Ascom: Half-Year Results 2005

As announced at the end of June, the operating result for Security Solutions is below expectations. In the period under review the Group recorded total consolidated revenue of CHF 513.6 million and a profit from operations (EBIT) of CHF 50.3 million (previous year CHF 29.8 million). With a shareholders’ equity ratio of 40% at 30 June 2005 compared to 26% at the end of 2004, Ascom has further strengthened its balance sheet. The Board of Directors once more emphasises that proceeds, which are not required to finance organic growth and selective, smaller-scale, value-enhancing acquisitions, will be distributed to shareholders in an appropriate form. Subject to approval by the statutory auditors, a relevant motion shall be submitted to the Ordinary General Meeting 2006. In this connection the Board of Directors is also examining a proposal by a group of shareholders to hold an Extraordinary General Meeting by 14 October, 2005 at the latest, to vote on a single agenda item obliging the company to launch a share buy-back programme. The Board of Directors will publish the results of its analysis and its decision in this regard as soon as possible.

With the sale of Network Integration Switzerland to sunrise and conclusion of the agreement for the sale of Transport Revenue to Affiliated Computer Services, Inc. (ACS) at the beginning of August 2005, Ascom has reached important objectives in its focus on mission-critical communication (customer-specific communication solutions and applications in the security field), and established the basis for the company's sustainable further development.

The Ascom Group reported total consolidated revenue of CHF 513.6 million for the first half-year 2005. Of this amount, continuing operations accounted for CHF 326.8 million and discontinued operations for CHF 186.8 million. Group profit for the period under review came to CHF 50.6 million compared with CHF 22.4 million in the first half-year 2004. As a result, diluted earnings per share for the first half of 2005 amounted to CHF 1.40, of which CHF 0.61 is accounted for by continuing operations. In the previous-year period, earnings per share reached CHF 0.62, of which CHF 0.38 was generated by continuing operations.

Wireless Solutions reported incoming orders of CHF 138.7 million for the first half-year 2005 compared to CHF143.0 million in the previous year. Revenue rose by approximately 4% to CHF 136.9 million. To ensure organic growth in the medium and long term, the Division made significantly higher, accelerated investments in research and development (CHF 3.9 million). At the same time, the sales force was also increased. This reflects the Division's aim of consistently strengthening direct sales operations in its main markets. As a result of these investment activities, the operating result fell to CHF 13.9 million as opposed to CHF 19.1 for the previous-year period. Profit from operations (EBIT) amounted to CHF 8.2 million compared with CHF 12.5 million for the first half-year 2004.

Security Solutions posted results below Ascom's expectations due to the strategic insourcing decision of a Supplier Business customer and project-related difficulties in the Traffic area. By contrast, the Homeland Security (Defence and Public Safety) segment, and in particular the Carrier Products business field, recorded positive performance. Overall the Division reported incoming orders of CHF 98.9 million compared with CHF 121.4 million for the first half of 2004. At CHF 113.7 million, revenue was about 1% below the previous-year level. During the period under review Security Solutions achieved an operating result of CHF 3.2 million compared to CHF 9.0 million in the first half of 2004. The 2004 figures, however, included a net release of excess warranty provisions in the amount of CHF 5.0 million. For the first half-year 2005 the Division posted a slight loss from operations of CHF (0.3) million, as opposed to a profit (EBIT) of CHF 7.0 million for 2004. Since the operating results were significantly affected by special situations in Traffic and Supplier Business, Ascom has taken steps to improve the organisation and processes in these units. Security Solutions remains committed to its strategy of internationalisation, as this represents the main potential for growth and earnings improvements.

Stronger balance sheet

Ascom repaid the CHF 200 million bond on schedule on 3 February 2005. The Group reported net liquidity of CHF 128.1 million at 30 June 2005 compared to CHF 126.7 million at 31 December 2004. The proceeds from the sale of Network Integration Switzerland are being received by Ascom after the balance sheet date. The Group's balance sheet structure has improved, with a shareholders' equity ratio of 40% at 30 June 2005 as opposed to 26% at year end of 2004.

Continuing operations

Aside from Wireless Solutions and Security Solutions, continuing operations also includes Special Products. This unit is comprised of Network Integration in Italy, Payphones, Manufacturing France, Powerline Communications and Real Estate. Despite intensive efforts, no satisfactory solutions in terms of new owners have been found yet for these business activities combined under Special Products. Ascom is continuing to consistently search for new owners for these activities.

