Significant progress has been made in key organic growth initiatives.
New clients have been secured at Digital Media Solutions and Broadband,
new digital programs have been launched in Patents & Licensing
and shipments of high-end RCA Scenium products start in the third
Second half outlook
The first half results have demonstrated Thomson's ability to
generate rising profitability even in the context of less favorable
markets. The Group targets double-digit sales growth for the
full year, but once again will not prioritize sales growth at
the expense of profitability or to offset adverse currency movements.
The Group expects an increase of around 20% for the full year
for operating result, and a significant increase in earnings
Paris, July 24th, 2002 - The Board of Directors of Thomson
multimedia met on July 23rd, 2002 in New York to review the
first half 2002 results. In a continuing difficult economic
climate, the Board welcomed the results achieved by the Group,
noting that they exceeded the Group's financial objectives for
Net sales grew 7% to 5,019 million euros. Operating income
grew 8.5% to 242 million euros. Operating cash flow grew by
4 times to 840 million euros.
The Group has published today an unaudited consolidated profit
and loss account, balance sheet, cash flow statement and condensed
notes which are available on its website. Extracts can be found
at the end of this press release.
The first half 2002 results show continued progress at the
Digital Media Solutions division, the result of Thomson's strategy
of positioning itself along profitable segments of the video
chain. They also demonstrate the defensive qualities of the
Patents & Licensing division. The results from Consumer
Products and Displays and Components show the Group's ability
to react to changing market circumstances to limit the impact
on its performance resulting from falling sales.
During the first half, the Group made significant progress
in its 2002-2004 transition program through acquisitions. Over
half of this program has been completed and at prices substantially
below our initial estimates. The platforms necessary for the
achievement of the TWICE program at Digital Media Solutions
have been largely put in place. Within Consumer Products - Broadband,
the acquisition of the Grundig Set Top Box business at the end
of the half brings Thomson a substantial relationship with BSkyB
in the U.K. The acquisition of the Circuit A and related businesses,
leaders in cinema advertising in Continental Europe, undertaken
in cooperation with strategic partner Carlton Communications,
builds on the partnership's existing leadership in the United
Several key organic growth initiatives have also been implemented,
for example with Vivendi Universal, Canal+ and Echostar. At
the end of the half, the Group confirmed its membership in the
MPEGLA licensing group. Its new high-end RCA Scenium televisions
will be shipped to US retail distribution channels in the third
First half and second quarter 2002 Group revenues
For the first half 2002, Thomson's consolidated net sales grew
by 7% to 5,019 million euros (first half 2001, 4,695 million
euros). This growth would have been 8.5% excluding the negative
impact of currency changes, notably a weaker US$ compared to
the euro. 2002 perimeter changes added 226 million euros of
revenues compared to the previous year (notably, the consolidation
of DSL and new acquisitions such as Grass Valley Group and VidFilm).
On a like-for-like basis, therefore, consolidated net sales
showed a decline of -4.4%.
For the second quarter 2002, Group revenues grew by 0.6% to
2,512 million euros compared to 2,498 million euros for the
second quarter 2001 and by 0.2% compared to 2,507 million euros
for the first quarter 2002. After a positive 2.9% impact in
the first quarter, currency movements had a negative impact
of -5.6% on second quarter sales. Quarter-on-quarter organic
growth excluding currency movements showed a 0.5% increase for
the quarter, compared to a 6.3% decline for the first quarter.
First half 2002 Group operating income, net income and cash
For the first half 2002, Thomson's consolidated operating income
grew by 8.5% to 242 million euros (first half 2001, 223 million
euros). Currency changes had a non-material impact on operating
income. The operating income margin on net sales was 4.8%, compared
to 4.7% for the first half of 2001.
For the first half 2002, the consolidated net income Group
share grew by 10% to 123 million euros (first half 2001, 111
million euros) and the operating cash flow by 4x to 840 million
euros (first half 2001, 209 million euros). The net margin on
net sales was 2.4%, just above the first half of 2001.
half revenues by division
|Digital Media Solutions
half operating income by Division
|Digital Media Solutions
Digital Media Solutions
First half 2002 revenues grew by 88% to 1,167 million euros
(first half 2001, 620 million euros). In 2002, Technicolor was
consolidated for the full 6 months compared to 3 ½ months
in 2001 (the 2 ½ unconsolidated months accounted for
322 million euros during this period in 2001). Grass Valley
Group, VidFilm, Still-in-Motion, Miles O' Fun, Southern Star
Duplitek and Victoria Film were each consolidated during the
first quarter and accounted for 124 million euros of sales.
