H1 2020 results: Recurring operating profit up, net book debt down

H1 2020 Key Points
• Revenue at €1,240m, down 12.5%
• Recurring operating profit up at €43.5m (up 12.4%)
• Net book debt down more than €100m on 30 June 2019
• Net profit consolidated at €22.1m (versus €5.2m at end-June 2019)

First fruits of Econocom’s transformation plan
On 27 July 2020, the Econocom group’s board of directors met and approved the consolidated statements for 30 June 2020.

As announced in the press release on 10 July, the group made €1,240m in revenue in H1 2020, down 12.5%. During H1 2020, Econocom’s business was impacted by the health crisis because of extended delays in contracting into business, disrupted supplies of equipment and difficulties in gaining access to certain clients’ sites. These effects, which delayed revenue recognition from many contracts, gradually waned over Q2.

Business at Technology Management and Financing (TMF) generated €479m in revenue, down 13.5%. The decrease was more significant in Q1 (-16.2%) than in Q2 (-11.7%), with new operations gradually introduced again. Revenue at Digital Services and Solutions (DSS) was down 11.9%. There was a 12.4% drop for Services and a 11.7% fall for Products and Solutions.

Recurring operating profit (ROP) was up 12.4%, reaching €43.5m, versus €38.7m for the same period in 2019. This increase came directly from cost-cutting measures which have been applied since the start of 2019 and have intensified during the covid-19 pandemic. These measures especially benefited DSS, whose ROP was at €33.5m (versus €22.1m in H1 2019). TMF’s ROP was down €10m (versus €16.6m in H1 2019) due to a sharp fall in H1 business and less variability in its cost model.

Non-recurring expenses of €23.7m, mainly due to the group’s operations in reorganisation and the covid-19 crisis, were posted in H1 2020.

H1 2020 net profit was at €22.1m, versus €5.2m in H1 2019. This includes the capital gain from selling the firm EBC.

Group’s net book debt still falling
Net book debt was at €303m, sharply down on 30 June 2019 (€405m). Econocom is therefore reaping the rewards of its debt-reduction policy, which includes the closure of loss-making entities, the sale of non-strategic business, the reduction of structural expenses and improvement in working capital requirement.

Net book debt now only represents 1.8 times EBITDA over a 12-month rolling period at 30 June 2020, versus 2.5 times EBITDA at 30 June 2019. Given that equity is at €498m, gearing is at 0.6, versus 0.9 a year earlier, under the combined effect of a fall in net book debt and growth in the group’s equity. The latter benefited from an increase in net profit over the period and the decision to not repay share premium at the general meeting of shareholders in May 2020.

In H1 2020, the group bought treasury shares for €7.2m. On 30 June 2020, Econocom held 1.8 million treasury shares, amounting to 0.8% of the company’s capital. The company cancelled 24.5 million cross-holding shares in May 2020.

Post-close event
On 27 July, as part of its efforts to streamline its business, Econocom announced it was entering into exclusive negotiations with the company Atos with a view to selling its stake in the capital of its subsidiary digital.security, which specialises in digital risk management and is one of Europe’s leading computer emergency response teams. Today, this entity includes 250 consultants and in 2019 it made nearly €29m in revenue.

Outlook
If the effects of the health crisis do not worsen, Econocom expects its business to gradually recover in H2, with its clients’ sites reopening, remote working increasing and new contracts getting under way.

Beyond the economic situation caused by the health crisis, the Covid-19 pandemic has helped change the ways businesses work fundamentally. With remote working becoming more widespread more lastingly and the digital transformation of firms gathering pace, the markets in which Econocom operates will be buoyed, bringing ever more growth. The unique solutions Econocom offers, combining distribution, services and financing, make it a major player in Europe and should help it make the most of these growth markets.

The group has full confidence in its ability to get back to long-term growth as early as 2021. In September, it will present to the financial community its main lines of development and its ROP aims for 2020 and 2021.

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