Kudelski SA (KUD) Earnings Call Transcript & Summary

So ladies and gentlemen, it's a great pleasure to welcome you for this annual 2019 results press conference. And I would like first to start to welcome you, but also to just present a few members of our executive team that are with us today. We have first, Mauro Saladini, the group CFO. We have Nancy Goldberg, if you can just stand, our new Chief Marketing and Sales Officer, in-charge of Digital TV. We have, just close to, Dave Luken, the CEO of SKIDATA. We have also Andrew Howard, he's CEO of Kudelski Security, plus we have a number of our executive team. Having said that, and I would first give you a few highlights before passing the floor to Mauro. Last year was not a great year, but at the same time, was extremely important in terms of efforts done to get something better for 2020 and beyond. So the total revenue and other operating income have been at USD 827.3 million and EBITDA of USD 81.4 million excluding restructuring costs. Now one element that we have really focused on in 2019 was to do all the painful work in order to be in a better shape for the future. This means some restructuring, but this means also some transformation that has been quite instrumental. We have also done some reduction in operating expenses of USD 50.6 -- USD 56.8 million and Mauro will give you some extra information regarding that. Now if we look at the revenue and the business as such. In Digital TV, we have had a decline in revenue, but it was a very contrasted situation, between advanced economies where we have had a pretty good stability and a good profitability and a little bit more challenging situation in emerging economies with Asia having difficult time, especially in second half, and Latin America that was also not performing as well as some may expected. Now in cybersecurity, we have really seen a shift to high added-value activities. And one of the best example of the evolution is our performance in the European market. Fundamentally, a 30% year-to-year growth. We have not only been able to progress our business, but all this progress has been done with high added-value solution. Now in the U.S., the situation is slightly different and that is due to the fact that we have part of the business that -- the business of resell that we have acquired to get a privileged access to the U.S. market. But similar to Europe, we have, at the same time, a high added-value business that is growing, and we have resell business that is more challenged, simply because you have this transition between on-premise solutions to the cloud. IoT, we're still in a very early stage with a growing recognition of our solution, and I will just give you some insight about one of our solution here that we are deploying. We have completed a first set of restructuring measures in Public Access with one more time, a very clear goal to get the transformation ongoing. And if I'm looking at the overall idea is to get a situation where such positive synergies, the possibility to cross-sell between different segments is really much higher than what we have had in the past. Just simply summarized on one slide, revenue and other operating income, $827.3 million in 2019 and EBITDA of $81.4 million. Now the guidance for 2020, EBITDA between $70 million and $90 million, and that will be no restructuring costs. So basically, that will be the guidance that is as is, and we expect to have a positive net result. At the same time, for this year, we proposed at the AGM a distribution of dividend, half in terms of taking from the reserve and half as a true dividends for an aggregated value of CHF 0.10 per bearer shares. Now I will just pass the floor to Mauro for the detail regarding the financial situation. Thank you.

