31.03.2009 | Austria

S&T solutions and services business grew in 2008

Growth in quality as well as increased productivity

Solutions and services projects made up 51 % of total sales at the S&T Group in 2008 – which equates to a clear increase of 6 percentage points compared to 2007 and constitutes an important step toward achieving the strategic goals of the company. Total sales for the IT consultant and service provider amounted to 513.4 million euros – close to the figure from the previous year (2007: 522.2 million euros / -2 %). In 2008, S&T achieved an EBIT of 9.1 million euros (2007: 13.0 million euros / -30 %) and an EBITDA of 16.4 million euros (2007: 20.4 million euros / -20 %). In 2009, S&T will make targeted use of its strengths and opportunities in order to continue the successful development of the company.
By 2011, S&T is aiming to achieve approximately 60 % of overall sales from IT solutions and services. The results from the 2008 financial year provide a solid basis for achieving this, despite the difficult market conditions. In the Managed Services division (outsourcing and outtasking of infrastructure) alone, the business achieved sales of 104.9 million euros, which represents growth of 21 % (2007: 86.5 million euros). Sales in the field of software solutions and IT/SAP consulting (Business Solutions) rose by 5 % to reach 156.2 million euros (2007: 149.1 million euros). These increases have been attained as a result of measures implemented to increase productivity, with employee numbers remaining constant in comparison to 2007.

The Enterprise Systems business division registered sales in 2008 of 252.3 million euros (2007: 286.6 million euros / -12 %), with this decrease from the previous year primarily being the result of exchange rate volatility in the second half of the year and the somewhat disastrous decline in the value of various currencies towards the end of the year, in particular the Ukrainian hryvnia, the Hungarian forint and the Romanian leu. However, margins in this business division have continued to improve and its positive effect on the services and consulting business has been utilized. “Considering the poor overall economic development in 2008 we have attained respectable results, although they could certainly have been better in the first half of the year. 2009 will be no less challenging, but we will tackle it with an aggressive approach,” comments Christian Rosner, CEO S&T.

Good performances: Romania, Ukraine, Croatia and Japan

With sales of 155.2 million euros (-9 %), the S&T Central region* made the largest contribution to the group’s total sales in 2008, followed by DACH with 149.3 million euros (+6 %). The highest growth was achieved in the Asia region, with an increase of +8 % to 13.0 million euros, although the absolute values are still quite small. The Adriatic region remained stable with sales of 117.0 million euros (0 %), whereas sales decreased slightly in the East region to 78.9 million euros (-4 %), mainly because of the above mentioned currency issues. Rosner: “At the individual country level, Romania, Ukraine, Croatia and Japan in particular, as well as some smaller countries, have delivered outstanding contributions to the group results. The performances in Russia, Turkey, Hungary and the DACH region unfortunately came in below our expectations.”

Balanced industry mix

As in previous years, the largest contribution to the S&T Group’s sales came from orders in the manufacturing industry. In 2007, 26 % of sales were a result of projects for the manufacturing industry, and this figure grew to 33 % in 2008. Orders from companies such as Danone in Russia and Mondi Frantschach in Austria have contributed to this development. The share of group sales in the financial services industry dropped slightly, to 19 % from 21 % in 2007. Respective 15 % contributions to group sales were made by the field of retail trade (2007: 14 %), including projects for companies such as Spar Austria, M.video, and Direct Trade, and the field of telecommunications providers (2007: 17 %), including projects for operators such as Bulgarian Telecom and Kievstar GSM Ukraine. 12 % (2007: 15 %) of group sales were related to projects in the field of public administration (numerous government ministries as well as the postal services in Montenegro and Serbia and the state forestry agency in Poland) and 6 % (2007: 7 %) came from the area of energy suppliers and utilities, a figure which includes large projects for OMV and the China National Petroleum Corporation.

