1 HALF-YEAR REPORT 2014 NETWORK TESTING HEALTHCARE NETWORK OPERATORS WIRELESS SOLUTIONS INNOVATION MISSION-CRITICAL WIRELESS COMMUNICATION GLOBAL
2 2 ASCOM HALF-YEAR REPORT 2014 LETTER TO SHAREHOLDERS LETTER TO SHAREHOLDERS Dear Shareholders The first half of 2014 was disappointing especially after an excellent fiscal year 2013, when Ascom achieved its best EBITDA margin ever. Compared to the strong first six months of 2013, Ascom experienced slower business development during the first half-year of Fewer large projects and delayed orders from customers were the main reasons for the unsatisfactory operating results. In addition, both, incoming orders and revenue, were impacted by negative currency developments. In the first six months of 2014, Ascom generated revenue of CHF million (H1/2013: CHF million), while incoming orders amounted to CHF million (H1/2013: CHF million). On the other hand, the bookto-bill ratio stood at a good level of 113% and total order backlog was CHF million (year-end 2013: CHF million). Despite lower revenues, Ascom achieved a doubledigit EBITDA margin of 10.5% (H1/2013: 12.4%), including a positive impact from non-core one-offs. The Company ended the first half of 2014 with net profit of CHF 8.2 million (H1/2013: CHF 14.5 million). As of 30 June 2014, the Group showed a net cash position of CHF 2.3 million and an equity ratio of 48.0%. Thus, Ascom is a financially very sound global technology group. In order to improve current operating results, Ascom continued to invest in growth initiatives in both divisions, while also conducting in-depth market assessments. The new healthcare smart device Ascom Myco is one of the Ascom Group s most important development projects. In addition, the Company strengthened its management team. The new position of Head of Strategy and Business Development was created at Executive Board level, and two new Managing Directors for Wireless Solutions US and for Network Testing APAC were appointed. Given that Ascom historically shows stronger business performance during the second half of the year, we are confident that our Group will increase profitability during the coming months and close 2014 in its core business with flat revenue development and an EBITDA margin of 14 16%. Ascom expects net profit for fiscal year 2014 to be at around the previous year s level. Wireless Solutions anticipates strong second half-year Wireless Solutions showed mixed business performance during the first half of Overall, the division generated revenue of CHF million (H1/2013: CHF million) and reported an EBITDA margin of 10.9% for the first six months of 2014 (H1/2013: 14.0%). With a high order backlog, a sound project pipeline and a seasonal pattern with stronger profitability during the second half-year periods, we are confident that Wireless Solutions will close fiscal year 2014 with a much stronger EBITDA margin than is expected in line with the previous years. Wireless Solutions continued to focus on innovation and invested further in growth initiatives. In particular, the division has designed with Ascom Myco a unique purpose-built smart device for the healthcare sector. Ascom Myco has been pretested with key users and is planned to be launched in October 2014 with first revenues being generated in With small acquisitions in Australia and Malaysia, Wireless Solutions has completed its first steps in growth markets expansion and is well positioned to further explore new business opportunities in the APAC region. In addition, Wireless Solutions has strengthened its divisional management team, by appointing Tim F. Whelehan, an experienced sales executive, as the new Managing Director of Wireless Solutions US. Ascom has taken the right steps to improve the division s business performance and is confident that Wireless Solutions will close fiscal 2014 with strong results in the second half. Network Testing expects recovery after weak first half-year After posting very good performance in 2013, Network Testing faced headwinds during the first half of As a result, the division closed the first six months of 2014 with revenue of CHF 52.7 million (H1/2013: CHF 65.2 million). In terms of profitability, gross margin remained stable despite
3 ASCOM HALF-YEAR REPORT 2014 LETTER TO SHAREHOLDERS 3 Ascom key figures CHFm 1 st half-year Incoming orders Revenue EBITDA Group profit lower revenue, while the EBITDA margin came to 4.4% (H1/2013: 11.8%). However, encouraged by positive business developments seen in the second quarter of 2014 compared to the first three months, and given a solid order backlog, Network Testing is confident that it will increase revenue during the second half-year and close 2014 with a substantial improvement in profitability. In order to deliver stronger results in the coming months, Network Testing has invested in growth initiatives such as the development of Capacity Management, integrated solutions capabilities, and an econtract Exchange system. In addition, to regain market share in the Asia Pacific region, Network Testing has appointed Faiq