Analyst Meeting Presentation

Sepura Plc
Analyst Lunch
8 July 2014
1.
2.
3.
4.
5.
6.
The PMR market
Sepura’s position in the market
The opportunity
Financials
Conclusion
Q&A
2
2
1.
2.
3.
4.
5.
6.
The PMR market
Sepura’s position in the market
The opportunity
Financials
Conclusion
Q&A
3
3
The total PMR market was worth $13 Billion in 2013
And is forecast to grow to $16.5 Billion by 2017
STANDARDS
TETRA
DMR
Other
Digital
Digital
P25
Network
Network
operation
operation
VALUE CHAIN
Network
infrastructure
Data
Voice
Niche
products
Accessories
Sepura
Software
Services
Public safety
Commercial
Consumer
Consumer
4
Analogue
Analogue
Global trends in the Professional Mobile Radio market
The drive to digital continues
Key drivers of digital migration
Number of PMR radios shipped (000s of devices)
Government mandated switch
6,000
 Limited radio spectrum, with current capacity
constraints driving a need for increased spectrum
efficiency
Digital
5,000
 Need for interoperability across user groups and
agencies
4,000
 Digital standards offer enhanced security and
functionality
Analogue
3,000
Commercial drivers
 Analogue components are becoming obsolete
2,000
 Digital communications offer new functionality:
— Status messaging and SDS
1,000
— Workflow and resource management
— Meeting health and safety regulations with
GPS and man-down services
0
— Data applications
09 10 11 12 13 14 15 16 17
Source: IHS
5
TETRA is the dominant digital standard for public safety
DMR is the fastest growing and P25 is mandated for US Public Safety
TETRA, DMR and P25 have a place
Number of PMR radios shipped
in use (000s of devices)
TETRA: 10+ years of growth
 TETRA is the public safety users’ preferred
solution outside North America
60,000
 The largest digital installed base
— New networks are being deployed
— New users are continuing to join networks
— Users will replace their radios multiple times
over the life of the infrastructure
50,000
DMR
40,000
TETRA
Other
digital
30,000
DMR: The commercial user’s solution
 A TDMA-based ETSI standard
20,000
 DMR lacks TETRA’s public safety features,
resulting in significantly lower-cost infrastructure
Analogue
10,000
Other digital (P25, TETRAPOL, iDEN, EDACS, etc)
0
 P25 has limited acceptance outside N America
09 10 11 12 13 14 15 16 17
Source: IHS
6
Public Safety users led the initial PMR migration to digital
Commercial PMR users are now deploying their own digital PMR networks
Public Safety
Police
Fire
Ambulance
 c. 40% of PMR users
 Two-stage procurement model
— National network funded by central
government
— Individual agencies free to buy the most
suitable devices
Commercial users
Mining
 c. 60% of PMR users
 “One stop shop” requirement for
complete digital communications solution
7
Transport
Campus
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2.
3.
4.
5.
6.
The PMR market
Sepura’s position in the market
The opportunity
Financials
Conclusion
Q&A
8
8
1.2 million Sepura devices are in use today
We are the market-leader in over 30 countries
Sepura devices in use world-wide (‘000s)
Acquisitions have increased our addressable market,
expanding both product range and geographical reach
•
Acquired 3T in May 2012
(Infrastructure capability)
•
Acquired Portalify in July 2013 (Software applications capability)
•
Acquired Fylde May 2014
(Enhances DMR offering)
#1 supplier
Public Safety
Worldwide
#1 supplier All
users EMEA
1,200
1,000
800
Sepura
spun out,
focused on
TETRA
600
400
200
First
First
military police
radios radios
0
1939
1949
2003
2004
2005
2006
2007
9
2008
2009
2010
2011
2012
2013
2014
Sepura has a market-leading position in Germany
Record deliveries in FY14 and backlog of 72,500 radios
Core of the BDBOS network now in place
German states we supply
Market size
•
Largest TETRA market for the next 5 years
(2 x UK)
•
•
•
90% of the country now covered
417,000 registered users
The roll-out is following the UK model with early
deployment predominantly Police, followed by Rescue
and Fire
59,000 public safety radios delivered in FY14
•
Installed base now exceeds the UK, with
market share of c. 60%
•
Contracted backlog of 72,500 radios
•
Tenders for almost 150,000 radios yet to come
Significant commercial opportunities
•
TETRA is an established standard
for commercial users
Initial awards won by Sepura
Initial awards won by other PMR providers
10
Sepura has a market-leading position in the UK
We supply the majority of the UK’s police forces with TETRA radios
Sepura’s first refresh cycle nearly complete
UK geographical police forces we supply
We are the major supplier to UK police forces
•
All 43 police forces in England and Wales
•
52 out of 53 police forces in the UK as a whole
•
We have retained all but two of our UK police
customers through the refresh cycle
Supplier of over 99% of covert radios in the UK
•
Our SRC range is the radio of choice for the UK
covert community
Exclusive supplier to the Department of Health
•
Every ambulance in the UK has 3 Sepura radios
(one mobile and two portable radios)
•
The DoH is currently refreshing its fleet
Use Sepura handheld, mobile and covert radios
Use Sepura handheld and covert radios
Use Sepura mobiles and covert radios
Use Sepura covert radios
11
Core markets: Strong performance funds investment
Our installed base of 1.2 million radios drives stable revenue streams
Germany
Other markets
Network roll-out accelerates
•
90% of the country covered
•
417,000 registered users
Installed base of radios continues to grow
•
•
59,000 public safety radios delivered in FY14
•
Installed base now exceeds the UK, with
market share of c. 60%
•
Contracted backlog of 72,500 (*)
•
Tenders for almost 150,000 radios still to come
1.2 million of TETRA radios deployed
Accessory revenues of €31.1m, up from
€29.3m
Revenue growth in key TETRA markets
•
Double digit revenue growth in our other
largest markets
 UK
 Australia
 Norway
Investment by Southern Europe
•
12
Increasing revenues despite ongoing austerity
 Spain
 Portugal
 Greece
Transformation into a more robust and diversified business
Utilising our robust TETRA business as a platform for change
Developing Sepura’s market position
Achievements
Strengthened our core business

