Q1 2012 financial highlights
- Net revenue €147.1 million, a 2.1% increase compared to Q1 2011 (€144.1 million)
- Gross margin 17.8%, a 0.2 percentage point increase compared to Q1 2011 (17.6%)
- EBITDA €4.4 million (€6.5 million in Q1 2011)
- EBITA €1.9 million compared to €3.2 million in Q1 2011
- EPS -0.1 Euro cents compared to 3 Euro cents in Q1 2011
The exchange rate impact on revenue was +€0.9 million, and the impact on EBIT was -€0.1 million)
Q1 2012 financial highlights – underlying performance**
- Net revenue €147.1 million, a 2.1% increase compared to Q1 2011 (€144.1 million)
- Gross margin 18.3%, a 0.7 percentage point increase compared to Q1 2011 (17.6%)
- EBITDA €5.1 million (€6.5 million in Q1 2011)
- EBITA €3.2 million compared to €3.2 million in Q1 2011
- EPS 0 Euro cents compared to 3 Euro cents in Q1 2011
- The exchange rate impact on revenue was +€0.9 million, and the impact on EBIT was -€0.1 million)
** Excluding restructuring and other non-recurring costs
Comments from the President and CEO
Transcom’s primary goals are to improve financial performance, restore the company to a position of strength and enhance shareholder value. We will achieve our objectives through a strong focus on operational excellence, capacity utilization and business development. Q112 results are encouraging in terms of new business development and underlying operational performance.
On the operational side of the business, I am glad to see that our efforts to increase sales are starting to pay off. In Q112, we signed several contracts with new and existing clients that will contribute positively to our results in the coming quarters.
The restructuring program announced in 2011, and the additional consolidation of the North American onshore delivery footprint that we announced in February, is still underway. The successful completion of these restructuring actions is our key short-term focus area in order to achieve a financial uplift. We believe that these programs will be finalized during Q212.
The 2.1% revenue increase compared to the same quarter last year is a positive sign considering the disposal of two sites in France during 2011 and the significant shift in volume from onshore to offshore, at a lower unit price, in the North America & Asia Pacific region.
Regarding our underlying operational performance in the quarter, it is encouraging to see that we managed to achieve a 0.7 percentage point increase in gross margin compared to the same quarter last year.
One of our organizational strategies is to consolidate some of the Group Management functions to Stockholm. We made progress during the quarter, and we will soon be able to complete the establishment of our Corporate Management office.
As previously disclosed, we are investigating a move of the legal domicile of the publicly listed parent of the Transcom Group from Luxembourg to Sweden. The Board of Directors believes that a redomiciliation to Sweden would be a logical step in order to align the Company’s domicile with that of its owners. However, the analysis phase, including an assessment of tax consequences, has been extended. Therefore, a recommendation by the Board of Directors is not expected during the first half of 2012, as originally anticipated and disclosed.
Johan Eriksson, President and CEO of Transcom
Net cost of €1.3 million in Q1 2012 to adjust capacity and increase efficiency in North America
During the past year, Transcom has experienced a shift in the demand from its installed client base towards an increased proportion of offshore delivery. In addition, due to the strong performance of its Asian operations, Transcom has been successful in winning significant new business to be delivered from its centers in the Philippines. This positive growth trend in the company’s Asian operations is expected to continue through 2012, driven by client requirements and market demand. As a result, Asian sites are running at full capacity. The Iloilo site in the Philippines having been underutilized, Transcom recorded an onerous lease provision in Q211. The write-back of this provision in Q112 positively impacted this quarter’s results by €3.9 million. Lease payments for the Iloilo site in the Philippines are now fully impacting the region’s P&L when previously the existing onerous lease accrual was neutralizing the cost. This will reduce the cash outflow associated with the restructuring & rightsizing plan, announced in June 2011, by approximately €1.2 million per year in fiscal years 2012, 2013 and 2014, as cash payments associated with the lease of this site will become operational cash.
