Last year was a good year for ICT. It was a year in which we accelerated the execution of our strategy and continued to make the transition to an even more customer-centric organisation, which translated into healthy organic growth of 8%. The acquisitions we made in the past year improved the balance of the focus on our three main themes. ICT Netherlands performed well in 2016, as did the companies acquired in 2015. Both Strypes and Raster made significant contributions to our results.
The acquisitions of the past year accelerated the transformation of ICT, from secondment provider to a company able to fully manage large and complex projects. In early 2016, ICT completed the purchase of 51% of the shares in BMA, a leading Dutch healthcare software company active in the domain of obstetrics. The addition of BMA, with a clear focus on technology to support medical specialists, further enhanced ICT’s position in the field of Smarter Health. In June 2016, ICT acquired the activities of Dynniq in the water infrastructure field. This has strengthened our position in infrastructural process automation, which is part of the Smarter Cities theme.
The acquisition of Nozhup, a well-respected industrial automation project and services provider, in September 2016 gave ICT significant added scale in the Industrial Automation market, giving us the ability to address technologies in Smarter Industries. Nozhup delivers projects, services, project management and consultancy in process control and instrumentation engineering. On top of this, it provides the design and implementation of control software and hardware and systems integration of technical installations. The company focuses on both the industrial market, mainly in the sectors machinery and chemicals, and the infrastructure market. Nozhup’s diversified customer base is largely complementary to ICT’s own customer base. These acquisitions put ICT well on track to become one of the largest Industrial Technology players in the Netherlands.
New business development
New business development is key to the overall development of the ICT Group. That is why ICT continues to invest substantially in new technologies, to continue the path towards the next level of professionalization, focused on digital transformation. Initiatives to spark entrepreneurship in the organisation have led to multiple initiatives originated at every level of the organisation and at all ICT’s business units. A number of these initiatives have the potential to develop into viable business propositions. These include ICT Mobile, which bundles the latest mobile technologies in the Mobile Enterprise App Platform. ICT’s focus on new business development is also reflected by our commitment to invest 1.5% of our revenue in R&D. These investments, geared towards all kinds of new technologies in new product market combinations, will be vital to the company’s future success. Working in partnerships is a very important element in ICT’s strategy. These partnerships vary from supporting start-ups in different forms, to alliances with numerous other high-tech companies.
As the Polish operations had not achieved the required scale to make the continued operation viable, ICT closed down its Polish activities as per the end of May 2016. ICT decided to focus its nearshoring capabilities fully on Strypes Bulgaria. This focus paid off, given the considerable growth of the company’s operations in Bulgaria. In 2016, the company’s shareholders officially adopted the statutory name change of the company to ICT Group N.V. This new name better reflects the clear focus and international character of the company.
Notes to the results
In 2016, ICT Group’s revenue came in at € 89.7 million, 25% higher than the € 71.8 million reported in 2015. Organically, revenue increased by 8% and 17% of growth was driven by the recent acquisitions Raster, BMA and Nozhup. Organic growth was driven by the increase in the number of FTEs, higher average rates and improvements in a number of markets in which ICT is active.
Revenue at ICT Netherlands increased 13% to € 69.0 million in 2016, from € 61.0 million in the previous year. This includes four months of revenue from Nozhup, as this activity was consolidated in ICT Netherlands from September onwards. Organically, ICT Netherlands recorded 7% higher revenues. Nozhup is meeting expectations and is making a clear contribution to ICT Netherlands’ profitability. In 2016, ICT Netherlands managed to realise 2% higher average rates. Productivity levels and licences and materials sales were more or less unchanged compared to the previous year.
The conditions on the Dutch industrial market were favourable last year, which was reflected in the solid performance of the ICT business units active in this market. The public infrastructure sector saw a lot of activity in 2016 and ICT was able to benefit from this and record strong results. ICT realised healthy growth in the Healthcare segment and sees plenty of opportunities for continued growth in this market. With the recent acquisition of BMA, ICT has clearly strengthened its position in this market.
Strypes Bulgaria (“ICT Nearshoring”) saw its revenues increase 33% to € 7.6 million in 2016, from € 5.7 million in 2015. Strypes has more than doubled its employee numbers since ICT acquired the company in early 2015, and has broadened its customer base by gaining a number of new clients. To be able to manage this increase in size and to ensure continued and sustainable strong growth, in 2016 Strypes invested in the professionalization of the organization, including quality controls.
These investments, which will continue in 2017, are already paying off, as Strypes was able to increase its profitability substantially in the second half of the year compared to the first half. This resulted in an EBITDA increase of 5% to € 1.7 million for the full year 2016.
