Report from the Board


Report from the board of Zetes
From left to right and from top to bottom: Jean-François Jacques,Olivier Gernay, Jean-Marie Laurent Josi, Paul Jacques, Floris Vansina, Sophie de Roux, Alain Wirtz, Michel Allé and Pierre Lambert.

Ladies and Gentlemen, dear Shareholders,

The Board of Directors is pleased to present you with its report for the 2015 financial year. The present report covers both the statutory (parent company) and consolidated (group) financial statements. The Board attests that, to its knowledge, the statutory and consolidated annual financial statements present a true and fair view of the net assets, financial situation and results of Zetes Industries SA and, in the case of the consolidated accounts, the companies included in the consolidation. It also attests that the management report on the consolidated financial statements includes a true and fair description of the development, operational performance and position of the company, including the companies included in the consolidation, and a description of the principal risks and uncertainties with which they are confronted.

Commentary on the development of the company's business and its current situation

Given the limited operational activity of the parent company Zetes Industries SA, it is the consolidated financial statements discussed below that permit an assessment of the situation of the Zetes Group (Zetes Industries SA and its subsidiaries). The consolidated financial statements are presented before payment of the dividend, which will be decided by the Ordinary General Meeting of 25 May 2016.

The Goods ID Division had a very good year once again, with internal sales growth and strongly improved operating results. Management continues its effort to implement its strategy based on the sale of the key solutions, clearly positioning its offering and demonstrating customer value.

Operating results were higher in the People ID division too, supported by high value added projects. The stability of the sales figure compared to 2014 was offset by the higher proportion of services in the product mix of delivered projects.

Balance Sheet and Cash Flow

Balance sheet

Tangible assets grew significantly in 2015. This was mainly due to the inclusion onto the balance sheet of a building used for producing and personalizing security documents in Belgium, which was obtained through an acquisition..

R&D investment continued to be high, but with amortization running at an equal level, intangible assets rose only slightly.

Inventory was stable, while receivables (customers and other current receivables) were down significantly. Cash and equivalents evolved favourably, with a net position up on December 2014.

The 2015 performance has very positively impacted the Group's debt structure, with the net cash position increasing to € 9.6 million (€ 1.7 million at end-2014).

The balance sheet total was up € 4.2 million to € 188.7 million. With a simultaneous reduction in current assets and liabilities, the net working capital requirement (€ 14.1 million) remained nearly unchanged during the year.

With equity up € 10.1 million over the year to € 89.7 million and a balance sheet total of € 188.7 million, the solvency ratio was 47.5% (c.f. 43.14% at the end of 2014). This increase in equity is substantial given the distribution in 2015 of a dividend of € 3.3 million. Equity has, however, benefited from the sale of € 2.3 million treasury shares, mainly to Zetes executives exercising share options.

LT debts increased significantly (€ 3.4 million). These are debts incurred for financing the building that features on the balance sheets of the companies acquired in July 2015.

Zetes is committed to maintaining a strong balance sheet structure. This allows it to bid for and, where successful, to manage very large deals, where the income streams can follow long after the capital outlay (People ID concessions) and to inspire confidence among its potential customers like governments, with which it signs multi-year contracts.

Cash flow

Operating activities generated a cash flow of € 20.0 million over the year. This essentially consists of cash flow from the P&L, up significantly to € 20.2 million, reflecting the significant increase in operating income, while working capital remained almost unchanged. 

€ 4.6 million was invested in non-current assets, which is lower than in 2014. The larger part of these investments relates to the Goods ID division (€ 2.9 million), and the balance to the People ID division.

Capitalized R&D expenses remained stable at € 2.6 million. These costs relate exclusively to the Goods ID division, and are divided as before between the development of MCL software and application solutions, which form the basis of the new strategy.

Financing-wise, a net € 5.4 million could be repaid to banks (loans / leasing / overdrafts). Zetes also paid a dividend (€ 3.3 million) and received, as indicated above, € 2.3 million from sales of treasury shares.

Together, these movements increased cash and equivalents by € 5.5 million.

