EDB ErgoGroup posts Q1 results

Source: EDB ErgoGroup

ErgoGroup ASA reports currency-adjusted organic growth of 2 percent in consolidated revenue to NOK 3,234 million for the first quarter of 2011.

Operating profit before intangible asset amortisation and synergy costs (EBITA) was NOK 158 million, as compared to pro forma NOK 172 million for the first quarter of 2010.

"We are pleased to see that revenue is now increasing in all reporting segments, with the exception of IT Operations in the Enterprise segment in Norway, where we are affected by contractually agreed price reductions. The synergy program is proceeding in accordance with plans, and this will help to ensure that the company strengthens its profitability", comments Terje Mjøs, CEO of EDB ErgoGroup.

Key figures and main features of the first quarter of 2011
• Operating revenue NOK 3,234 million. Revenue increased by 4 percent, while organic growth (i.e. measured in constant currency terms) was 2 percent
• EBITA was NOK 158 million (NOK 172 million), of which a positive pension effect accounted for NOK 28 million
• The group reports good growth from Financial Services and SME, and in Sweden in general
• Synergy program proceeding in line with plans
• Cash flow from operations NOK -283 million (NOK -89 million)
• New revolving credit facility in place to replace existing borrowings

Consolidated first quarter 2011 figures for the reporting segments of EDB ErgoGroup

IT Operations:
The IT Operations segment reported operating revenues of NOK 1,495 million for the first quarter of 2011, compared to pro forma NOK 1,503 million in the first quarter of 2010. This represents an organic decline in revenue of 2 percent. IT Operations in Sweden reported organic revenue growth of 6 percent, and revenue from SME customers in Norway also showed an increase. Revenue from the large customer segment of the Norwegian market fell by 5 percent in the quarter, and was affected by contractually agreed price reductions which came into effect from 1 January 2011 that will have an estimated effect of NOK 100 million for 2011 as a whole.

The IT Operations segment reported operating profit before amortisation of intangible assets (EBITA) of NOK 50 million in the first quarter of 2011, as compared to pro forma NOK 72 million in the first quarter of 2010. EBITA margin for the first quarter was 3.4 percent, as compared to pro forma 4.8 percent in the first quarter of 2010.

Solutions:
The Solutions segment reported operating revenues of NOK 1,048 million in the first quarter of 2011, equivalent to organic growth of 6 percent from pro forma figures for the same quarter of 2010. The Financial Services industry vertical achieved organic growth of 8 percent for the quarter as a result of an increased inflow of new customers and successful product launches. The group's Global Sourcing activities achieved organic growth of 26 percent relative to the first quarter of 2010. Sales of hardware, which relates to the activities of the Solutions segment in Sweden, showed an increase of 164 percent in the first quarter of 2011 relative to the same quarter in 2010

The Solutions segment produced an operating profit before amortisation of intangible assets (EBITA) of NOK 65 million for the first quarter of 2011, as compared to pro forma NOK 78 million for the first quarter of 2010. EBITA margin for the first quarter was 6.2 percent, as compared to pro forma 8.1 percent for the first quarter of 2010. The Financial Services vertical maintained its EBITA margin in the first quarter, and the reduction in the segment's margin relates largely to the Public Sector vertical as a result of the transition to recognising development costs for the Digoff project through profit and loss as they are incurred. In the first quarter of 2010, NOK 25 million of development costs for this project were capitalised.

Consulting:
The Consulting segment reported operating revenues of NOK 930 million in the first quarter of 2011, representing 5 percent organic growth from pro forma figures for the first quarter of 2010. Growth came largely from the segment's Swedish activities. Sales of hardware increased by 14 percent in the first quarter of 2011 relative to the same quarter in 2010.
The Consulting segment produced operating profit before amortisation of intangible assets (EBITA) of NOK 66 million for the first quarter of 2011, as compared to pro forma NOK 53 million in the first quarter of 2010. Reported EBITA was affected positively by the number of working days in the first quarter being one greater than in the same quarter in 2010. EBITA margin for the first quarter was 7.1 percent, as compared to the pro forma EBITA margin of 6.1 percent for the first quarter of 2010.

Future prospects:
The IT services market in Norway and Sweden showed some improvement in the first half of 2011 in line with general economic conditions. The market research companies IDC and Gartner expect to see moderate growth in the IT services market in 2011.

EDB ErgoGroup also expects to see market growth in 2011, especially in the public sector, bank and finance, and SME segments of the market and in the consulting area. The large customer segment of the outsourcing market in Norway is currently affected by a shortage of new contracts in the market that is causing strong downward pressure on prices, but the company is able to offset part of the resulting revenue shortfall through sales of additional services. These trends, combined with the loss of customer contracts representing revenue in the order of NOK 200 million in 2011, mean that the company expects a further decline in revenue from operating services for the large customer segment in Norway in 2011. On the other hand, the company expects its revenue from operating services for the large customer segment in the Swedish market to show moderate growth.

The Board will focus on ensuring that the company carries out a successful integration as result of the merger between the former EDB and ErgoGroup companies that properly takes into account the interests of its customers and employees. The Board is committed to ensuring that the company strengthens its profitability, in part by achieving the targets the company has set for synergy benefits.

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