Progress in a good market

Kitron has higher turnover and profitable operation. The Group increased production for existing customers during the third quarter. At the same time, increased order backlog provides for further improved operation and profitability.

 

Kitron's operating income for the quarter was 5.7 per cent higher than during the same period in 2005 and amounted to NOK 350.4 million (NOK 331.4 million). Due to stronger turnover in the Swedish part of the Microelectronics business area the EMS operation had a slight decrease in turnover, mainly in the Norwegian operation. The reduction is particularly a result of lower activity in the Defence/Marine market segment, but also to some extent in the Data/Telecoms segment. On the other hand the Industry segment and the Medical Equipment segment show increased turnover compared to the corresponding period last year.

 

Optimising working procedures has somewhat slowed Kitron AS production during the third quarter due to the co-location in Arendal. The optimalisation work will start to pay off for the operation from the start of the fourth quarter.

 

The gross margin amounted to 39.5 per cent during the quarter, which is in line with the

gross margin for the same period last year.

 

Kitron's operating profit for the third quarter was NOK 14.3 million compared to NOK 4.1 million for the corresponding period last year. The progress results from higher turnover and the benefits of the reorganisation Kitron has carried out in the Norwegian operation during the first and second quarters this year.

 

Despite the increase in turnover during the period the total payroll expenses were in line with corresponding expenses during the same period last year. As a result of the increased activity during the third quarter it has not been appropriate to reduce manning as much as the Group warned of in connection with the restructuring in the Norwegian EMS operation.

 

Other operational expenses have been reduced by NOK 2.2 million compared to the corresponding period last year. The reduction in costs shows that the structural measures carried out are providing the desired effect.

 

During the third quarter, net financial costs amounted to NOK 4.2 million, NOK 1.3 million lower than in the same period last year. The reduction is mainly the result of foreign exchange effects.

 

The company's balance sheet as at 30 September 2006 amounted to NOK 718.4 million as against NOK 608.2 million at the same time last year. Group equity was NOK 175.9 million, corresponding to an equity ratio of 24.5 per cent.

 

The capital tied up in inventory was NOK 317.3 million as at 30 September 2006 as against NOK 248.7 million at the same time last year. The higher capital tie-up is the result of the build-up for higher production during the fourth quarter - in line with Kitron's higher order backlog through recent quarters.

 

Capital tied up in trade debtors and other receivables was NOK 188.7 million at the end of the third quarter 2006. Corresponding capital tie-up at the same time in 2005 was NOK 175.0 million. The increase is mainly due to higher outstanding receivables in Kitron Microelectronics AB as a result of considerably higher turnover.

 

Group interest-bearing debt totalled NOK 148.0 million as at 30 September 2006, of which long-term interest-bearing bank debt amounted to NOK 4.0 million. Interest-bearing debt at the end of the third quarter of 2005 was NOK 63.5 million. The increase is mainly a result of higher drawings on the overdraft facility at the end of the period this year. This is connected to increased stocks and increased trade debtors at the end of the period.

 

The EMS market has grown considerably in recent times and is expected to have annual growth of about 11.6 per cent during the period up to 2010. International analyses demonstrate this (ETP - The Worldwide Electronics Manufacturing Services Market, Third Edition). There is general growth in the electronics industry and the fastest growing market segment is data/telecom. It is expected that more of the electronics manufacturers will outsource an increasing proportion of their production to EMS suppliers. The increase is expected to be from 23 per cent in 2005 to 29 per cent in 2010.

 

The business area is experiencing positive trends with existing customers demanding more and new customers wanting products industrialised. The technology within the Microelectronics business area is recognised in all segments. Attractive technology and great flexibility in production and volume matching have brought Kitron a range of new orders from existing customers - and the landing of some new ones. The demand has been particularly large from motor vehicle industry operators. The demand for assembly of complete products (HLA) is also increasing in the market for microelectronics.

 

Kitron's order intake during the third quarter increased by 14 per cent to NOK 402 million (NOK 353 million) and by 21 per cent during the first nine months of the year. The order backlog at the end of the quarter had reached NOK 978 million (NOK 768 million).

 

The order intake during the first nine months amounted to NOK 1,376 million, which represents an increase of 21 per cent compared to the same period last year.

 

Kitron expects further progress in the time ahead. The Group is participating in the upswing and high level of activity in the market. At the same time the restructuring of Kitron AS is providing a positive impact.

 

To ensure that Kitron secures its share of market growth, marketing work will be coordinated across the Group to a greater extent than before. This is expected to contribute to better utilisation of capacity. Increased order backlog and continuing effort to achieve an efficient operation are expected to contribute to a positive development.

 

CEO Jørgen Bredesen, tel +47 48 25 25 84

CFO Morten Jurs, tel +47 99 16 79 22