Esmertec Announces Results for the Half-Year Ended June 30, 2006; Ruedi Noser - Chairman Candidate of Esmertec's Board of Directors.DUEBENDORF-ZURICH, Switzerland Switzerland (swĭt`sərlənd), Fr. Suisse, Ger. Schweiz, Ital. Svizzera, officially Swiss Confederation, federal republic (2005 est. pop. 7,489,000), 15,941 sq mi (41,287 sq km), central Europe. -- 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 financial results for the six months ended June June: see month. 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 Nexus Telecom is a Swiss company, based in Zurich, Switzerland, providing network management solutions for telecommunications companies. Its core competency is OSS systems that monitor and test network-wide customer transactions in real-time. is an integral part of, and has over 20 years of experience in the telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. industry. "In the past three months, we have accomplished our objective of securing nearly US$10 million in revenue and improved our operations to focus on our core market segments. We are seeing positive results from these measures and are confident that the turnaround Turnaround A situation where a company that has had poor performance for an extended period of time experiences a positive reversal. Notes: A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. will progress according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. plan," commented Jean-Claude Martinez Jean-Claude Martinez (born 30 July 1945 in Sète, Hérault) is a French politician and Member of the European Parliament for the south-west of France. He is a member of the Front National, and was among the Non-Inscrit , Chief Executive Officer. "We also are pleased that Ruedi has agreed to be our Chairman candidate, and his election will take place at an Extraordinary Shareholders' Meeting shareholders' meeting n. a meeting, usually annual, of all shareholders of a corporation (although in large corporations only a small percentage attend) to elect the Board of Directors and hear reports on the company's business situation. planned for November November: see month. 23, 2006." Esmertec's historical activity has been based primarily on the sale of the Jbed(TM) Java Java (jä`və), island (1990 pop. 107,525,520), c.51,000 sq mi (132,090 sq km), Indonesia, S of Borneo, from which it is separated by the Java Sea, and SE of Sumatra across Sunda Strait. (TM) Virtual Machine and related products and services. This is reflected in the Mobile and Multimedia Devices Segment and is comparable in scope to the historical results for the first half of 2005. The Mobile Operator Segment reflects principally the results of Cellicium(TM) since its acquisition by Esmertec in February February: see month. 2006.
In US$ 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.
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 deferral - Waiting for quiet on the Ethernet. of revenue recognition on contracts with smaller customers, and (3) that several large contracts included in 1H2005 revenues are not expected to be renewed re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. 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 con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: 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 Noun 1. cost overrun - excess of cost over budget; "the cost overrun necessitated an additional allocation of funds in the budget" cost - the total spent for goods or services including money and time and labor 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 Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. : 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 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). costs and non-cash 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. losses on 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. . Bad debt expense of US$0.9 million in 1H2006 (1H2005: US$1.9 million) reflects a newly-identified customer risk in the Americas A·mer·i·cas , the See America. as well as additional general provision for risk in Asia. Issues related to certain Chinese Chinese, subfamily of the Sino-Tibetan family of languages (see Sino-Tibetan languages), which is also sometimes grouped with the Tai, or Thai, languages in a Sinitic subfamily of the Sino-Tibetan language stock. 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 See Income statement. . 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 Denmark (dĕn`märk), Dan. Danmark, officially Kingdom of Denmark, kingdom (2005 est. pop. 5,432,000), 16,629 sq mi (43,069 sq km), N Europe. was closed, the Japanese Japanese (jăp'ənēz`), language of uncertain origin that is spoken by more than 125 million people, most of whom live in Japan. There are also many speakers of Japanese in the Ryukyu Islands, Korea, Taiwan, parts of the United States, and 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 ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 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 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. 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 attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk 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 Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments position was US$25.3 million at June 30, 2006, decreasing from US$55 million on December December: see month. 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 Javaground is the provider of a suite of development and porting tools for the mobile games industry called the Xpress Suite. The company is also a developer of mobile games. 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 Property that is a "right" such as a patent, Copyright, or trademark, or one that is lacking physical existence, such as good will. 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 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. , interactive televisions and Blu-ray A high-capacity optical disc that holds 4.5 hours of high-definition video (HD) on a single-sided, single-layer 25GB disk. Announced in 2002 by Sony, Hitachi, Philips and other vendors, the Blu-ray technology uses a blue-violet laser that reads pits a third the size of a DVD on tracks 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 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. 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 A Blu-ray Disc (also called BD) is a high-density optical disc format for the storage of digital information, including high-definition video. Overview The name Blu-ray Disc is derived from the blue-violet laser used to read and write this type of 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 (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. 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 subscriber, n the person, usually the employee, who represents the family unit in relation to the prepayment plan. Other family members are dependents. Also called certificate holders or enrollees. base of over 40 million. Strategic Focus and Outlook In the second half of 2006, management will continue to optimize optimize - optimisation 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 differentiate /dif·fer·en·ti·ate/ (dif?er-en´she-at) 1. to distinguish, on the basis of differences. 2. to develop specialized form, character, or function differing from that surrounding it or from the original. 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 browser Software that allows a computer user to find and view information on the Internet. The first text-based browser for the World Wide Web became available in 1991; Web use expanded rapidly after the release in 1993 of a browser called Mosaic, which used 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 Competence Sufficient ability or fitness for one's needs. The necessary abilities to be qualified to achieve a certain goal or complete a project. 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 1. English - (Obsolete) The source code for a program, which may be in any language, as opposed to the linkable or executable binary produced from it by a compiler. The idea behind the term is that to a real hacker, a program written in his favourite programming language is at 1000hrs CET CET abbr. Central European Time CET Central European Time CET n abbr (= Central European Time) → hora de Europa central CET abbr at 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. 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 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 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 Korea (kôrē`ə, kə–), Korean Hanguk or Choson, region and historic country (85,049 sq mi/220,277 sq km), E Asia. , and the USA, and offices in Taiwan Taiwan (tī`wän`), Portuguese Formosa, officially Republic of China, island nation (2005 est. pop. 22,894,000), 13,885 sq mi (35,961 sq km), in the Pacific Ocean, separated from the mainland of S China by the 100-mi-wide (161-km) 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 Sun Microsystems, Inc. (NASDAQ: JAVA[3]) is an American vendor of computers, computer components, computer software, and information-technology services, founded on 24 February 1982. , Inc. Other names may be trademarks of their respective owners.
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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