Sepura plc Preliminary Results Year ended 31 March 2010 · Sepura plc Preliminary Results Year...
Transcript of Sepura plc Preliminary Results Year ended 31 March 2010 · Sepura plc Preliminary Results Year...
Sepura plcPreliminary ResultsYear ended 31 March 2010
© Sepura plc 2008
Agenda
� Financial Review: Delivering on expectations
� Operational Review: Maximising TETRA
� Strategic Review: Doubling our addressable market
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� Strategic Review: Doubling our addressable market
� Conclusion and Outlook
� Q & A
Financial ReviewDelivering on expectations
Stephen MoleCFO
© Sepura plc 2008
HighlightsContinued strong performance in a difficult market
� 154,000 radios delivered – up 23%
� EMEA market share increased to 45%
� 6% increase in revenue
� £2.3m reduction in cash operating costs
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� £2.3m reduction in cash operating costs
� 2% increase in adjusted EPS
� Dividend held at 1.27p for year
Revenue 74.1 78.9 +6%
Gross profit 38.9 36.3 -7%
Gross profit margin 52.5% 46.0%
Operating costs (*) (25.9) (26.7) +3%
Operating profit (*) 13.0 9.6 -26%
Operating profit margin (*) 18% 12%
Profit before tax (*) 12.5 9.4 -25%
Income Statement Summary%age
£m FY09 FY10 change
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Profit before tax * 12.5 9.4 -25%
Profit after tax (*) 10.5 8.5 -19%
Tax rate (*) 16% 9%
Fully diluted EPS (*) 7.6 p 6.2 p -18%
Proposed dividend 1.27 p 1.27 p -
Excluding capitalisation of R&D and IFRS2
Adjusted operating profit (*) 7.9 7.5 -5%
Adjusted fully diluted EPS (*) 5.0 p 5.1 p +2%
(*) 2009: Excluding non-recurring costs of £2.5m
53% 52% 47% 45%
Revenue
74.1 78.9
Revenues +6% despite economic climateSignificant increase in volumes in competitive environment
+ 6% FY0952.5%
FY1046.0%
Gross margin
£M
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H1 H2 H1 H2
� Margin impacted by
1% FX: € costs increased for UK 1% Increasing %age of overseas sales
Product and customer mix4.5% Volume discounts
Geographical pricing / sourcing
� Action taken
� Chinese manufacturing increasing� Ongoing product design and cost reduction � Lower-cost sourcing
FY 09 FY 10FY09 FY10
Units 125.5K 154.0K +23%
ARPUS £591 £512 -13%
� > £1m revenues from 13 countries (FY09: 11)
Research & Development costs
Cash Spend
Research & Development: Delivering more from less Targeted investment in growth now underway
£15.3m £13.5m
� Broadening our product portfolio
� Extended STP8000 product family
� Software for UK baseline / Germany
� “Man down” functionality
- 12%
Investment during the year
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% revenue 20.7% 17.1%
FY09 FY10
£11.3m£10.0mP&L Charge
� P&L charge nearing cash spendas amortisation increases
� Amortisation: £7.9m (2009: £5.6m)
� Capitalisation: 75% (2009: 71%)
� 14% of revenues (2009: 14%)
General overhead costs
Administrative
General Overheads: Delivering more from lessTargeted investment in growth resources now underway
£6.5m £6.4m
- 3%
� Extending our routes to market
� New office opened in SE Asia
� Sales resources added in China,
Americas, Middle East, Benelux
£15.9m £15.4m
Investment during the year
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% revenue 21.4% 19.5%
FY10
£9.0m£9.4mSelling / Marketing
� Simplifying operations to deliver more
� Simplified supply chain
� Improved customer service and support
(*) 2009: Excluding non-recurring costs of £2.5m
(*)FY09
Cash Flow Summary
EBITDA (*) 20.8 19.7 -5%
Working capital (*) (1.5 ) (8.8 )
Other 0.3 -
Operating cashflow (*) 19.6 10.9 -45%
Capitalised R&D costs (10.9 ) (10.1 )
Operating capex and IPR buy-out (2.9 ) (1.4 )
Tax paid - -
%age£m FY09 FY10 change
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Tax paid - -
Cash inflow (outflow) before net financing outflows (*) 5.8 (0.6 )
Loan principal / net interest / lease (3.7 ) (3.2 )
Dividend paid (1.7 ) (1.7 )
Cash generated (utilised) (*) 0.4 (5.5 )
(*) Excluding FY09 non-recurring costs of £1.3m, of which £0.2m was
settled in FY09 and £1.1m settled in FY10
Balance sheet remains strong with net current assets of £24m
Net cash £1.7m Stock turn 9 Creditor days 73Debtor days 72
Operational ReviewMaximising TETRA
Gordon WatlingCEO
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� How can we maximise the return from TETRA?
