Revenue increase of 20%; EBITDA margin impacted by lower productivity in the second half
Highlights FY 2019
- Full year revenue came in at € 155.5 million, up 20%; organic growth was 3%
- Pre-IFRS 16 EBITDA came in lower at € 11.7 million (FY 2018: € 13.5 million), as a result of lower productivity levels in the second half of the year. EBITDA amounted to € 16.5 million including IFRS 16 effects
- Pre-IFRS EBITDA margin came in at 7.5% (FY 2018: 10.4%)
- Net profit amounted to € 2.7 million (FY 2018: € 9.5 million) also due to € 3.5 million lower accounting gains
- Acquisition of Additude marks international expansion into Sweden
Highlights Q4 2019
- Revenue in Q4 came in at € 39.7 million (Q4 2018: € 37.2 million); organic revenue was down 6%
- Pre-IFRS EBITDA came in at € 3.3 million in Q4 2019 (Q4 2018: € 5.4 million)
- Proposition in Smarter Cities strengthened by acquisition of Proficium
Jos Blejie, CEO of ICT Group N.V.:
“2019 got off to a good start with strong revenue growth, both organically, particularly in the high-tech and automotive industries, and as a result of acquisitions. During the summer we were confronted with the abrupt termination of several projects, causing a considerable decrease in productivity. We have taken immediate measures and increased focus and efforts of the team. At the same time we have been confronted with a more prudent buying behaviour in the industry in the latter part of 2019. In comparison with the excellent last quarter of 2018 these effects caused an organic decline in the fourth quarter of 2019.
The year was also marked by significant strategic steps in terms of growing our international footprint, increasing our successful nearshoring activities and strengthening our position in Infra & Mobility. We are on track to achieve the desired revenue split between secondment, projects and proprietary IP, thus creating a more robust business model. In 2019 we have put more focus in our investment initiatives, with a specific aim at Mobility as a Service and the OrangeNXT solutions. To further drive our international reach we will expand OrangeNXT and Additude to other countries and anticipate building more of our solutions in our nearshoring facilities in Bulgaria. Therefore we are confident that we are able to deliver on our mid-term objectives by 2022.”
In 2019 ICT refined its proposition by further focussing on areas where the company can truly make a difference for its customers. ICT excels in technological solutions in Engineering R&D and Industrial Automation, sustainable mobility, infrastructure and healthcare. ICT’s Software as a Service solutions (OrangeNXT) are also offered across these markets, as are its nearshoring offerings.
The acquisition of Additude in Sweden early 2019 was an important step in the international expansion of the company. In line with its strategic direction, ICT expects Additude to become the platform for the Northern European market, offering high-profile industrial technology consulting services.
To further enlarge its nearshoring position in Bulgaria, ICT acquired two start-up companies in 2019, Kodar and Up2. Kodar closely collaborates with the University of Plovdiv, which increases ICT’s access to technical talents in the second largest city of Bulgaria. With Up2 ICT gains access to talents in the world of app development. At the end of 2019 the Group employs over 250 professionals in Bulgaria, representing a growth of 26% compared to 2018.
Mobility as a Service
In the year under review ICT took important steps towards strengthening its offering in the field of MaaS. With the acquisition of BNV Mobility, one of the leading smart mobility services firms in the Netherlands, in Q2 2019, ICT significantly increased its position in the mobility market. To enable more efficient and decisive operations, BNV’s activities were fully integrated into InTraffic. The MaaS platform (TURNN) was further developed and commercialized. At the end of 2019 TURNN was involved in several pilots in Groningen, Drenthe, Limburg and the Eindhoven area.
Strong growth in software solutions
ICT’s offering of proprietary software solutions showed very strong growth in the past year. OrangeNXT welcomed HelloFresh, an innovative player in the meal-kit market, as a large new customer of the MobileNXT SaaS platform. The platform enables HelloFresh to manage its expanding supply chains efficiently and reduce costs while optimising the consumer experience.
Focus in 2020
In 2020 ICT aims to further strengthen its position both in the industries it services and in the geographies in which the company operates. ICT aims to expand its international operations. The company will also continue to fuel the growth of own IP solutions, such as OrangeNXT. At the same time business processes will be further optimised throughout the whole Group by implementing one way of working. Reducing complexity within the organisation through further integration and centralisation will increase effectiveness and efficiency.
Notes to the results
In the financial analysis below focus is put on the pre-IFRS 16 results because it facilitates a fair comparison.
