Stuttgart, 26 February 2019 – GFT Technologies SE (GFT) today published its preliminary results for the financial year 2018. Revenue developed in line with expectations to reach EUR 413 million. One important success is the Group’s ongoing diversification of its client base: revenue without its top-2 clients rose by 9%. Strong demand for IT solutions with exponential technologies helped lift their share of total revenue from 20% to 25%. In addition, there were significant improvements in key earnings figures: adjusted EBITDA rose by 12%, EBT by 41% and net income by 27%. Cash flow from operating activities also improved.
Marika Lulay, CEO of GFT Technologies SE, states: “Our performance in 2018 shows that we are continuing to successfully drive the diversification of our client portfolio and our other strategic realignments. Despite a volatile market environment, the almost incessant momentum of the digitalisation trend during the financial year offered us numerous opportunities. With our know-how, we were able to systematically seize these opportunities.”
For its financial year 2019, GFT anticipates a slight increase in revenue to around EUR 420 million with growth of over 20% without its top-2 clients. Adjusted EBITDA is expected to reach EUR 35 million and EBT EUR 18 million.
Revenue trend in 2018 as a whole
In the past financial year, the GFT Group generated revenue of EUR 412.83 million (2017: EUR 418.81 million), corresponding to a year-on-year difference of -1% (-3% organic). Without the top-2 clients, revenue grew by 9%. Business with clients in the retail banking sector continued to make good progress and led to revenue growth of 3% to EUR 228.88 million in the Continental Europe segment (2017: EUR 222.48 million); 2% without the top-2 clients. In the Americas & UK segment a significant expansion of the business was achieved, driven by diversification, yet the budget restrictions of the top-2 clients in investment banking continued to dampen the revenue trend of this segment as expected. Consequently, revenue fell by 6% to EUR 183.44 million (2017: EUR 195.40 million). Without the top-2 clients, revenue rose by 22% (organic 11%).
The diversification of the GFT Group’s clients and industries made further successful progress in the past financial year. Adjusted for the revenue contributions of the top-2 clients, the GFT Group achieved revenue growth with new and existing clients of 9%. Business in the insurance sector was bolstered by the acquisition of the Canadian IT specialist V-NEO in the second half of the year. The acquired company contributed EUR 8.6 million to revenue and helped lift the proportion of total revenue generated by insurance industry clients to 6% (2017: 3%). In 2018, the Group also continued to expand its business with industrial clients. The strong demand for IT solutions with exponential technologies led to an increase in its revenue share from 20% to 25%.
Earnings trend in 2018 as a whole
Compared to the previous year, there was a significant improvement in all key earnings figures in the 2018 financial year. Adjusted EBITDA rose by 12% to EUR 39.68 million (2017: EUR 35.37 million). EBT increased by 41% to EUR 22.64 million (2017: EUR 16.08 million). Net income rose strongly by 27% to EUR 19.98 million (2017: EUR 15.76 million). Key factors for this year-on-year improvement included cost reductions in the Americas & UK segment, positive margin contributions from solutions with exponential technologies and the absence of negative special items such as restructuring and impairment charges.
Revenue and earnings trend in the fourth quarter of 2018
In the fourth quarter of 2018, the GFT Group generated revenue of EUR 103.76 million – corresponding to year-on-year growth of 1% (Q4/2017: EUR 102.29 million). Without the top-2 clients, revenue growth continued to be strong at 19%. Compared to the same quarter of the previous year, adjusted EBITDA rose sharply by 99% to EUR 10.89 million (Q4/2017: EUR 5.46 million) due to the absence of special items. There was an opposing effect from increased expenses for sales and the expansion of technology expertise, as well as from project delays and the underutilisation of capacity in the fourth quarter.
GFT intends to propose a dividend of EUR 0.30 for the financial year at the Annual General Meeting. At 40%, the ratio of dividend payout to net income is at the upper end of the 20 to 40% range set by the company.
As of 31 December 2018, GFT had a total of 4,875 employees and thus 3% more than in the previous year (31 December 2017: 4,740). In the Americas & UK segment, the takeover of the Canadian IT specialist V-NEO led to an increase of 22% to 1,417 full-time employees (2017: 1,164). In the Continental Europe segment, the number of full-time employees fell by 3% to 3,345 (2017: 3,455). In the reporting period, there were 113 employees engaged in corporate functions. The figures stated here are full-time equivalents.
Additional key data
Cash flow from operating activities improved year on year to EUR 44.83 million (2017: EUR 23.70 million), due to the absence of special items,. As of 31 December 2018, there was a slight decline in cash and cash equivalents to EUR 61.57 million (31 December 2017: EUR 72.24 million), due mainly to payments for company acquisitions. At year-end 2018, the equity ratio stood at 34% (31 December 2017: 31%).
Outside of the top-2 clients, the general sector trends regarding the digitalisation of business processes and the increased use of exponential technologies like data analytics and cloud computing remain intact. This is partially overshadowed by investment uncertainty against the background of Brexit and a potential economic downturn.
Marika Lulay, CEO of GFT Technologies SE, states: “In order to create real added value for our clients and employees, we need to build digital bridges. GFT’s role is to facilitate a successful transition between the present and the future. The main focus of our new Global Business Development function is therefore to promote scalable IT solutions which enhance productivity and innovation. With our courageous approach and highly professional teams, we will therefore continue to systematically exploit our cross-industry market potential in the financial year 2019.”
The growth trend without the top-2 clients is still strong in 2019 and will lead to revenue growth of over 20% with this client group – whereas the GFT Group anticipates a stronger than expected revenue decline of around 30% in the business with its top-2 clients. As a consequence, earnings are expected to be burdened by short-term underutilisation of capacity, restructuring charges and increased sales expenses for further client diversification. For its financial year 2019, the GFT Group expects revenue growth of 2% to EUR 420 million (2018: EUR 412.83 million), adjusted EBITDA of EUR 35 million (2018: EUR 39.68 million) and EBT of EUR 18 million (2018: EUR 22.64 million). The successful diversification of clients and industries will be continued in the financial year 2019. Whereas the anticipated revenue share of the top-2 clients will decline to below 30%, GFT expects its insurance business to increase to a 10% share of total revenue. The revenue share of exponential technologies is expected to rise further from 25% to 30% across the Group.
Against the backdrop of the ongoing volatile business trend of the top 2 clients, the medium-term forecast for 2022 has been suspended. The solid balance sheet structure will be maintained and the Group’s dividend policy will remain unchanged with a dividend ratio of 20 - 40% of consolidated net income.
* GFT’s top-2 clients are Deutsche Bank and Barclays.
** GFT defines exponential technologies as DLT/blockchain, artificial intelligence, data analytics, cloud and DevOps
As previously announced, the company will publish its final figures for the financial year 2018 on 29 March 2019.
Detailed financial figures can be found in the Investor Relations section of the GFT website at www.gft.com/ir.