STOCK EXCHANGE ANNOUNCEMENT
Announcement no. 26 - 2006/07 February 28, 2007
Interim report for the nine months ended January 31, 2007
The Board of Directors of Thrane & Thrane has approved the company's interim
report for the nine months ended January 31, 2007 as attached. The interim
report is unaudited.
On October 10, 2006, Thrane & Thrane completed the acquisition of Nera SatCom AS
and its German subsidiary European Satellite Link GmbH. Thrane & Thrane is in
the process of divesting the latter company, and has consequently only
consolidated Nera SatCom effective from October 2006. Comparative figures have
not been restated to reflect the consolidation of Nera SatCom.
Thrane & Thrane will review the interim report at an investor presentation to be
held at 1:00 p.m. today at the Copenhagen Stock Exchange, Nikolaj Plads 6,
DK-1007 Copenhagen K, Denmark.
Thrane & Thrane A/S
Waldemar Schmidt Henrik Lunde
Chairman CEO
For further information, please contact
John Alexandersen, VP Corporate
Communications
Tel.: +45 39 55 88 00
E-mail: investor@thrane.com
About Thrane and Thrane
Thrane & Thrane is the world's leading manufacturer of
terminals and land earth stations for global mobile satellite and radio
communication. Since its incorporation in 1981, the company has established a
strong position within global mobile satellite services based on the Inmarsat
system, and today it provides equipment for land-based, maritime and
aeronautical use. The company's communication products are sold throughout the
world under the brands Thrane & Thrane, Nera and SAILOR through distributors and
partners and as OEM products. The company is listed on the Copenhagen Stock
Exchange. More information about Thrane & Thrane can be found at:
www.thrane.com.
Highlights of the first nine months of 2006/07
Thrane & Thrane acquired Nera Satcom AS during the reporting period in a move
consistent with Thrane & Thrane's five-year growth strategy, COURSE 2011. The
process of integrating Nera SatCom into Thrane & Thrane is progressing entirely
to plan.
The acquisition of Nera SatCom released significant development resources, which
Thrane & Thrane intends to apply in the development of new business areas in
accordance with the COURSE 2011 strategy. Such opportunities include
mechanically tracking and electronic antennas, Ku-band equipment for maritime
satellite communication and land mobile satellite terminals specially designed
for the US military.
Revenue for the nine month period was DKK million 752.7 (DKK 634.6 million).
Operating profit before integration costs and purchase price amortisation was
DKK 59.9 million (DKK 66.1 million), equivalent to an operating margin of 8.0%
(10.4%). The company recorded a cash inflow from operating activities of DKK
119.0 million (DKK 121.6 million).
Revenue in Q3 was DKK 303.9 million (DKK 248.7 million). Operating profit before
integration costs and purchase price amortisation was DKK 27.3 million (DKK 29.7
million).
For the 2006/07 financial year, Thrane & Thrane expects revenue of approximately
DKK 1,100 million compared to the previous guidance of DKK 1,200-1,250 million
(DKK 919 million). Operating profit before integration costs and purchase price
amortisation is expected to be around DKK 110-120 million against DKK 150-175
million (DKK 127 million) as previously forecast.
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.
Management's review
Heading for COURSE 2011…
At the beginning of the 2006/07 financial year, Thrane & Thrane launched a
growth strategy for the next five years. The strategy - “COURSE 2011” - focuses
on strengthening Thrane & Thrane's already strong position in the area of mobile
satellite communication equipment, and, at the same time, expanding the business
areas within global mobile communication solutions.
The target of COURSE 2011 is to increase revenue to DKK 2 billion and maintain
the company's operating margin at a minimum of 12% during each financial year
until 2010/11.
The first nine months of the financial year brought Thrane & Thrane a long way
towards achieving the targets of COURSE 2011, primarily through the acquisition
of Nera SatCom (now Thrane & Thrane Norge), which was the platform for starting
up a number of new business areas.
