Vestel Elektronik announced 1H07 IFRS consolidated results

Vestel Elektronik announced total revenues of US$1,538mn (€1,158mn) and net loss of US$28.7mn (€21.6mn) in 1H07.

The major reasons behind the deterioration in operational performance in 1H07 were:

1. Rapid shift happening in the European market from CRT TVs to LCDs, coupled with tough competitive environment in the European LCD market (i.e. declining LCD price trend continuing into 1H07)
2. TL’s appreciation (as Vestel being a net exporter)
3. Weak domestic sales (negatively affected from high level of interest rates and political uncertainty).

TV business, which makes up the major portion of the consolidated revenues, is currently going through a transition period. The recent surge in LCD panel prices, (in 2Q and 3Q07) after a long-period of downward trend, gives signal of the long-awaited stabilisation in the sector. This improved outlook on the pricing side, coupled with the seasonality in TV sales (the top season being the fourth quarter for LCD TVs) signals a better performance for the remainder of the year.

In line with the rapid transition to flat-panel TVs in the European TV market, Vestel’s CRT TV sales declined by 33% YoY to 2.9mn units in 1H07. Having seen this change coming and readied itself for it in advance, the Company was able to increase its flat TV sales by 45% YoY to approx. 1.2mn units in 1H07. Yet, TV revenues were still down by 20% YoY in US$ terms in line with the declining LCD price trend continuing into 1H07. The Company targets total flat TV sales of 3.3mn units for FY07 with 12% market share in the European LCD TV market.

White Goods business recorded an impressive 34% YoY US$ growth in 1H07, despite weak domestic market conditions. As being the exclusive “OEM/ODM only” white goods manufacturer, Vestel White Goods, continued to increase its market share in the European market by capitalising on its low cost, highly efficient manufacturing capabilities. Accordingly, white goods segment’s share in consolidated revenues reached 32% in 1H07 vs 22% a year ago.

Meanwhile, digital product sales declined by a limited 7% YoY in US$ terms making up 10% of total revenues despite the Company’s strategy to exit less-profitable DVD player segment. In digital devices, DVD players are rapidly being replaced with DVD recorders by consumers while Vestel’s strategy in this business line is to give emphasis to the production and sale of DVD-DVB combi units. The increasing move towards high-definition (HD) and encrypted broadcasts is also expanding this market.

Overall, the significant growth in white goods revenues limited the decline in consolidated revenues to 7% YoY in US$ terms in 1H07. The Company targets US$3.6bn of consolidated revenues for FY07.

The negative impact of TL’s appreciation on the bottom line was limited mainly due to the Company’s adjusted net FX position of US$496mn at the end of 1H07. The Company reported net FX gains of US$84mn under net financial income item in line with the appreciation of TL.

As readers will recall, the property, plant and equipment for TV production, a part of stocks of finished goods, components and raw materials of Vestel CIS were destroyed as a result of fire on 14 November 2005. Please note that the Company reported an extraordinary loss of approx. US$5mn (loss on fire incident reported under net other income item) in 2Q07 parallel to the outcome of negotiations between Vestel CIS and the Insurance Company.

On the balance sheet side, net debt (incl. LCs) stood at US$648mn, indicating net debt to equity ratio of 0.66x.