Focus on verticals has positive impactKey Developments in the first half of 2013:
- Slight drop of 1.6% in revenue. Revenue was up 4.8% when adjusted for the reduced number of working days in the first half of 2013, the sale of the Neustadt activities in 2012 and exceptional project results in the first half of 2012.
- The operating result from ordinary operations rose to € 1.9 million, from € 1.4 million in the first half of 2012. Adjusted for the above-mentioned items, the operating result from ordinary operations increased by € 1.8 million.
- Measures to reduce indirect costs are having a positive impact. As a percentage of revenue, indirect costs dropped to 21%, from 24% in the first half of 2012.
- Cash position increased by € 0.8 million to € 6.7 million compared to € 5.9 million at the end of 2012.
- Net profit was € 1.3 million, compared with a loss of € 0.3 million in the first half of 2012.
|(in millions of €)||H1 2013||H1 2012||Change|
|Revenue Added Value||35.2||35.2||(0.0)|
|Operating result from ordinary operations||1.9||1.4||0.5|
|Earnings per share (*)||0.14||(0.04)||0.18|
(*) Based on the average number of outstanding ordinary shares.
Carlo D’Agnolo, CEO of ICT Automatisering N.V.: “Our current strategy, with its focus on verticals, has already had a positive impact on our results in the first half of 2013, despite a market that continues to be dominated by reluctance to invest. The verticals Machine & Systems and Industrial Automation continued to book positive results, in line with the improvement seen in the first quarter. The Logistics vertical also recorded an improved result compared to the first half of 2012. The results of the Automotive vertical improved considerably and were positive in the Netherlands. The result in Germany also improved substantially, although this operation is not yet profitable. In the first half of the year, we introduced a number of additional measures to get this result to breakeven as quickly as possible. InTraffic delivered a stable performance, while the results of Improve Quality Service were disappointing. This was partly due to companies postponing training courses in view of the current economic climate.”
Notes to the results
Revenue fell by a modest 1.6% in the first half of the year, while revenue added value was virtually unchanged.
When adjusted for purposes of comparison, revenue in the first half of 2013 was € 39.6 million, compared with € 37.8 million in the first half of 2012, making the adjusted increase in revenue 4.8%.
Compared to the revenue in first half of 2013, revenue in the first half of 2012 was boosted by:
- Two additional working days compared to 2013, which had an effect of €0.5 million on revenue and profit;
- Realisation of revenue and profit on projects of € 1.1 million, for which the work was largely executed before 2012. This was largely related to the realisation of revenue and profit on projects that were launched well before 2012 and to the allocation of subsidies on projects that were completed prior to 2012.
- The sale of the Neustadt activities as of 1 December 2012 had an impact on revenue and profit. In the previous year, the Neustadt operation contributed € 0.8 million to revenue and minus € 0.3 million to the operating result.
The total number of employees at end-June 2013 was down 3.4% compared to end-June 2012. This was largely related to indirect employees. Personnel expenses, at € 25.3 million in the first half of 2013, were down slightly from the € 25.5 million recorded in the same period of last year. This was largely due to the lower average number of employees.
Other operating expenses came in at € 7.5 million, down 5.6% compared to the first half of 2012, as a result of lower rental costs.
The operating result from ordinary operations was € 1.9 million, up € 0.5 million from the € 1.4 million reported in the same period of last year. Adjusted for the above-mentioned three items, the operating result in the first half of 2012 would have been € 0.1 million. Adjusted for these items, the comparable operating result from ordinary operations was therefore € 1.8 million higher in the first half of this year. The increase in the result was due to improved productivity combined with reduced indirect costs. Corrected for the two fewer working days and the result on projects from previous years, as well as the sale of the Neustadt operation, the operating margin on revenue added value increased to 30%, from 28% in the comparable period last year.
As in the first half of 2012, ICT incurred one-off costs in the first half of 2013. In 2012 this comprised a provision for so-called onerous contracts. In the first half of this year, this was related to corporate development costs, representing in depth considerations of strategic options and included those incurred in preparation for the proposed merger with Brandfort.
