Elcoteq Network Corporation Company presentation
March 2003
Slide 1 Elcoteq in brief
• Largest European EMS provider, #6 globally, #3 in wireless communications
• Focus on communications technology products
• Founded in 1984 by Lohja Corporation
• Listed on the Helsinki Exchanges since 1997
• Net sales MEUR 1,840.2 in 2002
• Operations in 12 countries on three continents
• Approx. 10,200 employees
• Total plant floor space 183,500 m2
Slide 2 CAGR of net sales 58% between 1991 and 2002
MEUR % 3500 250 3000 194% 200 2500 150 2000 132% 100 1500 82% 91% 63% 70% 44% 50 1000 31% 40% -1% 500 0 -16% 0 -50
94 9 1991 1992 1993 1 1995 1996 1997 1998 1999 2000 2001 2002 2003
Net sales, MEUR Estimate Year to year growth, %
Slide 3 Elcoteq’s strategy Focus on communications technology Products – Terminal products, cellular networks, broadband communications networks and wireless local area networks – Wider service offering to meet customer needs and demand • Specific development areas: design & NPI services, sourcing and repair services Customers – Global, medium size and smaller start-up OEM’s Company image and brand – Unique global electronics manufacturing company for communications technology products
Slide 4 Competitive advantages – Elcoteq’s 7 C’s Concentration - Focus on communications technology products Competence - Expertise especially in wireless telecom - Skilled personnel, high technology competence Co-evolution - Superb customer service - Close co-operation and confidentiality Consistency - Consistent plant network, machinery, uniform systems and processes - Transferability of resources on a global basis Cost-efficiency - 100 % of volume capacity in low-cost countries - Sourcing power through focusing Coverage - Global operations network; European origin - Full service range Continuous improvement - Competitive and unique service offering Slide 5 Organization
CEO Lasse Kurkilahti TP* CNE/IE** GROUP FUNCTIONS: EUROPE EUROPE ASIA-PACIFIC AMERICAS Business Control Teo Ottola Harri Ollila Jukka Jäämaa Jouni Hartikainen Douglas Brenner Treasury Tuula Hatakka Corp. Development Vesa Keränen Human Resources Riitta Savonlahti Communication Osmo Kammonen Marketing Johan Westermarck Quality Reijo Itkonen Legal affairs Jukka Hakkila
TERMINAL PRODUCTS Christer Härkönen
Operations Reijo Itkonen D/SCM & IM*** Panu Kaila
COMMUNICATIONS NETWORK EQUIPMENT Hannu Keinänen
* TP= Terminal Products ** CNE/IE= Communications Network Equipment and Industrial Electronics *** D/SCM & IM = Demand and Supply Chain Management and Information Management
Slide 6 GA Europe
Two organizations: • TP Europe • CNE/IE Europe
Key figures Vaasa, Finland
• Net sales in 2002 MEUR 1,286.7 Espoo, Lohja and Salo, Finland St. Petersburg, Russia • 6,200 employees Kista, Sweden Tallinn, Estonia • Plant floor-space 111,400 m² Units • Volume plants in Tallinn, Estonia; Pécs, Hungary and St. Petersburg, Überlingen, Germany Russia Baden, Switzerland Pécs, Hungary • NPI Centers in 5 countries • Elcoteq Design Center
Slide 7 GA Asia-Pacific
Key figures • Net sales in 2002 MEUR 470.6
Tokyo, Japan • 3,400 employees Seoul, Korea • Plant floor-space 53,800 m² Beijing Units
Dongguan • Volume plants in Beijing, Shenzhen Hong Kong Dongguan and Shenzhen, China • NPI Center in Beijing, China • Sales and Technical Support Offices in Hong Kong, China; Tokyo, Japan and Seoul, Korea
Slide 8 GA Americas
