Zetes Half-Year Results H1 2014

Good progress in Goods ID, Excellent results in People ID

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The declaration of conformity is included page 21 in the interim condensed consolidated financial statements. 

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Group sales: € 118.7 million 
+ 15.2% on H1 2013 
Current EBITDA: € 8.1 million 
+ 47.6% on H1 2013
Goods ID: Return to growth, improving earnings 
Sales: € 87.8 million (+7.4% on H1 2013)
Current EBITDA: € 4.1 million (+34.0% on H1 2013)
People ID: The short/long-term project mix is producing strong growth and generating excellent results
Sales: € 30.9 million (+45.3% on H1 2013) 
Current EBITDA: € 5.5 million (+36.9% on H1 2013)


(1) "Current" excludes restructuring expenses and non-current income/costs
(2) Attributable to equity holders of the parent company

The first half of 2014 saw strong upward movement in sales: +15.2% compared with H1 2013. After three years of relative stability, sales are again rising solidly in both Goods ID and People ID divisions.

Half-year gross margin passed the € 50 million mark for the first time (+13.2%). As a percentage of sales it was, at 42.2% of sales, down slightly from H1 2013 (42.9%), reflecting mainly the product mix of the People ID division (see below).

Group current EBITDA is € 8.1 million, up 47.6% on H1 2013, supported by strong growth rates of 34.0% in Goods ID and 36.9 % in People ID. Group EBITDA is up 49.8% to € 7.7 million.

1. Goods ID

The first half ended with a significant 7.4% increase in sales. This upturn is spread over most European countries and is supported by a handful of major projects in Belgium, the United Kingdom and Switzerland, especially for the retail sector.

As previously reported, Zetes has decided to integrate the experience and expertise it has gathered Group-wide over the past 30 years into 6 solutions that respond to the challenges facing its customers. These solutions are summarized in the diagram below. They address all economic sectors that are concerned with the traceability of the goods they produce or transport, and of their assets: from industrial production via logistics and transport to arrival at the point of sale.

Zetes collaborative supply chain solutions

The industrialisation of these six solutions at Group level makes it possible to capitalise on past experience gained in application software programmes that meet the different needs of customers in the same industry. It is all about moving from developing custom solutions to a more complex product that meets most of the requirements of a particular business. Zetes expects major productivity gains from this move, with, for each key solution, all developments concentrated into a single and continuously enriched product. In this way the model benefits both customers and the Goods ID division.

This strategy enables Zetes to better serve certain targeted economic sectors with sophisticated products, while retaining the flexibility to develop specific projects at the request of its customers.

The use of a common development platform created by the Group makes it possible to support mobile devices from different manufacturers and most communication protocols.

Some solutions, like those hosted in the Cloud, are well suited to a rental as distinct from sales model. In this case Zetes provides an integrated solution (hardware, software, services) against monthly payment per terminal for a fixed period of 3 to 4 years. In some cases, the leased assets are recognised on the balance sheet. But, ultimately, in most cases, on the basis of agreements with financial institutions, the physical assets will be leased to the client by the latter. Depending on the terms of the lease contract and the funding provisions, the income will be recognised either immediately or over time. Gradually, recurring revenues will represent an increasing share of the division's income.

The number and volume of orders for key solutions delivered to customers is increasing by the month, to the satisfaction of these customers. Visibility on the sales pipeline suggests that this movement will continue in the second half of the year.

The impact of this development on the division's gross margin is beginning to be felt: despite the recent significant revenue growth being buoyed by large projects with traditionally lower margins, gross margin has still increased from 40.0% to 40.4%.

The R&D expenses (€ 1.4 million) relate to the development of the MCL Mobility Platform™ and generic software solutions based on the Group's expertise.

The impact of exchange rates differences is not significant (€ 0.1 million on EBITDA).
Operating expenses were up 5.9%, supporting the growth in sales.
Current EBITDA (REBITDA) is € 4.1 million, up 34.0% and EBITDA is 3.8 million, or 38.5% more than in H1 2013.

2. People ID

A major factor in the sales growth in the division (+45.3% on H1 2013) was the delivery of a large batch of biometric registration kits to the Electoral Commission in Uganda. Personalisation of Belgian ePassport began in May. The division benefited from an excellent mix between electoral projects (Build and Transfer) and long term contracts (Build and Operate), the latter ensuring a stable income for the division, with their number increasing every year. New contracts of this type during the last 18 months are the Belgian driving licence, the Senegalese biometric visa and finally the Belgian passport.

Gross margin is down logically because electoral projects, with their high hardware component (purchase), produce a lower gross margin than long-term contracts, requiring significant investments, which are not reflected in the gross margin figure (but subsequently impact the income statement in the form of depreciation).
Operating expenses were up 20. 8% for carrying out the new Build and Operate contract.

The People ID division relies on the ongoing efforts of business development, the aim being to remain abreast of as many opportunities as possible, and to benefit from good geographic diversification and a mix of long and short term contracts.

In this context, Zetes has again been appointed by the Republic of Togo to prepare the electoral register for the elections to be held in the coming months.

Current EBITDA has grown by almost 37% from H1 2013 to € 5.5 million.

