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Strategy 2019+

In the wake of in-depth strategic reflection beginning in 2018 on the company’s future, in 2019 NOVABASE communicated an updated strategy for 2019 and beyond (2019+ Strategic Update), whose key features are recalled:

  • NOVABASE intends to become a “Next-Gen IT Services Company”;
  • Its strategic positioning will be propelled by great Talent and Technology;
  • Bulk of Transformation should occur until 2021;
  • Next-Gen as the core segment, being the primary goal to accelerate its growth (organically and through M&A), by focusing on high-value customers and markets, in order to double Turnover (versus 2018) with double-digit operating margins by 2023;
  • Value Portfolio segment profitable to fund Next-Gen’s Transformation and growth;
  • Increase visibility with investors;
  • Return of any excess funds to shareholders (expected shareholder remuneration of 1.5 Euros per share for the 2019-2023 horizon (1)).

DOUBLE

TURNOVER BY 2023

With this strategic direction, NOVABASE intends to increase its investment in the disruptive technologies of the digital economy, to develop and better leverage the potential of staff and recent graduates coming out of Portuguese universities, and to deploy its solutions to more and larger clients in Europe and the Middle East.

NOVABASE entered 2020 in this context, prepared to face the challenges already known: the growing competition to attract talent and attracting a new client base, particularly outside of Portugal.

There was no way to predict what would also occur: the outbreak of the COVID-19 pandemic, the disease caused by the novel coronavirus, which raised the challenge. However, as history has already shown, NOVABASE has experienced teams in dealing with situations of enormous adversity and resilience is one of its main strong points.

Thus, despite the increased challenges, NOVABASE was able to execute key milestones towards its strategic objectives in 2020, continued to grow in a profitable way and strengthened its balance sheet, as will be analysed ahead.

The 2020 results allow NOVABASE to reaffirm its long-term vision of delivering sustainable value to all stakeholders.

1.5 €

/SHARE EXPECTED SHAREHOLDER REMUNERATION IN 2019-2023

RELEVANT INFORMATION

In 2020, NOVABASE executed three relevant strategic M&A moves:

Acquisition of Vodafone Portugal’s equity stake in Celfocus

On April 24, 2020, NOVABASE has entered into a sale and purchase agreement with Vodafone Portugal, S.A. (“Vodafone”) to buy the shares representing Vodafone’s equity stake in Celfocus, S.A. (45.001%).

The agreed purchase price for Vodafone’s entire shareholding was 20 M€, fully paid on April 30, 2020.

There may be an additional price adjustment of 7.5 M€, to be paid for in services, which could raise the final purchase price to a maximum of 27.5 M€, as a result of possible annual adjustments until 2023 related to service hiring guarantees of 10 M€ per year for three years given by Vodafone.

Due to the importance of this transaction for the execution of the strategy and given NOVABASE’s financial robustness, the Board of Directors approved the acquisition, despite the current context of uncertainty. This transaction did not require any significant guidance reframing regarding the Strategic Update 2019+.

To be noted that in 2019 Celfocus employed over 650 employees and had a 65 M€ Turnover, EBITDA of 6.3 M€ and cash holdings of 16.1 M€. Prior to this transaction, NOVABASE held a 54.997% stake in Celfocus, S.A..

Sale of NOVABASE’s equity stake in Collab to the swedish Netadmin System i Sverige AB

On March 19, 2020, NOVABASE and Netadmin System i Sverige AB entered into a sale and purchase agreement for all shares representing COLLAB – Soluções Informáticas de Comunicação e Colaboração, S.A. share capital, subsidiary held in 72.45% by NOVABASE Business Solutions, S.A. and in 17.75% by Fundo Capital Risco NB Capital. The completion of the sale and purchase also occurred on this date, with the delivery of the shares against payment of part of the price.

The agreed initial purchase price was 6 M€, to which a potential annual earn-out may be accreted, up to a maximum of three annual periods, depending on COLLAB’s performance, as set out in the agreement.

Of the agreed initial purchase price, 1.5 M€ was temporarily held by the purchaser, as foreseen in the sale and purchase agreement. On November, the purchaser paid 1 M€ referring to the ‘Holdback Amount’. The agreed purchase price is still subject to positive or negative price adjustment clauses agreed between the parties. Additionally, a discussion on the Holdback Amount paid in November is underway.

As a result of this transaction, NOVABASE recorded in 2020 a capital gain amounting to 0.3 M€, which falls within the range of 0.1 M€ to 0.8 M€ of estimated capital gain disclosed, but still subject to adjustments.

To be noted that this subsidiary represented a 6.5 M€ Turnover in 2019 and employed around 60 employees.

Adjustment to consideration on the sale of GTE Business

On May 11, 2020, NOVABASE and VINCI Energies Portugal, S.A. (“purchaser”) confirmed a net adjustment to the price initially paid by the purchaser for the sale of the Application and Data Analytics business for the Government, Transport and Energy sectors (“GTE Business”) and the verification of the earn-out, which was dependent upon the final performance of the GTE Business in the financial year of 2019.

It is recalled that NOVABASE entered into a sale and purchase agreement with VINCI Energies Portugal, S.A. for its GTE Business as at November 4, 2019, and that the sale was substantially completed at the end of 2019, after verification of the relevant conditions precedent under the Agreement, with the agreed purchase price paid on January 9, 2020.

As a result of these events, the consideration obtained by NOVABASE increased to 39.3 M€, corresponding to the sum of the price initially agreed of 33 M€, the earn-out of 3 M€ and the net adjustment of the remainder.

Considering the final consideration obtained, the capital gain on the sale of the GTE Business reached 14.9 M€, so a 2.9 M€ adjustment to the capital gain was recorded in 2020 (NOVABASE had already recognised a capital gain of 12.0 M€ in 2019). The 2020 accounts also reflect the cash inflow of the total consideration on the sale, of 35.4 M€.

