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Management Statement H1 2013

Exact: Execution of strategy to achieve longer term growth in full swing

Delft, July 31, 2013 - Exact Holding N.V. (“Exact”) has seen significant progress on the execution of its strategy ‘Growth through focus, innovation and simplicity’. This is leading to excellent growth for its Cloud Solutions business. The organizational changes implemented over the last year position the company for longer term growth. Market circumstances in traditional businesses remain challenging, the impact of the organizational restructuring 2012 is visible in the results of Business Solutions.

 

  • Reported revenues are € 105.3 million in H1 2013, compared to € 109.3 million in H1 2012 (decline of 3.7%, or 3.2% on an operational1 basis). Adjusted for the divestment of Orisoft, revenues on an operational basis declined by 2.2%.
  • EBITDA increased by 1.3% to € 23.4 million in H1 2013 from € 23.1 million in H1 2012 as savings accomplished by last year’s restructuring materialized.
  • Net income increased by 52.6% to € 15.3 million and earnings per share (EPS) increased to € 0.67 in H1 2013 from € 0.44 in H1 2012, which will be fully distributed as dividends.
  • Significant progress on the strategy execution led to several major milestones, such as the controlled release of the portfolio of Cloud Solutions in the UK and US and the opening of offices in these countries, as well as in Germany.
  • Cloud Solutions grew Annualized Recurring Revenues for Exact Online by 43.9% to € 20.3 million. Revenues over the first half of 2013 for this business unit grew by 39.5%, with the number of paying companies increasing by 41.3% to 120,591 on June 30, 2013 compared to June 30, 2012.
  • Business Solutions showed revenue decline, while we do see recovery of underlying results with reduced attrition and higher average deal size as a result of the new strategy. Overall revenues on a reported basis declined by 6.6% to € 56.9 million.
  • Revenues for Specialized Solutions declined by 6.5% to € 38.9 million, with declines in all businesses except Lohn in Germany. Part of the declines were due to the trend towards subscription based pricing. Attrition is showing a positive trend.

 

Erik van der Meijden, CEO Exact Holding: “Last year we announced our new strategy: ‘Growth through focus, innovation and simplicity’. Increased focus has led to increased investments in our Cloud Solutions business, resulting in continued strong growth. We achieved major milestones in the international roll out of Cloud Solutions, with opening of offices in the UK, US and Germany and the controlled release of Exact Online in the US and the UK markets. The results of Business Solutions show a decline compared to H1 2012, which was partially due to last year’s organizational restructuring that was completed in the third quarter of 2012, but we do see improvement in attrition rates and increasing deal value in new business wins. The economic climate remains tough in all our traditional businesses. Our Specialized Solutions show mixed results, but the longer term outlook in the specific niche markets remains firm.”

Group Performance - Key figures

Revenues

Reported revenue decreased by 3.7% to € 105.3 million, compared to € 109.3 million in H1 2012 (operational basis: -/- 3.2%). Adjusted for the divestment of Orisoft, revenues on an operational basis declined by 2.2%.

Cloud Solutions continued to grow revenues with a clear momentum for the cloud based offerings (H1 2013: + 39.5%).

The continued difficult market circumstances affected our traditional software businesses. We experienced effects from the economic circumstances across the markets in which we operate with customers postponing investment decisions, leading to lower revenues. The effects of the realignment of the internal organization that was completed in the third quarter of 2012, also depressed revenues in Business Solutions compared to the first half of 2012. Within Specialized Solutions our US manufacturing units showed a decline as customers are delaying investment decisions. Longview sales results were in line with expectations, but due to a stronger than expected shift towards subscription based models, revenues declined year on year. This was particularly true for our tax offering. In the short term this has a negative impact on revenues, but should not affect the overall long term value of the transactions. Our Payroll software provider Lohn in Germany continued to show growth.

Operating expenses

Operating expenses (excluding depreciation and amortization) on a reported basis decreased by 5.0% to € 81.9 million in H1 2013, from € 86.2 million in H1 2012 (operational basis: -/- 4.5%).

Prior year operating expenses included one-time charges of € 1.7 million and operating expenses for Orisoft of € 1.0 million. Following the completion of the restructuring carried out in the second half of 2012, we also saw operating expenses decrease further due to cost-savings effects.

EBITDA and EBIT

EBITDA on a reported basis increased by 1.3% to € 23.4 million in H1 2013 from        € 23.1 million in H1 2012 (operational basis: + 1.4%). The decrease in operating expenses fully compensated the decrease in revenues.

EBIT on a reported basis increased by 13.8% to € 18.6 million in H1 2013 from € 16.3 million in H1 2012 (operational basis: + 13.7%). EBIT for H1 2012 included a one-time charge for the impairment of Orisoft in the amount € 2.2 million. Depreciation and amortization (excluding impairments) increased slightly to € 4.8 million (H1 2012: € 4.5 million).

