Operating profit before intangible asset amortisation (EBITA) was NOK 166 million, as compared to pro forma NOK 156 million for the second quarter of 2010. Pre-tax profit (EBT) was NOK 72 million, as compared to pro forma NOK 5 million for the same quarter of last year.

"EDB ErgoGroup reports increased revenue and achieved organic growth of 7% in Sweden in the second quarter. We are putting in a lot of effort every day on realising the synergy benefits following the merger and on other measures to improve the company's underlying quality and profitability. This work will continue to have the highest priority in the time ahead", comments Terje Mjøs, CEO of EDB ErgoGroup.

EDB ErgoGroup established an extensive synergy program for the merger of EDB and ErgoGroup. The company has identified annual synergy gains of NOK 325 million, which will be realised over a period of 18 months starting from the first quarter of 2011. Work on the synergy program is proceeding well, and EDB ErgoGroup now reports annual savings (run-rate) of NOK 128 million, as compared to NOK 60 million at the end of the first quarter.

"In the second quarter we launched the next-generation of internet banking for mobile phones (Mobilbank 2.0) and new card services for banks, and we are experiencing strong demand for mobile solutions in Sweden. At the same time, we have started deliveries of election solutions to local authorities ready for the local elections this autumn. Customers are showing strong interest in the new services we are developing, and through these developments and new contracts totalling NOK 2.7 billion in the second quarter, we have laid a strong foundation for continuing growth in the second half of the year", says Terje Mjøs.

Key figures and main features of the second quarter of 2011
• Operating revenue of NOK 3,202 million as compared to pro forma NOK 3,155 million in the second quarter of 2010.
&r />&bulr />• EBITA of NOK 166 million (including a positive pension effect of NOK 28 million) as compared to pro forma NOK 156 million in the same quarter last year.
• EBITA margin improved from 4.9% to 5.2%.
• Cash flow from operations of NOK 63 million as compared to pro forma NOK 186 million in the second quarter of 2010.
• Costs associated with the DigOff development project for the public sector were reduced by NOK 9 million relative to the first quarter of 2011.
• Organic revenue growth of 7% in Sweden. EDB ErgoGroup is winning market share through growth in all business areas in Sweden. In Norway, Solutions reports continuing revenue growth, and the downward trend seen for IT Operations has reversed. IT Operations reported organic growth in the second quarter of 2011, making this the first quarter with organic growth since 2007.
• A range of short-term and long-term measures have been implemented following the delivery problems affecting card services that occurred at Easter. These measures are being carried out in close dialogue with the company's bank customers and Finanstilsynet (the Financial Supervisory Authority of Norway).
• New contractually-agreed orders totalling NOK 2.7 billion were signed in the second quarter. In addition, Consulting signed up sizeable framework agreements that are not included in the group's order backlog. The total order backlog at the close of the second quarter of 2011 was NOK 17.1 billion.

Key figures for the first six months of 2011
• Operating revenue for the first six months of NOK 6,436 million, equivalent to organic growth of 2%.
• EBITA for the first six months of 2011 was NOK 323 million (including a positive pension effect of NOK 56 million) as compared to pro forma NOK 328 million for the first six months of 2010.
• EBITA margin improved to 5.2% from 4.4% in the same period of 2010.
• New customer agreements were signed in the first six months of 2011 representing total contract value of NOK 5.8 billion, of which the contract with Bankernas Automatbolag AB (BAB) accounted for NOK 0.8 billion.
• Sales to the SME segment in the first six months showed organic growth of 8% relative to the first six months of 2010.

Second quarter 2011 figures for the business areas
IT Operations: The IT Operations business area reported operating revenues of NOK 1,517 million for the second quarter of 2011 as compared to pro forma NOK 1,484 million in the second quarter of 2010. EBITA was NOK 76 million as compared to pro forma NOK 77 million in the second quarter of 2010.

Solutions: The Solutions business area reported operating revenues of NOK 1,060 million as compared to pro forma NOK 982 million in the second quarter of 2010. EBITA was NOK 80 million in the second quarter of 2011 as compared to pro forma NOK 59 million in the second quarter of 2010.

