ADB Group First Half 2014 Results Presentation

ADB Group 1H 2014 Results
Zurich, 7 August 2014
This presentation contains forward-looking statements. You are cautioned that any
such forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from those in the
forward-looking statements as a result of various factors. Advanced Digital Broadcast
Holdings SA undertakes no obligation to publicly update or revise any forward-looking
statements. Advanced Digital Broadcast Holdings SA reserves the right to amend the
information at any time without prior notice.
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Advanced Digital Broadcast Holdings SA securities. In particular, it is not an offer of
securities for sale in the United States of America, its territories and possessions.
Securities may not be offered or sold in the United States absent registration or an
exemption from registration under the U.S. Securities Act of 1933, as amended.
Advanced Digital Broadcast Holdings S.A. does not intend to register its securities in
the United States of America.
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Peter Balchin, CEO
Alessandro Brenna, CFO
Tina Nyfors, SVP IR/Group Communications
Operational highlights of first-half 2014
Revenue below last year as per expectations
Demand slower than anticipated throughout the markets
One customer changing its inventory management, causing one-month delay
Cost management making good progress
Gross margin improvement through reducing the costs of goods sold
Strict cost and budget control: SG&A and R&D down largely due to the
reduction of overhead expenses
Improved operational margin
Transition to ODM progressing according to plan
Cost and process efficiencies showing first tangible results
New business development bringing three new customers
New business pipeline starting to grow, still early stages
Market consolidation affecting the industry
Change in approach to market implemented
Triple-S strategy established
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Key figures of first-half 2014
US$ million except EPS
H1 2014
H1 2013
Revenue
161.1
210.4
Gross Profit
49.1
30.5%
59.6
28.3%
EBITDA
10.9
6.8%
16.1
7.7%
EBIT
3.8
2.4%
4.6
2.2%
Net Profit
1.7
1.1%
3.2
1.5%
EPS
$0.34
$0.63
Net Cash Position
32.9
27.4
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Revenue split in by product type and geography
Asia
Pacific
0.20%
Triple-S
13%
Americas
9%
Eastern
Europe
12%
Western
Europe
79%
Broadband
30%
Broadcast
57%
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Top ten customers (in alphabetical order)
Canal Digital
Satellite, Norway
Eurocom
Satellite, Israel
Graybar
IPTV, US
Swisscom
Broadband, Switzerland
Telecom Italia
Broadband, Italy
Telekom Austria
B-band/IPTV, Austria
Telenet
Cable, Belgium
Vectra
Cable, Poland
Vodafone
B-band, Italy & Germany
ZAP
Terrestrial, Italy
74%
of
Group
revenue
in H1
2014
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Financial review
Alessandro Brenna
Profit and loss statement
US$ million
H1 2014
H1 2013
Revenue
161.1
210.4
Gross profit
49.1
59.6
30.5%
28.3%
R&D
(19.8)
(33.1)
SG&A
(24.2)
(22.9)
Other
(1.3)
1.0
3.8
4.6
2.4%
2.2%
Financial costs, net
(0.8)
(1.0)
Tax charges
(1.3)
(0.4)
1.7
3.2
1.1%
1.5%
$0.34
$ 0.63
Gross margin%
EBIT
EBIT Margin
Net profit
Profit Margin
EPS (basic)
Growth vs. margins
 Sales declined
 Margins increased
R&D decline
 Certain R&D activities
were transferred to S&M
 Lower amortization of
intangibles, lower royalties
Operating expenses down
 Significant efficiency gains
 Reorganisation charges of
US$ 1.2 million included in
overheads (none in H1 2013)
Finance costs and taxes
 Reduced finance costs
 Unfavourable mix of profits
and losses for tax charges
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Key balance sheet items
30 June
2014
30 June
2013
Cash and cash equivalents
37.3
35.7
Treasuries + time deposits
13.8
9.5
Trade receivables, net
51.5
64.0
Inventories, net
18.6
43.6
Other current assets
15.7
16.2
Total current assets
136.9
169.0
Current bank loans
16.1
9.3
Trade and other payables
69.1
107.0
Accrued expenses
24.6
22.2
Total current liabilities
119.1
146.8
2.1
8.5
Equity
53.2
61.6
Net cash position
32.9
27.4
Net current assets
17.8
22.2
US$ million
Long-term bank loans
Cash
 Increased due to profits and
reduced need for working
capital (move to ODM/JDM)
Operating assets
 ODM/JDM require less
inventory
 Receivable and payables lower
on reduced revenue
Debt
 US$ 6 million become current in
H1 2014
Net cash position
 Up 20% from last year
Net current assets
 Solid at US$ 17.8 million
despite shorter maturity of debt
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Key cash flow items
H1 2014
H1 2013
Net profit for the period
1.7
3.2
Adjustments, net
9.4
13.5
Working capital changes
0.7
(5.7)
(1.5)
(1.9)
10.3
9.1
Sale of treasury investments
0.1
0.9
Net investment in operations
(8.3)
(5.1)
Net cash flow used in investing
(8.2)
