EDB Business Partner ASA REPORT FOR THE THIRD QUARTER OF 2007

Transcription

1 - 1 - EDB Business Partner ASA REPORT FOR THE THIRD QUARTER OF 2007 Revenues of NOK 1,465 million, 7% y/y growth Improved EBITA margin to 9.3% compared to 8.9% in 2006 Solutions and Application Services report organic growth of 10% and 16%, respectively Significant upscaling of nearshore and offshore activities Transition to defined contribution pension increases equity (NOK million) Q Q /09/ /09/ Operating revenue 1,465 1,370 4,669 4,234 5,822 Operating costs 1,328 1,248 4,235 3,851 5,281 Operating profit before amortisation (EBITA) EBITA % 9.3 % 8.9 % 9.3 % 9.0 % 9.3 % EBIT before non-recurring items Non-recurring items Profit before tax Cash flow from operations before restructuring Operational investment (CAPEX) EPS before non-recurring items (NOK) EPS (NOK) No. of employees 4,345 3,928 4,345 3,928 3,849 EDB Business Partner reported operating revenues for the third quarter of 2007 of NOK 1,465 million as compared to NOK 1,370 million in the same quarter of Operating revenues were 7 percent higher than in the same period of 2006, of which the organic growth represented 4 percent. EDB s activities in Sweden generated 14 percent organic growth. At the end of the third quarter of 2007, EDB acquired the Ukrainian IT services company Infopulse, while CEKAB and Tre60 were included in the second quarter. Revenues for the IT Operations business area were NOK 930 million, equivalent to organic growth of 1 percent from the third quarter of The Solutions business area reported revenues of NOK 329 million, with organic growth of 10 percent from the same quarter of Application Services reported revenues of NOK 248 million for the quarter, an increase of 23 percent from NOK 202 million in the third quarter of Organic growth for this business area in the third quarter of 2007 was 16 percent. The group reported an EBITA of NOK 137 million for the third quarter of 2007, as compared to NOK 122 million for the same quarter in The group s EBITA margin was 9.3 percent for the quarter as compared to 8.9 percent for the same quarter of The IT Operations business area produced an EBITA margin of 8.9 percent as compared to 9.2 percent in the third quarter of The Solutions business area s EBITA margin for the third quarter of 2007 was 14.4 percent as compared to 15.1 percent in the same quarter of The Application Services business area reported an EBITA margin of 10.4 percent, as compared to an EBITA margin of 6.1 percent for the third quarter of Amortisation of intangible assets amounted to NOK 24 million in the third quarter of 2007, in line with the third quarter of Amortisation of software developed in-house was NOK 6 million as compared to NOK 2 million in the third quarter of Operating profit before non-recurring items (EBIT) for the third quarter of 2007 was NOK 113 million as compared to NOK 98 million in the third quarter of 2006, representing an increase of 15 percent. Nonrecurring items in the third quarter of 2007 relate to the voluntary transition to a defined contribution