As a consequence of this offshoring trend, the company has experienced a significant decrease in volumes delivered through its onshore centers in North America, which have thus become underutilized. As announced on February 21, 2012, four of Transcom’s current sites in North America will be closed by the end of the second quarter of 2012. The cost to close these sites in North America amounts to €5.3 million, out of which restructuring costs amount to €4.3 million and other non-recurring costs to €1.0 million. The write-back of the €3.9 million onerous lease provision – which was included in restructuring costs in 2011 – results in a net cost in this quarter of €1.3 million. Due to a positive exchange rate impact associated with the write-back of the onerous lease provision, this is lower by €0.3 million compared to the estimate disclosed on February 21, 2012.
The total cash impact of the restructuring announced on February 21, 2012 is €4.5 million: €0.6 million in Q1 2012, €3.0 million in Q2 2012, €0.2 million in Q3 2012, €0.2 million in Q4 2012, and €0.5 million in the first half of 2013. The non-cash element relates to asset write-offs.
Once finalized, by the end of Q212, operational costs in the North America & Asia Pacific region will be reduced by approximately €1.7 million. Savings to be achieved in fiscal year 2012 are estimated at €1.4 million.
In order to manage the strong demand for offshore delivery, Transcom decided during Q112 to increase the capacity of the Bacolod and Manila sites by approximately 900 agent seats.
Group Operating Review, Q1 2012
Group quarterly development, underlying business performance
Revenue and new business development
In the first quarter of 2012, Transcom reported net revenue of €147.1 million, a 2.1% increase compared to the same period last year. Growth in the North America & Asia Pacific (+3.6%), Iberia (+13.5%), and North (+3.8%) regions was partially offset by a decrease in revenue in the West & Central (-5.4%) and the South (-5.2%) regions. Currency effects in Q112 had a €0.9 million positive impact on Group revenue.
Revenue in the North America & Asia Pacific region benefited from the fact that volumes which were previously accounted for in the West & Central region are now accounted for in the North America & Asia Pacific region. Net of this change, revenue decreased by €0.6 million in the region, driven by the shift to Asia of volumes previously delivered onshore at a higher unit price.
In Iberia, we ramped up new volumes on- and offshore, both with existing as well as with new clients.
In the North region, a positive growth trend in the interpretation business and higher inbound contact center volumes contributed to the revenue increase. During the quarter, we secured a contract with a new client in the high-tech consumer goods sector worth approximately €9.0 million in annual revenues in the North region.
The revenue decrease in West & Central is due to the fact that volumes which were previously accounted for in the West & Central region are now accounted for in the North America & Asia Pacific and South regions, since these volumes are delivered from sites in these regions. Net of this change, revenue in West & Central increased by €0.5 million compared to Q111.
The decrease in revenue in the South region is a direct consequence of the disposal of the Roanne and Tulle sites in France during the second quarter of 2011, which lowered revenue by approximately €4.7 million in Q112 compared to Q111. This volume loss in France was partly offset by continued growth in our installed client base in Italy, adding approximately €3.4 million of additional revenue in the region. During the quarter, we started up delivery of French- and Italian language services from our offshore centers in Tunis for a new client in the high-tech consumer goods sector.
Underlying operational performance
Gross margin was 18.3% in Q112, a 0.7 percentage point increase compared to Q111. This was driven by margin improvements in North America & Asia Pacific (+4.4pp), as a result of an increased proportion of offshore delivery, savings achieved through the restructuring program. Efficiency improved in the South region (+5.7pp) due to operational improvements in Italy as well as higher capacity utilization in France, following the site disposals in France in 2011. However, gross margin was negatively impacted by lower efficiency in the North region (-3.2pp) and in the West & Central region (-1.6pp).