� What further value can we extract from the overall PMR market?
My first 18 monthsAnswering 3 key questions
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� How can we utilise our core competencies to deliver that value?
2.5
31.2
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Investing in growth
My first 18 monthsTransforming the business, investing in growth
Cash costs (£M)
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28.9
0.80.3 0.7
0.4 0.231.2
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FY09 R&D S&M Admin R&D S&M Admin FY10
12
Delivering more from less
16 % 5%9%
Delivering on expectationsMaximising the TETRA opportunity
Objectives Progress
1 Increase market share 45% market share in EMEA (*)National framework wins in Portugal and LithuaniaMarket-leading position retained in UK and Germany
2 Grow International footprint
Sales to 72 countries5 new geographiesFirst substantial wins in China
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(*) Based on IMS total shipment data for EMEA (including UK)
3 Market-leading products, Broadest product range
STP8000 hand-held radio leading marketSTP8100/8200 mid- and low-tier products launchedSoftware and hardware functionality added
4 Win add-on and replacement business
18 UK replacement customers took 21k radiosAll customers retained4 UK police forces transferred fleets from competitors
5 Maintain highgross margins
Dedicated accessories team focused on marginNew products designed for lower price points
European Public Safety markets have been resilientSigns of improved funding outside core European markets
FY10 Units
shipped
New national networks
� Portugal 17,000� Lithuania 2,500
National roll-outs in progress
� Germany 41,000� Italy 4,000
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� Italy 4,000
UK
� Refresh 21,000
� Other customers 13,000
Major new regional networks
� China 9,000� Pakistan 10,000� Angola 3,000
Germany is now our largest marketMarket-leading position maintained as roll-out continues
First Expectedawards users(units) (units)
1 Niedersachsen 5,300 50,000
2 Bremen 2,800 4,100
3 Sachsen-Anhalt 18,000 20,000
5 Baden-Württemberg 17,000 60,000
6 Bayern 8,000 60,000
7 Saxony 30,000 30,000
9 Hamburg 10,000 10,000
10 Nordrhein-Westphalia 30,000 100,000
14 Saarland 3,000 3,000
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3
2
4
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14 Saarland 3,000 3,000
SEPURA 124,100 337,100
4 Berlin 20,000 20,0008 Thüringen 5,500 20,000
11 Bund 53,000 53,000
12 Schleswig Holstein 5,000 19,000
13 Mecklenburg-Vorpommern 10,000 10,000
Other 93,500 122,000
15 Rheinland-Pfalz - 40,000
16 Hessen - 40,000
17 Brandenburg - 20,000 - 100,000
Total 217,600 559,100
56
10
78
16
15
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Broadening our product portfolioExciting new products to address specific customer needs
Colour console and SRG3900 Portables
STP8100
� Reduced functionality
� Reduced hardware
� Same robust chassis, power output and high
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� Gateway and Repeater functionality
� High resolution colour display
� STP “look and feel”
power output and high quality audio
STP8200
� No SD memory card
� Basic User Interface
� Smaller monochrome screen
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12
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Improving development productivityWe are delivering more, faster, for less
� Investing in future growth
� Designing new products� Developing new software functionality� Expanding our accessories suite� Future-proofing our platform
� Maintaining our portfolio
£M
33%41%
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FY09 FY10
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� Maintaining our portfolio
� Value engineering to reduce product costs� Improving factory quality and throughput
� Management and fixed costs
� Professionalising project management� Demanding business cases for investment
59% 67%
Management and fixed costs
Maintaining our portfolio
Investing in future growth
� Continued strong performance in a difficult market
� Increased volumes driving increased market share
� TETRA leader in EMEA
� TETRA leader in public safety
� Installed base of over 600,000 radios delivering annuity business
Cost base realigned
Maximising our return from TETRAWe have strengthened our core business
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� Cost base realigned
� Positioned to deliver growth and improve operational leverage
� Further investment in routes to market to address new markets
� Broadened our product portfolio
Strategic ReviewDoubling our addressable market
Gordon WatlingCEO
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� The overall PMR market is worth $9Bn per annum
� The $9Bn is split across� Technologies Analogue and digital� Value chain Infrastructure, control centres, terminals, software, services� Users Public safety, commercial, consumer
� We supply TETRA terminals predominantly to public safety users
� Our core competencies can be applied to more of that market
Our strategic reviewIdentifying new markets to generate scale and margin
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� Our core competencies can be applied to more of that market
� Our deep knowledge of digital communication standards
� Our thorough understanding of world-wide PMR customers
