ADB Group reports first half 2010 financial results

GENEVA — Advanced Digital Broadcast Holdings SA (SIX: ADBN) reported today ADB Group’s unaudited consolidated financial results for the first half of 2010.

As expected, the first half of 2010 marked the return of the more typical seasonality pattern of the business and thus the revenue remained at a lower level of US$ 141 million, compared to US$ 183 million for the same period last year when the revenue distribution was unusually even. This revenue development was caused primarily by three factors: large customers returning to normal seasonality pattern, component shortage, and a slight delay in introducing new products to the market. All this pushed certain amount of sales from first half to the second half.

Gross profit amounted to US$ 49.0 million, or 34.7% of revenue, which is within management’s long-term expectations and in the upper range for this industry. The 2010 first half Earnings Before Interest and Taxes amounted to US$ 3.7 million or 2.6% of revenue, compared to US$ 12.4 million for the same period in 2009. This is a direct result of lower revenue and gross margin levels, which were successfully compensated by business model scalability and strict cost control. Earnings per share were US$ 0.50. The Group closed the semester with a strong net cash position of US$ 44.4 million and with a gross cash position totaling US$ 75.0 million, after repurchasing shares for US$ 8.3 million.

The Group continued to increase its investment in research and development. At the same time, the Group controlled or reduced other operational overheads. As a result, the overall operating expenses decreased by 21.5% year-on-year, and accounted for US$ 42.0 million in the first half of 2010. The Group benefited from its active hedging policy, which mitigated the impact of unfavorable foreign exchange fluctuations.

During the first half of 2010, the Group invested significantly in developing and launching new products. Some 12% of the period revenue was already generated by new products, and more is scheduled for the latter part of the year. By the end of the year, the Group will have an entirely renewed product portfolio, delivering unprecedented performance and features, such as highly acclaimed Carbo User Interface (including its 3D version), WiFi-enabled hybrid satellite PVR products and its next generation DVR-Lite™ connected Set-Back Box.

Business overview

The early part of the year was particularly strong for the satellite business, due to the demand in both Eastern and Western Europe. Satellite segment increased to a record level of 32% of the Group revenue, compared to 29% in 2009. The IPTV segment enjoyed a growth spur as well, bouncing back to 27% of the Group revenue from the last year’s 19%. Cable business declined temporarily, accounting for 29% of the Group revenue, compared to 39% in 2009. Terrestrial business in terms of Group revenue stayed stable at 11% compared to 12% in 2009. It needs to be noted that the products sold to retailers include both terrestrial and satellite products of the Group.

The Group’s positioning on high-end products remains widely unchanged. High-Definition TV products accounted for 74% of product sales revenue, and Personal Video Recorders (both high and standard definition) represented 52% of the revenue. The sales of our hybrid products represented 62% of the product sales, reflecting the demand from retail product line which is only starting to benefit from hybrid capabilities. As a total, the high-end products constituted 84% of the Group overall product sales, in line with the 85% of full year 2009.

The Group opened three strategically important new markets during the first half of 2010: UK Freeview HD market with embedded BBC iPlayer, and the expansion of our Eastern European presence to Bulgaria with CableTel. Furthermore, during the first half of this year the Group also established its presence in India with two cable customers already won, and in Indonesia with one new customer win. ADB will deliver a full solution to these customers, including head-end technology, MHP middleware, set-top boxes and Carbo UI. The IPTV business expanded to Caribbean Islands with a new customer Tele­communications Service of Trinidad and Tobago.

Geographically, Western Europe brought the majority of the Group revenue with 54% contribution, (56% in 2009). Eastern Europe accounted for 23% of the Group revenue, whilst Middle East and Africa grew to 16% of the revenue. Americas brought in 5% and Asia Pacific 2%. The top ten customers amounted to a total of 89% of the revenue, which is comparable to the previous years.

The Group continued winning awards and recognitions in the fields of technology development and innovation. In March, ADB Group was honored to receive the IPTV World Series Award for the “Best Interactive TV Application/Service”.

The pay-TV industry continues its healthy development and is looking actively for new products and services, which obviously creates opportunities, particularly for technology driven companies such as ADB Group. Consequently, our 3D TV concepts and prototypes won significant recognition from both the industry leaders and the press, stimulating further development and industrialization of our first 3D user interface prototypes.

Meanwhile, the Group’s Carbo UI product has established itself as an attractive software product, and is becoming a de facto industry benchmark in terms of the consumer experience, quality and friendliness. This product was deployed for the first time in October last year, and has now been adopted by six customers, with more to come before year end. The Group regards this as a remarkable success.

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