.
In December Elcoteq sold the property in which its Tallinn manufacturing
plant operates to an Estonian investment company for about 10 million
euros, recording a capital gain of 1.7 million euros on the deal. Elcoteq
continues to operate in these facilities under an operating lease.
Asia-Pacific
Net sales from the Asia-Pacific geographical area totaled 1,094.1 million
euros (1,069.4). Manufacturing volumes increased clearly more than sales.
With respect to the plants in China, a positive development in 2006 was
balancing of the customer base and an increase in manufacturing volumes
of communications networks and home communications products.
Manufacturing volumes at the Indian plant developed positively likewise,
although they had still not reached the target level by the end of the
year.
A new unit for the product development services organization was set up
in Beijing, China in 2006 in order to further increase Elcoteqs product
development services offering in the Asia-Pacific region.
Americas
Net sales from the Americas geographical area amounted to 764.8 million
euros (754.6).
Elcoteqs manufacturing plants in Manaus, Brazil, and in Juarez, Mexico,
moved into new premises in May. This is resulting in more efficient use
of the production and office premises and improving the level of service
to existing and future customers in the Americas.
Elcoteq expanded co-operation with Andrew Corporation in Mexico, where
the company began the manufacturing and system assembly of network
products. Business with Terminal Products customer RIM developed well.
Decisions of the Annual General Meeting
The Annual General Meeting of Elcoteq SE, held on March 23, 2006, elected
seven members to the Board of Directors. The composition of the Board
remained unchanged. The following persons were re-elected: President
Martti Ahtisaari; Mr Heikki Horstia, Vice President, Treasurer, Wärtsilä
Corporation; Dr Eero Kasanen, Rector of the Helsinki School of Economics;
Mr Antti Piippo, principal owner and founder-shareholder of Elcoteq SE;
Mr Henry Sjöman, founder-shareholder of Elcoteq SE; Mr Juha Toivola, MSc,
and Mr Jorma Vanhanen, founder-shareholder of Elcoteq SE. The terms of
office of the Board members extend until the end of the following Annual
General Meeting. Ahtisaari, Horstia, Kasanen and Toivola are independent
Board members, and they represent more than half of the Board's members.
Convening after the Annual General Meeting, the Board of Directors
elected Mr Piippo as its chairman and Mr Toivola as the deputy chairman.
Mr Piippo was elected chairman of the Nomination Committee and Mr Sjöman,
Mr Vanhanen and Mr Toivola as this committee's other members. Mr Piippo
was elected chairman of the Working Committee and Mr Sjöman, Mr Vanhanen
and Mr Toivola as this committee's other members. Mr Toivola was elected
chairman of the Compensation Committee and President Ahtisaari, Mr
Horstia and Mr Kasanen as this committee's other members. The Board
elected Mr Toivola chairman of the Audit Committee and President
Ahtisaari, Mr Horstia and Mr Kasanen as this committee's other members.
The Annual General Meeting re-appointed the firm of authorized public
accountants KPMG Oy Ab under the supervision of principal auditor Mr
Mauri Palvi (APA) as the company's auditors.
The Annual General meeting authorized the Board of Directors to float one
or several convertible bonds and/or to issue stock options and/or to
raise the share capital in one or several installments through a rights
issue within one year from the Annual General Meeting. When issuing
convertible bonds, stock options or new shares the Board shall be
entitled to issue at most 6,234,315 new Series A shares of nominal value
0.40 euros per share for subscription. However, the valid and unexercised
authorizations of the Board of Directors concerning the total number of
share capital increases and the votes carried by the new shares issued
shall not exceed one-fifth of the Company's total registered share
capital and aggregate number of votes carried by the shares at the time
of the authorization and the Board's decision to raise the share capital.
The Meeting also authorized the Board of Directors within one year from
the Annual General Meeting to purchase or dispose of the Company's own
shares to the extent that the nominal value of the purchased shares and
the votes carried by these shares shall not exceed five (5) percent of
the company's share capital and the aggregate number of votes conferred
by all the shares.
These authorizations are in force until March 23, 2007.
Shares and Shareholders
At the end of 2006 the companys share capital totaled 12,615,730.80
euros and there were altogether 31,539,327 shares comprising 20,962,327
Series A shares and 10,577,000 Series K shares. All the K shares are held
by the companys three principal owners. During 2006 altogether 435,750
new A shares were subscribed under the 2001 stock options scheme.
Elcoetq had 11,693 shareholders on December 31, 2006. There were
8,039,881 nominee-registered and foreign-registered shares, which
represented 25.5% of the total number of shares and 6.3% of the votes
outstanding.
