Report of the Board of Directors

The Eltek Group continued to show strong growth in 2008, with revenue increasing 24 percent to almost NOK 6 billion. Underlying operating profit improved in all business units. However, the higher business volumes and currency developments increased working capital requirements, resulting in a significant negative cash flow and a growth in net debt. After careful consideration, the Board of Directors in the fourth quarter made the decision to improve the company’s liquidity position by generating additional cash through an increase in share capital and rescheduling of the debt repayment structure. A key financial objective of Eltek in 2009 is improved working capital management and cash generation, with a focused program to reduce days of sales outstanding, increase inventory turnover, and improve project management.


All the goodwill related to Eltek Valere was written down at the end of the year. Combined with other recognized special items this affected operating profit negatively by NOK 843 million. The reported operating loss was NOK 616 million in 2008, compared to an operating profit of NOK 45 million in 2007. Adjusted for these items the operating profit was NOK 227 million in 2008, reflecting improved underlying operating profit in all the three business units. In 2007 the comparable underlying operating profit was NOK 132 million.

Increased net debt, higher interest rates and adverse currency developments generated net financial costs of NOK 143 million in 2008, compared to positive financial items of NOK 3 million in 2007. Loss before tax amounted to NOK 758 million, compared to a profit before tax of NOK 49 million for 2007.

PRESENTATION OF ACCOUNTS

Pursuant to Section 3-3 of the Norwegian Accounting Act, the Directors confirm that the accounts have been prepared under the assumption that the enterprise is a going concern and that this assumption was realistic at the date when the accounts were approved.

The Eltek Group reports its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union from 1 January 2005. For more information, please refer to the notes to the consolidated financial statements.

FINANCIAL PERFORMANCE – INCOME STATEMENT

The information below describes the financial information included in the reported Income Statement, in which the acquisition of Valere Power has been consolidated effective from 1 June 2007. Due to the acquisition, the Income Statement for 2008 is not directly comparable with 2007, neither for the Group nor for Eltek Valere.

ORDER ENTRY AND REVENUE

The Eltek Group reported order entry of NOK 6 252 million in 2008, which was an increase of 19 percent from 2007. Revenue increased 24 percent to NOK 5 958 million, reflecting 20 percent growth for Eltek Valere and 31 percent for Nera Networks, while Nera Telecommunications (NeraTel) reported a slight decline of two percent.

The growth was partly explained by the acquisition of Valere Power in 2007, while organic growth was 18 percent in 2008.