Khan, a very successful manager of the Middle East Africa subregion, as the new Managing Director to lead the combined Asia Pacific and Middle East Africa region. Ascom a global solution provider Ascom is a globally oriented technology group with a focus on profitable growth. The Company is evolving from a product supplier to a solution provider. Wireless Solutions is pursuing a clear growth strategy in order to become the global leader in workflow management based on wireless on-site communication in its key segment healthcare. Ascom s latest development, Ascom Myco, as a unique and purpose-built smart device for the healthcare industry will support the division in broadening its positioning in the market. Wireless Solutions also increased investments in the UNITE software product line and has recently launched an access solution that brings Ascom workflow intelligence functionality to smartphones. Network Testing has a broad portfolio and serves a truly global customer base. The division has positioned itself as the mobile industry s independent authority for validating network performance. The addressed markets are mainly driven by network evolutions. With its very comprehensive portfolio for mobile network testing, monitoring and post-processing solutions, the division is well positioned to further explore new business opportunities. A comprehensive market assessment underlines that Network Testing has a good basis to recover its position in the APAC region, provided the division focuses its business clearly around unique aspects of its offerings. A dedicated plan to bounce back in APAC has been implemented. In order to fortify Ascom s long-term strategy of profitable growth and to strengthen Executive Management, the Board of Directors has appointed Francis Schmeer as Head of Strategy and Business Development. Francis Schmeer is a global executive with a solid track record in strategy and business development in multiple industries and geographies. He has led global teams in companies such as Oerlikon, Sony Ericsson and T-Mobile. Francis Schmeer will be a Member of the Executive Board and report directly to the CEO. He will support the CEO implementing identified growth initiatives and executing the defined M&A strategy. EBITDA margin for 2014 expected to be 14 16% Ascom historically has a stronger second half-year and therefore anticipates significantly better results in the coming months. Ascom has undertaken important steps to improve operating results in both divisions. Wireless Solutions as well as Network Testing carry a strong project pipeline and have already shown signs of improving business performance in the last few months. Ascom expects to close the 2014 financial year with similar revenue in core business as in fiscal year Taking into account that Wireless Solutions expects a much stronger EBITDA margin in line with previous years, and that Network Testing will improve its profitability substantially, Ascom is confident that it will achieve the targeted overall EBITDA margin of 14 16% in core business in Based on the assumption of strong improvement in operating results during the second half of 2014, Ascom anticipates net profit to be at around the previous year s level. Juhani Anttila Fritz Mumenthaler Chairman CEO
4 4 ASCOM HALF-YEAR REPORT 2014 BUSINESS RESULTS BUSINESS RESULTS Revenue by region Wireless Solutions Switzerland 7% EMEA without Switzerland 74% Belgium 3% France 8% Germany 12% Netherlands 21% Scandinavia 20% United Kingdom 8% Other EMEA 2% Americas 15% Asia Pacific 4% Wireless Solutions anticipates a strong second half-year 2014 after a slow start in the first six months Wireless Solutions had a slow start in the first six months and the half-year figures were below the very strong results achieved in the first half of The division s performance was impacted by a smaller number of big projects, delayed orders from customers, and unfavorable currency developments. The business showed signs of improvement in the last months and the division is convinced to deliver a much stronger second half-year result. The division continued to invest in growth initiatives such as the development of Ascom Myco (a purpose-built smart device for the healthcare sector) and the UNITE software product lines. Ascom Myco is one of the Ascom Group s most important development projects. Wireless Solutions further strengthened its divisional management team with the appointment of Tim F. Whelehan as new Managing Director of Wireless Solutions US, an experienced sales executive. The business performance of Wireless Solutions in the first six months shows a mixed picture. Overall, net revenue decreased by about 4% at local currencies compared to the previous year. The division generated total revenue of CHF million (H1/2013: CHF million), while incoming orders amounted to CHF million (H1/2013: CHF million). Book-to-bill ratio was at a high level of 115% and order backlog came to CHF million, which is about 22% higher compared to year-end During the first half-year, Wireless Solutions won