3/25/2005 - In 2004, Kontron AG, listed on the TecDAX, has by far exceeded the optimistic expectations stated at the beginning of the year and met the profit and sales forecasts announced at midyear. Total sales came in at EUR 262.1 million, representing a record level, in spite of the considerable weakening of the US Dollar against the euro. Following currency adjustments, the provider of Embedded Computer Systems posted revenue gains in the region of around 20 percent over the previous year (EUR 229.3). The gross operating result was recorded at EUR 99.8 (previous year: EUR 88.5 million). In the fourth quarter the gaming and transportation markets generated especially strong growth impulses. Development orders, referred to as "design wins" developed very positively in 2004, and most notably in the fourth quarter. These design wins usually result in concrete sales in the following year. In the fourth quarter of 2004 alone, Kontron booked 74 such design wins compared to 52 in the previous year.
Considerably enhanced earnings strength
Although the steady depreciation of the US Dollar against the euro has considerably impacted sales growth at Kontron AG, these effects have not incurred any major repercussions on the company's result. Kontron's worldwide engagement offsets 90 percent of the currency fluctuations (location hedging), while the remaining 10 percent are addressed by financial measures. Posting an operating result (EBIT) of EUR 20.1 million, Kontron has doubled its performance over the previous year (EUR 10.1 million before special depreciation). The fourth quarter of 2004 made a notable contribution to this result and returned EUR 5.1 million, following EUR 3.8 million in the same period the year before. Surplus for the accounting period also reflected very gratifying developments and came in a record level of EUR 13.55 million.
Equity ratio now at 69 percent
The 2004 financial year also saw Kontron AG in a solid financial position. In particular, the total cost structure was improved once again. Total operating costs in the 2004 financial year stood at EUR 80.6 million, by contrast with 79.1 million in the previous year. Gauged against sales, costs were down from 33 percent in the 2003 financial year to below 31 percent in the past year. With regard to "working capital" as an indicator of efficient and economical utilization of financial resources, the figure for 2004 has improved once again. While "working capital" was still at 41 percent of revenue at the end of 2001, the figure stood at 27 percent in 2003 and at 25 percent in 2004. As of December 31, 2004 liquid funds totaled EUR 56.3 million. With this figure, cash on hand exceeded indebtedness to banks at EUR 42.6 million by a considerable measure. In 2004 positive operating cash flow was recorded at EUR 14.1 million by comparison with EUR 16.8 million in the previous year. In connection with a balance sheet total of EUR 278.8 million (previous year: EUR 271.8 million), the equity ratio amounted to 69.1 percent (previous year: 66.4 percent). In 2004 three major investments were committed, notably to the engineering center in Moscow, the rise in the company's share of the joint venture in China, as well as the increased holding in Kontron Mobile Computing Inc., Minneapolis, from 64 to 100 percent.
New markets generating growth impulses
In the 2004 business year, the strongest growth impulses emanated from the gaming and transportation markets. In terms of regions, America and Russia put in the top growth rates. In the so-called emerging markets, which also include China, Kontron was able to boost sales over the previous year by 38 percent to US $ 47 million. In America, the positive trend of the previous year was continued. Posting sales gains of just 25 percent, Kontron ranked as the fastest growing Embedded Computer company in the USA. The sales of US $ 148 million generated in the past financial year equal almost 40 percent of total sales of the Kontron Group. At present, Kontron is taking in almost every second development order from the United States. Williams Gaming, the company's largest customer, is also based in the USA. In line with the high growth rates, the earnings strength on overseas markets has also been boosted substantially. With an EBIT margin of around 9 percent, North America is above the Kontron average. The appointment of Charles Newcomb, a US citizen, as the new Chief Financial Officer, in 2004, underscores the strong and increasing significance of business in the United States. Charles Newcomb will be intensifying contacts to US investors. At the same time, corporate governance will be brought in line with US standards. In addition, Kontron has appointed two Americans to the supervisory board. Hugh Nevin and David Malmberg are seasoned managers, who will also be bringing a wealth of market and industry know-how on board.
In February 2005, Kontron secured additional, important market shares in the USA by way of the 100 percent takeover the US company Dolch Computer Systems Inc., based in Fremont, California. The company has been active in military and security technology since 27 years and generated sales of around US $ 30 million with mobile embedded computer systems primarily on the US market. With this move, Kontron has also further expanded its position in the security technology business area.
Outlook: Continuation of profitable growth course
At the balance sheet press conference in Munich, Management Board Chairman Hannes Niederhauser expressed his optimism that the company would be capable of achieving annual double-digit organic growth over the medium term. With a look to the 2005 business year, Niederhauser anticipates sales growth of 15 percent after currency adjustment and a disproportionate gain in earnings (EBIT) of 40 percent. Another objective is to further improve the company's market position by the strategic acquisition of smaller firms. As Hannes Niederhauser commented: "Our aim is broaden the technology base and enhance margins."
Pioneering role in the ATCA market
Already in the early autumn of 2003, Kontron set the course to secure the leading technology position by the acquisition of the technologies, patents, equipment and systems of the insolvent company Giga Stream. Thanks to this addition, as Hannes Niederhauser explained, the company will be able to play a pioneering role in the promising ATCA market that holds exceptional future potential. In future, all major players in the telecommunications sector will be changing over their backbone systems, which were previously exclusively developed in-house, to this new telecommunications standard currently being developed by Kontron. Niederhauser estimates that the total market for this technology, which will be deployed as of 2006, will be in the region of US $ 15 billion. The market relevant for Kontron is forecasted in excess of US $ 1.5 billion, whereby Niederhauser cites the Kontron market share at around 10 percent.
Cost savings program (PIP)
Parallel to the developments outlined above, the company is pursuing a stringent "Profit Improvement Program" (PIP) geared to boosting earnings strength. The declared aim: trimming costs by an annual 1 percent measured against sales. In 2005 this will be achieved by reducing warehousing levels, merging various locations in Taiwan, establishing regional finance and IT centers, as well as by folding Kontron Mobile Computing Inc. into Kontron America.
Creating new jobs
Hannes Niederhauser continues: "We are optimistic that we will be generating sound growth, also in 2005, and that we will, in connection with keen cost awareness, continue to increase our earnings strength and create new jobs at the same time." Since going public in 2000, the number of staff active at Kontron AG has advanced from around 500 employees to more than 1,800 today - an increase by almost four times. In the past year the number of employees in Germany also increased by more than 10 percent to 676 members of staff.
Broad shareholder structure
In the 2004 financial year the Kontron share once again outperformed the index average: while the TecDAX dipped by around 4 percent, the Kontron share notched up an 10.5 percent gain in share price. At the end of 2004, the number of shareholders stood at 72,000, with over 50 percent share of capital being held by private investors. "The broad investor structure reflects the strong trust placed in our company and our share" explained Hannes Niederhauser. In spite of this, Kontron AG is determined to once again bolster this excellent investor structure foundation by additional institutional investors. This was already accomplished in Great Britain in 2004, and the aim is now to attract new investors in the United States. According to Hannes Niederhauser, 10 percent of all Kontron shares are already held by US investors. Since December 2004, Kontron has been issuing ADRs (American Depositary Receipts) through the Bank of New York. In spite of this, as Niederhauser added, the company still does not have any plans to obtain a listing on NASDAQ, the US high-tech stock exchange.
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