EDB reports operating profit before intangible asset amortisation (EBITA) of NOK 151 million for the second quarter of 2009.
Second quarter revenue was NOK 1,923 million. During the course of the second quarter, EDB signed new contracts totalling NOK 1.7 billion, representing an increase of 70% from the same quarter in 2008.
"EDB has experienced a first half-year characterised by lower demand in the IT services market. Market conditions will continue to be challenging in the second half of 2009, especially in the consulting area, but we believe that the slump in demand is now past its low point. We are not pleased to report a decline in EBITA, but given the current challenging market conditions we are pleased to see that the decline in earnings is coming to a halt. This is due not least to tight control of costs and the impact of the improvement program we announced in the first quarter of 2009", comments Endre Rangnes, CEO of EDB.
Cost reduction program
It was apparent at the start of 2009 that conditions in the Nordic IT services market were markedly weaker as a result of the international economic situation. Against this background, EDB implemented an improvement program in the first quarter of 2009. The program comprises measures both to increase revenues and to reduce costs. Potential annual cost reductions of NOK 400 million relative to the cost base at the start of 2009 have been identified in the areas of personnel, hired-in consultants, software and other material costs. Of this, reductions in non-employee related costs are estimated to represent NOK 250 million. The improvement program will help to ensure good profitability for the group in the future.
In the second quarter of 2009, EDB implemented measures to reduce expenditure on hired-in consultants and on software and other material costs. In addition, the company has decided to take further steps to improve its efficiency, principally in the IT Operations business area and in staff/support functions. This will result in a reduction in staffing in excess of 100 employees. This program is targeted to achieve an annual cost reduction in the order of NOK 65 - 75 million. EDB will provide further information on this program once the detailed plans are complete and the necessary decisions have been taken.
Changes to pension arrangements
Since the close of the second quarter, the Board of Directors of EDB Business Partner ASA has resolved to close the current defined benefit pension schemes in Norway. The future pension costs of the current defined benefit schemes are unpredictable, and the value of pension liabilities fluctuates considerably from year to year. The new defined contribution scheme will give the company greater predictability and lower costs. In addition, harmonising the pension arrangements offered within the group will facilitate internal mobility. All employees that are members of these schemes will be transferred to the company's defined contribution scheme with effect from 1 September 2009. Compensation arrangements have been proposed for employees in connection with the transfer to the new pension scheme.
The transfer to the new pension scheme will cause a significant non-recurring reduction in the book value of pension liabilities, which will be recognised to profit and loss in the third quarter. The change will also cause an increase in equity and strengthen the company's capital ratio. The annual cost of the new arrangements is estimated to represent a saving in the order of NOK 70 million relative to the current pension schemes, and this will help to strengthen the company's financial condition in future years.
High level of new contracts signed for outsourcing, and in the Bank & Finance area
EDB's order backlog at the close of the first six months of 2009 was almost NOK 14.2 billion. The company signed three outsourcing agreements with new customers in Sweden in the first half of the year. This helped the IT Operations business area in Sweden to report revenue growth of 6% in the second quarter. In addition, EDB announces today a NOK 225 million contract with a new Scandinavian customer. In total, these four outsourcing agreements represent total contract value of NOK 600 million.
Bank & Finance is EDB's largest industry vertical, and accounts for approximately 42% of the group's total revenues. This area has seen a significant increase in assignments for customers during the first half of the year, and this is reflected in growth of 6% in sales of solutions in the second quarter.
Main features of the second quarter of 2009
- Operating revenues of NOK 1,923 million (NOK 2,034 million), equivalent to a decline of 5%.
- Operating profit before intangible asset amortisation (EBITA) of NOK 151 million (NOK 191 million), equivalent to a decline of 21%.
- Cash flow from operations before non-recurring items was NOK 168 million in the second quarter of 2009 as compared to NOK 153 million in the second quarter of 2008.
- Earnings per share of NOK 0.42 before non-recurring items, as compared to NOK 0.38 for the second quarter of 2008.
Results from the business areas for the second quarter of 2009
IT Operations: The business area reports revenue of NOK 1,107 million for the second quarter of 2009, as compared to pro forma NOK 1,142 million for the same quarter in 2008. EBITA was NOK 91.3 million in the second quarter of 2009 as compared to pro forma NOK 100.8 million in the second quarter of 2008.
Solutions: The business area reports revenue of NOK 385 million for the second quarter of 2009, as compared to pro forma NOK 357 million for the second quarter of 2008. EBITA was NOK 54.7 million for the second quarter of 2009, as compared to pro forma NOK 54.8 million for the same period in 2008.
Application Services: The business area reports revenue of NOK 509 million for the second quarter of 2009, as compared to pro forma NOK 587 million for the second quarter of 2008. EBITA was NOK 31.8 million in the second quarter of 2009, as compared to pro forma NOK 57.8 million for the second quarter of 2008.
Main features of the first six months of 2009
- Operating revenues of NOK 3,859 million (NOK 3,872 million)
- Operating profit before intangible asset amortisation (EBITA) of NOK 285 million (NOK 364 million)
- Cash flow from operations increased by NOK 161 million to NOK 187 million
- Earnings per share of NOK 0.90 before non-recurring items for the first half of 2009, as compared to NOK 1.11 for the first half of 2008.
Conditions in the Nordic IT services market successively weakened over the course of the first and second quarters of 2009, particularly in the consulting area. Market conditions are expected to remain negative for some time to come, and this is reflected in lower capacity utilisation and downward pressure on prices for services in certain areas. The market for outsourcing is showing an increase in activity, and the market research company IDC expects this segment to show growth in the future.
Based on the current market situation, the company has implemented measures to reduce the level of costs in all business areas.
EDB is monitoring the market closely, and the company will implement further measures if conditions so require.