Zetes - Half-year Results 2009

People ID’s excellent performance supports first half results

Net result for the first half of 2009 of €3 million
i.e. half the profit for the full year 2008

Group revenues of €83.9 million
down by 11.2% on H1 2008 but slightly up on H2 2008 (+0.8%)

Current EBITDA of €7.1 million
(-10.9% on H1 2008 and -2.7% on H2 2008)

Goods ID: Projects slowing down but cushioning effect from recurring business
Revenues of €65 million (-17.9% on H1 2008)
Gross margin up by 4.1 points to 45% of sales
Current EBITDA of €4.3 million (-39.4% on H1 2008)

People ID: Excellent growth and profitability
Revenues of €18.8 million up by 23.5% on H1 2008 and by 33.8% on H2 2008
Current EBITDA of €4.1 million up by 80.7% on H1 2008 and by 178.3% on H2 2008


The Group’s net result stands at €3 million, i.e. half the 2008 result, which is a good performance given the exceptionally difficult economic circumstances during the first half of 2009. Zetes owes this to the diversification of its activities between Goods and People ID and to a business model increasingly focused on providing high value-added services.

Group revenue fell by 11.2% during the first half on the same period of 2008, but was up by 0.8% on the second half.

At the same time, the relative gross margin rose from 42.3% to 46.5% based on comparable periods, giving a performance which was slightly better than what was anticipated at the end of the first quarter. This rise is due to the ongoing strategic efforts made to increase the level of added value of the services and also the increased weighting of People ID (which traditionally has a higher margin) in terms of the Group’s total revenue.

The current EBITDA is €7.1 million, down by 10.9% on the first half of 2008 and by 2.7% on the second half.

Although the EBIT (€4.2 million) is down by 15.9% on H1 2008, it is up by 15.7% on H2 2008.

1. Goods ID

The current economic crisis is having a detrimental impact on the investment budgets companies have allocated. Many projects have been slowed down or postponed, which explains the fall in the division’s turnover. However, we are seeing that clients with limited budget constraints are opting for projects with a greater software component.

From a segment viewpoint, transport and industrial manufacture have been hardest hit by the economic slowdown. In the latter segment, investments mainly focus on regulatory obligations regarding traceability (pharmaceuticals, food products). On the other hand, the Retail segment, which is well supported by private consumption, is continuing to invest in optimising the supply chain. In fact, increases in productivity enable actors in this segment to stand out and improve their competitiveness.

Clients are looking for projects with a fast Return on Investment and which, in the present climate, integrate with and improve the productivity of their existing tools. Consequently, a large number of projects are to do with existing infrastructures and less to do with new expansion projects. This is why the Software and Services component is greater than the sale of hardware component. The reduction in major hardware roll-outs is most apparent in large countries such as Germany and France. This affects the profitability of these countries despite the fact that the gross margin associated with these hardware roll-outs is traditionally a lot lower than the division average.

Furthermore, Zetes is seeing its maintenance and consumables revenues stand up very well (recurring business).

These two factors combined explain the further rise in the relative gross margin. This has been rising constantly since 2006 and is cushioning the impact of the slowdown in revenue. 

However, the situation is far from being the same throughout Europe. The UK, which was hit by the crisis ahead of Continental Europe, is currently seeing significant growth, despite the impact of this recovery being partially masked by the GBP/EUR exchange rate trend. The impact on the division’s sales is in the region of 2.5%. Conversely, during the first half of 2009, Germany experienced a significant slowdown, which necessitated restructuring funded during the first half but which will only produce effects during the second half. Zetes is mindful of ensuring that the market potential and its level of operating costs are in line. In other countries, the reduction in turnover is due to a fall in hardware deliveries, whereas service and software development, which require resources, are holding steady.

At the end of January 2009, Zetes took over Bopack’s Print & Apply activities in Belgium and the Netherlands. Zetes took this decision despite the risk of carrying out this takeover in an extremely difficult economic climate and a lacklustre order book. The integration of a competent team and a renowned range of products meant that this was a strategic decision. Moreover, Bopack’s activities offered a source of diversification and, therefore, growth for Group companies, mainly in the Benelux countries. Bopack’s contribution to the EBITDA was practically zero in the first half of 2009. After two months of slight losses, the trend reversed and slightly positive profitability was posted in Q2 2009.

Zetes has put a flexible structure in place in the form of a competence centre working with the Print & Apply division in Spain. The objective is to harmonise the range of solutions and create synergies between entities. Thanks to the support of the commercial network of Belgian, Dutch and French subsidiaries, sales have picked up and the pipeline means that we have a clearer picture of the second half. Eventually, all European subsidiaries will offer their clients label application solutions.

