Compared to the first half of last year, these results show substantial revenue growth, a marked improvement in business mix and a consequential sharp improvement in gross margins and gross profit.
Compared to the second half of last year, these results show a lower rate of revenue growth, reflecting ISION’s weighting of sales to the second half of the year, current market conditions in Germany and the continuing focus on improving the business mix. Personnel and other costs are markedly reduced compared to the second half of last year, and the underlying run-rate of EBITDA has sharply improved.
The German economy has been decelerating for some time, and ISION has focused its business on to segments of the market that are less exposed to the economic slow-down, such as out-sourcing and Mittelstand companies, where demand remains robust. Less than 5% of ISION’s current revenue is from third party telco businesses.
As a result, and despite the economic climate, ISION is confident of meeting growth expectations for the year to 31 March 2002. Almost 90% of its revenue plan for this period is already accounted for by the run rate of the business, confirmed new orders and a conservative rate of conversion of tenders currently outstanding.
During the period under review, the integration of Energis’ other German businesses has been well advanced, as has the transfer of ISION’s non-German operations to Energis’ national businesses. The expected synergies will be achieved by 31 March 2002, and the combined German operations will now trade as ‘Energis-Ision’.
The e-business solutions and hosting operations of ISION and Energis Online have been combined and integrated with the extensive German network capacity and reach of Energis 24; a combined management, sales and marketing structure has been established; and Carl Michel joined as Chief Executive of the combined German businesses in May. As a result of actions taken to date, SG&A is down on an annualized basis by some 17% compared to last year.
The approvals granted at ISION’s Annual General Meeting on July 10, 2001, are enabling rapid completion of the full integration. Since then the number of Energis-ISION call centres has been reduced from 5 to 2 and will be reduced to 1 in Kiel later this year. Access networks will be integrated by the end of 2001; duplicate points of presence are being closed; from October, there will be no bought-in circuits over 45 Mbit/s and network operation centres are being combined into one.
The combination of its high end consultancy, hosting and outsourcing services, and the reach of its network positions ISION exceptionally well in the German marketplace.
ISION’s customer base is blue chip, and 90%, by value, are ‘old economy’ companies. ISION has maintained its focus on these customers, and first half new business gains include: ARD, the main German TV channel, for web-hosting; a leading automotive manufacturer for a customer portal; a leading mobile telephone equipment manufacturer for a community portal; and Tchibo, a leading German retailer, for which ISION has created an outsourced end-to-end e-business platform.
In addition, ISION is a natural partner for Mittelstand companies. Benefiting from the impressive range of reference sites from its current customer base, Energis-Ision is increasing its focus on this sector. Examples of business gains to date: WEKA Fachverlag and Elefanten Schuhfabrik, for business hosting; and the Landesbank Schleswig Holstein in Kiel where ISION has a team of 35 people working on a broad range of outsourcing solutions.
Since the beginning of the year, deceleration has been evident in the German economy. Current forecasts for economic growth in 2001 have been reduced from 2.1% to 1%. ISION’s response has been to move its focus from e-commerce programmes where demand has been reduced, towards security products, virtual private networks and out-sourcing programmes, all of which offer customer companies cost-savings as well as strategic advantage. These are higher growth, value-added segments in which ISION is very well positioned, where its current market share remains low and it is confident of being able to continue to grow it materially.
ISION’s sales are weighted to the second half, to the extent its project work is commissioned on a calendar year basis, and the bulk of value added and invoicing falls in the second half for this element of its business. The degree of such weighting this year will be similar to last year. While this also means a somewhat higher proportion of systems and service revenues falling in the second half, ISION is maintaining its focus on moving-up the value chain, and this is continuing to benefit underlying gross margins and the rate of EBITDA improvement.
Less than 5% of ISION’s current revenue is from third party telco businesses.
ISION’s capital expenditure in the first half was EUR 15m (£9.4m), the bulk of which was its new internet data centre opened in Wilhelmsburg in June of 2001. This has removed the pressure on ISION’s Hamburg centres, which are full, and is enabling ISION to bid for business free of space constraints. Future capital expenditure is almost entirely related to customer and revenue growth.
