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TRANSCOM REPORTS FINANCIAL RESULTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED 30 SEPTEMBER 2011

Transcom has announced today in a separate press release, a fully underwritten rights issue of approximately SEK 500 million subject to approval at an Extraordinary General Meeting to be held on November 21, 2011.

Transcom announces that it has agreed with its banks to refinance its existing credit facility maturing in April 2012, with a new facility of €125 million with a 3 year maturity.

Transcom delivered €132.7 million revenue and €-5.1 million EBITA in the third quarter. Underlying EBITA amounts to €3.6m net of restructuring and other non recurring charges.

The main highlights of the quarter are:

  • Revenue: Despite the summer seasonal pattern, revenue grew in North America & Asia Pacific (11.7%) and in West & Central (3.6%). The €1.6 million sequential erosion was mainly driven by the impact of the site divestments in France (€2.1m).
  • Restructuring: €8.6 million costs incurred in the quarter correspond to the second phase of the €32.8 million restructuring program announced on June 21, 2011.
  • Underlying EBITA of €3.6 million shows an improvement of €5.5 million quarter-on-quarter. €1.9 million of this improvement is driven by savings achieved through the restructuring program, and €3.6 million by the execution of the operational efficiency plan announced in the second quarter.
  • Tax provision. €14.1 million one-off provision following the October 11, 2011 announcement.


FINANCIAL SUMMARY – INCLUDING RESTRUCTURING COSTS

THIRD QUARTER 2011 HIGHLIGHTS

Sequential performance

  • Net revenue down 1.2% to €132.7 (€134.3) million, net of currency down 0.8% to €133.2 million
    • Gross profit up to €24.8 (€13.9) million and gross margin up to 18.7% (10.3%)
    • EBITA up to €-5.1 million (€-26.1) million, net of currency up to €-5.1 million
    • EPS up to €-0.31 (€-0.38)

Year-on-year performance

  • Net revenue down 8.1% to €132.7 (€144.5) million, net of currency down 7.1% to €134.3 million
    • Gross profit down to €24.8 (€29.9) million and gross margin down to 18.7% (20.7%)
    • EBITA down to €-5.1 (€5.3) million, net of currency down to €-4.6 million
  • EPS down to €-0.31 (€0.05)

NINE MONTHS 2011 FINANCIAL HIGHLIGHTS

Year-on-year performance

  • Net revenue down 6.6% to €411.1 (€440.3) million, net of currency down 7.1% to €408.9 million
    • Gross profit down 27.7% to €64.0 (€88.5) million and gross margin down to 15.6% (20.1%)
    • EBITA down  to €-28.0 (€14.7) million, net of currency down to €-25.7 million
    • EPS down to €-0.66 (€0.12)

RESTRUCTURING & RIGHTSIZING PLAN

During the third quarter, Transcom focused on implementing the restructuring and rightsizing plan, announced on 21 June 2011. The plan was aimed at adjusting Transcom’s delivery capacity to the book of business and second half business outlook, with the view to strengthening global competitiveness and increasing operational efficiency.

During the quarter, as announced in Q211, we recorded the remainder of the €32.8 million restructuring cost, for an amount of €8.6 million, as follows:

Breakdown of restructuring and other non-recurring costs recorded in Q3 2011

 (€ MILLIONS) North West & Central South Iberia TOTAL
Restructuring costs 1.6 0.0 5.2 0.6 7.4
Other non-recurring  costs 0.6 0.6 0.0 0.0 1.2
Total                                                                                                                                                                       2.2 0.6 5.2 0.6 8.6

  

Below is an overview of charges recorded in Q311 related to the restructuring & rightsizing program:

NORTH. In the North region, a restructuring and non-recurring charge of €2.2 million has been recorded for the closure of two sites and related non-recurring charges,.

WEST & CENTRAL. In the West & Central region, a non-recurring charge of €0.6 million has been recorded to reduce workforce and seat capacity in Germany

SOUTH. In the South region, a restructuring charge amounting to €5.2 million has been recorded for the second phase of the restructuring program in France.

IBERIA. In the Iberia region, the restructuring charge amounted to €0.6 million related to the closure of one site in Spain.