Boards Proposal to Transfer the Domicile to Luxembourg
Elcoteq SEs Board of Directors will propose to the Annual General
Meeting on March 22, 2007 that Elcoteqs domicile and registered office
be transferred to Luxembourg. The purpose underlying the transfer of
domicile is to implement Elcoteq's globalization strategy and to create
an effective structural basis for ensuring the continuous improvement of
the company's competitiveness.
The Board of Directors has, as of December 21, 2006, prepared a Transfer
Proposal, a Report and proposed new Articles of Association, which have
been registered and published in the manner required by Finnish law.
Should the AGM carry the Board's proposal the transfer could take place
on January 1, 2008.
Action Plan to Improve Competitiveness and Profitability
Elcoteq announced in December 2006 that it would begin implementation of
an action plan to accelerate improvements to the companys
competitiveness, profitability and cost-efficiency. The target is to
achieve annual savings in the amount of 20 million euros. The action plan
could contain, among other things, reorganizations and structural changes
especially in Europe and the Americas. The company will begin personnel
negotiations with employee representatives in Finland in February 2007.
The need for possible personnel reductions in Finland is estimated to be
at most roughly 500 people.
The company estimates that the action plan will incur one-time costs in
the order of 20 million euros in 2007. Most of the one-time costs will
probably be recognized in the first-quarters result.
Most of the impact of the plan will start to become visible in Elcoteqs
result in the latter part of 2007.
In addition to the aforementioned action plan, Elcoteq is also
undertaking several other measures designed to raise its profitability
and competitive efficiency. These include a global program of production
efficiency enhancing measures at all the companys manufacturing plants
and the adoption of a new contract and invoicing model in Europe. The
Boards proposal to transfer the companys domicile is likewise part of
the measures aimed at improving competitiveness.
Prospects
Market research institutes forecast more than 10% annual growth in the
EMS and ODM markets in the years ahead, and an approximate 10% increase
in sales of mobile phones during 2007. The market value is expected to
remain at the previous years level owing to a continuous decline in
average mobile phone prices. The end-product market for communications
networks is forecast to grow by about 9% in 2007. The major growth areas
are the developing countries of Asia-Pacific and Latin America, where the
number of mobile phone users is increasing rapidly.
Elcoteqs strategy is to focus on serving communications technology
companies. The company is developing an end-to-end ODM service chain for
precisely the needs of these customers. Elcoteq supplements its own
service portfolio by working in co-operation with various design
companies and component suppliers.
Balancing of the customer base and expansion into new product areas that
suit the companys operating model and manufacturing processes will
continue to be key goals alongside strengthening of the service offering.
Net sales in the first quarter of 2007 are forecast to be at the same
level as one year earlier. The operating income, before the possible one-
time costs arising from the action plan, is expected to be a loss owing
to the companys heavy cost structure with respect to market conditions
and weak capacity utilization. The cost structure will be rectified with
the action plan and capacity utilization at the manufacturing plants will
be improved through more intensive sales efforts. Most of the impacts of
these measures will be visible in the companys result in the latter part
of 2007.
Elcoteq forecasts that its net sales in 2007 will increase in pace with
the EMS market in general and that its operating income, excluding one-
time items, will improve compared with 2006.
Boards Dividend Proposal
The Board of Directors proposes to the Annual General Meeting on March
22, 2007 that a dividend of 0.20 euros per share be paid on the financial
year 2006, i.e. roughly half of the companys net profit.
Annual General Meeting 2007
Elcoteqs Annual General Meeting will be held in Helsinki on March 22,
2007. The Boards Nomination Committee proposes to the Annual General
Meeting that the Boards current members be re-elected. All have given
their consent to re-election.
The invitation to the of meeting and the matters to be submitted to the
Annual General Meeting for its decision will be published in a stock
exchange release on February 21, 2007, on the companys website
www.elcoteq.com, and in the Finnish newspapers Kauppalehti and Helsingin
Sanomat. The company will also mail the invitation to all shareholders
whose address in known to the company.
Espoo, Finland, February 6, 2007
Board of Directors
Further information:
Jouni Hartikainen, President and CEO, tel. +358 10 413 11
Teo Ottola, CFO, tel. +358 10 413 1240
Reeta Kaukiainen, Director, Communications and IR, tel. +358 (0)10 413
1742, GSM +358 50 522 0924
Press Conference
Elcoteq will hold a combined conference, conference call and webcast in
the Paavo Nurmi Room of Hotel Kämp (address: Pohjoisesplanadi 29,
Helsinki) starting at 2.30 pm on Wednesday February 7, 2007. The
language of the conference will be English.
To participate in the conference call, please phone 5-10 minutes before
the start of the conference on +44 20 7162 0125, code Elcoteq.
The conference can also be heard direct as a webcast on the internet or
as a recording on Elcoteqs website www.elcoteq.com.