� Our strong brand and reputation
� Our established global routes to market
� Our agile and efficient supply chain
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Analogue
The Private Mobile Radio market drives to digitalTETRA continues to be the dominant digital standard
� TETRA: 10+ years of future growth
� Largest digital installed base� New networks being deployed� New users joining networks� Users replace multiple times
� Public Safety users’ preferred solution
World-wide installed base of PMR radios
(millions of units)
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0
5
10
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
DMR
TETRA
P25
TETRAPOL
� DMR: The commercial user’s solution
� A TDMA-based ETSI standard� Lacks TETRA’s public safety features� Significantly cheaper infrastructure� DMR will be a viable market for Sepura
from 2013
Source: Independent research for Sepura Plc
Commercial users do not need public safety functionality They want simple infrastructure and rugged, reliable radios
TETRAPublic Safety
DMRCommercial
Network complexity Trunked Untrunked
Geographical coverage National Campus
Call volume capacity High Low
Radio volume capacity 500,000 users +50 users
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Radio volume capacity 500,000 users +50 users
Inter-agency / cross border interoperability
�������� ��������
InfrastructureMultiple BTNsControl centres
Single repeater
Infrastructure cost High Low
Procurement process Lengthy tender Quick decision
Ease and speed of implementation Difficult / slow Easy / quick
DMR is a significant opportunity that plays to our strengthsWe will deliver DMR through our core competencies
� Applying our existing TDMA expertise
� DMR utilises TDMA, a core Sepura expertise(and a barrier to entering the TETRA and DMR markets)
� Exploiting our know-how, brand and reputation
� We understand users’ needs across the entire PMR market
� Sepura is a highly respected brand within PMR
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� Utilising our established routes to market
� We will be satisfying demand pull from our existing world-wide channel
� DMR is an open ETSI standard with no geographical restrictions
� Sourcing from our existing supply chain
� Significant component commonality
� Our outsourced manufacturing model can scale up as required
DMR enables us to double our addressable marketAn opportunity to generate significant incremental earnings
� Unlocking additional value from our existing TETRA business
� DMR will generate significant synergies with our current business model
� DMR is highly complementary to our focus on being ‘1st in TETRA’
� We will fund DMR product development within our existing guidance
� Achieving scale through our existing cost base
� We can deliver additional volumes with limited incremental overheads
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� We can deliver additional volumes with limited incremental overheads
� Purchasing leverage from additional volumes of components for a common platform
� Diversifying our revenue streams and improving earnings visibility
� Simpler selling proposition with multiple smaller purchasing decisions
� Independent from large-scale infrastructure procurement cycle
Conclusion and OutlookGordon WatlingCEO
© Sepura plc 2008
� Short-term economic uncertainty remains
� TETRA
� Market drivers remain strong
� Core business strengthened
� Increasing scale and installed base
� DMR
Conclusion and outlook
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� DMR
� Low risk strategy exploiting core competencies
� Internally funded from existing resources
� We remain confident of the long-term outlook
Q & A
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Appendices
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� Design, Develop, Sell, Own IP
� Employees
— 3053 employees
– 173 in R&D
– 75 in sales, marketing, customer support and repairs
– 57 in manufacturing support and HQ
� Leading Market Position with 26% Share in 2008 4
— One of the three largest TETRA radio terminal suppliers which had a combined market share of 93% in 2008
Overview of Sepura
� What
— TErrestrial Trunked RAdio
— Defined by ETSI and based on GSM
— Global standard for digital Private Mobile Radio (“PMR”) communications1
— Network independence
� Features
— Newer than GSM, offers cellular-like features
— Plus PMR and data features
Overview of TETRA
Brief scene-setting on TETRA and Sepura
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� Broadest Product Range
— Handheld radios, vehicle radios, specialist radios (e.g. surveillance), accessories and support tools
� Production
— Manufacture of radios is outsourced to Siemens and TCB
� Distribution
— Sell directly and via global network of 90 distributors
� Experienced Management Team and Balanced Board
— Senior management has combined 200+ years of experience
— Highly experienced and diverse Board
1 Outside of North America2 Based on TETRA radio terminal installed base (excluding PAMR) in 2008
— Plus PMR and data features
� Why
— Analogue radio systems globally need to be replaced
� Where
— Deployed in 44 of the top 50 countries by GDP
— Adopted as the standard for Europe and then throughout most of the world (like GSM)
� Who
— Public safety users are ~ 68% of all TETRA users in 2008 2,4
— Remaining users in commercial sectors (e.g. transport)
