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Directors’ report

Chairman’s statement

2009 has been a year of substantial achievement for your company against a most difficult economic backcloth. We took decisive management action, saw the opportunity for a value-creating transaction, which we successfully completed, and strengthened our balance sheet. Consequently, we are well positioned to build on the strengths of the enlarged CSR and return to growth in 2010.

A year ago, my comments focused on the unprecedented economic down-turn, following the global financial crisis and explained how we were actively taking steps that would position the Group to come through the difficult conditions that 2009 was expected to create.

This year, my comments focus on CSR’s achievements in 2009 and our ability to leverage these through 2010 and beyond.

As we expected, 2009 was indeed a very challenging year. General consumer confidence across the world hit new lows. For us, this was reflected both by decreased levels of demand for consumer electronics and also by substantial de-stocking by our customers and by their distribution channels, particularly in the first half of the year. Inevitably, demand for our products, and hence our revenue, was directly affected. 2009 revenue was $601.4 million, a fall of $93.5 million, or 13% down, on the revenue of $694.9 million for 2008. Ignoring the contribution to revenues in the second half of 2009 from the acquisition of SiRF, CSR’s revenues on a like for like basis were approximately $471.4 million or 32% lower than 2008. The operating loss for the year was $15.9 million, against a loss of $8.5 million in 2008. Underlying operating profit fell to $26.9 million in 2009 from $72.8 million in 2008.

A year ago, I nevertheless expressed the view that our strategy and the prompt actions we had taken in response to the downturn positioned us to work through the difficult times, and that we were capable of building on our strengths and would fight to maintain our market leading position. I also expressed confidence in our management team to take the action necessary to achieve these objectives and in the underlying opportunities for future growth in the wireless connectivity markets.

This confidence was well placed. Management did indeed take the necessary actions, delivering as we had promised on the efficiency programmes we put in place. In addition, the pace of penetration of wireless connectivity and new applications has continued in mobile phones, in consumer electronics more widely and in other sectors, such as automotive.

The Board also recognised that challenging times can create opportunities. We identified such an opportunity in the acquisition with SiRF, a market leader in location and related technology, and a business we saw as being wholly complementary to our own.

We announced the SiRF transaction in February last year and completed it last June. SiRF is now fully integrated into CSR. The new business contributed approximately $130.0 million in revenue, out of a total of $407.9 million for the second half of 2009. Moreover, SiRF has enlarged our business, brought talented new people into our organisation, expanded our technological capabilities, our customer base and our position in the Connectivity Centre, delivered synergies in accordance with our expectations and helped increase our cash flows.

It has already added shareholder value, and it has helped CSR exit 2009 a stronger company, with greater potential to further add value.

We remain appropriately cautious about the global economic outlook for 2010. Who wouldn’t? But we believe that our strengths and the dynamics of our market place mean we can look again to organic growth this year. We also remain alert to possible further value-creating strategic moves. We have no current specific intentions, but our world is not static, and we believe CSR has the proven ability to take advantage of selective opportunities and we end 2009 with a markedly strengthened balance sheet with over $400 million net cash and treasury deposits.

In preparation for the SiRF transaction, the management teams worked together on a detailed and robust integration plan which we initiated as soon as the deal was finalised. In addition to giving us a strong presence in Silicon Valley and China, the acquisition brought a substantial number of new people into the organisation. The combination of two technology companies with the inevitable overlap in skill-sets and roles unfortunately meant that some redundancies in each of the formerly separate organisations was necessary. The redundancy process was carried out with sensitivity but also promptly, allowing us to re-align the newly enlarged organisation and to focus on the future and the growth of the new business.

Product portfolio

2009 saw us make significant progress on developing our product portfolio.

We launched our new BC7000 family of products which comprises our latest generation of Bluetooth with FM transmit and receive functionality. This was positively received. It has reinforced business from existing customers and has led to new demand from others.

Other key product launches have included our BT/ Wi-Fi module, our standalone Wi-Fi chip and CSR Synergy, our new software stack, which supports the integration of multiple wireless devices and builds on the successful legacy of our widely adopted BlueCore Host Software.

Following the acquisition of SiRF, we also secured business with SiRFstarIV, our next generation GPS chip and a direct reflection of the collaboration between the newly combined CSR and SiRF teams.

As Joep van Beurden, our CEO explores in his review, we expect the sharing of knowledge, ideas and experience within our enlarged technology teams to result in further significant product announcements during this year, in projects that advance and go beyond our established strongholds in GPS and Bluetooth.

Board changes

Following the completion of the SiRF acquisition, we were delighted to welcome Dado Banatao, SiRF’s Executive Chairman and Interim CEO, as a Non-Executive Director. Dado brings a broad perspective and extensive experience in our sector gained from executive and non-executive roles he has held in semiconductor businesses around the world and from his background as an engineer, from which he is credited with developing several key semiconductor technologies.

In addition, Kanwar Chadha, a founder and former Vice President of Marketing at SiRF, has joined our Board as an Executive Director and our Chief Marketing Officer. Well-known and respected throughout our industry, Kanwar was instrumental in the growth and development of SiRF and brings extensive knowledge of the consumer technology landscape. He has over 23 years of experience in various, technical, marketing and management positions at leading organisations including S3 Inc., AQuesT, Inc., and Intel.

As planned, David Tucker who was chairman of our Audit Committee and our Senior Independent Director, retired in May last year. We thank him very much for his expertise and valuable contribution to the Board over the last five years.

Following David’s retirement, Anthony Carlisle, who has been a non-executive director of CSR since July 2005, was appointed the Senior Independent Director, and Andrew Allner, who joined our Board in October 2008 was appointed Chairman of the Audit Committee. We are delighted to have such strong individuals to assume where David left off.

A committed team

CSR is a global business serving a global market. Our products are sold to leading electronic consumer brands who in turn sell to customers around the world. Our key designs are created in the UK, US and China, whilst most of our manufacturing takes place in the Far East. The consumers who rely on our products are located around the world.

What we are today, and what we can become tomorrow, flow directly from the skills, dedication and attitude of our people. I find it encouraging and energising to see so many different nationalities and skill-sets working together across the full range of disciplines in our organisation and across the geographies in which we operate. Through their efforts, we are executing well, delivering on our Connectivity Centre and platform strategy and opening-up new areas for growth. I thank them all unreservedly for their resilience, commitment and contribution.

2010 will be another challenging year, but I expect us to continue to build on the progress made in 2009. We have an excellent and growing suite of products, a well-judged strategy, a strong financial base and a great team. We look forward with confidence.

Ron Mackintosh
Chairman

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