Ascom Business Report year 2003

Ascom trebled profitability of core Divisions and reduces non-core Divisions to about one sixth of total revenues
Despite the tough market conditions of 2003, Ascom trebled the operating result for its four core Divisions of Transport Revenue, Network Integration, Wireless Solutions and Security Solutions from CHF 19 million to CHF 61 million and achieved a 13% rise in the order intake.
Through a series of divestments and restructuring measures, the company succeeded in reducing the share of non-core Divisions on total revenues to roughly 15% at the end of 2003.It also streamlined the product and service offering according to plans. Ascom ends the financial year with a significantly reduced Group net loss of CHF (68) million (previous year CHF (281) million. Net debt was completely eliminated in the year under review. Cash and cash equivalents exceeded interest-bearing debt to the tune of CHF 55 million. The equity ratio was strengthened considerably, and is now at 18%.

The core Divisions enjoyed a 13% rise in their order intake compared with the previous year to CHF 1,127 million, and generated revenues of CHF 1,036 million in 2003. In the second half of 2003, revenues of the core Divisions grew by 10% versus the first six months of the year.

Group revenues for 2003 were to CHF 1,515 million (previous year CHF 2,066 million). Of the CHF 551 million drop in revenues, CHF 462 millions stem from business divestments, while CHF 39 million is attributable to the core Divisions and CHF 50 million to the continuing non-core Divisions. Adjusted for divestments and currency exchange impacts, total revenues declined by 10% from the previous year’s level.

The sale of the PBX (Ascotel) and Energy Systems Divisions enabled Ascom to lower the share of continuing non-core Divisions to 15% of total revenues in 2003 (previous year 48%).

Trebling of operating result of the core Divisions
Ascom's core Divisions ended the financial year 2003 with a CHF 42 million improvement in operating result to CHF 61 million. The trebling of the result in the core Divisions was achieved through focussing on profitable niche markets.

The Transport Revenue Division succeeded in enhancing its profitability. This core Division accomplished a turnaround, ending financial year 2003 with an operating result of CHF 7 million (previous year CHF (28) million), with revenues around 6% lower at CHF 267 million. The order intake grew by 24% to CHF 279 million. All except two of the critical, legacy projects were completed, enabling the Division to reduce risks, improve margins and expand the maintenance business. In a difficult period for the Group, the Division won several large-scale orders from infrastructure operators in Switzerland, France and North America.

The Security Solutions Division reported a 27% decline in the operating result to CHF 11 million (previous year CHF 15 million) on a 22% lower revenue base of CHF 165 million, due to a weaker order intake in the first half year to be realised in 2003. Security Solutions nevertheless increased its order intake by 22% in 2003 to CHF 221 million. Significant new orders were won in tunnel and building communications along with passenger information systems in Germany, Austria and Switzerland, enabling Security Solutions to expand its civilian business and to grow internationally.

The Network Integration Division lifted its operating result by CHF 3 million to CHF 10 million (previous year CHF 7 million) on 6% lower revenues of CHF 333 million. The Division reported a 4% lower order intake compared to the previous year with CHF 354 million. All country subsidiaries achieved a positive result for the first time, though there was a particularly significant improvement in profitability in Switzerland, Germany and Italy. In addition, the Division was successful in winning major orders from well known international companies with a considerable service and outsourcing share. On top of that, Network Integration was nominated best European partner in 2003 by leading technology companies.

On around 17% higher revenues, the Wireless Solutions Division boosted its operating result by 32% to CHF 33 million (previous year CHF 25 million). Incoming orders grew by 21% in 2003 to CHF 277 million. The focus on high-growth market segments such as healthcare and cooperation with strong distribution partners also led to a marked improvement in profitability in 2003. One highlight was the conclusion of several projects on behalf of stock exchanges in the US. A number of high-profile international manufacturing and service companies also opted for on-site communication solutions from Wireless Solutions. On top of that, Wireless Solutions became Europe’s largest supplier of business DECT handsets in 2003.

Thus all core Divisions of Ascom ended financial year 2003 with a positive operating result.

Sharp reduction in share of the non-core Divisions
Third part revenues of the continuing non-core Divisions (Co-operation – essentially Payphones, Manufacturing France and Switzerland – amounted to CHF 225 million (previous year CHF 262 million) in the past financial year, and thus represented only about 15% of total revenues. The very tough market conditions, the restructuring charges incurred and an inadequate level of capacity utilization led to a deterioration of the operating result to CHF (32) million (previous year CHF (20) million).

The restructuring of Payphones was brought to a successful conclusion in the reporting period. Negotiations regarding the restructuring of Manufacturing sites in France are at an advanced stage. In 2003 a manufacturing site in France with 55 employees could be divested. The capacities of Manufacturing Switzerland were also adjusted to the lower market demand in 2003. The efforts to identify divestment and potential buyers for these businesses are proceeding apace.