The presentation material (pdf file) shown at the conference will be
available on the companys website, www.elcoteq.com, from about 11.00
(EET) on February 7.
Elcoteq publishes its interim report for the first three months of 2007
at 9.00 (EET) on April 26.
ENCLOSURES
1 Income statement
2 Balance sheet
3 Cash flow statement
4 Calculation of changes in shareholders' equity
5 Segment reporting
6 Personnel
7 Key figures
8 Impact of business combinations on the consolidated financial
statements
9 Assets pledged and contingent liabilities
10 Quarterly figures
APPENDIX 1
CONSOLIDATED INCOME STATEMENT, (IFRS), EUR 1,000
Jan. 1 - Jan. 1 -
Dec. 31, 2006 Dec. 31, 2005
NET SALES 4,284,333 4,169,046
Change in work in progress
and finished goods 17,339 -11,163
Other operating income 6,970 5,809
Production materials and services -3,787,467 -3,638,528
Personnel expenses -205,871 -202,596
Depreciation -82,701 -78,238
Writedowns - -279
Depreciation and writedowns, total -82,701 -78,517
Other operating expenses -188,700 -167,565
OPERATING INCOME 43,902 76,486
Financial income, total 3,165 4,788
Financial expenses, total -26,847 -20,751
Share of the losses of
associated companies -985 -1,178
INCOME BEFORE TAXES 19,237 59,346
Income taxes -4,651 -18,442
NET INCOME 14,586 40,904
ATTRIBUTABLE TO:
Equity holders of the parent* 12,065 41,271
Minority interests 2,521 -367
14,586 40,904
Earnings per share calculated on profit
attributable to equity holders of the parent company
Earnings per share (EPS), EUR 0.38 1.34
Earnings per share (EPS), diluted, EUR 0.37 1.28
* Net profit reported by the company
APPENDIX 2
CONSOLIDATED BALANCE SHEET (IFRS) Dec. 31, 2006 Dec. 31, 2005
ASSETS, EUR 1,000
Non-current Assets
Intangible assets
Intangible rights 7,625 6,439
Product development costs 4,199 1,889
ADP software 7,182 7,629
Advance payments and
construction in progress 682 5,731
Goodwill 10,578 10,615
Goodwill on consolidation 15,098 15,098
45,365 47,400
Tangible assets
Land and water areas 2,611 3,952
Investment properties 1,846 2,042
Buildings 71,252 79,033
Machinery and equipment 164,307 149,621
Advance payments and construction
in progress 5,005 10,085
245,021 244,734
Investments
Shares and equity interests in
associated companies 2,261 2,426
Receivables from associated companies 87 262
Other shares and equity interests 11,379 11,399
13,728 14,087
Long-term receivables
Deferred tax assets 15,218 10,010
Other loans receivable 99 4
15,317 10,014
Non-current assets, total 319,431 316,235
Current Assets
Inventories
Raw materials 286,646 270,368
Work in progress 32,727 24,678
Finished goods 39,031 33,304
Advance payments 620 12
359,025 328,362
Current receivables
Accounts receivable 348,305 352,713
Loans receivable 2,188 7,976
Other receivable 26,242 44 ,312
Prepaid expenses and accruals 18,784 16,441
Tax assets based on
taxable income in year 7,346 -
402,865 421,442
Cash and equivalents 82,298 101,351
Current assets, total 844,187 851,155
ASSETS, TOTAL 1,163,618 1,167,390
SHAREHOLDERS' EQUITY
AND LIABILITIES, EUR 1,000
Equity attributable to equity holders of the parent
Share capital 12,616 12,441
Additional paid-in capital 218,704 215,988
Other reserves 8,369 8,369
Translation differences -1,864 -2,883
Retained earnings 43,767 21,794
Net income for the year 12,065 41,271
Equity attributable to equity holders
of the parent, total 293,656 296,980
Minority interests 9,647 6,885
Total equity 303,303 303,865
Liabilities
Long-term liabilities
Subordinated notes 139,087 108,978
Medium-term notes 39,966 39,956
Loans from pension plans 1,213 1,678
Other debt 64 628
Deferred tax liability 5,111 3,062
185,440 154,302
Payments due within one year -605 -702
Long-term liabilities, total 184,835 153,600
Current liabilities
Loans from financial
institutions 30,096 40,691
Loans from pension plans 462 465
Advances received 518 216
Accounts payable 578,774 582,602
Other current liabilities 12,444 11,262
Accrued expenses 49,193 64,211
Tax liabilities based on
taxable income in year 2,179 7,698
Provisions 1,816 2,780
Current liabilities, total 675,480 709,925
Liabilities, total 860,315 863,525
SHAREHOLDERS' EQUITY
AND LIABILITIES, TOTAL 1,163,618 1,167,390
APPENDIX 3
CONSOLIDATED CASH FLOW STATEMENT (IFRS), EUR 1,000
Jan. 1 - Jan. 1 -
Dec. 31, 2006 Dec. 31, 2005