The acquisition of Thrane & Thrane Norge released significant development
resources, which Thrane & Thrane intends to apply in the development of new
business areas in accordance with the COURSE 2011 strategy.
First and foremost, Thrane & Thrane has started to develop mechanically tracking
antennas for maritime use (FleetBroadband) and electronic antennas. Development
of antennas will:
Reduce Thrane & Thrane's dependency on existing antenna suppliers within
significant strategic product areas.
Increase gross profit in existing terminal systems.
Increase revenue on the basis of new products.
Subsequently, Thrane & Thrane has decided to enter the market for Ku-band
equipment for maritime satellite communication. Accordingly, the company is
working on a business plan and a product specification. The launch of products
developed on the basis of Thrane & Thrane's Ku-band equipment is not, however,
expected to take place in the near future.
Ku-band equipment is often termed VSAT equipment. Unlike Inmarsat based
equipment, Ku-band solutions offer significantly higher data speeds and several
voice channels. Solutions are generally offered at a fixed price per month for
terminal plus airtime consumption. The market consists mainly of tankers, cruise
ships, ferries and large yachts, but these solutions are also attracting growing
interest in the market for commercial vessels.
Thrane & Thrane estimates that some 2,500 maritime Ku-band terminals are
currently installed, and that the total market for Ku-band equipment amounts to
about 20,000 terminals. The installed base is growing at an annual rate of
around 1,000 terminals, and the growth rate is expected to increase in the years
ahead. The average price of a Ku-band terminal is some USD 50,000.
Last but not least, after the end of Q3, Thrane & Thrane entered into an
agreement with US company Comtech Mobile Datacom Corp. on the joint development
of a dual mode satellite terminal designed for the US military and other allied
military forces. Thrane & Thrane considers Comtech to be a strong business
partner, as the company has extensive experience in the field of satellite based
communication solutions. Within the past four years, Comtech has delivered more
than 50,000 terminals to the US military.
The new terminal will combine Comtech's proprietary technologies for mobile
satellite terminals with Thrane & Thrane's BGAN terminal and network
technologies. Furthermore, the plan is to develop a terminal capable of handling
Inmarsat's future land mobile (BGAN) broadband services and using Comtech's
proprietary technology. Finally, the parties intend to develop a new modulation
form with improved capacity in order to optimise terminal performance in dense
military operations and upgrade Comtech's land earth stations in order to handle
increased traffic and transmission rates.
Acquisition and integration of Thrane & Thrane Norge
In October 2006, Thrane & Thrane completed the acquisition of Thrane & Thrane
Norge and started the process of integrating Thrane & Thrane Norge into Thrane &
Thrane.
The first step was to establish a local management team with each member
reporting individually to Denmark. Thrane & Thrane then adjusted the
organisation, which involved reducing staff in Norway by about 30 persons.
Subsequent efforts included preparing a branding plan for maritime and land
mobile products as well as a strategy for merging distribution channels. New
development projects have been launched in Oslo and Lyngby, and implementation
of a common ERP system has been initiated. Last but not least, the company's
name was changed from Nera SatCom AS to Thrane & Thrane Norge AS.
The integration process has proceeded entirely as planned, and Thrane & Thrane
Norge is still expected to be fully integrated in Thrane & Thrane in the late
summer of 2007. Instead of the previous guidance of annual cash synergies of
around DKK 40 million, the company now expects cash synergies of around DKK 50
million starting from the 2007/08 financial year. Some DKK 20 million of this
amount will be invested in the development of new products. Integration costs
are still expected to total around DKK 50 million. The amount is expected to be
expensed in the current financial year, which would see all integration costs
recognised in the 2006/07 financial year.
