Kontron's Revenue Grows by 35%, Profit by 56%

In the 2006 financial year just past, Kontron AG, on a purely organic basis, realized a record rate of growth. The company generated revenue growth of 35 percent, with a rise to EUR 405 million (2005: EUR 300 million), and an increase of 56 percent in net profit to EUR 25.7 million (2005: EUR 16.5 million). In the best year in the company’s history, operating cash flow at the same time doubled nearly to EUR 23.4 million and the company’s liquidity was up by EUR 11 million, resulting in a cash position of over EUR 64 million. “This solid financial situation will allow us to once again increase the dividend payout for shareholders for the 2006 financial year, compared with 2005, and to continue with our stock purchase program,” stated CEO Hannes Niederhauser at the company’s balance sheet press conference in Munich. For 2007, CEO Niederhauser expects “a further double-digit increase in revenue, and net earnings growth at a faster rate.”

Strong fourth quarter
Following the dynamic development of business in the first half of the year, and the first breakthrough of the EUR 100 million revenue barrier in the third quarter, Kontron AG continued to power ahead in the final three months of the 2006 business year: at EUR 119 million, sales reached a new historic record level. This means that the company has achieved the highest level of organic growth from among the top five global competitors, and established itself as the number one global provider of embedded computer technology (ECT). Earnings in the fourth quarter developed even more favorably than revenue. Operating earnings (EBIT) rose to EUR 12.2 million, in excess of over 45 percent above the previous year’s level (EUR 8.4 million). At EUR 11.1 million, net profit for 2006 was 82 percent above prior year earnings (EUR 6.1 million). As a consequence, Kontron, in the fourth quarter, has for the first time significantly surpassed the 10 percent EBIT margin level. Kontron generated a full-year EBIT EUR 32.9 million (2005: EUR 22.6 million), thereby achieving an 8.2 percent margin, compared with 7.5 percent in 2005.

Full order books in all markets
The 2006 order book rose to a level unsurpassed in the history of Kontron AG: it climbed by 46 percent, from EUR 151.1 million as of the end of 2005 to EUR 220 million at the end of the 2006 financial year. There was a comparably dynamic rise in the number of design wins. Volumes rose to EUR 217.7 million, following EUR 175.6 million in 2005. We experienced strong growth in all markets in 2006. Europe continued its positive trend with an increase of 23 percent year-on-year. In line with the overall business development from quarter to quarter, European revenue rose to almost EUR 228 million. America trailed only slightly behind Europe, with an overall sales growth rate of 23 percent. As in 2005, our strongest rate of revenue growth was in emerging markets, particularly Russia and China. Here the increase was 118 percent. As a result, this region already contributes 24 percent of Kontron AG’s entire sales on the basis of 2006 turnover. As previously, the largest proportion is contributed by Europe, with America returning around 30 percent. In terms of vertical markets, telecoms applications represented the largest proportion, with around 28 percent, followed by automation with 19 percent. Besides communications, strong growth drivers included mainly the gaming areas (15 percent) and energy (12 percent). Medical applications in particular experienced a strong upwards trend, and they already generate a 9 percent share of total sales on the basis of 2006 figures.

Successful Profit Improvement Program
According to CEO Hannes Niederhauser, Kontron attributes the marked profitability improvement primarily to the successful implementation of the Profit Improvement Program. Sustainable effects were felt particularly from the relocation of basis production to the new location in Malaysia. Kontron is aiming to produce over 50 percent of its entire product at this location already by 2008, which it is intended will reduce the proportion of production costs expressed as a percentage of revenue from currently 8.5 percent to less than 7 percent. We were able also to achieve major cost reductions in warehouse administration in 2006. Here, the figure of EUR 65.7 million was almost unchanged compared with the prior year (EUR 68.4 million) – despite the strong rise in revenue. Overall operating costs in 2006 rose by only 18 percent to EUR 98.2 million (2005: EUR 83.2 million), compared with revenue growth in excess of 35 percent. Compared with the leap in revenue, growth in the number of employees was moderate in 2006, with the Group total amounting to 2,445 (2005: 2,382). The majority of newly appointed members of staff comprised highly qualified managers for the research and development area. With a base of now 849 engineers, which corresponds to over one third of the entire workforce, Kontron AG now occupies a position of pioneering technology leadership in the sector.

Further rise in liquidity
Kontron AG also achieved one of its further key objectives for the 2006 financial year, which was to raise liquidity and generate further cash: as of December 31, 2006, the cash position at EUR 64.4 million was EUR 11 million higher than at the end of 2005 (EUR 53.3 million), despite spending around EUR 8 million on the dividend distribution and the stock purchase program. At the same time, bank borrowings were reduced by EUR 10.7 million to EUR 7.0 million. As a result, the net cash position rose to EUR 28.5 million as of the year-end. Operating cash flow doubled nearly to EUR 23.4 million. Total assets amounted to EUR 362.8 million (2005: EUR 339.2 million) and the equity ratio was 69.4 percent.

Concentration on high-quality, organic growth
As Hannes Niederhauser comments: “Both in the awareness of our employees and in our organizational structures, a shift in values has taken place: we have made the transition from a primarily technology-driven company to an organization with a stringent strict focus on markets and earnings. Our highest priority is raising corporate value and profitability. We are concentrating on dynamic, high-quality, and organic growth. We are not contemplating acquisitions, and continue to focus on the cost and earnings side. Kontron AG enjoys very favorable perspectives for 2007 and the years beyond.”

About Kontron
Kontron designs and manufactures standard-based and custom embedded and mobile rugged solutions for OEMs, systems integrators, and application providers in a variety of markets. Kontron engineering and manufacturing facilities, located throughout Europe, North America, and Asia-Pacific, work together with streamlined global sales and support services to help customers reduce their time-to-market and gain a competitive advantage. Kontron’s diverse product portfolio includes: Computer-on-Modules, SBCs/blades, open-modular platforms and systems, HMIs, mobile rugged workstations, and custom capabilities. Kontron is a Premier member of the Intel(R) Communications Alliance and was awarded 2006 Intel Member of the Year. The company is a recent three-time VDC Platinum vendor for Embedded Computer Boards. Kontron is listed on the German TecDAX stock exchange under the symbol “KBC”.