The focus on the reduction of indirect costs is bearing fruit. This pertains primarily to rental costs and personnel costs at support departments. In the first half of 2013, indirect costs – excluding depreciation on tangible assets – came in at € 8.3 million, down 9% from the € 9.2 million recorded in the first half of 2012. Excluding the depreciation charges on fixed assets, indirect expenses came in at 21% of revenue in the first half of 2013, down from nearly 24% in 2012.
Taxes in the first half of the year totalled € 0.3 million. The tax burden is low due to a tax write-down of part of the inter-company loans between the Netherlands and Germany. ICT has not recognized any deferred tax assets from the German losses.
Net profit was €1.3 million, compared with a loss of € 0.3 million in the first half of 2012.
The cash position increased by € 0.8 million, despite the acquisition of 15% of the shares of Improve Quality Services for a total of € 580,000. This is the result of a refund of € 1.3 million on excessive advance corporate taxes paid in 2012. Current assets remained unchanged from year-end 2012, despite increased revenue, and dropped by € 1.1 million compared to a year-earlier, as a result of intensified outstanding debt collection.
In the period under review, ICT launched several initiatives to improve profitability. Various restructuring measures both in the Netherlands and in Germany have contributed to an improved balance between healthy levels of expertise and a focus on cost efficiency.
The Automotive vertical focuses primarily on Infotainment and Telematics, and besides this is active in body and chassis electronics.
In the Netherlands productivity was particularly high in the first quarter. Productivity did fall slightly in the second quarter, but despite this Automotive the Netherlands realised a strong turnaround in the first half of 2013 compared with a weak first half in 2012.
Revenue added value came in 12.1% higher thanks to a very strong increase in productivity.
Automotive Germany booked improved results compared with the same period last year. However, Automotive Germany is still operating at a loss. While the operating loss was lower in the first half of this year, it is still too high. ICT has therefore taken additional measures that have resulted in the appointment of new management with a focus on business development, and also the departure of a number of professionals who could not be deployed on a structural basis. The company also further reduced the number of indirect employees. It is still uncertain whether Automotive Germany will achieve breakeven in the last quarter of this year.
Turnover added value was 1.8% higher thanks to a slight improvement in productivity, but remains too low. Turnover added value was € 5.6 million, compared with € 5.5 million in the year-earlier period.
The Logistics vertical is largely active in port logistics and goods transport. Last year was a remarkably bad year for Logistics, but in the first half of 2013 we have seen some extremely positive developments that have contributed to a strong improvement in capacity utilisation.
The 11.5% increase in revenue added value was due to an significant improvement in the deployment of professionals. This included an improvement in deployment levels in port logistics, but a much stronger improvement in projects for clients with logistics as their primary process, amongst other things for putting applications in the cloud.
As a system integrator, the activities of the Industrial Automation vertical are focused entirely on the implementation of software for primary processes. These are largely processes in the field of water management, plant automation in the Food & Feed industry and the continuous flow chemicals sector. Despite the volatile demand in these sectors, ICT has in the past few years been extremely successful in water management for semi-government organisations. This vertical has performed well over the past few years.
The results booked in the first half of 2013 were also satisfactory. Revenue added value was up 2.5% due to a modest improvement in productivity.
Machine & Systems
The Machine & Systems vertical focuses on the development of total solutions, a significant proportion of which consists of embedded software, as well as hardware. This vertical has also built up specific expertise in Calibration, Performance and Diagnostics (CPD) that it offers to the market as outsourcing services. In addition, the vertical has invested structurally in the development and successful delivery of an end-to-end Connected Devices solution, which provides a total solution, from Embedded right through to the Cloud.
The relatively modestly sized Healthcare and Energy verticals are developing in line with expectations and the Healthcare vertical in particular has acquired a number of interesting contracts.
The demand in this vertical remains stable, although we are seeing pricing pressure on the individual secondment of professionals.
A drop of 2% in revenue added value despite a modest rise in productivity is due to the realisation of results on projects in the first half of 2012 from projects carried out or completed in previous years.
Improve Quality Services
Improve is active in the market for testing services, a segment that has in recent years proven particularly sensitive to reluctance to invest. Revenue and profit continue to lag, especially in the training courses segment.
