08.04.2010 | Austria
S&T: Tough Headwinds in the 2009 Financial Year
A service-oriented solutions portfolio and high-powered organization to lead the company into the future
Group business development and measures carried out
Budget cutbacks and project delays on the part of customers had a negative impact on S&T’s performance in 2009, particularly in the consulting business and Business Solutions segment. The infrastructure service and outsourcing segments remained stable for the most part, and continued to report good profitability. In individual markets, the consequences and effects of regional economic stimulus programs varied considerably. Whereas business in the Ukraine was severely impacted by the recession, the Croatian and Serbian markets developed quite satisfactorily.
Sales of the S&T Group must be considered in the light of this market environment. Total Group sales amounted to EUR 411 million in the 2009 financial year, down 18% from the level of EUR 503 million generated in the previous year (adjusted for discontinued operations*). On balance, service proceeds once again comprised about half of total revenues. The gross margin remained stable at 38.3%, compared to 38.6% in 2008.
Following the publication on February 10, 2010 of its preliminary results for the 2009 financial year, new facts arose relating to the business transactions carried out in 2009, which must now be taken into account in the consolidated financial statements for the 2009 financial year. These circumstances involve risk provisions in the BS (Business Solutions) segment for large projects in Germany, Switzerland and Romania, which will also affect earnings in the first quarter of 2010.
The negative EBIT, which declined to EUR -3.1 million compared to EUR 11.6 million in 2008, can be primarily attributed to one-off expenditures as well as to lower business volume and the cyclically-related downward pressure on prices. The company already initiated comprehensive organizational and personnel changes in the affected business areas in order to return to sustainable profitability. In addition to appointing Peter Trawnicek as the new Chief Operating Officer for the Business Solutions segment effective February 2010, the organization of the national subsidiaries in the German speaking areas of Europe was restructured. A local country management and a new sales organization will promote proximity to the market and to customers in Austria, Germany and Switzerland.
Liquidity continued to be at a satisfactory level despite the considerable loss posted by the S&T Group, and EBITDA (EUR 2.8 million) also remained positive. Very favorable refinancing terms and conditions are available for non-current liabilities, however the average term to maturity of these liabilities declined due to their falling due.
Professional competence and competitiveness maintained despite cost adjustments
Comprehensive forward-looking measures were carried out in 2009. In particular, the cost basis was significantly optimized. During the course of the year, the total number of employees in the S&T Group with the exception of the divested subsidiaries in Turkey, Russia and China was reduced by about 10%, partly on the basis of natural attrition. As a result, S&T succeeded in cutting staff costs by 12.5%. It also reduced other operating expenses by 12.7%, primarily by reducing rented office space and achieving general savings in the cost of materials. All cost adjustments were implemented while paying considerable attention to maintaining high quality service and the professional competence of the S&T Group.
Development of segments
Business Solutions (BS): Demand for IT solutions and process consulting is expected to increase again in 2010. Transformation processes must be technologically supported and mapped out. S&T rises up to this challenge by making its extensive expertise available to customers. Although selected IT solutions are the decisive key to ensure higher productivity, the Business Solutions segment was seriously affected by customer restraint in making new IT investments in 2009. A particularly high project risk was also perceptible in the Business Solutions segment in 2009. The general trend towards “fixed price projects” put additional pressure on prices which could be charged.
Infrastructure Solutions (IS): In addition to its virtual data center, S&T also offers complete purchasing services as well as the installation and maintenance of complex IT infrastructures. The expertise offered by S&T ranges from simple workplace computers to complex network, security and storage concepts. The IS segment encompasses the two previous business areas “Enterprise Solutions“ and ”Managed Services“, which had been reported separately up until the third quarter of 2009. S&T decided to implement this change on the basis of the high operational and contractual integration. Despite customers’ stopping or redimensioning numerous infrastructure projects, sales in 2009 were in line with the overall market development, but profitability was much higher than the performance of the IT market. Servicing and maintenance contracts extending over a period of several years had a positive impact on this segment and will continue to comprise a solid basis for earnings in the future.
Summary and outlook
S&T continued to determinedly pursue its long-term strategic goals and values, adjust structures and exploit market opportunities in the crisis year 2009 as well. Despite the major decline in business volume and earnings in 2009, S&T managed to expand its service offering, particularly with regard to outsourcing and industry solutions, and further intensify its long-term strategic orientation. The company considers itself to be well positioned to meet the challenges of the future, based on its innovative and customer-oriented portfolio, considerably streamlined cost structures, broad customer base, newly recruited managers and its strengthened sales and marketing activities.
Nevertheless, there are still ongoing project difficulties, particularly in German speaking markets. As a consequence, S&T expects to continue posting a loss in the first quarter of 2010.
“We have created efficient structures and adjusted capacities to the market environment. We are moving full steam ahead to focus on our operating business, further intensify our sales strength and optimize project management and controlling”, says CEO Christian Rosner, commenting on the main challenges faced by the S&T Group.
The visibility on the marketplace remains very limited. For this reason, S&T remains cautious in making market forecasts in respect to its business development. However, it anticipates a slightly positive trend starting in the second half of 2010.
*) Discontinued operations: S&T’s withdrawal from several core markets was implemented by closing down its Turkish subsidiary and selling a majority shareholding in its Russian subsidiary to a strategic partner. Discontinued operations also encompass the disposal of the Chinese subsidiary to a strategic partner, which was prepared and approved in 2009. The comparable figures for the 2008 financial year were correspondingly adapted. S&T continues to operate on the Russian and Chinese markets via a strategic partner and minority stake respectively.