Good afternoon, and welcome again. 2019, group revenues in constant currency were down 8.4% from the previous year as we substantially reduced the group's cost base, we improved EBITDA, ex restructuring cost by $5.4 million to reach $81.4 million. The overall picture by segment shows lower Digital TV revenues, offset by a significant reduction of the segment's cost base resulting in a materially stable EBITDA ex restructuring cost of $114.4 million. Cybersecurity has grown to become a meaningful contributor of revenues for the group. 2019 cybersecurity revenues, however, were lower compared to the previous year, while gross profit increased as we are shifting our business mix from the lower-margin technology resell to the higher-margin advisory, managed security services and proprietary technology businesses. In the last year, we continued to ramp up investments in the IoT domain, mainly for the development of a secure IoT platform. We also won an initial portfolio of customers who have started to generate initial revenues, and we started building a funnel of prospects. Public Access delivered disappointing results, missing top line targets and incurring $17.5 million one-off costs related to the rationalization of SKIDATA operations and to various asset impairments. As already communicated in our December update, we launched a restructuring plan to restore profitability, targeting a reduction of SKIDATA head count in the order of magnitude of 10%. For 2020, we aim for a stretched goal of improving reported EBITDA for the segment in the range of $40 million. As of January 1, we adopted for the first time IFRS 16, the new leasing standard. The new standard requires leases to be recorded on the balance sheet -- on the asset side of the balance sheet. The main item impacted by the new standard is right-of-use assets with an opening balance sheet as of January 1, 2019, of $53.1 million. On the liability side, we recognized $39.4 million of long-term lease liabilities and $16.8 million of short-term lease liabilities, and that as of January 1. For the full year, $16.2 million of operating lease costs previously recognized as operating expenses are booked -- are now booked as depreciation. In the cash flow statement, $17 million reduction of lease liabilities previously recognized as operating cash flow are now booked as outflow from financing activities. In 2019, group revenues were down 10.8%, translating in a constant currency decline of 8.4% to $810.2 million. As mentioned, the Digital TV segment was the main driver with 13.8% lower revenues, 12.1% in constant currency compared to the previous year. Traditional Digital TV market continues to shrink as pay-TV operators are shedding subscribers. In addition, we didn't book any material IP licensing revenue in 2019. The cybersecurity segment was down 8.4% in constant currency, driven by a shrinking technology resell business. The decrease is due to the shift of business mix I mentioned in the introduction. IoT is still in an early development phase, generating small revenues in our -- mainly in our IoT Center of Excellence and initial revenues from our secure IoT platform. And finally, reported Public Access revenues declined by 7.9%, a 4.3% reduction in constant currency, reaching $339.2 million, driven by poor performance in the North American and in the Australian markets. Net revenues for the year decreased by 10.8% to $810.2 million. Other operating income increased by $5.6 million to $17.1 million, including, in particular, R&D grants at SKIDATA, the provision of services following an M&A transaction, the sale of working capital items and an earn-out related to a prior M&A transaction. Margin after cost of material, in relative terms, decreased from 70.6% to 69.1%, mainly reflecting a shift of revenue mix from higher-margin Digital TV to lower-margin Public Access and cybersecurity. In 2019, we reduced personnel expenses by $40.5 million, in particular through a significant reduction of Digital TV's head count, partly counterbalanced by ongoing personnel cost increases at both SKIDATA and in cybersecurity. Compared to the end of the previous year, we reduced group head count by 224 full-time equivalents, reaching 3,520 employees at the end of 2019. Digital TV, as mentioned, was the key driver with a reduction of 290 FTEs. Group head count in Asia decreased by 93 units, driven by the exit of employees previously engaged in SmarDTV-related activities. SmarDTV is the activity we sold in 2018. These employees were largely transferred to the buyer of the SmarDTV business in the first half of 2019. In addition, we further reduced head count in high-cost European countries, including, in particular, France, the U.K., Norway and Switzerland for an aggregate reduction of 134 full-time equivalents. Other operating expenses decreased by $41.2 million with building and infrastructure, down $16.3 million. This reflects the IFRS 16 impact I just described. Admin expenses were down $4.4 million, and we experienced a $4.7 million reduction of legal and consulting expenses. So overall, for 2019, we reported an EBITDA of $40.6 million, improving by $4.8 million from the previous year. Reported EBITDA includes $40.8 million of restructuring and one-off costs, EBITDA net of such cost was, as mentioned, at $81.4 million, an improvement of $5.5 million compared to 2018. Depreciation and amortization increases by $12.8 million, mainly reflecting the impact of the newly introduced IFRS 16 standard. Finally, the reported EBIT loss for the period is at $15.3 million, an $8 million increase compared to 2018. As mentioned, in 2019, we completed additional restructuring measures, resulting in a $56.8 million reduction of the group operating cost base. You see here how we get to this $56.8 million, starting with 2018 operating expenses at $613.1 million. This number -- the 2018 number includes $40.2 million of restructuring and one-off costs for 2018. In addition, exchange rate effects reduced the comparable 2018 cost base by $15.7 million. This means that net of these adjustments, the relevant 2018 operating cost base was at $557.2 million. In 2019, we incurred $23.4 million of restructuring and rundown cost within the Digital TV segment. In addition, we incurred $17.5 million one-off cost at SKIDATA in relation to the rationalization of SKIDATA operation and with impairments of inventory and receivable items. $9.8 million of these one-off SKIDATA costs are booked as cost of goods and $7.7 million are booked as operating expenses. So the