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Transcom reports first quarter 2011 financial results

Transcom first quarter 2011 results conference call (click to join)

MONDAY, 18 APRIL 2011

11:00 (CET) / 10:00 (UK)

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FOR IMMEDIATE RELEASE

TRANSCOM REPORTS FINANCIAL RESULTS FOR THE FIRST QUARTER ENDED 31 MARCH 2011

18 April 2011

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Luxembourg, 18 April 2011 – Transcom WorldWide S.A., the global outsourced services provider, today announced its financial results for the first quarter ended31 March 2011.

FIRST QUARTER 2011 HIGHLIGHTS

FINANCIAL SUMMARY


 

2011

2010

Change

2010

Change

2010

 (€ m)

Q1

Q4

Q-o-Q

Q1

Y-o-Y

Jan - Dec

Net revenue

144.1

148.7

-3.1%

147.0

-2.0%

589.1

Gross profit

25.3

23.3

8.5%

30.6

-17.3%

111.9

EBITA

3.2

-18.4

-

5.0

-36.0%

-3.7

Operating income

2.5

-19.1

-

4.3

-41.9%

-6.5

Net financial items

-1.0

2.3

-143.5%

-0.5

100.0%

0.9

Profit before tax

1.5

-16.8

-

3.8

-60.5%

-5.6

Net income

1.9

-17.0

-

3.1

-38.7%

-8.0

EPS (€)

0.03

-0.23

-

0.04

-25.0%

-0.11

Total weighted average outstanding number of shares before dilution ('000)

73,367

73,367

-

73,294

-

73,333

Sequential performance

  • Net revenue down 3.1% to €144.1 million (€148.7), net of currency down 3.9% to €142.9 million.
  • Gross profit up to €25.3 million (€23.3) and gross margin up to 17.6% (15.7%)
  • EBITA up to €3.2 million (€-18.4), net of currency up to €3.3 million.
  • EPS was €0.03 (€-0.23)

 Year-on-year performance

  • Net revenue down 2.0% to €144.1 million (€147.0), net of currency down 4.6% to €140.3 million.
  • Gross profit down to €25.3 million (€30.6) and gross margin down to 17.6% (20.8%)
  • EBITA down to €3.2 million (€5.0), net of currency down to €3.7 million.
  • EPS down to €0.03 (€0.04).

 

 FINANCIAL SUMMARY - UNDERLYING PERFORMANCE*


 

2011

2010

Change

2010

Change

2010

 (€ m)

Q1

Q4

Q-o-Q

Q1

Y-o-Y

Jan - Dec

Net revenue

144.1

148.7

-3.1%

147.0

-2.0%

589.1

Gross profit

25.3

29.4

-13.9%

30.6

-17.3%

118.0

EBITA

3.2

1.0

220.0%

5.0

-36.1%

15.7

Operating income

2.5

0.3

748.6%

4.3

-41.7%

12.9

Net financial items

-1.0

2.3

-143.7%

-0.5

104.0%

0.9

Profit before tax

1.5

2.6

-43.3%

3.8

-60.8%

13.9

Net income

1.9

2.3

-20.9%

3.1

-39.8%

11.4

EPS (€)

0.03

0.03

-20.9%

0.04

-39.8%

0.15

Total weighted average outstanding number of shares before dilution ('000)

73,367

73,367

-

73,294

-

73,333

* Summary excluding the impact in Q4 2010 of the intended divestments in France

Sequential performance

  • Net revenue down 3.1% to €144.1 million (€148.7), net of currency down 3.9% to €142.9 million.
  • Gross profit down to €25.3 million (€29.4) and gross margin down to 17.6% (19.8%)
  • EBITA up to €3.2 million (€1.0), net of currency up to €3.3 million.
  • EPS was €0.03 (€0.03)

 Year-on-year performance

  • Net revenue down 2.0% to €144.1 million (€147.0), net of currency down 4.6% to €140.3 million.
  • Gross profit down 17.3% to €25.3 million (€30.6) and gross margin down to 17.6% (20.8%).
  • EBITA down to €3.2 million (€5.0), net of currency down to €3.7 million.
  • EPS down to €0.03 (€0.04).

