AGM Statement
25 May 2005
GENEVA, Switzerland - 25 May, 2005, TEMENOS Group (SWX: TEMN), a provider of integrated core banking systems, today announced that at today's Annual General Meeting of TEMENOS Group AG, Andreas Andreades, Chief Executive of TEMENOS, will make the following statement:
2004 was a very good year for TEMENOS. We grew all profitability measures significantly ahead of market expectations, more specifically earnings before interest and taxation (EBIT) by 63% and earnings per share (EPS) by 37% to 26 cents per share. Underpinning our performance, was an excellent sales performance, with Initial Licence Fees (ILF) signings increasing by 22% compared to 2003, combined with very strong cost control. A key performance indicator for our future profitability is recurring maintenance revenues, which grew by 24%, the highest in three years. We have made significant progress in managing working capital and capital spending and have generated free cash flow for the company for the second year in a row.
In the three year period since 2002, we have grown revenues by 37%. This has been achieved by almost doubling our software and maintenance revenues, while increasing our recurring maintenance revenue stream by more than 40%. Costs have reduced as we leveraged a roughly flat headcount base delivering in excess of a US$ 1.20 increase in EPS since 2002. The significant business turnaround has been achieved without compromising our balance sheet. Managing our working capital diligently as we grew and penetrated new regions and the key retail market has been critical to this effort. We have generated in excess of US$ 15 million in operating cash flows both in 2003 and 2004, while our capital spending was focused on our core business. As a result the net cash position has more than doubled from US$ 14 million in 2002 to US$ 32 million at the end of 2004. This excellent balance sheet management has resulted in us having medium-term available funding through cash and facilities of about US$ 70 million, US$ 50 million more than at the end of 2002. This will enable TEMENOS to pursue acquisitions from a position of strength that will further enhance our business model.
Our revenue base continues to diversify away from our traditionally strong European market, this is driven by a significant rebalancing of our business around a very successful expansion into the Asia Pacific in the last 18 months. Our ability to service the needs of the faster growing retail segment of the market has improved dramatically in the last 2 years. The retail market now accounts for 74% of our business, as is our capacity to develop more aggressively the larger Tier segments of the market, with Tier 1 and 2 now accounting for 42% of our signings for 2004. At the end of 2004 we reached a client base of more than 400 clients, which is a leading position in our industry. Finally, our performance has far outpaced our peer group which has averaged EPS growth in the same two-year period of close to 10%, compared to TEMENOS’ EPS growth of 35%.
As we look into 2005 and beyond, we are confident about the success of our model and our ability to continue to outpace the market both in terms of organic top-line growth and profitability. We expect global spending on core software to continue to grow, in the region of 5 to 7%, driven by financial institutions’ desire to achieve both strategic cost reductions and also to support increasingly challenging revenue growth objectives. This includes the sustained demand from financial institutions in emerging market countries that are increasingly committed to achieving technological superiority over those institutions from more traditional western economies. It is notable that we have started to see more activity in the evaluation of new technologies by Tier 1 European institutions in the search of replacing their mature technology base with modern component-based products and frameworks.
First Quarter 2005 Results and Outlook
The first quarter of 2005 was an excellent quarter during which we met or exceeded all our targets. ILF signings reached US$ 12 million. We had an excellent performance with T24 which accounted for all of our signings increasing 58% from US$ 7 million in 2004. This included two deals with a combined value of approximately US$ 4 million that we were previously targeting to close in the fourth quarter of 2004 and which were deferred to the first quarter of 2005. In addition to covering the first quarter of 2004 slippage, T24 grew by an impressive 15% on last year’s base. The 12-month running rate for T24 is now at US$ 55 million, which is our guidance assumption for the current 2005 full year. Indeed, we can meet our guidance assumption without any growth in our T24 business for the remaining three quarters of the year. Our target markets of retail and universal banking reached 66% of the signings mix with private banking and wholesale banking contributing to the rest.
Our results for the first quarter of 2004 included one TCB deal, which accounted for more than half of our ILF signings for that quarter. This is the reason for the unfavourable comparison of licensing revenues to the prior year. I have talked many times about the lumpiness of our TCB business which is still at an early stage of development and which is causing volatility in our quarterly results. By virtue of their size and small number relative to the rest of the business their impact on quarterly results can be significant.
Deal flow and pipeline evolution and conversion was very good during the first quarter and this has continued into the second quarter of 2005. Even though we did not sign a TCB deal during the first quarter, we made significant progress towards achieving our targets for the year. The second and third quarters look promising from an ILF signings perspective.
We are confident that in 2005 we will deliver on our commitments. Our outlook statement remains unchanged, with the delivery of 20 to 25% per share diluted EPS growth compared to 2004, based on ILF signings of US$ 70 to 75 million, which would include between two and four TCB deals.
I would like to express our thanks for the ongoing support of our shareholders, while emphasising how committed we are to delivering shareholder value for the long term.
-ENDS-
About Temenos
Founded in 1993, Temenos Group AG is a provider of integrated modular core banking systems to over 590 financial institutions in 110 countries worldwide. Temenos software provides banks with a single, real-time view of the client across the enterprise, enabling banks to maximize returns while streamlining costs. Whether providing 24/7 functionality to the wholesale, retail and private or universal banking sectors, partnering with central banks on core system replacement, or working with the World Bank on solutions for the emerging markets, Temenos knows banking. The company has a transparent approach to its operations and brings to bear its experience, expertise, commitment and professionalism on every project. Headquartered in Geneva, Switzerland, the company has 43 offices in 33 countries and is listed on the main segment of the SWX Swiss Exchange (TEMN). For more information please visit www.temenos.com
For more information, contact:
Max Chuard
Temenos Director
Corporate Finance & IR
Member of the Executive Board
Tel: +41 (0) 22 708 1157
Email: mchuard@temenos.com
Ben Robinson
Temenos Investor Relations Manager
Tel: +44 (0) 207 290 3012
Email: brobinson@temenos.com
Bianca Morgan
Temenos PR Manager
Tel: +44 (0) 207 423 3751
Email: bmorgan@temenos.com
Chris Patmore
Team 660
Metia for TEMENOS
Tel: +44 (0) 20 3100 3596
Email: chris.patmore@metia.com