Transcom’s EBITA in Q112 amounted to €3.2 million, unchanged compared to Q111. Currency effects had a negative €0.1 million impact on EBIT. As expected, Transcom managed to deliver €3.4 million in EBITA improvement in the quarter through the restructuring & rightsizing program launched in 2011. In addition, we had efficiency improvements in South and Iberia for €0.7 million. However, Transcom’s EBITA in Q112 is flat compared to Q111 due to the margin deterioration in the North and West & Central regions (€2.7 million), investment in capacity in the North America & Asia Pacific and Iberia regions, as well as investments in sales force and support functions, for a total of €1.0 million.
Overall, savings from the restructuring program and volume-related or efficiency-driven improvements were offset by efficiency deterioration in some regions as well as additional costs related to the ramp-up and additional investments in sales and support functions as shown in the table below. The South, Iberia and North America & Asia Pacific regions generated net savings while the North and West & Central regions delivered lower operational performance this quarter.
||West & Central
||North America & AP
|Positive EBITA impact
|Additional costs related to ramp-up
|Investments in sales & support functions
|Negative EBITA impact
|Net EBITA impact
Group Financial Review
Depreciation & Amortization
Depreciation in the first quarter of 2012 was €2.2 million (€3.1 million in Q111). The main reason behind the decrease in depreciation is reduced CAPEX and significant write-offs related to the restructuring plan. Amortization of intangible assets was €1.0 million, €0.3 million higher than in Q111 due to higher IT development costs.
SG&A costs in Q112 amounted to €24.6 million, compared to €22.1 million in Q111. The savings on SG&A generated out of the restructuring plan launched in Q211 were offset by significant investments in additional capacity, additional sales force and additional support functions. The comparison with Q111 is influenced by the fact that Q111 EBITA benefited from a €0.7 million reversal of an onerous contract accrual in France. The corresponding figure in Q112 amounted only to €0.1 million.
Net working capital was €36.3 million, a decrease of €9.4 million compared to €45.7 million in Q411. Year-on-year, the improvement of working capital was €44.9 million. The improvement in Q112 is primarily the result of better collections through the quarter, tighter control on the timing of payments, alignment of credit terms for suppliers, and exceptional client advances.
Net working capital as a percentage of revenue was 6.5% in Q112, compared to 8.2% in Q411. Transcom considers a normal working capital level for its activity to be 10-12% of annual revenue.
Net financial items
Net financial items amounted to €1.3 million this quarter (€1.0 million). The interest charge was €0.7 million (€0.6 million). The foreign exchange impact on the income statement was a loss of €0.6 million (-€0.3 million). The foreign exchange impact is mainly due to the revaluation of intercompany positions, which led to a net loss of €0.7 million, mainly as a result of the depreciation of the Euro against most of the currencies in which the Group’s intercompany balances are denominated, while non-intercompany related foreign exchange movements generated a net gain of €0.1 million during the quarter.
Debt & Financing
Transcom maintained a stable level of debt throughout the quarter at €65.4 million. Net debt/EBITDA in Q112 was 0.71, well within the covenant thresholds and slightly lower than the Q411 level of 0.75. Transcom expects to continue to be in compliance with its covenant terms for the remainder of the year.
The tax charge in Q112 amounted to €0.8 million, compared to positive tax income in Q111 of €0.4 million. The positive tax income in Q111 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.
Ongoing tax audits and tax litigations
Between 2010 and 2011, the Group has been subject to nine tax audits. Three tax audits have been successfully closed without any material tax costs. One tax audit is still in progress without any conclusion at this stage. Five tax audits in five jurisdictions have given rise to a tax reassessment and have been provided for by an amount of €2.9 million. The other material tax reassessment which has given rise to litigation, and is currently in a Supreme Court appeal process, has resulted in a provision for an amount of €15.6 million, as previously announced. There was no adjustment in the provisioning against tax reassessments in Q112 and these reassessments have not given rise to any new dispute.