The utilisation rate for seconded professionals and consultants was also slightly lower, but not as worryingly as in the training department. Revenue from secondment and consultancy of software testing experts was only very slightly lower, but revenue from Training fell by more than 30%. It should be noted that this is typically something that fluctuates in line with economic developments.
The focus of the InTraffic business is on the public transport sector. A significant portion of InTraffic’s revenue is generated by development and maintenance activities for ProRail. The business booked higher revenue and profit in the first half of 2013. InTraffic had a strong first quarter, while capacity utilisation fell off slightly in the second quarter.
As per 1 January 2013, ICT’s strategy is focused primarily on verticals, with a secondary focus on country and regional/office level. Prior to the year under review, ICT reported its results on the basis of two ‘Operating Segments’, namely ICT the Netherlands and ICT Germany. Effective from the financial year 2013, ICT reports internally on the basis of the segments : Industrial Automation, Machine & Systems (including Healthcare en Energy), Logistics, Automotive, and the participations InTraffic and Improve Quality Services.
In line with this move, we have also adjusted the allocation of goodwill. Previously, goodwill related to the German acquisitions XCC, !ZIP and Lineas was allocated to ICT Germany. This goodwill has now been allocated to Automotive Germany. Goodwill related to Improve Quality Services remains allocated to Improve Quality Services. The goodwill related to ICT B.V. pertained to the acquisitions Procos en Rialtosoft. In the new situation, the goodwill paid for Procos has been allocated to Industrial Automation and that paid for Rialtosoft has been allocated to Automotive the Netherlands.
The disappointing results of the Automotive vertical in Germany and Improve Quality Services have resulted in a decision to undertake a critical reassessment of future cash flows of these two cash generating units. The Board of Directors has decided to instruct the new management of these operating segments to draw up concrete action plans aimed at a recovery of the required profitability of the (sub)segments. These plans will also serve as a basis for the regular annual goodwill impairment tests at the end of the financial year.
The company will continue its strategy of offering innovative effective product/market solutions, enriched with state-of-the-art technology. Each vertical offers market specific solutions in which ICT has a high level of expertise, which allows the company to offer its clients greater added value. This puts ICT in a position to execute projects for its clients independently, making use of the specialist expertise and experience it has gained from previous assignments for its clients. As a result, ICT is able to realise innovative solutions for its clients that are also both repeatable and scalable.
Significant events after the balance sheet date
As announced in a press release on 24 July of this year, ICT has reached agreement with Brandfort B.V. (Brandfort) on a proposed merger. Brandfort is a medium-sized engineering company with 250 employees and annual revenue of € 17.4 million. ICT and Brandfort are an excellent strategic fit and the merger of the two companies will lead to accelerated growth and offers both ICT and Brandfort access to a considerable number of new clients and an even stronger relationship with existing clients. The merger with Brandfort will strengthen the positions of both on their most important markets and give them access to additional geographical markets.
The signing and closing of the transaction are both subject to the usual conditions, including the satisfactory conclusion of reciprocal due diligence, the support of ICT shareholders and the absence of a superior bid. ICT and Brandfort expect to complete the transaction before the end of 2013.
The focus on verticals and the continued reduction of indirect costs had a positive impact on results in the first half of 2013. ICT will take further steps on this front in the second half of the year. The economic climate remains challenging given the ongoing market volatility. Nevertheless, ICT is positive about the development of the group’s results for the full-year 2013 and, barring unforeseen circumstances, expects a material improvement in the operating result compared to full-year 2012.
ICT’s goal is to simplify and improve our clients’ business, production and communication processes and to make them more flexible. We do this by using our high-grade technological expertise. We deploy this expertise in the form of inventive and effective product and market combinations. ICT is organised in line with the markets we serve. We have six verticals: Automotive, Industrial Automation, Logistics, Machine & Systems, Healthcare and Energy. Each vertical offers professionals with specific know-how and expertise of a market’s products and processes. For more detailed information on ICT, visit our website at www.ict.eu.
For further Information:
Femmy de Rijk – Marketing & Communications ICT Automatisering N.V.
Telephone: +31 (0)6 10 51 3745. E-mail: Femmy.email@example.com