Thu 05/13/2021 09:36 AM
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Relevant Documents:
2020 Annual Report
2020 Financial Statement


Some investment funds are shorting the bonds of the Swiss digital security products provider Kudelski Group as they believe the publicly listed company may struggle to refinance its 200 million Swiss franc notes maturing in August 2022, sources told Reorg. Continue reading for our EMEA Core Credit team's reporting on Kudelski Group and request a trial for access to our coverage of thousands of other high-yield, stressed, and distressed debt situations as well as access to the linked documents.

As of Dec. 31, 2020, Kudelski had cash and cash equivalents of $152.6 million. In 2020, the company delivered EBITDA of $64.3 million, up 58.5% year over year, and generated $132.6 million cash flow from operating activities, up from $34.2 million a year earlier.

The cash generation of the group was mainly due to a $92.4 million working capital contribution. In particular, the group generated $64.8 million of cash flow from the reduction of accounts receivable and contract assets. Capital expenditure amounted to $10.7 million while lease payments consumed additional $16.7 million and non-controlling interest dividends $10.2 million.

The company told Reorg that it anticipates continued positive cash generation as the primary means to address its 2022 notes, highlighting that it can also count on undrawn facilities to boost its liquidity. It added that it has no plans to approach equity markets to address the maturity. The group added that cash generation was currently “in line with expectations” for 2021.

In its 2020 annual report, Kedelski said there was a risk the group “may not generate enough cash to repay such debt and may not be able to raise sufficient funds to refinance such debt.”

Kudelski has $48.2 million in outstanding short-term debt and $439.2 million in long-term debt, including the CHF 200 million bond maturing on Aug. 12, 2022, and a CHF 150 million bond maturing on Sept. 27, 2024.

The CHF 150 million bond is quoted at 85 and the CHF 200 million bond at 97, according to sources. The group’s stock price - currently at CHF 4.03 per share - rose considerably to CHF 5.18 by Jan. 25 from CHF 3.84 on Jan. 20 - following a business update which demonstrated better-than-expected resilience to the Covid-19 pandemic.

The 2022 CHF 200 million bond was issued in 2015 with a subscription price of 100% and an annual interest rate of 1.875%. The additional CHF 150 million bond was issued in 2016 at a subscription price of 100% with an annual interest rate of 1.5%.

Kudelski, in its 2020 annual report, said it forecasts that the uncertainty caused by the Covid-19 pandemic will extend throughout 2021. The group’s public access segment - the most vulnerable unit to Covid-19 disruption in 2020 - is anticipated to remain particularly volatile. Measures introduced in 2020 to improve profitability and cash flow generation of the segment such as tighter integration of entities controlled by control systems and parking management subsidiary SKIDATA, will continue throughout 2021, the company added.

However, the group is expecting a robust recovery in its SKIDATA customers and digital TV solutions offerings. Kudelski’s forecasts meant the group’s board of directors approved a CHF 0.10 cash distribution per bearer share, which was paid April 22. Kudelski is anticipating a year over year improvement in EBITDA across the group in 2021.

The group’s capital structure is below:




























































































































































































Kudelski Group


12/31/2020

EBITDA Multiple

(USD in Millions)

Amount

Price

Mkt. Val.

Maturity

Rate

Yield

Book

Market


Bank Debt 1

91.9


91.9




Total Bank Debt

91.9

91.9

1.4x

1.4x

CHF200M 1.875% 2022 Bond

225.8


225.8

Aug-12-2022

1.875%


CHF150M 1.5% 2024 Bond

169.1


169.1

Sep-27-2024

1.500%


Total Convertible Bonds

394.9

394.9

7.6x

7.6x

Other Short Term Financial Liabilities

0.6


0.6




Lease Obligations

43.3


43.3




Total Other Debt

43.9

43.9

8.3x

8.3x

Total Debt

530.7

530.7

8.3x

8.3x

Less: Cash and Equivalents

(152.6)

(152.6)

Net Debt

378.1

378.1

5.9x

5.9x

Plus: Market Capitalization

226.0

226.0

Enterprise Value

604.1

604.1

9.4x

9.4x

Operating Metrics

LTM Reported EBITDA

64.3


Liquidity

Plus: Cash and Equivalents

152.6

Total Liquidity

152.6

Credit Metrics

Gross Leverage

8.3x

Net Leverage

5.9x

Notes:
1. Includes $47.6 million of short term bank debt and $44.3 million of long term bank debt. During 2020, several group entities received loans through programs designed to provide economic support in response to Covid-19. The loans range in maturity from one to five years and generally contain beneficial terms such as governmental guarantees, below market interest rates, and options to extend. The programs also restrict the ability of borrowers to pay dividends and repay intercompany loan balances. As of December 31, 2020, the group has received $29.9 million of Covid-19 related financing with interest rates ranging from zero to 0.98%. Where the stated interest rates are below market, a portion of the loan proceeds is recognized as a government grant. The grants are initially deferred and are recognized in earnings on a systematic basis over the loan period.



For 2020, revenue fell 10.4% year over year to $741.5 million, while net income was negative $17.9 million versus negative $38.5 million a year earlier. Group EBITDA rose 58.5% to $64.3 million in 2020, with the second half of the year predominantly responsible for the growth. Operating income increased to $16.1 million after a $15.3 million outflow in 2019.
Kudelski Group

In 2020, the group obtained $29.9 million in Covid-19 related loans which secured its liquidity for 2021 and beyond, the company said.

About 47% of the group’s revenue was generated in its digital TV segment while 40% was generated in the public access segment. Cybersecurity made up 12% of the company’s material output. The group’s public access segment, which has about 7,300 customers, has been exposed to the Covid-19 crisis and is expected to “remain volatile” throughout the pandemic, according to the company. Revenue from the segment declined 13.1% to $299.3 million in 2020, with revenue from Europe declining 7.5% to $175.8 million and Americas recording a 9.6% drop to $83.3 million. Asia and Africa revenue for the public access segment declined 36.6% to $36 million.

Digital TV produced revenue of $353.1 million in 2020, a 10.2% drop from $393.5 million the previous year, but EBITDA from the segment rose by $5.9 million to $96.9 million. The segment has been impacted by Covid-19 related restrictions on sports content and reduced television advertising revenue, according to the group. However, the group expects the segment to perform strongly in terms of revenue and profitability in 2021. Revenue from the group’s cybersecurity segment, which has around 900 customers, was flat for the year at $85.2 million.

The company’s shareholding structure is below:
Kudelski Group shareholding

Kudelski Group designs and manufactures digital security products for digital television operators and content providers, electronic voting and health cards, smart cards for e-commerce, encryption technology for digital television, software for pay-per-view and video-on-demand television, digital recorders, and ticketing and access systems. The group is headquartered in Cheseaux-sur-Lausanne, Switzerland, and Phoenix, the capital of the U.S. state of Arizona, and has offices in 32 countries.

--Thomas Baker, Luca Rossi
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