important customer contracts in all segments. One of the largest service contracts in the Nordic region has been signed in Norway with Sykehuspartner for the South-Eastern Norway Regional Health Authority, the largest service supplier for the Nordic hospital sector. Moreover, a group of four distinguished hospitals in the Netherlands have placed a collective order for a comprehensive communications solution. In Sweden, the division won a significant order from the new Swedish hospital Nya Karolinska Solna in a public bid to deliver advanced healthcare communication solutions. In terms of profitability, Wireless Solutions was able to keep its high gross margin at a level of about 50%. Lower revenue recorded for the first six months 2014 resulted in an EBITDA at CHF 15.4 million (H1/2013: CHF 21.0 million), which corresponds to an EBITDA margin of 10.9% (H1/2013: 14.0%). Wireless Solutions is convinced to bounce back in the US market. A thorough external market assessment confirmed the attractive market potential for Ascom in the US taking into account the ongoing new positioning of Ascom as a solution provider for workflow optimization in the entire healthcare market. The division appointed with Tim F. Whelehan a new and experienced Managing Director for its US business who started mid of July He has a strong sales background and a proven track record in developing businesses. In his last assignment, he held the position of a Vice President of Windstream Communications. Wireless Solutions continues to be a leader in innovation and designed with Ascom Myco a unique product which serves as a supporting device in healthcare. This premium product is a result of several years of research in healthcare throughout US and Europe. This smart device is purpose-built for the healthcare industry. The new product line has been pretested with key users and will be launched as planned in October 2014, and with first revenues in Wireless Solutions also increased investments in the UNITE software product line and has recently launched UNITE Axess for smart devices bringing Ascom workflow intelligence functionality to smartphones. The division further invested in a common platform for all patient systems which will lead to synergies in the patient systems business and thus allow an easier access to new markets. Furthermore, Wireless Solutions completed first steps in growth markets expansion with small acquisitions in Australia and Malaysia. With these acquisitions, Wireless Solutions sees good opportunities to further explore the Asia Pacific region and to create additional business. Wireless Solutions anticipates positive developments in the second half-year, also due to the higher order backlog compared to 2013 and the good project pipeline. Overall, Wireless Solutions expects for the full year 2014 a strong EBITDA margin in line with the previous years.
5 ASCOM HALF-YEAR REPORT 2014 BUSINESS RESULTS 5 Revenue by region Network Testing Switzerland 3% EMEA without Switzerland 52% Algeria 3% Germany 16% Saudi Arabia 1% Scandinavia 2% Turkey 2% United Arab Emirates 2% United Kingdom 7% Other EMEA 19% Americas 37% Asia Pacific 8% Network Testing expects recovery after weak first half-year Network Testing faced headwinds during the first halfyear of The division was not able to repeat the strong performance achieved in the first half-year 2013 and closed the period under review with revenue of CHF 52.7 million (H1/2013: CHF 65.2 million), while incoming orders came to CHF 57.9 million (H1/2013: CHF 77.1 million). To enhance the division s performance, Network Testing continued to invest in growth initiatives and strengthened the divisional management with the appointment of Faiq Khan as new Managing Director for the combined area of Asia Pacific and Middle East Africa. The management of Network Testing is confident to deliver a much stronger second half-year result. The top-line development in the first six months varied in different regions. Business development was according to plan in the US, and EMEA showed improved order intake year over year while the revenue was slightly behind the previous year. Systems & Solutions was not able to fully compensate a bulk order of CHF 12.5 million received from a leading European operator in The Test & Measurement product line remains in a very competitive market environment with price pressure. Thus, Network Testing continues to focus on differentiating capabilities such as VoLTE and unique testing features such as the Blixt technology and iphone support. Reporting & Analysis showed growth based on the TEMS Discovery product line and continued to gain market share. Network Testing was able to secure significant orders for VoLTE Testing with a Tier 1 operator in the US, which underlines the division s strength in Benchmarking & Monitoring for North America. The demand for monitoring solutions is increasing, in North America and elsewhere. The book-to-bill ratio was positive during the first half of 2014 at 110%. This development resulted in a buildup of order backlog since