OREANDA-NEWS. On 24 April 2009 OAO ARMADA (MICEX, RTS: ARMD) published its unaudited financial results for 2008.

“Last year, ARMADA was able to meet its revenue forecast of USD 169m, delivering a 27% growth target compared with 2007, which is above the average Russian IT market growth rate of 10.5%*. ARMADA even managed to expand its revenue significantly in the fourth quarter of 2008 (a year-on-year increase of 33%), testifying that the company is perfectly viable in any economic situation. Even though the ongoing uncertainty on the Russian market prevents any reliable forecasts for 2009, we are planning to reach the level of 2008. Our unique solutions, long-established partnership with government agencies, diversified revenue and the absence of debt significantly decreases risks related to ARMADA’s business. We strongly believe these advantages will put us on a faster track of development than the general market in the mid-term,” said ARMADA CEO Alexei Kuzovkin.

Revenue and profitability. ARMADA consolidated revenue for 2008 reached USD 169m, a 27% increase from 2007. In the fourth quarter of 2008, revenue rose 33% year-on-year.

The company’s revenue structure was largely unchanged compared with that of 2007. Of the total revenue mix, Software Development generated 32%, IT Services contributed 21%, and Hardware Solutions brought the remaining 47%. The segment of IT Services enjoyed the fastest growth.

Total EBITDA amounted to USD 9.7m in 2008. It was negatively impacted by a severe ruble depreciation in the fourth quarter of 2008. EBITDA margin decreased from 15.8% in 2007 to 5.7% after the Russian IT market growth rate nearly halved in 2008. Additionally, ARMADA could not capitalize part of its R&D investments in the fourth quarter, as some customers chose to reschedule a number of tenders to 2009.

Long-term debt. As of December 31, 2008, the company’s long-term debt amounted to USD 16m, resulting from a loan raised from Halyk Savings Bank of Kazakhstan JSC and NBK Bank OJSC in July 2008 to finance future acquisitions. In the first quarter of 2009, ARMADA repaid the loan ahead of schedule, thus cutting its total debt to zero.

Costs. The majority of the company’s operating costs are nominated in rubles, which is why the devaluation of the national currency did not have any significant impact on its profitability.

In the fourth quarter of 2008, ARMADA embarked on a number of cost optimization measures in order to limit the negative effect of macroeconomic factors on the company’s financial standing. As such, the company laid off 9% of its staff and instituted 15% salary cuts. As of December 31, 2008, the group had a total of 906 employees.

Software Development. Software development generated a 20% rise in revenue – to USD 54m – compared with 2007.

In December 2008, ARMADA won a tender held by the Agriculture Ministry of Russia to develop an information system to handle data on the market for agricultural products, which will be rolled out in 65 regions of Russia. The company was also contracted to create an interagency information system linking databases of 60 Russian ministries and offices that collect and handle data updates on Russia's key economic sectors for the Federal State Statistics Service.

In the fourth quarter of 2008, the company continued its active cooperation with the public sector by signing contracts with the Federal Education Agency, Federal Forestry Agency, Economic Development Ministry, the government of the Primorye region. Under the deals, ARMADA will deliver information and analytical systems, e-procurement solutions for the public sector, and portal and other IT solutions to its new clients.

IT Services. Revenue from IT services reached USD 36m in 2008, which is a 38% increase compared to 2007.

Armada extended its existing agreements with major government organizations to which the company has been providing IT outsourcing services by means of complete maintenance of the IT infrastructure. ARMADA’s specialists have long been favored by such clients as the Russian Finance Ministry, the Federal Treasury, and the Russian Federal Service for Insurance Supervision, among others. Similarly, the company managed to secure several new corporate clients, including Renaissance Life, Moscow City Telephone Network (MGTS), Uralmashplant, and Metalloinvest.

ARMADA expects the IT Services segment to further demonstrate a growth pace above the market average in 2009. Experts believe that in an attempt to optimize costs, many companies will bring down the number of their own IT experts, and will thus resort to using other companies’ resources. Soyuzinform, incorporated in ARMADA, is currently one of the leaders on the Russian IT outsourcing market, and expects to increase its order book.

Hardware Solutions. Revenue from ARMADA’s hardware sales advanced 27% to USD 79m in 2008 compared to USD 62m in the previous year.

In October 2008, the company signed an agreement with the Federal Agency for Education on the provision of specialized equipment and software for heads of methodology departments in 700 educational institutions throughout Russia. In addition to infrastructure solutions, the company supplied software that was designed especially to simplify the work of teachers and also make it more efficient. The total value of the project amounted to RUB 195m.

Client Base. As of the end of the reporting period the company did not have any clients accounting for more than 10% of total earnings. This testifies to high revenue diversification and insignificant counterparty risks.

In 2008, the client base topped 1,300 clients, an increase of approximately 20%. Government agencies and companies with state-owned stakes proved to be the key clients, contributing about 75% of the total revenue. At the same time, the share of long-term agreements and annually extended maintenance contracts went up to 30%.

Development strategy and forecast for 2009. “I believe in the company’s future, and we confirm our objective to build up ARMADA’s share from the current 1% to 3-5% of the Russian IT market in the mid-term,” said Kuzovkin.

“ARMADA has a firm footing on the market with its diversified client base, extensive experience in cooperating with government organizations, a significant number of long-term contracts, ruble costs and the absence of debt. We believe the company is on track to maintain its financial performance at the 2008 level this year. Furthermore, the crisis opens up new opportunities for strong companies as weak players either quit or are taken over by larger ones,” ARMADA CEO stressed.

Forward-looking statements

Some statements contained herein may constitute “forward-looking statements” regarding the future performance of OAO ARMADA. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “plan,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “goal,” “target” or the negative of these words or other variations on either these words or comparable terminology. Forward-looking statements involve a number of known and unknown risks, uncertainties and other factors that could cause actual results to be materially different from any future results, levels of activity, performance or achievements expressed or implemented by such forward-looking statements. The Company does not undertake publicly to update or revise any forward-looking statements that may be made herein, whether as a result of new information, future events or otherwise.