Esmertec Announces Results for 2006, a Transition Year.* Continued growth in Mobile & Multimedia Device shipments, with market share more than doubling in one year * Results of Mobile Operator segment prove strong DUEBENDORF-ZURICH, Switzerland -- Esmertec[TM] (SWX SWX Swiss Exchange (trademark of SWX Swiss Exchange) SWX SolidWorks (3D solid modeling CAD software) SWX Splitter / Wave Division Multiplexer :ESMN), a focused provider of software and services to communications device Typically refers to a terminal used to send voice, video or text. Mobile phones, wireless PDAs and personal computers equipped with microphones, speakers and cameras are all considered communications devices. See modem. manufacturers and mobile telecom operators, announced today its results for the financial year ended December 31, 2006. The company's results are the outcome of two entirely different half years. After a sharp decrease in revenues in the first six months to USD USD In currencies, this is the abbreviation for the U.S. Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 9.3 million, business returned back on track in the second half of the year: revenues reached USD 15.5 million resulting in total revenues of USD 24.8 million for 2006, compared to USD 39.2 million in 2005, in line with management's guidance. Esmertec expects total revenues to be over USD 34 million for the full year 2007. [TABLE OMITTED] During 2006, Esmertec's operational performance developed robustly with growth of customers' device shipments with Esmertec software to over 59 million in the year and the creation of a new Mobile Operator segment with the acquisition of Cellicium in February 2006. Thanks to new contracts and follow-on orders from existing customers, the cumulated mobile subscriber base with access to Cellicium's USSD (Unstructured Supplementary Service Data) A messaging function in GSM cellphones. Unlike regular text messages, USSD messages travel over GSM signaling channels and are used to query information and trigger services. See CAMEL. browsing See browse. continued to grow over 70 million from 34 million at the beginning of the year. "2006 was a challenging year with two totally different faces. While our financial performance mainly in the first half year was disappointing, we have delivered sustainable improvements in our operations," comments Jean-Claude Martinez Jean-Claude Martinez (born 30 July 1945 in Sète, Hérault) is a French politician and Member of the European Parliament for the south-west of France. He is a member of the Front National, and was among the Non-Inscrit , CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Esmertec. "We have increased our efficiency by making Esmertec a more market driven organization and by adjusting costs to better reflect our current market expectations. Device shipments with Esmertec software consistently grew throughout the year. Our new Mobile Operator segment developed favourably. I am confident that measures initiated in 2006 with the market acceptance of our products and services will have strong impact on financial results going forward." Summary of 2006 results: Revenues: For the reporting period ended December 31, 2006, total revenues decreased by 36.8% compared to the previous year to USD 24.8 million. With total revenues of USD 15.5 million in the second half of 2006 performance was significantly better than in the first half with total revenues of USD 9.3 million. The sharp decline in revenues in the first half year of 2006 compared to 2005 resulted from a combination of market and customer-specific factors in the Mobile & Multimedia Device segment, which led to delays or reductions in committed volume contracts. In addition, the Company was more cautious in its credit evaluations and decided to defer de·fer 1 v. de·ferred, de·fer·ring, de·fers v.tr. 1. To put off; postpone. 2. To postpone the induction of (one eligible for the military draft). v.intr. revenues from customers not able to demonstrate strong financial viability. Gross Margin: Gross margin for the year 2006 was 40.6% of revenues (H1: 18.9%; H2 53.5%) compared to 61.9% in the previous year. Shortfalls in high-margin license revenues as well as first-half losses on services in the Mobile & Multimedia Device segment affected the gross margin negatively. In the service business, the gross margin in both segments was positive in the second half of the year, with a consolidated gross profit of USD 2.3 million compared to a loss of USD 2.0 million in the first half. Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. : Operating expenses, excluding restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). , amortization and impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. expense, stayed relatively stable at USD 31.0 million in 2006 compared to USD 30.2 million in 2005. If the effects of bad debt expense are excluded, operating expenses increased 14.8% to USD 25.8 million mainly reflecting the acquisition of Cellicium in February 2006 and the full impact of the ramp-up of the Chinese operations in the second half of 2005. In the course of the year, Esmertec introduced several cost and efficiency improvement measures, resulting in restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. of USD 2.7 million. These measures took effect beginning in the third quarter of 2006. As a result, operating expenses (excluding bad debt, amortization and impairment expense) were USD 3.0 million lower in the second half of 2006 compared to the first half of 2006. The changes in expectations for revenues from existing products in the Mobile & Multimedia Device segment and the changes in the Group structure also led to a reassessment Reassessment The process of re-determining the value of property or land for tax purposes. Notes: Property is usually reassessed on an annual basis. You may request a "reassessment" if you disagree with your assessment. of the continuing value of intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. . Consequently, impairment losses have been recorded to the total amount of USD 17.7 million. Bad debt expense declined to USD 5.2 million in 2006 compared to USD 7.7 million in 2005, but still was significantly affected by the negative financial situation of several customers, including one long-term customer which alone represent 50% of the total 2006 bad debt expense. All bad debt expense incurred in 2006 resulted from contracts signed in the years 2005 and before, and nearly half of the expense related to accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying from long-term commitments not yet due for payment. At year end 2006, accounts receivable representing amounts from long-term commitment contracts not currently due has decreased to USD 21.8 million from USD 31.4 million at December 31, 2005. Results: The LBITA was USD 21.6 million compared to a LBITA of USD 5.9 million in the previous year. Net loss attributable to equity holders of Esmertec AG amounted to USD 48.4 million compared to a net loss of USD 15.7 million in 2005. Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. loss per share was USD 2.97 compared to a loss per share of USD 1.22 in 2005. Cash flow: Cash collections from customers totalled USD 27.9 million in 2006 (USD 17.4 million in 2005), higher than revenues due to collections on contracts executed and recognized in prior period. As at December 31, 2006, cash, cash equivalents and short term investments totaled USD 13.2 million, decreasing from USD 55.0 million on December 31, 2005. This reduction reflects primarily the USD 14.4 million net cash outflow related to the acquisition of Cellicium, the final USD 2.5 million payment for the acquisition of Coretek (China), USD 1.6 million in investment in and loans to Javaground, and net cash used in operations of USD 20.2 million. Balance sheet: Accounts receivable decreased from USD 36.4 million at the end of 2005 to USD 29.6 million at the end of 2006. Intangible assets increased from USD 31.3 million at December 31, 2005 to USD 38.6 million at December 31, 2006, reflecting intangible assets arising primarily from the acquisition of Cellicium (USD 23.6 million) and capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. of development costs (USD 4.5 million) offset by the USD 17.7 million in impairments. Esmertec sold a majority stake in Esmertec KK (Japan) to an investor group led by local management, resulting in a gain on sale of USD 1.9 million; the remaining investment is now recorded as a long-term investment. Shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. decreased from USD 72.9 million at the end of 2005 to USD 27.9 million as at December 31, 2006. Segment information [TABLE OMITTED] Esmertec's historical activity has been based primarily on the sale of the Jbed Java Virtual Machine A Java interpreter. The Java Virtual Machine (JVM) is software that converts the Java intermediate language (bytecode) into machine language and executes it. The original JVM came from the JavaSoft division of Sun. 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 2005. The Mobile Operator Segment reflects principally the results of Cellicium since its acquisition by Esmertec at the beginning of February 2006. Mobile & Multimedia Devices segment: increase in market share In the Mobile & Multimedia Devices segment, revenue reached USD 15.4 million, a reduction of 60.9% compared to the previous year. LBITA decreased to USD (24.0) from USD (5.9) in 2005. While the first half-year was marked by a sharp drop of revenues, business activity picked up again in the second half of the year, delivering sales growth of 58.3% compared to the first half year. In 2006, 44% of revenues were achieved in Asia, 40% in the Americas and 16% in Europe. Esmertec's customers' product shipments increased by 152% to 59.1 million with a steady growth over the year. At the same time, Esmertec's market share of total mobile phones shipped globally increased continuously from an estimated 3.1% at the end of 2005 to 7.6% in the fourth quarter of 2006. As of December 31, 2006, the company's software has been shipped in 99.8 million devices. Mobile Operators segment: strong operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: The Mobile Operator segment maintained its fast growth pace. Revenues reached USD 9.4 million with associated