FULL YEAR REVENUES UP 20% TO €444.8 MILLION & NET INCOME UP 42% TO €24.5 MILLION
Luxembourg, 13 February 2006 - Transcom WorldWide S.A. (‘Transcom’) (Stockholmsbörsen: TWWA, TWWB), the European CRM and collections specialist, today announced its financial results for the fourth quarter and full year ended 31 December 2005. FOURTH QUARTER HIGHLIGHTS • Net sales up 20% to €124.4m (€103.7m) • Pre-tax profit up 31% to €10.7m (€8.2m) • Net income up 41% to €8.6m (€6.1m) • EPS before dilution increases to €0.12 (€0.08) • Non Kinnevik related party sales up 26% to €30.9m FULL YEAR HIGHLIGHTS • Net sales up 20% to €444.8m (€369.7m) • Pre-tax profit up 36% to €32.7m (€24.0m) • Net income up 42% to €24.5m (€17.3m) • EPS before dilution increases to €0.34 (€0.24) • Non Kinnevik related party sales up 25% to €112.9m Note: All non-sales numbers for 2004 above exclude goodwill amortisation for comparative purposes. Commenting on Transcom’s results, Keith Russell, President and Chief Executive Officer, said: “I am pleased to announce yet another year of excellent operating and financial performance at Transcom. Our revenue growth has continued to significantly outpace the wider industry and our focus on reducing costs has helped us to achieve record earnings. “Looking ahead, there are a number of factors working to our advantage. For the first time in three years, CRM prices are rising, not falling. Our near-shore centres are proving their effectiveness, with a number of major international clients choosing Transcom’s solutions in 2005. In addition, the recent acquisition of Dr. Finsterer + Koenigs Inkasso GmbH, a leading German debt collection company, has increased the scale of our collections business, strengthening our competitive position and enabling us to win larger collections contracts moving forward.” OPERATING REVIEW Transcom, the European CRM and collections specialist, continued to demonstrate strong growth in 2005. The Company reported 20.0% year on year net sales growth to €124.4 million (€103.7 million) in the fourth quarter, and 20.3% growth to €444.8 million (€369.7 million) for the year ended 31 December 2005. The growth was almost entirely organic and was driven by a strong performance in all areas of the business, with particularly high demand for near-shore and off-shore services and substantial new sales to non Kinnevik related party customers. New CRM Clients Added in Key Vertical Markets Transcom benefited from the signing of several new CRM contracts during the fourth quarter, including utilities company ‘Energiedirect’ in the Netherlands, leading Swedish consumer goods company ‘International Trading House’, and credit & finance group ‘SMSCash’ in Belgium. Transcom strengthened its relationships with a number of existing clients during the fourth quarter, including a new service agreement with ‘Citibank’ in Portugal and a further contract with ‘E.ON’ in Sweden. Transcom also increased the number of seats servicing the Delta Airlines contract, in line with its initial plans to support Delta’s domestic US reservations. Network Expanded in Line with Regional Growth Transcom expanded its operations during the fourth quarter, with the addition of over 100 seats at the Raon L’Étape centre in France to serve the needs of existing clients and 25 new seats in Liege, Belgium to provide capacity for new clients. Transcom continued to invest in its newest centre in Tunis, Tunisia and also expanded the voice channel capacity of the Vilnius, Lithuania site during the fourth quarter. Transcom now employs more than 11,700 employees in 48 service centres, serving 26 countries. Debt Collection Business Strengthened by German Acquisition & New Client Wins Transcom remained focused on growing its debt collections business during 2005 in order to enhance Group margins. The collections business made significant strides to organically grow its business during the year. Transcom now has debt collection operations in 11 country markets, giving it the second largest geographic footprint in Europe. Building on the Company’s experience in a variety of vertical markets, a number of new debt collection customers were signed up during the fourth quarter. These included leasing company ‘Ford Financial’ and ‘Hispamer’, the consumer finance division of Grupo Santander in Spain, as well as ‘Aguas de Valencia’ in the utilities sector and insurance group ‘Cigna’. Transcom finalised a four-year service contract with a leading multinational office equipment and services company in January 2006 by which the customer’s "Queries and Complaints" and “Collections” departments in Southern and Central Italy will be outsourced to Transcom. This partnership opens up new possibilities for Transcom in the area of asset transfers from the back-office departments of major corporations. In order to further develop the debt collection business, Transcom is actively seeking partnerships with leading purchasers of European consumer debt portfolios. Under such an arrangement, Transcom would be responsible for collecting funds from the portfolio’s