The segment ‘Other’ recorded revenues of € 14.3 million in 2016 (2015: € 6.2 million). Raster is delivering on target, despite the continuing difficult market conditions in the oil & gas industry in 2016. Their niche position, high quality standards and direct client relationships make them resilient in these challenging market circumstances. Improve performed well, in line with last year. In 2015, Improve achieved a substantial improvement in performance and the company was able to maintain its results at this level in 2016.
After a challenging first half of the year, in which BMA performed below expectations as a result of postponed projects, the second half of 2016 saw a recovery in results. The Dutch market is a declining market, as the number of hospitals is declining due to a number of mergers. However, BMA developed a new generation of software to facilitate international expansion, as this new generation software is easier to connect to different protocols in different countries. BMA is in a strong position for this international expansion. ICT Poland was closed down in the first half of 2016. On balance, the five months of revenue from ICT Poland was offset by the costs of closing down the operation.
Costs / personnel expenses
In 2016, personnel costs increased by 20% to € 52.0 million (2015: € 43.5 million), as a result of the marked increase in the number of employees and a modest increase in salaries. Other operating expenses increased by 14%, mainly as a result of the recent acquisitions. In 2016, ICT invested in office accommodation, marketing & sales and its financial reporting & human resources processes, with investment levels similar to those in 2015. The HR investments focused primarily on improving the HR processes at the companies ICT has acquired over the past two years. In addition, ICT invested more heavily in recruitment last year. The costs related to strategic initiatives and the realisation of acquisitions and partnerships amounted to € 0.5 million (2015: € 0.6 million).
EBITDA for the full year 2016 increased by 44% to € 10.3 million, compared to € 7.1 million in 2015. Organically, EBITDA was up 5%, with ICT Netherlands and Strypes Bulgaria both recording higher EBITDA compared to 2015. The overall EBITDA margin increased to 11.5% in 2016 from 9.9% in 2015.
Amortisation and depreciation
ICT has attributed a value to, and is amortising a number of intangible assets, including order backlog, software and customer relations of its recent acquisitions. Amortisation amounted to € 2.3 million in 2016, comprising € 0.7 million related to Strypes Bulgaria, € 0.6 million to Raster and € 0.6 million to BMA. For Nozhup, the annual amortisation will be € 0.4 million. Depreciation amounted to € 0.6 million in 2016 (2015: € 0.5 million).
Operating profit amounted to € 7.4 million in 2016 (2015: € 5.3 million). The operating margin was 8.2%, compared to 7.4% in 2015.
The results from joint ventures and associates
InTraffic was more or less in line with last year and contributed € 0.2 million to the results.
LogicNets performance improved significantly in 2016, as revenues from the platform doubled and the losses were halved in 2016 compared to 2015. Last year, we saw the completion of the development of the platform into a standardised solution, which has improved the marketability of the software platform. LogicNets won a number of reputable new customers. Despite the improvements on all key parameters, LogicNets is still lagging its original ambitious plans. ICT therefore decided to take an impairment on its stake in LogicNets in the fourth quarter of 2016. The downward valuation of LogicNets, including our share in the loss, amounted € 0.6 million. The book value of LogicNets per year-end 2016 amounted to € 0.5 million.
In 2016, ICT issued loans to start-up company CIS Solutions, a selling agency (for LogicNets and Internet of things solutions) in Germany. As the company is not yet profitable, the loans have been devalued by € 0.4 million in accordance with IFRS requirements. The book value of the loans was € 0.2 million as per year end 2016.
The total result from joint ventures and associates amounted to a loss of € 0.8 million (2015: € 0.3 million loss).
Interest expenses increased to € 0.5 million in 2016, from € 0.3 million in 2015, as a result of increased financing for the recent acquisitions, as well as the accrued interest on the deferred acquisition consideration for the remaining 49% of BMA. In July 2016, ICT extended its acquisition credit facility with Rabobank to € 11 million from € 6 million. Additionally, ICT increased its working capital credit facility to € 10 million from € 6 million. The conditions of the facilities remained unchanged.
In 2016, corporate income taxes related to the continuing business activities amounted to € 1.7 million, compared with € 1.1 million in 2015. ICT finalised the liquidation of ICT Germany in 2016. In 2014, ICT recognised a deferred tax liability related to the liquidation of ICT Germany. Given that the German activities were officially liquidated in Q4 2016, and the liability no longer exists, this liability has now been released. As a result, taxes from discontinued operations for 2016 amounted to a credit of € 0.8 million.