However, this takeover had a significant impact on the Group’s OPEX due to taking over 35 staff in Belgium and the Netherlands, i.e. approximately 5% of Goods ID’s wage bill. Excluding the takeover, the operating expenses of the Goods ID division would have fallen by approximately 5%.

Based on a constant scope and excluding currency impacts, we see the following trends :

2. People ID

The start of 2009 was exceptional for the People ID Division in more ways than one. First of all, it continued to perform long-term “Build and Operate” contracts.

In Belgium, the distribution of electronic ID cards to Belgian citizens is nearly complete. In fact, all citizens will have their electronic cards by the end of this year, and in 2010, those citizens who received their cards in 2005 will be invited to replace them since they are only valid for 5 years.

At the same time, the distribution of residence permits for foreigners is continuing and, after a twoyear pilot phase, the decision has been made to roll out the children’s card (kids-ID). Over 100,000 kids-ID have already been supplied.

In Portugal, the distribution of electronic ID cards is underway at the rate expected.

The process of enrolling Côte d’Ivoire citizens and personalising their passports is continuing, and the volumes are gradually reaching cruising speed. At the beginning of July, together with its local partner SNEDAI, Zetes implemented solutions for issuing diplomatic passports and biometric visas in Côte d’Ivoire embassies.

Moreover, the People ID division performed several Build and Transfer-type contracts, including the enrolment solution for the elections in Togo, the enrolment of civil servants in Burundi, the implementation of a social identity card infrastructure in Gabon and the start of the assignment to update the electoral roll in Congo (RDC). All these contracts are the result of intensive business development work. These efforts, which were made in 2008, penalised the division’s performance at the time and reduced profitability to a level of 12.9% of EBITDA/Sales.

As a consequence, the performance of projects in 2009 has increased the revenue to €18.8 million, up by 23.5% on the first half of 2008. The EBITDA stands at €4.1 million, up by 80.7%.

The People ID business is practically immune to the economic crisis, helping to stabilise the Group’s results. Furthermore, the strategy implemented by Zetes, which consists, on the one hand, of building up Build and Operate contracts to ensure good visibility and high predictability of revenues and, on the other hand, of performing Build and Transfer contracts supporting the division’s growth, is bearing fruit and justifying management’s desire to continue to invest massively in business development.

3. Group

Corporate expenses are down on the corresponding period in 2008 and stable compared with the second half of 2008. Corporate plays the essential albeit limited role of outlining the strategy, overseeing the divisions and subsidiaries and steering the policy of expansion by acquisition. With regard to this final aspect, activity was intense during the first half. Just one operation was carried out with the takeover of Bopack’s Print & Apply activity. Other operations contemplated did not come off, either because uncertainty over the future of the targets was too great, because there were risks concerning the integration of the target’s activity with that of Zetes, or because the financial and price terms were not satisfactory.

The Group’s current EBITDA stands at €7.1 million, corresponding to a EBITDA/Sales margin of 8.4%, which is exactly the same as the margin for the first half of 2008.

Non-recurring expenses were posted for a net amount of €0.2 million. This item is made up of two key components, namely restructuring costs and badwill. In fact, following the slowdown in the business in Germany, Zetes decided to reorganise operations on two sites instead of three and change how the German company is organised to suit the needs of the local market better. In order to do this, restructuring expenses were posted of €0.4 million. Furthermore, the takeover of Bopack BV (NL) resulted in badwill of €0.36 being posted. Amortisation of fixed assets is still in line with that posted in previous halves (€1.7 million). However, depreciation of stocks is down thanks to better stock management, something which has been implemented for the past few years and is bearing fruit.

The EBIT reached €4.2 million in the first half of 2009, which represents a 15.9% drop on the first half of 2008 but a 15.7% rise on the second half.

Net financial expenses are down at €0.2 million and the rate of tax stands at 25.6%, totalling €1 million. The net result stands at €3 million, which represents half the net profit for 2008.


With equity capital of €68 million out of a total balance sheet of €133.7 million, the debt ratio is extremely high at 50.8%. Combined with a solid economic model, this strong balance sheet structure is enabling the Zetes Group to pass through the crisis continuing its strategic efforts, both in terms of organic development and external growth. The net cash position (€11.6 million) means that Zetes avoids the constraints of financial covenants, thereby enabling the management to implement its development and expansion policies and keep on the lookout for opportunities involving new markets, new technologies or new geographic areas.

Business activity generated a cash flow of €9 million. This cash flow from operations is the main source of growth and development for Zetes, enabling it to finance People ID’s Build and Operate projects, acquisitions and Goods ID’s development of new solutions. This makes it a priority at every level of the company. The income statement generated a cash flow of €5.4 million and the need for working capital fell by €3.7 million.