debtors and would only be required to place a small percentage of the portfolio’s value on its balance sheet. Such opportunities provide an attractive business model, enabling rapid organic growth without the need for acquiring and integrating external agencies. Transcom continues to strive towards its target of deriving half of its profits from collections business however due to the improved performance of the CRM business and the lower than expected investment to date in collections acquisitions, this goal is now expected to be achieved by the fourth quarter of 2007. External Revenue Growth Continues to Surpass that of Overall Market Consistent with previous years, Transcom continues to derive a significant proportion of its income from its principal client, Tele2, which is Europe’s leading alternative telecommunications provider. The strong relationship between Transcom and Tele2 has been instrumental in helping Transcom build the largest and most efficient pan-European CRM network. Transcom’s long-term strategy remains to reduce its reliance on Tele2’s business and significant progress was made in growing the non-Tele2 and non Kinnevik related client base during 2005. Revenue from such external clients grew by 26.1% year on year to €30.9 million in the fourth quarter. External business represented 25.4% of revenues in 2005, compared to 24.5% in 2004. Transcom’s expanding network of new business contacts will enable the Company to grow its external client base further in 2006 and beyond. Focus on Cost Control Results in Improved Operating Margins Excluding the goodwill amortisation charge for 2004 for comparative purposes, Transcom’s operating margin increased to 8.6% (7.9%) in the fourth quarter, and to 7.4% (6.5%) for the full year, as a result of robust revenue growth and continued cost control. Transcom maintained its focus on delivering margin improvements during the period, with a further reduction in selling, general and administration (SG&A) costs as a percentage of revenue to 13.2% (15.2%) in the fourth quarter and 13.5% (14.9%) for the full year. Net interest and other financial items were stable year on year and Transcom therefore reported a 30.5% year on year increase in pre-tax profits to €10.7 million (€8.2 million) in the quarter and a 36.3% increase for the full year to €32.7 million (€24.0 million), again excluding goodwill amortisation charges for 2004. Outlook With continued strong demand for CRM services across Europe, Transcom expects to continue to outperform the market. The sales pipeline at the beginning of 2006 is stronger than it was at the same time last year, with many companies requiring pan-European and multi-lingual capabilities at competitive rates, for which Transcom’s near-shore solutions are perfectly suited. Given the increased scale of its debt collection business and a growing track record in a wide range of sectors, Transcom also anticipates strong growth in its debt collections business, which will augment Group margins. New growth areas, such as establishing long-term partnerships with debt portfolio purchasers and securing additional asset transfer contracts, will further strengthen Transcom’s position moving forward. FINANCIAL REVIEW Revenues Revenues for the fourth quarter were up 20.0% to €124.4 million in the fourth quarter, compared to €103.7 million in the fourth quarter of the prior year. Full year revenues were up 20.3% to €444.8 million, compared to €369.7 million in the prior year. The year on year increase in revenue reflects a 24.5% increase in external sales and a 22.9% increase in sales to Tele2. The fourth quarter result was accounted for by an increase of 26.1% in non Kinnevik related party revenue, a 21.3% increase in sales to Tele2 and a 25.0% reduction in other Kinnevik related party revenue. The full year result consisted of an increase of 24.5% in non Kinnevik related party revenue, a 22.9% increase in sales to Tele2 and a 24.3% reduction in other Kinnevik related party revenue. As mentioned in previous earnings releases, the decline in other Kinnevik related party revenue reflects the successful completion of the CRM activities surrounding the conditional access smartcard swap carried out by Modern Times Group in 2004. Gross Margin Transcom’s gross margin was 21.9% in the fourth quarter of 2005, compared to 23.1% for the corresponding period of 2004. The full year gross margin was 20.9%, compared to 21.5% in the prior year. The fourth quarter gross margin was somewhat impacted by a year on year increase in the level of sub-contracted and overflow labour, which provides lower gross margins than own staff produced revenue. Operating Expenses In the fourth quarter, overall operating expenses, before depreciation and goodwill amortisation, amounted to €16.4 million, compared to €15.8 million in same period of the prior year. Operating expenses for the full year totaled €60.0 million compared with €55.0 million for the previous year. As a percentage of revenues, this amounts to a year on year decrease from 14.9% to 13.5%. Transcom continues to