Market Trends and Restructuring the Key Factors in 2007 - Micronas Expects New Strategy to Bring Turnaround in 2008
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Zurich, February 7, 2008 - The 2007 business year was an extremely difficult one for the Micronas Group. It was overshadowed by the tough market conditions facing the Consumer division, which had an adverse effect on the Group's overall performance. After a comprehensive strategic review, Micronas instigated a far-reaching restructuring program in the fourth quarter. This included measures in the Consumer division to streamline the product portfolio, as well as a shift in emphasis towards less complex products. In addition to the creation of restructuring reserves, the write-off of goodwill recognized in the balance sheet, of intangible assets and of deferred tax assets had an impact on the income statement. The operating loss before impairment and restructuring was CHF 73.0 million in 2007 (previous year: 17.0 million). EBIT after impairment and restructuring was CHF -522.5 million. Micronas posted a further sharp fall in demand for tube TVs, with a decrease in sales of CHF 179 million (down 69 percent on the previous year), as well as a decrease in the multimedia business, with sales falling CHF 36 million (down 46 percent). Increased sales of flat-screen TVs, which improved by CHF 96 million (up 34 percent), and growth in the Automotive division of CHF 20 million (up 10 percent) could not make up for these losses. Overall, these developments brought a decline in consolidated net sales to CHF 712.7 million (812.6 million). In the fourth quarter of 2007, consolidated net sales amount to CHF 173.8 million, compared with CHF 186.6 million in the previous quarter. With cash and cash equivalents of CHF 289.0 million (up 33 percent) and equity of CHF 380.7 million (equity ratio of 54.9 percent), Micronas still has solid financial fundamentals. We are able to finance the restructuring and future development from our own funds.
In the face of strong market-driven pricing pressure which could only be partially offset by tightening costs, the gross margin followed the 2006 decline with a further slight fall to 29.5 percent (31.6 percent). The operating loss before depreciation and amortization (EBITDA) for the year as a whole amounted to CHF 26.0 million (+93.5 million). EBITDA for the fourth quarter came in at CHF -31.9 million (previous quarter: +2.8 million). The operating loss before impairments and provisions was CHF 73.0 million in 2007 (17 million). Analysis in the third quarter of the goodwill recognized in the balance sheet resulted in CHF 357.1 million being written off. Intangible assets of CHF 44.2 million and deferred tax assets of CHF 54.4 million were also written off. Restructuring reserves and additional write-offs in the fourth quarter totaled CHF 48.3 million. Taking into account these write-offs and provisions, the operating loss (EBIT) for 2007 amounted to CHF 522.5 million. In the fourth quarter, the operating loss before impairment and restructuring was CHF 10.0 million (19.7 million); after impairment and restructuring, the figure was CHF 69.5 million.
Below the line, the Group recorded a loss for the reporting year of CHF 543.8 million (1.6 million). Earnings per share showed a loss of CHF 18.48 (0.05). Equity was reported at CHF 380.7 million at year-end (907.9 million) and cash at CHF 289.0 million (217.2 million). The equity ratio at the end of 2007 was a solid 54.9 percent (76.9 percent). At the end of 2008, after realization of the restructuring measures, the Board of Directors and Management expect equity to be in the region of CHF 320 to 350 million and cash between CHF 220 and 250 million. Chairman Thomas Lustenberger is confident: "Micronas still has a very solid capital base and can fund the restructuring measures as well as the further development of the company through its own resources."
Once it had become clear in mid-year that the persistence of adverse market conditions in the core Consumer business would make it impossible to meet sales and earnings targets for 2007, the Board of Directors and Management decided to subject the strategy and positioning of the Micronas Group to a farreaching review. The comprehensive analysis confirmed that Micronas should continue to focus on the two core business of Consumer and Automotive in its market positioning.
The Automotive division currently contributes approximately one third of consolidated sales. Despite the prevalence of difficult market conditions and the unfavorable exchange rate trend, the division continues to operate profitably. "The trend in the automotive sector towards greater reliance on electronics will allow the Automotive business to continue its organic growth," explains CEO Wolfgang Kalsbach.
In an extremely competitive field, Micronas was not able to translate its strength in CRT technology into a similar position in the flat-screen TV market. Furthermore, the market for tube TVs has fallen off more quickly and to a greater extent than was expected, and the pricing of TV sets has come under massive pressure. The strategic review showed that Micronas should concentrate on products for the flat-screen TV market and disengage from Internet TV (IPTV) and parts of the multimedia business. Shortly before year-end, Micronas therefore decided to discontinue the business with set-top boxes for IPTV, a move that affects mainly the workforces in the USA and Shanghai. In addition, Micronas is refocusing its research and development as well as streamlining the sales organization in the Consumer sector. In all other departments of the Company a cost reduction program is in place. By 2009, the restructuring and cost reduction measures will bring overall economies of around CHF 100 million plus additional revenues of CHF 110 million thanks to the growth strategy now in place.
With the restructuring measures instituted in the autumn of 2007 not due for completion until the end of the third quarter of 2008, the Consumer division must reckon with a further operating loss in the coming business year. In the words of Chairman Thomas Lustenberger: "The Board of Directors and Management are convinced that the measures decided for 2008 will achieve the turnaround and put Micronas back into the profit zone in 2009."
Despite the serious uncertainties prevailing in regard to further developments in the wider economy, Micronas is publishing guidance for the current business year. The Group expects sales in the range of CHF 670 to 730 million in 2008 and an operating loss (EBIT) between CHF 55 and 30 million. For the Consumer segment, Micronas is reaffirming the forecast made in October 2007 which projected sales in the region of CHF 450 to 500 million for 2008. Micronas expects its Automotive business to generate sales of CHF 220 to 230 million. The first quarter should see consolidated sales of CHF 170 to 180 million, on an operating loss (EBIT) of CHF 15 to 8 million.
The Micronas Group is a leading independent supplier of innovative application-specific semiconductor solutions for consumer and automotive electronics. Its shares are listed on the SWX Swiss Exchange in Zurich.