Balanced net result

Although S&T could not entirely avoid the effects of the economic downturn in 2008, as reflected by the EBIT of 9.1 million euros (2007: 13.0 million euros / -30 %) and EBITDA of 16.4 million euros (2007: 20.4 million euros / -20 %), the company could still achieve a balanced net result of -0.3 million euros (2007: 3.8 million euros). The result was adversely affected primarily by project restructuring in the first half of the year, as well as exchange rate fluctuations and difficulties in obtaining financing for large projects. The gross margin developed positively, increasing from 34 % in 2007 to 39 % in 2008, mainly as a result of the solutions and services business. “Our group has a solid foundation, and is secured in the mid-term with attractive financing conditions. The crisis offers us opportunities too, of course, and we want to make the most of these in order to gain more market share and to continue on our path of successful development. Nevertheless, strict cost control continues to be an important issue,” states Rosner.

Share price affected

The S&T share price managed to hold its own against the negative trend in the first quarter of 2008, and then mirrored the general market development before losing considerable ground in mid October due to the turbulence surrounding AvW, one of the large S&T shareholders. The price of 46.20 euros recorded on January 2nd, 2008 was not bettered during the course of the year, and shares ended the year valued at 8.80 euros (-81 %). This gave a market capitalization of 31.5 million euros. This unfortunately equates to only 6 % of total sales and is 1.9 times the size of the EBITDA.

Stable employee numbers

The number of employees at S&T remained stable in 2008, with a figure of 3,135 compared to 3,138 in 2007. The company also invested heavily in this financial year in providing training and further education for personnel, as well as in implementing further improvements in cross-border resources management and in the optimization of the internal organization, with a stronger structural alignment to the group’s core areas of business. These measures have brought about significant improvements in productivity.

Challenging 2009

The 2009 financial year will also be a challenge for S&T, although the company is well prepared with its strong market position. The main potential risk factors are a result of the economic crisis and include increased market consolidation, project postponements and delays, the expected intensive price dumping and difficulties in obtaining financing for large projects. Rosner: “We are assuming that uncertainty relating to the S&T shareholder structure will be resolved by the second quarter and will no longer burden the group.”
“Nobody knows if the bottom of the cycle has already been reached, but we see that the incentives to invest in IT are still weak and that the multiplier effect of the IT sector on the overall economy is clearly underestimated, whereas some customers have already understood that IT is a part of the solution and creates opportunities rather than being part of the problem. The going could be quite tough until at least the fourth quarter,” states Rosner.

Make the most of opportunities

In 2009, the S&T Group will be playing to its strengths, such as the good regional presence of the company in various economic regions, its good customer mix and the diverse industry sectors of customers. S&T has strong market positions in its individual countries and is aiming to further strengthen these – local presence close to customers is advantageous in particular for the consulting and services business. Furthermore, S&T has very experienced management teams in the individual countries and has a flat and rapid decision making hierarchy across the group. And, not least, S&T has the opportunity to increase the quality of its personnel by virtue of capacity released from other companies. Rosner: “We continue to be a stable, flexible and competent partner for our customers.” S&T is available to support these customers when it comes to implementing innovative IT solutions in order to make a significant contribution to combating the crisis, and thereby enabling companies to emerge from the crisis in a very competitive starting position. “On average, IT costs only make up 2 to 6 % of the overall costs of a business. This means that even drastic cost cutting in IT will not make a significant contribution to reducing overall costs, but can have a very negative effect on the ability to carry out the core activities of a company. Conversely, investments in core IT themes, such as standardization, consolidation, and outsourcing and outtasking, can lead to significant improvements in efficiency and productivity without requiring a huge outlay in terms of cost. IT is increasingly making ‘the’ crucial competitive difference for businesses – one should keep this in mind at this time and master the crisis with cautious optimism.”

*S&T Regions:
Central: Czech Republic, Hungary, Moldova, Poland, Slovakia, Ukraine
Adriatic: Albania, Bosnia-Herzegovina, Croatia, Macedonia, Montenegro, Serbia, Slovenia
East: Bulgaria, Romania, Russia, Turkey
DACH: Austria, Germany, Switzerland
Asia: China, Japan
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