Announcement no. 16 - 2007/08 August 24, 2007
INTERIM REPORT FOR THE THREE MONTHS ENDED JULY 31, 2007
The Board of Directors of Thrane & Thrane has approved the company's interim
report for the three months ended July 31, 2007 as attached. The interim report
is unaudited.
Thrane & Thrane will review the interim report at an investor presentation to
be held at 10:00 a.m. today. The meeting will be held at the Copenhagen Stock
Exchange, Nikolaj Plads 6, 1007 Copenhagen K, Denmark.
Thrane & Thrane A/S
Waldemar Schmidt Lars Thrane
Chairman of the Board of Directors CEO
For further information, please contact
John Alexandersen, VP Corporate Communications
Tel.: +45 39 55 88 00 or +45 22 72 38 22
E-mail: investor@thrane.com
About Thrane & Thrane
Thrane & Thrane is the world's leading manufacturer of equipment and systems
for global mobile communication based on sophisticated satellite and radio
technology. Since its incorporation in 1981, the company has established a
strong position within global mobile communication solutions based on the
Inmarsat system, and today Thrane & Thrane provides equipment for maritime,
land-based and aeronautical use. The company's communication products are sold
throughout the world under the brands Thrane & Thrane, EXPLORER® and SAILOR®
through distributors and partners and as OEM products. Thrane & Thrane employs
about 800 people and is listed on OMX the Nordic Stock Exchange in Copenhagen.
For further information about Thrane & Thrane, see www.trane.com.
HIGHLIGHTS OF THE FIRST THREE MONTHS OF 2007/08
• Revenue in Q1 was DKK 251.4 million (DKK 197.2 million), an improvement of
27% relative to the year-earlier period.
• Operating profit amounted to DKK 17.5 million (DKK 12.1 million), equivalent
to an operating margin of 6.9% (6.2%).
• Earnings per share were up from DKK 2.0 to DKK 3.1.
• Cash flows from operating activities were DKK 90.0 million (DKK 31.7 million).
• Walther Thygesen, the current CEO of Hewlett-Packard Danmark, has been
appointed CEO of Thrane & Thrane A/S and will join the company from September
1, 2007. Lars Thrane will continue to be involved in Thrane & Thrane's
day-to-day management.
• After July 31, 2007, Thrane & Thrane divested the German distribution company
European Satellite Link GmbH which we took over in connection with the
acquisition of Nera SatCom.
• At an extraordinary general meeting, held on August 23, 2007, Corporate
Officer Jim Hagemann Snabe, SAP Group AG, was elected as a new member of the
company's Board of Directors.
• For the financial year 2007/08, Thrane & Thrane continues to expect revenue
of around DKK 1,350 million (DKK 1,121 million) and an operating margin of
around 15% (10.5%).
This interim report has been prepared in a Danish-language and an
English-language version. In the event of any discrepancies, the Danish version
shall be the governing text.
FINANCIAL HIGHLIGHTS AND KEY RATIOS
The financial ratios have been calculated in accordance with Recommendations &
Ratios, 2005, issued by the Danish Society of Financial Analysts.
MANAGEMENT'S REVIEW
Market trends
Revenue in Q1 was DKK 251.4 million, an improvement of DKK 54.2 million, or
27%, relative to the year-earlier period. The increase was primarily
attributable to the acquisition of Nera SatCom in October 2006.
We had a considerable intake of orders in Q4 of the 2006/07 financial year and
Q1 of the current financial year. As we were unable to increase production
sufficiently to meet demand, our order book was a good deal larger than at the
same time last year. We had a particularly large order backlog in the maritime
area, especially within radio equipment as, among other things, we had
difficulty keeping up with new orders for the new handheld VHF radios we have
recently developed.
We expect to ship the outstanding orders in the current three-month period. To
avoid a similar situation in the future, we have increased stocks of our
principal products in order that an unexpected increase in orders for such
products can be executed without a subsequent impairment of our supply
capacity.
Revenue by market
Maritime products
Revenue generated in the maritime market was up by 27% to DKK 161.7 million
(DKK 127.2 million).
Revenue broke down into DKK 115 million (DKK 81 million) from satellite
communication equipment and DKK 46 million (DKK 46 million) from radio
equipment. The increase in satellite communication equipment revenue was
primarily attributable to the acquisition of Nera SatCom.
