Results 2002: ICT maintains strong position in weak market
03/14/2003
ICT Automatisering N.V. (ICT) booked net profit of € 3.4 million in the full year 2002, in line with the forecast given in the press release dated 20 November 2002. Net profit in 2001 came in at € 10.2 million. Earnings per share showed a comparable development and stood at € 0.40 in 2002, from € 1.21 in 2001. In view of the strong financial position, ICT will propose to pay the entire earnings per share in dividend. Turnover declined to € 63.0 million in 2002, compared with € 84.4 million in 2001. In 2002, ICT brought its cost base in line with the changed market conditions, while its strategic choices remained the company’s focus. ICT’s strong strategic position enabled ICT to acquire new clients in a very weak market climate. Although the year 2003 has not started entirely unsatisfactorily, it is impossible at this point to make a reliable prediction of the expected turnover and profit development in 2003, in view of the persisting economic and political uncertainties.
Notes to the results
The year 2002 was dominated by the adaptation of the organisation to a very weak market climate. ICT has introduced a variety of measures to adapt cost levels to prevailing market conditions both in the short term and on a structural basis. These included offering special leave schemes and staff reductions in segments were the long-term outlook for the market is weak. ICT was nevertheless faced with a considerably lower capacity utilisation while at the same time price pressures continued. Operating profit for 2002 declined to € 4.3 million, from € 14.5 million in 2001. The operating margin fell to 6.8% and the net profit margin was down to 5.4%.
Turnover declined to € 63.0 million in 2002, from € 84.4 million in 2001. The downward trend which began in 2001 continued, particularly in the ICT Embedded division. In the Consumer Systems & MultiMedia segment, ICT has a strong position in the field of consumer products development, which is under great pressure due to the continuing low consumer confidence. The segment Distributed Systems and Mechatronics, where ICT focuses on the market for producers of capital goods, showed a more limited downturn. The ICT Solutions division, founded in early 2002, showed a limited decrease.
Taking into consideration the consequences of the reduced item material usage and outsourced work, this division saw a decrease in turnover of around 12.5%.
In 2002, ICT once again took a critical look at the cost levels of the organisation. Staff levels have been assessed in the context of the market position and the expected recovery and potential of these markets, which has resulted in the redundancy of 60 professionals. At the same time, ICT took a close look at the other operating costs, which were already subject to a number of savings measures in 2001. These measures have together resulted in a further reduction in operating costs.
The balance of income and expenses fell as a result of the lower short term interest rate to € 785,000 in 2002, from € 860,000 in 2001. The tax burden dropped slightly in 2002 to 30,0%, from 32.2% in 2001. The shareholders’ equity also fell slightly, to € 34.3 million in 2002, compared with € 34.7 million in 2001. This reduction was largely due to the amended consolidation of the proposed dividend. Following a new directive from the Council for Annual Accounts (Raad voor Jaarverslaggeving) ICT is including the proposed dividend in the shareholders’ equity. The proposed dividend for 2002 is € 0.6 million less than that over 2001. The exercise of share option rights increased the shareholders equity by € 0.2 million. Short-term debt showed a reduction of € 5.5 million to € 12.1 million. Key item in this respect is the completion of the acquisition of 30% of Xirius Nederland B.V.
Personnel
In the course of 2002, the management decided to view the available know-how of the professionals
on the one hand against the demand for know-how in the market on the other hand. This exercise has revealed in some cases there was a discrepancy on an individual level between the available know-how and the required know-how. Based on this result, in consultation with the works council, ICT applied for the termination of the employment contracts for 60 professionals in the second half of the year. This was effected largely in the fourth quarter of 2002. The formation of ICT Solutions in 2002 also led to the redundancy of a number of staff, which was an integration of a number of segments.
Staff levels dropped to 857 at year-end 2002, from 1012 employees at the end of 2001. The average number of employees declined to 931 in 2002, from 979 in 2001. Staff turnover in 2002 stood at 17%, from 12% in 2001. If this figure is corrected for the terminated contracts as a result of the foundation of ICT Solutions and the reorganisation, it leaves a staff turnover of 8%. We expect a further drop in staff turnover as a result of the market conditions in 2003.
Developments in 2002
ICT Embedded
In 2002, ICT Embedded was increasingly affected by the effects of the worsening market conditions, which resulted in a decrease in turnover of 29,4% to € 34.6 million, compared with € 49.1 million (pro forma) in 2001.
Consumer Systems & MultiMedia (CSMM)
Within ICT Embedded, the segment Consumer Systems and MultiMedia (CSMM) showed the strongest downturn. The developments within CSMM are strongly related to the development of consumer confidence. The continuing downturn in consumer confidence meant clients continued to postpone or cancel development projects.
