OREANDA-NEWS. April 7, 2011. ARMADA (MICEX, RTS: ARMD) released its audited financial results for FY10 ended on December 31, 2010.

ARMADA's revenue structure*,
RUB ‘mln

2010

2009

Growth,
%

Revenue, including:

3,656

3,106

18%

Software Development and
Implementation

1,348

1,175

15%

IT Services

2,308

1,931

20%

Net profit

377

23

1539%

* the Group’s consolidated audited statement under IFRS.

Revenue

According to analytical research, the Russian IT market grew nearly 10% in 2010. ARMADA Group’s consolidated IFRS revenue for 2010 climbed 18% to RUB 3.66bn.

ARMADA Group’s client base is very diverse, with the total number of clients exceeding 1,500, and the biggest client generated 7% of total revenue, while the top-5 biggest clients account for 25% of revenue. Meanwhile, the share of revenue brought in by commercial clients increased from 25% to 30% compared to 2009, due primarily to higher market demand from a recovery of the Russian economy.

The public segment of the Russian IT market is still the largest, with a share of nearly 30%. According to the Russian Communications and Mass Media Ministry, annual expenses of federal ministries and agencies on IT could reach some RUB 120bn over the next few years, while regional expenses could amount to another RUB 50bn per year.

The share of state orders in ARMADA’s revenue (70% of the total revenue, over 300 customers, of which 54% are federal clients, 6% financial institutions, 4% regional clients, and 6% others) is in line with the company’s development strategy aimed at gaining leadership in this segment.

According to a rating, ARMADA ranks among the Top 10 IT companies working in the public sector. The company plans to develop this segment and retain its share in the group’s overall revenue at the current level of 70%.

Expenses and profit

The company engaged in cost-cutting in 2009 and was generally able to keep the cost side down throughout 2010. The total headcount went up insignificantly and amounted to 738. These steps, coupled with higher revenue (a RUB 550m increase) allowed ARMADA to raise profitability up to 10%, as the company’s net profit amounted to RUB 377m.

Debt burden, monetary funds

Net cash position stood at RUB 434m as of December 31, 2010. The companies of the group that participate in infrastructural projects take out short-term loans during the fiscal year in order to finance their operations and pay them off by the end of the year.

Business segments

In 2010, both of the group’s business segments demonstrated steady growth: 15% in software development and implementation and 20% in IT services. This provided for an 18% rise in total revenue.

Revenue breakdown by segment,
RUB ‘mln.

2010

2009

growth,
%

Revenue*, including:

3,656

3,106

18%

Software Development and
Implementation

1,348

1,175

15%

IT services

2,308

1,931

20%

Segment’s share in revenue:

 

 

 

Software Development and
Implementation

37%

38%

 

IT services

63%

62%

 

* the Group’s consolidated audited statement under IFRS. The financial year coincides with the calendar year.

The correlation of the two main business segments has not changed much as a result of the organic growth in all areas. The share of the software development and implementation segment stood at 36.9% (compared to 37.8% a year earlier), while the proportion of IT services reached 63.1% (up from 62.2% in 2009).

Segment structure in 2010

RUB ‘mln.

Share of total revenue, %

Revenue*, including:

3,656

100%

Software Development and
Implementation

1,348

37%

Services, including:

2,308

63%

IT outsourcing

484

13%

System integration

1,611

44%

Consulting

102

3%

Training

111

3%

* the Group’s consolidated audited statement under IFRS.

In the 2010 financial statement, the system integration segment (part of IT services) includes hardware, which in previous years was listed as a standalone division. This change reflects the company’s strategic expansion goals: revenue from the sale of hardware has been consistently dropping (from 45% of the total revenue in 2009 to 35% in 2010). Despite the fact that system integration contracts account for a sizeable portion of services (RUB 321m out of RUB 1.61bn, or 20%), the company remains committed to reducing its participation in such projects in order to allocate its resources for developing high-yield areas of businesses – the development and implementation of software and provision of other IT services.

M&A

The company remains committed to its M&A strategy. The Russian IT market is not consolidated, especially in the sphere of software development. Specifically, the share of top 10 players on the market equals 54%, and in the software segment top 10 companies account for a mere 14% of the segment’s revenue [5].

Potential M&A targets include small software and service companies that are leaders in their niche markets, offer high-quality product and can contribute a synergistic effect for ARMADA.

Forecast

ARMADA’s management team will endeavor in 2011 to achieve organic growth of the company’s revenue at a rate of 25-30% and maintain the current net profit margin at 10%. The company is poised to extend its cooperation with a wide range of federal bodies, launch expansion on the regional level, and bolster cooperation with commercial customers.

This year, ARMADA also plans to acquire several companies engaged in software development and IT services with net profit margin at around 10% and higher. With a view to synergetic effects, these acquisitions could generate up to RUB 1bn in additional revenue in 2011.