We recorded an increase in sales relative to last year of Fleet products, in
particular, due to the acquisition of Nera SatCom. While revenue was higher in
all product categories, that is, the Fleet 77, Fleet 55 and Fleet 33, the Fleet
77 terminals had the strongest growth rate. Higher sales of Iridium products
also lifted revenue.
VHF and MF/HF radio equipment generated revenue at a rate in line with the same
period of last year. In Q1, we began shipping a new model of MF/HF radio which
has been well received by the market.
A key parameter of competition in the maritime market is the ability to offer
prompt and efficient service and support. To this end we have collaborated with
partners and distributors to set up a maritime service concept consisting of
On-Board Service Centres. We aim to have 40 On-Board Service Centres globally
by the end of the 2007 calendar year. Our efforts in this respect are
progressing as planned.
Land mobile products
Revenue generated in the land mobile market increased 28% to DKK 48.4 million
against DKK 37.9 million last year.
The higher revenue was primarily driven by increased sales of EXPLORER
terminals. The EXPLORER 700, in particular, attracted great demand. This
terminal has turned out to be the most popular terminal among professional
users of mobile satellite communication. Sales of M4 terminals also had a
favourable impact on Q1 revenue, primarily because Inmarsat's new BGAN system
does not as yet offer global coverage.
In the land mobile area, we therefore continue to focus on contracting with
partners that may help attract new types of customers.
At June 30, 2007, Inmarsat had recorded almost 12,000 active BGAN terminals. We
estimate that 70-80% of them are EXPLORER terminals.
Aeronautical products
Revenue generated in the aeronautical market was up by 5% to DKK 12.3 million
(DKK 11.7 million).
Revenue was primarily driven by sales of the Aero-HSD+, the primary customer
being aircraft manufacturer Dassault Falcon Jet Corp. We continue to seek
partnership agreements with other aircraft manufacturers. We also focus on
presenting to the different aircraft manufacturers both our existing Aero-HSD+
solution and the upcoming broadband solutions we expect to offer in the future.
Systems
Revenue generated by systems increased 43% to DKK 29.0 million (DKK 20.3
million). DKK 14 million of the DKK 29 million related to the acquisition of
Nera SatCom.
In Q1, we finalised the further development of Inmarsat's RAN stations, that
is, implementation and testing of the future broadband services targeting the
aeronautical and maritime markets. In addition, we focused on a shipment to
KDDI, a leading Japanese provider of Inmarsat services. We expect final
shipment under the contract, which is worth DKK 17 million, to take place in
the autumn of 2007.
In its most recent interim report, Inmarsat announced its intention to launch
the third and last Inmarsat-4 satellite, providing global coverage for the BGAN
services, among others, in March/April 2008. In this context, Inmarsat is
setting up a land earth station in Hawaii, which will be equipped with two RAN
stations. Just after July 31, 2007, we signed a contract with Inmarsat worth
DKK 20 million for the delivery, installation and commissioning of these RAN
stations.
Strategy execution
Technology leadership
A key element of Thrane & Thrane's strategy is to extend our technology
leadership by retaining our high level of activity in new product development.
We thus expect to plough back about 15% of our hardware revenue into the
development of new products each year.
In the aeronautical area, we worked in Q1 on the development of a terminal for
Inmarsat's upcoming SwiftBroadband service. The development of this terminal is
organised in a way that will facilitate upgrading of our existing Aero-HSD+
terminals to SwiftBroadband. Development of the new SwiftBroadband terminal is
expected to be completed in the second quarter of the 2008 calendar year.
Similarly, in the maritime area we are developing terminals for Inmarsat's
FleetBroadband service. We expect to introduce the first maritime broadband
terminals in the fourth quarter of 2007 to coincide with Inmarsat's commercial
launch of the new service.
Our efforts in the land mobile area include the successor for the current
EXPLORER 527, a vehicular terminal. Named the EXPLORER 727, the successor is
expected to be launched in the spring of 2008.
Market proximity
A second key element of Thrane & Thrane's strategy is to be close to the users
of our products. We achieve this primarily through our extensive network of
partners and distributors.