Performance ICT Group
In 2019 ICT Group’s revenue came in at € 155.5 million, an increase of 20%, organically revenue increased 3%. Revenue growth was mostly attributable to the acquisitions of InTraffic (acquired and consolidated in April 2018), Additude (acquired in January 2019 and consolidated as of February 2019), BNV Mobility (acquired in March 2019 and consolidated as of April 2019) and Proficium (acquired in and consolidated as of November 2019). After a strong first half, organic revenue growth was significantly impacted by the sudden termination of a number of projects in the second half by certain large clients.
Revenue added value increased 13% compared to 2018, reflecting an increase of projects and related equipment as well as an increase in use of freelance professionals.
The personnel costs increased 22% to € 93.6 million (post-IFRS 16: € 91.5 million) compared to € 76.7 million in 2018, mainly a combination of the increase in FTEs and higher wages.
Other operating expenses decreased slightly from € 24.0 million in 2018 to € 23.6 million in 2019 (post-IFRS 16: € 20.9 million), as a result of cost efficiency measures. In 2018 other operating costs included one-off contract termination fees of € 0.8 million, following the acquisition of InTraffic. The costs related to strategic initiatives and the realisation of acquisitions and partnerships increased significantly in 2019 to € 0.7 million, compared to € 0.3 million in 2018.
EBITDA came in at € 11.7 million (post-IFRS 16: € 16.5 million), 13% down compared to € 13.5 million in 2018. The EBITDA margin decreased to 7.5% (2018: 10.4%). This was due to the lower productivity that impacted both the secondment business and projects in the second half of the year.
IFRS 16 ‘Leases’ is effective as of 1 January 2019. Under this new IFRS standard an asset, defined as the right to use the leased item, and a financial liability, representing the present value of future lease payments to be made, are recognised. Consequently, IFRS 16 leads to a shift from operating lease costs to depreciation and amortisation and financial expenses. In 2019 IFRS 16 had an effect of € 4.8 million on EBITDA and an equal and opposite impact on depreciation and amortisation.
Performance per segment
Change in segmentation
In line with the new reporting structure, as of 1 January 2019 ICT changed its reporting segments. The activities in the Netherlands are segmented along the end-markets: Engineering R&D, Industrial Automation (including Raster IA), Infra & Mobility (including InTraffic, BNV, and NedMobiel) and Healthcare Technology Solutions (including BMA). In addition, Bulgaria and Sweden are separate segments. The segment Other includes Improve, OrangeNXT, ICT Belgium, CIS Solutions, ICT Motar and Group holding costs.
In this segment, ICT is active in the R&D of the industrial sectors Automotive, High Tech and Machine Building.
In the first half of the year this segment benefited from the high demand in the Automotive industry which translated into a strong performance. In the second half market developments across the spectrum of industries ICT serves weakened. The abrupt termination of a number of projects significantly impacted profitability of this segment during the second half of the year.
In the Industrial Automation segment, Logistics & Transport, Industry and Outsourced services are the main business units for ICT. In the first half ICT divested Raster Products. Raster Industrial Automation remains part of the ICT Group.
Port Logistics showed good growth in revenue and profitability, all other units showed a stable performance.
Infra & Mobility
In the public domain ICT focuses on services around capital assets in the area of Water, Energy, Road and Rail infrastructure as well as Mobility. InTraffic improved its margin to the average ICT Group level.
The Infra & Mobility segment experienced lower productivity in the Energy and Water & Infrastructure activities and results were also impacted by the upfront outlays in Mobility as a Service.
To strengthen the efficiency of the total Healthcare offering, the integration of the different activities into one ICT Healthcare, which started in the first half of the year, is now completed. Although the part of the healthcare market ICT serves stagnated, sales of foetal heart monitors increased, which resulted in an improved performance compared to last year. This performance was offset by a weak performance of the other secondment activities in the Healthcare entity.
In Bulgaria, the nearshoring activities realised healthy growth in both revenue and EBITDA, mainly driven by ongoing demand for nearshoring services. The economies of scale are translating in better margins. The investments in the past period are bearing fruit and the nearshoring activities are performing within the desired margin bandwidth again.
With the acquisition of Additude in January this year, ICT expanded to Sweden. The integration into the ICT Group is complete and cross selling opportunities are being exploited. Given the business model of Additude, with a large pool of freelancers, it operates below the average ICT margin.
Productivity in the second half was lower than anticipated, which impacted the margins.
In the segment ‘Other’, Improve showed a slightly lower performance. OrangeNXT doubled its revenue in 2019, driven by product development and new customers. Despite this successful year of operations, OrangeNXT posted start-up losses as expected. Holding costs increased as a result of higher M&A costs.
Other financial information
ICT has attributed a value to and is amortising several intangible assets, including order backlog, software and customer relations of its acquisitions. Total amortisation for 2019 (pre-IFRS) amounted to € 5.4 million (2018: € 3.8 million). Depreciation (pre-IFRS) for 2019 amounted to € 1.4 million (2018: € 1.2 million).