CASH FLOW FROM OPERATING ACTIVITIES
Income before taxes 19,237 59,345
Adjustments:
Scheduled depreciation
and amortization 82,701 78,517
Unrealized foreign exchange
gains and losses -11,427 13,629
Other non-payment-related
income and expenses 1,275 831
Financial income and expenses 26,703 19,439
Other adjustments -4,266 768
Cash flow before change
in working capital 114,223 172,530
Change in working capital: *)
Change in non-interest-bearing
current receivables 3,807 -122,088
Change in inventories -39,558 -9,986
Change in non-interest-bearing
current liabilities 19,690 115,222
Cash flow from operating activities before financial
items and taxes 98,162 155,677
Interest and other financial expenses -21,443 -16,140
Operations-related interest income 2,055 2,725
Income taxes paid -13,813 -14,018
Cash flow from operating activities 64,961 128,244
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of tangible and
intangible assets -101,279 -126,626
Proceeds from disposal of tangible
and intangible assets 17,173 20,630
Acquisitions -7,619 -
Disposals 6,001 2,146
Repayment of loans receivable 1 17
Cash flow from investing activities -85,724 -103,834
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from share issue 2,890 3,369
Change in current debt -7,459 -25,757
Issuance of long-term debt 29,839 79,529
Repayment of long-term debt -466 -4,450
Dividends paid -20,573 -19,959
Cash flow from financing activities 4,231 32,731
CHANGE IN CASH AND EQUIVALENTS -16,532 57,141
Cash and equivalents on January 1 101,351 39,239
Effect of exchange rate changes
on cash held -2,521 4,972
Cash and equivalents on December 31 82,298 101,351
*) The change in working capital includes the change in sold accounts
receivable. The impact of this
change is to improve cash flow by 38.9 million euros during the reporting
period 1-12/2006 and to weaken by 15.2 million euros during 1-12/2005.
APPENDIX 4
CALCULATION OF CHANGES IN SHAREHOLDERS´EQUITY (IFRS), EUR 1,000
Attributable to equity holders of the parentMinority
Total
interestsequity
Share Additional Other TranslationRetained Total
capital paid-in reserves differ-earnings
capital rences
BALANCE AT JAN. 1, 2006
12,441 215,988 8,369 -2,883 63,065296,980 6,885303,865
Issue of share
capital 174 2,716 2,890 2,890
Equity hedge
of subsidiaries 1,935 1,935 1,935
Translation
differences -915 -915 240 -675
Share based
payments 1,275 1,275 1,275
Dividends -20,573-20,573 -20,573
Net income 12,065 12,065 2,521 14,586
BALANCE AT DEC. 31, 2006
12,616 218,704 8,369 -1,864 55,831293,656 9,647303,303
BALANCE AT JAN. 1, 2005
12,256 212,226 8,354 -2,687 40,116270,265 6,575276,840
Issue of share
capital 185 3,184 3,369 3,369
Transfer to translation
difference 578 -578 - -
Increase in
other reserves 15 -15 - -
Equity hedge
of subsidiaries -2,602 -2,602 -2,602
Translation
differences 2,999 2,999 330 3,329
Share based
payments 1,637 1,637 1,637
Ownership change
Of group
companies - 348 348
Dividends -19,959-19,959 -19,959
Net income 41,271 41,271 -367 40,904
BALANCE AT DEC. 31, 2005
12,441 215,988 8,369 -2,883 63,065296,980 6,885303,865
APPENDIX 5
SEGMENT REPORTING
Elcoteq has organized its business operations into two business areas:
Terminal Products and Communications Networks. Elcoteq reports these as
its primary segments applying the principles defined in IAS 14 (Segment
Reporting).
As its secondary segments Elcoteq reports its three geographical areas:
Europe, Asia-Pacific and Americas.
Segment reporting is based on the companys internal reporting system.
Accounting Principles
There are no intersegment sales between the primary segments.
The net sales of the secondary segments are based on where the segments
assets are located. Net sales according to customer location are shown
under Breakdown of net sales by market.
The items shown for the segments are those that are either directly
attributable to the segments or that can be reasonably allocated to them.
The segments assets comprise intangible and tangible rights, investments
in associated companies, inventories, accounts receivable and allocatable
prepaid expenses and accruals.
The segments liabilities are its accounts payable and allocatable
accrued expenses.
Non-Allocated Items
Non-allocated expenses in the income statement consist of the expenses of
the Groups corporate office.