The acquisition of Thrane & Thrane Norge also comprised its wholly-owned German
subsidiary European Satellite Link GmbH (ESL). However, Thrane & Thrane decided
to try to divest ESL, since the conclusion was that ESL could not profitably be
integrated into Thrane & Thrane. In Q3, negotiations were initiated with various
interested parties, and the efforts to divest ESL are expected to be completed
in the current financial year.
Prior to completing the acquisition of Thrane & Thrane Norge, Thrane & Thrane
obtained approvals from the European competition authorities following mandatory
notifications of the acquisition. Some countries operate a system of voluntary
notification, and their regulatory bodies may elect to investigate the matter
after the acquisition has been completed. The UK competition authorities used
this option and subsequently asked the EU Commission for an assessment.
The EU Commission informed Thrane & Thrane that notification of the transaction
must be given to the Commission. Hence, Thrane & Thrane submitted a notification
to the EU Commission in the beginning of February. Subsequently, the Commission
had 35 working days to reach a decision. Thrane & Thrane does not expect the EU
Commission's decision to significantly change the terms and conditions of the
transaction.
Financial review
Thrane & Thrane's revenue for the nine months period was DKK 752.7 million (DKK
634.6 million). Operating profit before integration costs and purchase price
amortisation was DKK 59.9 million (DKK 66.1 million), equivalent to an operating
margin of 8.0% (10.4%). Net profit for the period was DKK 20.8 million (DKK 47.8
million).
Q3 revenue was DKK 303.9 million (DKK 248.7 million). Operating profit before
integration costs and purchase price amortisation was DKK 27.3 million (DKK 29.7
million).
The company's performance in Q3 and in the nine months reporting period overall
was adversely affected by costs related to the integration of Thrane & Thrane
Norge. Integration costs amounted to DKK 10.4 million, including severance
payments to three senior executives of Thrane & Thrane Norge as well as the
cancellation of various procurement contracts.
Cost of goods sold in the nine months period amounted to DKK 447.5 million (DKK
387.7 million), equivalent to 59.5% of revenue (61.1%). The reduction in cost of
goods sold resulted from more favourable procurement contracts with suppliers
and changes made to the product mix.
Development costs charged to the income statement amounted to DKK 91.2 million
against DKK 52.5 million in the same period of last year. Maintenance and
depreciation of existing products accounted for DKK 40.3 million and DKK 50.9
million, respectively. In addition, DKK 74.1 million was invested for the
development of new products. Thrane & Thrane received DKK 10.5 million in
funding from Inmarsat, bringing the net investment in new products to DKK 63.6
million.
Thrane & Thrane Norge's share of development costs charged to the income
statement was DKK 18.4 million of which DKK 1.9 million was depreciation of
existing products. Thrane & Thrane Norge did not capitalise development costs in
the reporting period. It is expected that a large proportion of the development
costs in Norway will be capitalised in the future.
Sales and distribution costs amounted to DKK 77.0 million (DKK 63.0 million) of
which amortisation on customer portfolios amounted to DKK 3.9 million.
Administrative expenses were DKK 82.3 million (DKK 65.2 million). Administrative
expenses included approximately DKK 5 million incurred in celebrating Thrane &
Thrane's 25th anniversary, of which share-based payments accounted for
approximately DKK 3 million.
Net financial expenses were DKK 12.8 million against DKK 6.5 million last year
with financial expenses of DKK 24.0 million and financial income of DKK 11.2
million. Of the financial expenses, interest accrued on the cash purchase price
of Thrane & Thrane Norge in the period from July 1 to October 9, 2006 was DKK
5.9 million, whereas interest on loans related to the acquisition of Thrane &
Thrane Norge and Thrane & Thrane Aalborg was DKK 10.0 million. Other financial
income and expenses were primarily attributable to regular value adjustments of
trade receivables and trade payables.
As a result of the acquisition of Thrane & Thrane Norge, Thrane & Thrane's bank
debt increased from DKK 200.5 million to stand at DKK 638.4 million at January
31, 2007. DKK 25 million of the amount is repayable in April 2007 at the latest
and approximately DKK 100 million is repayable not later than in October 2007.
