Announcement no. 21 - 2007/08 November 22, 2007
INTERIM REPORT FOR THE SIX MONTHS ENDED OCTOBER 31, 2007
The Board of Directors of Thrane & Thrane has approved the company's interim
report for the six months ended October 31, 2007.
The report shows a significant improvement of both revenue (30%) and operating
profit, which more than doubled relative to the first six months of last year.
Thrane & Thrane maintains its full-year revenue and profit forecast.
Thrane & Thrane will review the interim report at an investor presentation to
be held at 1:00 p.m. today. The meeting will be held at OMX Copenhagen Stock
Exchange, Nikolaj Plads 6, DK-1007 Copenhagen K, Denmark.
Thrane & Thrane A/S
Waldemar Schmidt Walther Thygesen
Chairman 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 business partners and as OEM products. Thrane & Thrane
employs about 800 people and is listed on OMX the Nordic Exchange Copenhagen.
For further information about Thrane & Thrane, see www.trane.com.
HIGHLIGHTS OF THE FIRST SIX MONTHS OF 2007/08
• Revenue in H1 was DKK 582.7 million (DKK 448.8 million), an improvement of
30% relative to the year-earlier period.
• Operating profit was up by 143% and amounted to DKK 79.2 million (DKK 32.6
million), equivalent to an operating margin of 13.6% (7.3%).
• Revenue in Q2 was DKK 331.3 million (DKK 251.6 million). Q2 operating profit
amounted to DKK 61.8 million (DKK 20.4 million), equivalent to an operating
margin of 18.6% (8.1%).
• H1 earnings per share were up from DKK 2.3 to DKK 9.0.
• Cash flows from operating activities were DKK 138.6 million (DKK 88.0
million).
• 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
See attached pdf
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 H1 was DKK 582.7 million, an improvement of 30%, or DKK 134.0
million, relative to the year-earlier period.
In the six-month period, demand and thus the order inflow exceeded orders
shipped, expanding the overall size of the order book.
We improved our ability to ship orders significantly in Q2, and we expect to be
able to make shipments to meet demand in the remaining part of the financial
year.
Revenue by market
See attached pdf
Maritime products
Revenue generated in the maritime market was up by 33% to DKK 342.6 million (H1
2006/07: DKK 256.8 million).
Revenue broke down into DKK 240 million (DKK 171 million) from satellite
communication equipment and DKK 103 million (DKK 86 million) from radio
equipment.
We recorded an increase in sales relative to last year of Fleet products, in
particular, due to the acquisition of Nera SatCom. Revenue was higher in all
product categories, that is, the Fleet 77, Fleet 55 and Fleet 33, but the Fleet
77 terminals, which offer the highest data speeds, had the strongest growth
rate. Higher sales of Iridium and mini-M products also lifted revenue.
Likewise, radio equipment generated higher revenue. Q2 of the financial year,
in particular, saw higher sales of VHF and MF/HF equipment. The improvement
within VHF equipment was driven by higher sales of fixed VHF DSC radios to the
market for professional vessels (large vessels and fishing vessels) and sales
of a new handheld VHF radio. For MF/HF equipment, the main driver was the
launch of our new radio in the first quarter of the year.
Land mobile products
Revenue generated in the land mobile market was DKK 101.9 million against DKK
108.4 million last year.
Sales of EXPLORER terminals were higher than in the year-earlier period. In
particular, the EXPLORER 500 and EXPLORER 700 terminals experienced strong
demand.
The lower H1 revenue should be seen against the backdrop that the year-earlier
period was lifted by the launch of the EXPLORER 527 vehicular terminal and
higher sales of M4 terminals. At the same time, we saw fairly moderate demand
in the North American market in the first six months of the year and, in
particular, in Q2.
At September 30, 2007, Inmarsat had recorded almost 14,000 active BGAN
terminals. Thrane & Thrane estimates that 70-80% of them are EXPLORER
terminals.
Aeronautical products
Revenue generated in the aeronautical market was up 52% to DKK 45.9 million
(DKK 30.2 million).
While the revenue improvement was mainly driven by higher sales of Aero-HSD+
solutions, sales to business jet owners under partnership agreements with
service and installation centres also contributed to the increase. One such
service centre is US-based Midcoast Aviation, which besides replacing
communication equipment in existing aircraft also install equipment in new
aircraft.
Efforts in H1 also focused on introducing the various broadband solutions
(SwiftBroadband) we expect to offer in future. In this context, we signed an
agreement with US company AirCell, a leading provider of aeronautical
communication solutions to the North American market, to develop a product
(Aero-SB Lite) tailored to the specific requirements of AirCell based on our
upcoming broadband solution (Aero-SB+).
Systems
Revenue generated by systems increased 73% to DKK 92.3 million (DKK 53.4
million), DKK 51 million of which was attributable to Thrane & Thrane Norge.
