Half-year Results H1 2010

Zetes bounces back with growth : a very good year is expected for 2010

Group Revenues of €88.6 million
up 5.7% on H1 2009
Current EBITDA of €6.1 million
(-14.4% on H1 2009)
Goods ID: Revenue growth and organic investments
in new solutions
Revenues of €70.8 million (+8.9% on H1 2009)
Gross margin of 42% of sales
Current EBITDA of €4.2 million (-3.3% on H1 2009)
People ID: Very good return on Build and Operate contracts. Confirmation of strong contribution from Build and Transfer contracts in the second half year
Revenues of €17.8 million down 5.2% on H1 2009 in the absence of significant revenues from Build and Transfer contracts
Current EBITDA of €3.3 million down 19.3% on H1 2009

I. Income Statement

The Group’s total revenue is once again on the rise, at +5.7% compared to the first half year 2009. Although this increase is already evident in the Goods ID sector, at +8.9% compared to H1 2009, it will only materialise in People ID at the end of the year 2010. In the first half year, the slowdown in People ID is -5.2%. The consolidated gross margin is at 45% of sales, a slight decline (0.7%) on 2009, due to the increase, and consequent impact on purchases, of the US dollar during the first half of the year.

The current total EBITDA is €6.1 million, down by 14.4% on the first half of 2009 and by 7.3% on the second half. This drop is primarily due to the temporary decline in the contribution from People ID (EBITDA down by €0.8 million compared to the first half year 2009) owing to, among others, very significant efforts carried out in business development; the drop is also due to the short term impact of the recent strategic acquisitions made in Goods ID (the negative contribution of ImageID, in particular, during the first 6 months of 2010).

Regarding current EBIT (at €3.2 million), although it is down by 26.8% on H1 2009, it also reflects the good performance of Goods ID, at -1,9%, and the temporary decline in People ID to -31.4%.

The Group’s net profit comes to €2.3 million, down by 22.4% compared to the first half year 2009. This slowdown should be more than compensated for by the performance expected in the second half of 2010.

1. Goods ID

During the first half year 2010, the Group observed business recovery in many countries. Various significant roll-outs were made which sustained the revenues. The latter could have been even higher if certain hardware suppliers had not had delivery problems related to their supply of electronic components.

From a sector perspective, the distribution sector and the pharmacy sector are the ones supporting the growth. In the pharmaceutical industry, the deployment of significant installations began in the second quarter, primarily in traceability (Datamatrix marking for pharmaceutical drugs). In the retail sector, Zetes has continued to provide solutions for supply chain optimisation, including warehouse voice order picking solutions.

In addition, Zetes continues to recognise a very stable source of revenues from maintenance and consumables (recurring business).

These various factors explain the increase in absolute gross margin, which comes to €29.8 million, +1.6% compared to the first half year 2009. The relative gross margin is, however, slightly down. This decline is due to the resumption of significant roll-outs, which traditionally have weaker margins, and the increase in the US dollar.

The situation remains variable from region to region. The United Kingdom continues to recognise significant growth, strengthened this half year by the change in exchange rate between the pound and the euro (the impact is estimated to be 0.6% at the sales level). Spain, Belgium and Switzerland are also growing while sales remain stable in the other regions.

At the end of January 2010, Zetes acquired 51% of the shares in the company Netwave (Greece). Zetes has already finalized a contract for the acquisition of the residual 49% to be valued based on the entity’s performance through 2013. Zetes took this decision in spite of the risk that this acquisition represented in the difficult macro-economic environment present in Greece. The competence of Netwave’s team and the significant size of its installed base in the AutoID sector made this acquisition a strategic decision. In the first half year 2010, there was almost no contribution from Netwave to the EBITDA. Today, Zetes is making every effort to train the local team in Zetes’ solutions and to strengthen Netwave’s ties with its historic customers and suppliers.

The integration of ImageID (that offers virtually instantaneous detection and decryption of hundreds of barcodes) and Netwave significantly increased the Group’s operating costs. On a like-for-like basis, the operating expenditures of the Goods ID division decrease by about 1.6% and the EBITDA increases by 6.8%, an increase in line with that of sales (+7.0%). ImageID’s negative contribution was anticipated since the adoption of a new technology by customers must be expected in a medium term. Therefore, it does not put into question the relevance of the strategic decisions made. Netwave gives access to an additional geographic market, and ImageID allows the Zetes Group to offer a solution with very high added value that offers a real differentiator compared to the competition.

On a like-for-like basis and excluding currency exchange fluctuations, the following are obtained :

2. People ID

The results of the People ID division is almost entirely attributable to the execution of its Build and Operate contracts.