Non-allocated assets consist mainly of cash and bank receivables as well
as prepaid expenses and accruals not allocated to the segments.
Non-allocated liabilities are mainly interest-bearing liabilities,
deferred tax liabilities and accrued expenses not allocated to the
segments.
Investments in associated companies that cannot be allocated to the
segments are entered under non-allocated assets.
Business Areas
The Terminal Products business area designs and manufactures terminal
devices based on the most advanced wireless communications technology.
Its products include mobile phones and their accessories, cordless phones
and set-top boxes.
Communications Networks business area serves customers operating in the
areas of mobile phone networks, wireless local area networks, and
broadband networks. The business areas products include base station
equipment such as plug-in units and routers for mobile phone networks,
and broadband network products.
BUSINESS AREAS IN 2006, MEUR
TerminalCommunicationsNon-allocated Total
Products Networks
Net sales 3,512.1 772.3 - 4,284.3
Depreciation 56.0 22.1 4.6 82.7
Operating income 68.4 22.4 -46.8 43.9
Share of associated
companies' results 0.0 0.0 -1.0 -1.0
Assets 710.8 322.3 130.5 1,163.6
Investments in associated
companies 0.2 1.7 0.3 2.3
Liabilities 470.6 145.4 244.3 860.3
Capital expenditures 85.4 23.5 7.9 116.9
Sold accounts
receivable* 131.7 56.0 - 187.7
BUSINESS AREAS IN 2005, MEUR
TerminalCommunicationsNon-allocated Total
Products Networks
Net sales 3,439.0 730.1 - 4,169.0
Depreciation 55.1 18.9 4.6 78.5
Operating income 95.0 23.2 -41.7 76.5
Share of associated
companies' results 0.0 -0.3 -0.9 -1.2
Assets 737.7 277.7 152.1 1,167.4
Investments in
associated companies 0.2 1.9 0.3 2.4
Liabilities 491.9 129.1 242.6 863.5
Capital expenditures 88.5 30.9 4.2 123.6
Sold accounts receivable* 96.1 52.7 - 148.8
* not included in the segment's assets
Geographical areas
Elcoteq's geographical areas are Europe, Asia-Pacific and Americas.
GEOGRAPHICAL AREAS IN 2006, MEUR
EuropeAsia-Pacific Americas Non- Total
allocated
Net sales 2,425.4 1,094.1 764.8 - 4,284.3
Assets 618.3 263.1 164.0 118.1 1,163.6
Capital expenditures 49.4 40.5 19.0 7.9 116.9
Sold accounts
receivable* 152.7 29.3 5.7 - 187.7
GEOGRAPHICAL AREAS IN 2005, MEUR
EuropeAsia-Pacific Americas Non- Total
allocated
Net sales 2,345.0 1,069.4 754.6 - 4,169.0
Assets 541.8 291.6 184.2 149.9 1,167.4
Capital expenditures 72.2 37.8 9.5 4.2 123.6
Sold accounts
receivable* 132.0 - 16.8 - 148.8
* Not included in the segment's assets
BREAKDOWN OF NET SALES BY MARKET, MEUR
2006 2005
Europe 2,342.5 2,857.4
Americas 905.7 767.4
Asia-Pacific 1,036.2 544.3
4,284.3 4,169.0
APPENDIX 6
PERSONNEL
The Group had on average 16,651 (15,242) employees during the year,
distributed geographically as follows.
At Dec. 31 At Jan. 1 Change Average
Finland 668 789 -121 737
Brazil 176 204 -28 214
Hong Kong 60 52 8 47
India 777 299 478 568
Japan 4 4 - 4
China 5,323 5,255 68 5,247
Luxembourg 1 - 1 1
Mexico 3,138 2,353 785 2,744
Romania 201 - 201 55
Sweden 7 7 - 7
Germany 453 419 34 428
Switzerland 9 8 1 8
Hungary 3,311 2,523 788 2,774
USA 157 103 54 121
Russia 483 281 202 351
Estonia 2,937 3,454 -517 3,345
Total 17,705 15,751 1,954 16,651
On December 31, 2006 the Group employed 23,298 people, of whom 17,705
were on Elcoteq's payroll.
