Esmertec Announces Results for the Half-Year Ended June 30, 2006; Ruedi Noser - Chairman Candidate of Esmertec's Board of Directors
Esmertec(TM) (SWX:ESMN), a focused provider of software
and services to communications device manufacturers and mobile telecom
operators, announced today its financial results for the six months
ended June 30, 2006. Furthermore, Esmertec's Board of Directors is
pleased to announce that Ruedi Noser, Chairman of the Noser Group, has
accepted to stand as candidate for Chairman of Esmertec's Board of
Directors. Ruedi Noser co-founded and built the Noser Group, of which
Nexus Telecom is an integral part of, and has over 20 years of
experience in the telecommunications industry.
"In the past three months, we have accomplished our objective of
securing nearly US$10 million in revenue and improved our operations
to focus on our core market segments. We are seeing positive results
from these measures and are confident that the turnaround will
progress according to plan," commented Jean-Claude Martinez, Chief
Executive Officer. "We also are pleased that Ruedi has agreed to be
our Chairman candidate, and his election will take place at an
Extraordinary Shareholders' Meeting planned for November 23, 2006."
Esmertec's historical activity has been based primarily on the
sale of the Jbed(TM) Java(TM) Virtual Machine and related products and
services. This is reflected in the Mobile and Multimedia Devices
Segment and is comparable in scope to the historical results for the
first half of 2005. The Mobile Operator Segment reflects principally
the results of Cellicium(TM) since its acquisition by Esmertec in
February 2006.
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In US$ millions, except unit Esmertec Mobile& Mobile Esmertec
shipments Group Multimedia Operator Group
Devices Segment
Segment
------------------------------ -------- ----------- --------- --------
1H2005 1H2006 1H2006 1H2006
------------------------------ -------- ----------- --------- --------
Revenues 20.1 6.3 3.3 9.6
------------------------------ -------- ----------- --------- --------
Gross profit 13.8 0.0 2.1 2.1
------------------------------ -------- ----------- --------- --------
Restructuring expense - (1.7) - (1.7)
------------------------------ -------- ----------- --------- --------
Impairment loss on intangible
assets - (15.6) - (15.6)
------------------------------ -------- ----------- --------- --------
Bad debt expense (1.9) (0.9) - (0.9)
------------------------------ -------- ----------- --------- --------
Other operating expenses,
including amortization (13.3) (15.9) (2.1) (18.0)
------------------------------ -------- ----------- --------- --------
Earnings before interest,
taxes, amortization/
impairment (EBITA) 1.3 (15.7) 0.8 (14.9)
------------------------------ -------- ----------- --------- --------
Operating income/(loss) (1.4) (34.2) 0.0 (34.2)
------------------------------ -------- ----------- --------- --------
Net loss attributable to
Esmertec AG shareholders (1.9) (34.2)
------------------------------ -------- ----------- --------- --------
------------------------------ -------- ----------- --------- --------
Cash collections 9.7 13.4
------------------------------ -------- ----------- --------- --------
Device shipments by customers
(in millions) 9.3 18.1
------------------------------ -------- ----------- --------- --------
All figures are unaudited and reported in accordance with
International Financial Reporting Standards (IFRS). Condensed and
consolidated financial tables are provided at the end of this release.
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First Half 2006 Highlights:
Revenues: 1H2006 revenues for the group totaled US$9.6 million, a
decrease of 52% compared to 1H2005. First half-year revenues of the
Mobile and Multimedia Devices segment, which is comparable to Esmertec
Group's revenues in 2005, totaled US$6.3 million, a 69% decrease from
Esmertec Group revenues in 1H2005. This decrease in the Mobile and
Multimedia Devices segment reflects: (1) a combination of market and
customer-specific factors in 1H2006 which led to delays or reductions
in committed volume contracts, (2) deferral of revenue recognition on
contracts with smaller customers, and (3) that several large contracts
included in 1H2005 revenues are not expected to be renewed before
2H2006 or 2007. 1H2006 revenues for the newly formed Mobile Operator
segment reflect Cellicium's sales since the acquisition in February
2006.