The restructuring & rightsizing program has been executed according to plan. This restructuring program is delivering €1.9 million in cost savings in Q311. The restructuring and operational improvement program is expected to yield annualized gross savings of approximately €10.0 to €12.0 million when fully implemented. 

 

 

FINANCIAL SUMMARY – EXCLUDING RESTRUCTURING COSTS AND NON-RECURRING COSTS IN Q311, Q211 AND Q410, AS WELL AS THE ONE-OFF TAX PROVISION IN Q311

THIRD QUARTER 2011 HIGHLIGHTS – UNDERLYING PERFORMANCE

Sequential performance

  • Net revenue down 1.2% to €132.7 (€134.3) million, net of currency down 0.8% to €133.2 million
  • Gross profit up to €25.2 million (€21.5) and gross margin up to 19.0% (16.0%)
  • EBITA up to €3.6 million (€-1.9), net of currency up to €3.6 million
  • EPS was €0.00 (€-0.05)

Year-on-year performance

  • Net revenue down 8.1% to €132.7 million (€144.5), net of currency down 6.4% to €135.2 million
  • Gross profit down to €25.2 million (€29.9) and gross margin down to 19.0% (20.7%)
  • EBITA down to €3.6 million (€5.3), net of currency down to €4.1 million
  • EPS up to €0.00 (€-0.05)

NINE MONTHS 2011 FINANCIAL HIGHLIGHTS

Year-on-year performance

  • Net revenue down 6.6% to €411.1 (€440.3) million, net of currency down 7.1% to €408.9 million
    • Gross profit down 18.6% to €72.0 (€88.5) million and gross margin down to 17.5% (20.1%)
    • EBITA down 76.5% to €3.5 (€14.7) million, net of currency down to €5.8 million
    • EPS down to €-0.03 (€0.12)

CHIEF EXECUTIVE OFFICER’S STATEMENT - UNDERLYING BUSINESS PERFORMANCE

Pablo Sánchez-Lozano, President and Chief Executive Officer of Transcom, said:

“During the third quarter, Transcom made good progress in addressing the key priorities identified for the second half of 2011: ramping up new volumes in the North America & Asia Pacific region, stabilizing the new delivery model in the North region, and implementing the restructuring and rightsizing program announced in June 2011. Our sales funnel is progressing well, and I am pleased with the number of contracts signed this quarter. During the third quarter, we closed business with a number of new clients, including Hafslund and Svensk Fondservice in North, LestoLithuania and Scarlet Telecom in West & Central, and grew volumes with our installed base customers.

“Transcom reported revenues of €132.7 million in the third quarter, down by 1.2% compared to last quarter and by 8.2% compared to the same period last year. The third quarter is traditionally weak in terms of volumes (lower demand during the summer). Revenue was up by 11.7% quarter-on-quarter in the North America & Asia Pacific region, and by 3.6% in the West & Central region, and flat in the North and Iberia regions. The net reduction in revenue compared to the previous quarter was mainly driven by the disposals of our French sites in Roanne and Tulle, which led to a revenue decrease of approximately €2.1 million, as well as by the seasonal effects mentioned above. The revenue decrease year-on-year is mainly due to installed base volume erosion in the North America & Asia Pacific region.

“After a difficult second quarter with specific challenges in the North America & Asia Pacific and North regions, profitability improved during the third quarter. The Group’s underlying gross margin was 19.0% this quarter, compared to 16.0% last quarter and 20.7% in the third quarter of 2010. The improvement was driven by the operational efficiency measures implemented in the North America & Asia Pacific region, and in the North region.

“In the North America & Asia Pacific region, margins also improved as a result of the ramp-up of volumes in our Asian centers, and in the North region, performance improved as our delivery organization stabilized following the implementation of a new delivery model in the region.

“Transcom’s EBITA (excluding restructuring-related costs) in the third quarter was €3.6 million, up from €-1.9 million in the second quarter. This improvement is driven by €1.9 million in cost savings from the restructuring plan and by €3.6 million from the operational efficiency plan that we announced in Q211.

“Net cash flow from operations amounted to €18.9 million this quarter, as a result of an action plan aimed at reducing working capital, which improved by €16.2 million compared to Q211.

“The equity issue and the bank refinancing will strengthen the capital base of the company and give the company increased financial and operational flexibility in the execution of the transformation plan the company is currently engaged in“.

