Digia Plc Half Year Financial Report 2020
Strong earnings in exceptional circumstances: January-June net sales up 11 per cent, operating profit (EBITA) improves by 36 per cent
- Net sales: EUR 35.2 (32.8) million, up 7.5 per cent
- Operating profit (EBITA): EUR 4.1 (3.1) million, up 31.6 per cent; EBITA margin: 11.7 (9.5) per cent of net sales
- Operating profit: EUR 3.7 (2.9) million, up 27.5 per cent; operating margin: 10.4 (8.8) per cent of net sales
- Earnings per share: EUR 0.10 (0.08)
- Net sales: EUR 71.8 (64.6) million, up 11.0 per cent
- Operating profit (EBITA): EUR 7.3 (5.4) million, up 35.9 per cent; EBITA margin: 10.2 (8.3) per cent of net sales
- Operating profit: EUR 6.4 (4.9) million, up 31.5 per cent; operating margin: 8.9 (7.5) per cent of net sales
- Earnings per share: EUR 0.18 (0.14)
- Return on investment: 15.3 (14.8) per cent
- Equity ratio: 44.9 (49.8) per cent
- Profit guidance for 2020 remains unchanged: Digia's net sales will grow and operating profit (EBITA) will improve compared to 2019.
Unless otherwise stated, the comparison figures provided in parentheses refer to the corresponding period of the previous year.
GROUP KEY FIGURES
|Operating profit (EBITA)||4,111||3,124||31.6%||7,295||5,366||35.9%||11,003|
|- as a % of net sales||11.7%||9.5%||10.2%||8.3%||8.3%|
|Operating profit (EBIT)||3,655||2,867||27.5%||6,384||4,856||31.5%||9,648|
|- as a % of net sales||10.4%||8.8%||8.9%||7.5%||7.3%|
|Result for the period||2,718||2,244||21.1%||4,905||3,733||31.4%||7,090|
|- as a % of net sales||7.7%||6.9%||6.8%||5.8%||5.4%|
|Return on equity, %||18.1%||15.3%||14.0%|
|Return on investment, %||15.3%||14.8%||13.5%|
|Cash flow from operations||17,928||8,374||114.1%||12,294|
|Interest-bearing net liabilities||11,553||16,762||-31.1%||22,616|
|Equity ratio, %||44.9%||49.8%||47.2%|
|Number of personnel at period-end||1,266||1,144||10.7%||1,266|
|Balance sheet total||124,294||100,394||23.8%||114,116|
|Earnings per share||0.10||0.08||20.6%||0.18||0.14||31.2%||0.27|
PRESIDENT & CEO TIMO LEVORANTA:
“Digia’s net sales and operating profit (EBITA) continued to grow in the second quarter in spite of the coronavirus crisis. Our net sales were up 7.5 per cent in April-June and amounted to EUR 35.2 (32.8) million. Operating profit (EBITA) for April-June rose by 32 per cent to EUR 4.1 (3.1) million. The EBITA margin increased to 11.7 (9.5) per cent of net sales. In January-June, our net sales grew by 11 per cent to EUR 71.8 (64.6) million. The EBITA margin for January-June also improved, amounting to 10.2 (8.3) per cent of net sales. The good trend in net sales and profitability demonstrates that Digia employees can work effectively and agilely even in these changed circumstances.
In the second quarter, net sales were boosted especially by ERP systems based on Microsoft technology and customised industry-independent solutions that we implement for a wide range of customers. In both of these areas, there is an even greater emphasis on the need for data utilisation, such as incorporating analytics features into solutions through integration interfaces. The EBITA margin increased due to not only growth in net sales, but also successful cost management. The restrictions imposed as a result of the state of emergency reduced our travel, meeting and marketing expenses, for example. In the second quarter, the new Digia posted the highest operating profit (EBITA) in its history (on 1 May 2016, Digia was split into Digia Plc and Qt Group Plc).
The improvement in our cash flow is also noteworthy. Our cash flow from operations in January-June improved to EUR 17.9 (8.4) million, including EUR 5.8 million in postponed TyeL insurance premiums in the first half of 2020. At the end of June, our interest-bearing net liabilities amounted to EUR 11.6 (16.8) million and our net gearing to 21.0 (33.8) per cent. Our liquidity is at a good level and our financial position is stable.
The exceptional business environment in the first half of the year impacted on customer demand. In their operations, customers focused especially on enhancing process efficiency, but also on developing long-term digital business. In an uncertain market, customers are typically more careful in evaluating the size of their development projects and project implementation schedules. This was evident in the second quarter in the form of project startup delays and a decrease in the volume of development activities among certain customers. In the current uncertain market, Digia is supported by our extensive product and service portfolio, which is not tied to any single field of business or customer account, and by the fact that a significant share of our operations is accounted for by continuous services. Our service and maintenance business generated about 66 per cent of net sales in the first half of the year, and the project business about 34 per cent.
During the coronavirus epidemic, our priorities have been to ensure the safety of our employees and the uninterrupted operation of services for our customers, without neglecting continuous development. In March, almost all our employees started working remotely. As part of our work culture that bolsters a good employee experience, we developed our management and practices in line with the requirements of these exceptional times – on the whole, remote work has gone smoothly. To balance growth and profitability in these uncertain circumstances, we did not increase our number of personnel, but strengthened internal job rotation. At the end of the period, our personnel count had remained unchanged and amounted to 1,266. After the cautious spring, we have started up recruitment with an eye on growth and opened several new positions for applicants.
We deployed continuity plans for our continuous services in a very early stage of the coronavirus epidemic. These plans have helped us to maintain the agreed level of service and thereby safeguard the continuity of our customers’ business operations. Monitoring and management requirements increased during the review period, with the focus shifting increasingly from the monitoring of individual control points to entire packages. As part of our efforts to develop our own operations, we completed the harmonisation of Digia-level service management during the review period. This enables us to provide our customers with a consistent overview of all Digia services. In the first part of the year, we also kicked off a project to modernise Digia’s own business platform, which is an important element of building up long-term competitiveness.
As part of the implementation of our strategy, we launched the Digia Hub operating model towards the end of the review period. Digia Hub is a network for small entrepreneurs in the IT sector, uniting small entrepreneurs, Digia and customers to create value. Through this network, we can provide small entrepreneurs with appealing tasks and our customers with even wider-ranging expertise under a flexible delivery model. We seek to create an expanding and learning expert network that benefits all parties. We believe in a world in which value is created in networks through smart data management.
The coronavirus spring has forced many organisations to review their operating methods and assess opportunities to utilise digital solutions. Many of the new operating methods and insights will benefit organisations and society even after the crisis is over. We Digia employees have contributed to helping our society cope with the coronavirus crisis. For instance, we developed a Digia-sponsored data utilisation solution for the Finnish Red Cross that enables the organisation to connect volunteers with those in need of assistance. Development work on the 112 Suomi mobile app for the Emergency Response Centre proceeded at a rapid clip during the review period. Good examples of measures to boost process efficiency include robotics solutions implemented for unemployment funds, which speed up the processing of earnings-related allowance applications. The Finnish Transport Infrastructure Agency has also decided to continue its cooperation with Digia in SOA environment management and monitoring. According to the procurement notice released by the Finnish Transport Infrastructure Agency, the total value of the agreement is estimated to be EUR 4.5 million over a six-year period.
In the second half of 2020, we will step up our investments in the development of cloud-based business. Our aim is to create new offerings and more scalable business in public cloud solutions.
Market uncertainty will persist in the second half of the year – and possibly for even longer. It is difficult to anticipate the future impacts of the coronavirus crisis on the business operations and purchasing behaviour of our customers. Digia’s extensive offering and the large share of operations accounted for by continuous services and maintenance have thus far cushioned the impacts of the coronavirus crisis, but the outlook for net sales and earnings for the current year involves more uncertainty than usual.
At Digia, we believe that the growth trend in digitalisation and data utilisation will remain strong in the long term.”
PROFIT GUIDANCE FOR 2020
Profit guidance for 2020 remains unchanged: Digia's net sales will grow and operating profit (EBITA) will improve compared to 2019.
A briefing for analysts will be held at 11 am on Tuesday, 11 August 2020 as a Teams meeting. Attendance instructions have been emailed to participants.
CEO Timo Levoranta will give a webcast on the results in Finnish starting at 12:00 noon at https://digia.videosync.fi/2020-q2.
The material and presentation for the event will be available from 11 am on 11 August 2020 on the company’s website: digia.com/en/investors/reports-and-presentations.
President & CEO Timo Levoranta, tel. (exchange) +358 (0)10 313 3000
Digia is a software and service company that helps its customers renew themselves in the networked world. There are more than 1,200 of us working at Digia. Our roots are in Finland and we operate with our customers in Finland and abroad. We are building a world in which digitalisation makes a difference – together with our customers and partners. Digia net sales were EUR 131.8 million in 2019. The company is listed on Nasdaq Helsinki (DIGIA). digia.com