Gross Margin: Gross margin for the consolidated business was 22.1%
of revenues in 1H2006 compared to 68.8% in 1H2005. Gross margin for
the Mobile and Multimedia Device segment was slightly above break-even
in 1H2006 due to a US$2.3 million loss on services, offsetting a
US$2.3 million (89.2%) gross profit on licenses. The services loss was
due primarily to cost overruns in executing customer projects in Japan
and a number of evaluation services performed as part of pre-sales
efforts. Gross margin in the Mobile Operator Segment was 63.6%.
Operating Expenses: Total operating expenses in 1H2006 were
US$36.3 million compared to US$15.2 million in 1H2005, reflecting (1)
the acquisition of Cellicium in February 2006, (2) the full impact of
the ramp-up of operations in China which were only partially felt in
1H2005, and (3) the effects of bad debt expense, restructuring costs
and non-cash impairment losses on intangible assets.
Bad debt expense of US$0.9 million in 1H2006 (1H2005: US$1.9
million) reflects a newly-identified customer risk in the Americas as
well as additional general provision for risk in Asia. Issues related
to certain Chinese customer transferred from CoreTek led Esmertec to
negotiate a reduction of the final payment due to CoreTek during
1H2006. The US$0.5 million payment reduction was recorded against
goodwill on the balance sheet and had no impact on the statement of
operations.
As a result of the significant decrease in 1H2006 revenues,
Esmertec implemented a number of measures to adjust the Company cost
structure to reflect revised expectations. The OSVM(TM) research
center in Denmark was closed, the Japanese sales and support
operations were substantially reduced and a number of middle
management positions were eliminated. The cost of these measures was
US$1.7 million. Beginning in the fourth quarter of 2006, the full
impact of savings of approximately US$2 million per quarter will be
felt, a portion of which will be reflected as a reduction in cost of
services.
The changes in expectations for revenues from existing products in
the Mobile and Multimedia Devices segment, and the changes in group
structure, also led to a reassessment of the continuing value of
intangible assets. Consequently, impairment losses have been recorded
in 1H2006 related to OSVM (US$3.2 million) and Japan (US$9.3 million),
as well as acquired and internally developed technology costs (US$3.1
million).
Loss: Net loss attributable to the equity holders of Esmertec AG
of US$34.2 million (US$2.10 per share) for 1H2006 includes US$2.5
million of net financial expenses and a net tax benefit of US$1.4
million reflecting the effect of reversals of net deferred tax
liabilities related to the impairment losses. Net loss attributable to
the equity holders of Esmertec AG in 1H2005 was US$1.9 million
(US$0.18 per share).
Balance sheet:
Esmertec's cash and short-term investments position was US$25.3
million at June 30, 2006, decreasing from US$55 million on December
31, 2005. This reduction reflects the US$11.8 million net cash outflow
related to the acquisition of Cellicium, the final US$2.5 million
payment for the acquisition of Coretek (China), US$1 million in
investments in and loans to Javaground and ESLabs, and cash used in
operations. Cash collections from customers in 1H2006 totaled US$13.4
million, in excess of revenues due to collections on contracts
executed and recognized in prior periods.
Intangibles assets increased from US$31.3 million at December 31,
2005 to US$40.0 million at June 30, 2006, reflecting intangible assets
arising primarily from the acquisition of Cellicium (US$24.1 million)
and ESLabs (US$0.3 million), offset by the US$15.6 million impairment.
Mobile and Multimedia Devices Segment
This segment has two product lines - (1) mobile devices such as
phones and personal digital assistants, and (2) home multimedia
devices such as set-top boxes, interactive televisions and Blu-ray
players.
The mobile devices product line continues to be Esmertec's major
revenue contributor, with Esmertec securing a major contract renewal
from a leading handset manufacturer in 1H2006. For the same period,
the number of devices shipped by customers grew, with over 18 million
units shipped in 1H2006, an increase of 94% compared to 1H2005. As of
June 30, 2006, a cumulative total of more than 58 million devices in
over 190 models with Esmertec software had been shipped by customers.
In the home multimedia product line, Esmertec sees increasing
industry support of Java technology as the standard to enable
flexibility and increase the interactive options for consumers. After
the Blu-ray Disc(TM) Association's selection of Java software as its
interactivity-enabling standard, Esmertec signed an agreement with
Pioneer Corporation in 1H2006 to integrate Esmertec's Jbed software in
Pioneer's Blu-ray Disc players.
