EBITA margin before exceptional items was 4.5%, compared with 5.7% in the previous year. The company registered a net loss of €145 million versus a profit of €4 million in the previous year. It will no longer issue revenue targets and wants industry watchers to focus instead on profit performance.
The media is reporting that the Dutch market watchdog may investigate Getronics following suggestions that CEO, Klaas Wagenaar knew about the losses incurred within the (now sold) Italian business some time before the market was informed.
We are not going to comment on the issue around the Italian unit at this point. Needless to say, these negative reports just add to the pressure Wagenaar and team are under. The financial results show that the company faces a clear challenge around profitability. It's aiming for an operating margin of between 4.0% and 4.5% (excluding acquisitions costs and other one-off gains) and a net profit in 2007. Work to improve its nearshore and offshore capabilities (where a lot of the investment and ground-work has been completed) should help to contribute towards this, but Getronics faces a more general challenge of trying to increase the level of higher-margin services work it does.
We would, however, point out a couple of positives going on beneath the surface. For example, Wagenaar says the company has a 'good quality pipeline' and that it managed to attract many good quality new hires to the business in 2006. Specifically in the UK - which had a worse-than-expected first half but recovered in H2 - there has been notable progress on the large Barclays deal. Getronics says it is the third supplier (previously the contract was held by EDS) to attempt to transform the architecture at the bank. It now claims to have completed this project - an important milestone given how significant (strategically and financially) the contract is to it. For the group as a whole, the company is predicting improved revenue growth in the current year.