APPENDIX 7
FIVE YEARS IN FIGURES
2006 2005 2004* 2003 2002
OPERATIONS
Net sales, MEUR 4,284.3 4,169,0 2,921,8 2,235,7 1,840,2
of which
outside Finland, % 89.7 81.4 86.2 81.0 77.5
Gross capital
expenditures, MEUR 116.9 123.6 128.3 68.1 78.0
(does not include operating leases)
Employees, average 16,651 15,242 13,065 11,044 8,127
PROFITABILITY
Operating income before depreciation
and amortization
(EBITDA) 126.6 155.0 117.6 88.1 74.7
Operating
income, MEUR 43.9 76.5 57.3 30.5 25.5
as percentage of
net sales, % 1.0 1.8 2.0 1.4 1.4
Income before
taxes, MEUR 19.2 59.3 44.9 22.5 18.6
as percentage
of net sales, % 0.4 1.4 1.5 1.0 1.0
Net income ***, MEUR 12.1 41.3 30.7 20.7 16.1
as percentage
of net sales, % 0.3 1.0 1.1 0.9 0.9
Return on equity
(ROE), % 4.8 14.1 15.1 8.2 7.4
Return on investment
(ROI/ROCE), % 9.1 17.6 19.5 10.2 9.2
FINANCIAL RATIOS
Current ratio 1.2 1.2 1.1 1.2 1.2
Solvency, % 26.1 26.0 30.5 32.6 36.6
Gearing 0.4 0.3 0.4 -0.0 -0.1
Interest-bearing
liabilities, MEUR 210.3 191.7 137.4 63.3 42.6
Interest-bearing
net debt, MEUR 128.0 90.3 98.2 -0.4 -33.4
PER SHARE DATA
Earnings per
share (EPS), EUR 0.38 1.34 1.01 0.70 0.54
Diluted earnings per
share (EPS), EUR 0.37 1.28 0.96 0.67 -
Shareholders' equity
per share ***, EUR 9.31 9.55 8.82 8.46 8.40
Share price at the end
of the year, EUR 9.78 20.15 17.89 15.98 10.80
Dividend per
share **, EUR 0.20 0.66 0.65 0.90 0.40
Payout ratio **, % 52.3 49.7 49.6 131.0 73.5
Dividend yield **, % 2.0 3.3 3.6 5.6 3.7
P/E ratio 25.7 15.0 14.1 22.9 19.7
Adjusted weighted average number of
shares in issue during the period
shares 31,338,61130,764,70530,420,47329,572,82629,49
1,652
Adjusted number of shares in issue
at the end of the period
Shares 31,539,32731,103,57730,640,87730,190,52729,49
1,652
* The key figures for the income statement and earnings per share are
calculated on continuing operations.
Other key figures include the impact of the discontinued operation.
** The dividend in 2006 is the proposal of the Board of Directors to the
Annual General Meeting.
*** Amount attributable to equity holders of the parent company. The net
income for 2004 does not include the income of the discontinued
operation.
Financial statements have been prepared in compliance with the IFRS
standards beginning from January 1, 2003. Financial statement 2002 has
been prepared in compliance with the Finnish Accounting Act, which came
into effect on December 31, 1997.
APPENDIX 8
IMPACT OF BUSINESS COMBINATIONS OF THE CONSOLIDATED FINANCIAL STATEMENTS,
EUR 1,000
Elcoteq signed a manufacturing supply agreement with Andrew Corporation
in September 2006 under which Elcoteq took over Andrews subsidiary in
Arad, Romania, as well as the machinery, equipment and inventories
related to the acquired operations. The assets and liabilities were
acquired at fair value and will be used in the manufacture of products to
be supplied to Andrew Corporation. The impact of this supply agreement on
the companys result in 2006, assuming that the agreement had been signed
at the beginning of 2006, cannot be reliably determined because the
pricing method for the production operation transferred to Elcoteq as a
result of the agreement was not the same as before the agreement took
effect.
Elcoteq did not acquire new businesses in 2005.
The assets and liabilities acquired in business combinations are valued
at their fair values.
Assets and liabilities acquired in business combinations in 2006 and
2005:
2006 2006 2005 2005
Fair Value Book Value Fair ValueBook Value
Non-current assets
Intangible assets 1 1 - -
Tangible assets 2,831 2,831 - -
Current assets
Inventories 5,122 4,864 - -
Current receivables 824 824 - -
Cash and equivalents 406 406 - -
Assets total 9,184 8,926 - -
Liabilities
Current liabilities 1,159 1,159 - -
Acquisition cost 8,025 7,767 -
Acquisition price
paid in cash 8,025
Cash and equivalents of
acquired subsidiary -406
Impact on cash flow 7,619
APPENDIX 9
ASSETS PLEDGED AND CONTINGENT LIABILITIES, EUR 1,000
2006 2005
ON BEHALF OF OTHERS
Guarantees 8 8
LEASING COMMITMENTS
Operating leases, production
machinery (excl. VAT) 48,155 45,620
Rental commitments, real-estate
(excl. VAT) 27,612 25,898
DERIVATIVE CONTRACTS
Foreign currency derivative instruments
Forward contracts, transaction risk
Nominal value 275,444 378,905
Fair value -5,101 -1,358
Forward contracts, translation risk
Nominal value 35,533 28,857
Fair value 285 -129
Forward contracts, financial risk
Nominal value 131,085 98,143
Fair value -46 -996
Interest rate and foreign exchange swap contracts
Nominal value 4,000 2,500
Fair value 117 -180
The derivatives have been valued using the market prices and the exchange
reference rates of the European Central Bank on the balance sheet date.
