TRANSCOM REPORTS FINANCIAL RESULTS FOR THE THIRD QUARTER AND NINE MONTHS
ENDED 30 SEPTEMBER 2011
Luxembourg, 19 October 2011 - Transcom WorldWide S.A., the global
outsourced services provider, today announced its 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 (http://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 (http://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 (http://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 (http://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
TRANSCOM REPORTS FINANCIAL RESULTS FOR THE THIRD QUARTER AND NINE MONTHS ENDED 30 SEPTEMBER 2011
| Source: Transcom WorldWide S.A.
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