Income statement

Sales for the year amount to € 258.2 million, against € 245.3 million in 2014, with current EBITDA rising to a record € 26.7 million (€ 19.2 million in 2014).

Group sales were supported by growing sales revenues in Goods ID (+ 7.2% compared to 2014), with particularly strong growth in the first half. The People ID division undertook a number of high added value projects without major hardware deliveries, which explains the stable sales figure (-1.3% compared to 2014).

Group gross margin reached a record € 115.6 million (+ 11.6%). This represents 44.8% of sales (42.2% in 2014), a key factor being the product mix of the People ID division (see below).

Group current EBITDA was € 26.7 million (+ 39.0%), supported by a record performance in both divisions: € 14.6 million in Goods ID (+ 20.5%) and € 15.5 million in People ID (+47.1%). With non-current items not material, Group EBITDA also grew significantly to € 26.3 million (+ 44.3%).

The Goods ID Division achieved another year of internally generated sales growth, with significantly increased profitability. Sales seasonality was less marked than in previous years, mainly because a number of large-volume contracts were executed in the first half. The Division is benefiting from the key solutions-based commercial strategy introduced in 2012, particularly in the retail, postal services and transport sectors. Its serialization solution for production units (ZetesAtlas) is also growing strongly, even if its impact on the Division's sales figure remains more limited.

In People ID, sales were stable: -1.3% compared with 2014. This evolution reflects the higher services component in the product mix. In 2104 a large batch of biometric registration kits was delivered to Uganda, while no equivalent delivery took place in 2015. Compared to 2013, a more comparable year in terms of product mix, growth was 33.8%. The execution of various long and short term contracts enabled the Division to significantly increase its profitability, with a record current EBITDA of € 15.5 million (+ 47.1% compared to 2014).

Provisions, depreciation, amortization and impairment losses were higher at € 9.6 million. This increase is particularly marked in the People ID division (see below).

Both financial expenses and financial income increased significantly, mainly owing to higher foreign exchange effects. In 2015, foreign exchange losses amounted to € 1.4 million and gains to € 1.1 million. The financial result for the year (financial income less financial expenses) remained, however, in line with 2014: € 0.8 million vs. € 0.6 million. This relatively low level reflects both the macro-economic environment with low interest rates and the good solvency of the Group (net cash). Finally, taxes remain high, at € 5.2 million, or 32.5% of the result before taxes. This is in line with the rate applicable in Belgium, the Group's operations centre.

The 5.3% increase in sales revenue between 2014 and 2015 converts, by a leverage effect, into a 73.2% rise in
net profit to € 10.7 million.

Segment reporting

Goods ID activity

For the third year in a row, the Goods ID Division improved its performance, with sales up 7.2% to a historic record € 204.3 million. This performance is all the more remarkable for being internally generated. It is the fruit of the key solutions strategy introduced in 2012 which, year after year, is bearing fruit. The trend remained good throughout the year, with high order intake and a marked interest in the Group's solutions.

The key solutions are making a significant contribution to the results and in particular to the gross margin of the
Division. Gross margin as a percentage of sales remained stable (39.4% vs. 39.2% in 2014) under the combined
effect of declining margins on hardware and higher margins on solutions. 

The impact is particularly sensitive in times of rising sales: maintaining the gross margin on sales enabled the Division to generate an additional € 5.8 million of gross margin compared to 2014. With operating expenses under control, the Division increased its current EBITDA by 20.5%.

Zetes continues to refine its key solutions along with its mobility platform, which allows sector-specific
applications to be developed and implemented for mobile devices and communication protocols of every type. These efforts translate into stable R&D investments and slightly increased amortization. At € 2.3 million in 2015, this is close to the R&D capitalization level for the year and compares with € 2.1million in 2014. Depreciation of other non-current assets amounted to € 3.2 million. Other provisions, depreciation, amortization and impairment losses together totalled € 0.9 million. Half of these amounts relate to stock write-downs, the other half to impairments on receivables. In all, non-cash expenses were EUR 6.4 million, up EUR 8.1% compared with 2014.

As a result, the Division generated a current EBIT of € 8.2 million, up 32.4% on 2014.