2020 was strongly marked by the outbreak of the Sars-Cov-2 pandemic. The world economy contracted at a substantial rate, following the implementation of restrictive measures on economic activity and mandatory worldwide lockdowns. The Companies were forced to adapt overnight to new ways of doing business and to address the new challenges and risks of the pandemic. Managing uncertainty took on a whole new meaning.

COVID-19 impacts

Since its inception, NOVABASE has been monitoring carefully and permanently all developments related to the pandemic, having created a Contingency Coordinating Group for the management of this crisis, led by the CFO in alignment with the Management of each business. A contingency plan based on concrete and concerted actions was implemented, covering the entire organisation, from the operational areas to the central structures, with the main priorities being to ensure safety, health and well-being for all individuals in the NOVABASE community and to preserve the company’s financial strength.

Agile and efficient decision-making processes allowed NOVABASE to rapidly adapt processes and action plans in response to the pandemic, with the aim of mitigating its effects, namely:

  • All bureaucratic processes were adapted in order to eliminate or minimise travel, and infrastructures were reinforced, which provided conditions for nearly 100% of employees to work remotely, ensuring both safety, health and well-being for the NOVABASE community and clients business operations continuity. Our Nearshore Agile Delivery Model proved fit for the new “work from home” context and our flexible mindset contributed to keep people engaged;
  • Still, and so that employees could continue to use NOVABASE’s facilities safely whenever necessary to perform their jobs, safety and hygiene measures in the workplace were reinforced, namely the layouts’ reorganisation in order to maintain social distancing, the implementation of COVID-specific signage, namely to circulation, the measurement of employees’ temperature upon arrival, the distribution of hand sanitiser at its facilities, the provision of personal protective equipment to employees and regular preventive disinfections to the facilities, which were awarded with the COVID OUT seal by ISQ;
  • Internal medicine appointments were extended to digital channels, new conditions with the insurance company, within the scope of health insurances at employee’s choice, were negotiated, with enhanced coverage for COVID-19, and new benefits were designed to support employees in purchasing office and wellness equipment to create a comfortable home office. In addition, and considering the risks associated with remote work which may impact employee’s mental health, several webinars delivered by experts on emotional health and performance were held, also counselling sessions with psychologists and physical and mental well-being activities online were made available;
  • With regards to NOVABASE’s financial sustainability, and as a preventive measure aimed at ensuring its financial resilience and competitiveness, the Board of Directors reversed its initial intention of proposing to the 2020 General Meeting of Shareholders a distribution to the shareholders of 0.85 Euros per share, postponing such distribution to a more suitable moment.

In terms of 2020 impacts associated with COVID-19, NOVABASE highlights:

  • Financial – no relevant negative COVID-19 effects were recorded except for a minor EBITDA effect on the IT Staffing Business abroad (coincident with localised stringent lockdowns), but overall mitigation in this Business was possible. NOVABASE recognised incremental costs associated with COVID-19, namely related to personal protection equipment and additional security and hygiene measures amounting to approximately 115 thousand Euros. On the other hand, savings in Travel were made.
  • Strategy – NOVABASE was able to successfully execute key milestones in its Transformation, as previously mentioned.
  • Human Resources – since the beginning of the pandemic and up to date, the number of confirmed cases within NOVABASE employees is low, and the last monthly survey (“Pulse Check”) showed that 83% of respondents are “Very Confident” or “Extremely Confident” on their leadership to make the right decisions on the pandemic, indicators that reveal confidence that the protection measures adopted were effective. COVID-19 may also have played a role in decreasing the attrition rate YoY.
  • Accounting – NOVABASE reassessed the risks to which is exposed to and the key sources of estimated uncertainty, not having identified material changes triggered by the COVID-19 pandemic (more information on this matter can be found in the “Quantitative and qualitative information on the impacts of COVID-19” note included in the Accounts, an integral part of this Consolidated Report and Accounts).

Looking into the future, NOVABASE does not have reasons to believe that its strategy will be affected, in fact, the pandemic may even pave the way towards an acceleration of the digital economy, where NOVABASE will play a relevant role. Telecom emerges as one of the least affected sectors, and the Digital, Cognitive and Automation technologies are in high demand. Additionally, NOVABASE benefits from a very high-quality base of customers, a robust liquidity position and adequate capital levels, reasons that enables to face the future with confidence.

Nonetheless, a high degree of uncertainty remains in the pandemic context, with news concerning new and more contagious strains of the virus circulating and longer and/or stricter lockdowns expected – even with a global vaccine rollout in place.

Driven by this uncertain context, the Board of Directors decided not to propose any shareholder remuneration on the 2021 General Meeting of Shareholders, however reaffirming the commitment to distribute 1.5 Euros per share in the 2019-2023 strategic cycle – which means a remuneration of 0.85 Euros per share to be paid ahead.

The Board of Directors considers that the liquidity situation and the capital levels will be sufficient to continue the Group’s activity.

As far as it is possible to anticipate, the M&A initiatives foreseen in the Strategic Plan are likely to be delayed due to the present market volatility and attracting new customers should remain challenging under the current travel restrictions, which may influence growth prospects in 2021. However, the impact on the results of NOVABASE’s operations cannot be determined, given the unpredictability regarding the duration, magnitude and consequences arising from the ongoing global pandemic.

NOVABASE will continue monitoring the pandemic’s evolution and giving priority to the implementation of all measures considered adequate to minimise the negative effects on the Group’s operations, in line with the recommendations of the authorities and on all stakeholders’ best interest.

(1) Including values payed since 01.01.2019.