Thrane & Thrane has allocated the purchase price of Thrane & Thrane Norge in
which the excess of the purchase price over the carrying amount of equity is
allocated to acquired assets and liabilities. The allocation resulted in
capitalisation of DKK 200.0 million on customer portfolios and DKK 10.6 million
on products. The customer portfolio is amortised over 20 years whereas the
products are depreciated over periods of between 2-3 years. Amortisation and
depreciation of the customer portfolio and products for the period amounted to
DKK 5.2 million.
As a result of the transition to IFRS, the company has made provisions for
pension obligations of DKK 67.8 million in Thrane & Thrane Norge, as that
company's pension scheme is a defined benefit plan. The actual pension
obligation will be calculated on June 30, 2007, at which time Thrane & Thrane
will receive a 50% refund of the calculated obligation. Consequently, a
receivable of DKK 33.9 million has been recognised in connection with the
purchase price allocation.
The above-mentioned changes have resulted in provisions for deferred tax of DKK
40.0 million. The remaining portion of the DKK 341.0 million excess value was
categorised as goodwill relating to the synergies the acquisition is expected to
generate once Thrane & Thrane Norge has been fully integrated into Thrane &
Thrane.
The company reported a net cash inflow from operating activities of DKK 119.0
million (DKK 121.6 million). The total cash payment for the acquisition of
Thrane & Thrane Norge, payment for cash funds, net working capital and costs
incurred was DKK 641.6 million at the end of the first six months of the
financial year. On the acquisition of Thrane & Thrane Norge, Thrane & Thrane
took over DKK 133.3 million in cash funds. The company raised loans totalling
DKK 478.1 million in connection with the acquisition and received proceeds of
DKK 165.2 million from shares issued. The company reported a net cash inflow for
the period of DKK 164.8 million (DKK 43.4 million).
Market
Thrane & Thrane's revenue for the nine months was up by DKK 118.2 million, or
19%, over the year-earlier period.
DKK 101.0 million of the revenue increase was attributable to the acquisition of
Thrane & Thrane Norge, while DKK 17.2 million was due to organic growth. Organic
growth was about 23% in both the land mobile area and the aeronautical area.
Maritime products
Revenue generated in the maritime market increased by 17% in the nine months
period to DKK 418.2 million (DKK 356.4 million).
Revenue broke down into DKK 289.8 million (DKK 233.6 million) from satellite
communication equipment and DKK 128.4 million (DKK 122.8 million) from radio
equipment.
The increase in satellite communication equipment was primarily generated
through the acquisition of Thrane & Thrane Norge. Compared with the
corresponding period of last year, Thrane & Thrane recorded increased revenue
from the Fleet, Inmarsat-C and Iridium products. Revenue from Inmarsat-C was
favourably affected by the fact that Thrane & Thrane began to ship terminals for
monitoring of fishing vessels in North America. Additional shipments are
expected in Q4.
After the end of Q3, Thrane & Thrane launched a new series of handheld VHF
radios. These radios offer users a range of new, attractive features that, for
example, make it easier to use radio products on board vessels. The new series
of VHF radios improve Thrane & Thrane's competitive strength and competencies
within the field of VHF and GMDSS equipment.
Land mobile products
Revenue in the land mobile market was DKK 191.0 million (DKK 124.8 million), up
53% on the same period of 2005/06.
The increase in revenue was primarily driven by sales of the EXPLORER 500,
EXPLORER 700 and EXPLORER 527 BGAN terminals. In addition, Thrane & Thrane
recorded increased revenue from M4 Terminals relative to the preceding quarters.
The sales growth of M4 was primarily generated by one large shipment of
terminals for vehicular use to US government customers.
