Elcoteq cuts 5000 jobs, close plants in Romania, Russia, the US

January 2009

Elcoteq launches a heavy restructuring plan to secure profitability, The first measure is to close the plants in Arad (Romania), Richardson (USA) and St. Petersburg (Russia) as well as to consolidate the plant in Shenzhen (China) to the plant in Beijing (China).

While our corporate finance group targets the middle market,” its financial advisory services “and restructuring groups are very active in the larger end of the market as well and are normally involved in the biggest deals in the world,” Werbalowsky said after his firm received IDD’s Mid-Market Bank of the Year award.

The plan contains several elements. The first measure is to close the plants in Arad (Romania), Richardson (USA) and St. Petersburg (Russia) as well as to consolidate the plant in Shenzhen (China) to the plant in Beijing (China). Secondly, Elcoteq has started the process of reducing personnel at several plants globally. It is anticipated that these measures together will result in personnel cuts of approximately 5,000. Elcoteq currently employs approximately 21,000 persons worldwide. Thirdly, the plan consists of several other cost-savings measures, including selling machinery and equipment, terminating facility and machinery lease agreements as well as cutting external services. Even with these measures, Elcoteq will maintain its global footprint and continue manufacturing operations for its customers in Mexico, Brazil, Estonia, Hungary, China and India.

The plan targets annual savings in the range of 80 – 100 million euros. The savings will start having a positive effect gradually from the second quarter of 2009 onwards and will significantly improve Elcoteq’s full-year profitability. The total one-time costs related to the restructuring plan are approximately 24 million euros. The company estimates that 15 million euros will be booked in December 2008, and the rest during the first quarter of 2009. The estimated total cash effect is 10 million euros.

“When the market situation is as tight as it is at the moment, many companies start outsourcing more. The hard decisions we are making now will prepare us to be cost-competitive and ready to grasp these new business opportunities,” says Mr. Jouni Hartikainen, President and CEO of Elcoteq.

Elcoteq has executed consistent actions to balance its customer portfolio and improve its profitability. This new business set-up gives a good basis for strong growth opportunities in the electronics outsourcing market.

In order to respond to these growth opportunities, Elcoteq has started a process to strengthen its balance sheet. The planned capital raise is expected to be implemented through a structured equity linked instrument during the first half of 2009. The Board of Directors of Elcoteq SE has mandated Berhan Ltd (Finland), Fredericks Michael & Co. (New York, USA) and Avista Advisory Partners Pte. Ltd. (Singapore) as its exclusive advisors for the process.

Elcoteq maintains its full-year 2008 guidance published in its January – September Interim Report, excluding the one-time costs described above. According to preliminary information, fourth-quarter net sales are approximately 889 million euros (1,062.4 in the fourth quarter of 2007) and operating income excluding the above mentioned one-time restructuring costs is approximately 1 million euros positive (-24.9 in the fourth quarter of 2007 and excluding restructuring costs -9,6 million euros).

The company has been able to create significant positive cash flow in the fourth quarter and clearly reduce its inventory levels.

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