the beginning of the year. It was mainly driven by a three-year order from a European customer and due to orders for new products that are in final stages of development and were not shipped to customers during the first half-year. At mid-year, order backlog stood at CHF 39.4 million (year-end 2013: CHF 34.5 million). The operating result was affected by lower revenue in the first six months. As a consequence, the division showed a lower half-year result at EBITDA level of CHF 2.3 million (H1/2013: CHF 7.7 million), which corresponds to an EBITDA margin of 4.4% (2013: 11.8%). On a positive note, the gross margin was stable despite lower revenue. A comprehensive market assessment underlines that Ascom Network Testing has a good basis to recover in the Asia Pacific region (APAC) provided that the division focuses its business clearly around unique aspects of its offering. A dedicated plan to bounce back in APAC has been implemented. Special emphasis will be given to specific APAC R&D requirements in order to support business recovery in this region. For China, the division already sees emerging interest in VoLTE technology and is currently engaged in trials, expected to generate business during the second half of the year. Faiq Khan, previous manager of the Middle East Africa subregion with a very solid track record, has been appointed as new Managing Director to regain market share in the Asia Pacific region. Faiq Khan will lead the combined area of Asia Pacific and Middle East Africa. Technological developments continue to drive customer interest, in particular around VoLTE and LTE. Network Testing enjoys long-term relationships with large strategic accounts and is well positioned to develop clearly defined roadmaps for significant and complex new technology such as VoLTE, where the division is able to provide unique solutions. Therefore, Network Testing continues to invest in R&D with the focus on customer-driven technology requirements. During the first half-year 2014, the division successfully launched the nextgeneration TEMS Portfolio test handset, including the cellular control capabilities unique to TEMS solutions. Network Testing targets to deliver profitability for the full year 2014 in line with the previous year. The division invested in growth initiatives such as the development of Capacity Management and integrated solutions capabilities as well as in an econtract Exchange system for Systems & Solutions. Network Testing is confident to achieve a significantly improved result in the traditionally stronger second half of the year, encouraged by positive business developments already seen in the second quarter 2014 compared to the first three months.
6 6 ASCOM HALF-YEAR REPORT 2014 CONSOLIDATED BALANCE SHEET CONSOLIDATED BALANCE SHEET CHFm Note ASSETS Property, plant and equipment Intangible assets Deferred income tax assets Financial assets Post-employment benefit assets 6.1 Other assets Non-current assets Inventories and work in progress Trade receivables Income tax receivables Other assets Financial assets Cash and cash equivalents Current assets Total assets LIABILITIES AND SHARE- HOLDERS EQUITY Equity attributable to owners of the parent Shareholders equity Borrowings Deferred income tax liabilities Employee benefit obligations Provisions Other liabilities Non-current liabilities Borrowings Provisions Trade payables Income tax payables Other liabilities Current liabilities Total liabilities Total liabilities and shareholders equity The notes on pages 10 to 16 are an integral part of the consolidated interim financial statements.
7 ASCOM HALF-YEAR REPORT 2014 CONSOLIDATED INCOME STATEMENT & CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 7 CONSOLIDATED INCOME STATEMENT CHFm 1 st half-year st half-year 2013 Revenue Cost of goods sold (105.1) (113.0) Gross profit Marketing and sales (47.3) (49.0) Research and development (21.4) (24.0) Administration (17.0) (16.8) Amortization of intangible assets from acquisition 1 (5.7) (6.0) Other income/(expenses), net Earnings before interest and income tax (EBIT) Financial income Financial expenses (3.0) (2.6) Earnings before income tax Income tax (1.4) (1.8) Group profit for the period This line item exclusively contains amortization of intangible assets initially capitalized due to a purchase price allocation at acquisition date. 2 Attributable to the owners of the parent. Earnings per share in CHF Basic Diluted CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CHFm 1 st half-year st half-year 2013 Group profit for the period Currency translation adjustments (5.8) 0.8 Other comprehensive income that will be reclassified subsequently to profit or loss (5.8) 0.8 Actuarial gains/(losses) on defined benefit plans (26.7) 36.8 Income tax effect 6.7 (9.2) Other comprehensive income that will not be reclassified subsequently to profit or loss (20.0) 27.6 Total comprehensive income for the period 1 (17.6) Attributable to the owners of the parent. The notes on pages 10 to 16 are an integral part of the consolidated interim financial statements.