(4.2)
(0.6)
-
1.0
(2.9)
0.4
(2.9)
(0.1)
(0.1)
Net increase in cash
2.4
1.9
Ending cash + treasury investments
51.1
45.3
US$ million
Interest and taxes paid
Net cash flow from (used in) operations
Share purchase
Increase (decrease) in bank loans
Net cash flow used in financing
Translation adjustment on foreign currency
Operating cash flows
 Positive development in
H1 2014
 Positive working capital
impact
Investing cash flows
 Increased investments
(newly started projects)
in intangible assets
Financing cash flows
 Increase of L/C loans
 Purchase of shares
Total cash and treasuries
 Solid position,
strengthened further
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Industry overview, market trends and strategy
Peter Balchin
Traditional global set-top box business overview
General trends
All sectors of global electronic industry get commoditized over time
– and this is true to the classic set-top box business as well
Volumes flat in most markets
Average selling prices declining
Increasing competition
Industry capacity yet to decline
Only the content security issues are slowing this process for
traditional single TV set-top boxes
Trading at good margins on low-end set-top boxes is possible, but:
Requires excellent supply chain management
Requires first-class distribution channel know-how
Requires pure ODM off-the-shelf approach
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Other trends provide lucrative business opportunities
Research institutions (IHS, MRG et al) predict growth for the overall
markets across the whole digital TV sector (cable, satellite,
terrestrial, IPTV, OTT) for shipments
Amount of shipments does not equal growth of revenues for
technology providers
More lucrative opportunities are the high-end pockets of growth:
Multi-screen opportunities
Evolving STBs as multimedia home gateways
Introduction of connected home – this enables effective
bundling of various services, and is lucrative to operators
Head-end/Cloud solutions
Continuing integration of software and hardware
Hardware-dependent solutions to be replaced by softwarebased solutions in the long run
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Connected homes dominate the market approach…
General trends
Multi-screen solutions for the connected home
Full HD streaming to every screen in the home
Complete end-to-end digital pay-TV solutions
Providing state-of-the-art services to the subscribers
Intelligent home gateways
Monetizing quality of life services in the connected home
Unified navigation user interface
Making it easy to access all content at home
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…and for a good economic reason
Instead of just viewing habits
changing (which is also the case),
more importantly it is the concept
of what constitutes home
entertainment is transforming
Entertainment at home is
complemented by various
services, which become
possible through
connected solutions
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Implications to ADB’s strategy and execution
Transition from traditional business to new will still take some time
Efficiency of current operations paramount
Margin management crucial
Systematic approach to new business development
Customer orientation and management to be redefined
Traditional split between broadcast and broadband is no longer
relevant
Telco/broadcast networks will be blurred to offer connected
services – we must make efficient use of our know-how
Development of new products without specific customer request
– off-the-shelf product range necessary
Emphasis on organizational culture that can both develop new
innovations in product, supply and marketing, but also rapidly adapt
to emerging opportunities
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ADB stands at the strategic road fork for the future
Unified products
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Triple-S strategy combines inputs from the road
Osmosys
MHP
Carbo
Graphyne
Vidiom
OCAP
Epicentro
Software
Systems
Services
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Outlook
Peter Balchin
Outlook for ADB Group
The challenge is in the years to come
New solutions to be rolled out to meet new user behavior and technology
trends
Revenue models for new services to be worked out
Business development challenges to be addressed
Industry-wide issue due to overcapacity
ODM model to be completed and perfected
Emphasis on improving operational efficiency, profitability and cash flows
Strengthen company position on the industry IP battlefield
Product range to be reviewed
Traditional products – maximize efficiency
New products – develop independently
Explore, develop and patent – intellectual property management is key
Macroeconomic circumstances remain challenging
Pressure on margins; purchasing power of economies; forex
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Thank you
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