Interest and tax

Total finance income and expenses for the first half year were close to nil compared to € 2.0 million expenses in the same period prior year, which included a one-time correction of a cash flow hedge of € 1.6 million. The effective tax rate decreased from 30.0% in H1 2012 to 17.3% in H1 2013, which is mainly the result of significant one-time charges in H1 2012. The tax rate in the comparable period last year included the negative financial impact of the reassessment of our deferred tax position in relation to innovation tax facilities and the impairment of Orisoft (not deductible for tax purposes).

Net income and EPS

Net income attributable to shareholders amounted to € 15.3 million (H1 2012: € 10.0 million). Earnings per share (EPS) are € 0.67 (H1 2012: € 0.44). Exact’s H1 2012 results were impacted by one-time charges that had a negative impact of € 6.1 million total.

Exact will pay an interim cash dividend of € 0.67 per share, which is in line with the dividend policy to issue dividends at 100% of net income unless the year-end cash position drops below € 40.0 million or in case of significant acquisitions. The dividend will be payable to holders of ordinary shares on August 7, 2013 close of business. The shares will go ex-dividend on August 1, 2013.

Cash flow

The cash position increased by € 2.7 million to € 60.9 million compared to December 31, 2012 (€ 58.2 million).

Net cash from operating activities in H1 2013 decreased by € 2.5 million compared to H1 2012. Although profit before tax increased by € 4.2 million in H1 2013 compared to H1 2012, the comparative period included significant non-cash charges including the impairment of Orisoft for € 2.2 million, the recycling of a cash flow hedge for € 1.6 million and changes in working capital, mainly a reduction of trade receivables, which more than offset the profit increase. Net cash used in investment activities in H1 2013 increased by € 1.9 million compared to H1 2012, which is driven by increased capitalization of R&D expenses of € 2.1 million. Net cash used in financing activities in H1 2013 decreased by € 7.3 million compared to H1 2012. In H1 2013 a dividend was paid in the amount of € 12.8 million compared to € 19.9 million in H1 2012.

The average days sales outstanding increased to 54.8 days (H1 2012: 53.9 days).

Segment information

In the third quarter of 2012, the organization was transformed from a geographical matrix organization into an organization with end-to-end business units. As of January 1, 2013, Exact presents its segment reporting in line with the new Business Unit structure, comprising Cloud, Business and Specialized Solutions. The comparative numbers for the first half of 2012 have been restated to reflect the changes in operating segments.

The sum of the EBITDA’s in H1 2013 reconciles to the consolidated EBITDA if an amount of -/- € 4.2 million (H1 2012: -/- € 4.8 million) for Corporate functions is taken into account. These amounts were not allocated to the specific segments.

Cloud Solutions

Total revenue on a reported basis for Cloud Solutions increased by 39.5% to € 9.5 million in H1 2013 from € 6.8 million in H1 2012 (operational basis: + 39.5%). The growth in revenue was driven by Exact Online, with the number of paying companies increasing to 120,591 and the Annualized Recurring Revenues as at June 30, 2013 amounting to € 20.3 million (June 30, 2012: € 14.1 million).

Cloud Solutions showed continued strong growth in revenues and Annualized Recurring Revenues, with a particular strong inflow for industry solutions in the Netherlands as well as a continued strong performance of accountancy solutions in both the Netherlands and Belgium. The international roll-out is progressing well, with the controlled release in the UK and US on track and the opening of offices in London and Boston. General availability for both the UK and US is planned for Q4 of this year. We also opened an office in Frankfurt and will start the controlled release in Germany in Q3. We released various product innovations that play into the key trends in the market, in particular the demand for the ‘consumerization’ of enterprise applications and the strong trend towards mobility through mobile devices. We have launched a new Wholesale Distribution Advanced product, improved our mobile apps for IOS and Android based smart phones and introduced Exact Online for use on the iPad.

Operating expenses increased by € 5.0 million or 51.5% to € 14.7 million in H1 2013 compared to € 9.7 million in H1 2012. The increase in operating expenses is driven by the growth of the development organization and the cost for the international roll-out. The increase is partially offset by increased capitalization of R&D.

Business Solutions

Total revenue on a reported basis for Business Solutions fell by 6.6% to € 56.9 million in H1 2013, from € 60.9 million in H1 2012 (operational basis: -/- 6.5%). The decline in operational revenue was primarily caused by the challenging economic circumstances and the effect of the realignment of the internal organization that was completed in the third quarter of 2012. Although Business Solutions continued to feel the pressure from the organizational restructuring, the underlying results began to show clear progress as attrition declined and average deal size increased. Revenue declined in line with expectations, with a growing appetite for the subscription based pricing models that were introduced last year.