3 As at 31 March 2010. 4 Source: The Worldwide Market for TETRA Terminals, 2009 Edition (IMS)
Balance Sheet Summary
Property, plant and equipment 4.3 4.2 3.2
Intangible assets (capitalised R&D / deferred tax) 25.1 25.8 27.1
Total non-current assets 29.4 30.0 30.3
Trade and other receivables 21.4 19.4 33.7
Inventories 10.2 9.0 6.6
Cash and cash equivalents 15.8 12.1 9.1
Trade and other creditors/accruals/provisions (24.4) (17.7) (22.4)
Borrowings repayable <1 year (3.0) (3.0) (3.0)
£m 31 March 2009 30 Sept 2009 31 March 2010
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Borrowings repayable <1 year (3.0) (3.0) (3.0)
Net current assets 20.0 19.8 24.0
Borrowings repayable >1 year (7.4) (5.9) (4.4)
Other non-current liabilities (6.2) (6.8) (6.6)
Net assets 35.8 37.1 43.3
Share capital 0.1 0.1 0.1
Retained earnings 35.7 37.0 43.2
Total shareholders’ equity 35.8 37.1 43.3
Net cash (after deducting borrowings) 5.4 3.2 1.7
Maximising TETRA’s potentialMultiple revenues repeated over the 20 year life of a network
Replacement Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Handheld radio 5 years
WarrantyAnnually
Batteries
Consumables Annually
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Software, training As required
Batteries c. 18-24 months
Speaker mics / headsetsc. 18 - 24 months
The installed base drives future accessory revenues
We have over 600,000 radios in use world-wide
The Private Mobile Radio market is worth $9Bn paSepura provides TETRA terminals for public safety users
STANDARDS
TETRAOther digital Analogue
Infrastructure
Terminals
VALUE CHAIN
Value chain
� Equal split:� Infrastructure� Terminals� Other (control rooms, services,
applications)
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Commercial
Consumer
Public safety
Other
VALUE CHAIN
Communication standards
� TETRA� Other ETSI standards� Proprietary standards
End user markets
� Market segmentation emerging� Commercial customers looking for
lower feature alternatives with lowercost infrastructure
Core competencies enable expansion into adjacent marketsTDMA expertise and deep knowledge of PMR markets
STANDARDS
TETRAOther digital Analogue
Infrastructure
Terminals
VALUE CHAIN
Potential Development Paths
Strengthening our core business
� Improve share in key geographicmarkets and customer segments
� Grow position in niche products� Improve and extend our
accessories offering
A
AAA
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Commercial
Consumer
Public safety
Other
VALUE CHAIN
A
Expanding across the value chain
� Develop new products / features
B
A
Expanding into adjacent PMR standards
� Grow position in commercial markets through offering alternative standards
C
A
Developing our product portfolioTailored products to address specific markets
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Future Financial Calendar
� Final dividend FY11
� Ex-dividend 14 July 2010
� Record date 16 July 2010
� Payment due date 13 August 2010
� Q1 Interim Management Statement 21 July 2010
� FY11 Year end 31 March 2011
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� FY11 Preliminary results announcement June 2011
Other Information
� Lock in arrangementsDirectors and Senior Management have a phased lock-in which ends in August 2010.
� TaxNo material corporation tax is expected to be payable for the years ending 31 March 2007 to 31 March 2010 due to the availability of tax losses arising from the exercise of options under the EMI Option Scheme.
� Dividend policyUp to 20% of profit, 1/3 interim and 2/3 final.
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Up to 20% of profit, 1/3 interim and 2/3 final.
Principal Risks And Uncertainties
� Contract delaysThe timing of customer orders, and therefore revenue, is influenced by a number of factors, including governmental investment decisions which may be affected by changes in political and economic conditions. This impacts our ability to accurately forecast the exact timing of future revenues.
� Failing to achieve market penetrationOur strategy is dependent on our ability to secure a market-leading position in the significant TETRA markets. If we are unable to develop appropriate relationships with distributors and customers in emerging markets then this could reduce the likelihood of us securing such a position.
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� Technological changeWe make significant investment in new product development, based on demand from customers for additional products and features. We therefore face associated risks relating to delays and cost overruns in the development process, and the possibility that these features are developed by our competitors before us.
� CompetitionThere is strong competition in the markets in which we operate, particularly in relation to government procurement tendering processes which rely on a combination of technical performance and price. We have a high-quality product range, a reputation for customer service and a programme to reduce product costs which mitigates the impact of changes in the competitive landscape.
TETRA Market Research
� An independent report is available from IMS Research, providing detailed coverage of the worldwide TETRA and LMR markets
� Please contact Patrick Connolly, LMR Research Director, IMS Research, phone +44 (0)1933 402255, email patrick,connolly@imsresearch,com,
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