Special Productsrecorded incoming orders of CHF 88.9 million in the first half of 2005 and revenue of CHF 73.6 million compared with revenue of CHF 95.3 million for the first half of 2004. The lower revenue is primarily attributable to the cyclical business of Payphones, which was unable to achieve the previous year's high revenue volumes. As a result, revenue also fell at Manufacturing France. On the other hand, revenue for Network Integration in Italy grew by 6% to CHF 43.7 million. Special Products recorded an operating result of CHF 0.2 million for the first half of 2005. Profit from operations (EBIT) reached CHF 5.8 million, including a profit of CHF 5.9 million from the sale of real estate. By comparison, Special Products posted operating result of CHF 4.7 million and EBIT of CHF 1.1 million for the first half-year 2004.

Discontinued operations

Discontinued operations covers the activities of Transport Revenue as well as Network Integration Switzerland, Belgium and Germany.

Network Integration Switzerland, Belgium, Germany

The sale of the Network Integration Switzerland unit to sunrise for the equivalent amount of CHF 33.5 million was completed retroactively on 30 June 2005. Negotiations are in progress for divestments of the two smaller country companies in Belgium and Germany and Ascom expects decisions in this regard to be made within this year.

Revenue remained on a similar level to the previous year and reached CHF 65.6 million, of which the Swiss business accounted for CHF 50.3 million. Network Integration posted an operating loss of CHF (1.7) million for the first half of 2005. A one-time profit of CHF 21.7 million was recorded from the sale of the Swiss business. Profit from operations (EBIT) rose – primarily due to this divestment – to CHF 18.3 million compared with CHF 0.7 million for the previous-year period.

Transport Revenue– In August 2005 an agreement was signed with Affiliated Computer Services, Inc. (ACS) for the sale of Transport Revenue. Completion of the transaction with ACS and the related cash inflow are expected at the end of 2005. For the time being, the European and Asian toll collection business will remain with Ascom until their economic situation has improved. ACS was granted a pre-emption right for this part of the toll collection activities. Transport Revenue achieved incoming orders of CHF 152.2 million and revenue of CHF 121.2 million for first half year 2005. The operating result reached CHF 12.8 million and profit from operations (EBIT) increased by approximately 9% to CHF 11.2 million.

Outlook

No significant changes in Ascom's economic environment are anticipated in the second half of 2005. For Wireless Solutions the aim is to achieve revenue growth of 4–5% and an EBIT margin of 9–11% for full fiscal year 2005. For Security Solutions we anticipate lower year-on-year revenue and a break-even result at EBIT level. Leaving aside any potential extraordinary profits from the sale of Transport Revenue, Ascom expects to close 2005 with a higher net result than the previous year.

With the new management team, Ascom is concentrating to exploit growth potentials by driving innovation in products and solutions, enhancing its sales forces, increasing competence in the solution business, and through cost efficiency. Ascom will not consider any large acquisitions over the next 18 months. The divestment process for all business units except Wireless Solutions and Security Solutions will be consistently pursued.

The Board of Directors once more emphasises that proceeds which are not required to fund organic growth and selective, smaller-scale, value-enhancing acquisitions, will be distributed to shareholders in an appropriate form. Subject to approval by the statutory auditors, a relevant motion shall be submitted to the Ordinary General Meeting 2006. In this connection the Board of Directors is also examining a proposal by a group of shareholders to hold an Extraordinary General Meeting by 14 October, 2005 at the latest, to vote on a single agenda item obliging the company to launch a share buy-back programme. The Board of Directors will publish the results of its analysis and its decision in this regard as soon as possible.

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About Ascom

Ascom is an international solution provider with comprehensive technological know-how. In future the company aims to concentrate on the core areas of Wireless Solutions (high-value, customer-specific on-site communications solutions) and Security Solutions (applications for security, communication, automation and control systems for infrastructure operators, public security institutions and the army). The Special Products Division covers the activities of Network Integration (network solutions for the data/voice convergence market) in Italy and Payphones (specialised products for voice traffic). Discontinued operations primarily comprise Transport Revenue (revenue collection, parking and toll systems) and Network Integration Switzerland, Belgium and Germany. With a wealth of experience in implementing complex projects for discerning customers, Ascom has established itself in important key markets. Offerings range from analysis and consulting to system design and system integration, project management, engineering and implementation, right through to maintenance and support. The company has subsidiaries in 22 countries and a workforce of some 3,500 employees worldwide. Ascom registered shares (ASCN) are listed on the SWX Swiss Exchange in Zurich.