B
C
STANDARDS
Maintained terminal product leadership
(eg STP9000)

Strengthened gross margin

Delivered operating cashflow
Other
TETRA DMR
DMR P25 Digital Analogue
Network
operation
Expanded across the value chain
Network
Network
infrastructure
infrastructure
Data
Data

Launched our ATEX portfolio
Voice

Acquired 3T for infrastructure

Acquired Portalify for applications
Niche
products
Accessories
Expanded into adjacent PMR standards
Software
Software

Services
Services
Launched DMR and acquired Fylde
VALUE CHAIN
A
Public safety
D
Expanded into adjacent market sectors

Leveraged ATEX, infrastructure and apps

Opened North America
Commercial
Commercial
Consumer
13
C
A
A
D
Delivering complete solutions
Helping our customers overcome their operational challenges
Dispatcher
Control room coordinates workgroups,
ensuring safe and
effective working
environment

6 km2 of buildings

27 km3circumference
Base stations
tunnel,
Provide secure
connectivity
for the
6 km2
50 - 175m
below
ground

Complex
magnetic
circumference
tunnel
environment
of buildings and the 27 km
STProtect
Location beacons to
confirm staff
location, regardless
of GPS reception
SRG3900
Provide seamless
extension of network
where necessary
STP8X100
STP8000
ATEX radio
used by fire
control teams
Maintenance teams
update status of
assigned tasks
14
Solutions are opening new markets
Combining systems, terminals and applications into compelling solutions
Expanding geographical reach
13% growth to €34 million
Now accounts for 30% of Group revenues
Won first public safety system contracts
90
120
30%
Revenues (€M)
•
•
•
•
22 (FY13: 14) countries generated
over €1 million in revenues
Greece, Canada and Luxembourg
amongst new countries generating revenues
over €1 million
Number of countries
•
Commercial markets growing fastest
60
66
64
64
61
30
17
16
0
2011
2012
14
2013
90
29%
14%
22%
2011
2012
60
30
22
0
2014
Countries:
Investing < €1M
Commercial
Investing > €1M
Public-Safety
15
2013
2014
Maintaining product leadership through innovation
Our continuous process to enhance existing products and deliver new ones
STP8X100
Radio Manager 2
STP9000
DMR
STP8X000
STProtect
16
SRG3900
1.
2.
3.
4.
5.
6.
The PMR market
Sepura’s position in the market
The opportunity
Financials
Conclusion
Q&A
17
17
Growing our addressable market to $2.5 billion
Our investments create a compelling solution that opens new markets
2012
Addressable
market
ATEX portfolio launched
$50m
16,000
50%
45%
14,000
40%
12,000
35%
2013
10,000
Systems offering acquired
30%
$200m
8,000
25%
20%
6,000
2014
Applications offering acquired
$200m
15%
4,000
10%
2,000
DMR portfolio launched
$800m
5%
0
0%
2012
North America opened
$800m
2013
TETRA terminals
Other technologies and products
TETRA ATEX terminals
Systems
Applications
DMR
Sepura market share
18
2014
%age of PMR market addressed
N America
The DMR opportunity
The installed base of DMR radios is forecast to grow by 4.2 m radios by 2017
Targeting $800m of key verticals / geographies
Annual shipments of DMR Radios (000s)
Market penetration underway
•
Strong customer acceptance from initial trials
•
First radios delivered in 5 target geographies
•
Early successes with small public-safety /
