ADB Group reports its full-year 2012 results

Thursday, March 14th, 2013
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GENEVA — Advanced Digital Broadcast Holdings SA (SIX: ADBN) reported today its unaudited consolidated financial results for the full year 2012.

The full-year revenue reached US$ 451.6 million, representing a growth of 13% compared to 2011. This was mostly attributable to the reasonable performance of the core business in the area of broadcast and broadband, but also a demonstration of the increased demand for services and further progress in the US market penetration. The management was particularly satisfied to note that temporary shortage of hard-disk drives did not hinder the business development during 2012, even though the company had to undertake special efforts to mitigate this.

Gross profit amounted to US$ 133.8 million or 29.6% of the revenue, an increase of 8% compared to 2011 in terms of absolute amount. Here is where the hard-disk drive shortage in 2012 had an impact. Excluding this, the pro-forma gross margin was 30.9% of revenue and thus in line with management expectations. The Group expects only a minimal impact from the fall-out of 2012 hard-disk drive shortages during the course of 2013.

The research and development expenses amounted to US$ 66.4 million, compared to US$ 74.0 million in 2011. It needs to be noted that in 2011, this figure contained US$ 5.5 million of reorganization costs which were mostly amortizations of intangible assets, whereas the corresponding number in 2012 was only US$ 0.6 million. The R&D expenses represented ca 15% of revenue which the Group considers being a normal level. The total overhead expenses, comprising of R&D, SG&A and operations overheads calculated on a cash basis, decreased approximately by 10% compared to 2011, underlining the effectiveness of the streamlining efforts carried out. The total SG&A amounted to US$ 52.9 million in 2012, including costs of one customer service work. All in all, the management was satisfied with the alignment of the overhead costs in 2012 and intends to continue these efforts in 2013 and beyond.

The total impact of reorganization and acquisition expenses on the overheads of the Group for 2012 was US$ 3.0 million, in line with management expectations, compared to US$ 16.3 million the year before.

Earnings Before Interest and Taxes, Depreciation and Amortization (EBITDA) amounted to 40.9, or 9.0% of the revenue. Earnings Before Interest and Taxes (EBIT) recovered to positive territory, and amounted to US$ 13.6 million or 3.0% of revenue for the full year. This compares favorably to the year before when the Group recorded a negative US$ 8.8 million EBIT. The profit after tax for the year 2012 reached US$ 8.5 million, or 1.9% of revenue, yielding earnings per share of US$1.64.

The Group’s cash position strengthened during the second half of 2012, allowing the Group to close the year with a net cash position of US$ 23.5 million, while the gross cash and treasuries amounted to US$ 44.3 million. The Group considers this to be a good result, as during the year 2012 the company purchased back US$ 7.3 million worth of its own shares and further reduced its bank exposure by US$ 7.0 million.

Mr. Andrew Rybicki, Group Chairman and CEO, commented: “We had assumed the 2012 to be a year of recovery and asked our staff to act accordingly. I’m pleased to see that they met the challenge head-on and delivered better than expected, for which I want to thank them sincerely. That having said, one must not forget that such an extraordinary effort cannot continue indefinitely. A great deal of work is still needed to bring the company into a truly positive territory, which will continue in 2013, albeit at a slightly slower pace. The year 2012 has also been good to some of our customers, who have seen their demand growing, despite not too favorable macroeconomic situation in Europe. Furthermore, the European pay-TV industry has been undergoing certain consolidations, which will no doubt affect the Groups business in 2013. This might pose a significant challenge for us during this and the following years, in addition to our continuing efforts of improving the Group’s performance. One thing is certain, however: our customers will continue valuing innovative solutions, which we have always been well-positioned to provide.”

Consistent with the policy adopted in 2012, the company has decided not to issue guidance for the year 2013.

Business overview

General trends

The digitalization of the worldwide households moves ahead. Year 2012 saw the digital TV penetration worldwide exceeding the 50% threshold. This figure is expected to reach 78% by 2016. While the competition from various forms of internet-carried television poses a serious challenge, the “traditional” pay-TV continues to gain ground as it still remains a popular form of accessing entertainment content. Broadband providers worldwide saw a significant deployment of feature-rich residential gateways in 2012, and this is expected to continue as the demand for user-convenient, well monitored and easy to deploy connectivity remains. While over-the-top (OTT) services keep causing several public debates, the current market development of the conventional pay-TV services supports the view that these are moving more towards add-on services to operators, rather than breaking existing business models. At the same time, the demand for software-based, innovative services is expected to grow in the future.

All this supports the Group strategy in focusing on innovative software, complete systems and services while further streamlining its core business.

Group business during 2012

The product and service of the Group is reflected by its revenue constitution. Digital TV equipment brought in a total 63%, broadband products yielded 26%, while the system solutions, customer care and other services grew to 11% of the Group 2012 revenue.

Geographically, Western Europe remains the Group’s largest and dominating market, bringing in 78% of the overall revenue[1]. Eastern Europe sales contributed 12%, Americas grew to 9%, and Asia Pacific remained stable at 1%.

The customer diversification remains largely unchanged. The top ten customers contributed to 76% of the Group revenue, with largest customer bringing 21.5% during the year 2012. The Group considers this still to be healthy and balanced approach, fostering enough cost-efficiencies but diversifying risks sufficiently.

The main drivers for growth during the year 2012 were the strong performance of the core business for existing customers, increase in the US market penetration, expanding portfolio of software products and continuing growth of the system solutions and new after sales services.

Throughout the year, the Group has received several industry recognitions. The Epicentro software platform won the “Broadband Home” category, and received the Broadband Infovision Award in Amsterdam. Epicentro is a software suite designed to enable Connected Home applications using the Home Gateway as a multi-service hub, and represents the development of new business models around the Broadband Home. Furthermore, Epicentro and the Group’s IPTV set-top-box (ADB-2721W) were shortlisted as finalists in the TelcoTV Vision Awards, in the categories “Best Innovation in Middleware” and “Best Innovation in Customer Premises Equipment” in Las Vegas. In February 2013, Epicentro Software Platform was also selected as a finalist in the TV Connect Industry Awards, “Best Digital Home Service Innovation” category. These nominations and awards strengthen the Group’s belief that focusing on multi-service, multi-screen and system solutions is an important part of the strategy and will continue to ride the technology trends.