Substantial reduction in Group net loss
The Group’s operating result amounts to CHF (27) million (previous year CHF (107) million). Besides the CHF 42 million improvement in operating result for the core Divisions, the key contributing factors were a CHF 42 million reduction in losses from divested business to CHF (29) million and a CHF 8 million reduced operating loss of the Group and finance companies.

Ascom ends the financial year 2003 with a significantly reduced Group net loss totalling CHF (68) million. That compares with a figure that was four times as high in the previous year at CHF (281) million. Ascom progressed from a loss of CHF (57) million in the first half of 2003 to a reduced net loss of CHF (11) million in the second half of the year.

The improvement in the Group’s result for 2003 is due to a CHF 80 million increase in the operating result, CHF 32 million reduction in financing and tax charges and, above all, sharply reduced one-time effects compared with the prior year. The reduction in non-recurring factors primarily comprises CHF 24 million lower restructuring charges for divested business areas, CHF 10 million lower gains from the disposal of real estate and divestments and CHF 62 million lower impairments of goodwill and intangible assets.

Net debt eliminated – working capital reduced
The company continued to strengthen its balance sheet through disposals of business areas and real estate, further optimization of net working capital and the successful implementation of the capital increase in December 2003.

Cash and cash equivalents exceeded interest-bearing debt to the tune of around CHF 55 million (net debt in previous year CHF (264) million) as at 31 December 2003. The significant reduction of net debt – in the order of CHF 319 million – was a result of proceeds from the disposal of businesses and real estate, together with a reduction in net working capital and the inflow of funds from the capitalincrease.

Balance sheet and shareholders’ equity
The Group’s total asset base declined by CHF (396) million or by 26% compared to 31 December 2002. The sale of businesses and real estate contributed CHF 214 million to this reduction. The CHF 74 million capital increase conducted in December 2003 enabled Ascom to strengthen its balance sheet. The Group’s shareholders’ equity increased by CHF 7 million compared to 31 December 2003. The equity ratio increased to 18% at the end of the reporting period (previous year 13%).

Ascom Holding Ltd bond issue
Following the disposal of Energy Systems, PBX and Real Estate, CHF 63 million was deposited in a escrow account in favour of Ascom Holding Ltd’s bondholders.

Ascom employed 4,842 people as at 31 December 2003, representing a reduction of 2,462 employees or 34% in relation to 31 December 2002. More than two thirds of the jobs were transferred in conjunction with the sale of businesses.

Outlook for 2004
In the financial year now under way the resources will be geared evenmore to the operational aspects of the business. The prime objective in 2004 will be to strengthen the profitability as soon as possible and to return to black figures. All necessary measures will therefore be implemented with the same swift pace and urgency as until now. These efforts will centre on:

extending the strong market position of the core Divisions through profitable, organic growth,
a further increase in profitability at the core Divisions,
the restructuring of Manufacturing in France, along with the search for cooperation partners or possible buyers for the non-core areas,
the streamlining and simplification of the Group structure,
the constant adaptation of the cost structure to the market conditions.
Clear objectives of the core Divisions should lead to growth in specific areas of the business in 2004:

Transport Revenue intends to expand its service and maintenance business, and to create more repeat sales based on successfully implemented solutions.
Security Solutions is increasing its focus on civilian markets, in particular through communications, information and management systems for transport infrastructure operators. It will also selectively exploit new geographical markets in Eastern Europe and Scandinavia.
Network Integration intends to boost the share of its service and outsourcing business.
Wireless Solutions will continue to focus on serving hospital, elderly care, manufacturing and closed establishment markets and is working on extending the value chain by offering solutions involving consultancy and other services, as well as hardware/software. Geographically, the Division is looking to expand its US business.
Press kit and photos of the 2004 Annual Media Conference will be available for downloading from 11 resp. 12 hours (CET) at under Media Relations/Press Kits.

About Ascom

ascom.gifAscom is an international solution supplier with a comprehensive technology know-how. In the areas Transport Revenue (revenue collection, toll and parking systems), Security Solutions (applications for security, communications, automation and control systems for infrastructure operators, public security institutions and the army), Network Integration (network solutions in the data/voice convergence market) and Wireless Solutions (high quality on-site communications solutions) with many years of experience in the execution of complex projects for demanding customers the company has established itself in important key markets. Ascom's offering covers analysis and consulting, system design and system integration, project management, engineering and implementation, and goes right through to maintenance and support. The company has subsidiaries in 23 countries and has a staff of around 5,000 employees worldwide. The Ascom registered shares (ASCN) are quoted on the SWX Swiss Exchange in Zurich.
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