Interim business report on 10 November 2008

Regulated communication

Over the first three quarters of 2008, sales of Zetes Group have continued to grow compared with the same period last year (+ 4.6%).  The strengthening of gross margin already observed in the first half of the year has continued (+ 9.9% compared with 2007).

In Goods ID, sales cycles are lengthening, with a slight fall of sales in Q3, this effect is however compensatedby higher gross margin. The Goods ID division is by its nature more exposed to the economic cycle. Significant differences are becoming apparent: southern European countries are resisting better than northern Europe, and in general larger ticket projects have a greater chance of coming to fruition than smaller ones. This latter aspect represents an opportunity for Zetes, which partners many multinationals. In terms of sector, the retail area, which represents the majority of Zetes’ sales, is the least affected. Projects are currently being implemented for companies such as Volvo Car Corporation, Colruyt, Sony, Campofrío, an important railway company, big retailers in France, Spain and Germany, etc.

In People ID, activity is almost unaffected by the economic cycle, given that its contracts are essentially long-term and from the public sector. As expected, the division continued its long-term (build and operate) contracts during the third quarter. In August it began producing passports for the Republic of Côte d’Ivoire. The still limited volumes achieved to date have enabled the division to fine-tune the  fully-integrated production system, from biometric registration of citizens to the personalization of the passport and data coding in the electronic chip. This contract has contributed only very marginally to third quarter results. Performance in the People ID division has been weakened, due essentially to the absence of short-term (build and transfer) contracts. These were expected earlier and should materialize in the fourth quarter, which looks set to be in line with expectations.  

Prospects

Zetes continues to anticipate a growth in full-year sales for 2008 compared with 2007. However, the present economic environment makes it unpredictable to estimate the growth. Zetes remains attentive to the evolution of the economic context and has taken the requisite measures, in terms of cost control and strengthening its gross margin, to achieve its profitability objectives, in particular that of recurring EBITDA/sales in excess of 8%.

With a solvency ratio of over 50%, the company faces the future with a strong balance sheet. Zetes is still looking to grow by acquisition, and its net cash position and ability to generate substantial operating cash flow will enable it to seize opportunities in the present economic situation.

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