Eching near Munich, March 25, 2014 – Kontron AG, the globally leading provider of Embedded Computer Technology (ECT), has reached its operating and strategic targets for the financial year 2013. With the planned sale of the energy project business, Kontron is taking a major step towards focusing on its core business ECT. The activities of the energy project business are reported as “discontinued operations” in the annual financial statements of Kontron AG.
Order entries in the continued operations were muted in particular during the first three quarters of the year; they amounted to EUR 446.4 million for the full year after EUR 455.0 million in 2012, due to, among other things, one-off effects (including the energy project business: EUR 507.6 million, after EUR 522.1 million in 2012). But orders strongly recovered in the fourth quarter to EUR 143.9 million. Kontron generated revenues from continued operations of EUR 445.3 million after EUR 466.9 million in the previous year (including the energy project business: EUR 526.5 million after EUR 547.0 million in 2012). Beyond the still difficult market and industry environment, this result was also affected by negative currency effects of EUR 7.3 million. The switch to a royalty model for two customers also led to negative effects of about EUR 13.5 million. The gross margin increased to 25.5 percent (2012: 24.1 percent).
Earnings before interest and taxes (EBIT) and before one-off effects in the continued operations improved significantly to EUR 4.6 million after EUR -1.9 million in 2012. Earnings were affected by restructuring costs of EUR 33.5 million. The increase resulted from the implementation the “SHAPE” optimisation program and the “New Kontron” cost-cutting and efficiency program initiated in 2013. Adjusted for these one-off effects, the reported EBIT in the continued operations amounted to EUR -29.0 million after EUR -24.7 million in the previous year.
“We initiated an extensive cost-cutting and efficiency improvement programme in 2013 that, as expected, weighed on earnings. However, the ‘New Kontron’ measures have already yielded a number of results which show that we have made the right decision: our gross margin for instance climbed again to over 25 percent,” says Rolf Schwirz, CEO of Kontron AG. “We will be able to sustainably safeguard our position as a leading player in the ECT market only if our restructuring is implemented in full. That said, I am confident that we are on the right track.”
Driven by high restructuring expenses, the cash flow from continued operations declined to EUR 2.0 million (2012: EUR 46.2 million, positively affected by the sale of inventories in Malaysia). With a sound equity ratio of 55.5 percent, Kontron retains a healthy financial foundation in order to advance the cost-cutting programme and to benefit from the dynamic development in the ECT market.
Disciplined and successful implementation of “New Kontron”
The extensive cost-cutting and efficiency measures under the “New Kontron” program should stand Kontron AG in good stead to become lastingly profitable. The success hinges critically on the consolidation of sites in order to continue exploiting synergies in research and development, production and distribution. To achieve this objective, Kontron agreed on a reconciliation of interests with the general works council as well as on a social plan. The first employees will relocate to the Augsburg and Deggendorf sites in the coming weeks. The agreed measures have been scheduled to be completed by the end of November 2014.
Furthermore, about one third of the existing product portfolio is subject to review. The process has already identified 800 products for phase-out in the foreseeable future. Another 1,300 products will follow over the next six months. This product portfolio downsizing effort has been undertaken to decrease complexity in development, production and distribution.
Kontron also registered initial successes from the consolidation of the supplier and distribution network. The aim is to reduce the complex network of currently 1,900 suppliers to less than 500. In a first step, the company managed to negotiate substantial price reductions. The objective of reducing the number of distribution partners from over 100 to less than 40 companies has already been achieved.
As in the previous year, the Executive Board intends to continue the transformation of Kontron AG. On the basis of reported revenues of EUR 445.3 million in 2013, revenues of EUR 450 million to EUR 470 million are planned for the continuing divisions for fiscal year 2014. It should be noted that, before the move of two customers in North America to a license fee model, sales of € 23.9 million were realized in fiscal year 2013, which will be lost in 2014 and must be compensated for through corresponding increases in sales in fiscal year 2014.
In addition, a gross profit margin of more than 25 percent should be achieved. Assuming timely implementation of the planned measures of the CR program and the achievement of the projected sales growth, a positive operating margin (EBIT margin) should be attained in 2014 – adjusted for one-off effects from the restructuring.
In 2016, the Executive Board aims to achieve a sales level of at least EUR 550 million for continuing operations at a gross profit margin of more than 25 percent and an operating margin (once again adjusted for one-off effects) of more than 6 percent.
HERING SCHUPPENER Consulting
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