security deployments to build references
2,000
Future roadmap
•
Significant expansion of DMR portfolio
•
Acquisition of Fylde to simplify migration path
and accelerate analogue to digital migration
1,000
Modest medium term objectives
•
FY15: 1.5% market share
•
FY16
3.0% market share
0
2013
2014
2015
2016
2017
Source: IHS
19
The North American opportunity
1.5m commercial PMR users are forecast to migrate to digital in the next 3 years
Targeting $800m of key verticals
The market opportunity
TETRA now selected for multiple deployments
•
Networks being deployed in US and Canada in
Sepura’s target verticals
 Transport
 Utilities
 Extractive industries
Other
verticals
(23%)
Public
Safety
(35%)
Entertainment
(4%)
Sepura’s local presence winning business
•
Sepura shipping systems and radios to
the US and Canada in target verticals
Extraction
•
Local sales team in place
(6%)
•
Growing pipeline for TETRA and DMR opportunities
Market potential significant
•
Modest expectations included in guidance
Utilities
(6%)
Transportation
(11%)
20
Industry
(15%)
1.
2.
3.
4.
5.
6.
The PMR market
Sepura’s position in the market
The opportunity
Financials
Conclusion
Q&A
21
21
Income statement summary
Third year of double digit growth in adjusted operating profit
FY12
€m
FY13
Revenue
83.0
Gross profit
39.5
50.2
55.3
47.6%
47.9%
47.4%
Gross profit margin
+26%
104.8
FY14
+11%
116.6
Sales and marketing
(10.5)
+48%
(15.5)
+7%
(16.6)
Gross R&D expenditure (1)
(14.3)
+10%
(15.8)
+6%
(16.7)
Administrative expenses (1)
(6.9)
+22%
(8.4)
+13%
(9.5)
(31.7)
+25%
(39.7)
+8%
(42.8)
Adjusted operating profit (1)
7.8
+35%
10.5
+19%
12.5
(1)
9.5%
Cash operating costs (1)
Adjusted operating margin
Adjusted fully diluted EPS (1)
Dividend
(1)
10.0%
10.7%
6.0c
+30%
7.8c
+8%
8.4c
1.46 p
+15%
1.68 p
+19%
2.00p
Adjusted to exclude the effects of the capitalisation of R&D costs (together with associated amortisation), the IFRS 2 share
option charge and associated NI, non-recurring costs and the amortisation of acquired intangibles
22
Cash flow summary
Strong cash flows fund growth and acquisition
€m
FY12
FY13
FY14
EBITDA (1)
21.2
23.5
26.7
Working capital
(3.4)
4.2
0.3
0.4
0.6
-
Operating cashflow
18.2
28.3
27.0
Cash conversion
82%
119%
101%
Capitalised R&D costs
(11.8)
(12.0)
(12.5)
(2.2)
(1.5)
(4.6)
(6.5)
(5.0)
4.2
8.3
4.9
Loan principal / net interest
(5.8)
(0.6)
(0.7)
Dividend paid
(2.2)
(2.4)
(3.0)
(1.0)
(1.2)
Other movements
Operating capex
-
Purchase of subsidiaries (net of cash acquired)
Cash inflow before net financing and other outflows
Purchase of shares for Treasury (net)
-
Non-recurring operating costs (2)
(2.5)
(2.0)
(0.6)
Cash generated (utilised)
(6.3)
2.3
(0.6)
6.6
6.6
5.3
)
Closing net cash
(1)
(2)
Excludes non-recurring items and derivative financial instruments which are presented separately
FY14 non-recurring costs comprise fess incurred on the acquisition of Portalify and subsequent restructuring costs;
FY13 non-recurring costs comprise fess incurred on the acquisition of 3T and subsequent restructuring costs; and
FY12 non-recurring costs comprise redundancy costs and settlement of financial derivatives
23
FY14: Highlights
Investments pay dividends with improved outlook
•
Record financial performance