net cost reduction achieved from the restructuring program amounts to $56.8 million, largely in the Digital TV segment. Key restructuring measures we implemented to achieve this cost reduction include the integration of the formerly separate CAS and UEX R&D organization into a single consolidated unit; the streamlining of the product portfolio; a custom development approach to product areas lacking critical mass; the full integration of Conax and NAGRA operations, and a further rationalization of Digital TV's global presence. These measures result in net group operating expenses ex restructuring and rundown cost of $500.4 million for the full year 2019. As André mentioned already in the introduction in 2020, we do not expect any restructuring cost. Say differently, any potential restructuring cost will be taken in operating expenses. We're not going to report any EBITDA ex restructuring cost in 2020. Let me now give you an overview of the performance by segment, starting with the Digital TV segment. Digital TV, as mentioned, maintained a very strong profitability in 2019. Top line development in our core Digital TV business varied by region, with a strong resilience in Europe and the decline in both the Americas, in particular, in Latin America and in Asia. On the positive side, our cloud-based platform and our watermarking product set are gaining traction. We secured new deployments with large operators such as Vodafone, Discovery, Altice and CANAL. European Digital TV business posted a 6% revenue decline, largely driven by currency effects. At constant currency rate, European revenues were down 2.2%. Most of our large European customers maintained a stable level of revenues. And as we discussed in previous presentations, we extended our partnerships with core customers entering into multiyear agreements that result in a stable revenue stream. American DTV revenues were down 18.1%. In 2019, we didn't generate any material IP licensing revenues. In North America, the erosion of DISH Network's subscriber base is actually tapering off. DISH announced their results last week. You may have seen that in the fourth quarter 2019, DISH satellite lost 100,000 subscribers compared to a loss of 381,000 subscribers in the fourth quarter of the previous year, so in the fourth quarter of 2018. On the other hand, in South America, Telefónica announced in November of 2019 that they would exit from all South American operations with the exception of Brazil. In line with this decision, Telefónica had already stopped acquiring satellite TV subscribers since the beginning of last year, resulting in a double-digit million revenue decline for our South American operations. Asia Pacific and African sales are down $19.2 million to $76.7 million. The Indian market, in particular, is facing overcapacity and struggling with competitive pressure in a crowded space of satellite and cable operators. In 2019, revenues also in the Australian market drove the region's overall sales decline. On the profitability -- from a profitability standpoint, Digital TVs gross margin remained highly resilient at 88.5%, and the segment generated $114.4 million EBITDA ex restructuring cost, which represents a $2.5 million improvement compared to the previous year. Excellent cost control translating in a $59.3 million OpEx reduction net of restructuring cost was the key driver to maintain high profitability in spite of a lower top line. Operating income ex restructuring cost for the segment was marginally down $1.2 million from 2018. For this year, for 2020, we expect digital revenue decline to slow down, while operational expenses would remain at roughly the same level as in 2019. As a result, we expect a lower segment EBITDA. And as mentioned, in 2020, we are not going to book any restructuring cost. Let me now move to cybersecurity. Gross revenues in this segment were $13.9 million lower compared to the previous year at $137.1 million. The application of IFRS 15, the revenue recognition standard, results in the recognition of revenues from third-party support contracts, software subscription and cloud-based services on a net basis. Hence, net recognized revenues were at $86 million, down 8.8% year-on-year. Very different picture for the 2 regions with the European region maintaining its very strong momentum, growing net revenues to $16.5 million, up 30.2% year-on-year, benefiting from a strong momentum, not only here in Switzerland, but also, in particular, in Germany and in France. The Americas, on the other hand, were down 15.4% to $69 million. The overall revenue decline reflects the shift of business mix from the lower-margin technology resell to the higher-value business lines, advisory, managed security services and proprietary technology. In particular, our managed security offer continues to gain strong traction, growing by 34% compared to 2018. The revenue shift also resulted in a segment gross margin actually increasing. In relative terms, it increased from 41.5% to 45.9%. In absolute terms, gross profit was up to 1.1% to EUR 39.5 million. Segment EBITDA was down $0.7 million to a $22.1 million loss and the EBIT loss for the year was at $27.9 million. For this year, segment revenues are expected to revert to growth compared to 2019, and we also expect a continued improvement of gross margins. This should lead to a reduction of the EBITDA loss compared to 2019. IoT as you certainly remember, in 2018, we carved out our IoT activities into a separate segment to reflect the significance of the investments in this domain. Last year, we extended the reach of our IoT security platform, launching both on-premise and on leading cloud platforms, including, in particular, AWS and Azure. We also continued to expand our partners' ecosystem. For example, joining Deutsche Telekom's nuSIM initiative and working with STMicroelectronics to make our Root of Trust available on their STM32 family of microchips. In terms of numbers, for the full year, we grew our net revenues to $2.8 million, but we also increased our full year EBITDA loss by $1.7 million to $21.2 million. For 2020, we expect to more than double revenues without increasing our OpEx base. And this results -- and this is expected to result in a reduction of our EBITDA loss. Public Access, as mentioned, delivered a weak 2019 result, with revenues down year-on-year and with a net operating loss. Again, different picture by region, with European revenues growing by 8.8% in constant currency, good growth at 8.8%, driven by a growing top line in markets, such