Kontron Resists Weak Economy

Eching near Munich, March 27, 2002
In the business year 2001 Kontron Embedded Computers AG, the leading producer of miniaturised computers worldwide, has been to continue its dynamic growth of the past years in spite of the slack world economy. Turnover compared to the previous year (126 million euros) rose by 50 percent to 189 million euros. Operational earnings (EBITDA) were raised from 16.9 million euros in the year 2000 to 20 million euros in 2001 despite the sluggish economic environment and 2 million euros of restructuring costs. Based on turnover the EBITDA margin was thus at about 10 percent and the result per share at 0.42 cents before goodwill. Orders on hand have developed positively to 51 million euros, especially in comparison to the third quarter of 2001 (40 million euros). Total assets of the Kontron Group increased from 237 million euros in 2000 to 287 million euros in 2001. This dynamic growth is also reflected in the number of employees. On 31.12.2001, the Kontron Group employed 1,223 employees compared to 862 in the previous year. Liquidity can be viewed as outstanding: the Kontron Group can access cash resources and short time investments of 58 million euros as per 31. December 2001. The good liquidity situation is supported by the positive operative cash-flow of 16 million euros. At the same time, customer receivables and stocks could be optimised and reduced by 18 percent (without taking the acquisitions into account). Non-cash-effective goodwill depreciation amounting to 6.8 million euros as well as additional 2 million euros restructuring cost weigh on the result (EBIT) which is at 8.5 million euros (previous year: 15.1 million euros). For the year 2002, Kontron is expecting a 40 percent increase in turnover and an EBITDA margin of 10 to 11 percent.

World Market Leader Through Strategic Take-Overs
Two important acquisitions were made with an investment volume of approx. 25 million euros in cash and 15 million euros in shares during the financial year of 2001: the Canadian company Memotec Communications Inc. has strengthened the Kontron group by providing solutions for better exploitation of data lines. This is a further step towards the consolidation of high-profit margin business fields with high software proximity in the sector of embedded computer applications. The US American ICS Advent (ICS) possesses excellent sales and marketing structures in the USA, which is the largest market for embedded computers. As a result of the 100 percent take-over of the ICS in October 2001, the Kontron Group has not only become the world market leader but it has also strengthened itself effectively in the strategy of wide diversification and vertical added value. "Thus, Kontron is well positioned to influence the ECT market successfully. Only small-scale acquisitions have been planned for the future mainly in the start-up technology sector. Organic growth above all is to be speeded up on the basis of the companies currently belonging to the group", emphasized the chairman of the executive board, Hannes Niederhauser, at a press conference in Munich. In the case of the two new acquisitions of ICS and Memotec, the main emphasis is not to increase sales growth but primarily to increase profitability next year. According to Niederhauser: "Our restructuring measures are not only aimed at various rationalization and synergy effects, but they are also aimed at the relinquishment of product lines with high sales but low profitability. The priority of these measures is definitively a higher added value." Admittedly, these measures could put the sales growth of the complete Kontron group under pressure next year, but they would have a positive effect on the result.

Success By Diversification
After several years of high growth, the technology sector had to accept a significant drop in the financial year 2001. The market for embedded computer technology could not escape these developments either. Wh

ile average rates of increase of over 20 per cent were still achieved in the financial year 2000, the increase was only 10 per cent in the previous financial year. Thus, with a 50 per cent growth - despite the very difficult economic situation - Kontron was far better than the sector. The company based in Eching considers its successful diversification strategy to have been an essential success factor in achieving this. Thus, sales losses in the sector of the telecommunications industry, which has become problematic in the meantime, could be more than compensated for by sales in other consumer markets. The independence of individual customers has also been reduced successfully: on the basis of more than 4,000 customers from the most varied kinds of sectors, not more than 4 percent contribute towards the total business volume of the group.

Successful Integration and Corporate Identity
In the financial year 2001 the Kontron group also adapted consistently to the requirements of the markets with a comprehensive integration program in the organizational structure. These measures included the introduction of a common strategic purchasing division and the organisation of the companies into competence centers for different lines of technology in order to use the development resources in the optimal way, to increase the transfer of technology within the group and to fully exploit synergy effects. Furthermore, a global key account management system for the sales department as well as a company-wide monthly controlling and liquidity control system were set up. The corporate identity of the group was also advanced: the former company of Fieldworks was renamed ´Mobile Kontron Computing´, the software house of Rotec Industrieautomation in Raststatter was renamed ´Kontron Solutions´ and the newly acquired ICS was renamed ´Kontron America´. The two Canadian companies of Teknor and Memotec merged into ´Kontron Kanada´. "Kontron has proved with all its acquisitions in the past that it can integrate these companies successfully into the group and lead it to profit. We intend to consistently continue fully exploiting the high rationalization and synergy potentials in the near future" explained Niederhauser.

The Market: Wide Fields of Application with High Potential
As a whole, the market potential for Embedded Computer Technologies (ECT) with their many varied fields of application has still not been fully exploited by a long way. "Ever increasing numbers of machines and systems - in the industrial sector as well as in everyday life - are being equipped with miniaturised ´electronic brains´. While a maximum of 2 to 3 personal computers come to one person, for instance, this will be at least 20 to 30 embedded computer systems in the next few years", emphasised Niederhauser. Added to this would be strong impulses due to the outsourcing trend. In-house, individual ECT solutions with the corresponding outsourcing potential makes up for 85 percent of the total ECT market, which is somewhere in the region of about 30 billion euros. The outsourcing of the present "make & not buy" sector to ECT specialists such as Kontron, who can cover the entire product range, is therefore regarded by the world market leader Kontron as an enormous future potential, which it wants to tap systematically. Consequently, Kontron wants to become the leader of this standardization trend in the sector. The chairman of the executive board, Hannes Niederhauser, states: "200,000 engineers were dismissed worldwide in the financial year of 2001. In contrast to this, Kontron extended its resources enormously. From more than 1,200 employees about 360 are employed in engineering. These engineering resources are the backbone of Kontron and will be of decisive competitive advantage during the recovery that is already beginning to emerge."

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