GROUP OPERATING & FINANCIAL REVIEW 

Financial Review

Depreciation & Amortization

Depreciation in the third quarter of 2011 was €1.8 million and amortization of intangible assets was 0.7 million. Following the write-off of some assets as part of the restructuring program, depreciation reduced by €0.4 million compared to Q211.

SG&A

SG&A expenses were €29.9 million in the quarter. Excluding the restructuring impact and other non-recurring charges, SG&A cost was 21.6 million (€22.0 million in Q211). The decrease is mainly due to savings achieved through the implementation of the restructuring program.


Working Capital

Net working capital was €61.2 million, a decrease of €16.2 million compared to Q211. This significant improvement is the result of an action plan started in Q211 aimed at improving collections of receivables.


Foreign Exchange Rate Impact

In Q311, foreign exchange movements had a negative translation impact of €0.5 million on revenue and a positive impact of €0.1 million on EBIT compared to Q211.

There was no trading impact on revenue compared to Q211 and year-on-year the impact was €0.4 million positive. The total impact on EBIT is €-0.1 million compared to Q211 and €-0.4m compared to Q310. This is the result of the successful implementation of the USD and the Euro as functional currencies in North America & Asia Pacific and Chile, respectively.

For further details on the impact of foreign exchange movements on the Company’s results, please refer to the tables provided in the appendix on page 19.

Debt & Financing

Transcom has agreed with its lenders (DnB NOR Bank ASA, Norge, Filial Sverige, Skandinaviska Enskilda Banken AB (publ) and Svenska Handelsbanken AB (publ)) on a refinancing of the current credit facility, which would have matured in April 2012. The new facility of EUR 125 million is partly amortising and has a time to maturity of 3 years. The facility includes covenants such as restrictions on leverage and minimum interest coverage and implies further reductions in the company’s leverage. The new facility is subject to completion of the rights issue.

In Q311, the Group’s bank loans decreased by €15.6 million compared to Q211 due to tight management of receivables. The Group was able to repay €17.0 million on outstanding loans. The stronger US dollar increased the value of the US dollar loan by €1.4 million.

Net financial items amounted to €-1.8 million in Q311, compared to €0.0 million in the previous quarter. Interest expense in Q311 was €0.2m higher than in Q211 (€1.1 million in Q311, compared to €0.9 million in Q2). Q311 was impacted by a €0.6 million foreign exchange loss, mostly due to the revaluation of current assets and liabilities, while Q211 benefited from a positive foreign exchange result. The higher interest expenses are due to a higher margin paid to the banks following the renegotiation of the covenants in June 2011. In Q411, interest expenses are expected to be at the same level as in Q311.

The Net Debt/EBITDA ratio at the end of Q311 was 4.2, slightly better than the Q211 level and, as expected, within the existing covenant thresholds. This ratio is expected to remain within the agreed thresholds for the remainder of 2011.

Effective Tax Rate

Excluding the tax dispute provision of €14.1 million, referred to below, Transcom reported a tax expense of €1.2 million in the quarter, compared to €1.1 million in Q211.

The company was recently notified that the Court of Appeal has issued an adverse ruling regarding a FY2003 tax dispute in one of the EU jurisdictions where it operates.

In December 2008, in this jurisdiction, the tax auditor reassessed FY2003 through to FY2006. This tax audit resulted in a total tax reassessment notification of €27.3 million (including penalties and accrued late payment interest).

The Group believes its tax position overall and in this jurisdiction in particular, to be fully compliant with EU law and regulation. Since 2009, the Group has been in dispute with the tax authorities with respect to this tax reassessment. The total net amount provided in 2009 to cover this tax exposure amounted to €1.5 million.

Management, together with its legal advisors, consider that the whole reassessment is not justified from a legal standpoint, and even more so in regards to the Withholding tax amounts claimed (€11.7 million) because the EU regulation grants Withholding tax exemption on royalties.

Transcom management considers its case to be robust and has decided to lodge an appeal in front of the Supreme Court. However, following the recent notification of this adverse ruling, Transcom had to reassess its provision and has increased the existing tax provision of €1.5 million by €14.1 million in the quarter ended September 30, 2011.