as Switzerland and Germany. In real currency, these are the numbers you see here. European revenues grew by 3.8%. The U.S. market, on the other hand, several customer projects were affected by operational delays pushing deliveries into 2020. In addition, the operational integration of subsidiaries acquired in prior years is still affecting SKIDATA U.S. operations. So U.S. revenues were down by $16.1 million, driving the bulk of the regional decline. The SKIDATA U.S. entity booked a double-digit million operational loss. The first set of measure, including, in particular, a simplification of management structures, the integration with SKIDATA group's ERP and supply chain tools, a stronger management of the project portfolio, and the streamlining of overhead functions has already been completed. These measures are expected to lead SKIDATA operations to come back to growth and profitability already this year. Asia Pacific and African revenues were also down by $17.9 million, with, in particular, the Australian market, driving $12.7 million -- $12.6 million, sorry, of this revenue decline. Further drivers of the weak 2019 in this region were distributors in Western Asian areas and Russia. Cost rationalization measures are underway to ensure that the regional cost base is adjusted in line with the lower top line. So SKIDATA gross margin was down from 57.7% to 56.6%. This decline, however, includes a $9.8 million one-off negative cost impact mainly from various impairments that affects cost of material. So net of this effect, gross margins were actually up compared to the previous year. The operational issues identified and corrected during 2019 resulted in a $7.7 million one-off operational expense, including costs related to the rationalization of SKIDATA operations, the consolidation of regional entities and the impairments of select receivables and contract assets. So segment EBITDA net of these one-off costs impacting both cost of material and OpEx was at $25.4 million, while EBIT, net of one-off cost was at $7.3 million, down $3.3 million from 2018. Reported EBITDA for Public Access was at $8 million, representing a $13.1 million decline compared to 2018. So with the ongoing restructuring program, we're consolidating local functions into regional ones, reengineering selected core processes, reducing overhead position and rationalizing low-yield activities. These measures are expected to materially reduce SKIDATA operating expenses, restoring double-digit EBITDA margins. Moving on to the -- or moving back, I shall say, to the group P&L. Under the operating income line, you see $10.2 million interest expenses, $0.2 million lower compared to the previous year. While the $1.7 million net finance expenses are $1.4 million higher. Income tax expenses of $13.3 million include a one-off effect related to the transfer of entrepreneurship from Conax to Nagravision. Overall, we report a $38.6 million net loss compared to the $20 million net loss of 2018. On the balance sheet, total noncurrent assets decreased by $0.9 million to $695.8 million. Tangible assets decreased by $1.4 million to $126.8 million and intangible assets were down $24.3 million to $407.4 million. This reduction of intangible assets is driven by $8.9 million lower customer lists, trademarks and brands, $7.4 million lower software and $6.1 million lower technologies. These reductions, at the -- on the one hand to the depreciation of assets capitalized with the acquisition of Conax, and on the other hand, also to reduce investment levels at Nagravision. As we discussed previously, with the introduction of IFRS 16, we recognize right-of-use assets related to leases. You can see here at the end of the period, right-of-use assets amount to $41.5 million. Current assets, inventories were up $5.6 million, driven by a $5.4 million increase at SKIDATA. Trade receivables decreased by $42.7 million. SKIDATA started to accelerate collections, reducing net receivables by $19.9 million compared to the end of the previous year. As a reminder, contract assets, that's the next item here on the list of highlights. Contract assets include amounts due from clients for projects recognized on a percentage of completion basis. Out of the $58 million total contract assets, $55.2 million relate to SKIDATA. And finally, at 64 -- at $74.6 million, our cash position at the end of the period was $11.4 million lower compared to year-end. On the liability side of the balance sheet, you see that total equity decreased by $39.7 million, mainly reflecting the negative net income for the period, positive other comprehensive income and a minus $9.3 million currency translation adjustment. Total noncurrent liabilities increased by $2.3 million. Long-term financial debt is $5.2 million lower, while the newly recognized long-term lease obligations, I've mentioned before, amount to $28.5 million. Total current liabilities decreased by $6.9 million to $303.6 million, with short-term financial debt increasing by $9.6 million and the new short-term lease obligations at the end of 2019 at $15.5 million. Last slide on financials, on the cash flow statement. Actually, with a significant improvement compared to 2018. Cash flow from operating activities in 2019 was at $34.2 million compared to a negative a $4.7 million in the previous year. So while the net loss was higher than in the previous year, the $58.8 million reduction of accounts receivable is the main driver for the improvement of operating cash flows. In particular, cash flow generation improved in the second half, delivering a positive cash flow of $36.2 million compared to a cash out of $2 million in the first half, so plus $36.2 million operating cash flow, first half minus 2 -- the other way around, plus $36.2 million in the second half compared to minus $2 million in the first half. The $14.9 million of cash used in investing activities represents a $2.9 million reduction compared to the previous year. Again, an improvement we see here -- an improvement in the second half compared to the first half. Second half, where we further reduced CapEx with a cash out of $4.8 million compared to a cash out of $10.1 million in the first half. And finally, net cash used in financing activities was at $30.4 million compared to cash inflow of $39.4 million in the prior year. The cash outflow includes $17 million of payments of lease obligations. That's the impact of IFRS 16 I mentioned in the introduction and $5.5 million dividends to Kudelski SA shareholders. And with that, back to André.

