Q3 2013 financial highlights
- Net revenue €156.0 million, a 5.3% increase compared to Q312 (€148.2 million), 7.9% adjusted for exchange rate impact
- Gross margin 20.2%, a 1.2 percentage point increase compared to Q312 (19.0%)
- EBIT €4.6 million compared to €1.1 million in Q312
- EPS 0.1 Euro cents compared to -0.3 Euro cents in Q312
- The exchange rate impact on revenue was negative €3.9 million, and the impact on EBIT was negative €0.2 million.
Comments from the President and CEO
Revenue growth in core CRM business driven by higher volumes in all regions
Revenue in Transcom’s core customer care outsourcing business (CRM) grew by 6.0% in the third quarter, while revenue fell slightly in the collections business (CMS). Organic growth in our CRM business – net of currency effects – was 8.9%. While we have signed many new clients this year, the bulk of our year-on-year revenue increase is due to the expansion of our relationships with existing clients. In a number of cases, we are expanding with our clients into new geographies. This is a credit to the excellent work from our delivery teams.
EBIT increase driven by improved profitability in the Central & South and North America & Asia Pacific regions
EBIT increased to €4.6 million this quarter, up from €1.1 million in Q3 2012. Higher volumes and a focus on improving efficiency are the main drivers of this positive development. I am very pleased with the progress we have made to date. At the same time, we are very focused on continuing to improve margins. For example, we are implementing measures to improve capacity utilization in our North America operation. We are developing new business to be delivered in the United States, to complement our offshore operations.
The benefits from the operational efficiency improvements we have realized in the North America & Asia Pacific region over the past year have been partly offset by a price decrease as a result of a contract renewal with one of our clients.
Both our North Europe and Iberia & Latam regions need improvement on their performance. In the Iberia & Latam region, we have issues of low volumes and efficiency in Chile, while we are also ramping up volumes at our new site in Cali, Colombia. We are focused on driving margin improvements in the region, but it is likely to be three to six months before we see the positive impact of our efforts. In North Europe, we are implementing a new agreement with one of our largest clients. This agreement will yield higher quality performance and better financial predictability.
Another important area of focus is our corporate costs. Since Q3 2012, our legal and professional services costs have escalated due to several tactical and strategic initiatives. We have already started to reduce these costs, and our target is to make further reductions. In Q3 2013, corporate costs amounted to €5.7 million, compared to €6.0 million in Q3 2012 and €6.0 million also in Q2 2013.
Settlement agreements signed regarding former French subsidiary and tax claims in Italy
As previously announced, Transcom signed a €5.3 million settlement agreement in August, releasing it from any further liabilities with respect to the liquidation of its former French subsidiary. The cost of the agreement is fully covered by the provision booked in Q1 2013. The €5.3 million negative cash flow effect impacted Q2 2013 results, as the amount was transferred to an escrow account in that quarter, before the final agreement had been signed. I am very pleased that we have finally been able to conclude this agreement, eliminating the losses from our former French subsidiary. The €5.3 million cost should be viewed in the context of the significant negative cash flows generated by the former French subsidiary during the last few years, amounting to €12.5 million in 2012 alone. While Transcom no longer has any operations in France, we continue to offer French-language services to our clients from our near shore centers in Europe and North Africa.
As announced on October 10, Transcom has reached an agreement with the Italian tax authorities, resolving a tax dispute concerning the fiscal years 2003-2005 and 2007-2009. As a result of this agreement, the existing tax provision has been decreased by €2.1 million with a corresponding positive effect on net income this quarter. Achieving clarity regarding Transcom’s financial exposure by reaching a satisfactory settlement agreement concerning these tax claims has been an important priority. I am very pleased about the final outcome regarding the fiscal years 2003-2005 and 2007-2009. The outstanding tax claim regarding the 2006 fiscal year, amounting to €3.7 million – out of which €1.4 million has already been paid – is still under discussion. We expect to be able to announce the final outcome in the near future.
Johan Eriksson, President and CEO of Transcom
The interim report is also available for download on www.transcom.com
Results Conference Call and Webcast
Transcom will host a conference call at 10:30am CET (09:30am UK time) on Tuesday, October 22, 2013. 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
Pass code: 72700732
For a replay of the results conference call, please visit www.transcom.com to view the webcast of the event.
For further information please contact:
Johan Eriksson, President and CEO +46 70 776 80 22
Pär Christiansen, CFO +46 70 776 80 16
Stefan Pettersson, Head of Group Communications +46 70 776 80 88