Last year’s reorganization not only reduced costs, but also reduced non-profitable revenues in the international organization. We increased our focus on new business with larger customers, and were able to close key client contracts and partnerships. We recently established a partnership with Qlikview, a market leader in both ERP and Business Intelligence (BI), which enables customers throughout an organization to meet their reporting needs. In a newly established cooperation with Preactor, Exact supports specific needs of bigger manufacturing companies, enabling Exact to expand its existing ERP offering to a wide range of manufacturers adding access to advanced planning solutions. Exact continues to put significant efforts in the partner channel, and although the difficult economic circumstances impact the current results, we are confident this will reap results in the longer term. The customer intimacy programs we initiated in Q1 2013 to reduce attrition, show the first encouraging results. Attrition went down from 8.7% in H1 2012 to 7.5% in H1 2013.

Specialized Solutions

Total revenue on a reported basis for Specialized Solutions fell by 6.5% to € 38.9 in H1 2013 from € 41.6 million in H1 2012 (operational basis: -/- 5.5%). The decline in operational revenue was primarily caused by the challenging economic circumstances, the effect of the divestment of Orisoft in the second half of 2012 (revenues of € 1.0 million in H1 2012) and the trend towards subscription based pricing.

Within Specialized Solutions, results showed a mixed picture. The manufacturing solutions in the US faced challenges on the license and service area, however attrition levels came down. After a strong 2012 revenues for JobBOSS were somewhat disappointing. The established businesses operate in profitable niches, and their strong position is a basis for the expansion of Exact with the Online proposition. Longview revenue declined slightly as we see a trend towards subscription based models, especially for our tax offering. Revenue within Exact Lohn continued to grow with attrition well under control.

Outlook 2013

Exact is making significant progress on the execution of its strategy ‘Growth through focus, innovation and simplicity’. There is a strong focus on innovation, with significant investments in R&D to play into the key trends in the market. We expect Cloud Solutions continuing to grow by 30 to 50% per year in the coming years, as our customer base expands and the international rollout gets traction. For Business Solutions and Specialized Solutions, we are aiming for a low single-digit growth in more mature markets. All in all, we expect to grow revenue over time with a growth level of 4 – 7%.

The challenging economic climate in which we operate continues to put pressure on results in Exact’s traditional software businesses. The performance in the first half year was in line with management expectations. Management reiterates the full-year outlook, as given at the announcement of the 2012 results in February of this year, of EBITDA between € 47 million and € 52 million.

 

1 Operational financial data consider the impact of foreign exchange rates by translating prior year’s results at current year’s exchange rates.

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Exact. And it all comes together.

Exact is a leading global supplier of business software. Since we began in 1984, our focus has shifted from supporting financial processes to providing a complete ERP offering for small and medium-sized businesses. Innovative solutions such as Exact Globe, Exact Synergy and Exact Online support over 100,000 customers – local and international companies – in the daily management of their business.

Exact develops industry-specific on-premise and cloud solutions for manufacturing, wholesale and distribution, professional services and accountancy. Exact is headquartered in Delft, the Netherlands, and has been listed on the NYSE Euronext Amsterdam since June 1999. The company booked revenue of € 217.1 million in 2012.

For further information about Exact, visit www.exact.com.

For further information

Media Relations

Exact Holding N.V.

Jelle Zuidema

Tel: +31 (0)15 711 5462 or +31 (0)6 4179 4588

 

Investor Relations

Exact Holding N.V.

Onno Krap

Tel: +31 (0)15 711 5001

E-mail: ir@exact.com

 

Citigate First Financial

Claire Verhagen

T: +31 (0) 20 575 4010 or +31(0)6 5051 6325

E: Claire.Verhagen@citigateff.nl

 

Exact Holding N.V.

P.O. Box 5066

2600 GB Delft

The Netherlands

 

Tel: +31 (0)15 711 5000

Fax: +31 (0)15711 5010

 

www.exact.com

 

This document contains certain statements and expectations that are forward looking, and which are based on information and plans that are currently available. By their nature, such forward looking statements and expectations generate risk and uncertainty because they concern factors and events in the future and depend on circumstances which may not occur.

Unforeseen factors that could influence the statements and expectations may for instance be changes in expenditure by companies in the markets we operate in; economic, political and foreign exchange fluctuations; possible statutory changes; changes in salary levels of employees; future take over and divestitures.

 

Exact can therefore not guarantee that such statements and expectations are accurate and complete, nor that such statements and expectations will be realized. Actual results may differ materially. Exact refuses to accept any obligation to update statements made in this document.

Jelle Zuidema

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