Neways posts solid first half-year result

Cautious recovery of EMS market in 2004 not sustained in 2005

Neways realized a net profit of EUR 2.6 million in the first half of 2005 (H1 2004: EUR 1.0 million). Net turnover was up 52% to EUR 109.2 million (H1 2004: EUR 71.7 million). The increasing turnover was almost fully attributable to the consolidation of Neways Advanced Applications (NAA), formerly Stork Electronics, which Neways acquired in mid-2004. The cautious recovery of the market for Electronic Manufacturing Services (EMS) in 2004 has not been sustained so far in 2005. In the first half of the year, however, Neways did strengthen its base for further growth in the coming years.

Turnover and results
The cautious recovery of the EMS market in 2004 was not sustained in the first half of 2005. As expected, demand from the semi-conductor industry fell back after the upturn in 2004. Demand from other important market segments, such as the medical sector and the industrial sector, gathered pace in the past half year, resulting on balance in a marginal organic turnover growth of 1%. Net turnover advanced 52% to EUR 109.2 million, mainly attributable to the consolidation of NAA.

Alongside this consolidation, efficiency improvements and cost controls also contributed towards an improvement of the results. The operating result in the first half of 2005 climbed to EUR 4.7 million (H1 2004: EUR 2.4 million). The net result rose to EUR 2.6 million (H1 2004: EUR 1.0 million), bringing net earnings per share to EUR 0.30 (H1 2004: EUR 0.13).

Key developments
In the period under review an important step was made in the defence market with the acquisition of a major order. Early in June Neways signed the contract with the Swedish Land Systems Hägglunds for the delivery of 192 electronic control systems for the new Infantry Combat Vehicle of the Royal Netherlands Army. The contract is worth a total of EUR 20 million over a four-year period. Defence is a relatively new market for Neways which also offers good growth potential.

In June the majority stake in electronics developer Hoyte in Son was increased from 60% to 100%. Expanding the development of customer-specific electronics is one of the spearheads in Neways' strategy. By acting as a 'one-stop-provider' capable of offering development, prototyping as well as production, Neways is simultaneously strengthening its proposition to existing and new customers.

In that same period the majority stake in the Slovakian production company Q-Nova was raised from 65% to 100%. The acquisition of this residual interest marks a further step in Neways' aspiration to selectively build a production presence in low-wage countries in order to operate more competitively in the market.

In the past six months Neways further streamlined its organization through efficiency improvements as well as intensified cooperation and knowledge exchange between the operating companies. In the second half of 2005 Ripa in Son, whose activities include the assembly of advanced printed-circuit boards, will go through a vital efficiency drive. Neways will make a provision for this operation in the second half of the year. On balance, the number of FTEs will be reduced by about 20.

On 30 June 2005 Neways employed 1,827 people in total. The number of employees in Eastern Europe and China increased in the past half year to 697 employees as at 30 June 2005.

Financial position
The financial position of Neways improved markedly in the past six months. Stringent working capital management resulted in lower stock and debtor positions. In addition debts were further reduced. All in all, the balance sheet decreased by a total of 6%. Solvency (guaranteed equity / balance sheet total) improved sharply to 34.8% (year-end 2004: 30.2%). Net cash flow worked out at EUR 2.0 million positive.

In addition, the increased credit line and improved credit conditions agreed at the beginning of 2005 have given Neways more room for manoeuvre for pursuing its growth strategy in the coming years.

Move to lead-free production
From 1 July 2006 all electronics produced in the EU must be lead-free for environmental protection reasons. This means that the entire electronics industry is on the eve of revolutionary change. In the past six months Neways made good progress towards the changeover to lead-free production and will be ready for this well before 1 July 2006.

Furthermore, the industry is also showing great interest in the “Green Solutions” programme: a unique innovative process that enables the efficient production of lead-free electronics.

Prospects for 2005
The cautious recovery of the EMS market that presented itself in 2004 was not yet sustained this year. One important reason for this was that after reviving in the second half of 2004, demand from the semiconductor industry fell back again in 2005, which was in line with expectations. The decline in demand from the semi-conductor industry is also the most important reason for the lower order intake at present. Given this reduced order intake, turnover is expected to be lower in the third quarter compared to the second quarter. Because of the short view on the developments in the EMS market, it is difficult to make a concrete estimate for the full-year prospects. Including the exceptional cost item for Ripa, Neways expects to achieve a positive net result in the second half of 2005.

As already shown during the brief upturn of the EMS market in the second half of 2004, the substantially reinforced foundation that Neways has built in the past years, gives the company strong upward potential in terms of performance as soon as the EMS market starts to pick up.