Management is uncertain about the timing and the ultimate financial exposure that may result out of the resolution of the ongoing tax litigation in this jurisdiction. Only FY2003 and FY2004 cases are currently in front of the courts. FY2005 and FY2006 are not yet judged.

The short term cash exposure resulting from the current rulings is estimated to be €8.8 million. Transcom is requesting to pay in installments over 72 months, which would reduce the cash outlay to €0.4 million per quarter. Should Transcom ultimately succeed in its Appeals, these amounts would be paid back.

SEGMENTAL OPERATING REVIEW – UNDERLYING BUSINESS PERFORMANCE

North America & Asia Pacific
Revenue in the North America & Asia Pacific region grew to €22.9 million from €20.5 million in Q211 and decreased from €33.4 million in Q310. Significant new business, won in Q211 from installed base clients, was ramped up in Asia during the third quarter. Net of currency effects, revenue increased by 10.7% to €22.7 million sequentially and by 24.6% to €25.2 million year-on-year.

Transcom’s ability to scale operations offshore and sustained quality performance will be the driver of revenue growth in the future. We are addressing the changes in our geographical revenue mix by adjusting the region’s delivery capacity through our restructuring & rightsizing program. Four sites in Canada were closed during the quarter according to plan and without disruption to client services.

Gross margin in Q311 improved by 7.9pp to 22.7% compared to Q211, and is up 2.1pp compared to the 2010 full-year average. The improvement was driven by an increasing proportion of revenues delivered from our Asian centers during the quarter, as well as by operational measures. The shift of volumes from North America to Asia is expected to continue.

The region’s EBITA was €0.1 million, up from €-2.2 million in the previous quarter and down from €1.8 million in Q310. Total cost savings delivered through the restructuring & rightsizing program in the North America & Asia Pacific region amounted to €1.1 million in Q311.


West & Central
Revenue in the West & Central region was €28.5 million, compared to €27.5 million in Q211 and €31.5 million in Q310. A higher volume of collection cases – primarily driven by new business in Germany, Austria and Poland – drove the quarter-on-quarter revenue increase, while inbound contact center volumes decreased compared to the previous quarter. The third quarter is traditionally strong in terms of collection performance, mainly due to enhanced debtor liquidity, while it is generally weaker in terms of contact center volumes due to summer holidays.

Gross margin in the region was 23.9%, compared to 24.0% in Q211 and 26.7% in Q310. Improved performance in the collection business was counterbalanced by somewhat weaker performance in the inbound business.

The region delivered an EBITA of €1.5 million in the quarter, up from €0.6 million in the previous quarter and down from €2.4 million in Q310. Total cost savings delivered through the restructuring & rightsizing program in the West & Central region amounted to €0.2 million in Q311.

Iberia
Revenue in the Iberian region was €26.7 million, compared to €26.7 million in Q211 and €23.9 million in Q310. Onshore revenue decreased due to seasonally lower volumes during the summer. This impact was counterbalanced by the continued ramp-up of new volumes offshore.

Gross margin was 20.6% in Q311, compared to 19.9% in Q211 and 20.5% in Q310, driven by efficiency measures and revenue mix changes.

EBITA for the region was €1.3 million, up slightly from €1.0 million in Q211 and from €0.9 million in Q310. Total cost savings delivered through the restructuring & rightsizing program in the Iberia region amounted to €0.1 million in Q311.

North
Revenue in the North Region was €34.4 million, compared to €34.6 million in Q211 and €37.4 million in Q310. While a higher number of production days in Q311 compared to Q211 had a positive effect on revenue, this effect was offset by seasonally lower volumes during the summer.  Net of currency effects, revenue increased by 1.2% to €35.0 million sequentially and decreased by 10.2% to €33.6 million year-on-year.

Gross margin in the third quarter improved by 5.3pp to 18.0%, 1.8pp lower than the 2010 full-year average. The quarter-on-quarter improvement was driven by the stabilization of the new delivery model implemented in the region.  As part of the Group-wide restructuring & rightsizing program, Transcom has started negotiations with employee representatives regarding the closure of one site in Sweden and one in Denmark.