The seasonal pattern of sales in 2015 was unusual. Sales are traditionally much higher in the second half, but in H2 2015 they were up just 2.6% on the first half. This trend was expected, as several major contracts had been executed in the first half. Gross margin on sales moved in the right direction to 40.5% in H1 2015 and 38.4% in H2 2015, vs. 40.4% in H1 2014 and 38.2% in H2 2014.

Revenue grew in 2015 much faster than the economy and business investment in general. Zetes owes this outperformance to a strategy that allows it both to continuously increase its recurring revenues and to win important contracts in promising sectors such as postal services.

Evolving exchange rates impacted sales figures, but with a less marked effect on EBITDA. The main changes here were the appreciation (vis-à-vis the euro) of the Swiss franc and the pound sterling, offset by the depreciation of the South African rand. At constant exchange rates, sales revenue and gross profit would have been 4.4% and 5.3% higher respectively. The positive impact of exchange rate changes on current EBITDA is € 0.5 million.

The entire growth is internally generated, with the division remaining focused on pursuing its growth-generating key solutions. 

People ID division

In People ID, sales revenue remained stable in 2015 (-1.3%) but margins were up sharply, reflecting a change in product mix. Compared to 2014, the hardware component of projects delivered in 2015 was low, with a greater percentage of Software and Services components. The added value of Zetes' software solutions not only differentiates it from the competition, but also contributes greatly to the structural improvement of the Division's results. This, together with good cost control, permitted a significant increase in the Division's profitability.

In 2015, long-term concessions contributed significantly to revenue and results while short-term contracts, such as electoral projects, featured a very significant software component.

Côte d'Ivoire has decided to introduce a social security system. For deploying it, the Ivorian government has commissioned Zetes to develop the infrastructure for enrolment and for the biometric social security card. This new type of project, full of promise for the future, started in 2015. Elsewhere, from 1 May 2015, the Senegalese government removed the requirement for biometric visas in order to support the tourism industry, and therefore terminated Zetes' technical concession. This decision necessitated the accelerated charging of the capitalized start-up charges (IAS 11, non-cash expenses) offset by a first tranche of compensation.

The People ID division relies on its ongoing business development efforts. The aim is to spread the message of Zetes' value proposition for biographical and biometric enrolment, for secure management of population databases and for electronic and biometric identity documents. Business development is the key to good geographical diversification and a healthy balance between long and short-term contracts.

Overall, the Division's current EBITDA performance rose by no less than 47.1% to € 15.5 million (€ 10.6 million in 2014).

The higher provisions, depreciation and amortization reflect mainly the accelerated charging of investment costs and stocks related to the Senegal visa contract (impact: € 0.5 million).

The half-year breakdown shows the stability of the division's sales revenues. Current EBITDA as a percentage of sales topped 30% in the second half (28.8% over the year), which is above the forecast 25%. Margins are of course influenced by the heavy investment required in long-term projects and the imperative need to present demanding certifications and relevant references. This growth in the second half illustrates how margins can differ depending on the type of contract, including the relative proportion of software/services and hardware. 

Corporate Division

Costs of the Corporate Division amounted to € 3.5 million, in line with the figures for 2014 (-0.7%). The Corporate Division's missions continue to be strategy definition, financial control, marketing and acquisitions. 

Combined, all company divisions (Goods ID, People ID and Corporate), generated a current EBITDA of € 26.7 million, the best recorded performance to date.


As in 2014, there was no significant change to consolidation scope in 2015. However, two companies that together own a building that houses Zetes' secure document production activities in Belgium were acquired in the second half.

These acquisitions generated a limited additional goodwill of € 0.6 million. Goodwill is therefore virtually unchanged from 2014, at € 40.6 million.

The Goodwill validation test (review of the recoverable value) did not bring to light any insufficiency requiring the recording of an impairment.

Human resource management and environmental actions

In 2015, the Group's workforce grew by 2.1%. In Goods ID (+21 FTE), this growth represents primarily the strengthening of the Software Factory, the key solutions development entity operating out of Barcelona. In People ID and in the Corporate division, the workforce remains stable. In total, the Group's workforce has moved from 1,142 FTE at end-2014 to 1,166 FTE at end-2015 (+ 24 FTE).

