Forecast report
According to the European Information Technology Observatory (EITO), the European IT market will grow by 2.7 percent to EUR 320 billion in 2012, following a decline of 0.6 percent in 2011. The weak economy and uncertainty are expected to impact on IT demand in particular in the countries that are most affected by the crisis in Europe. However, there are better forecasts for the software industry in mainland Europe – revenue from system and application programs throughout Europe is forecast to grow by 4.6 percent to around EUR 70 billion in 2012. The German association for the industry (BITKOM) anticipates that next year the market for information and communications technology (ICT) in Germany will exceed the EUR 150 billion mark for the first time. An increase of 2.2 percent to EUR 151.3 billion is forecast for 2012. Within the German ICT market, the IT sector is ahead with an increase of 4.5 percent to EUR 73 billion. Software revenue has been seeing particularly strong growth for years. After an increase of more than 5 percent in 2011, this is expected to increase again in 2012 by more than 5 percent to EUR 17 billion.
In 2011, REALTECH began adapting its long-term strategy to the economic situation on international markets. The year under review was thus shaped by initial transformations at all organizational levels. The previously rather loosely connected business units of the company’s foreign subsidiaries, offering somewhat differing service ranges, have made it increasingly difficult to generate leverage effects from synergies. Bearing this in mind, REALTECH introduced initial steps in 2011 with a particular focus on standardizing the consulting portfolio while at the same time placing an increased emphasis on products at the company’s existing international subsidiaries.
Group revenue in fiscal year 2011, at EUR 39,178 thousand, remained on a par with the previous year (EUR 39,500 thousand), whereas income from operations (EBIT) fell from EUR 4,180 thousand to EUR 168 thousand. This decline in earnings was partly due to lost revenues as a result of the earthquake catastrophe in Japan in the first half of the year, poor sales in New Zealand, increased special effects due to vacancies in the REALTECH building in Walldorf, a lack of profitability in the Consulting segment in Germany and general restructuring costs in the area of human resources. On the other hand, some of the software revenues scheduled for the fourth quarter have been postponed to 2012, meaning that this profitable segment failed to have such a compensating effect as it could have. Moreover, REALTECH invested considerable sums in 2011 in research and development in order to adapt the technology of its theGuard! software to meet the marketing agreement with SAP.
Outlook
In the current fiscal year of 2012, REALTECH will be focusing in the Consulting segment on specifically strengthening its business in Germany and the USA through organic growth and an optimized service portfolio. The subsidiaries in the Asia-Pacific region already have a good size, well suited to the market. In 2011, REALTECH launched training measures in innovative and technological topic areas and is therefore in an excellent position to continue to generate attractive projects in the future. As a result of its proximity to SAP, the German consulting company in the REALTECH Group plays a particular role as a training station and know-how carrier. The company is now promoting international exchange and coordinated training more intensively than it had before.
In the software division, following investments in product development, the main focus is now on the sales and distribution activities resulting from the new partnership with SAP, with a view to achieving the planned revenues together with the Walldorf-based corporation. At the same time, REALTECH is expanding its geographic presence for product distribution through a new subsidiary in Copenhagen, REALTECH Nordic ApS, which was already founded on January 2, 2012. The aim of the software division is to intensify the international product business – both in new countries and at the existing international subsidiaries.
The Executive Board does not rule out the possibility of acquiring companies that have their own intellectual property with regard to software or other unique selling points and that fit in with REALTECH’s long-term portfolio strategy.
In addition to its significance as a workbench for REALTECH products, the Portuguese subsidiary is to play an important role in consulting in the future too. Portugal has qualified IT experts at hand and can therefore help the Group as a whole to meet its need for consultants.
In the IT industry, general economic growth is, according to numerous forecasts, relatively stable. Despite this, REALTECH needs to position itself well not only with regard to its own range of services, but also in terms of its geographical presence. The company’s long-term plans are therefore founded on strategic goals. When it comes to products, REALTECH aspires to become a leading manufacturer on the IT service management (ITSM) market – a goal that its geographic expansion and new partnership with SAP should help to meet. In the consulting environment, the IT specialist will concentrate worldwide on innovative, technological topics and expand in its core countries with high-margin topics.
In view of these developments, the Executive Board anticipates that the Group will record a revenue of EUR 45 million and EBIT of EUR 3.7 million in 2012. The presentation of planned figures by segment is new: the Consulting business segment is expected to contribute EUR 29 million to this revenue figure and the Software business segment EUR 16 million. The EBIT figure is expected to be made up of EUR 2.2 million from Consulting and EUR 3.7 million from Software, with costs of EUR 2.2 million that cannot be directly attributed. On this basis, we anticipate a corresponding increase in Group net income.
We strive to achieve positive net cash and cash equivalents again in 2012. The planned capital spending excluding potential acquisitions, which we intend to fully finance from our operating cash flow, particularly involves computer hardware.
In 2013, based on the assumption that the economy will remain unchanged, we anticipate that the Group will record a revenue of EUR 53 million and EBIT of EUR 5.9 million. This revenue will be attributable to the two divisions as follows: Consulting is expected to contribute EUR 33 million and Software EUR 20 million. The EBIT figure will be generated by Consulting (EUR 2.8 million) and Software (EUR 5.5 million) with costs of EUR 2.4 million that cannot be directly attributed. We therefore expect a reasonable growth rate for the Group’s net income.
In the long term, REALTECH strives to increase its revenue to EUR 77 million by 2016 (Consulting EUR 39 million, Software EUR 38 million), with both business segments achieving their target segment margins of 10 percent (Consulting) and 30 percent (Software) respectively with rising revenues. This long-term objective that the Executive Board has given itself is, alongside the content-related strategy, the key factor that determines the way the company is managed. All forecasts can be considered to have an accuracy of plus/minus 20 percent.
After the 2010 fiscal year, which was negatively affected by special effects from taxation, REALTECH AG was able to follow up on the previous years and ended the 2011 fiscal year with net income of EUR 3,367 thousand. This was primarily due to the sale of the Spanish subsidiary, the reversal of impairment losses for the loan to the former Italian subsidiary and the income from investments.
For the fiscal years to come, REALTECH AG is planning to increase profitability sustainably in Germany, in particular, through organic growth, an optimized service range and the partnership with SAP.
On this basis, we anticipate that we will be able to earn steady net income from our operational activities in 2012 and 2013, and that this will improve continuously in the years following this.
REALTECH AG’s dividend policy for the future is focused on balancing healthy company growth with the interests of the shareholders with regard to a share of the profits gained. The Executive Board and the Supervisory Board therefore endeavor to distribute 50 percent of REALTECH’s net profit to shareholders, provided that there are no unusual situations (cash and cash equivalents, planned investments or acquisitions) to consider.
Source: Annual Report 2011 pages 62p.