EBITA EBITA Earnings Before Interest Taxes Amortization of USD 2.4 million. The result reflects a healthy development with both existing customers extending their capacities and new customers contributing to the positive performance. As of December 31, 2006, 18 mobile operators have deployed Cellicium's USSD browsing solution. The number of subscribers with access to Cellicium's USSD platform has significantly increased over the past 3 years, reaching 70.4 million subscribers as of December 31, 2006. In total the Company won eight new USSD customers in 2006. Although the historical revenue base comes from a major European operator, growth in the Mobile Operator segment to date has originated mainly from the fast developing markets in the Middle East and Africa, and Asia. The Company also has signed its first contracts in Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. . In 2006, 55% of revenues were achieved in the Middle East and Africa, 28% in Europe, 14% in the Americas and 3% in Asia. Outlook Esmertec's markets are experiencing a growing use of interactive and mobile communication devices. Java technology is increasingly being selected as the interactivity-enabling requirement for handset The part of the telephone that contains the speaker and the microphone. On a desktop phone, the part you hold in your hand is the handset. On a cellphone, the entire phone is the handset. See multihandset cordless and headset. manufacturers and home multimedia products. Esmertec is well positioned to benefit from this fundamental growth driver. Esmertec's USSD offering is experiencing increased interest in emerging markets as well as in Europe. Esmertec now concentrates on three fundamental strategic priorities * Reinforce market presence and penetration: Esmertec plans to further increase its market share by providing customers with innovative and reliable products in both segments, with a short time to market and excellent service. * Move up the value chain: Through the Cellicium acquisition Esmertec moves closer to telecom operators by offering mobile browsing solutions and applications. With this profile, Esmertec is targeting to expand its product portfolio, offering customers cost-saving and revenue-generating products. * Develop service offering: Esmertec aims to develop and extend its support and maintenance services to mobile industry players. The company uses local competence centers to provide customers with global expertise. Esmertec focuses on making the service competence a profitable business unit. For 2007, revenues are expected to increase at least 35% to be over USD 34 million and cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses is expected to be positive. Building on the turnaround measures implemented in the second half of 2006, the Company intends to make improving profitability its top priority. Future Board Composition: evolution toward an industrial profile In November 2006, three industry experts joined Esmertec's Board of Directors. Following this first step toward a Board which is more independent from the founding VC investors and with a more industrial profile, Roland Manger manger cattle trough which served as crib for Christ. [N.T.: Luke 2:7] See : Nativity and Bernd Pfister have decided that they will support this transformation and not stand for re-election at the Annual General Meeting of Shareholders, which will take place on April 19, 2007. Tony Reis, a board member since 2005, has also indicated that he will not stand for re-election. Chase Bailey, a board member since 2004, has indicated that he will resign from the Board of Directors at the upcoming annual shareholders' meeting shareholders' meeting n. a meeting, usually annual, of all shareholders of a corporation (although in large corporations only a small percentage attend) to elect the Board of Directors and hear reports on the company's business situation. on April 19. Thereafter, Esmertec's Board of Directors is expected to consist of seven members. This communication contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. 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 fore·see tr.v. fore·saw , fore·seen , fore·see·ing, fore·sees To see or know beforehand: foresaw the rapid increase in unemployment. 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 The cable TV box that sits on "top" of the TV "set," although it is often located several feet away in an equipment rack. The set-top box descrambles the premium channels and provides a tuner for the higher cable numbers that very old TVs did not support. 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, South Korea, and the USA, and offices in Taiwan and the UK. Since 2005, Esmertec has been listed on the SWX Swiss Exchange SWX Swiss Exchange An all-electronic securities exchange formed from the 1995 merger of exchanges in Geneva, Basel, and Zurich. The exchange offers trading in equity securities, investment funds, exchange-traded funds, bonds, Eurobonds, and options. (ESMN). www.esmertec.com Esmertec and Jbed are trademarks of Esmertec AG. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
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