The like-for-like growth 2001 to 2002 excluding these perimeter
effects was 11%.
Activity in the Division's core Home Entertainment unit was
particularly robust. 177 million DVD units were replicated,
an increase of 160% year-on-year. 206 million VHS units were
duplicated compared to 192 million units for the first half
2001. Although the activity in film replication showed a small
decline half-on-half, reflecting shorter-length films and narrower
release schedules, overall activity improved driven by post-production
revenues and increased film distribution activity compared to
the first half of 2001. Excluding changes in perimeter, management
estimates that the sales of the former Technicolor businesses
grew by over 20% in the half.
Sales of Broadcast equipment were mixed. The slowdown in advertising
revenues caused broadcasters to reduce orders of hardware, notably
cameras and image capture equipment. This caused a sharp fall
in revenues at the Division's Broadcast equipment unit on a
like-for-like basis. Against this, revenues from servers and
news were ahead of expectations, the former being the field
of the Grass Valley Group acquired in February 2002. Grass Valley
Group contributed approximately 78 million euros of revenues
in the half and was profitable at the operating income level,
ahead of expectations.
First half 2002 operating profit grew by 184% to 128 million
euros (first half 2001, 45 million euros). All of the acquisitions
made by the Division during the period were profitable. All
perimeter changes added 14 million euros to operating income.
The operating margin was 11% for the period, compared to 7.3%
for the first half 2001.
This solid performance reflects growth in many of the activities
of this division yet only a small amount of operational synergies
from the businesses acquired.
Net capital expenditures for the Division were 64 million euros,
essentially in DVD replicating equipment. During the first half,
the Division opened a film replication laboratory in Mirabel,
Canada, and installed for the first time DVD replication units
in Thomson's facility near Warsaw, Poland.
The acquisition of Panasonic Disc Services (PDSC) was completed
on June 25th 2002 and did not contribute to the results in the
first half. This acquisition, together with the related contracts,
brings Thomson two new client relationships among Hollywood
studios, which the Group expects to be able to develop in due
Displays and Components
First half 2002 consolidated net revenues grew by 26% to 899
million euros (first half 2001, 714 million). First half 2002
total revenues grew by 10.8% to 1,215 million euros (first half
2001, 1,096 million). Growth was driven by increased activity
in optical components where the Xbox programme had a significant
positive effect and the Group took market share in more standard
optical drives for DVD players, notably in the second quarter.
Revenues from tubes showed stability with increased volumes
offset by lower prices. Overcapacity in North American very
large sized tubes has decreased following the exit of a key
supplier during the half. The Group's production problems at
its glass plant at Circleville, Ohio, have been fully resolved.
The Mexicali tube plant was fully operational and running at
or near capacity at the end of the half.
First half 2002 operating income fell year-on-year to 44 million
euros (first half 2001, 81 million), reflecting inter alia the
fall in prices notably in North America over the period. This
represents an improvement compared to the second half of 2001
in both absolute and margin terms. The first half operating
margin was 3.6% compared to 7.4% in the first half of 2001 and
1.9% in the second half of 2001. The operating result was negatively
impacted by the start-up of Mexicali, the costs being taken
to operating income amounting to approximately 25 million euros
during the half. This was only partially offset by the successful
settlement with its insurers for the Circleville plant incident,
which resulted in a total payment of 19.9 million euros of which
half impacted operating income.
Restructuring costs were lower than in the first half of 2001
and the Division continued to reduce its working capital.
First half 2002 revenues fell by 13% to 2,736 million euros
(first half 2001, 3,149 million). The negative currency impact
on sales was equivalent to (1.5)% for the half. First half operating
income declined by 38 million to a loss of 5 million euros,
reflecting in large part the decline in profitability of the
After a particularly difficult 2001, most of the Group's consumer
retail markets show signs of stability in price and volume terms.
The Division's priorities remained the careful management of
profitability and cash and the profitability of most of its
retail segments improved during the half. In particular, losses
in its US high-end segment were reduced substantially, a major
achievement in the run-up to the Scenium high-end launch at
retail in the third quarter. Volumes in high-end televisions
improved, more than offsetting price declines, while Audio volumes
declined significantly less than the market and Communications
gained volume and value market share. The Group decided in 2001
to exit its activity in the camcorder segment which accounted
for 89 million euros of sales in first half 2001 and only 10
million of sales in first half 2002.