The EXPLORER 500 has been very well received by the market. As expected,
however, the challenge remains to raise awareness of the terminal's application
potential among new customer groups. In Q3, Thrane & Thrane was strongly focused
on concluding agreements with new business partners able to contribute to
strengthening sales to new customer groups.
The EXPLORER 700 attracted the greatest demand from professional users of mobile
satellite communication. In Q3, Thrane & Thrane generated revenue from EXPLORER
700 terminals of DKK 22.6 million.
The acquisition of Thrane & Thrane Norge added another BGAN terminal to Thrane &
Thrane's product portfolio. Sales of the WorldPro 1000/1010, which is the
smallest and lightest of Thrane & Thrane's BGAN terminals, were - as was the
case with the EXPLORER 500 - adversely affected by limited awareness of the
application potential among new customer groups. Hence, sales of the terminal
were limited in the reporting period.
Thrane & Thrane became an officially approved Inmarsat BGAN Distribution Partner
during the reporting period. The approval means that the company can offer BGAN
airtime in combination with the EXPLORER terminals.
Aeronautical products
Revenue generated in the aeronautical market was up by 27% to DKK 54.8 million
(DKK 43.0 million).
Revenue was primarily driven by sales of the Aero-HSD+, the primary customer
being aircraft manufacturer Dassault Falcon Jet Corp. Revenue from Aero-HSD+
increased by 46% from DKK 30.6 million to DKK 44.7 million, while Q3 revenue
increased by 64% from DKK 11.9 million to DKK 19.5 million.
Thrane & Thrane continues to seek partnership agreements with other aircraft
manufacturers, such as Bombardier, Cessna, Gulfstream and Raytheon, and others.
Aircraft manufacturers are showing strong interest in the development of
aeronautical communication solutions. In response, Thrane & Thrane focuses on
presenting to the different aircraft manufacturers both its existing Aero-HSD+
solution and the upcoming broadband solutions it expects to offer in the future.
Systems
Systems generated DKK 88.7 million in revenue (DKK 110.3 million), down 20% on
the same period of 2005/06.
DKK 21.2 million of the DKK 88.7 million related to Thrane & Thrane Norge. The
decline in revenue from the systems business was primarily attributable to a DKK
40.5 million fall in RAN revenue during the reporting period from DKK 79.4
million last year to DKK 38.9 million this year. The lower RAN revenue had been
expected, since Thrane & Thrane completed the original RAN contract in the
2005/06 financial year.
Early in the reporting period, Thrane & Thrane received final approval of the
RAN satellite access stations for Inmarsat's BGAN satellite system. Thrane &
Thrane subsequently entered into a contract with Inmarsat on the further
development of the RAN satellite access stations, enabling them to offer new
broadband services for maritime (FleetBroadband) and aeronautical
(SwiftBroadband) use as well as for land vehicular use (BGAN). Worth some DKK 45
million (USD 7.45 million), the contract is scheduled for completion in the
second quarter of the 2007 calendar year.
Product development
During the reporting period, Thrane & Thrane's product development focused on
the new broadband terminals for maritime and aeronautical use and for land
vehicular use.
In the aeronautical area, Thrane & Thrane commenced the development of a
terminal targeting Inmarsat's future SwiftBroadband services. The development of
the new terminal is organised in a way that will facilitate upgrading of Thrane
& Thrane's existing Aero-HSD+ terminals to SwiftBroadband. Development of the
new terminal is expected to be completed in the second quarter of the 2008
calendar year.
In the maritime area, Thrane & Thrane is also developing new terminals targeting
Inmarsat's future FleetBroadband services. The first type of FleetBroadband
terminal is expected to be launched in the third quarter of the upcoming
financial year. At the same time, our focus has been on completing a new
portfolio of radios consisting of a series of handheld VHF radios and a new
series of MH/HF radios. The first new handheld VHF radios have already been
launched, and the initial shipments are expected to take place in the fourth
quarter of the current financial year. Thrane & Thrane expects to deliver the
first MF/HF radios in the summer of 2007.