One of the system team's assignments was to update the aeronautical land earth
stations of Norwegian company Telenor. This DKK 40 million contract is
scheduled for completion by the end of 2007.
In addition, we continued to work on delivering a land earth station to KDDI, a
leading Japanese provider of Inmarsat services. This contract is worth DKK 17
million and is scheduled for completion by the end of the financial year.
As previously announced, Thrane & Thrane won a contract worth DKK 20 million
with Inmarsat at the beginning of the financial year for the delivery,
installation and commissioning of two RAN stations in Hawaii. The two stations
will be used in connection with Inmarsat's third and final Inmarsat-4
satellite, which is scheduled for launch in March/April 2008. We have begun
work on this contract and expect to finalise the installation in the current
financial year. The stations are expected to be integrated and tested in the
2008/09 financial year.
Strategy implementation
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.
In the maritime area, our efforts during the reporting period focused on
developing terminals for Inmarsat's new FleetBroadband service, which was
launched on November 19, 2007. We expect to start shipping SAILOR 500
FleetBroadband, Thrane & Thrane's first maritime broadband terminal, in
mid-December 2007.
In December 2007, we also expect to introduce SAILOR 250 FleetBroadband, a
smaller terminal which is the first terminal to incorporate a tracking antenna
developed by Thrane & Thrane.
In maritime radio communication, we continued the development of a range of
new, exciting VHF and MF/HF products, including variants of our handheld VHF
radio to meet different, specific communication requirements, and an extension
of our MF/HF range.
Our efforts in the land mobile area included the successor to the current
EXPLORER 527 (EXPLORER 727), which is scheduled for launch in the spring of
2008.
As already mentioned, we are developing a new aeronautical terminal, the
Aero-SB+, for Inmarsat's 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 Aero-SB+ is
scheduled for completion in the summer of 2008. A smaller solution called the
Aero-SB Lite will be developed based on the Aero-SB+. It is tailored to the
specific requirements of US company AirCell, but can also be marketed to other
customers.
In the period, we also worked on completing a new IP-based handset for our
product portfolio. Offering an attractive design and a very user-friendly
interface, the handset will initially be provided with SAILOR 500
FleetBroadband.
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
business partners and distributors.
Our new distribution model will be finally implemented by the end of November
as regards selection of business partners and distributors. The next step is to
develop the collaboration in the new structure and accelerate sales.
The US is the world's largest market for aeronautical solutions for business
jets. In Q2, we decided to strengthen our presence in this market by
restructuring our sales organisation. In future, Thrane & Thrane Inc., our US
company, will therefore directly handle a larger part of our sales efforts in
the aeronautical market.
In September, we completed the divestment of the distribution company European
Satellite Link GmbH (ESL), which will continue as a Certified Partner to source
products, services and support from Thrane & Thrane.
Thrane & Thrane's distribution model aims to increase sales to existing as well
as new customer groups. The 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 capabilities in
developing solutions that match customer requirements. Products, services and
support are sourced from Thrane & Thrane.
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 to develop, among other products, tracking
antennas for maritime use and electronic antennas for the land mobile market.
Developing antennas enables us to provide more complete solutions while also
reducing our dependency on existing antenna suppliers within significant
strategic product areas. In the reporting period, our primary focus was on
developing an antenna for our upcoming FleetBroadband product, SAILOR 250
FleetBroadband.
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 at lower prices than Inmarsat-based equipment. The market for
maritime Ku-band systems is growing rapidly because this technology makes it
possible for vessels to offer crews Internet access, enabling them to
communicate with their families. We finalised a business plan in the reporting
period, under which we will work to implement an overall Ku-band solution. Our
target is to install some ten test systems during the current financial year.
In the reporting period, we continued the work to implement our new e-business
model which allows us to market and sell BGAN airtime together with our
EXPLORER terminals. In Q2, Verizon Business, a business unit under Verizon
Communications of the US, was the first of our business partners to introduce
comprehensive BGAN hardware and airtime packages based exclusively on Thrane &
Thrane hardware and airtime. Our e-business model was a prerequisite for
setting up this partnership. Through this model we aim to attract new customers
outside the traditional Inmarsat markets and to turn BGAN airtime into an
independent business area.
Financial review
As already stated, revenue in H1 was DKK 582.7 million, an improvement of 30%
relative to the year-earlier period (DKK 448.8 million).
H1 operating profit was up by 143% and amounted to DKK 79.2 million against DKK
32.6 million last year, equivalent to an operating margin of 13.6% (7.3%). Net
profit for the period after tax was DKK 50.1 million (DKK 11.7 million).
Revenue in Q2 was DKK 331.3 million (DKK 251.6 million). Q2 operating profit
amounted to DKK 61.8 million (DKK 20.4 million), equivalent to an operating
margin of 18.6% (8.1%).