Regarding the tax litigation currently in progress in one EU jurisdiction, Transcom has been requested in Q112 to make provisional tax payments (€3.2 million in relation to FY2004 and €2.7 million in relation to FY2003). These provisional payments will be refunded should Transcom win the corresponding cases.
Transcom is expecting additional cumulative tax provisional payment requests for about €2.9 million in relation to 2005, and 2006 Financial Years.
All these cash outflows have been taken into account in Transcom’s cash flow forecasts, and should not have any material impact on the bank covenants. Nevertheless, Transcom already filed a request for payment by installment for €3.2 million in relation to FY2004, and has obtained agreement to pay this amount over 36 months. Transcom is in the process of filing corresponding requests for the €2.7 million in relation to FY2003 as well as for the upcoming tax bills and is confident that its requests will be approved.
Segmental operating review, underlying performance
North America & Asia Pacific
Revenue in the North America & Asia Pacific region benefited from the fact that volumes which were previously accounted for in the West & Central region are now accounted for in the North America & Asia Pacific region (starting in Q112). Net of this change, revenue decreased by €0.6 million. Currency had a €1.1 million positive impact on revenue. While volumes delivered onshore in North America have decreased during the year, we have significantly expanded our offshore operations in the Philippines (where the unit price or revenue per hour worked is lower, but margins are higher). This development reflects both a shift in the demand from our installed base clients for more offshore delivery, and the ramp-up of new business in Asia. As a result of this development, we have been experiencing additional overcapacity in Canada, and have decided to close four Canadian sites, which are no longer cost competitive (see page 4). Also, in order to support the rapid growth in Asia, we re-opened the Iloilo site in the Philippines which has been idle since Q211 (see page 4). We are also increasing the number of agent seats at our Bacolod and Manila sites by approximately 900..
Gross margin increased 4.4 percentage points due to the higher proportion of offshore delivery leveraging the favorable unit costs in Asia. The other main factors explaining the margin improvement are increased operational efficiency and the capacity adjustment in North America achieved through the restructuring plan, executed in 2011.
EBITA in the quarter amounted to €0.3 million, compared to €-0.6 million in Q111. Savings from the restructuring program in North America & Asia Pacific (€1.6 million) were offset by investments in the expansion of operations in Asia (-€0.6 million).
Depreciation decreased by €0.5 million mainly due to a reduction in property, plant and equipment related to site closures during the year. EBITDA increased from €0.4 million to €0.7 million.
West & Central
The apparent revenue decrease of €1.6 million in the region is mainly due to a minor change in the reporting, following an adjustment in our internal transfer pricing policy. Revenues were previously accounted for in the West & Central region as it was the lead contractor although the services were delivered in other regions. Since Q112 the revenue is accounted for in the region where the revenue is delivered. €1.5 million of the revenue decrease is attributable to volumes which are now accounted for in North America & Asia Pacific, and €0.6 million is explained by revenues that are now accounted for in the South region. Net of these reporting adjustment effects, revenue actually increased by €0.5 million compared to the same period last year.
Gross margin fell by 1.6 percentage points, mainly driven by lower activity in the collections operations and ramp-up costs related to new business in the Netherlands, Germany and Hungary, in the CRM operations.
EBITA decreased by €0.6 million. Savings from the restructuring program and additional savings in West & Central (€0.8 million) were offset by lower efficiency (-€1.1 million) and investment in the ramp-up of volumes for a new client (-€0.4 million).
Depreciation decreased by €0.2 million as a result of the progressive reduction in CAPEX.
The Iberia region has experienced significant growth in Q112 compared to the same period last year. Revenue increased by 13.5%, mainly driven by the ramp-up of additional volumes with one of our largest clients in the telecommunications sector, both onshore in Spain and offshore in Chile. We also achieved double-digit revenue increases in Portugal with a number of installed base clients. The ramp-up of volumes in Spain and, to a lesser extent, in Peru (pilot site in anticipation of the opening of a new site in Peru in Q212) with recently won new clients also contributed to higher revenue.