In Q1, we continued to develop and implement our new distribution model, which
we launched in the spring of 2007. Designed to increase sales to existing and
new customer groups, the distribution model operates with three partner
categories:
• Master Distributors, dedicated to serving a regional network of Registered
Resellers. Products, services and support are supplied by Thrane & Thrane.
• Registered Resellers, dedicated to serving end-users and usually operating in
a delimited geographical market. Products, services and support are supplied by
Master Distributors.
• Certified Partners, which are close to their customer groups and individual
customers. They are market specialists and have strong competencies in
developing solutions that match customer requirements. Products, services and
support are bought from Thrane & Thrane.
At July 31, 2007, we had appointed five partners as Master Distributors. We
expect the final number of Master Distributors to be around 20.
New business areas
A third key element of our strategy is to develop new business areas that are
closely related to our existing ones. In this context we have begun developing,
among other products, mechanically tracking antennas for maritime use and
electronic antennas for the land mobile market.
Proprietory development of antennas enables us to provide more complete
solutions and increase our margin on the existing terminal systems. It also
allows us to increase revenue by new products while reducing our reliance on
existing antenna suppliers with respect to significant strategic products.
In Q1, our primary focus was on developing an antenna for our upcoming
FleetBroadband product. We expect to launch the product before the end of 2007.
We have also decided to enter the market for Ku-band equipment for maritime
satellite communication. Ku-band-based solutions offer significantly higher
data speeds than Inmarsat-based equipment as well as multiple voice channels.
In Q1, we finalised a business plan and we are working on a product
specification for a Ku-band solution. We aim to install some 15-20 systems in
the current financial year.
In February 2007, we signed a declaration of intent with US-based Comtech
Mobile Datacom Corp. providing for the joint development of a dual-mode
satellite terminal for vehicular use by the US defence and other customers.
This proof-of-concept activity has attracted considerable interest from several
of Comtech's customer groups. Continued efforts to define the detailed
technology of such a dual-mode concept have been launched and will continue in
the two next quarters of the financial year. We also expect to clarify the
market situation in this period.
Furthermore, in Q1 we continued our work to implement our new e-business model
which allows us to market and sell BGAN airtime in connection with our EXPLORER
terminals. Through this model we aim to attract new customers outside the
traditional Inmarsat markets. We also intend to develop BGAN airtime into a
business area contributing additional revenue.
Financial review
Revenue in Q1 was DKK 251.4 million, an improvement of 27% relative to the
year-earlier period (DKK 197.2 million). The higher revenue was attributable to
the acquisition of Nera SatCom.
Operating profit amounted to DKK 17.5 million against DKK 12.1 million last
year, equivalent to an operating margin of 6.9% (6.2%). Net profit for the
period after tax was DKK 18.7 million (DKK 9.7 million).
Sales of terminals at DKK 222.4 million (DKK 176.8 million) were 26% higher,
while systems revenue was up 43% from DKK 20.3 million to DKK 29.0 million.
Cost of goods sold in the period amounted to DKK 145.1 million (DKK 118.1
million), equivalent to 57.7% of revenue (59.9%). An improved product mix and
cost synergies from the Nera SatCom acquisition contributed to the improvement.
Development costs incurred at DKK 46.2 million were DKK 13.6 million higher
than the DKK 32.6 million recorded last year. Development costs accounted for
18.4% (16.5%) of revenue. Capitalised development costs were DKK 38.1 million
against DKK 23.5 million last year. Maintenance of existing products amounted
to DKK 8.1 million (DKK 9.0 million).
Amortisation of development costs at DKK 19 million was DKK 3 million higher
than the DKK 16 million recorded last year, primarily because we began
amortising the EXPLORER product family and the new VHF products after Q1
2006/07. Furthermore, some DKK 1.4 million of the amortisation charges was
attributable to the purchase price allocation in connection with the
acquisition of Nera SatCom.
Total development costs charged to the income statement amounted to DKK 26.9
million against DKK 24.7 million last year.
Sales and distribution costs amounted to DKK 34.9 million (DKK 21.2 million),
including DKK 2.5 million in amortisation of the customer portfolio taken over
in connection with the acquisition of Nera SatCom. Administrative expenses rose
from DKK 21.0 million to DKK 27.1 million.
