Diversification helps GFT achieve growth in new client groups

Diversification strategy helps GFT achieve double-digit growth in new client groups

  • 20 percent revenue growth outside of top-2 clients*
  • Revenue of EUR 211 million on a par with previous year
  • Adjusted EBITDA up 7 percent, positive accounting effects from IFRS 16
  • FY 2019 guidance confirmed Dynamic start to the second half of the year:
    • Insurance: centres of excellence for Guidewire implementation set up in Spain and Poland due to strong demand

    • Industry: acquisition of AXOOM and partnership with in-GmbH

Stuttgart, 8 August 2019 – GFT Technologies SE (GFT) today published its results for the first six months and the second quarter of 2019. Measures aimed at diversifying clients and sectors continue to drive good progress: revenue outside the top-2 clients grew by 20 percent and the proportion of revenue generated with clients in the insurance sector reached 11 percent. GFT Group revenue in the first six months was on a par with the previous year – despite a 27 percent decline in business with the top-2 clients. Adjusted EBITDA rose by 7 percent and was dominated by positive one-off effects from IFRS 16. As expected, earnings were burdened by expenses for capacity adjustments and underutilisation; EBT fell by 43 percent and net income by 49 percent. Guidance for the financial year 2019 was confirmed.

Marika Lulay, CEO of GFT Technologies SE, states: “We got off to a very dynamic start in the second half of the year. Strong double-digit growth rates for new client groups, especially in the UK, USA and Latin America, underline our outstanding positioning in the banking sector. In addition, business with clients in the insurance and industry sectors has gained significant momentum. We aim to serve the growing demand for the Guidewire insurance platform by setting up additional centres of excellence in Europe. In the industry sector, we have taken a major step forwards with the acquisition of AXOOM and the partnership with in-GmbH.”
 

Revenue trend in the first half of 2019
In the first half of 2019, the GFT Group’s revenue of EUR 211.03 million was on a par with the previous year (H1/2018: EUR 211.16 million). Thanks to the steps taken to diversify business, the dynamic growth trend without the top-2 clients remained unbroken with revenue growth of 20 percent. As a consequence, the share of total revenue contributed by the top-2 clients fell further to 32 percent (H1/2018: 43 percent). Driven by activities in Canada and France, business with insurance clients grew to 11 percent of revenue (H1/2018: 4 percent). Revenue of the Continental Europe business segment declined by 4 percent to EUR 113.16 million (H1/2018: EUR 118.26 million), due in particular to weaker business with the top-2 clients in Germany. Demand from retail banks in Italy and insurers in France made particularly strong progress. Revenue of the Americas & UK segment grew by 5 percent to EUR 97.61 million (H1/2018: EUR 92.60 million). The expected strong decline in revenue with the top-2 clients in the UK and USA was more than offset by dynamic growth across a broad client base, especially in Mexico, Brazil and Canada.

Earnings trend in the first half of 2019
Adjusted EBITDA rose by seven percent year on year to EUR 21.94 million (H1/2018: EUR 20.49 million) and was influenced by positive effects from IFRS 16 of EUR 6.16 million. There was an opposing effect from expenses for the expansion of sales and technology expertise, as well as from underutilisation and expenses for capacity adjustments. Against this backdrop, EBIT fell by 39 percent to EUR 8.35 million (H1/2018: EUR 13.79 million), EBT by 43 percent to EUR 7.15 million (H1/2018: EUR 12.54 million) and net income by 49 percent to EUR 6.07 million (H1/2018: EUR 11.79 million). IFRS 16 effects on EBIT amounted to EUR 0.53 million and were negligible in the case of EBT and net income. Expenses of EUR 2.89 million for capacity adjustments to raise operating profitability are a consequence of the anticipated reduction in business with the top-2 clients.

As a result of the falling revenue share of the top-2 clients, as well as expenses from the V-NEO acquisition, EBT of the Americas & UK segment amounting to EUR -0.20 million was well below the prior-year figure (H1/2018: EUR 3.03 million). EBT of the Continental Europe segment declined by 7 percent to EUR 8.93 million (H1/2018: EUR 9.59 million) due to underutilisation in the first six months, as well as expenses for capacity adjustments at sites in Germany and Spain.

Revenue and earnings trend in the second quarter of 2019
The GFT Group posted revenue of EUR 105.31 million in the second quarter of 2019 and was thus 1 percent up the prior-year figure (Q2/2018: EUR 104.17 million). In the Continental Europe segment, revenue fell by 3 percent to EUR 57.44 million (Q2/2018: EUR 59.27 million). Revenue in the Americas & UK segment rose by 7 percent year on year to EUR 47.73 million (Q2/2018: EUR 44.70 million).

Adjusted EBITDA in the second quarter improved by 3 percent to EUR 10.78 million (Q2/2018: EUR 10.44 million). EBT fell by 37 percent to EUR 3.97 million (Q2/2018: EUR 6.29 million) and net income by 53 percent to EUR 3.36 million (Q2/2018: EUR 7.10 million).