The North region reported EBITA of €2.4 million, compared to €0.0 million in Q211 and €3.9 million in Q310. Total cost savings delivered through the restructuring & rightsizing program in the North region amounted to €0.1 million in Q311.

South
Revenue in the South region was €20.2 million, compared to €25.0 million in Q211 and €18.3 million in Q310. Half of the sequential revenue decrease, €2.5 million, is a result of seasonally lower volumes during the summer. The remainder of the decrease, €2.1 million, is due to the disposals of the Tulle and Roanne sites in France.

Gross margin was 7.4% in Q311, compared to 8.8% in Q2 and 2.7% in Q310. The decrease in gross margin was primarily driven by seasonally lower revenues. In order to address remaining overcapacities in France, Transcom has started negotiations with employee representatives regarding the closure of the Vélizy site in France.

EBITA was €-1.7 million, compared to €-1.4 million in the previous quarter. The SG&A cost decrease compared to Q211 was mainly due to the site disposals in France during Q211. Total cost savings delivered through the restructuring & rightsizing program in the South region amounted to €0.2 million in Q311.

OTHER INFORMATION

The financial information in this press release has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as endorsed by the European Union. While the interim financial information included in this announcement has been prepared in accordance with IFRS applicable to interim periods, this announcement does not contain sufficient information to constitute an interim financial report as defined in International Accounting Standards 34, “Interim Financial Reporting”. Unless otherwise noted, the numbers in the press release have not been audited. The financial information and certain other information presented in a number of tables in this press release have been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this press release reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.

Results Conference Call and Webcast

Transcom will host a conference call at 11.00 am CET (10:00 am UK time) on Wednesday, October 19, 2011. The conference call will be held in English and will also be available as webcast on Transcom’s website, www.transcom.com.

Dial-in information

To ensure that you are connected to the conference call, please dial in a few minutes before the start in order to register your attendance.

Sweden: 08-503 364 34

UK: +44 (0) 1452 555 566

US: +1 631 510 7498 

Passcode: 95756596

For a replay of the results conference call, please visit www.transcom.com  to view the webcast of the event.

Nomination Committee for the 2012 Annual General Meeting

A Nomination Committee of major shareholders in Transcom has been formed in accordance with the resolution of the 2011 Annual General Meeting. The Nomination Committee is comprised of Cristina Stenbeck on behalf of Investment AB Kinnevik, Stefan Charette on behalf of Investment AB Öresund, Tomas Ramsälv on behalf of ODIN Fund Management, and Caroline af Ugglas on behalf of Skandia Liv.

Information about the work of the Nomination Committee can be found on Transcom’s corporate website at: www.transcom.com.

Shareholders wishing to propose candidates for election to the Board of Directors of Transcom WorldWide S.A. should submit their proposal in writing to agm@transcom.com or to the Company Secretary, Transcom WorldWide S.A., 45 rue des Scillas, L-2529 Howald, Luxembourg.

Appointment of new Board member/ Stefan Charette

The Board of Directors has, after consultation with the Nomination Committee resolved to propose to the next EGM to appoint Mr Stefan Charette as a new Board member in addition to the existing ones. Stefan Charette serves as the Chief Executive Officer of Investment AB Öresund since September 2, 2010.

Pablo Sánchez-Lozano

19 October 2011

Transcom WorldWide S.A.
45 rue des Scillas
L-2529 Howald

Luxembourg

+352 27 755 000

www.transcom.com

Company registration number: RCS B59528

Notes to Editors:

The following provides a breakdown of which countries are included in each geographical region.

  • North: Denmark, Norway and Sweden
  • West & Central: Austria, Belgium, Croatia, the Czech Republic, Estonia, Germany, Hungary, Latvia, Lithuania, Luxembourg, the Netherlands, Poland, Romania, Serbia, Slovakia, Switzerland and the United Kingdom
  • South: France, Italy and Tunisia
  • Iberia: Chile, Portugal and Spain
  • North America & Asia Pacific: Canada, Philippines and the United States of America

#  #  #

For further information please contact:

Pablo Sánchez–Lozano, President and CEO                                     +352 27 755 000

Aïssa Azzouzi, CFO                                                                        +352 27 755 013

Stefan Pettersson, Head of Investor Relations                                   +46 70 776 80 88

                                                                                                        stefan.pettersson@transcom.com