Despite the ramp-up costs of new volumes during the quarter, and despite higher salary costs in Chile following a new labor agreement, Iberia managed to maintain a gross margin at roughly the same level as in Q111.
EBITA increased by €0.2 million despite a €0.6 million increase in SG&A costs, driven by higher revenue. Savings from the restructuring program in Iberia (€0.3 million) and efficiency improvements for €0.2 million were offset by investment in Peru and Chile (-€0.2 million).
Revenue in the North region was up by 3.8%. We achieved significant growth in the interpretation business and higher inbound contact center volumes from our installed client base. This was counterbalanced by volume reductions with one client in the media sector during the year. Currency had a €0.2 million positive impact on revenue. The Transcom Group won a significant contract with a new global client in the high-tech consumer goods sector during the quarter, worth approximately €9.0 million on an annual basis to be delivered from the North region, in addition to significant other revenue to be delivered in the WCE and South regions, This contract will be ramped up in the North region in the later part of Q212 or early Q312, using home agents only.
Gross margin fell by 3.2 percentage points. Additional temporary costs to meet service levels related to the ramp-up of new business accounts for most of the decrease. The remainder is attributable to lower efficiency and salary increases that could not be compensated for.
The EBITA decrease is mainly due to lower gross margin. SG&A costs increased by €0.6 million, primarily driven by investments in our sales force and in support functions. Savings from the restructuring program in the North region (€0.2) were offset by lower efficiency
(-€1.6 million), and by investments in strengthening sales capabilities (-€0.2 million).
Depreciation fell by €0.2 million, due to the fact that some assets were fully depreciated during the year.
Net revenue decreased by €1.3 million following a revenue decrease by approximately €4.7 million as a result of the disposal of two French sites during 2011, and a revenue increase in Italy of €2.8 million. The increase in Italy was driven both by increases with installed base clients and new clients, which we started delivering out of our offshore centers in Tunis (for the same high-tech consumer goods client that we also have started up new business with in WCE and North). Revenue in the South region benefited from the fact that revenues previously accounted for in the West & Central region are now accounted for in the South region. Net of this effect (+€0.6 million), revenue decreased by €1.9 million in the South region, mainly as a result of the disposal of the two sites in France in 2011.
We started up delivery of French- and Italian language services from our offshore centers in Tunis for a recently won global high-tech consumer goods client (we have also won new business from this client in the North and West & Central regions). We also secured a new contract during the quarter with one of our current clients, worth approximately €32.0 million over two years. This contract will extend an existing agreement which expired at the end of Q112 with approximately 10% of additional volumes.
Gross margin improved by 5.7 percentage points, mainly driven by operational improvement in Italy and enhanced efficiency as well as higher cost savings achieved through the disposal of two French sites in 2011. An increased proportion of offshore delivery also contributed to higher margins.
EBITA in the quarter improved by €1.0 million. Savings in the South region from the restructuring program amounted to €0.5 million. In addition, €0.5 million in improved EBITA was achieved through higher capacity utilization in France following the site disposals in 2011 and operational efficiency improvements in Italy.
The financial information in this report 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 10.30 am CET (09:30 am UK time) on Thursday, April 19, 2012. The conference call will be held in English and will also be available as webcast on Transcom’s website, www.transcom.com.
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
For a replay of the results conference call, please visit www.transcom.com to view the webcast of the event.
Notice of Financial Results
Transcom's financial results for the second quarter 2012 will be published on 19 July 2012.
19 April 2012
Transcom WorldWide S.A.
45 rue des Scillas
+352 27 755 000
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, Peru, Portugal and Spain
- North America & Asia Pacific: Canada, Philippines and the United States of America
For further information please contact:
Johan Eriksson, President and CEO +46 70 776 80 22
Aïssa Azzouzi, CFO +352 27 755 013
Stefan Pettersson, Head of Investor Relations +46 70 776 80 88