Thank you, Mauro. I'd just like to give you some insights on what we're doing within the group. So first element, important to understand that we have 4 different segments that have not automatically the same level of maturity. As we have seen, digital television has gone through an important transformation and cost reduction and is now back in a situation, that can look at new opportunity to develop business and I will come later on, on this point. We have Public Access, where we have taken the decision during second half 2019 to really accelerate transformation and cost reduction in a way to get a much better profitability and a sound cash flow generation. Two, segments that are in development phase, cybersecurity on one side and Internet of Things in the earlier stage. Now if we look at top-down group transformation. We have few elements that we consider as important: reduce our cost to serve that has been especially true for Digital TV and now is also very important for SKIDATA; get closer to our main customer, to give the opportunity to sell and to offer new solution; maintain our pace of innovation, knowing that we're living in a fast-changing world; and deliver excellence because in all, this transformation and restructuring, we have been able to continue to serve our clients in a very professional and efficient way. Now on top of that, there is one element that we have really insisted at the group level, is to improve the synergies between the different entities. And when we talk about synergies, the main goal is to be able to cross-sell solution between different entities. And we have now the first, how to say, positive results by having, for example, cybersecurity offering that we have closed with few important Digital TV clients. So just to say that's an example of how we see these new synergies. Now if we look at the group level, what we are trying to achieve. First, we empower our customers to secure and grow the business for the long term. And we have 2 elements here. One that is a common element at the group level. And after the different initiatives to develop our business. If we look at the group strategy, we have, first, a long-term portfolio management where, what is key is to prioritize long-term performance and value creation. We continue to improve our operational efficiency. We work on the balance sheet, but also carefully select investment opportunities. At the same time, one of the key elements is to establish leadership in growing markets like the cybersecurity initiative and IoT. We take also care of our business ecosystem, knowing that the sustainability is not just when we talk about great things, but also about having sustainable solution to better serve our clients. It's also building long-term partnership, and when we have relationship with clients, it's not just for 1 year. We have several relationships that are over 20 years old. We also come with new innovative solution for our clients in a way that we help them in the own transformation. If we look what does it mean in Digital TV. So we have seen for the last few years that revenue of Digital TV were under pressure. Now we have come to a situation where we have done our homework in terms of cost structuring, in terms of transformation. So we are looking at opportunity to develop new form of business and to grow in specific parts our business in Digital TV. As an example, we promote an innovative consumer-centric culture. We explore value segment and -- that are adjacent to the video value chain. We continuously improve and manage operational excellence agenda and we fortify our leadership position through selective investment to develop new solutions. I give you one example, with our analytics platform insight, we are able to bring unique value to our clients that are allowing them to better upsell services or to control better the churn of the subscribers. In Public Access, you have some similarities. First, and that is a fundamental objective, is to enable digital transformation of our customers. To transform also SKIDATA for being more agile, to increase profitability and cash flow generation through synergies, this time synergy in terms of cost and develop breakthrough solution using new technologies. For cybersecurity is to expand the position as best-in-class trusted adviser. It's to focus on emerging value-added technology, grow managed security services, accelerate IP generation through R&D and innovation, and promote the concept of secure-by-design approach knowing that a number of the issues that we find in cybersecurity are just a result of solutions that were absolutely not designed to be secure from day 1. IoT to deliver secure by design solution, and here, it's really an element where we have really worked from day 1 to have something that is secure; develop agile, secure and industry-specific IoT solution, I will show you a few -- one example; address new markets through selective partnership, knowing that in different verticals, we are working with selected partner in order to be able to better serve this market; and reach a critical scale as soon as possible, one -- that is one of important priorities. If we look now specifically at Digital TV. Even if it's a challenging market, we have a real contrast. On 1 side, in advanced economies, we have been able to maintain a very good level of revenues and not only that, but we have been able to renew contracts for the long term, but also to come with new solutions that are upselling of new concepts. Now overall, we have been able to be a real partner of choice to some of the most important group in this