OREANDA-NEWS. November 23, 2010. ARMADA (MICEX, RTS: ARMD) published the preliminary financial results for the first 9 months of 2010.

“ARMADA group’s revenue consolidated under the IFRS reached RUB 1,8bn in the first nine months of 2010, 26% above the respective showing for the same period of last year. In 2010, we expect the group’s annual revenue to increase 25—28% against the previous year — to RUB 3.9bn — 4bn, and with the EBITDA margin predicted within 10—12%, the company is clearly recovering its pre-crisis figures.

In 2011, the management expects organic revenue growth to be 25—30%: many of the group’s government clients plan to double their IT budgets. In addition, the company expects to close a few suspended M&A deals in high-margin Software Development and IT Services segments in 2011” Chairman of ARMADA’s Board of Directors Alexei Kuzovkin said.

ARMADA’s revenue, 9M, RUB mln

9M 20101

9M 20091

Growth

Software Development

355

309

15%

IT Services

496

353

41%

Hardware

951

764

24%

TOTAL

1 802

1 426

26%

1 Based on management accounts, consolidated in accordance with the IFRS.

Revenue

ARMADA Group’s revenue consolidated under the IFRS reached RUB 1,802m in the first nine months of 2010, 26% above the respective showing for the same period of last year. There is seasonality in company’s revenue: about half is generated in the 4th quarter (54% in 2009).

Expenses

By implementing a series of measures aimed at optimizing its cost structure in 2009, the company managed to cut its expenses by 45% in 2009 compared to 2008 and sustained them at the same level.

In October 2010 a number of ARMADA’s subsidiaries have received an accreditation from the Communications and Mass Media Ministry of Russia that enables companies to use a reduced insurance premium rate in future — 14% of the gross payroll. The rate is set under the state IT industry support program for 2011—2017. The incentive has been designed for IT companies with no less than 90% of revenue generated by software development, which have received accreditation from the Communications and Mass Media Ministry of Russia and employ over 50 people. Considering the fact that the insurance premium rate for IT companies which do not qualify for the state support program will be set at 34% from January 1, 2011, ARMADA is securing an additional competitive edge for itself on the market for the next 7 years.

Business Segments

ARMADA’s sales are rising across all segments against the backdrop of an improving macroeconomic situation in Russia, with the national GDP growth projected at 4%1. According to the group’s management opinion, the situation is prompting customers who postponed their purchasing activity in 2009 to accommodate their deferred demand.

The IT Services business performed the best among ARMADA’s business segments in the first nine months, demonstrating a 41-percent growth. The services are required to ensure the continuity for the company’s customers’ business, and therefore, they have no pronounced seasonal nature. In terms of IT outsourcing, the company continued to provide 24/7 support to the Finance Ministry’s IT systems, and has been re-issued accreditation to maintain the IT systems for BSGV Bank in Russia. On the systems integration level, ARMADA has completed a two-year long project for Gazprom Dobycha Nadym. In project management, the company has developed project management techniques for the Federal Grid Company, and is now busy providing corporate training to Sberbank managers. Furthermore, PM Expert, which represents this business line within ARMADA, has won expert recognition2 as the company of the year in its segment.

Similarly, the Software Development Segment showed a positive trend, expanding 15%. ARMADA has expanded a series of e-Government projects in Russia’s regions, started replicating its system for recording road traffic violations and penalty management, and continued developing statistics systems for the State Statistics Service (including the integration of systems with the public e-services portal www.gosuslugi.ru).

ARMADA’s business growth reached 24% in the hardware segment. The group’s management team believes that this is in line with the general market trends and attributes the effect to the pent-up demand that is now being satisfied.

Clients

ARMADA boasts a diversified client base comprising over 1,000 customers, with no single client accounting for more than 10% of the company’s business. Government agencies are undoubtedly a top priority for ARMADA, with their aggregate share adding up to 75% in the total revenue mix (federal and regional government bodies, state-run companies).

Government

In 2010, the government adopted a number of key IT support laws and programs that will undoubtedly have a positive impact on ARMADA’s business prospects for the next few years.

From this viewpoint, the most significant was the adoption of the long-term program Information Society 2011—2020 thrashed out by the Ministry of Communications and Mass Media and approved by the Russian government in September 2010. The program places special emphasis on providing IT-based governmental services for the public and the business community, which is expected to become the underlying trend in public procurement in the IT sector. According to the ministry, federal ministries and agencies will be spending roughly RUB 120bn on IT annually in the next few years3, and regional expenditures could add another RUB 50bn a year to the figure, which consolidates the government’s position as the largest player on the IT market, commanding a share of over 30%.

As for 2009, ARMADA was ranked among Top10 IT suppliers to the government in terms of revenue4.

Forecast

Russian IT market may grow at about 5% in 2010, and reach RUB 426bn, according to PMR forecast5. Currently, ARMADA’s management expects the company’s annual revenue RUB 3.9bn-4bn in 2010 (up by 25—28%) with EBITDA margin at the level of 10—12%.

Russian IT market growth rate in 2011 is expected above 10% by all major analysts. ARMADA’s management team will use its best efforts to ensure organic growth of the company’s revenue in 2011 at an above-the-market rate, simultaneously widening the EBITDA margin to 12—14%. According to preliminary estimates, the company’s revenue may grow at 25—30% in 2011.

The company also plans to complete some M&A deals in the highly remunerative IT services and software development sectors in 2011 that had been suspended.

ARMADA’s strategic objective is to claim a share of 3—5% of the Russian IT market in the mid-term (market share was about 1% in 2009), centering its organic growth and acquisitions mostly in the high margin market segments: Software Development and IT services.