Key figures • Net sales in 2002 MEUR 82.9 • Approx. 500 employees • Plant floor-space 18,300 m² Dallas, USA
Units Monterrey, Mexico • Monterrey, Mexico: Volume manufacturing and NPI Center • Dallas, USA: sales office and NPI Center
9 Slide 9 Global coverage
Volume manufacturing Tallinn, Estonia Pécs, Hungary Espoo, Lohja, Salo, Turku & St. Petersburg, Russia Vaasa, Finland Beijing, China St.Petersburg, Russia Dongguan, China Kista, Sweden Shenzhen, China Tallinn, Estonia Überlingen, Germany Monterrey, Mexico Pécs, Hungary Baden, Switzerland Seoul, Korea Desig&NPI Centers (incl. low-volume Beijing, China Dallas, USA manufacturing) Dongguan, China Tokyo, Japan Shenzhen, China Espoo, Lohja, Salo, Monterrey, Mexico Hong Kong, China Turku and Vaasa, Finland St. Petersburg, Russia Tallinn, Estonia Überlingen, Germany Baden, Switzerland Beijing, China Dallas, USA Monterrey, Mexico Other locations Espoo, Finland Kista, Sweden Hong Kong, China Seoul, Korea Tokyo, Japan Slide 10 Dallas, USA Global footprint
Plant Country Founded/ Area Personnel Services acquired (m2) Jan. 2003 Europe Lohja Plants Finland 1991 14,000 623 NPI Center, low to medium volume production Vaasa Finland 1998 3,200 150 NPI Center, low volume production Tallinn Estonia 1992 31,000 1,966 NPI Center, high volume production St.Petersburg Russia 1997 2,500 181 Medium to high volume production Pécs Hungary 1998 46,000 2,608 High volume production, after-sales services Überlingen Germany 2000 5,200 186 NPI Center, low to medium volume production Baden Switzerland 2001 9,500 267 NPI Center, low to medium volume production Europe, total 111,400 5,981 Asia-Pacific Dongguan China 1999 13,000 880 High volume production Beijing China 2000 12,000 899 High volume production, NPI Center Beijing China 2003 20,000 696 High-volume production Shenzhen China 2003 8,800 934 High-volume production Hong Kong China 1999 52 Sales and technical support Asia-Pacific, total 55,300 3,461 Americas Monterrey Mexico 1999 18,300 461 High volume production, NPI Center
Other 296 Total 183,500 10,199
Slide 11 Terminal Products
• 73% of Elcoteq’s net sales in 2002 • Mobile phones and accessories, PDAs, wireless modules, home communication products • Customers e.g. Ascom, Motorola, Nokia, Philips, Sony-Ericsson, 450 Soutec, Swissvoice, Wavecom Net Sales (MEUR) 400 414 423 350 381
300 342 339 321 301 250 285
200
150
100
50
0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/2002 Slide 12 Communications Network Equipment • 13% of Elcoteq’s net sales in 2002 • Cellular networks, modules, antennas, broadband switches and routers, optical devices, etc. • Customers e.g. ADC, Allgon, Andrew Corporation, Ericsson, Guangzhou Thinker, LGP, Nokia80 Net Sales, MEUR 68 60 62 60 52 55 47 40 38 35
20
0 Q1/01 Q2/01 Q3/01 Q4/01 Q1/02 Q2/02 Q3/02 Q4/02 Slide 13 Integrated end-to-end services
PurchasingPurchasing DistributionDistribution NewNew ProductProduct After-After- andand GlobalGlobal andand DesignDesign SourcingSourcing IntroductionIntroduction salessales inboundinbound ManufacturingManufacturing outboundoutbound (NPI)(NPI) servicesservices logisticslogistics logisticslogistics
Pre-manufacturing Core manufacturing Post-manufacturing services services services