Net profit for the full year 2016 amounted to € 5.0 million, compared with € 3.6 million in 2015, an increase of 41%. This translates into earnings per share of € 0.56 for 2016 (2015: € 0.41). The number of outstanding ordinary shares had increased to 9,288,309 at year-end 2016 (31 December 2015: 8,747,544) due to shares issued as purchase consideration on acquisitions in 2016.
Cash flow movement
The group cash (and cash equivalents) position amounted to € 5.6 million at year-end 2016, compared to € 6.7 million at year-end 2015. The cash flow from operating activities amounted to € 5.1 million positive in 2016 (2015: € 6.1 million positive). The higher cash income from operating activities was more than offset by the higher income tax paid. Cash flow from investment activities amounted to € 8.4 million negative, compared to € 11.8 million negative cash flow in 2015. The largest impact on the cash flow from investment activities in 2016 came from the net investments less cash acquired related to the acquisition of BMA and Nozhup (€ 6.3 million) and investments in office accommodation (€ 1.1 million).
Cash flow from financing activities amounted to € 2.2 million positive (2015: € 1.0 million positive), as a result of the net effect of dividend paid (€ 2.3 million), the payment of the earn-out obligation related to the acquisition of Strypes Bulgaria (€ 1.6 million) and the use of acquisition financing (€ 6.2 million cash inflow) related to the acquisition of BMA and Nozhup. The net cash flow amounted to € 1.1 million negative (2015: € 4.7 million negative).
Balance sheet structure
As a result of the net effect of the payment of dividend of € 2.3 million, the issuance of € 5.4 million in new shares related to the acquisition of BMA and Nozhup, and net profit of € 5.0 million, shareholders’ equity increased to € 43.7 million in 2016 (2015: € 35.5 million). The balance sheet total has increased to € 79.2 million at year-end 2016, from € 58.2 million at year-end 2015, as a result of the acquisitions made last year. Solvency (shareholders’ equity/total assets) stood at 55% at year-end 2016, compared with 61% at year-end 2015, which represents a very sound financial basis.
The total number of employees stood at 919 FTE’s at yearend 2016, an increase of 20%. This increase was due to both acquisitions and increased recruitment efforts.
ICT proposes a dividend of € 0.33 per share for the 2016 financial year (2015: € 0.24). The dividend payment is subject to the approval of the Annual General Meeting of Shareholders (AGM) to be held on 10 May 2017. For the calculation of the proposed dividend, the realised net profit is adjusted for the non-cash amortisation amounts and the downward valuation of LogicNets. This results in an adjusted net profit for the full year 2016 of € 7.7 million. The proposed dividend represents of € 0.33 per share represents a pay-out ratio of 40% of the adjusted net profit. ICT will offer an option for payment in cash or in shares.
ICT will determine the dividend payment in shares one day after the end of the optional period on the basis of the average price of ICT shares during the last five trading days of the optional period, which shall end on 29 May 2017. The dividend will be payable, in cash or in shares, on 7 June 2017.
In 2017, ICT will continue to focus on the further leveraging of the strategic platform it has successfully built over the past years, aimed at organic growth combined with acquisitions. The goal of the acquisition strategy is to achieve strong positions in each of ICT’s three main themes. Overall, the markets in which ICT is active are developing positively from a demand perspective, although some markets do remain challenging. ICT expects its capital expenditures and research & development expenditures for 2017 to grow in line with the increased scale of the company. The tight labour market remains a potential bottleneck, and attracting and retaining the right people continues to be one of our key priorities.Based on the above, ICT expects a further growth in revenue and EBITDA in 2017 compared to 2016.
Executive board responsibility statement
Under the terms of the articles of association, the Company Executive Board is responsible for preparing the financial statements and the annual report in accordance with Dutch law and International Financial Reporting Standards (IFRS). Pursuant to article 5:25c of the Financial Supervision Act, the Executive Board members, taking into account the above, declare that to the best of their knowledge (i) the financial statements give a true and fair view of the assets, liabilities, financial position and profit of ICT Group N.V., and its consolidated subsidiaries; (ii) the annual report gives a true and fair view of the situation on the balance sheet date, developments during the financial year of ICT and its related companies and (iii) that the annual report includes a description of the principal risks ICT faces. ICT’s Executive Board members have signed the financial statements pursuant to the legal obligations pursuant to article 2:101, paragraph 2 of the Dutch Civil Code and article 5:25c, paragraph 2c of the Financial Supervision Act.
Barendrecht, 2 March 2017