field like the Telefónica, Vodafone, CANAL+ or DISH in U.S. In the element of new solution, we have a combination between 3 dimensions. One is secure device, our core business in terms of security; OpenTV as a solution for user experience, especially in the back end; and Insight as a platform that is combining big data and artificial intelligence in a way to support our clients in better handling their own clients. And this combination is allowing us to see the future in a much brighter way that we have seen it maybe 2 years ago. So fundamentally, a new positive impulse here is really perceptible. Public Access so we know that last year was challenging. Having said that, we have multiple innovative solution that -- not only in the pipeline, but also delivered. For example, SKIDATA is the first to market to Apple and Google NFC ticketing solution, facial recognition launched in Q4 2019. It's not the first time that we do some elements to recognize who is behind the gate, we have also some MasterCard alliance collaboration, authentication platform from [ France ]. Pilot as a solution in Lisbon and leisure solution that are including SKIDATA in ticketing and business intelligence for small leisure facilities. So just to say that in a fast-moving world, we are coming with innovative solution. But at the same time, at SKIDATA, we are improving profitability and cash flow generation. And for that, a transformation program in 3 key dimensions. One is to be more looking at region rather than just countries. So fundamentally, finding cost synergies in region in a way that we avoid duplication, while at the same time, improving the quality of delivery through operational excellence. But also improving processes, generating more consumer value; increasing speed, both in terms of delivery and as a way to react; and reducing the overall cycle time that has also an impact on cash generation. And finally, product efficiency to improve time to market from R&D to delivery; focus on consumer needs and quality as important driver. Kudelski Security, we are focused on value and differentiation. So fundamentally securing company and government infrastructure, IT network, data and devices. Our positioning is really unique. The success from our ability to be mission-critical to our customer, like, for example, in the electrical grids, trusted partner to board and the executive of our customers, so not basically just addressing the IT department and full range of solution with an approach that is end-to-end. Now if we look at the different part of Kudelski Security, and that is also explaining why in term of top line globally, it was not looking so great in 2019. We have advisory services, technology resell and integration, that is mainly a legacy business that we have in the U.S., managed security services, innovation and R&D. While in Europe, we are active in advisory service, managed security service, innovation R&D. And these are really our focus in term of growth. In the U.S., we have an important part of our business that is in technology resell and integration. This part of the business is suffering from 2 elements: first, the migration from on-premise to cloud, that is creating less demand in this field. But also, it's a place that is pretty competitive in term of margin. And so basically, that's not where we see the real potential. So said in a different way, we are focusing on the elements that are high-added value, so we have a growth in this field and it's more challenging in the resell business. At the same time, and that is one of the blockbuster in term of not only strategy, but where we are really successful is the managed security service. They are gaining traction, but not only the high-added value, but also, here we are talking about multiyear contracts that are allowing us really to get an interesting backlog going forward. At the same time, and that is one small -- the element related to managed services, we get recognition from the most renowned -- how to say, analysts in the sector, Gartner that has put us in the top 10 key player for Europe, Forrester, as a key players worldwide, and you have Frost & Sullivan [ in ] MSSP, that also have recognized us as key players. So going forward, this is also helping us in the way to get new market shares. Internet of Things, one element is that we have fundamentally an approach with a center of excellence in term of design, security platform that we deliver and manage services to sustain the business, including the full life cycle management. And one example of a solution that we have delivered is an element where we secure a system, it's a smart tag. Fundamentally, you imagine a tag that you can just adhesive -- tags that you can glue on any device or any box that is able to track some goods, including temperature, moisture, date and time in a way that you can really control if the chain of cold, for example, is respected. We are talking here about some things that is very cheap, developed, how to say, delivered in very high volume. We're talking about million of, how to say, such tags, and that is something that is getting traction in the U.S. market. So we are providing all the security platform for that. Now this technology starts to be ramped up, but just to say, that's just an idea of how our secure IoT solution can get traction in the market. So that was the element I was interested to share with you as well as Mauro for the financial part. And now I think the best is to go through the Q&A, if you have specific question regarding this result. Thank you for your attention, and the floor is yours. Thank you.

