Financial highlights FY 2005

• Total revenue increased by 23% to €2,593 million
• Improving underlying sales performance in most of Getronics' operations resulted in revenue growth; service revenue increase was 5.4% on a comparable basis
• Service revenue as a percentage of total revenue increased to 84.1% in 2005 from 73.3% in the previous year
• EBITAE increased by €70 million to €140 million (2004: €70 million), resulting in an EBITAE margin of 5.4%
• EBITAE included pension curtailment gains of €20 million in Japan as previously reported. In addition, the employee benefit plans in the Netherlands were aligned, resulting in a curtailment gain of €23 million. Other changes to various plans resulted in settlement and curtailment gains of €4 million. These gains were partly offset by a total of €17 million in restructuring charges taken in Japan, the Netherlands, the Rest of Europe, and the United States
• The operating result, including €46 million acquisition integration expenses, increased to €83 million (2004: €70 million) and includes €11 million amortisation of acquired intangible assets
• Net result from continuing operations amounted to €57 million (2004: €106 million)
• Net result from total operations amounted to €4 million, after one-off items such as €46 million acquisition integration expenses, a €15 million settlement (make-whole) payment to the Cumulative Preference shareholders and the €53 million loss from discontinued operations
• Earnings per ordinary share from continuing operations was €0.51 in 2005 (2004: €1.19)
• Cash flow used in operating activities amounted to €65 million (2004: €107 million)
• Net cash (borrowings) amounted to -€157 million (2004: €48 million)

Serious unexpected losses in Italy

In January 2006, after reviewing Italy's December 2005 monthly management report, the Company informed the market that the Italian operations showed a serious unexpected operational loss. Management immediately initiated an independent investigation into the causes and background of this loss.

The operating result (before impairment of goodwill) of the Italian operations for 2005 amounted to €71 million negative. This loss was mainly caused by adverse business developments continuing in Q4 2005, traditionally the strongest quarter, the postponement of a large outsourcing project of the Italian government originally awarded in June 2005, as well as certain non-operational items. The loss was completely out of line with the Italian operation's internal forecasts. These forecasts were based on assumptions that were overly optimistic.

The independent investigation concluded that of the €71 million loss, circa €15 million of costs should not have been deferred to Q4 2005. An amount of €6 million should have been recorded in Q2 2005 and €9 million in Q3 2005. The investigation indicated that these incorrect deferrals were based on poor commercial and operational judgements.

The investigation also found evidence of certain intentional misrepresentations in Italian management reports prepared after mid-October 2005. Both the Italian Managing Director and the senior finance officer involved have resigned. Since the identification of the serious unexpected loss in mid January, a member of the Board of Management has been on-site in Italy to coordinate the current Italian operations. In addition, management and organisational changes have been made to anticipate the continuing difficult market circumstances in Italy. This includes efforts to reduce the relatively high level of subcontractors.

As a result of the losses in Italy, the Company was in breach of its bank covenants as at 31 December 2005. The banking syndicate has subsequently given a waiver.

Divestment program

At its annual strategic review the Board of Management of Getronics decided to initiate a divestment program concerning a limited number of operating companies in continental Europe based upon the group's long-term strategy. The earmarked operating companies do not support the Company’s strategy, due to their current market positioning, portfolio-alignment or lack of scale. More importantly, they are not expected to contribute to the financial targets set by the Board of Management in its recent strategy review 2006-2008.

Sale of Italian business operations

In November 2005, Company management decided to sell the Italian operations and initiated a selling process. The intended sale has led to expressions of interest from a number of both ICT and financial parties. Recently the exclusivity of the negotiations announced on 17 January 2005 with one of the parties has ended and management allowed other parties into the selling process in order to maximise value in an auction sale.

Pursuant to the decision to sell the Italian operations, the financial results of the operating company in Italy in 2005 will be treated as "discontinued operations" under IFRS 5. The Company has decided to impair the remaining goodwill of €56 million at the end of 2005. In anticipation of the liquidation of Getronics’ Italian operations after the intended sale of assets and liabilities, a one-time tax gain of €83 million has been recognised. The net losses from discontinued operations in 2006 are expected to be around the same level as in 2005, but this depends on the timing of the sale of the Italian operations.

Announcement of other divestments
On 17 January 2006 the Company also announced a divestment program had been initiated, identifying a limited number of operating companies in continental Europe to be divested. In aggregate, these operating companies represent €100 million in revenue and approximately 1,100 employees. The reason for divesting these business activities is that they no longer fit in the strategic framework of the Company, based on product mix, fit with the global portfolio or market positioning. These non-core operating companies are earmarked to be divested in 2006.

In addition, management has recently identified a number of other non-core operating units that it intends to divest, the largest of which is HR Services in the Netherlands.

Following these divestments, Getronics will continue to provide full service throughout Europe to its global clients through its integrated network of Global Service Centres and its Certified Service Partners.

Q4 Financial Performance
The Company showed a strong Q4 performance, with excellent service revenue growth of 10.3% on a comparable basis and a 9.3% EBITAE margin (up from 6.2% in Q4 2004). This resulted in €70 million of EBITAE or a €35 million increase compared to Q4 2004. The performance in Q4 was driven by a strong performance in the Netherlands and a solid performance in the United States. Acquisition integration expenses totalled €17 million in Q4. The total operating result amounted to €52 million (Q4 2004: €35 million).Download the document now 285.2 kb (Adobe Acrobat Document)