Mobile Operators Segment
Esmertec won five new customers in 1H2006, bringing the total
number of mobile operator customers to 15. Increasing competition
between mobile operators is leading them to look for services that
enable them to save cost, increase revenue and retain end users. Our
mobile operator products including our USSD Browsing solution are
designed to provide such benefits. The number of subscribers with
access to our USSD browsing solution grows steadily and as of today,
our customers have a cumulated subscriber base of over 40 million.
Strategic Focus and Outlook
In the second half of 2006, management will continue to optimize
operational efficiency while implementing its strategy to increase
license volumes and services in the Mobile and Multimedia Devices
segment and to provide Mobile operators with server-based solutions
that enables them to differentiate their services from competition.
The focus in the mobile devices product line is strengthening
Esmertec's market position by continuing to enable our customers to
deliver mobile devices quickly and on time to the market. In the home
multimedia product line, the strategy is to deliver a comprehensive
solution required by device manufacturers through partnerships with
other vendors. In the Mobile Operator Segment, the objective is
growing the global customer base through sales of the existing USSD
browser product and expanding the product portfolio to support
longer-term growth.
Another strategic focus of the Company is expanding its service
offering to existing customers in both segments as well as other
mobile industry players, leveraging its global service expertise and
competence centers, especially in China. The services business in both
segments is expected to have positive gross margins in the second half
of 2006.
Esmertec also expects total revenue in the second half of 2006 to
be significantly higher than in the first half of 2006.
Management is working to have the turnaround completed by the end
of 2006, enabling Esmertec to focus on positioning the company more
aggressively in its targeted markets and growing the business in both
segments in 2007.
Media Conference and Conference Call
The Company will host today a media and analyst conference in
English at 1000hrs CET at SWX Swiss Exchange ConventionPoint in Zurich
and a conference call in English at 1500hrs CET. Details of the
conference call can be found on the "Investors/IR Agenda" section of
www.esmertec.com.
Esmertec plans to report its full-year 2006 results on February
21, 2007.
This communication contains forward-looking statements based on
current expectations and assumptions of the company's management only,
and involve certain risks and uncertainties. The forward-looking
statements contained herein could be substantially impacted by risks
and influences that are not foreseeable at present, so that actual
results may vary materially from those anticipated, expected, or
projected. Esmertec disclaims any intention or obligation to update
and revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
About Esmertec
Esmertec is a focused provider of software and services to
communications device manufacturers and mobile telecom operators. The
company provides software platforms that enable the deployment of
content and applications in devices and over servers. Customers
include mobile telecom operators and manufacturers of mobile handsets,
set-top boxes and interactive televisions. Esmertec's software and
service capabilities excel with its reliability as well as fast and
local execution. Founded in 1999, Esmertec is headquartered in
Zurich-Switzerland with subsidiaries in China, France, Japan, South
Korea, and the USA, and offices in Taiwan and the UK. Since 2005,
Esmertec is listed on the SWX Swiss Exchange (ESMN). www.esmertec.com
Esmertec, Jbed and OSVM are trademarks of Esmertec AG. Java is a
trademark of Sun Microsystems, Inc. Other names may be trademarks of
their respective owners.