•
Revenue growth of 11% to €116.6 million
Adjusted operating profit up 19% to €12.5 million
Adjusted EPS growth of 8%
Dividend up 19%
Cash conversion of 101%
Building a robust business
 22 countries invested > €1 million in FY14
 Installed base of 1.2 million devices
 Revenue from accessories of €31.1 million
•
Improved outlook for next two years
 Revenue growth of 10%
 Adjusted operating profit growth of 20%
 Adjusted EPS growth of 15% and 25% respectively
24
Building a robust business
Long-term relationships drive recurring revenues
1
2
3
4
5
Base station
and infrastructure
Infrastructure
maintenance
10-15 year
Software licence
Maintenance
10-15 year
Handheld radio
5-6 years
Warranty
Annually
Consumables
Annually
Batteries
c. 18-24 months
Speaker mics /
headsets
c. 18-24 months
Software, training
As required
25
6
7
8
9
10
11
12
Current market consensus reflects improved outlook
Strong core business and modest expectations from strategic initiatives
€m
TETRA terminals, infrastructure and applications
FY14
FY15
FY16
(Actual)
(Consensus)
(Consensus)
116.6
+3%
DMR
Revenue
120.3
+5%
126.1
8.0
+81%
14.5
116.6
+10%
128.3
+10%
140.6
Adjusted operating profit (1)
12.5
+20%
15.0
+20%
18.0
(1)
10.7%
Adjusted operating margin
Adjusted fully diluted EPS (1)
(1)
8.4c
11.7%
+15%
9.7c
12.8%
+22%
Adjusted to exclude the effects of the capitalisation of R&D costs (together with associated amortisation), the IFRS 2 share
option charge and associated NI, non-recurring costs and the amortisation of acquired intangibles
26
11.8c
1.
2.
3.
4.
5.
6.
The PMR market
Sepura’s position in the market
The opportunity
Financials
Conclusion
Q&A
27
27
Conclusion
Strong core business with modest expectations for new initiatives
… and Sepura is addressing more of that market
The digital PMR market is growing …
60,000
16,000
50%
45%
14,000
50,000
40%
12,000
40,000
35%
DMR
10,000
TETRA
Other
digital
30,000
30%
8,000
25%
20%
6,000
20,000
15%
Analogue
4,000
10%
10,000
2,000
0
5%
0
09
10
11
12
13
14
15
16
17
0%
2012
Source: IHS
2013
TETRA terminals
Other technologies and products
TETRA ATEX terminals
Systems
Applications
DMR
Sepura market share
28
2014
%age of PMR market addressed
N America
1.
2.
3.
4.
5.
6.
The PMR market
Sepura’s position in the market
The opportunity
Financials
Conclusion
Q&A
29
29

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