Munich, November 11, 2015 - After an initially good start into the new fiscal year in the first quarter of 2015, which saw rising revenue and break-even consolidated net income, the positive trend stalled in the second and third quarters. Similar to previous years, revenue resumed its decline, falling by 4.8 percent. Whereas in was possible to increase revenues in Germany year on year, in particular thanks to the positive performance in the “Gigaset pro” segment, they declined in Europe and the rest of the world.
The significant year-on-year improvement in EBITDA and consolidated net income is attributable in particular to the sale of the trademark and domain portfolio. However, the sharp rise in the U.S. dollar over the same quarter of the previous year reduced income. The higher price of raw materials purchased abroad resulted in a sharp rise in the cost of materials compared with the first nine months of 2014.
The decrease in revenue is due to both the consolidation of the sales regions according to aspects of profitability and the continuing general decline in the market. The overall market for cordless phones in Europe contracted more strongly than in the preceding quarters in the 3rd quarter of 2015, as measured by revenue and units in the markets observed by Gigaset.
The market declined year on year by 6.5% in terms of units and 4.6% in terms of value. Consequently, Gigaset suffered a slight decline in market share in Europe compared with the previous year, but was able to maintain its position in the top 3 of the market.
Because of the continuing challenging development in the cordless phone business, Gigaset is making further investments in promising business segments and product groups. Although these will make additional contributions to revenue, they will only partially compensate for the market-related decline in cordless phones this year. Gigaset will therefore focus on further cost-cutting measures, including with regard to next year. In connection with this strategic realignment, Gigaset Mobile Pte. Ltd., Singapore (Gigaset Mobile for short), a venture operated jointly by Goldin and Gigaset, presented a portfolio of smartphones at this year’s IFA. Gigaset Communications GmbH, acting as sales partner for Gigaset Mobile, will generate additional income in the business segment Mobile Products in future. By entering the smartphone market, the Group will operate in a market that is far larger than the market served by the DECT phone business.
In connection with the launch of its smartphone portfolio, Gigaset AG announced that it would reorganize its trademark and domain rights last June. Under this agreement, trademark and domain rights totaling €35 million will be transferred to Goldin Brand Ltd., Singapore, although the usage rights will be retained permanently, free of charge, and largely exclusively by Gigaset AG and Gigaset Communications GmbH for the Cordless Phones, Gigaset pro, and Gigaset elements business segments.
The first part of the transaction, totaling €29.0 million, was recognized in the income statement in the third quarter of 2015. The profit of €20.6 million in excess of the trademark’s carrying amount accordingly increases other operating income compared with the previous year. The second part of the transaction, amounting to €6.0 million, will be conducted in January 2016 in accordance with the agreement. The payment for the first part of the transaction, which was scheduled for the end of September, has not yet been received. Ownership of the trademark rights has therefore still not been transferred. Goldin Brand Ltd.’s obligations toward Gigaset Communications GmbH under the transaction are secured by a guarantee from Goldin Fund Ltd.
Management of Gigaset Communications GmbH is currently holding talks with Goldin Brand Ltd. and Goldin Fund Ltd. to resolve the delay in payment. Management of Gigaset Communications GmbH is assessing its options at the moment and will soon take a decision on any necessary measures.
Overview of the figures for the third quarter of 2015
- Consolidated revenue: €65.8 million (Q3/2014: €71.9 million)
- EBITDA: €19.9 million (Q3/2014: €5.8 million)
- Consolidated net income: €8.6 million (Q3/2014: minus €0.2 million)
- Free cash flow: Minus €6.7 million (Q3/2014: €7.6 million)
Looking at Gigaset’s business situation, and after adjustment for the other operating income from reorganization of the trademark and domain rights, Gigaset AG expects the following in the current fiscal year in the Consumer Products, Business Customers, and Home Networks segments:
- A decline in revenue from continuing operations in a high single-digit to low double-digit percentage range.
- Positive EBITDA once more in the lower double-digit million range. However, the EBITDA is expected to be below that of the previous year due to lower revenue, the investments required in new business segments, and the accelerated restructuring of the company. An EBITDA margin in the low to middle single-digit range is anticipated. Non-recurring expenses due to cost-cutting measures may reduce the above EBITDA figure.
- It is currently uncertain as to whether one-time factors will significantly improve the free cash flow in the current fiscal year, since there is a delay on the part of Goldin Brand Ltd., Singapore, in paying the purchase price for the trademark deal. Expected operating free cash flow will remain unchanged. Due to considerable investments in the new business segments, Gigaset AG expects negative free cash flow before one-time factors in the high single-digit to low double-digit million range.
Gigaset also expects positive contributions to earnings from business with mobile devices, in particular from its future smartphone business. However, a more exact figure will not be able to be put on them until the products have been launched and marketed successfully.
Press Spokesman Gigaset AG
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