ICT: Results recover and turnover increases slightly
03/11/2005
ICT Automatisering N.V. (ICT) booked a net profit of EUR 5.3 million in 2004, up 40% on 2003 (2003: EUR 3.8 million). Earnings per share rose to EUR 0.64 in 2004, compared to EUR 0.45 in 2003. In view of ICT’s strong financial position and in line with its previously announced dividend policy, ICT proposes to pay a dividend of EUR 0.54, which corresponds to an 84% pay-out. Given that overall recovery is still fragile, ICT believes it is early to make a reliable forecast of expected turnover and profit development for 2005.
Notes to the results
In 2004 turnover increased by 5.3% to reach EUR 65.0 million (2003: EUR 61.7 million). Both divisions contributed to the increase in turnover, though the market for ICT Embedded lagged slightly behind that of ICT Solutions. Unlike previous years, price levels remained on average stable across the entire business. A higher capacity utilisation ratio and continuing cost containment led to a 49.3% increase in operating result to EUR 6.7 million. (2003: EUR 4.5 million). Net profit rose 39.8% from EUR 3.8 million to EUR 5.3 million. The difference in the rate of growth in operating result as opposed to that of net profit was primarily the consequence of a tax free provision that was released in 2003, which was reflected in the company’s effective corporate tax rate for 2003 (25.9%). In 2004 this reverted to the 2002 level when the company’s corporate tax rate amounted to 30%.
The increased profit recorded in 2004 led to an increase in shareholders’ equity which rose to EUR 36.3 million. The shareholders’ equity as a percentage of the balance sheet total represented 77.2%, compared with 71.4% in 2003. In view of this solid financial position, and in line with its previously announced dividend policy, ICT proposes paying a dividend of EUR 0.54 per share. This corresponds to a pay-out of 84% and is 20% up over 2003 (EUR 0.45).
There was a negative net cash flow amounting to EUR 5.4 million. The most significant item here was that of pension contributions. As of 1 January 2004, outstanding pension contributions stood at EUR 1.9 million. As of 31 December 2004, EUR 1.6 million in pension contributions had been already been paid in advance.
Personnel
As in 2003, the number of employees at ICT showed a decrease in 2004. The average number of employees in FTE’s decreased from 817 to 763, a reduction of 7%. Personnel costs fell by 1.6% to EUR 38.6 million. In addition to an increase in salaries as a consequence of the usual salary round, increased social security contributions also influenced these charges.
Staff turnover amounted to 11% in 2004, of which about half was attributable to natural wastage.
Business in 2004
ICT Embedded
ICT Embedded posted turnover of EUR 36.1 million in 2004, compared to EUR 35.3 million in 2003. The number of employees at ICT Embedded at year-end 2004 was 434.
The strategy of ICT Embedded is targeted at helping clients to optimise their time to market performance and cut costs. Within that strategy ICT Embedded focuses on a limited number of market segments, enhancing the Division’s ability to respond quickly to technological developments.
Market developments
Economic recovery in the markets that are important for ICT Embedded remains fragile. Companies remain focused on cost reduction and reducing investment-related risk. These developments have encouraged ICT to keep a sharp eye on developments in the markets it serves.
In 2004 ICT began staff recruitment for the Munich, Germany, branch it had opened in 2003. Although ICT did not succeed in attracting sufficient personnel in 2004, ICT’s presence on the German market has already led to promising contacts. The German branch is successfully acting as an intermediary between German-based clients and the Dutch softwarelabs.
Market segments
Mobile Communications
The growth that the Mobile Communications se
gment experienced in 2003 was maintained in 2004. ICT succeeded in further strengthening its position in this segment, which focuses on developing software for every type of mobile communications. Another important development in 2004 was the spread of UMTS. In 2005 Embedded Linux is expected to play a part in this.
Home Entertainment
This segment, focusing on digitalising products such as television sets, was also characterised by low levels of consumer confidence in 2004. Consumers remained hesitant of purchasing new consumer products. Skilful use of its preferred supplier status in dealing with clients in this industry allowed the Home Entertainment segment to increase market share further. Despite a cautious market, turnover stayed steady as a result.
The shift to low wage countries in terms of software development within this segment is becoming more and more evident. However, innovative product development, a segment where ICT is strongly represented, is still mainly being carried out in Europe.
Automotive
The Automotive segment is characterised by a major technological overlap between the Mobile Communications and Home Entertainment segments. In addition to a number of other fields, ICT is focusing within this segment on the infotainment area, for which it can deploy its in-house automotive expertise.
The fall in sales of cars continues to exert pressure on price levels. However, ICT’s relative size has permitted ICT to maintain and increase its position. In the fourth quarter an upturn in this market was observed.