Just like intellectual property, human resources constitute a key asset of the Group. Zetes takes care to make maximum use of the ‘business’ knowledge and skills available throughout the Group, both in the Goods ID Division (key solutions) and in People ID.

The company and its employees are aware of their civic responsibility in environmental matters and strives daily to implement responsible practices in this area, including limitations on travel, energy saving, waste management and other related activities.

Principal risks and uncertainties

The Board of Directors presents its assessment of the risks of the Company in the 'Financial Information and Corporate Governance' section of the annual report. This section forms an integral part of its Management Report. These risks relate to pending litigation, human resources, the environment, exceptional events, acquisitions, new products, technologies and fraud. The same section also describes the Group’s exposure to prices, credit, liquidity and cash availability, foreign exchange and interest rate risks. To cover these risks, the Company has recourse to traditional financial instruments. It avoids instruments, the complexity of which could compromise their transparency. The instruments currently used are also described in the 'Financial Information and Corporate Governance' part of the annual report.

Events after the closing date

To date, there has been no specific post-closing event that influences the annual accounts submitted to the General Meeting.

Prospects for 2016 and description of events that could significantly influence the company's developments.

In Goods ID, sales growth, which has been continuous 2012, was boosted in the first half of 2015 by a major project in Switzerland. Without the benefit of a similar rollout in 2016, the Division has set itself the objective of stabilizing its revenues in 2016. H1/H2 distribution is expected to return to normal in 2016, in that the company expects H2 to be stronger than H1. Efforts to develop the recurrent part of revenues are gradually seeing increased visibility on margins. The Division continues to benefit from its key solutions commercial strategy. These solutions are proving highly successful, in particular in the postal services and transport sectors. The serialization solution deployed in production units (ZetesAtlas) is also growing strongly, generating limited sales revenues but attractive earnings. 

Developing the recurring business model remains a cornerstone of the Division's strategy. It responds to customers' need for ongoing support, develops ongoing relationships with them and increases the Division's financial visibility.

In People ID, the current Build and Operate contracts are making a very significant contribution to sales and profitability. In 2016, existing concessions will all contribute to a good performance by the Division. Business development efforts should feed the revenue flow from short-term contracts and from time to time, generate new long-term contracts. The business development team continues to grow and expand to become ever closer, both geographically and technically, to potential customers.

In conclusion, the strategies introduced in both divisions are bearing fruit and permitting sustained and profitable internal growth, as evidenced by the figures for 2015. The Group is confident of achieving a performance in 2016 of the same order as that of 2015, with seasonality back in line with historical patterns (i.e. the second half expected to be better than the first).

Research and development

Development expenses in 2015 were € 2.6 million compared with € 2.8 million in 2014. These relate mainly to software development. Development work on the key solutions (Goods ID) will continue in 2016; the costs here should be roughly the same as in 2015. The R&D effort in People ID is also significant, but in most cases the cost is included in the investment in the new concession projects (construction contracts) or charged directly.


The Group operates via local companies which are direct or indirect subsidiaries of Zetes Industries SA. Zetes Industries SA does, however, have a dormant branch in Ireland.

Statement on Corporate Governance

The Statement on Corporate Governance is included in the 'Corporate Governance' section of the 2015 Annual Report, as an integral part of the Management Report. This Declaration includes, among other things, a description of the composition and modus operandi of the Board of Directors, the main features of the internal control and risk management systems, the composition and modus operandi of the Executive Management, the composition and modus operandi of the Committees within the Board of Directors, the remuneration policy, and the most recent remuneration report, and a description of the shareholder base of Zetes Industries SA and its policy in terms of company capital, the measures taken by Zetes Industries SA to comply with Belgian rules on market abuse, the Group Code of Conduct and, lastly, dividend policy.

Conflicts of interest between directors and the Company

The Board of Directors has not been required to make any decisions giving rise to the application of articles 523 or 524 of the Companies Code.

