Transcom: Interim report 1 January – 31 March 2016
”A challenging start to the year with declining volumes in all regions. This is expected to continue into Q2. We are implementing measures that I expect will start to yield improvements in the second half of the year.”
Johan Eriksson, President & CEO
Key highlights Q1 2016
- Organic growth was negative 8.5%, primarily due to declining volumes in the North Europe and Continental Europe regions. Transcom’s previously disclosed decision not to renew an agreement with an Italian public sector client had a negative 3.8% impact on revenue in the quarter.
- EBIT margin decreased to 2.3%, excluding non-recurring items, mainly due to the volume decrease, but also because of price reductions and lower efficiency in Spain.
- We expect the Q2 result to be impacted by continued soft volumes.
- The previously announced realignment of the regional management structure, a Group-wide operational excellence program, and additional measures to address soft volumes are expected to yield improvements starting in the second half of 2016.
- CMS Denmark divested during the quarter, resulting in a €3.5 million gain.
- Agreement reached with lenders for €90.0 million credit facility, replacing existing facility.
Q1 2016 financial highlights
- Net revenue €147.2 million (€160.9 million). Organic growth was negative 8.5%. Currency effects had a positive 0.5% impact, and the divestment of CMS Denmark had a negative 0.6% impact.
- Gross margin excluding non-recurring items 18.6% compared to 19.6% in the same period 2015.
- EBIT in Q1 2016 was €3.8 million (€5.9 million). EBIT excluding non-recurring items was €3.3 million compared to €5.9 million in Q1 2015.
- Non-recurring items in the quarter amount to positive €0.5 million, and consist of a €3.0 million restructuring cost, €2.7 million of which refers to the previously announced alignment of the regional and management structure, and a €3.5 million gain from the divestment of CMS Denmark.
- Net debt €19.4 million compared to €27.1 million at the end of Q1 2015. Net debt/EBITDA 0.7 compared to 0.9 at the end of Q1 2015. Excess cash reduced through more efficient cash management.
- EPS 4.0 Euro cents compared to 20.5 Euro cents in Q1 2015.
Comments from the President and CEO
The first quarter was challenging, and our results are not satisfactory. Profitability was impacted by lower volumes in all regions, but particularly in the North Europe and Continental Europe regions. Volume-related issues will continue to impact our result in the second quarter. We are currently implementing measures to address the volume shortfall.
NEGATIVE ORGANIC GROWTH IN Q1 2016
Organic growth was negative €13.6 million (-8.5%) compared to Q1 2015. In the North Europe region, call volumes with telecom clients in Sweden and Norway was lower than Q1 last year, when we experienced high volumes in the telecom sector. In addition to this, the divestment of CMS Denmark during Q1 2016 had a negative impact on revenue. In the Continental Europe region, our previously disclosed decision not to submit a tender for a new agreement with one of our public sector clients in Italy had a €6.1 million (-3.8%) negative impact on the revenue comparison vis-à-vis Q1 2015. In the region, we also saw lower business volumes with some clients in Spain, as well as an impact due to fewer working days compared to Q1 last year.
2.3% EBIT MARGIN IN Q1 2016, EXCLUDING NON-RECURRING ITEMS
Our EBIT margin in the quarter was 2.3%, excluding non-recurring items.
While profitability increased in the English-speaking markets & APAC region, the result was weaker in the North Europe and Continental Europe regions.
- In the North Europe region, lower call volumes with telecom clients in Sweden and Norway compared to last year impacted on profitability.
- In addition to the impact due to lower volumes in the Continental Europe region, lower prices on some client accounts had a negative effect on profitability. In Spain, we also experienced lower efficiency at one of our contact centers, mainly due to higher absenteeism and training costs.
GROUP-WIDE PROGRAM TO START YIELDING IMPROVEMENTS IN THE SECOND HALF OF THE YEAR
While I expect that the volume and efficiency issues described above will continue to impact our result in the second quarter as well, I am confident that the initiatives we are currently driving in order to reach our five percent mid-term EBIT margin target will result in improvements. First, the realignment of our regional and management structure will yield cost advantages and enhance the opportunity to drive standardization and efficiency across our global business. A non-recurring restructuring cost amounting to €2.7 million, related to these organizational changes, was recorded this quarter. Annual cost savings as a result of the new regional management structure are estimated at €2.9 million, and are expected to take full effect in the fourth quarter this year. I expect further efficiency gains in addition to these direct cost savings to be realized in the coming years. Second, we have launched a Group-wide operational excellence program, including a comprehensive site benchmarking exercise. This program will generate improvements over the coming years, starting in the second half of 2016.
Whilst improving our EBIT margin is our most fundamental and prioritized target at the moment, we are also implementing measures in order to meet our future growth objectives. We aim to continue growing our presence further in English-speaking markets. We have a strong pipeline in the region, and expect to see profitable growth generated by new client agreements in the second half of the year. In addition to this, we are targeting growth in selected markets in Europe, where Transcom has a very strong position to build on.
As a result of the positive profitability trend over the last few years, Transcom’s financial position is strong. At the end of Q1 2016, our net debt/EBITDA ratio stood at 0.7, compared to 0.9 at the end of Q1 2015. During Q1, we divested the Danish Credit Management Services operations (CMS Denmark) for an equity value of €13.0 million, resulting in a €3.5 million gain. This transaction concluded the divestment of Transcom’s former CMS business unit, in line with the company’s strategy to focus on its core business – outsourced customer care solutions (CRM).
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 Wednesday, April 20, 2016. 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. No pass code is required.
Sweden: +46 8 505 564 74
UK: +44 203 364 5374
US: +1 855 753 2230
For a replay of the results conference call, please visit www.transcom.com to view the recorded webcast of the event.
Transcom WorldWide AB (publ) discloses the information provided herein pursuant to the Securities Market Act and/or the Financial Instruments Trading Act. The information was submitted for publication on April 20, 2016 at 08:00 AM CET.
For further information please contact:
Johan Eriksson, President and CEO +46 70 776 80 22
Ulrik Englund, CFO +46 70 286 85 92
Stefan Pettersson, Head of Group Communications +46 70 776 80 88