Employees
As of 30 June 2019, GFT employed a total of 4,892 people and thus 4 percent more than in the previous year (30 June 2018: 4,697). In the Americas & UK segment, headcount increased by 36 percent to 1,577 (30 June 2018: 1,158) due to the acquisition of the Canadian IT specialist V-NEO and the positive development of business in Brazil and Mexico. In the Continental Europe segment, the number of full-time employees fell by 6 percent to 3,199 as a result of capacity adjustments (30 June 2018: 3,418). At the end of the reporting period, 116 people were employed in corporate functions (30 June 2018: 121). All figures are based on full-time equivalents.

Additional key data
In the first six months, cash flow from operating activities amounted to EUR 6.33 million and was thus 19 percent down on the previous year (H1/2018: EUR 7.82 million). The decline resulted from the fall in net income as well as working capital effects. As of 30 June 2019, cash and cash equivalents declined to EUR 57.02 million (31 December 2018: EUR 63.56 million). At the end of the reporting period, the equity ratio amounted to 29 percent (31 December 2018: 34 percent). The slight decline was mainly due to IFRS 16 effects; adjusted for these effects, the equity ratio as of 30 June 2019 stood at 35 percent. The net liquidity of the GFT Group – calculated as the stock of disclosed cash and cash equivalents less financial liabilities – declined from EUR -59.67 million as of 31 December 2018 to EUR -70.11 million as of 30 June 2019.

Outlook 2019
The GFT Group confirms its guidance for the financial year 2019. The general industry trends with regard to the digitalisation of business processes and the increased use of exponential technologies**, such as data analytics and cloud computing, continue to gain momentum and will enable high double-digit growth rates. This is partly overshadowed by investment uncertainties of the top-2 clients and a potential economic slowdown.

The GFT Group therefore anticipates an unbroken growth trend outside of its top-2 clients in the financial year 2019. The steps taken to diversify clients and sectors, as well as the expansion of sales and technology expertise, will lead to expected revenue growth of over 20 percent outside the top-2 clients. However, we expect the share of business generated with the top-2 clients to fall below 30 percent (2018: 40 percent). This corresponds to an anticipated decline in revenue of around 30 percent.

The GFT Group continues to forecast an increase in revenue of 2 percent across all clients to EUR 420 million for 2019 (2018: EUR 412.83 million). Adjusted EBITDA before effects from IFRS 16 is anticipated to reach EUR 35 million (2018: EUR 39.68 million) and adjusted EBITDA including effects from IFRS 16 is expected to reach EUR 48 million (no prior-year figure). The GFT Group anticipates an EBT result of EUR 18 million (2018: EUR 22.64 million), with negligible effects from IFRS 16.

The GFT Group will continue to drive its client and industry diversification strategy successfully. The insurance business will be expanded to a revenue share of over 10 percent in the financial year 2019 and the revenue share of exponential technologies is expected to rise further from 25 percent to 30 percent.

 

* GFT’s top-2 clients are Deutsche Bank and Barclays.
** GFT defines exponential technologies as DLT/blockchain, artificial intelligence, data analytics, cloud and DevOps


 

Detailed financial figures can be found here
We got off to a very dynamic start in the second half of the year. Strong double-digit growth rates for new client groups, especially in the UK, USA and Latin America, underline our outstanding positioning in the banking sector.”
Marika Lulay CEO GFT Technologies SE
Quote

Key figures (IFRS, unaudited)

(Deviations possible due to rounding differences)

In EUR million H1/2019 H1/2018 %
Revenue 211.03 211.16 0
EBITDA adjusted *) 21.94 20.49 7
EBITDA 20.22 20.12 0
EBIT 8.35 13.79 -39
EBT 7.15 12.54 -43
Net income 6.07 11.79 -49
Earnings per share in EUR 0.23 0.45 -49
Cashflow from operating activities 6.33 7.82 -19
Employees
(full-time) as of 30 June
4,892 4,697 4
In EUR million Q2/2019 Q2/2018 %
Revenue 105.31 104.17 1
EBITDA adjusted *) 10.78 10.44 3
EBITDA 9.94 10.07 -1
EBIT 4.48 6.92 -35
EBT 3.97 6.29 -37
Net income 3.36 7.10 -53
Earnings per share in EUR 0.13 0.27 -53
Cashflow from operating activities -5.36 -2.14 -150
Employees
(full-time) as of 30 June
4,892 4,697 4

*) adjusted for special items from M&A activities

Press release: Financial results H1 2019

Diversification strategy helps GFT achieve double-digit growth in new client groups

Half-year financial report January to June 2019

Analyst presentation: Financial results H1/2019

Press release: Financial results H1 2019

Diversification strategy helps GFT achieve double-digit growth in new client groups

Half-year financial report January to June 2019

Analyst presentation: Financial results H1/2019