Slide 14 Participation in industry arrangements • Sufficient financial resources – Positive cash flow – No net debt – Unused credit limits • Principal owners’ willingness to dilute their ownership through a secondary issue if – good business rationale – promotes EPS growth – promotes better valuation • Principal owners have no plans to sell their shares
Slide 15 Key financial indicators and targets
Indicator Target Achieved in 2002 EPS Continuous growth EUR 0.54
ROCE > 20% 9.2% Cash flow Positive MEUR 77 Gearing <1 -0.1
Slide 16 In a nutshell
• Unique strategy and ambitious goal – Back to growth and better profits • New tight organization model • Aggressive sales efforts Ö new customers • Wider service portfolio • Sufficient financial resources • Active participation in industry arrangements
Slide 17 EMS Industry
Slide 18 EMS growth Broadening continues OEM service divestitures offering continue
Asia’s OEMs growing EMS reduce importance supplier trends lists
Boom in Industry low-cost consolidation locations Polarization
Slide 19 EMS Industry Size (USD billion)
$B
20% 180 06 170 -20 003 160 R 2 AG 139 140 C 116 120 101 98 100 92
80
60
40
20
0 2001 2002 2003 2004 2005 2006
Source: Technology Forecasters, Inc. Dec 2002 Slide 20 EMS revenue growth estimates by industrial segments
Wireless telecom + $39 billion
Wired telecom/networking + $44 billion
Military/Aerospace
Medical 2005 Instrumentation 2000 Industrial
Consumer
Computer systems
Computer peripherals
Automotive
0 10203040506070$ billionSlide 21 Source: Technology Forecasters, Inc. EMS revenues, end 4Q02 (Trailing 12 months, USD million)
1. Flextronics 13,615 2. Solectron 12,261 Tier 1: "Mega-EMS" 3. Sanmina-SCI* 10,168 4. Celestica 8,272
5. Jabil Circuit 3,729
6. Elcoteq Network 1,749 7. Benchmark 1,630 Tier 2: "Niche Players" 8. Plexus 889 9. MSL 854 10. Pemstar 647
Slide 22 Top 10 companies’ share of total EMS market
1997 2001 Top 10 35% Top 10 33% 67%
65%
Total EMS market: $ 50 billion Total EMS market: $ 104 billion Top 10 companies: $ 17.5 billion Top 10 companies: $ 70 billion Others: $ 32.5 billion Others: $ 34 billion
Slide 23 Source: Technology Forecasters, Inc. Communications’ share of net sales Elcoteq Celestica Flextronics
58 % 87 % 44 %
Jabil Circuit Sanmina-SCI Solectron
34 % 53 % 57 %
Latest reported fiscal year
Sources: Lehman Brothers, Elcoteq Slide 24 Capacity by location
Elcoteq Celestica Flextronics
22 % 50 % 83 %
Jabil Circuit Sanmina-SCI Solectron
19 % 48 % 33 %
Low-cost location High-cost location Financial Statements 2002 Second best result ever
Slide 26 2002 net sales and result
2002 2001 Change Net sales, MEUR 1,840.2 1,862.5 -1.2% Operating profit, MEUR 25.5 -18.4 +43.9 MEUR
Profit before taxes, MEUR 18.6 -30.7 +49.3 MEUR EPS, EUR 0.54 -1.08 +1.62 EUR Equity/share, EUR 8.40 7.99 ROCE (trailing 12 months), % 9.2 -3.5 Cash flow after investments, 77 123 MEUR
Slide 27 Key figures in 2002
2002 2001 Capital employed, MEUR 304 323 Interest-bearing net debt, MEUR -33.4 39.4 Gross capital expenditure, MEUR 78 45.1 Gearing -0.1 0.2 Personnel at the end of period 10,176 8,350
Slide 28 Prospects 2003
• Elcoteq’s principal goals in 2003 are to – increase sales – expand customer base – improve internal efficiency – build an even more international base for business • Full-year net sales are estimated to total about three billion euros and result to improve • Compared to Q1/2002, first-quarter net sales are expected to increase by roughly one-third and result to improve
Slide 29 Net sales
MEUR
2500 2 213 2000 1 862 1 840
1500