8 8 ASCOM HALF-YEAR REPORT 2014 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to owners of the parent CHFm Share capital Own shares Share premium Other capital reserves Currency translation adjustments Retained earnings Total shareholders equity Balance at (15.9) (35.9) Group profit for the period Other comprehensive income Total comprehensive income for the period Share-based payments Purchase of own shares (0.4) (0.4) Disposal of own shares 2.1 (0.4) 1.7 Distribution of share premium (12.2) (12.2) Total transactions with owners 1.7 (12.2) 0.1 (10.4) Balance at (14.2) (35.1) Balance at (11.1) (36.7) Group profit for the period Other comprehensive income (5.8) (20.0) (25.8) Total comprehensive income for the period (5.8) (11.8) (17.6) Share-based payments Purchase of own shares (0.1) (0.1) Disposal of own shares Dividends paid (14.0) (14.0) Total transactions with owners (14.0) (11.0) Balance at (9.3) (42.5) The notes on pages 10 to 16 are an integral part of the consolidated interim financial statements.
9 ASCOM HALF-YEAR REPORT 2014 CONSOLIDATED STATEMENT OF CASH FLOWS 9 CONSOLIDATED STATEMENT OF CASH FLOWS CHFm 1 st half-year st half-year 2013 Group profit for the period Depreciation and impairment of property, plant and equipment Amortization and impairment of intangible assets /- (Profit)/loss from disposal of property, plant and equipment 1 (4.7) (0.1) +/- (Profit)/loss from disposal of investments in third parties (0.9) + Share-based payments /- Addition/(release) of provisions (1.2) (1.0) - Provisions paid (3.8) (8.4) +/- Change in employee benefit obligations and post-employment benefit asset /- Change in inventory and work in progress (1.2) 0.5 +/- Change in trade receivables /- Change in trade payables /- Change in other assets and other liabilities (3.0) (7.8) - Interest income (0.4) (0.3) + Interest expenses Interest received Interest paid (0.2) (0.9) + Income tax expenses Income tax paid (4.0) (3.9) +/- Foreign currency translation differences on intra-group positions 0.5 (0.5) Net cash flow from operating activities Purchase of property, plant and equipment (1.8) (1.4) + Proceeds from disposal of property, plant and equipment Purchase of intangible assets (4.3) (0.7) +/- Acquisition of a subsidiary or business (1.1) +/- Proceeds from disposal of investments in third parties 1.7 +/- Change in financial assets and other non-current assets Net cash flow from investing activities 2.5 (1.7) + Proceeds from borrowings Repayment of borrowings (35.1) (35.9) + Proceeds from disposal of own shares Purchase of own shares (0.1) (0.4) - Dividends paid/distribution of share premium (14.0) (12.2) Net cash flow from financing activities (25.0) (38.8) +/- Foreign currency translation differences on cash and cash equivalents (0.2) 0.4 Net increase/(decrease) in cash and cash equivalents (8.4) (7.9) + Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Mainly attributable to disposal of non-core properties in Switzerland. 2 Recognized in profit or loss. 3 CHF 2.1 million cash inflow attributable to cash and cash equivalents of Integrated Wireless acquired at acquisition date as disclosed in note 4 and CHF 1.3 million cash outflow attributable to the contingent purchase price payment for the technology-related business of Veelong Corp. acquired in 2012 as disclosed in note 8. The notes on pages 10 to 16 are an integral part of the consolidated interim financial statements.
