News

, November 25, 2008

Ordina reduces full-year 2008 profit forecasts and impairs BPO assets

  • The market demand for consulting, IT and application outsourcing in the Netherlands is strongly decreasing since October 2008; forecasts over the upcoming period are highly uncertain and driven by a clearly slowing economy.
  • Recurring EBITA-margin on consulting, IT and application outsourcing is under pressure, due to these weakening market conditions, and is expected to come in between 7% and 8% for 2008 (10.6% in 2007), with revenues of approximately EUR 650 million.
  • The preparation of measures to counteract the effects of the highly decreasing market circumstances is nearly concluded. Measures will be announced 18 December 2008. 
    The market of BPO services for financial institutions is not positive for the mid term, driven by the current financial crisis and the withdrawal of foreign financial institutions planned to enter the Dutch market.
  • The investments in future target BPO IT platforms, deliver insufficient returns due to a longer implementation time and higher investments. This situation, combined with the premature termination of the contract by Robeco Direct as of 1 October 2008, will result in a loss of our BPO activities of approximately EUR 12 million at a revenue of approximately EUR 40 million for full-year 2008. In combination with the increasingly negative future market opportunities, the outlook remains negative for the next years to come (profit and cash flow). As a result, an impairment of the large majority of tangible and intangible assets of our BPO activities will be charged against the P&L of 2008. These assets momentarily represent a value of approximately EUR 63 million.
  • With the highest possible urgency, possibilities are being examinated to structurally solve the loss making situation at BPO as soon as possible. Possible related one-off costs will also be charged against the P&L of 2008, as much as possible.
  • The revised forecasts imply that Ordina in total will realise revenue of approximately EUR 690 million. Recurring EBITA-margin will be in the range of 5% to 6%. Impairments, one-off costs as well as the realized book profit of the sale of our technical automation activities are all excluded from this forecast.

Market developments in consulting, IT and application outsourcing

In the Dutch consulting, IT and application outsourcing market, the effects of the slowing economy can be clearly felt. More specific, the demand for individual capacity (secondment) is clearly showing a strong decline since the end of October. One of the consequences for Ordina is that utilisation levels have come under pressure. It is highly uncertain how the market demand will develop in the upcoming months. Apart from that, one should not be surprised that these market developments will affect pricing in the near future as well. The demand for large projects and multi-year outsourcing deals is still healthy to this day, although decision making processes in the future might take longer than anticipated.
 
Provided there are sound business cases in place, we expect the market for outsourcing projects, where service providers have to take responsibility for the outcome of the project, will remain positive, also in less positive economic circumstances. Recently won, multi-year contracts for KPN and Postkantoren B.V. (Dutch post offices) underpin this expectation and are proof of a good market positioning of Ordina.

Revenue and P&L expectations for consulting, IT and application outsourcing

As a result of the deteriorated market conditions, Ordina expects a revenue of approximately EUR 650 million for 2008 in consulting, IT and application outsourcing and a recurring EBITA-margin on these activities of 7% to 8%.
  
Preparations of measures to counteract the effects of the highly decreasing market circumstances are nearly concluded. Measures will be announced 18 December 2008. 

Market developments BPO

Driven by the financial crisis, the financial industry finds itself in a tremendously turbulent phase, which clearly has a negative influence on the market for BPO services in the short and mid term. The number of potential new financial institutions entering the Dutch market has reduced to an absolute minimum.

Revenue and P&L expectation BPO and impairment of assets

The investments in the target BPO IT platforms, deliver insufficient returns due to a longer implementation time and higher investments. This situation, combined with the premature termination of the contract by Robeco Direct as of 1 October 2008, will result in a loss of our BPO activities of approximately EUR 12 million at a revenue of approximately EUR 40 million for full-year 2008. Combined with the increasingly negative future market opportunities, the outlook remains negative for the next years to come (profit and cash flow). As a result, the BPO activities will not be the driving force for growth in the future as we previously set it out to be. Given this situation, an impairment of almost all tangible and intangible assets of our BPO activities will be charged against the P&L of 2008. These assets momentarily represent a value of approximately EUR 63 million.
 
With the highest possible urgency, all possible efforts are undertaken to find a solution to stop the expected negative cash flow of our BPO activities in the future. In doing so, we will focus on securing the continuity of our service delivery to our customers. Apart from discontinuing our efforts aimed at further growth of our BPO services, we are working on possibilities to improve profitability, including a reduction of operational costs and overhead, while we also search for possibilities to either reduce the BPO activities or sell it off in parts, or in total. The costs of these measures are highly dependent on the precise scenario that we will run with our BPO activities but it can be expected that these costs can be very material in size. This can lead to additional provisions to be charged against the P&L of 2008. Size and argumentation will be announced at the presentation of the full-year results of 2008 at the latest.  

About Ordina

With our more than 5,300-strong workforce, Ordina aims to improve the business processes of  enterprises in the Benelux by providing advisory services, developing supporting applications or taking on a wide range of processes, including ICT. Ordina N.V. was incorporated in 1973. Ordina N.V. shares are quoted on Amsterdam's Euronext Stock Exchange, where they are included in the Midkap Index.

For more information, please contact:

Ordina N.V.
 
Saskia Huuskes, Director Corporate Communications
 
Telephone: + 31(0)30 - 6637402
 
www.ordina.com