 

Note: a supporting slide presentation can be found on the Transcom website: www.transcom.com 


Reporting change starting in Q1 2011

In 2010, Transcom transformed its service portfolio, bringing customer management (CRM) and credit management (CMS) together in an integrated global offering, built around our clients’ customer lifecycle. We believe it is our ability to provide seamless support through all stages of the customer lifecycle that sets us apart from other outsourced service providers.

A comprehensive service portfolio built around your customer lifecycle

Until today, we reported the CRM and CMS service areas separately, although not necessarily consistently across all the regions.

 

Following our portfolio transformation conducted during the second half of 2010, Transcom will no longer manage discrete elements of its service portfolio independently and therefore, starting this quarter, Transcom will disclose financial information combining the CRM and CMS business areas on a regional basis and at Group level.

CHIEF EXECUTIVE OFFICER’S STATEMENT - UNDERLYING BUSINESS PERFORMANCE

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

“We are continuing the execution of our transformation journey. While we are making progress addressing the key priorities we identified for 2011, Q1 was impacted by lower seasonal volumes. 

“The main highlights of the quarter are:

Growth: reinforcing our sales capabilities and developing our funnel: This quarter we reported revenue of €144.1 million, 3.1% lower than last quarter, which benefited from a strong year-end seasonal effect. Compared to Q110, revenue this quarter was 2.0% lower. Excluding the currency impact, first quarter revenue decreased by 3.9% sequentially and by 4.6% year-on-year.

 

  • Ramp-ups of recent wins did generate growth during the quarter. However, due to seasonally lower volumes in Q111, revenue decreased overall.
  • This quarter, we have closed new business with Bankinter in the Iberia region, Vivre Assuré in South, Space Agenten in West & Central, and Jämtlands Läns Landsting as well as Cardif Sweden and Agria International in the North region, to name a few.
  • While our sales process is getting momentum and our overall funnel keeps growing, deal closing decisions were deferred into Q2 or postponed. As a consequence, new deal signings in Q111 only represent half the volume won in Q410. We keep working on the development of our sales capability.
  • In addition to the strong seasonal impact, we have been facing price pressure from our installed base clients in Iberia and Italy.
  • We experienced softer collection performance in the West & Central region during the quarter, extending the previous year’s trend.
  • The quarter-on-quarter comparison should also be considered in light of the €1.0 million accrued revenue recognized in the fourth quarter of 2010, related to the collection business.
  • On a year-on-year basis, if we exclude North America – where revenue in Q110 was boosted by the ramp-up of significant volumes – the rest of the business grew 7.2%.

 

Margins: addressing non-performing areas of our portfolio

  • The seasonal revenue reduction and the softer collection performance impacted total EBITA contribution in the quarter.
  • France. The recovery plan for our French operations is progressing according to plan. For one of the two French sites the mandatory Information & Consultation procedure is now satisfactorily closed and we will be transferring the site to the new owner in the coming days. Regarding the second site, the process is well advanced and we expect to be closing within the next quarter.
  • North America. We keep working on the three fronts we highlighted for 2011 to address the current utilization gap: generate new business opportunities, address overcapacity in North America & Asia and reassess our Canadian footprint. On the new sales front, while the funnel keeps building up, we have not delivered significant wins this quarter although we remain positive on the sales outlook in the region. We have made progress on the potential divestiture of some of our target sites, and we are currently assessing rationalization plans for our Canadian footprint.
  • In the West & Central region, performance was impacted by seasonally low collection activity in the first quarter.
  • During the quarter, we implemented salary indexation adjustments in the Iberia and North regions and incurred additional support costs in order to implement a contract renewal with a major client in the North region. In the South region, we incurred transition costs related to the ramp-up of a new client.