2 pension scheme for the subsidiary EDB Business Partner Norge AS. This led to a non-recurring reduction in estimated pension liabilities of NOK 37 million Net financial expenses were NOK 30 million in the third quarter of 2007, as compared to NOK 14 million in the same quarter of Net interest expenses totalled NOK 29 million, up from NOK 17 million in the same quarter of 2006 as a result of higher interest rates in Norway and Sweden and the debt financing of acquisitions. In addition, third quarter expenses include positive currency effects of NOK 1 million and a loss of NOK 2 million on the sale of shares in Setec TAG AB, an associated company. The group reported profit after tax for the third quarter of 2007 of NOK 85 million as compared to a loss of NOK 46 million for the same quarter of Earnings per share amounted to NOK 0.94 for the third quarter of 2007, as compared to NOK for the third quarter of After adjusting for non-recurring items in both quarters, earnings per share amounted to NOK 0.67 for the third quarter of 2007, as compared to NOK 0.63 for the third quarter of The group s headcount showed an increase from 3,938 at 30 June 2007 to 4,345 at 30 September The increase in headcount in the third quarter of 2007 mainly reflects the acquisitions of Infopulse in the Ukraine, with 377 employees. Cash flow and liquidity Cash flow from operations, before payments related to restructuring, was NOK 72 million in the third quarter of 2007 as compared to NOK 124 million in the same quarter of The decline relative to the third quarter of 2006 was mainly due to the timing between quarters of specific items, which proved to be somewhat different in 2007 relative to Cash flow from operations related to restructuring totalled NOK 15 million in the third quarter of 2007, bringing payments to date to NOK 130 million of the restructuring provision totalling NOK 144 million charged in the third quarter of Net interest-bearing liabilities totalled NOK 2,080 million at 30 September 2007, a reduction of NOK 39 million from the previous quarter. The reduction mainly reflects the change in the Swedish krona exchange rate. At 30 September 2007, the group s liquidity reserves totalled NOK 748 million, representing an increase of NOK 29 million from 30 June Undrawn credit facilities accounted for NOK 539 million. Investments Investments in operational fixed assets amounted to NOK 67 million in the third quarter of 2007 as compared to NOK 66 million in the same quarter of Investments are mainly related to customer contracts, as well as some maintenance of the computer operating halls and upgrading investments in respect of existing operations. Costs of NOK 36 million in respect of developing and upgrading software for the Public Sector and Bank & Finance verticals in the Solutions business area were capitalised as intangible assets in the third quarter of 2007, of which NOK 23 million related to the project to develop EDB s new solutions for public sector entities in local government and the health sector involving SAP-based solutions. This project mainly employs external consultants and consultants from the subsidiary Spring Consulting. Costs of NOK 37 million were capitalised as intangible assets in the third quarter of Development costs for in-house software capitalised to the balance sheet totalled NOK 156 million at 30 September Sale of fixed assets amounted to NOK 80 million in the third quarter of This is mainly related to equipment sold back to Apoteket AB in connection with the end of this contract. Acquisitions of businesses of NOK 25 million in the third quarter of 2007 relates to NOK 13 million of consideration for Infopulse and performance-based consideration paid to the former owners of DropIT and Tre60 totalling NOK 11 million. Order backlog The group s order backlog amounted to NOK 12,375 million at 30 September 2007, representing a net reduction of NOK 708 million from 30 June IT Operations reported a reduction in order backlog of NOK 745 million to NOK 9,250 million. The Solutions business area increased its order backlog by NOK 64 million to NOK 2,906 million and Application Services reported a decrease in its order backlog of NOK 28 million to NOK 218 million.

3 - 3 - The group s business areas IT Operations The IT Operations business area comprises network services, operation of infrastructure and applications, security services and user support, as well as electronic business support services such as invoice management, payment services, messaging and printing. The activities of the IT Operations business area cover all industries and sectors, and operates in Norway and Sweden. (NOK million) Q Q /09/ /09/ Operating revenue ,948 2,854 3,859 Cost of goods sold ,090 1,034 1,401 Salaries and related costs ,207 Ordinary depreciation Other operating costs Total operating costs ,700 2,610 3,522 Operating profit before amortisation (EBITA) EBITA % 8.9 % 9.2 % 8.4 % 8.6 % 8.7 % Operational investment (CAPEX) No. of employees 1,812 1,897 1,812 1,897 1,847 The IT Operations business area reported operating revenues of NOK 930 million for the third quarter of 2007 as compared to NOK 925 million in the same quarter of This represents revenue growth for the business area of 1 percent from the third quarter of 2006, which is also the organic growth for the quarter. Third quarter revenues were affected to some extent by a decline in revenues from the contract with Apoteket in Sweden, which ceases completely at the end of the year. The business area expects that new contracts will offset the loss of revenues from this contract in 2007/2008. Total operating costs for the third quarter of 2007 were 1 percent higher than in the same period last year. Salaries and related costs increased in percentage terms more than total operating costs in the third quarter of This is mainly due to increased focus on nearshoring where a large number of Ukrainians has had "on the job training" in Norway and Sweden. Depreciation was NOK 8 million lower than in the third quarter of 2006 due to a reduction in depreciation following the sale of operating assets in Sweden, as well as a slower pace of investment beginning to take effect. Operating profit before intangible asset amortisation (EBITA) was NOK 83 million in the third quarter of 2007, as compared to NOK 85 million in the third quarter of EBITA margin for the third quarter was 8.9 percent, as compared to 9.2 percent in the third quarter of In order to ensure long-term competitiveness, EDB has implemented projects to strengthen delivery quality and productivity for its core processes. An important element of this task is the establishment of an IT operations centre in the Ukraine. During the third quarter, 70 new Ukrainian employees attended a training programme in Scandinavia. This work will continue with undiminished focus in the fourth quarter.