ICT entered into a cooperation with the Institut für Rundfunktechnik (IRT) in 2002. The purpose of the alliance is the development of an MHP stack which can be sold several times and to a number of different potential clients. MHP stands for MultiMedia Home Platform, the new international standard for multimedia / interactive content for set-top boxes and digital televisions. Its investments in this area have made ICT an authority in the field of MHP. The aim is to have the product ready for sale in the second half of 2003.
The mobile communications market suffered the most as a result of the poor economic conditions in 2002. By making targeted investments in the development of know-how in existing technologies such as GPRS/EDGE, ICT was able, in particular from the end of 2002, to secure a number of contracts from clients. We expect the market in this segment to improve further in 2003.
The digitalisation of cars is an important trend. ICT can benefit from this development in a variety of ways. For instance, the know-how accumulated in both the mobile communications sector and in home entertainment can be used again in the automotive sector. ICT succeeded in securing a number of interesting clients in 2002 on the basis of already developed market and material know-how.
Distributed Systems and Mechatronics (DSM)
The segment Distributed Systems and Mechatronics (DSM) focuses more on the markets for capital goods, where development projects are relatively stable because of the long development cycles. Consequently, the downturn in this segment was more limited than elsewhere in 2002. ICT has established a long-term cooperation on a strategic level with many of its clients, which means ICT professionals often have critical know-how of clients’ development projects. It appears that this allows ICT to maintain its strong market position in this market. Smaller clients suffer more from the poor market climate, which means projects for this group of clients were cancelled due to budgetary restraints. On the other hand, ICT succeeded in realising growth with a number of larger players despite the weak investment climate.
The Semiconductor and Machine construction segments once again had a difficult year in 2002. However, a general trend in thes
e markets is that software is playing an ever greater role as a result of the growing importance of, among other things, scalability, expansion of functionalities, productivity and quality demands.
The medical market remained relatively stable in 2002. In this market, too, a lot of attention is being devoted to cost savings and increases in scale, in which software plays an important role. Within this market, the segment DSM has secured an excellent position as preferred partner of one of the worlds largest suppliers of medical systems.
ICT Solutions
The implementation of the integration of the segments PSI (Professional Systems and Industry), Telecom and Office into the ICT Solutions division was completed in the first half of 2002. Turnover for the new ICT Solutions divisions declined 19.7% to € 28.4 million, compared with a (pro forma) turnover of € 35.3 million in 2001. In addition to the weak market conditions, this decline was also due in part to the reduction of the items material use and outsourced work. If the latter is taken into account, the turnover reduction amounts to around 12.5%. The integration of the division in ICT Solutions means it can now offer a complete spectrum of competencies, which allows ICT to act as linking pin between various disciplines. Its innovative strength combined with proven reliability and the supply of the entire life cycle of systems gives ICT Solutions a unique position in the market.
Despite the lagging market developments, ICT Solutions was able to book various commercial successes. In ICT Solutions’ first year, it has become clear that the increase in scale and the broadening of the product and services portfolio is greatly appreciated within the selected markets. ICT has obtained preferred supplier status with a number of large clients.
ICT Solutions focuses on a number of carefully defined markets, of which the Traffic & Transport, Industry and Central Government showed a satisfactory development, given the circumstances. The markets for Telecom and Banks and Insurers remain weak.
Dividend proposal
The General Meeting of Shareholders, scheduled for 22 May 2003, will be asked to approve a cash dividend of € 0.40 per issued share with a nominal value of € 0.10, compared with € 0.48 in 2001.
Given its sound financial position and its confidence in the future, ICT will extend its dividend policy in the future to full profit payment to a limit of € 0.48 per share, after which a pay-out of 40% on top of this amount will apply.
Strategy and Outlook
ICT’s strong position in the current weak market climate underlined the rightness of the company’s strategy. In addition to is track record, its sound financial position will also increase client’s confidence in ICT, which is very important in maintaining and strengthening the ties with clients in the current uncertain economic climate. Because of these strong ties with clients, the scope and relatively large market share in its selected markets, ICT sees opportunities to further boost its market position. They also put ICT in a good position for future growth once the market conditions improve. Although the year 2003 has not started entirely unsatisfactorily, the current persistent economic and political uncertainties make it impossible to make a reliable prediction on the expected development of turnover and profit in 2003. As soon as we can provide more certainty, ICT will make further announcements on the subject.
Enclosed:
- Consolidated profit and loss account 2002
- Consolidated balance sheet as of 31 December 2002
- Consolidated cash flow statement for 2002