French Consumer Electronics company Thomson looks to be getting out of the transmission business, and that includes what was once a globally dominant position in mobile TV, especially DVB-H based services, where it has supplied most trials and some live sites with transmitters and encoders.
It’s been fairly clear that any weaker consumer electronics based business would become wounded by this recession, and France’s Thomson is one such company. Thomson shed its senior management in March, when Frank Dangeard, CEO stood down as the company began to stumble financially, in favor of Frederic Rose, who was brought in from Alcatel after a brief search.
Barely has Rose got his feet under the desk and the Group has said it will publish its falling figures and has promised to sell off some of the acquisitions that has taken Thomson into the transmitter business, including the US based Grass Valley operation, which it bought or a mere $172 million back in 2001. Since then the company has grown considerably.
Frederic Rose, said, ‘Today we announce the refocusing of our business on content creators, leveraging our technological expertise and our positioning with network operators. Strengthening our balance sheet is the precondition to implementing this strategic framework.’
Thomson says that means Grass Valley and PRN, the digital signage business which handles advertising in Wal-Mart stores, which between them accounted for €1 billion ($1.27 billion) of sales in 2008.
Thomson was once an $11 billion revenue business, but is currently on track, after some disposals, to fall to $6 billion year, and once these subsidiaries have gone it will be under $5 billion ‘ so the company will have lost more than half its size in the process of getting out of TV direct manufacture (which it did a while back), transmitters and encoders and in-store advertising systems. It’s not clear what Thomson’s core businesses will be. It will have its Technicolor division, delivering celluloid films securely to cinemas, a business which is transitioning into a secure digital cinema distribution system. It will still have the RCA TV brand in the US, which is now mostly flat TV screens. It continues to make VoIP Softswitches, and sells and supports the IPTV Smartvision software which drives France Telecom’s IPTV system, and it has various set tops, home gateways and DSL modem lines that it continues to support. In the US it even sells digital to analog network tools to cable operators to digitize their lines and convert analog TV signals onto digital cable. These product lines could still do with some rationalization and Thomson probably has a long way to go before it know who it really is.
It gave out unaudited figures, which reckon that fourth quarter revenues will be €1,468 million ($1,868 million), down 8.4% at current exchange rates against the fourth quarter 2007. The year will be €4,839 million ($6,160 million) down 12.7%. About 5% of this fall is currency based.
Thomson will ask PricewaterhouseCoopers to assess its assets for write-downs, which implies that some are coming, and it says it has €2.1 billion of net debt after taking its cash of €775 million from its €2.9 billion of debt. This has risen by €800 million due to needing more working capital to keep its suppliers happy, and due to a shorter supplier payment cycle. It also had restructuring costs of €80 million.
Thomson is also in danger of breaching some of its debt covenants and so was faced with either finding different, more expensive debt, almost impossible in the current market, or selling some assets. Its debt position is precarious in that once one debt covenant is breached, if these debt holders ask for their money back, that could put it in breach of other covenants and trigger more debt recalls. So investors should watch the disposal with interest. We reckon someone is going to get a bargain in there, with these assets unlikely to bring any more than one times revenues in a fire sale.