4 - 4 - Solutions The Solutions business area offers a complete range of software and consulting services for the Nordic banking and finance sector. The business area also serves the Norwegian public sector with solutions for Norwegian municipalities, health authorities and national public sector entities. The public sector vertical in Sweden supplies document handling solutions. (NOK million) Q Q /09/ /09/ Operating revenue ,215 Costs of goods sold Salaries and related costs Ordinary depreciation Other operating costs Total operating costs ,035 Operating profit before amortisation (EBITA) EBITA % 14.4 % 15.1 % 14.7 % 15.2 % 14.8 % Operational investment (CAPEX) No. of employees The Solutions business area reported operating revenues of NOK 329 million in the third quarter of 2007 as compared to NOK 271 million in the same quarter of This represents growth in revenues of 21 percent for the quarter. Adjusting for CEKAB s operating revenues, the business area reports organic growth of 10 percent, which is significantly higher than general market growth. Total operating costs were NOK 282 million for the third quarter of 2007 as compared to NOK 230 million in the same period last year. This is equivalent to an increase of approximately 23 percent. The business area produced an operating profit before intangible asset amortisation (EBITA) of NOK 47 million for the third quarter of 2007 as compared to NOK 41 million for the equivalent quarter of EBITA margin for the third quarter was 14.4 percent, as compared to 15.1 percent in the third quarter of The business area s headcount increased by 22 in the third quarter of 2007 relative to 30 June 2007, mainly related to contracts in the area of Payments, Card Services and Security in the Bank & Finance vertical. In connection with the development and upgrading of software for the Public Sector and Bank & Finance verticals, costs of NOK 36 million were capitalised as intangible assets in the third quarter. NOK 23 million of this is related to the project to establish EDB's new solutions for the public sector using SAP-based solutions. This project is carried out by external consultants and consultants from the subsidiary Spring Consulting. By way of comparison, costs capitalised as intangible assets in the third quarter of 2006 totalled NOK 37 million.

5 Application Services EDB established the Application Services business area in the first quarter of 2006 in connection with the acquisitions of Avenir, DropIT, Guide Konsult, Software Technology Integration (STI) and Spring Consulting. These businesses have extensive expertise in SAP, Microsoft, IBM and Oracle technology, as well as in project management, systems development and systems integration, in addition to customising and implementing standard systems. (NOK million) Q Q /09/ /09/ Operating revenue Costs of goods sold Salaries and related costs Ordinary depreciation Other operating costs Total operating costs Operating profit before amortisation (EBITA) EBITA % 10.4 % 6.1 % 11.2 % 9.2 % 10.5 % Operational investment (CAPEX) No. of employees 1, , The Application Services business area reported operating revenues of NOK 248 million in the third quarter of 2007 as compared to NOK 202 million in the same quarter of Revenues grew by 23 percent in the quarter, and includes the acquisition of Infopulse from 1 September 2007 and Tre60 with effect from 2 April After adjusting for these acquisitions, the Application Services business area generated organic growth of 16 percent due to increased headcount and higher billable utilisation, as well as a general increase in market prices. Cost of goods sold mainly relates to consultancy services supplied by subcontractors, while other operating costs are related to the business area s own employees. The increase in cost of goods in the third quarter of 2007 relative to the same quarter of 2006 should be seen in the light of the reduction in other operating costs in the same period, reflecting a change in classification between these categories from 2006 to Salaries and related costs increased by 20 percent from the third quarter of 2006 to the third quarter of 2007 due to a net increase in headcount and a general increase in salary levels. The business area produced operating profit before intangible asset amortisation (EBITA) of NOK 26 million for the third quarter of 2007, representing an EBITA margin of 10.4 percent. This is an improvement from EBITA of NOK 12 million from the third quarter of The average billable utilisation for Application Services in the Nordic region in the third quarter of 2007 was 80.9 percent for 854 billable consultants, as compared to 78.4 percent for the same quarter in The business area s headcount increased by 382 relative to 30 June 2007 of which the acquisition of Infopulse in the Ukraine accounted for 377 employees. Of the total of 1,426 employees, 696 work in Sweden, 377 in the Ukraine and 20 in Denmark as of 30 September The acquisition of the Ukrainian IT company Infopulse Ukraine LLC was formally approved by the Ukrainian competition authorities in the third quarter. The company is included in the Application Services business area with effect from 1 September The company's performance has been in line with expectations. Since the close of the third quarter, the takeover of the Danish SAP IT consulting company TeamR3 has been completed. The company will be merged with Spring Consulting and will be included in Application Services from 1 October The process of gaining approvals for the acquisition of the Ukrainian IT company Miratech is proceeding in line with plan. Miratech s annual revenues are in the order of NOK 30 million, and the company is expected to be consolidated into the Application Services business area with effect from approximately year-end.