The figures include also the closed positions.
OTHER COMMITMENTS
In calculating value-added tax for China in 2006, Elcoteq has applied a
method that has so far not received the written approval of the tax
authorities. Should this approval not be forthcoming, the effect would be
to reduce Elcoteq´s result substantially. During previous years Elcoteq
has been granted the approval afterwards and therefore the company has
estimated the risk to be small and has made no provision.
Group companies are engaged in certain court cases. These are not
expected to have a significant effect on the Groups result.
APPENDIX 10
QUARTERLY FIGURES
INCOME STATEMENT, MEUR
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2006 2006 2006 2006 2005 2005 2005 2005
NET SALES 1,104.6 1,169.11,029.6 981.11,182.0 1,194.7 982.1 810.3
Change in work in progress
and finished
goods -8.1 19.4 -6.5 12.6 2.1 1.7 -9.8 -5.2
Other operating
income 3.2 1.0 1.1 1.7 1.2 1.1 1.8 1.7
Operating
expenses -1,070.9-1,151.0 -991.9 -968.2-1,137.8-1,150.5-940.1-780.3
Depreciation and
writedowns -22.0 -21.8 -20.1 -18.9 -22.1 -21.4 -18.0 -17.0
OPERATING INCOME 6.9 16.6 12.2 8.3 25.5 25.6 15.9 9.5
% of net sales 0.6 1.4 1.2 0.8 2.2 2.1 1.6 1.2
Financial income and
expenses -7.4 -6.2 -5.0 -5.1 -5.6 -4.4 -3.2 -2.8
Share of profits and losses
of associates -0.3 -0.2 -0.2 -0.3 -0.2 -0.2 -0.6 -0.2
INCOME BEFORE TAXES-0.8 10.1 7.0 2.9 19.7 21.0 12.1 6.5
Income taxes 1.6 -3.4 -2.0 -0.8 -4.6 -7.4 -3.8 -2.7
NET INCOME FOR
THE PERIOD 0.8 6.7 5.0 2.1 15.1 13.7 8.3 3.8
ATTRIBUTABLE TO:
Equity holders
of the parent -0.3 5.9 4.4 2.1 14.9 13.7 8.3 4.4
Minority interests 1.1 0.8 0.6 -0.0 0.2 0.0 -0.0 -0.6
0.8 6.7 5.0 2.1 15.1 13.7 8.3 3.8
BALANCE SHEET, MEUR Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2006 2006 2006 2006 2005 2005 2005 2005
ASSETS
Non-current Assets
Intangible assets45.4 47.8 49.4 48.2 47.4 47.5 46.6 43.9
Tangible assets 245.0 263.6 242.1 238.2 244.7 245.4 215.1 206.7
Investments 13.7 14.0 14.0 14.0 14.1 14.1 14.1 14.4
Long-term
receivables 15.3 14.2 11.2 10.6 10.0 9.8 16.2 16.5
Non-current assets,
total 319.4 339.6 316.7 311.0 316.2 316.8 292.0 281.4
Current assets
Inventories 359.0 407.4 366.1 339.6 328.4 363.4 323.2 331.5
Current
receivables 402.9 518.1 447.9 425.7 421.4 487.5 462.8 388.6
Cash and
equivalents 82.3 102.4 41.0 143.5 101.4 106.7 60.5 70.2
Assets classified
as held for sale - - - - - 1.7 - -
Current assets,
total 844.2 1 028.0 854.9 908.9 851.2 959.3 846.5 790.3
ASSETS,
TOTAL 1,163.6 1,367.61,171.71,219.91,167.4 1,276.01,138.51,071
.7
SHAREHOLDERS' EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital 12.6 12.6 12.6 12.5 12.4 12.3 12.3 12.3
Other shareholders'
equity 281.0 279.9 272.9 267.1 284.5 267.1 252.8 243.3
Equity attributable
to equity 293.7 292.5 285.4 279.5 297.0 279.4 265.1 255.6
holders of the parent, total
Minority
interests 9.6 7.9 7.0 6.7 6.9 7.3 6.9 6.7
Total equity 303.3 300.4 292.5 286.3 303.9 286.7 272.0 262.3
Long-term liabilities
Long-term loans 179.7 179.9 179.9 180.0 149.9 150.4 101.1 72.3
Other long-term debt5.2 4.3 4.1 3.7 3.7 4.0 4.2 4.9
Long-term liabilities,