 

“The Group’s gross margin this quarter, at 17.6%, decreased by 2.2pp compared to Q410 (19.8%) in which the strong seasonal effect had a positive impact on gross margin. Compared to the 2010 underlying gross margin average, (20.0%), gross margin this quarter decreased by 2.4pp. This margin erosion is a direct consequence of the additional support costs incurred in the North region and in Italy. In both cases, the situation is expected to continue through Q2 and improve in the second half of the year.

“Our ongoing Group-wide initiative to optimize the SG&A cost structure contributed to decreasing SG&A expenses in the quarter to €22.1 million, €3.4 million lower than the 2010 quarterly underlying average of €25.5 million. Out of this reduction, €0.7 million relates to the consumption of the accruals booked in France in Q410.

“Transcom reported EBITA of €3.2 million in the first quarter, which compares to €3.7 million in Q410, net of the one-off elements which impacted EBITA in the previous quarter. The EBITA margin in the first quarter was 2.2%, 1.5pp above underlying performance in Q410, and 0.5pp below last year’s average.

“Net income was €1.9 million in the quarter, compared to €2.3 million in the previous quarter (underlying performance). We close the first quarter with a €1.0 million net financial cost, €0.5 million of which is interest on our debt and €0.5 million is a negative impact of the foreign exchange revaluation of working capital intercompany balances in North America and Chile. In Q410, we reported a €2.3 million financial gain, which arose from the revaluation of balance sheet positions.

Due to a tax contribution program implemented in Norway, Transcom reported positive tax income in the quarter of €0.4 million, compared to a tax expense of €0.2 million last quarter.

“We closed the quarter with EPS at €0.03, compared to €0.03 last quarter (underlying performance).

“We remain focused and are making progress on the execution of our transformation journey with three main priorities for 2011: growth, addressing non-performing units, portfolio and technology transformation.  We remain confident on Transcom’s ability to drive value through the execution of those initiatives.”

 

GROUP OPERATING & FINANCIAL REVIEW 


Financial Review

Depreciation & Amortization

Depreciation in the first quarter of 2011 was €3.1 million and amortization of intangible assets was 0.7 million, almost identical to Q410 figures.

SG&A

The Group initiative to optimize our SG&A cost structure contributed to decreasing SG&A expenses in the quarter to €22.1 million, €3.4 million lower than the 2010 quarterly underlying average of €25.5 million. Out of this reduction, €0.7 million relates to the consumption of the accruals booked in France in Q410.

Working Capital

In Q111, working capital increased by €1.4 million. Net cash flow provided by operations was €3.4 million compared to €6.2 million in Q110.

Foreign Exchange Rate Impact

Transcom’s largest exposures are related to the US Dollar (USD), the Canadian Dollar (CAD), the Swedish Krona (SEK) and the Chilean Peso (CLP).

In the first quarter of 2011, foreign exchange movements had a positive translation impact on revenue and EBIT of €4.9 million and €0.2 million respectively compared to Q110 and €1.8 million and €0.1 million compared to Q410. The positive translation impact was primarily due to movements in the CAD and SEK versus the Euro.

The FX trading impact was negative primarily due to a weaker USD versus the CAD. We are working on eliminating the intercompany foreign exchange exposure, which generated a foreign exchange loss of €0.6 million in Q111.

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

In Q111, no repayments or additional drawings were made under the Group’s revolving credit facility. Net debt was €74.7 million at the end of Q111, which is €2.8 million lower than in the previous quarter.

On a rolling 12-month basis, the Net Debt/EBITDA ratio at the end of Q111 was 2.6 compared to 2.5 for Q4 2010 (underlying performance), and remains within our target range.

In Q111, interest charges were €0.6 million, at the same level as in Q410. 

Effective Tax Rate

Transcom reported positive tax income in the quarter of €0.4 million, compared to a tax expense of €0.2 million last quarter. This was the effect of the implementation of a tax contribution program in Norway, through which a deferred tax asset for €0.6 million was recognized.

On an annualized basis, the Group effective tax rate “ETR” is forecasted to increase up to around 25%, mainly due to (i) unrecognized current losses, and (ii) ongoing tax audits in certain countries.

 

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