10 10 ASCOM HALF-YEAR REPORT 2014 NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND BASIS FOR PREPARATION These unaudited consolidated interim financial statements of Ascom Holding Ltd. and its subsidiaries cover the period from 1 January to 30 June 2014 and are prepared in accordance with the International Accounting Standard for interim financial reporting (IAS 34). These consolidated interim financial statements contain an update of information already published and must therefore be read in conjunction with the year-end financial statements dated 31 December Preparation of the consolidated interim financial statements demands certain estimates and assumptions that affect the reported assets, liabilities, income and expenses and contingent liabilities at the time the accounts are prepared. If, at a later point in time, variations should occur to such estimates and assumptions, which were decided upon by the management in good faith at the time the accounts were prepared, the original estimates and assumptions are adapted accordingly in the accounting period in which the data changes. The impact of such changes is recorded in total comprehensive income of the relevant period. Ascom Group s business activities are not subject to pronounced seasonal fluctuations. However, experience has shown that, factoring out economic influences, higher sales and therefore higher profitability are usually generated in the second half of the year largely following the investment spending patterns of Ascom s customers. Income tax in the interim periods is accrued using the tax rate that would be applicable to expected total annual earnings. Ascom Holding Ltd., the parent company of the Group, is a public limited company and is domiciled in Baar, Switzerland. 2. ACCOUNTING PRINCIPLES The consolidated interim financial statements were prepared according to the same accounting principles as those applied for the consolidated financial statements for the year ended 31 December 2013, except as described below. The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 January 2014: IAS 32 (amendment) Offsetting Financial Assets and Financial Liabilities, IFRS 10, IFRS 12 and IAS 27 (amendments) Investment Entities, IAS 39 (amendment) Novation of Derivatives and Continuation of Hedge Accounting, and IFRIC 21 Levies. These new standards and amendments have no significant impact on the Group s financial statements.
11 ASCOM HALF-YEAR REPORT 2014 NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOREIGN CURRENCY TRANSLATION Ascom is exposed to translational and transactional effects of foreign currency fluctuations, in particular to currencies below: CHF ISO code Unit Average 1 st half-year Average 1 st half-year 2013 Euro EUR Pound sterling GBP Swedish krona SEK US dollar USD SIGNIFICANT TRANSACTIONS AND OPERATIONAL CHANGES Acquisition of Integrated Wireless At 2 January 2014, Ascom acquired all the shares of GTM Resources Pty. Ltd., which holds all the shares of Integrated Wireless Pty. Ltd. and Integrated Wireless Software Pty. Ltd. Integrated Wireless is a specialist provider of wireless communication systems in Australia and New Zealand and has its domicile in Sydney with additional offices in Melbourne, Brisbane, Perth and Auckland. All 62 employees were taken over at their existing locations. Prior to closing of the acquisition, Integrated Wireless was the exclusive distributor of Ascom Wireless products in Australia and New Zealand. This acquisition gives Ascom Wireless Solutions direct access to the Australian and New Zealand markets and creates opportunities to combine the business activities of Integrated Wireless with its existing portfolio. Moreover, Ascom gains a foothold to further develop its position in the Asia Pacific market. In addition to the initial closing purchase price of AUD 14.0 million, Ascom has agreed to an earn-out payment of up to AUD 1.1 million, payable one year after closing, dependent on the achievement of agreed revenue and profitability targets. The total potential amount of all future payments that the Group could be required to make under this contingent consideration arrangement is between nil and AUD 1.1 million, whereas the fair value of the contingent consideration amounts to AUD 1.1 million, based on assumed revenue and profitability for the earn-out period. The goodwill of CHF 6.3 million arising from the acquisition is attributable to the acquired workforce, additional growth potential in the Asia Pacific markets and other product portfolio synergies. The goodwill recognized is not deductible for income tax purposes. The gross contractual amount of the acquired trade receivables amounted to CHF 2.2 million of which CHF 0.1 million were not expected to be collectible. Therefore, these trade receivables were recorded with a fair value of CHF 2.1 million. At the date of acquisition, the Group held trade receivables with Integrated Wireless in the amount of CHF 0.2 million from sales performed in These are included as trade payables in the table disclosed below. Acquisition-related costs of CHF 0.1 million were recorded in administration expenses of the reporting period under review and CHF 0.1 million in Since the acquisition date, the acquired business has contributed revenue of CHF 3.5 million. Due to amortization of intangible assets from acquisition and integration expenses, the business has contributed a negative result of CHF 0.4 million to the Group s performance.