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Kontron AG raise revenue and earnings

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article image Ulrich Gehrmann, CEO, Kontron

Kontron AG, represented by Kontron Australia , brought the 2008 financial year to a successful conclusion despite the global financial and economic crisis. The targets that had been set and announced, double-digit revenue growth, a faster rise in profitability, and solid cash position were fully achieved despite the deterioration in the economic environment.

In 2008, Kontron AG's total revenue corresponds to an 11% growth rate. It also reflected a continuous year-on-year rise in revenue from quarter to quarter. In the fourth quarter alone, a record level was achieved. The business growth was reflected in the strong order intake and in the resulting further growth in orders on the books.

Kontron AG's significant revenue growth last year also fed through to further improvement in their earnings and profitability. Operating earnings (EBIT) resulted in an EBIT margin slightly below 10%. High one-off extraordinary effects arising from the sale of the Mobile Computer division and the acquisition of PLG should be taken into account when drawing a comparison with the previous year's result. Operating earnings rose by around 18% year-on-year when adjusted for this factor. Earnings per share rose 15% from 60 euro cents to 69 euro cents.

Kontron AG have a high liquidity position, even in today's global economic crisis, in view of their cash holdings, a positive net cash position (after deducting liabilities to banks) as well as an operating cash flow and an equity ratio of 73.1%.

Kontron AG are well positioned to continue to operate profitably in the market, due to their ongoing Profit Improvement Programme and the trend towards outsourcing. Kontron AG aim to boost their EBIT margin from 10% to 12% by 2011.

Kontron AG's ongoing growth trend continued in Europe with a rise of 5% compared with the previous year. Kontron AG generated 46% of their total revenue in Europe. The EBIT margin amounted to 11.5%.

Business in America experienced stability in 2008. Although growth of 14% was above-average, profitability lent greater sustainability. For example, the EBIT margin rose from 8.9% to 10.9%. With 29% of total Kontron Group revenue and rising profit margins, the American continent represents second most important strategic sales market.

High growth levels, particularly in emerging markets, continued unabated, as in previous years. At 21,1%, highest growth rates were achieved in these regions in 2008. Their share of Kontron Group total revenue was 25%. The EBIT margin in emerging markets was up from 6.9% to 7.6%. Since January 2008, Kontron have assumed control and management of their sales companies in China, Australia, Japan, and Korea. Further production capacities were also relocated to the Penang location in Malaysia after Kontron acquired 100% of the shares in this Malaysian company at the end of June 2008.

Kontron AG's high degree of diversification is having a positive effect in vertical markets. Weaker growth rates in the automation area of application, particularly for European mechanical and plant engineering companies, in the main were more than compensated for by higher orders in the promising areas of transport/infrastructure, the energy sector, medical and security technology, and telecommunications. Overall, the distribution among the seven central vertical markets is as follows: Industrial automation 23%, telecommunications 22%, infotainment 19%, security/defence 11%, transport/infrastructure 8%, the energy sector 10%, and medical technology 7%.

As a consequence, Kontron generated a largest part of their revenue in defensive areas that are relatively independent of the economic cycle such as medical technology, energy, security, telecommunication and infrastructure.

The 2008 acquisition of Rackmount Server's communications business division from Intel Corporation represented an ideal opportunity for Kontron AG to complete their product range in the important telecommunication application area. Kontron AG further expanded their high-margin security technology/aerospace application area in 2008 with the acquisition of the French company Thales Computers S.A.

Kontron AG's high profitability resulted from the successful implementation of the Profit Improvement Programme. The production location in Penang, Malaysia, which Kontron acquired at the end of 2005, was of central significance in this respect. Gradual relocation of basic production to this location has resulted in significant savings. Asia is already the location of over 60% of Kontron's entire production.

In 2005, production costs still amounted to 8.8% of total revenue, while this figure has now been cut to 6.6%. An important step towards the planned medium-term enhancement of the EBIT margin to 12% by 2011 was realised in March last year with the founding of a joint-venture with the Taiwanese company Quanta Computer.

Kontron can now significantly optimise their materials and manufacturing costs on the basis of more favourable Asian purchasing and production terms. A further strategic advantage lies in the option whereby Kontron can now also offer major volumes of over 100,000 units on a cost-effective basis, and consequently further expand their customer base.

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