Tax for the period was an income of DKK 7.5 million. Following the reduction
from 28% to 25% of the Danish corporate income tax rate, tax was favourably
impacted in the amount of DKK 9.6 million due to a lower tax value of deferred
tax.
The company reported a cash inflow from operating activities of DKK 90.0
million against DKK 31.7 million last year. The working capital improved by DKK
49 million in the period. We invested DKK 38 million in new products and DKK 5
million in machinery and equipment. In Q1, former and present employees
exercised warrants, resulting in proceeds totalling DKK 8 million. After
payment of DKK 30 million dividend (DKK 5.5 per share), the company reported a
net cash outflow for the period of DKK 0.9 million (outflow of DKK 15.1
million).
Management Board changes
The company announced at the beginning of July that Walther Thygesen, the
current CEO of Hewlett-Packard Danmark, had been appointed CEO of Thrane &
Thrane A/S and would join the company from September 1, 2007. At the same time,
Walther Thygesen will retire from the Board of Directors of Thrane & Thrane
A/S. Lars Thrane will continue to be involved in the day-to-day management with
responsibility for the company's product and technology development.
With the appointment of Walther Thygesen, the Board of Directors of Thrane &
Thrane intends to reinforce the company's senior management team with a view to
implementing the visions and goals contained in Thrane & Thrane's five-year
strategy plan.
When Walther Thygesen takes up his position, the Management Board will consist
of Walther Thygesen, CEO, Svend Åge Lundgaard, CFO, and Lars Thrane.
Increase of share capital
In Q1, Board of Directors and employees of Thrane & Thrane exercised vested
warrants to subscribe 46,486 shares of DKK 20 nominal value each. The exercise
increased the company's share capital by a nominal amount of DKK 929,720.
Thrane & Thrane received proceeds of DKK 8.2 million from the exercise of
warrants. Following the exercise, 247,162 warrants remain outstanding,
corresponding to 4.5% of the share capital. At July 31, 2007, Thrane & Thrane
had a total nominal share capital of DKK 111,060,240, divided into 5,553,012
shares of DKK 20 each.
Sale of the distribution company ESL
After July 31, 2007, Thrane & Thrane divested the German distribution company
European Satellite Link GmbH (ESL), which we took over in connection with the
Nera SatCom acquisition. The company was sold to ESL Holding Aps, which is
represented by two former Thrane & Thrane employees. The sale of ESL is
expected to be closed by the end of August 2007. The two employees will resign
their positions with Thrane & Thrane on the same date. Being a Certified
Partner, ESL will continue to purchase products, services and support from
Thrane & Thrane.
Extraordinary general meeting
On Thursday, August 23, 2007, an extraordinary general meeting of Thrane &
Thrane A/S was held at the company's head office. At the general meeting
Corporate Officer Jim Hagemann Snabe, SAP Group AG, was elected as a new member
of the company's Board of Directors.
Outlook
For the financial year 2007/08, Thrane & Thrane continues to expect revenue of
around DKK 1,350 million (DKK 1,121 million) and an operating margin of around
15% (10.5%).
Accounting policies
The accounting policies are unchanged from those applied in the 2006/07 Annual
Report.
Thrane & Thrane A/S
Statement by the Board of Directors and the Management Board
The Board of Directors and the Management Board today considered and approved
the interim report as of and for the three months ended July 31, 2007, the
first quarter of the current financial year.
The interim report has been presented in accordance with the recognition and
measurement requirements of the International Financial Reporting Standards as
adopted by the EU, and additional interim financial reporting requirements for
Danish listed companies. The interim report is unaudited.
We consider the accounting policies used to be appropriate. Accordingly, the
interim report gives a true and fair view of the group's assets, liabilities
and financial position at July 31, 2007 and of the results of the group's
operations and cash flows for the period May 1 - July 31, 2007.
Kgs. Lyngby, August 24, 2007
Management Board
Lars Thrane Svend Åge Lundgaard Jensen
CEO CFO
Board of Directors
Waldemar Schmidt Lars Thrane Walther Thygesen
(Chairman)
Morten Eldrup-Jørgensen Morten Jagd Christensen Gert Hejne Jensen
INCOME STATEMENT
BALANCE SHEET
BALANCE SHEET - CONTINUED
SPECIFICATION OF EQUITY
CASH FLOW STATEMENT
