CSR came through a challenging year in 2011, with difficult trading conditions in some areas of our end markets. However, we saw good progress in our strategy of increasing the range of higher-margin platform products where we control the key silicon. This strategy was accelerated by the acquisition of Zoran Corporation, whose image and video capture are highly complementary to our location, audio and connectivity technologies.
After completing the Zoran transaction we have organised the business into four main groups: Automotive business group, comprising automotive and portable navigation device (PND) businesses; Home Business Group, containing gaming and home entertainment, PCs and tablets connectivity, document imaging, health and fitness, and voice & music; Mobile Business Group, which has our handset and camera businesses; and our Legacy Product group, created in December 2011, which comprises home entertainment products in run-off.
The year can generally be characterised by the Home business group performing well, with weakness in our Automotive business group and Mobile business group. In the second half of the year, whilst we grew on an absolute basis due to additional revenues from the Zoran acquisition, we saw a further decline in sales for CSR’s standalone business. Unlike the first half revenue year-on-year decline, this drop in revenue was not in our original forecasts and was caused by weakness in some areas of the handset market and a rapid reduction in personal navigation devices (PND) sales in emerging market economies. Despite the slowdown in the PND area, we continue to see increasing sales for our automotive OEM business.
While handsets and PNDs were weak, we saw good growth in the audio segments of our Home business group from product lines such as stereo audio products.
We announced our intention to merge with Zoran on 21 February 2011 and after agreeing amended terms which we announced on 17 June 2011, the transaction was completed on 31 August 2011.
Zoran was a major transaction for the Company and was driven by the rapidly growing market for imaging technology that can be delivered to all the segments in which we operate. This demand is enhanced and complemented by the wireless connectivity, audio and location technologies that CSR has developed. Zoran therefore brought CSR a number of benefits: it provides us with valuable IP, patents and know-how; it increases the scale of the Company, giving greater purchasing power as well as customer relevance; brings greater access to new markets which require location and wireless connectivity such as cameras and printers; creates growth opportunities as we bring CSR and Zoran technologies together; and generates merger synergies and other cost reductions of $130 million of annualised savings which are on track to be completed by the end of the second quarter 2012, thereby reducing our joint cost base.
Importantly, after taking account of the current and future expected cost savings, we expect that the Zoran transaction will provide CSR with earnings accretion in 2012, compared to CSR as a standalone business.
Zoran’s shareholders received per Zoran share $6.26 in cash and 0.589 ordinary shares of CSR in the form of American Depositary Shares. Net of Zoran’s cash balance of $193 million as at 31 August 2011, the transaction value implied an enterprise value of $248 million.
While Zoran had a series of leading technologies, its costs were out of line with its revenues. Since completing the merger, our management has implemented a series of cost reduction programmes and rationalisations of the enlarged business. Importantly, in addition to driving merger synergy benefits and portfolio rationalisation, we announced in December that we will stop investment in the low-margin areas of digital television systems-on-a-chip and silicon tuners, while retaining the intellectual property (IP) in these areas for future use.
Overall, we expect that the result of these moves will be a company which has the majority of its revenue from segments where we have a number one or two position in the market and which offer attractive growth opportunities. We continue to expect underlying operating costs, excluding all restructuring charges, to be in the range of $420 million to $430 million on an annualized basis during the second half of 2012, with full year 2012 underlying operating costs of $430 million to $440 million, which we believe will result in CSR generating positive cash flow and will significantly improve profitability.
While revenues have been weaker than expected during 2011, we have ended the year with a strong balance sheet and $278 million in cash, cash equivalents and treasury deposits. It is the Board’s intention to follow a progressive dividend policy that reflects the underlying growth prospects of the Company. Given our confidence in our future prospects, our strong financial position and the Board’s commitment to delivering returns to shareholders via a progressive dividend policy, the Board is recommending a final dividend of $0.071, which, together with the interim dividend of $0.032 per ordinary share amounts to $0.103 per ordinary share in respect of the 2011 financial year. This represents an increase of 63% over the prior year.
Subject to shareholder approval at the Annual General Meeting to be held on 23 May 2012, the dividend will be paid on 1 June 2012 to shareholders of record on 11 May 2012. The dividend will be paid in sterling.
During 2011, the Company returned $16.3 million in dividend payments and bought back 7.8 million shares in the Company, representing an outlay of around $47.5 million.
We continued to invest in technology, particularly where it supports our platform strategy, and we are in the process of developing 22 new products. One important initiative is the move of our core intellectual property (IP) to the 40nm process node and we were pleased to launch our new-generation SiRFstarV location product in November 2011. After some delays, we are pleased with the progress being made on our CSR9800 Wi-Fi/Bluetooth connectivity chip.
In September, James Collier, one of the founders of CSR, stood down from his position as a non-executive director to concentrate on a new entrepreneurial venture. On behalf of the Board and Company, I would like to thank James for the contribution he has made to CSR, in creating and shaping a company that is a world leader. From our first days in 1998, he has played an important part in the continued growth and diversification of CSR, right up to the present and our completed acquisition of Zoran. We wish James well for the future and the continued success of his new venture.
Following the completion of the acquisition of Zoran, Dr Levy Gerzberg was appointed to the Board as a non-executive director effective from 31 August 2011. Levy brings a wealth of knowledge, industry contacts and insight of the markets and technologies in which Zoran has been a world leader. We look forward to benefiting from his contribution to your Board.
2011 has been a year of challenge and change, as we have re-positioned the Group following our acquisition of Zoran and to reflect the wider business and economic environment. We are very aware of the impact of these changes on our employees which has resulted in some people leaving us. On behalf of the Board, I would like to record thanks and appreciation to all the people from CSR and Zoran who have shown immense professionalism over this period.
CSR’s objective remains to grow and develop our business by focussing on a series of key platforms, which we believe will enable us to generate sustainable revenues with good margins. We also intend to control and manage our costs as we navigate a tough economic environment for electronic consumer goods. As part of that commitment we intend during 2012 to continue to maintain strong financial discipline, while investing efficiently for the future.
While 2011 has been a challenging year for the company, it has also been a year of positive transformation. The combination of our people, the depth of our portfolio and the ongoing execution of our focus on platforms, gives us confidence for the future.
Ron Mackintosh,
Chairman
17 February 2012