Sales of terminals at DKK 490.4 million (DKK 395.4 million) were 24% higher,
while systems revenue was up 73% from DKK 53.4 million to DKK 92.3 million.
Cost of goods sold in the reporting period amounted to DKK 313.5 million (DKK
266.3 million), equivalent to 53.8% of revenue (59.3%). An improved product mix
and cost synergies from the Nera SatCom acquisition contributed to the
improvement.
Development costs incurred at DKK 105.4 million were DKK 35.4 million higher
than the DKK 70.0 million recorded last year. Development costs accounted for
18.1% (15.6%) of revenue. Capitalised development costs were DKK 86.7 million
against DKK 47.9 million last year. Maintenance of existing products amounted
to DKK 18.8 million (DKK 22.2 million).
Amortisation of development costs at DKK 37.5 million was DKK 6.3 million
higher than the DKK 31.2 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 2.8 million of the amortisation charges was
attributable to the purchase price allocation in connection with the
acquisition of Nera SatCom.
Net development costs charged to the income statement amounted to DKK 56.3
million against DKK 53.4 million last year.
Sales and distribution costs amounted to DKK 75.1 million (DKK 46.2 million),
including DKK 5.0 million in amortisation of the customer portfolio taken over
in connection with the acquisition of Nera SatCom. Administrative expenses rose
from DKK 50.3 million to DKK 58.6 million.
Tax for the period was an expense of DKK 6.6 million. The reduction from 28% to
25% of the Danish corporate income tax rate had a favourable effect in the
amount of DKK 9.6 million due to a lower value of deferred tax.
Financial income amounted to DKK 5.6 million and financial expenses were DKK
24.8 million, resulting in net financial expenses of DKK 19.2 million for the
reporting period. In addition to DKK 14.8 million interest on EUR loans,
financial expenses were adversely impacted by net exchange losses with respect
to USD of DKK 6.7 million and of DKK 2.5 million with respect to EUR.
The company reported a net cash inflow from operating activities of DKK 138.6
million in H1 against DKK 88.0 million in the year-earlier period. Working
capital improved by DKK 18.8 million during the period. We invested DKK 88.7
million in new products and DKK 13.9 million in machinery and equipment. The
resulting cash flows before financials were DKK 35.9 million.
Former and present employees exercised warrants during the first half-year
resulting in proceeds totalling DKK 8 million. The sale of the distribution
company ESL generated income of DKK 18.0 million, while DKK 124.5 million was
repaid on debt. After payment of DKK 30 million in dividend (DKK 5.5 per
share), the company reported a net cash outflow for H1 of DKK 89.0 million
(inflow of DKK 139.5 million).
Outlook
Thrane & Thrane still expects revenue of around DKK 1,350 million for the full
2007/08 financial year (2006/07: DKK 1,121 million) and an operating margin of
around 15% (10.5%).
Changes to the Board of Directors and the Management Board
As previously announced, Walther Thygesen was appointed CEO of Thrane & Thrane
A/S and joined the company on September 1, 2007. At the same time, he resigned
from the company's Board of Directors. Jim Hagemann Snabe, Corporate Officer of
SAP Group AG, was appointed to replace Walther Thygesen on the Board of
Directors. Following this change, the Management Board consists of Walther
Thygesen (CEO), Svend Åge Lundgaard Jensen (CFO) and Lars Thrane.
Warrants and share capital
At its meeting on November 21, 2007, the Board of Directors granted 85,000
warrants to 21 employees. The warrants can be exercised to subscribe 85,000 new
shares in Thrane & Thrane A/S. The warrants granted can be exercised at the
earliest three years after the date of grant and for a period of three years
thereafter.
Based on the Black-Scholes formula, the plan has a market value of DKK 9.1
million. Following the grant of the above warrants, the company has 355,162
outstanding warrants, equal to 6.4% of the share capital.
At October 31, 2007, Thrane & Thrane's share capital amounted to DKK
111,060,240 divided into 5,553,012 shares of DKK 20 each.
Accounting policies
The accounting policies are unchanged from those applied in the 2006/07 Annual
Report.
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 six months ended October 31, 2007, the
first half 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 October 31, 2007 and of the results of the group's
operations and cash flows for the period May 1 - October 31, 2007.
Kgs. Lyngby, November 22, 2007
Management Board
Walther Thygesen Svend Åge Lundgaard Jensen Lars Thrane
CEO CFO
Board of Directors
Waldemar Schmidt Morten Jagd Christensen Gert Hejne Jensen
(Chairman)
Morten Eldrup-Jørgensen Jim Hagemann Snabe Lars Thrane
INCOME STATEMENT
See attached pdf
BALANCE SHEET
See attached pdf
BALANCE SHEET - CONTINUED
See attached pdf
STATEMENT OF CHANGES IN EQUITY
See attached pdf
CASH FLOW STATEMENT
See attached pdf
