30/10-2006 08:27:31: (ELT) ELT - REPORT THIRD QUARTER 2006
The merger between Eltek and Nera was completed
on 19 October 2006 but took accounting effect
from 13 September, when the two companies had the
same Board of Directors (shareholders` elected
directors). The effect of the merger is reflected
in the Balance Sheet Statement of Eltek as at 30
September 2006, whereas the effect on the
consolidated Income Statement will be recognised
as of 1 October 2006.
A pro forma Income Statement and Cash Flow
Statement for the merged company are included as
a section in this report. The interim results for
former Nera are presented in a separate report.
Structural developments
Significant progress has been made since the plan
for the merger of Eltek and Nera was approved by
the Boards of Directors in the two companies in
June.
During the quarter, Nera divested its stake in
Nera Electronics in Singapore and also entered
into an agreement for the divestment of its
satellite communications activities (completed
after the end of the quarter). Both divestments
were made at significant premiums to book value
and untie a substantial cash amount. The effects
for Eltek will be described in more detail in the
Balance Sheet section.
For the continuing operations in Nera, the new
management will implement major restructuring
measures over the coming six months, and in
addition exploit the merger synergy potential to
restore profitability in the transmission
business in 2007. The associated costs and
benefits will be described in more detail in the
Outlook section of the report.
Key financials Eltek
(Figures for 2005 in brackets)
Eltek achieved revenues of NOK 682.8 million in
the third quarter of 2006, an increase of 14
percent from NOK 600.1 million in the third
quarter of 2005. Gross margin was 25.7 percent
(28.4). After depreciation and amortisation of
NOK 15.5 million, EBIT was NOK 64.0 million
(74.7). Net financial items amounted to NOK
-13.7 million (-1.5), reflecting a negative
currency effect of NOK 4.4 million and increased
borrowings. Profit before tax was NOK 50.3
million (73.3).
For the first nine months 2006, revenues
increased by 29 percent to NOK 1,914 million
(1,489), whereas profit before tax increased by 6
percent to NOK 171 million (162).
Revenues
Revenues in the third quarter 2006 were NOK 682.8
million, an increase of 14 percent from the third
quarter 2005. Revenues were 8 percent higher than
in the previous quarter.
Split into regions, revenues were NOK 394 million
in the EMEA region, which was an increase of NOK
34 percent from the third quarter last year. The
growth was driven by a particularly strong
development in the Middle East, although revenues
were higher also in the more mature markets in
the UK and France.
Revenues declined year-on-year in the two other
main regions. In Asia Pacific, revenues declined
by 4 percent to NOK 149 million, due to lower
revenues in Australia and Singapore. Revenues
increased in Malaysia and China. Revenues in the
Americas declined by 7 percent to NOK 140
million, due to weak development in North
America, although development in Latin America
was positive.
EMEA revenues increased by 17 percent from the
previous quarter, driven by higher sales in the
Middle East, UK, France and Germany. Revenues
declined by 13 percent in Asia Pacific due to
completion of a contract in Australia in the
previous quarter, and lower revenue in India.
Revenues increased in China and Malaysia.
Revenues in Americas increased by 15 percent from
the previous quarter, due to the strong
development in Brazil.
Gross margin
Gross margin was 25.7 percent in the third
quarter (28.4). The declining quarter-on-quarter
trend was reversed, as gross margin improved
slightly from 25.4 percent in the previous
quarter. Production at the system assembly hubs
is increasing and additional measures to reduce
product cost are ongoing.
Operating costs
Operating costs were NOK 111.5 million in the
third quarter 2006, compared with NOK 95.5
million in the third quarter 2005 and NOK 107.4
million in the previous quarter.
Order entry - market development
Eltek recorded new orders of NOK 693 million in
the third quarter 2006, which was an increase of
15 percent from the third quarter 2005 and 5
percent above the previous quarter.
The increase from the previous quarter is
explained by a sharp rebound in the Americas.
Compared with the third quarter 2005, order entry
increased in all the main regions, with continued
strong order levels in the Middle East, UK and
Germany. Order entry in emerging markets such as
Russia, Ukraine, China and India declined from
high levels in the third quarter last year and in
the previous quarter.
The order backlog stood at NOK 455 million at the
end of the third quarter, of which NOK 400
million was for delivery within 90 days. This
compares with an order backlog of NOK 394 million
at the end of the third quarter 2005, and NOK 444
million at the end of the second quarter 2006.
Merger with Nera
The merger of Eltek and Nera was completed on 19
October but took accounting effect from 13
September, when the two companies had the same
shareholders` elected Board of Directors.
The effect of the merger will be recognised in
the consolidated Income Statement of Eltek as of
1 October 2006, whereas the merger is reflected
in the below Balance Sheet Statements of Eltek
as of 30 September 2006.
For further information about the merger, please
also refer to an extensive Information Memorandum
dated 2 October 2006.
Balance sheet
The changes in the consolidated Balance Sheet
from previous periods primarily relate to the
merger of former Nera into Eltek .
At 30 September 2006, total assets were NOK 5,773
million, including an increase in total assets of
NOK 3,304 million resulting from the merger with
Nera.
Equity was NOK 2,527 million at 30 September,
corresponding to an equity ratio of 43.8 percent.
The consolidation of Nera increased the equity of
Eltek by NOK 1,487 million. This includes NOK
1,238 in shares (which were issued to former Nera
shareholders at the completion of the merger on
19 October 2006), and an increased minority
interest of NOK 249 million related to NeraTel in
Singapore.
The purchase price allocation (PPA) is not final.
As of 30 September, unallocated excess value of
NOK 571 million has been included in the balance
sheet.
Assets held for sale of NOK 893 million and
related liabilities of NOK 236 million reflect
the fair value of Nera SatCom, which was divested
in October.
At the end of the third quarter, Eltek had a
gross cash position of NOK 1,063 million. The net
cash position was NOK 32 million.
The net assets held for sale has in October been
converted into NOK 479 million in cash and
472,000 shares in Thrane & Thrane.
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