Related party transactions

Related party transactions during the period under review consist essentially of the remuneration of the Executive Management (3 persons) in an amount of € 1,521,190. Transactions with companies linked to directors have been undertaken on an arm’s length basis. Details of related party transactions are included in the 'Financial Information and Corporate Governance' section of the annual report (note 11).

Article 74 of the law of 1 April 2007

The information relating to article 74 of the law of 1 April 2007 on public takeover bids is given in the Corporate Governance Declaration section (Shareholding Structure sub-section) of the annual report.

Issue of subscription rights,

The powers of the Board of Directors to issue or repurchase shares are set out in Articles 6 and 7 of the company bylaws. 

In 2015, there was no issue of subscription rights.

Pursuant to the decision of the Extraordinary General Meeting of 28 May 2014, the Board of Directors decided, on 18 March 2015, to assign treasury shares in the event of exercise of the options.

Own shares

In 2015, Zetes Industries divested 92,694 own shares, including 57,694 shares as part of the exercise of options (employee incentive plan). In total, these transactions generated € 2.3 million in cash. At 31 December 2015, Zetes held 174,242 own shares (266,936 end of 2014), representing 3.23% of the issued shares. These are intended primarily to respond to the exercise of options by Company executives.

Bearer shaes

Under the Act of 14 December 2005 abolishing bearer securities and the implementing Royal Decree, the bearer shares still outstanding were sold by Zetes Industries on 15 October 2015, with the proceeds transferred to the Caisse des Dépôts et Consignations.

As of 31/12/2015, all Zetes Industries shares are registered or dematerialized.

Audit Committee

At 31 December 2015, the Audit Committee consisted of five non-executive directors, three of whom have independent status:

Gema SPRL, représentée par Mr Michel Allé (Chairman of the Audit Committee, independent, non-executive director)

Ms Sophie de Roux (independent, non-executive director)

Mr Paul Jacques (independent, non-executive director)

Mr Hiram Claus (non-independent, non-executive director)

Floris Vansina BVBA, represented by Mr Floris Vansina (non-independent, non-executive director)

The independence of Ms Sophie de Roux, Mr Paul Jacques (who is unrelated to Jean-François Jacques) and Mr Michel Allé is guaranteed by the fact that none of them (or anyone with whom they are linked) holds more than 10% of the voting rights of Zetes Industries SA. Their competence derives from their education and their professional experience in the financial sector.

Statutory auditor’s report

The consolidated financial statements of the company have been audited by RSM Réviseurs d’Entreprises – Bedrijfsrevisoren, represented by Mr Laurent Van der Linden and Mr Thierry Dupont. The statutory auditor has informed us that he intends to give an unqualified opinion.

Proposed appropriation of the results of the Group parent company, Zetes Industries SA

The statutory (unconsolidated) income statement of Zetes Industries SA shows sales of € 7.8 million and a net profit of € 4.8 million (€ 4.6 million in 2014). With equity of € 62.6 million (pre-dividend), the company presents a very high solvency ratio. An abridged version of the statutory accounts of Zetes Industries SA is provided in the Annual Report (Financial Information Section). The Board of Directors will be proposing that the company pays an ordinary dividend of € 0.80 gross per share (giving a payout ratio of 37.8% of the consolidated net profit), payable after the Annual General Meeting. The Board will also propose to take into account the dividend for 2014 paid on treasury shares sold between the date of the 2015 AGM and the dividend payment date in the amount of € 22,050. Taking into account the 174,242 own shares held on 31/12/2015, for which an unavailable reserve of € 3.0 million has been established, the Board proposes to allocate the results of Zetes Industries SA, as detailed in the statutory annual accounts of the Company, as follows:

Profit for appropriation 4,966,323
Profit for the year available for appropriation 4,832,980
Profit brought forward 133,343
Withdrawal from equity 0
Transfer to legal reserve 241,649
Gross dividend 2015 4,172,378
Additional gross dividend 2014 22,050
Profit to be carried forward 530,246

Brussels, 24 March 2016
For the Board of Directors.


Alain Wirtz SA
Represented by
Alain Wirtz
Chief Executive Officer

Pierre Lambert
Chief Financial Officer