1000 752 500 395 282 0 1997 1998 1999 2000 2001 2002
Slide 30 Net sales by quarter MEUR 800 690 700 600 591 556 532 494 500 470 456 438 433 428 402 425 400 277 300 203 200 155 118 100 0 I/99 III/99 I/00 III/00 I/01 III/01 I/02 III/02
Slide 31 Net sales in 2002
By Business Area By Geographical Area
57% 73%
26% 13% 12.5% 4.5% 13% Europe
Terminal Products Asia-Pacific
Communications Network Americas Equipment Industrial Electronics Industrial Electronics, Europe
Slide 32 Operating profit by quarter MEUR % 25 7 20.1 20 18.4 18.1 14.7 5 15 13.2 12.7 10 3 3.1 3.3 33 2.9 4.9 2.8 5 3.6 1.2 -3.8 -4.3 -6.5 1 0 0.7 0.9 I/00 II/00 III/00 IV/00 I/01 II/01 III/01 IV/01 I/02 II/02 III/02 IV/02 -5 0.3 -1 -7 Materials write-off -1.6 -10 -11,8 -2.5 -3 -15 -3.8 -20 -5
Operating profit Restructuring costs Operating profit as % of net sales
Slide 33 Profit/loss before taxes by quarter MEUR % 20 5 17.3 14.4 14.5 4 15 12.4 13.1 10.7 10 3 3.1 2.8 2.7 2.4 2 5 2.1 2.9 2.3 -0.7 -13.8 -19.1 -8.1 -1.3 1 0 I/00 II/00 III/00 IV/00 I/01 II/01 III/01 IV/01 I/02 II/02 III/02 IV/02 0 -5 -0.1 0.5 -0.3 -1 -10 -2 -2 -15 -3 -20 -3.2 -4 -4.5 -25 -5
Profit/loss before taxes as % of net sales
Slide 34 Earnings per share
Euro 1,5 1.38
1 0.54 0,5 0.44 0.32 0.21 -1.08 0 1997 1998 1999 2000 2001 2002 -0,5
-1
-1,5 Number of 23 315 500 shares 26 944 809 29 491 652
16 558 377 23 315 500 29 491 373
Slide 35 Capital expenditure and depreciation MEUR % 140 12,0 11.1 125.7 120 10,0 100 7.9 8,0 6.7 78 80 5.7 6,0 60 50.2 44 45.1 48.4 49.2 34.7 4,0 40 4.2 22.2 17.9 2.4 20 2,0 5.9 9.6 0 0,0 1997 1998 1999 2000 2001 2002
Capital expenditure Depreciation Investments as % of net sales
Slide 36 Average working capital days
70 60 60 54 55 50 42 41 40 40 39 35 34 37 30 27 10 21 22 20 20 23 18 10 19 11 9 7 0
9 9 9 9 0 0 0 0 1 1 1 1 2 2 2 2 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 I/ I/ I/ / I/ / I/ / I/ / I/ / I/ I/ I/ / I II IV II II IV II II IV I II IV Sold receivables
Slide 37 Cash flow
MEUR
150 123 100 77
50 -40 -167 0 1999 2000 2001 2002 -50
-100
-150
-200
Slide 38 Solvency ratio
% 70
60 9.3 50 7.2 40
30 4.2
20 52.7 43.8 27.5 35.1 39.6 36.6 10
0 1997 1998 1999 2000 2001 2002
Solvency ratio Impact of convertible capital notes on solvency ratio
Slide 39 Gearing
1 0,8 0,6 0.5 0.5 0,4 0.2 0.2 0,2 -0.5 -0.1 0 -0,2 1997 1998 1999 2000 2001 2002 -0,4 -0,6
Slide 40 Equity per share
Euro 10 9.37 8.40 7.99 8
6 4.53 4.81 5.04 4
2
0 1997 1998 1999 2000 2001 2002
Slide 41 Return on capital employed (ROCE) (Trailing 12 months) % 25 20.4 ROCE 20 17.4 17.5 15.7 14.6 15 8.4 9.2 10 7.3 8.2 6.4 6 4.4 5 0.3 0 -3.5
9 9 9 9 0 0 0 0 1 1 1 1 2 2 2 2 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 -5 I/ I/ I/ / I/ I/ I/ / I/ I/ I/ / I/ I/ I/ / I II IV I II IV I II IV -5.6 I -3.4II IV -10
Slide 42 Return on equity (Trailing 12 months)
% ROE 16.719.3 20 13.414.5 13.5 15 7.4 5.4 10 4 6.3 3.8 2.5 5 -0.6
0 9 9 9 9 0 0 0 0 1 1 1 1 2 2 2 2 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 -5 I/ I/ I/ / I/ I/ I/ / I/ I/ I/ / I/ I/ I/ / I II IV I II IV I -7.7II IV I I-10.6I IV -10 -11.7 -15 -14.4
-20
Slide 43 SMD capacity utilization rate % 100 85% 80
60
40
20
0
0 1 2 0 0 0 0 0 0 2 2 2 . . n n a a Jan. J J
Slide 44 Personnel at the end of period
12000
10000
8000
6000
4000
2000
0 1997 1998 1999 2000 2001 2002
Finland Estonia Hungary Mexico China Other
Slide 45 World’s leading EMS provider to communications technology customers
Slide 46