Semicon
This segment focuses on the development of production systems for the semi-conductor industry. Despite a cautious recovery in demand for such production systems, manufacturers’ investments in these systems have remained stable, leading to pressure on turnover development. By investing continuously, and its existing preferred supplierships, ICT has built a strong foothold in this market.
Medical
Within the market for medical systems, in addition to the development of complex diagnostic systems in which embedded software is used for already a long time, a trend of far reaching automation and integration in the smaller medical apparatus market is taking place. Linkage and integration of diagnostic systems coupled to the wide availability of patient data has led to a growing emphasis on issues such as connectivity and security. By specializing in technologies such as DICOM and HL7, ICT is able to play a role in these developments. In 2004 ICT gained a number of new customers in this segment.
ICT Solutions
ICT Solutions posted turnover of EUR 28.9 million in 2004 (2003: EUR 26.4 million). The number of employees at ICT Solutions at year-end 2004 was 251.
Market developments
Although investments are still under pressure, the market began to show signs of slight recovery in 2004, partly in response to a catch-up in demand.
ICT’s positioning is well adapted to the trends appearing in this market. In addition to the company’s know-how in terms of IT, ICT has specific domain-based expertise allowing it to design the right solution. Moreover ICT is seen as a reliable partner in the growing search for full life cycle support.
Market segments
Traffic & Transport
Activities within this segment experienced growth in 2004. This was attributable to some degree to greater interest in data provision on the part of government and the public transport industry.
InTraffic, the Company’s joint venture with Holland Railconsult focusing on delivering traffic management solutions, recorded an encouraging development in 2004.
In 2005 InTraffic will take over to an increasing degree the commercial operations within Traffic & Transport. ICT Solutions will turn a greater level of attention on markets that up till now were playing a secondary role within this segment, i.e. Energy and Logistics.
Industry
On the basis of optimal service and intensifying contacts with existent clients, this segment succeeded in realising growth.
The client base was expanded whilst adhering to previously defined target markets. A tightening of focus on both domain and target market, coupled to a service organisation, opens the door to a promising future for the Industry segment in both the short and medium term.
Telecom & Defence
The objective ICT Solutions set itself in this market for 2004 was to consolidate its position. Although ICT succeeded in strengthening its position by obtaining the status of preferred supplier in a number of areas, this did not lead to the desired turnover recovery in 2004. After years of decline ICT is now seeing the first signs of recovery within the telecoms market.
Strategy
One of the most important objectives ICT has set itself is further to extend its position in the markets it has selected. For ICT Embedded this means that many developments will take place to a large degree outside of the Netherlands. In that context, the further expansion of the Company’s German branch will require substantial attention, with the objective of winning additional projects for the Dutch software development laboratories. In the light of staffing constraints at its German branch the Company is currently exploring the desirability of speeding up the process by means of acquisition.
The different market segments within ICT Solutions will focus on the whole of the Netherlands as a market to a degree greater than was the case in previous years. 2005 will also determine whether the market for Energy and Logistics can substitute for the Traffic & Transport segment. Management is currently considering whether acquisition represents a desirable option for this segment.
In the course of 2005, ICT will also assess the desirability of opening a second branch outside of the Netherlands.
An important financial objective that ICT has set itself is achieving an EBIT margin of 15% in 2006. In 2004 this stood at 10.3%.
IFRS
ICT is on schedule in terms of implementing IFRS.
As a consequence of the change in the regulations and the complexities involved in valuing options, it is more than likely that a decision will be taken to cease awarding such options to management and personnel as from 2005.
As of this moment, there is still an investigation underway to determine whether the ICT pension scheme qualifies as a defined benefit or a defined contribution scheme. Depending on the result, this is likely to affect the annual accounts. As of now, it is not possible to state how great that effect is likely to be.
ICT does not expect other issues related to IFRS implementation to have a material effect on its annual accounts.
Dividend 2004
Pursuant to its dividend policy ICT recommends shareholders approve a dividend payment of EUR 0.54 per share. This corresponds to an 84% pay-out ratio.
Outlook
Although fragile, the economic recovery begun in 2004 appears to maintain momentum. However, the different markets in which ICT operates show a mixed picture. Recovery in demand amongst ICT’s clients in the different sub-markets is so unpredictable that ICT believes it is too early at this stage to make a reliable statement with regard to the development of turnover and profit in 2005. ICT expects to be able to disclose further details on these matters in the course of the shareholders’ meeting scheduled to take place on 25th May 2005.
Enclosed:
- Consolidated profit and loss account 2004
- Consolidated balance sheet as of 31 December 2004
- Consolidated cash flow statement for 2004