3. Group

After corporate expenses (€ 1.6 million, at the same level as in H1 2013), current Group EBITDA is € 8.1 million. Up by a significant 2.6 million on H1, and giving a 6.8% EBITDA/Sales margin (against 5.3% in H1 2013). As explained above, this increase reflects the efforts of both divisions.

Non-recurring expenses were recorded in an amount of € 0.4 million. These relate to marginal reorganizations in France and Spain. € 50,000 relates to a share purchase offer made to Group executives (Zetes Industries share plan).

Depreciation of fixed assets (€ 2.8 million) was up 0.3 million. This figure is growing both in Goods ID (amortization of previously capitalized key solutions development costs) and People ID (amortization of the infrastructures for the new Build and Operate contracts that have got under way in the last 12 months). Inventory write-downs amounted to € 0.2 million, EBIT reached € 3.4 million, up 148% from H1 2013.

Net financial expenses break down in a foreign exchange loss of € 0.15 million, mainly due to currency volatility, and a combination of bank charges and interest expense of € 0.25 million.

The final tax rate is 34.5% with a total tax amount of € 1.1 million. The particularly high tax rate is because the majority of the profit for the first half was realized in high-tax countries. The expected normalized rate for the Group is 30%.

Net profit for the period (attributable to the shareholders of the parent company) is € 2.0 million, up 134% from H1 2013.

(1) Weighted average number of outstanding shares
(2) Attributable to equity holders of the parent company
(3) "Current" excludes restructuring expenses and non- current income/costs


With equity of € 76.7 million on total assets of € 173.0 million, the solvency ratio (equity/total assets) stood at 44.4% vs. 47.2% at end-December 2013. The fall in this ratio is primarily due to the increase in trade payables and deferred income and is not structural.

The components of working capital needs are changing significantly, on both sides of the balance sheet. Working capital amounted to € 13.6 million at 30 June 2014 vs. € 15.9 million at end-December 2013, the increase in current assets being more than offset by higher current liabilities, with a cash generation effect of more than € 2 million. The slight reduction in inventory levels to € 13.9 million is a good development in view of the sales growth in both divisions. The net debt position has changed little, with € -2.6 million as against € -3.0 million at end-December 2013, despite the dividend payment in June. This good performance reflects the good first half results.

The business activities generated a total cash flow of € 8.2 million, of which € 6.1 million through the income statement and € 2.0 million via the reduced working capital need. This decrease is the combination of opposing movements, being:

  • the increase in trade receivables (+€ 5.4 million),
  • increased trade payables (+ € 3.1 million),
  • increased prepayments and deferred income (liability items) (+ € 5.4 million),
  • other receivables: (+ € 1.1 million).

These variations are not structural; they reflect the billing of major projects at the end of the half-year.

The investments in Goods ID relate mostly to the development of the 6 Zetes solutions and the MCL Mobility Platform™ (€ 1.4 million out of a total of € 2.5 million investments in the division), while the investments in the People ID division (€ 2.9 million) concern essentially the passport production infrastructure. In total, investments amount to € 5.4 million, a level that reflects the current strategy in Goods ID and the preparing of the infrastructure for the new People ID contracts. Part of this amount was financed with bank borrowing, with the balance being financed internally.

In the first half of 2014, as part of a "share plan" for the benefit of its employees, the Group sold treasury shares worth € 0.6 million; at 30 June 2014, the Group held 197,860 (3.67%) Zetes Industries shares.

The principal cash flows are as follows:



During the half-year, Zetes bought out the remaining shares of the minority shareholder (15%) in Zetes Industries Israel for an amount of € 0.2 million.
During the first half of the year, several potential acquisition files were examined in both Goods ID and People ID, but none of them presented a suitable profile for profitable integration into the Group.

In July, Zetes seized the opportunity to acquire the business of an Austrian company based in Vienna, and has hired a 10-person team to revive the business. This acquisition will immediately position Zetes on the Austrian market with a market share that complements the business generated until now from neighbouring countries. Zetes brings to this team and to its Austrian customers the Group's solutions portfolio and expertise; the goal being to achieve a steady growth in the country over the next three years and to reach break-even after six months of operation.


In Goods ID, the growth observed during the first half is expected to continue in the second. Commercial activity is intense and the profiling of Zetes on the 6 key solutions is bearing fruit. The most active business areas continue to be the retail sector and postal and parcel delivery.

The base of recurring business will continue to increase with the deployment of projects on the Group's Cloud platform, for which services are billed over several years.

In People ID, all Build and Operate contracts signed in the past should contribute to the division's income. These various contracts will reach cruising speed in 2015. In addition, preparation of voter lists in Togo is proceeding under the new contract, alongside other smaller short-term contracts.

By way of conclusion, Goods ID is back to growth, solidly supported by the implementation of the 6 solutions strategy. The positive impact will continue to be felt in the second half results. In People ID, the good product mix between Build and Operate contracts and short-term contracts will also allow the division to generate quality results in the second half. On the basis of the results of this first half of the year and the visibility on both divisions, the Group reaffirms its expectation to achieve significantly better results in 2014 than in 2013.


The statutory auditor has conducted a limited review of the interim financial information of Zetes Industries for the six months ended 30 June 2014. The text of the statutory auditor's report is given below.


2014 results: 20 March 2015
2014 Annual Report: 27 April 2015
Annual General Meeting: 27 May 2015