The result from associates came in at a loss of € 0.9 million (2018: € 0.4 million loss). The loss is mainly attributable to GreenFlux which, as anticipated, is still loss-making and also reflects ICT’s share of an impairment by GreenFlux on its assets.
Financing expenses came in at € 1.1 million in 2019, an increase compared to € 0.9 million in 2018, due to increased financing.
Taxes in 2019 amounted to € 1.0 million compared with € 2.1 million in 2018.
Net profit in 2019 included a one-off accounting gain of € 0.7 million, as a result of the revaluation of ICT Group’s stake in GreenFlux following the second round of investment by other shareholders. Net profit in 2018 included one-off accounting gains of € 4.1 million in total, of which € 3.5 million was related to the revaluation of the 50% stake in InTraffic already held by ICT and € 0.6 million to the revaluation of ICT Group’s stake in GreenFlux (first round of investment by other shareholders).
Reported net profit for 2019 came in at € 2.7 million (2018: € 9.5 million). This represents earnings per share of € 0.27 (2018: € 0.99). As a result of stock dividend the number of outstanding ordinary shares increased to 9,565,010 at 31 December 2019 (31 December 2018: 9,463,878).
Cash flow developments
In 2019 the net operational cash flow amounted to € 14.4 million (2018: € 11.1 million). The increase is the net effect of increased tax payments, IFRS 16 effects and positive results of disciplined working capital management.
In 2019 the cash outflow on investment activities amounted to € 17.6 million, compared with € 10.2 million in 2018. The main elements of this outflow were the purchase price cash considerations for the acquisitions of Additude, BNV, the payment of the earn-out for the remainder of BMA and Proficium and investments in product development and housing facilities. Cash inflow concerned the sale of Raster Products.
The cash inflow from financing activities amounted to € 2.8 million (2018: cash outflow € 0.9 million). The main elements are the net effect of dividend paid (€ 2.3 million cash outflow) and the increased acquisition financing and the lease liabilities (following IFRS 16).
The net cash position at 31 December 2019 was € 5.8 million (31 December 2018: € 6.2 million). The net cash outflow amounted to € 0.4 million in 2019 (2018: € 0.1 million).
Balance sheet structure
Shareholders’ equity increased to € 54.5 million at the end of 2019 from € 54.2 at the end of 2018, mainly following the net effect of the dividend payment of € 2.3 million and net profit of € 2.7 million. The balance sheet total increased to € 124.4 million at year-end 2019 from € 95.6 million at year-end 2018 as a result of the acquisitions of Additude, BNV and Proficium. In addition the implementation of IFRS 16 lease accounting caused a balance sheet increase of € 13.1 million (lease assets as well as liabilities). The solvency ratio (shareholders’ equity/total assets) stood at 44% at year-end 2019, although lower compared with 57% at year-end 2018, it reflects ICT’s sound financial basis.
At 31 December 2019 ICT Group employed 1,413 FTEs (1,468 employees), 15% higher than the 1,227 FTEs (1,274 employees) at year-end 2018. The recent acquisitions and ongoing recruitment efforts contributed to this increase.
ICT proposes a dividend of € 0.30 per share for the 2019 financial year (2018: € 0.38). The proposed dividend is subject to the approval of the Annual General Meeting of Shareholders (AGM) to be held on 13 May 2020. For the calculation of the proposed dividend, the net profit realised is adjusted for the accounting gains recognised in 2019 as well as non-cash amortisation amounts. This results in an adjusted net profit for the full year 2019 of € 7.2 million. The proposed dividend of € 0.30 per share represents a pay-out ratio of 40% of adjusted net profit, which is in line with ICT’s dividend policy. ICT offers the option of distribution of the dividend in cash or in shares.
ICT will calculate the dividend payment in shares one day after the end of the optional period on the basis of the weighted average price of ICT shares during the last five trading days of the optional period, which shall end on 2 June 2020. The dividend in cash or in shares will be payable on 4 June 2020.
ICT remains fully focused on profitable growth and will continue to execute its buy-and-build strategy; combining healthy organic growth with selective acquisition opportunities.
We foresee demand in the markets we serve in the first half of 2020 to be in line with the second half of 2019. The global economic circumstances are anticipated to remain uncertain in 2020 and therefore we refrain from giving an outlook for 2020. Despite these uncertainties we do see ongoing demand for digital transformation projects. We remain fully committed to deliver on our mid-term objective of increasing annual revenue to between € 200 and € 230 million by 2022, with a targeted EBITDA margin between 13% and 15% (including IFRS 16 effects).