This reduction is essentially attributable to the reduction in accounts receivable. Goods ID’s investments totalled €0.7 million, which is in line with the Group’s policy (1% of this division’s turnover). The investment in People ID of €1.4 million mainly relates to the investment in a new production and personalisation infrastructure for electronic ID cards in Israel and to investments in the Belgian production plant in order to increase production capacity with a view to the next few years.

During the last half, the company paid its shareholders €2.34 million in the form of dividends (€1.9 million) and own shares acquisition (purchase of 28,899 shares for an amount of €0.4 million). The Group has demonstrated its capacity to generate significant cash flows, a considerable proportion of which is allocated to developing and expanding the company, with the remainder being used to pay the dividend and for the opportunistic own shares acquisition.

The company’s net cash position stood at €11.6 million at the end of June 2009. This is predominantly made up of a positive cash position of €16.5 million and bank and leasing debts of €5.2 million. Despite the cost involved, Zetes favours the use of medium-term debts to finance long-term development and investments in order to keep liquid assets available to respond to any opportunities which might arise, particularly acquisitions.

Until it is used, the cash is invested in risk-free fixed-term investments in EUR.

The Group also has unused credit lines to finance its working capital requirements and framework arrangements in place to finance takeovers of other companies.


During the first half of 2009, the company looked at several opportunities which varied considerably in size.

The takeover of Bopack’s Print & Apply activity was the only one which could be carried out under attractive financial terms for the Group and its shareholders. Considerable integration efforts were made to boost sales and achieve a satisfactory level of business to restore profitability. Each acquisition requires particular attention from management, both during the purchase phase (due diligence, negotiation and financing) and during the integration phase so that the newcomer fits into the Group’s strategy and starts contributing to the result as soon as possible.

The experience we have built up cuts down on the time and means that resources can be allocated to this exercise in the most effective way.

Some opportunities were rejected as the conditions were not right for them to be integrated properly as part of Zetes. Other opportunities are still being considered. However, Zetes is always on the lookout for targets which, on the one hand, can fit into the Group’s strategy and organisation and, on the other hand, are priced in such a way that the Group is able to create post-acquisition value.


When it comes to Goods ID, the recovery in growth depends on coming out of the current economic crisis. In fact, the situation can vary from region to region. Zetes explained above that its subsidiary in the UK was the first to experience the effects of the recession, before seeing growth pick up again at the end of last year, and particularly at the start of 2009. Continental Europe’s emergence from the crisis, the timing of which could vary from country to country, should mark the return to growth for Zetes, strengthening its competitive position.

Be that as it may, the Goods ID division has proved the wisdom of its economic model based on a significant services component and a stable foundation of recurring business. In fact, across all subsidiaries, the greatest fall in growth has been seen in hardware sales, together with a lower margin, whereas sales of software and services have held steady and even risen in some countries.

This strategy, which was mainly implemented for differentiation requirements, is bearing fruit at a time of economic slowdown and investment cuts.

Even though order-taking has not returned to pre-crisis levels, some subsidiaries have larger backlogs today than they did at the end of last year, and the division has proved that it is still capable of being profitable with a reduced level of revenue.

The crisis barely impacted People ID. Most of the contracts are long-term projects financed by States (or their citizens) or by supranational bodies. Sale and decision-making cycles are extremely long, but once they are complete, there is no doubt over their performance.

The efforts implemented by Zetes to increase the number of Build and Operate contracts are bearing fruit :

• In Belgium, the ID card contract for Belgian citizens has been extended to residence permits for foreigners and children’s cards.

• In Portugal, the roll-out has been taking place since last year and will continue for the next 4 years.

• In Côte d’Ivoire, diplomatic passports and biometric visas are being added to electronic passports.

• Finally, in Israel, the implementation of the production and personalisation infrastructure for electronic ID cards is continuing, and revenues are expected for the next 5 years.

At the same time, the division is continuing its efforts to win short-term contracts for the biometric enrolment of voters, civil servants, etc.

Recently, the International Organisation for Migration chose Zetes for an enrolment project involving all police officers in RDC. This is the 4th project for Zetes in Congo.

In conclusion, given the current climate which, although there is no significant improvement, is not getting any worse, the Zetes Group is aiming to repeat its overall first-half performance during the second half.


The auditor has carried out a limited review of the interim financial information for Zetes Industries for the half year ending 30 June 2009.


Results for 2009: Thursday 18 March 2010
Ordinary General Meeting: 26 May 2010
Brussels, 31 August 2009