Annual Report 2010 - S&T

Foreword by the Management Board | Positioning and Markets | Investor Relations | Corporate Governance | Group Management Report | Consolidated Financial Statements | Service
In our view, the market for information technology in the
countries covered by S&T was in the midst of a partial recovery
in 2010. The IT market was characterized by a renewed
rise in business volume but extreme margin pressure in the
infrastructure and service segments. This development is still
delayed in several countries such as Romania, Croatia and
Slovenia, which means the markets continue to remain difficult.
All in all, the CEE region began to remove the investment backlog,
which to varying extents is due to EU funding.
The speed at which the IT consulting sector overcame the
serious recession also differed in 2010. The continuing strong
investment activity on the part of quasi-public service providers,
in part supported by EU funding, played a major role in
driving the recovery.
We strongly moved ahead with initiatives such as verticalization,
outsourcing and shared service center, but had to defer their
further development in the fourth quarter for the time being.
Revenue development
Revenue development must be seen in the light of this market
environment. Total revenues of the S&T Group fell by 8.9 % in
the 2010 financial year to EUR 351.1 million, compared to the
prior-year level of EUR 385.2 million (adjusted for discontinued
operations as previously mentioned – refer to the consolidated
financial statements, Note 8). The revenue decline in Austria
accounted for a major part of this decrease.
Earnings
The selective reduction of operating costs was an important
measure carried out in 2010. This was quickly and directly
achieved with respect to merchandise costs and purchased
services to a lesser extent. However, for analytical purposes,
proceeds derived from BS services should be excluded in
calculating the material input ratio, as there are no merchandise
sales here and expenses for subcontracting are minimal.
Due to the slight rise in margin pressure, this ratio rose from
80.9 % to 81.1 %. On an absolute basis, the cost of merchandise,
spare parts and purchased services fell 3.1 % to EUR 226.8
million. Staff cost savings were even more pronounced thanks
to voluntary redundancy and structural adjustment measures,
which led to a 12.9 % reduction in the total S&T Group staff
(full-time equivalents) for continuing operations. Accordingly,
staff costs fell by 8.6 % to EUR 101.9 million. However, the
actual cost cuts were lower than the decline in the workforce
due to one-off expenditures for restructuring measures.
expenses for office space and general savings in the costs of
materials as well as a decline in write-offs for receivables.
Accordingly, EBITDA fell from EUR +1.2 million to EUR -12.9 million.
This development already became evident in the course of
the year, which is why comprehensive restructuring measures
were initiated and implemented in Q4 2010 and after the
reporting date. The negative earnings were primarily reported
in the German speaking areas of Europe, thus the restructuring
measures concentrated on this region. The imminent shutdown
of the German and Swiss subsidiary which subsequently took
place at the beginning of 2011 required the complete writeoff/impairment
adjustment amounting to EUR 15.1 million of
the goodwill attributed to the Swiss subsidiary and its subsidiaries
in the consolidated financial statements 2010 of the S&T
Group. A further impairment loss of EUR 7.5 million was taken
in the Business Solutions segment. In contrast, ordinary depreciation
fell from EUR 5.5 million to EUR 4.8 million.
EBIT totaled EUR -40.3 million, compared to EUR -4.3 million in
2009, showing the entire scope of the required restructuring.
Financing costs: The net finance costs rose from EUR 3.4 million
to EUR 5.0 million. This increase is due to the increased
use of lines of credit in the course of 2010, and to a lesser
extent to one-off expenditures for financing in relation to bank
negotiations. The effect of the volatility of key Group currencies
in 2010 showed an increase in the currency translation
differences from EUR 0.4 million to EUR 1.1 million. Nevertheless,
the overall results are characterized by the still favorable
financing available at the present time for corporate bonds.
Due to not capitalizing tax loss carry-forwards and due to
write-down of deferred tax assets, the income tax expense
amounted to EUR 4.0 million in 2010, up from EUR 1.9 million
in 2009. The effective income tax expense affecting liquidity
was EUR 1.3 million.
The negative net result of the S&T Group of EUR -48.7 million
comprises the results from continuing operations of EUR -49.3
million as well as the results of discontinued operations of
EUR 0.6 million.
Savings of 7.3 % could be achieved for the item other operating
expenses. Despite increased consultancy fees, the cost
reductions mainly related to lower travel expenses, rental
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