In the systems area, the company began to implement and test Inmarsat's future
broadband services on the RAN satellite access stations. This work is expected
to be completed during the summer of 2007. Moreover, Thrane & Thrane is
currently upgrading the land earth stations handling existing aeronautical
services so that these stations become compatible with the new Inmarsat-4
satellites. The contracts were entered into by Thrane & Thrane Norge. The total
value of the contracts is DKK 86 million, of which approximately DKK 40 million
has been recognised as income. This work is expected to be completed during the
2007/08 financial year.
Increase of share capital
During the period, members of the Board of Directors and employees of Thrane &
Thrane exercised vested warrants to subscribe a total of 27,270 shares of DKK 20
nominal value each, resulting in a share capital increase by a nominal value of
DKK 545,400. Thrane & Thrane received net proceeds of DKK 4.0 million from the
exercise of warrants.
In connection with the acquisition of Thrane & Thrane Norge, Thrane & Thrane
issued 472,000 new shares of DKK 20 nominal value each, corresponding to a total
increase of the share capital by a nominal value of DKK 9,440,000. In addition,
8,613 new free bonus shares of DKK 20 nominal value each were issued to 576
employees, corresponding to an increase of the share capital by a nominal value
of DKK 172,260.
During the third quarter, members of the Board of Directors and employees of
Thrane & Thrane exercised vested warrants to subscribe a total of 77,146 shares
of DKK 20 nominal value each, corresponding to an increase of the share capital
by a nominal value of DKK 1,542,920. The net proceeds from the exercise amounted
to DKK 11.4 million.
In the first nine months of the financial year, the company thus issued a total
of 585,029 new shares, equalling a total increase of the share capital by a
nominal value of DKK 11,700,580. The company received net proceeds of DKK 15.4
million from shares issued. At January 31, 2007, the nominal value of Thrane &
Thrane's share capital totalled DKK 109,790,520 divided into 5,489,526 shares of
DKK 20 each.
Outlook
For the 2006/07 financial year, Thrane & Thrane expects revenue of approximately
DKK 1,100 million compared to the previous guidance of DKK 1,200-1,250 million
(DKK 919 million). Operating profit before integration costs and purchase price
amortisation is expected to be about DKK 110-120 million against DKK 150-175
million (DKK 127 million) as previously forecast.
In Q1-Q3, Thrane & Thrane recorded organic growth of 11% in the terminals
business, corresponding to an increase of approximately DKK 60 million. At the
same time, Thrane & Thrane suffered a 39% decline in organic systems revenue,
equivalent to approximately DKK 43 million.
Systems sales developed completely as expected, whereas the organic sales growth
in terminals was weaker than projected. This was primarily attributable to
weaker-than-expected sales of BGAN terminals in the first nine months of the
financial year, because Thrane & Thrane has not yet succeeded in attracting new
customer groups. In addition, Thrane & Thrane's new airtime concept (that is,
sales of airtime in combination with BGAN terminals) was delayed.
Moreover, the integration of Thrane & Thrane Norge has caused some uncertainty
in the market about Thrane & Thrane's future product portfolio, among other
things. In Q3, consequently, Thrane & Thrane experienced a drop in revenue from
the land mobile BGAN terminal, the WorldPro 1000/1010 and Thrane & Thrane
Norge's maritime Fleet product portfolio. However, after Thrane & Thrane has
reported to the market on its product portfolio and branding as well as its new,
harmonised sales and delivery terms, this uncertainty has abated.
Integration costs are expected to total around DKK 50 million in the 2006/07
financial year. Following Thrane & Thrane's allocation of the purchase price of
Thrane & Thrane Norge, going forward, the company expects an annual purchase
price amortisation of approximately DKK 16 million. In the current financial
year, purchase price amortisation will impact the profit by about DKK 9 million.
Thrane & Thrane A/S