Sales of broadband access products declined sharply over the
period. The Group sold 2.3 million decoders and cable modems
worldwide during the first half, compared to 3.1 million in
the first half of 2001 - in both cases excluding DSL modems.
Prices also declined during this period. On a like-for-like
basis, therefore, decoder and cable modem revenues declined
by some 46%.
The unit remained profitable during the half, however. This
reflects strong cost-cutting efforts. The DSL modems business
was break-even during the period despite additional substantial
price falls during the half.
New Media Services
First half revenues reflected a first-time contribution from
the US ScreenVision joint venture and the first accrual of revenues
since the signature of a new agreement with Gemstar. Substantial
cost cutting also reduced the Division's losses. The ScreenVision
joint venture was marginally loss-making during the period.
Progress is expected in all parts of the division in the second
half so as to achieve the Group's target of a material reduction
in losses from the Division in the year as a whole.
Patents & Licensing
First half 2002 revenues from Patents and Licensing were flat
compared to the previous year at 192 million euros. Second quarter
2002 revenues grew by 19.3% to 116 million euros (second quarter
2001, 97 million). The revenue progression reflects a recovery
in the worldwide production volumes of consumer electronic goods
during the half.
Some new licensing programmes were also signed during the half,
notably the Group's first license in China. During the first
half of 2002, revenues from digital patents accounted for 46%
of net sales. Operating profits increased by 3% to 168 million
(first half 2001, 164 million), an operating margin on total
sales of 87.5%.
At the end of the half, Thomson announced that it would contribute
its MPEG2 video compression patents to the MPEG-LA patent pool,
and that it had launched a parallel licensing programme for
other video compression patents. This will substantially increase
the percentage of royalties coming from digital patents beginning
in the second half of the year.
Research and development expenditures and patent filings
The Group spent 205 million on research and development during
the first half 2002, an increase of 1% compared to first half
2001. This includes a net spend of 26 million euros on fundamental
research. The Group made new filings in respect of 301 inventions
during the first half 2002, compared to 213 in the first half
2001. As the spending on fundamental research is indirectly
linked to the long-term growth of the patent portfolio and therefore
the revenues from the Patent and Licensing Division, such spending
will in future be recorded alongside the income from that Division.
The Group intends to triple the resources devoted to IC development
over the coming 2 years.
Net interest income of € 7 million
The net interest expense was a credit of 7 million euros versus
an expense of 10 million euros in 2001, reflecting the strong
cash position of the Group for most of the semester. Substantial
payments were made for acquisitions in June, which will reduce
interest income in the second half.
Restructuring and non-current result
Restructuring charges amounted to 46 million euros (first half
2001, 63 million euros). The Group continued to take a prudent
view of its investment portfolio and depreciate assets whose
fair value it assesses at below book value. Capital gains from
the securities portfolio offset these charges. Goodwill charges
rose to 36 million euros, compared to 15 million euros for the
first half 2001, reflecting essentially the full consolidation
of Technicolor and the DSL modem business. Taxes fell significantly
half-on-half reflecting efforts to optimize the Group's tax
structure. The minority interest contribution fell substantially
due to lower losses in joint ventures.
Strong cash generation / balance sheet
Operating cash flow reached 840 million euros (first half 2001,
209 million euros). This reflects a substantial reduction of
the Group's working capital requirements over the half. The
ratio of net working capital to sales was 12.5% as at June 30
2002 (13.8% on a constant currency basis), compared to 17.3%
as at 31 December 2001 and 22.5% one year ago. 483 million euros
were extracted from working capital during the first half 2002.
Progress was made in receivables and inventories. As at June
30 2002, inventories represented 9.2% of sales and receivables
15% of sales, marked decreases from 2001 (16.2% and 19.6% of
sales respectively). Net expenditure on tangible and intangible
fixed assets reached 192 million euros (first half 2001, 198
The Group ended the half with a net debt on the balance sheet
(excluding the Technicolor promissory notes) of 365 million
euros (compared to 392 million a year ago). Off-balance sheet
liabilities showed no material changes.
Second half initiatives and outlook
Thomson's key priorities for the second half are to: