OREANDA-NEWS. April 10, 2012. ARMADA (MICEX-RTS: ARMD) hereby releases its audited financial IFRS results for FY11 ended December 31, 2011.

"њARMADA successfully fulfilled its development plan for 2011, ramping up revenue and profitability in line with the outlook released by management. In 2012, we will strive to generate further organic growth of revenue of the group of companies by 25-30% and to raise profitability further. In the M&A segment the focus will be on acquiring controlling stakes in small cost-effective software and IT service companies with unique products or services with the potential to expand ARMADA’s business. One or two acquisitions of companies with revenue in the range of USD 5m-10m are on the agenda for 2012,"ќ Chairman of ARMADA's Board of Directors Alexey Kuzovkin said.

Headline financial indicators, RUB m

 

2011

2010

Growth, %

Revenue*, including:

4,656

3,656

27%

Software Development and Implementation

2,082

1,348

54%

IT Services

2,574

2,308

12%

EBITDA

566

410

38%

EBITDA margin, %

12.2%

11.2%

 

Net profit *

492

377

31%

Net profit margin, %

10.6%

10.3%

 

* the Group’s consolidated audited statement under IFRS.

ARMADA’s revenue rises 27% in 2011
ARMADA Group’s consolidated IFRS revenue for 2011 climbed 27% to RUB 4,656m. Organic business development contributed 25% growth. Another 2% came from PMT’s revenue consolidated to the Group’s results since the date of acquisition by ARMADA in May 2011.

ARMADA’s EBITDA margin climbed 12.2% from 11.2%
EBITDA rose 38% from RUB 410m to RUB 566m, while EBITDA margin jumped from 11.2% to 12.2%. EBITDA margin growth to 15-16% over the next few years is one of ARMADA Group’s strategic targets.

The key profitability growth driver is a change in the margin Software development segment climbed up to 45% of the total group’s revenue (37% in 2010). Organic business development expanded the software’s share to 43%. Another 2% came from PMT’s revenue consolidated as part ARMADA in May 2011.

The second profitability growth driver is a decrease in the share of hardware revenues in the mix to 33% from 35% in 2010 (a part of system integration contracts).

Revenue breakdown by segment, RUB m

 

Segment’s revenue

Share of total revenue, %

Software Development and Implementation

2,082

45%

Services, including:

2,574

55%

IT outsourcing

311

7%

System integration

1,989

43%

Consulting

122

2%

Training

152

3%

Total headcount organically went up 10%
ARMADA Group’s headcount, if taken without PMT’s acquisition, went up 10% - from 738 employees in 2010 to 809 employees in 2011. Total headcount. including PMT, stands at 897 employees as of December 31, 2011.

ARMADA has a well-diversified client base
The largest client in terms of revenue in 2011 accounted for 8% of the Group’s consolidated revenue. He is followed by three clients with a share of 4%, 3% and 2% who are then followed by 1500+ clients with a share of less than 1% each in ARMADA’s consolidated revenue.

ARMADA’s client breakdown in 2011, RUB m

 

Segment revenue

Share of total revenue, %

Government bodies

2,554

55%

Financial organizations

278

6%

Energy

204

4%

Other sectors

1,620

35%

The public segment of the Russian IT market is the largest, with a share of nearly 30%. According to the Russian Communications and Mass Media Ministry and CNews analytics [1], annual expenditure by government bodies on IT could reach some RUB 170bn in 2011. The share of government bodies’ orders in ARMADA’s revenue equaled 55% in 2011, including 13% coming from regional government information system development projects.

Another 17% of ARMADA’s revenue was contributed by contracts with state-owned companies in various sectors of the economy (finance, energy, oil and gas, healthcare, etc.).

In total, revenue from government bodies and state-owned companies (so-called "њstate customers"ќ) in ARMADA’s revenue mix is 72% in 2011, almost unchanged from 70% in 2010, which is in line with the company’s development strategy aimed at gaining leadership in this segment.

Software development for government bodies has long been ARMADA’s core competency. ARMADA worked in tandem with more than 60 federal agencies and more than 250 state-owned companies.

In the IT Services segment, ARMADA phased in a number of infrastructure projects for the Central Bank of Russia, Home Credit and Finance Bank, BSGV (Rosbank), Priorbank (Raiffeisen group), TNK-BP, MRSK Siberia, MRSK Ural, MRSK Center and Azbuka Vkusa supermarket chain, to name but a few.

ARMADA has consistently scaled up the range of available project management services. The company’s customers include Volga Dnepr, TNK-BP, Severstal, Yulmart, MaRussia Motors, and Evraz Group S.A. ARMADA Group, has been successful in implementing educational programs and to date over 40,000 specialists have completed a project management course.

The acquisition of PMT (Post Modern Technology, a software developer of hospital information system MEDIALOG) in 2011 allowed ARMADA to enlarge its footprint in the segment of medical information systems. PMT holds leadership in the healthcare IT market in Russia and aims to command a major market share of the state healthcare upgrade project which is expected to get under way in 2012.

Analysts forecast 11-14% growth of the IT market in Russia in 2012
According to an estimate released by Russia’s Communications Ministry [2], the Russian IT market gained 14.6% in value to RUB 649bn in 2011. This is equal to USD 20bn in dollar terms at the exchange rate as of the end of the year [3].

The value of the Russian IT market in rose 2011 according to IDC [4], and was worth about USD 29bn, growing 20% y-o-y. Sales volumes of tablet computers, smartphones and other such devices are included in IDC’s hardware market segment, which accounts for 62% of the total IT market. IT Services segment has been estimated at USD 5.8bn (20% of the IT market) and Software at USD 3.4bn (12% of the IT market).

A similar estimate of ARMADA’s core market segments (Software development and IT Services) was made by French research and consulting company PAC [5]. IT services in 2011 would account for RUB 192bn (about USD 6bn) and software segment amounted to RUB 96bn (about USD 3bn), according to PAC.

IDC forecasts the value Russian IT market to reach USD 33bn in 2012, which implies 14% growth y-o-y. PAC analysts issued guidance of an 11% growth rate.

PAC analytics also pointed out that the Russian joint Software development and IT services market has robust long-term potential, by comparing per capita expenses in this industry in Western Europe, where they stand at EUR 431, and Russia, where they total EUR 38. This more than tenfold difference reflects the tremendous development potential for ARMADA’s priority markets. As of year-end 2011, ARMADA held a 2.2% share of the software development market and about a 1% share of the IT services market in Russia.

Outlook for 2012: 25-30% organic revenue growth plus new M&A deals
ARMADA’s management team in 2012 will endeavor to achieve organic growth of the company’s revenue at a rate of 25-30% and grow EBITDA margin to a level higher than 12.2% achieved in 2011.

ARMADA has substantial cash resources and a pipeline of potential targets for new M&A deals. Its cash position equals RUB 1,215m as of December 31, 2011. RUB 635m of this cash are proceeds less costs from secondary public offering (SPO) held by ARMADA in April 2011.

The efforts of ARMADA’s management team in 2012 will focus on purchasing controlling stakes in small software and service companies with revenues in the range of USD 5m-10m, profitability over current one of ARMADA, leadership positions in their market segments and congenial to ARMADA’s business. Priority market segments include transport, public utilities sector, corporate cloud services and other sectors.

One or two such M&A deals are slated for execution in 2012.

[1] CNews Magazine, No. 51, 2010

[2] December 2011

[3] Central Bank of Russia on December 31, 2011 exchange rate RUB 32.1961 per dollar.

[4] IDC in the Vedomosti newspaper, April 2012.

[5] Pierre Audoin Consultants, Software and IT Services (SITS) Research, April 2011.