6 - 6 - Support functions Support functions not allocated to individual business areas represented an operating loss before intangible asset amortisation (EBITA) of NOK 19 million in the third quarter of 2007, as compared to a loss of NOK 16 million in the third quarter of NOK 2 million of the increase is due to netting internal profit between Application Services (Spring Consulting) and the Public Sector vertical of the Solutions business area in connection with the project to develop EDB s new solutions suite for public sector entities in local government and the health sector using SAP-based solutions. Other matters EDB implemented a new share option scheme for key personnel at the Annual General Meeting held on 10 May As a result of the Norwegian government s Report on Government Ownership, the Annual General Meeting held on 9 May 2007 decided that no new share options should be granted, but that option agreements already entered into can be carried out. The earliest date for the exercise of the first one-third of the options from the scheme followed the publication of the second quarter 2007 interim report. A total of 1,770,000 options have been granted under the terms of this scheme. There are 12,500 options outstanding from the previous option scheme. No options were exercised in the third quarter of Options outstanding at 30 September 2007 totalled 1,782,500. NOK 1.5 million was charged to profit and loss in the third quarter of 2007 in respect of the accrued value of the options granted, including estimated employer s social security contribution. The total amount was allocated between the parent company and the relevant business areas. EDB Business Partner implemented IFRS accounting on 1 January The interim report has been produced using the same accounting principles and methodology as used for the annual report. The interim report is published in accordance with IAS 34 on interim reporting.

7 - 7 - Future prospects The Nordic IT services market grew by 5 percent in the first half of 2007 according to figures from the research company IDC. This is in line with the organic growth of EDB year to date. IDC expects this pace of growth to be maintained in the near term. EDB implemented a three-stage growth plan in The first stage was to build critical mass in IT Operations, and EDB is now the number 2 player in the Nordic outsourcing market. The second stage was to develop a competitive offer for industry-specific solutions, particularly for the banking and finance industry and the public sector. EDB has achieved good growth in these areas, and the company is now one of the Nordic market leaders for banking and finance. This is also a priority area for future growth. The third stage of the growth plan was the establishment of the Application Services business area. EDB is now one of the largest players in this market, with more than 1,400 consultants. Looking to the future, a priority task for EDB is to strengthen its competitive position by making greater use of offshore and nearshore resources for all three business areas. The start of operations in Ukraine earlier in 2007 has given the company good access to highly certified employees. In parallel with building operations in the Ukraine, EDB is planning a presence in Asia in order to further strengthen the company's access to certified employees. The IT Operations business area, which operates in the outsourcing market, has achieved moderate growth over the first three quarters of 2007 in line with the overall market. There are, however, a number of new medium-sized and large contracts currently out to tender in the market. During the course of the third quarter, the business area established a development centre in the Ukraine, and this will help to strengthen the company's delivery capacity in a cost-effective manner. The Solutions business area is experiencing good market growth and increasing international demand, particularly in the banking and finance area. EDB is scaling up its use of offshore and nearshore resources to secure its delivery capacity and meet its growth targets. The Application Services business area continues to enjoy good organic growth, reflecting higher billable capacity utilisation and some degree of increase in market prices for consulting services. The consulting market continues to grow faster than the IT services market as a whole, and the Application Services business area is well positioned to win further market share. This business area is continuously involved in recruiting additional employees, both in the Nordic countries and through EDB's offshore and nearshore channels. Oslo, 17 October 2007 The Board of Directors of EDB Business Partner ASA