maintain strong discipline in reviewing operating expenses. Earnings before interest and taxes (EBIT) Fourth quarter operating income increased by 31.7% year on year (excluding goodwill amortisation charges in 2004) from €8.2 million to €10.8 million. Full year operating income increased by 35.1% year on year (again excluding goodwill amortisation charges in 2004) from €24.5 million to €33.1 million. Net income Net income for the fourth quarter was up 41.0% year on year to €8.6 million from €6.1 million when excluding goodwill amortisation charges in 2004. Net income for the full year grew by 41.6% to €24.5 million from €17.3 million when similarly excluding goodwill amortisation charges in 2004 for comparative purposes. Cash flow, working capital and liquid funds Cash flow generated from operating activities increased by 27.8% to €34.9 million for the full year from €27.3 million in 2004. Capital expenditure decreased by 2.8% to €10.5 million (€10.8 million) for the full year. Transcom’s capital expenditure in the fourth quarter included the addition of over 100 seats at the Raon L’Étape centre in France and a further 25 seats at Transcom’s site in Liege, Belgium. Investments were also made in Transcom’s operations in Tunis, Tunisia and Vilnius, Lithuania. As at 31 December 2005, Transcom had €51.4 million in liquid funds and a net cash position of €43.1 million, compared to liquid funds of €37.7 million and a net cash position of €25.2 million as at the end of 2004. OTHER INFORMATION 2006 Annual General Meeting The 2006 Annual General Meeting of shareholders (AGM) will be held on 30 May 2006 in Luxembourg. Details on how and when to register, as well as how to have a matter considered at the meeting, will be published well in advance of the AGM. Nomination Group for the 2006 Annual General Meeting A Nomination Group of major shareholders in Transcom WorldWide S.A. has been convened in accordance with the resolution of the 2005 Annual General Meeting. The Nomination Group is comprised of Cristina Stenbeck on behalf of Emesco AB and Investment AB Kinnevik; Björn Lind on behalf of SEB Fonder and SEB Trygg Liv; and Annika Andersson on behalf of the Fourth Swedish National Pension Fund. The group currently represents more than 50 per cent of the voting rights in Transcom WorldWide S.A. The composition of the Nomination Group may be changed to reflect any changes in the shareholdings of the major shareholders during the nomination process. Information about the work of the Nomination Group can be found on Transcom’s corporate website at www.transcom.com. The Nomination Group will submit a proposal for the composition of the Board of Directors that will be presented to the 2006 Annual General Meeting for approval. Shareholders wishing to propose candidates for election to the Transcom Board of Directors should submit their proposals in writing to firstname.lastname@example.org or to The Company Secretary, Transcom WorldWide, 11 Boulevard Royal, L-2449 Luxembourg. This report has been prepared in accordance International Financial Reporting Standards (IFRS) and has been subject to review by the Company’s auditors. Notice of Financial Results Transcom’s financial results for the first quarter and three months ended 31 March 2006 will be published on 25 April 2006. *Note: to obtain tabular financial information for this release, please contact Shared Value on +44 (0)7321 5010. -------------------------------------------------------------------------------------- Keith Russell, President and CEO Luxembourg, 10 February 2006. Transcom WorldWide S.A. 75, route de Longwy L-8080 Bertrange, Luxembourg +352 27 755 000 www.transcom.com Company registration number: RCB59528 For further information please contact: Keith Russell, President and CEO +352 27 755 000 Noah Schwartz, Investor & Press enquiries +44 20 7321 5032 About Transcom Transcom WorldWide S.A. is a rapidly expanding Customer Relationship Management (CRM) solution provider, with 48 service centres employing more than 11,700 people delivering services to 26 countries - Luxembourg, Sweden, France, Denmark, Germany, Finland, Italy, Switzerland, Belgium, Hungary, Norway, the Netherlands, Spain, Austria, Morocco, Poland, Portugal, Estonia, Latvia, Lithuania, Serbia, the UK, the Czech Republic, the Slovak Republic, Croatia and Tunisia. The company provides CRM solutions for companies in a wide range of industry sectors, including telecommunications and e-commerce, travel & tourism, retail, financial services and utilities. Transcom offers clients a broad array of relationship management services, including inbound communication; telemarketing and outbound; Administrative Tasks; Web servicing; CRM Consultancy Service; Contract Automation; Credit Management Service; and Legal Services. Client programs are tailor-made and range from single applications to complex programs, which are offered on a country-specific or international basis in up to 39 languages. Transcom WorldWide S.A. ‘A’ and ‘B’ shares are listed on the Stockholmsbörsen O-List under the symbols TWWA and TWWB.