In Belgium, the replacement of the electronic identity cards delivered in 2005 began, and the volumes increased progressively throughout the half year. They were rounded out by the production of residence permits for foreigners and by a strong demand for the kids-ID.

Other long term contracts (Belgian SIS cards, Mobistar) also continued to generate significant recurring revenues.

The roll-out of the Portuguese identity card continued and even accelerated throughout the half year which has just ended. The associated revenues were essentially related to software delivered and yielded a very high gross margin, which partly explains the division’s very good margin.

The distribution of Ivory Coast electronic passports found its cruising speed, and the Ivory Coast team contributes regularly to the People ID’s revenue and cash flow. In addition, the Ivory Coast decided to issue a biometric visa in all its embassies; Zetes supplies the necessary technical installations (material and software) for the biometric and biographic enrolment of the visa candidates. Installations will be made in more embassies in the second half year.

In Israel, the approval procedures on the first card samples completed successfully at the end of the half year; the production of the first blank cards will start in the third quarter. The contribution from the Israeli identity cards to the first half year was therefore nothing, but this does not affect the goal to produce 1.6 million blank cards in 2010. The contribution from this contract to the results will therefore be concentrated on the second half of the year.

In June 2010, Zetes finalized a contract with the Congolese government (DRC) involving the delivery of 9,500 biometric enrolment kits to support the elections and involving training and technical support during the preparation of the electoral records. This contract represents a value of around $30 million USD and will be performed, for the most part, in 2010. None of the revenue related to the contract of the Democratic Republic of Congo was recognized in the first half year; the major part will be recognized in the second half.

Although the resources dedicated to business development for the Build and Transfer contracts were very high, the revenue contribution from this type of contract was very weak, less than 10% of the division’s revenue in the first half year.

In spite of this weak contribution, the division was capable of generating an EBITDA of €3.3 million, giving a current EBITDA/sales ratio of 18.7%. 3. Group

The corporate structure remained unchanged. The increase in operational expenses, limited to 4.4% compared to the first half year 2009, was mainly due to the increase in travel abroad that took place in H1 2010. The corporate takes responsibility in terms of acquisition, control and strategy. In terms of acquisition, one single operation was concluded with the purchase of Netwave in Greece (January 2010). This acquisition is described in greater detail here within.

The Group’s current EBITDA is €6.1 million, which corresponds to a 6.8% margin for EBITDA/Sales (against 8.4% in the first half year 2009).

The net amount of non-recurrent charges is €0.2 million. Two main factors make up this result: restructuring costs and external costs related to the acquisition of Netwave. The restructuring costs are associated with merging the business activities of the French subsidiary into one single location. Regarding the acquisition of Netwave, the external costs relating to the acquisition were accounted for as expenses in conformance with the IFRS 3 R applicable standards introduced on January 1, 2010.

The amortisation of fixed assets remains in line with those recorded during preceding half year periods (€1.8 million). The inventory depreciation is small, as are bad debt provisions.

The EBIT reaches €3.1 million in the first half year 2010, which represents a decrease of 26.7% compared to the first half year 2009.

The net financial charges are less than €0.4 million and the tax rate is 13.2% for a total tax amount of €0.4 million. The lower rate is tied to the recognition of a deferred tax asset of €0.3 million. Outside any non-current revenue, the overall Group tax rate is between 23% and 27%. The net profit is €2.3 million against €3.0 million a year earlier.

In conclusion, although a slowdown is observed during the first half year 2010, it can be qualified as temporary; the Group is confident that the performance of the second half year will more than compensate for the weaker performance of the first half year.

Au 30 juin 2010, le nombre d’options en circulation est de 184,669. Dans la mesure où le cours moyen pondéré de l’action n’excède pas les prix d’exercice, les options émises ne sont pas prises en considération pour calculer l’effet de dilution.


The current balance sheet sees significant change compared to December 2009. This is explained, in particular, by the contract preparation, concluded in June 2010, for the delivery of 9,500 biometric kits to the Democratic Republic of Congo (DRC). Although the project did not generate any revenue in the first half year, its preparation had a significant momentary impact on working capital needs regarding inventory, credits, prepayments (assets and liabilities) and supplier debts. Zetes’ sound balance sheet allows it to execute large scale projects, that could temporarily destabilise balance sheet equilibrium, yet still keep the trust of all stakeholders.

With equity capital of €70.6 million on a total balance sheet of €155.3 million, the solvency ratio (equity capital /total balance sheet) is decreasing; it remains, however, high at 45.5%. The net cash position (€6.0 million) is also lower. This is explained not only by the temporarily unfavourable change in working capital needs, but also by the acquisition of Netwave whose impact on the net treasury position amounts to €2.3 million (negative impact upon entry into the Group).

Outside of the change in working capital needs, the business generates a cash flow of €4.2 million, a limited drop compared to the first half year 2009 (5.4 million €). The change in working capital needs (decline of €2.7 million) has little relevance due to the preparation of the biometric kit contract.

Various Group subsidiaries made significant investments (€3.5 million in the first half year, outside of acquisitions). The People ID investments represent €1.3 million (36.6% of the total), and those of Goods ID were €2.2 million (63.4%). In People ID, the investments are primarily in production equipment (€1.2 million) made in Belgium and Israel. Today, the investments in the new infrastructure for production and personalisation of electronic identity cards in Israel are almost finished. In Goods ID, the investments are split between intangible investments (development, ERP, web sites: €1.3 million) and tangible investments (buildings and equipment: €0.9 million).

During the half year just ended, the company paid its shareholders an amount of €2.4 million in the form of dividends (€1.9 million) and the repurchase of its own shares (€0,5 million).

The net treasury position of the company at the end of June 2010 is €6.0 million (ST net treasury : €8.4 million). It is primarily the result of cash assets of €12.2 million, liquid assets of €0.4 million put up as security, and banking debts and leasing of (€6.6) million.

In addition, the Group has lines of credit that could be used in the event of a change in working capital needs.


As expected at the end of the year, the acquisition of equity in Netwave in Greece proceeded in the first quarter. In spite of difficult economic conditions, the first steps were taken to bring it up to standard and integrate it into the Group, and more particularly into the southern region. This acquisition was already the subject of a specific note (event posterior to the closing) in the 2009 annual report.

In the first half year 2010, the contribution to the EBITDA of this new subsidiary is slightly positive. It should, however, strengthen in the second half under the impetus of an increase in sales, and more particularly, of an improvement in gross margin following the solution sales policy.

The acquisitions under consideration during the first half year could not be finalized as they did not meet the criteria set. Indeed, the Group wants to integrate new companies if they will contribute to the geographic expansion in a poorly covered zone or if they have proprietary or intellectual technologies that will allow the Group to differentiate itself from the competition. Moreover, acquisitions must be realized at a price that leaves room for the creation of value for Zetes in the future. The expectations of shareholder sellers often remain similar to the valuations they had of their businesses prior to the financial crisis.

This temporary pause in acquisition activity changes nothing in relation to Zetes’ ambition to pursue its policy of growth by acquisition. 


In Goods ID, the outlook is again becoming favourable: the revenue growth is clearly confirmed at the Group level, even if the tendency is not yet solid in all geographical areas. The division’s objectives for 2010 are still to surpass the revenue and EBITDA performance realized in 2009. The slight lag observed in EBITDA in the first half year 2010 should easily be compensated. Plus, even if the majority of growth will be attributable to hardware roll-outs that have weaker margins, Zetes knows how to differentiate itself from its competitors by bringing a significant added value whether the latter be acquired or developed internally. The Group is confident in its strategy of providing value-added solutions.

In People ID, the Group expects to record a year 2010 without precedent: in the second half year, the contribution from Build and Operate contracts, in particular, will again strengthen thanks to the launch of production in Israel. At the same time, several Build and Transfer projects will be performed, including the biometric enrolment kits for the Congo. Zetes expects that the delivery of the kits will be recognized in the year 2010 and the services for training and maintenance will be spread over the years 2010 and 2011 and prorated according to the progress of the operations.

Regarding Build and Operate contracts, Zetes won the request for offer for domestic animal passports (Belgium). This six (6) year contract represents revenue of around €6 million to be distributed uniformly over the duration of the contract.

In conclusion, in Goods as well as in People ID, the second half of the year is forecast to have strong growth.

Consequently, for the year 2010, Zetes targets a revenue of €190 million and a current EBITDA of €17 million, giving an overall better result than the highest results ever recorded by the Group.

The composition of the balance sheet should be restored to a normal level in the second half year, and the Group expects a significant increase in its cash position. Regarding this cash position, part will be allocated to buying back the Company’s own shares; Zetes considers that the current share price gives an opportunity for the Company and its shareholders.


The auditor has carried out a limited review of the interim financial information for Zetes Industries for the half year ending June 30, 2010. The text of the Auditor’s report, following a limited examination, appears below.


Results for 2010: Tuesday, March 22, 2011

Ordinary General Meeting: May 25, 2011