8 - 8 - EDB Business Partner Analysis by business area (NOK million) Operating revenue: Q3'07 Q3' Q2'07 Q1'07 Q4'06 Q3'06 Q2'06 Q1'06 Q4'05 Q3'05 IT Operations ,859 1,002 1,015 1, Solutions , Application Services * Netting/Other Total group 1,465 1,370 5,822 1,621 1,583 1,588 1,370 1,523 1,341 1,269 1,163 Operating profit before amortisation (EBITA): Q3'07 Q3' Q2'07 Q1'07 Q4'06 Q3'06 Q2'06 Q1'06 Q4'05 Q3'05 IT Operations Solutions Application Services * Staff / Not allocated Total group Operating margin: Q3'07 Q3' Q2'07 Q1'07 Q4'06 Q3'06 Q2'06 Q1'06 Q4'05 Q3'05 IT Operations 8.9 % 9.2 % 8.7 % 8.4 % 8.0 % 9.2 % 9.2 % 8.3 % 8.2 % 9.4 % 9.4 % Solutions 14.4 % 15.1 % 14.8 % 15.6 % 13.8 % 14.0 % 15.1 % 15.5 % 14.9 % 20.0 % 18.9 % Application Services * 10.4 % 6.1 % 10.5 % 10.8 % 12.3 % 13.0 % 6.1 % 9.5 % 13.8 % Total group 9.3 % 8.9 % 9.3 % 9.6 % 9.0 % 10.0 % 8.9 % 9.1 % 9.2 % 10.9 % 10.5 % * Pro forma key figures 1st quarter 2006: Revenues: NOK 248 mill, EBITA: NOK 35 mill, EBITA margin: 14,2% Order backlog by business area (NOK million) ORDER BACKLOG DISTRIBUTED NOK million Order backlog 30/09/ Later IT Operations 9, ,185 2,382 1,591 1,255 Solutions 2, Application Services Total order backlog 12,375 1,331 4,083 2,957 2,006 1,998 % of total 11% 33% 24% 16% 16%

9 - 9 - EDB Business Partner Profit and loss account (NOK million) Q Q /09/07 30/09/06 31/12/06 Operating revenue 1,465 1,370 4,669 4,234 5,822 Cost of goods sold ,334 1,185 1,615 Salaries and related costs ,990 1,784 2,447 Other operating costs Operating profit bef. depreciation (EBITDA) Ordinary depreciation Operating profit bef. amortisation (EBITA) Non-recurring items Amortisation of intangible assets Operating profit (EBIT) Net financial items Ordinary profit before tax (EBT) Tax Profit after tax Balance sheet (NOK million) 30/09/07 30/09/06 31/12/06 Goodwill 3,253 3,043 3,088 Other intangible assets Tangible fixed assets Financial fixed assets Total fixed assets 4,236 4,096 4,188 Accounts receivable Other current receivables Cash and cash equivalents Total current assets 1,776 1,497 1,690 Total assets 6,012 5,593 5,878 Equity 1,974 1,739 1,888 Minority interests Total equity 1,980 1,741 1,889 Provisions Other non-interest bearing liabilities 25-2 Other interest bearing liabilities 2,275 1,947 1,890 Total long-term liabilities 2,797 2,547 2,451 Accounts payable Duties payable, vacation allowance Other non-interest bearing liabilities Interest bearing liabilities Total current liabilities 1,235 1,304 1,538 Total equity and liabilities 6,012 5,593 5,878

10 EDB Business Partner Cash flow analysis (NOK million) Q Q /09/07 30/09/06 31/12/06 EBITDA Net taxes / financial items paid Change in accounts receivable Change in accounts payable Change in other accruals Operational cash flow before restructuring Change in restructuring provision Net cash flow from operations Operational investment In-house developed software paid Sale of fixed operating assets Acquisition of businesses ,235-1,274 Sale of businesses Net cash flow from investments ,496-1,637 Debt repayment New borrowing ,468 1,578 Dividends paid Share issues Net cash flow from financing ,073 Net change in liquid assets Cash and bank deposits at start of period Currency translation diff. cash and bank dep Cash and bank deposits at end of period Key figures Q Q /09/07 30/09/06 31/12/06 Key figures per share (NOK): Earnings per share Diluted earnings per share EBITDA per share Cash from operations b/f non-recurring items Other key figures: EBITDA-margin 14.4 % 14.8 % 14.2 % 14.5 % 14.6 % EBITA-margin 9.3 % 8.9 % 9.3 % 9.0 % 9.3 % Return on invested capital (ROIC) 12.1 % 11.9 % 13.2 % 14.3 % 14.6 % Net working capital Working capital in % of revenue 5.6 % 4.2 % 2.0 % Equity ratio 33% 31% 32% Gearing Net interest bearing debt (NOK mill) 2,080 1,950 1,756 Average number of shares 90,345,684 90,586,239 90,506,058 90,586,239 90,615,314 Average number of shares incl. dilution 90,366,818 90,612,588 90,614,458 92,287,931 91,518,117

11 EDB Business Partner Reconciliation of changes in equity before minority interests (NOK million) 30/09/07 30/09/06 31/12/06 Equity at ,888 1,751 1,751 Profit for the year Dividends Financial assets held for sale Option scheme employees Trade in own shares Capital increase Restatement differences Equity at end of period 1,974 1,739 1,888