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INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 2005 AND JUNE 30, 2006
(in USD 000s)
At December At June 30,
31, 2005 2006
(unaudited)
----------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents 35,771 25,012
Short-term investments 19,195 251
Marketable securities 0 3,808
Trade accounts receivable 36,434 35,717
Other current assets 5,831 7,244
--------- -----------
Total current assets 97,231 72,032
--------- -----------
Non-current assets
Furniture and equipment 971 1,291
Intangible assets 31,295 40,000
Financial assets 607 1,536
Deferred tax assets 3,207 0
--------- -----------
Total non-current assets 36,080 42,827
--------- -----------
Total assets 133,311 114,859
========= ===========
LIABILITIES AND EQUITY
Current liabilities
Bank overdrafts and short term borrowings 3,297 2,153
Accounts payable 4,370 5,015
Other payables 7,190 12,699
Accrued expenses 10,723 11,615
Deferred revenue 1,824 4,142
--------- -----------
Total current liabilities 27,404 35,624
--------- -----------
Non-current liabilities
Interest-bearing loans 27,935 30,398
Pension liabilities 925 1,032
Other long-term liabilities 0 4'352
Deferred revenue 366 175
Deferred tax liabilities 3,746 3,056
--------- -----------
Total non-current liabilities 32,972 39,013
========= ===========
Total liabilities 60,376 74,637
========= ===========
Shareholders' equity
Share capital 1,231 1,313
Share premium 114,737 120,213
Treasury shares -1 0
Cumulative translation adjustment 888 -2,213
Accumulated losses -44,987 -79,156
--------- -----------
Total equity attributable to equity holders of
the parent company 71,868 40,157
Minority interest 1,067 65
--------- -----------
Total equity 72,935 40,222
--------- -----------
========= ===========
Total liabilities and equity 133,311 114,859
========= ===========
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 2005 AND 2006
Six months ended
June 30, June 30,
(in USD 000s) 2005 2006
----------------------------------------------------------------------
(unaudited) (unaudited)
License revenue 15,009 4,037
Service revenue 5,067 5,260
Other revenue 0 328
------------ -----------
Total revenue 20,076 9,625
Cost of license revenue (2,061) (283)
Cost of service revenue (4,213) (6,923)
Cost of other revenue 0 (296)
------------ -----------
Total cost of revenue (6'274) (7'502)
------------ -----------
Gross profit 13,802 2,123
Research and development (2,649) (3,867)
Sales and marketing (3,545) (4,724)
Bad debt expense (1,885) (903)
General and administrative (4,375) (5,820)
Restructuring costs 0 (1,707)
Amortization of intangible assets (2,738) (3,637)
Impairment of intangible assets 0 (15,635)
------------ -----------
Loss from operations before interest and
taxes (1,390) (34,170)
Financial income 3,018 1,827
Financial expenses (3,364) (4,283)
------------ -----------
Loss before income taxes (1,736) (36,626)
Income tax (expense)/benefit (236) 1,445
------------ -----------
Net loss for the period (1,972) (35,181)
============ ===========
Attributable to:
Equity holders of the parent company (1,905) (34,169)
Minority interest (67) (1,012)
------------ -----------
(1,972) (35,181)
============ ===========
Basic and diluted loss per share (0.18) (2.10)
INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENTS FOR THE SIX
MONTHS ENDED JUNE 30, 2005 AND 2006
Six months ended
June 30, June 30,
(in USD 000s) 2005 2006
----------------------------------------------------------------------
(unaudited) (unaudited)
Net income / (loss) for the period (1,972) (35,181)
Adjustments for:
Depreciation and amortization 2,829 3,820
Impairment of intangible assets 0 15,635
Cost of stock options 723 311
Increase of bad debt reserve, net 1,885 903
Interest expense 1,547 1,786
Interest income (282) (439)
Income taxes 237 (1,445)
Other adjustments (144) (126)
----------- -----------
4,823 (14,736)
Net Change in working capital items (12,279) (433)
----------- -----------
Net cash used in operating activities (7,456) (15,169)
----------- -----------
Capital expenditure for fixed assets (400) (397)
Capital expenditure for intangible assets (3,207) (2,673)
Acquisition of businesses, net of cash
acquired (1,965) (11,839)
Investment/financing of business 0 (844)
Sale of short-term investments 0 19,634
Other investing activities 96 153
----------- -----------
Net cash (used in)/provided by investing
activities (5,476) 4,034
----------- -----------
Proceeds from borrowings 2,965 0
Repayment of borrowings (5,908) (1,273)
Other financing activities 2 201
----------- -----------
Net cash used in financing activities (2,941) (1,072)
----------- -----------
Net decrease in cash and cash equivalents (15,873) (12,207)
Cash and cash equivalents at beginning of
period 19,817 35,771
Effect of exchange rate fluctuations on cash
and cash equivalents (1,234) 1,448
----------- -----------
Cash and cash equivalents at end of period 2,720 25,012
=========== ===========
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