Kitron's overall operating revenues for the fourth quarter declined by 3.8 per cent from the same period of 2004 to NOK 443.5 million (NOK 461.1 million). This primarily reflects delays in starting up a number of large projects as well as a decline in markets for some of the group's customers. A high exchange rate for the Norwegian krone also had a negative effect.
Turnover has historically been at its highest in the fourth quarter. Sales by Kitron AS, the Norwegian electronic manufacturing services (EMS) business, represented 62.7 per cent of total group turnover for the period. Kitron AB, the Swedish EMS business, accounted for 19.6 per cent. Overall, EMS provided 88.7 per cent of sales both in the fourth quarter and for the year as a whole. Kitron Lithuania accounted for 6.4 per cent of group turnover in the fourth quarter and 7.5 per cent for the full year.
Kitron Microelectronics had a good year, and accounted for 11.3 per cent of total fourth quarter sales.
Group turnover for the full year totalled NOK 1 576.3 million (NOK 1 748 million). Kitron's overall gross margin amounted to 39.5 per cent in the fourth quarter, corresponding to an increase of 0.6 percentage points from the same period of last year. The gross margin for the group in 2005 was 40.3 per cent (39.2 per cent).
Profit and loss account
The operating loss after restructuring and oneoff costs for the fourth quarter was NOK 44.7 million, down by NOK 26.2 million from the same period of 2004. Operating loss for the year as a whole came to NOK 35.4 million (NOK -53.3 million). Kitron implemented a number of measures in 2004, which reduced its operating costs. That was again reflected in results for the fourth quarter, with payroll expenses and other operating costs reduced by NOK 14.4 million and NOK 9.2 million respectively from the same period of 2004. Realised cost reductions of NOK 23.6 million in the fourth quarter and NOK 88.6 million for the full year exceeded the target of NOK 70 million in savings for 2005.
As noted in the third-quarter report, it was resolved in October 2005 to reduce capacity in Kitron AS. The company planned the transfer of production from the Oslo and Kilsund units to other manufacturing sites. This process is due to be completed by 30 June 2006. In connection with the restructuring decision, a one-off charge of NOK 49.5 million was made against the fourth-quarter accounts. This figure is reduced compared to what was communicated in the third-quarter report, reflecting a lower write-down on the property in Kilsund and some reduction in estimated lease commitments in Oslo.
One-off costs totalling NOK 53.4 million incurred by the group in the fourth quarter break down as follows:
Restructuring costs: NOK 49.5 million
Write-down of receivables: NOK 2.5 million
Provision for project: NOK 1.4 million
Net financial expenses for the fourth quarter totalled NOK 5.3 million, up by NOK 4.3 million from the same period of last year. Currency gains account for the low financial expenses in the fourth quarter of 2004.
Balance sheet
Kitron's balance sheet at 31 December totalled NOK 652.5 million (NOK 610.8 million). Group
equity amounted to NOK 151.1 million, giving an equity ratio of 23.2 per cent. Capital locked up in stocks has been reduced, and was NOK 242.5 million at 31 December as against NOK 246.4 a year earlier. Capital tied up in accounts receivable amounted to NOK 90.4 million at 31 December (NOK 130.8 million). Sales of accounts receivable represented NOK 208 million (NOK 223 million).
As mentioned above, NOK 49.5 million in restructuring costs have been charged to the fourth-quarter accounts. NOK 45.2 million of this amount was outstanding at 31 December. The company's capitalised interest-bearing debt totalled NOK 52.6 million at 31 December (NOK 33.5 million), including NOK 11.8 million in long-term interest-bearing debt (NOK 16.2 million).
Kitron raised NOK 44.5 million in net additional equity through a private share placement during November. Cash flow from operations was NOK 62.3 million in the fourth quarter (NOK 82.5 million) and NOK 6.8 million for the full year.
Market developments
A positive trend in the Nordic EMS market is that product owners are increasingly considering the outsourcing of several stages in their manufacturing process, such as high-level assembly (HLA). EMS specialists are being invited to participate more extensively in the development process from concept to industrialisation for series production. Kitron is active at all stages here.
The group's deliveries are characterised by a high technological content, low volume and substantial flexibility in terms of both process and end product. Demand for such services is expected to grow in the Nordic and Baltic markets.
The business area Microelectronics is experiencing a positive trend, with a high level of activity. Aggressive marketing activities are expected to pay off in 2006. Growth in this market is primarily taking place in the data/telecom and industry segments. Microelectronics for new applications will also become more relevant in future, not least in lighting solutions and deliveries to the car industry. For this reason the German market looks promising to Kitron.
New orders for the fourth quarter totalled NOK 457 million, an increase of 10 per cent from NOK 416 million in the same period of 2004. This performance shows that Kitron is aggressively pursuing sales, and that prospects for 2006 are good.
Prospects
After making substantial cost savings over the past two years, Kitron now has a structure, which provides flexibility and robustness in relation to its markets. Kitron will give priority to profitability in 2006, and aims to realise identified savings opportunities in Norway. It will also work to identify new improvement opportunities - including in the Swedish business. Kitron expects that a reduced cost base and an increased order backlog will contribute to profitability in 2006.
The principal markets will remain Norway and Sweden, and a continued commitment in Lithuania is important in this context for maintaining the group's competitiveness. Kitron expects the Swedish part of the business to develop positively, since growth is likely to be highest in this market.
For more information, please contact:
CEO Jan T. Jørgensen, tel. +47 91 83 77 59
CFO Morten Jurs, tel. +47 9916 79 22
Presentation Q4 2005:
The full report with tables can be downloaded from the following link:
