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Unit 4 Agresso announces half year results 2008
Full year 2008 outlook: EBITDA growth of at least 30%
- Total revenue increases by 25% to € 191.4 million (H1 2007: € 152.7 million)
- EBITDA increases by 29% to € 30.6 million, including € 1.7 million in integration and
- EBITDA margin increases to 16% (excluding integration and reorganization costs: 17%)
- Pro forma 1 revenue increases by 10%
- Healthy development of operational cash flow: + € 27.2 million
- Net result decreases due to sales of the Internet & Security division in 2007 (sales
revenue of € 11.5 million recognized in H1 2007 results)
- Net earnings per share before goodwill (excluding discontinued operations): +41%
Despite the global economic decline following the credit crisis, Unit 4 Agresso realized a healthy operational growth and an increase in the order book in the first half of 2008.
The acquisition of CODA in 2008 has played an important role in the Group's results. CODA's revenue and results are consolidated as of 26 February 2008. Translating the revenue using the current average exchange rates gives a pro forma revenue (H1 2007 Unit 4 Agresso + CODA for four months) in the first half of 2007 of € 173.8 million. Compared to this pro forma result, the revenue in the first half of 2008 increased by 10%. In particular Unit 4 Agresso's largest country operations in Benelux and Scandinavia showed strong growth again. The first half of 2007 was characterized by substantial organic growth, especially in licences (+16%), thanks to a record number of large deals. The first half of 2008 showed a strong growth in consultancy revenue, especially due to the implementation of the large orders from 2007. Historically speaking the second half of the year (especially the final quarter) usually produces higher licence revenue than the first half of the year. Based on the current pipeline and order book we expect a similar outcome in 2008.
The EBITDA margin increased to 16%, despite € 1.7 million of integration and reorganization costs. The costs are the result of a reduction in overhead at CODA and a reorganization in Spain. Without these one-off costs the EBITDA margin would have been 17%. The EBITDA amounted to € 30.6 million over the first half of 2008, an increase of 29% compared to H1 2007.
Net earnings per share before goodwill (continuing operations): +41%
The net result before goodwill decreased by 18% ( - € 4.0 million), principally because in H1 2007 the book profit on the sale of the Internet & Security division (totalling € 11.5 million) was recognized. In addition interest costs increased due to the loan related to the financing of the CODA acquisition. However the total income and expenses are positive due to the valuation (under IFRS) of two interest derivatives related to the hedging of the interest exposure on the CODA loan. The earnings per share before goodwill and excluding discontinued operations amount to € 0.71 in H1 2008, an increase of 41% compared to H1 2007 (€ 0.50).
1 Adjustment of comparing revenue figures 2007 to include CODA results as of 26 February 2007, assuming constant exchange rates.
The results of Agresso France are partially recognized under discontinued operations. Further steps have been taken to accomplish the planned management buy out. However France strongly reduced its losses in H1 2008, to € 1.2 million (H1 2007: operational loss of € 2.7 million). Additionally since the end of H1 2008 France has closed an order (worth € 2.1 million) in the Education sector.
Product revenue: +3%
The budgets for H1 allowed for a limited growth in licences, since in 2007 the large orders were mainly signed in the first half of the year while the peak in licence sales usually occurs in the second half of the year. Exchange rate fluctuations (British pound and US dollar) influenced the growth in licence sales as well. In the UK a number of orders were postponed to the third quarter of 2008. In total the product revenue amounted to € 32.1 million in H1 2008 (H1 2007: € 31.1 million).
Revenue from contracts and subscriptions: +25%
Both existing and new customers form the stable and growing basis for our revenue from maintenance contracts, which rose by 25% to € 80.0 million (H1 2007: € 64.0 million). Maintenance revenue now makes up 41.8% of total revenue.
Revenue from services: +38%
Revenue from services rose by 38% to € 79.3 million. This increase can be mainly attributed to the CODA acquisition and next to that to an improvement in utilization of available resources and an increase in the number of consultants. The majority of services consists of implementation of software for our clients, therefore the generation of revenue from these services is closely connected with the development of licence revenue. Unit 4 Agresso invested substantially in additional services capacity in the first half of 2007 in order to meet the rising demand for products and services.
The Scandinavian countries again produced strong growth. Sweden saw its revenue increase by 26%min H1 2008 (pro forma: 24%), while Norway increased by 25% (pro forma 22%).
The activities in North America showed strong growth: revenue in this region increased by 74% (pro forma: 21%), and now represents almost 5% of Unit 4 Agresso's total revenue. The Benelux activities increased by 25% (pro forma: 12%) and Germany produced a growth of 15% (pro forma 7%). In the United Kingdom revenue rose by 33% (pro forma 7%), which increases this country's share of total group revenue to 20%. Only Spain saw its revenue decrease by 6% due to disappointing activities in the public sector. In addition a number of employees in Spain were made redundant following a reorganization.
Investments in personnel
The average number of full time equivalent (FTE) employees rose by 28% to 3,419 (H1 2007: 2,665). The total number of employees (head count) as of 30 June 2008 came to 3,527.
Cash position and cash flow
The operational cash flow amounted to € 27.2 million in the first half of 2008. The operating capital further improved (+ € 6.1 million).
The net cash position (excluding the loan for the acquisition of CODA) amounted to € 17.6 million as at 30 June 2008. The (long term) loan amounted to € 189.8 million. The net financial debt position amounted to € 172.2 million. Expectations are that by the end of 2008 the leverage ratio (net financial debt / EBITDA) will be below 2.5, meaning that the covenants agreed on with the banks are amply complied with.
Unit 4 Agresso positions its software as delivering "post implementation agility", highlighting the fact that its core business applications can be adapted to support changes in an organization easily and efficiently. This is a strong market proposition in a period of high economic change and uncertainty, since it is essential that processes in a software system can be changed to meet the changing requirements of their organizations. Where competitors' systems entail a high total cost of change (TCC) and eventually 'expire' as they become economically unviable, Unit 4 Agresso's systems continue to evolve efficiently and deliver high value to customers. Organizations are now faced with the choice to either invest substantially in adjusting their current systems or invest in a highly flexible software system with a low TCC, which will eventually result in significant cost savings.
This strong and clearly differentiated market positioning has helped Unit 4 Agresso to improve its market position in the first half of 2008. Regarding product development the necessary plans to create synergy have been prepared. Through a phased implementation a de-duplication of development activities will take place to ensure that both the Agresso Business World and CODA product lines are developed further whilst R&D spend is optimized. The focus on improving the efficiency of R&D activities, which will include increasing use of resources in low-cost countries, will result in an improvement in margin in the coming 2 to 4 years.
Unit 4 Agresso is optimistic about the second half of 2008. The pipeline is developing favourably and offers the prospect of signing several important new orders. July has already produced strong results despite the holiday season. For the full year 2008 Unit 4 Agresso is maintaining its target of 7 to 10% organic revenue growth. We expect the operating return (EBITDA) to increase by at least 30%2.
This document contains certain expectations for the future concerning the financial position and results of Unit 4 Agresso's activities and certain plans and objectives related to this. It is in the nature of suchexpectations that they entail certain risks and uncertainties, since they relate to future events and are thus dependent on whether certain conditions actually will occur in the future. Several factors can cause the actual results and developments to differ considerably from statements made about the future explicitly or implicitly. Examples of such factors are a change in spending of companies operating in important economies, changes in legislation, in financial markets, pension costs, salaries of employees, future exchange rates and interest, future takeovers or divestments and the speed of technological developments. Therefore, Unit 4 Agresso cannot guarantee that expectations will come true. Furthermore, Unit 4 Agresso dismisses every obligation to actualize statements made in this document.
2 excluding EBITDA of the East/Central European acquisition candidate in 2007 ad € 3.0 million (option) and without taking account of further exchange rate fluctuations and incidental costs.
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