total 184.8 184.3 184.0 183.7 153.6 154.3 105.3 77.1
Current liabilities
Current loans 30.6 92.0 26.2 38.7 41.2 53.4 69.8 135.9
Other current
liabilities 643.1 788.3 666.3 708.9 666.0 778.9 686.6 594.3
Provisions 1.8 2.5 2.7 2.5 2.8 2.7 4.8 2.1
Current liabilities,
total 675.5 882.9 695.2 750.0 709.9 835.0 761.2 732.2
SHAREHOLDERS' EQUITY AND LIABILITIES,
TOTAL 1,163.6 1,367.61,171.71,219.91,167.4 1,276.01,138.51,071
.7
Personnel on average during
the period 17,431 16,930 16,581 15,748 15,903 15,16215,03014,560
Gross capital
expenditures, MEUR 32.3 38.5 30.1 16.0 35.4 48.8 17.8 21.6
ROI/ROCE from 12
preceding months, % 9.1 12.1 15.7 16.0 17.6 17.5 17.7 16.8
Earnings per share
(EPS), EUR -0.01 0.19 0.14 0.07 0.48 0.44 0.27 0.14
Solvency ratio, % 26.1 22.0 25.0 23.5 26.0 22.5 23.9 24.5
CONSOLIDATED CASH FLOW STATEMENT, MEUR
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2006 2006 2006 2006 2005 2005 2005 2005
Cash flow before change in
working capital 23.8 36.8 28.4 25.2 47.3 47.1 48.4 29.7
Change in
working capital 30.7 13.7 -73.1 12.6 -11.4 21.6 26.6 -53.7
Financial items
and taxes -11.6 -7.7 -6.6 -7.3 -10.3 -8.1 -5.7 -3.3
Cash flow from
operating activities43.1 42.6 -51.3 30.6 25.6 60.6 69.3 -27.3
Cash flow from
investing activities -1.8 -47.3 -20.3 -16.3 -20.1 -47.1 -22.3 -14.3
Cash flow before
financing activities41.2 -4.7 -71.5 14.2 5.5 13.5 47.0 -41.6
Proceeds from
share issue 0.5 0.5 1.4 0.5 2.4 0.1 0.1 0.8
Change in
current debt -60.9 65.4 -10.3 -1.7 -12.7 -16.8 -67.3 71.0
Issuance of
long-term debt - - - 29.8 - 49.4 30.2 -
Repayment of
long-term debt -0.2 -0.1 -0.2 - -1.1 -0.5 -2.1 -0.7
Dividends paid - - -20.6 - - - -20.0 -
Cash flow from financing
activities -60.6 65.9 -29.7 28.6 -11.5 32.1 -58.9 71.0
Change in cash
and equivalents -19.3 61.1 -101.1 42.8 -6.1 45.7 -11.9 29.4
Cash and equivalents at the beginning
of the period 102.4 41.0 143.5 101.4 106.7 60.5 70.2 39.2
Effect of exchange rate changes
on cash held -0.8 0.4 -1.4 -0.7 0.7 0.5 2.3 1.5
Cash and equivalents at
the end of the period82.3 102.4 41.0 143.5 101.4 106.7 60.5 70.2
BUSINESS AREAS Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2006 2006 2006 2006 2005 2005 2005 2005
Net sales, MEUR
Terminal Products898.6 967.9 837.6 808.0 999.5 999.3 795.0 645.2
Communications
Networks 206.0 201.2 192.0 173.1 182.6 195.4 187.1 165.1
Total 1,104.6 1,169.11,029.6 981.11,182.0 1,194.7 982.1 810.3
Segment´s operating income, MEUR
Terminal Products 13.2 18.6 20.7 15.9 32.2 26.6 19.4 16.9
Communications
Networks 5.7 8.8 3.2 4.6 2.9 9.7 8.0 2.6
Group´s non-allocated
expenses/income -12.1 -10.8 -11.6 -12.3 -9.6 -10.7 -11.5 -10.0
Total 6.9 16.6 12.2 8.3 25.5 25.6 15.9 9.5
GEOGRAPHICAL AREAS Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2006 2006 2006 2006 2005 2005 2005 2005
Net Sales, MEUR
Europe 635.8 659.4 599.7 530.5 641.6 686.5 550.9 466.0
Asia-Pacific 260.3 307.2 272.8 253.8 344.7 321.0 226.6 177.1
Americas 208.5 202.4 157.1 196.8 195.8 187.1 204.5 167.2
Total 1,104.6 1,169.11,029.6 981.11,182.0 1,194.7 982.1 810.3
ELCOTEQ SES FINANCIAL STATEMENTS BULLETIN JANUARY - DECEMBER 2006
| Source: Elcoteq