Okay. There are few questions directly from the web. The first questions are from Mr. Robin Schmidli from Independent Credit View. I am interested in the restructuring, e.g., what costs are you expecting in 2020 and what results recurring should result out of it? And what credit facilities are available amount here? And are they committed or not?

Mauro?

Yes. We mentioned already that we do not expect any restructuring cost for 2020, at least no restructuring cost that will be booked and presented separately from operating expenses. So any cost of any restructuring activities will be booked as operating expenses and is included in the guidance. The guidance, as André mentioned, is that we're going -- we're targeting an EBITDA of between $70 million and $90 million, and there is no adjustment for restructuring costs. In terms of credit facilities, we have available credit facilities that are currently not used today in different affiliates and at a group level. We're not going to go into the specifics of how much these credit facilities represent, but we have several -- we have, say, a large unused set of credit facilities at a consolidated group level. Other questions?

I have more questions from Mr. Andreas Müller from ZKB. In the December warning, you indicated $20 million to $25 million restructuring charges for Public Access. Now you recognize $17 million. Why were these restructuring charges lower? And will there be a chance that the rest will be recognized in 2020? And what will be roughly the OpEx base for 2020?

Okay. And on the first question, we estimated a range of $20 million to $25 million restructuring charges, the -- and that was a rough estimate. We now recognized $17 million. We do you expect some minor charges to be recognized in 2020, and as I've mentioned before to be included in our operating expenses. So the estimate was accurate, the range was accurate, and that also gives an indication in terms of what you can expect for 2020. So it's a low single-digit million. But again, that will not be booked and reported separately. It's going to be integrated in operating expenses. In terms of the rough cost base for 2020, I've mentioned in the financial presentation that we are starting with a comparable 2019 base of $500.4 million, and I have mentioned that we do not expect for Digital TV, any cost reduction for 2020. We do expect cost reductions at SKIDATA. In the Public Access segment, while we expect KS, so our cybersecurity business to grow and hence to increase the OpEx base to support that growth. And finally for IoT, we expect an OpEx base in line with 2019. So the overall picture shows that, I mean, if you put all these factors together, you should expect an OpEx base that this order of magnitude in line with what you've seen ex restructuring costs for 2019.

More questions from Andreas Müller. On Digital TV, what could be a realistic revenue decline rate 2020 in the years to come? And what you think -- would you think you can keep the profitability medium term? And what is a realistic EBITDA margin medium term?

So here on the first question, we expect revenue decline to taper off in 2020. Between 2018 and 2019, we still had the base effect of IP licensing revenues that we booked in 2018, and that didn't get booked at any material level in 2019. So overall, we do expect a decline in the low single-digit range for 2020. Structurally, as André mentioned in the presentation, we do have product lines that are growing and that are starting to become material in the overall context of the Digital TV segment. And as such, we do expect revenues to stabilize in the Digital TV segment. That should lead to a stabilization also of the EBITDA margin. As mentioned for 2020, we do expect a lower EBITDA compared to 2019. But structurally, we expect to then be able to maintain the EBITDA margin that you've seen in the past few years. And with that, I think I hopefully answered the question also whether we can keep profitability in the medium term.

Now I would just say that while we see still for 2020 a decline, but less important in DTV. At the same time, we have current plan to revert the trend. And so fundamentally, we have some real opportunity to come with some new solution that are giving a real potential of growth. I give you just few example of elements that get real traction, like, for example, our analytics platform, and this type of solution are especially, how to say, promising in advanced markets, place where, by getting a more smart approach to subscriber of our clients can create a value that is really important, and we can get share of this value creation. Now we have other plan that are now in progress, where we can get some future growth. It's too early today to confirm what will be the level of this element, but there is an important activity ongoing to basically come with such positive trend. And if I would have to compare element 2 years ago with the current situation, 2 years ago, we were seeing as a priority to reduce our cost base in Digital TV. Today, our priority is to execute our growth initiatives and to come with elements that bring us a completely different dynamics going forward in Digital TV. It's not the exact same Digital TV as 2 years ago. But fundamentally, there are new trends where we have real competitive advantage. And I must say that activities that we have, and here, I'm talking about activities between our Chief Operating Officer, Morten Solbakken, our CMO, Nancy Goldberg or myself to look at opportunity to develop the business, there is a lot of things ongoing. I do not want today to put figures that are fully quantitative on that, but basically, the dynamics is pretty interesting here. So fundamentally different from the mood that we have had 2 years ago.

I have last question from Andreas Müller. What would be a realistic growth rate for cybersecurity and Public Access in 2020? And in cybersecurity what was the major driver behind the good growth in Europe next with the mix shift to added value services? And what type of client you gained in Europe?

So I will start with the question of cybersecurity, by saying that we have in reality, a combination of 2 element. On one side, we have high-added value business that is growing 2 digits in terms of percent. We have, at the same time, some challenges, and that is just structural in the resell business. And so overall, between the double-digit growth of high-added value element and some challenge in the resell, we consider that we'll post a growth in 2020 for cybersecurity. Now if we look at what is happening in Europe, in Europe, we don't have this interference with the legacy business of resell. And that is really showing in, I would say, in a pure-play example of how the business of cybersecurity that is our organic grown business is evolving. And what is interesting, not only what we have achieved in 2019 is a good example of what is happening, but we see also a very strong traction with the quality of potential clients, it is extremely interesting here. I would -- maybe ask to Andrew Howard to give maybe 2 or 3 comments regarding the cybersecurity business, and I will come back after on the Public Access story.

Regarding our cybersecurity business in Europe, I think we have seen tremendous demand for our high value-added services, primarily in the managed security services arena. This is where we provide security services and security monitoring capabilities to large enterprises. We've seen traction here in the Swiss market, both in the French-speaking and the German-speaking portions market as well as our -- the neighboring countries around Switzerland. We've seen primarily growth here and one of the major reasons for growth around that business is our unique ability to provide very high-value, low false-positive security monitoring services across a wide array of enterprise, information technology, operational technology environments, which is in high demand by customers that have manufacturing SCADA, programmable logic controller or other types of nontraditional IT environments that are now connected to the Internet. We view our ability and have seen traction with our ability to monitor those environments and provide very high-end security services, and we're excited about the potential market moving forward into 2020 as these capabilities are -- continue to receive recognition from the analyst community but also regular requests from clients in the market. And I'll pause there.

And I would just add that we see a real traction with pretty large clients coming to see us. And not only that has results of clients that we visit, but the reference of our existing client is bringing us number of new prospects, it is pretty impressive. Now talking about the growth in Public Access. So we expect some growth this year, but I must say that is not our absolute first priority. The first priority is really to achieve transformation of SKIDATA in a way that we improve profitability and cash flow generation. Now the market demand is here. So once we have addressed this question of -- through transformation and cost reduction, the market is ready to take the, how to say, opportunity to grow our business forward. But we would not like to just consider growth as the first priority and to not look at profitability and cash flow generation.

Crédit Suisse, [ Alexis Nadine ]. I have one question about the cash flow from operating activities. We see a quite sizable improvement of $59 million of account receivables whereas a decrease of $26 million for account payables. How do you explain this large improvement of your AR? And what is the sustainable level of this position?

In terms of accounts receivable, we improved collection across the border. At SKIDATA, we improved receivables by $19.9 million. Absolute levels, however, are still high in spite of the seasonality of SKIDATA, so we think we can do better than that. And we think there is further room for improvement. In addition to SKIDATA, so to Public Access, we further improved receivable collection, in the Digital TV business, further reducing our outstanding receivables. Here, I would say, we are in a situation that is close to the -- I would say, to the potential optimal situation in terms of receivable collections. I don't see many opportunities for further improvement. In terms of payables, I would say, nothing structural. The minus you see in the cash flow statement just relates to supplier invoices that we paid in 2019. I would say that is more of an opportunistic approach whenever we see opportunities to get savings by paying quicker. We take advantage of such approaches. I would -- I don't see any structural development in terms of payables development. What in terms of expectations for 2020, we expect a further improvement in terms of working capital management. There is one question you haven't asked, so I'll answer it anyway. The third factor in terms of working capital is actually inventory. As mentioned in the presentation, inventory was up $5.6 million, largely driven by SKIDATA, and that's another area where we do see, again, specifically for SKIDATA, a potential improvement, and we do target an improvement in 2020.

No other questions?