Consulting: The Consulting business area reported operating revenues of NOK 923 million for the second quarter of 2011 as compared to pro forma NOK 953 million in the second quarter of 2010. EBITA was NOK 40 million as compared to pro forma NOK 52 million in the second quarter of 2010.

Performance in Sweden in the second quarter of 2011
Revenue in Sweden in the second quarter of 2011, including some revenue from Finland, was NOK 895 million, equivalent to organic growth of 7% from the second quarter of 2010. All segments of the Swedish activities reported organic revenue growth in the second quarter of 2011. IT Operations reported organic growth of 6%, Solutions 13% and Consulting 4%. EBITA was NOK 57 million compared to pro forma NOK 50 million in the second quarter of 2010.

Company outlook
The IT services market in Norway and Sweden showed some improvement in the first six months 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 group's revenue from the large customer segment of the outsourcing market in Norway is currently affected by contractually-agreed price reductions and a shortage of new contracts in the market. Part of the resulting revenue shortfall is being offset through sales of additional services and through growth in the large customer segment of the Swedish market, as well as by sound growth in outsourcing for the SME segment of the market. The company has previously announced the loss of customer contracts in the large customer segment of the Norwegian market with effect from 1 July 2011 that represent annual revenue in the order of NOK 200 million. As a result of the continuance of some aspects of deliveries to Norsk Hydro, the loss of revenue will be reduced by NOK 50 million in the second half of 2011.

The Board will focus on ensuring that the company carries out a successful integration as a 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 by achieving the targets the company has set for synergy benefits. 

EDB ErgoGroup ASA has decided on a renewed and intensified strategy for Global sourcing as part of the company's overall strategy. The first phase in this work will be to establish a focused ownership structure that underpins a stable and cost-effective sourcing model aimed at serving the Nordic market.

Background

The former EDB established its Global sourcing unit in 2007 with the acquisition of 60.1% of the share capital of each of the two companies Infopulse and Miratech in the Ukraine, as well as the acquisition of 51% of the share capital of the Indian company Span Systems. Infopulse had built up a sizeable international customer base over a number of years, developing its own expertise in integrated sourcing models. EDB evaluated the acquisition of Infopulse and Miratech on a combined basis, with a view to possibly merging the Ukrainian companies to create a powerful unit using their combined resources.

The former ErgoGroup acquired a 51% shareholding in the Indian company Ion NOR in 2008.

Focused ownership

EDB ErgoGroup has carried out a program of work over the first six months of 2011 to identify and analyse its sourcing requirements in the light of the merged company's strategy and its requirements for access to expertise.

Based on this evaluation, EDB ErgoGroup has decided to increase its ownership interest in the Ukrainian company Infopulse from 60.1% to 100%, while at the same time agreeing contracts with key employees to retain their services. Infopulse has been an important sourcing partner since the former EDB first acquired its interest in 2007, and EDB ErgoGroup accordingly wishes to have a closer association with the company. 

Miratech's activities focus principally on the Ukrainian market. EDB ErgoGroup has stated that it does not have any ambitions in the local Ukrainian market, and for various reasons it would not be appropriate to merge Miratech and Infopulse. One consequence of this is that EDB ErgoGroup will now consider various alternatives for a sale of its shareholding in Miratech. The minority shareholders in Miratech have notified EDB ErgoGroup that they wish to exercise their put option (maximum USD 7 million) that was entered into in connection with the agreement in 2007. Through the shareholder agreement, EDB ErgoGroup has the possibility to sell the entire company together with the minority shareholders, and therefore does not agree that the put options can be exercised.

EDB ErgoGroup is considering moving to a closer integration of Span Systems. In connection with the acquisition of 51% of the share capital of Span Systems in 2007 an option agreement (put-call) was entered into for the purchase of the remaining 49% of the shares. EDB ErgoGroup has a call option in the third quarter of 2011, while the other shareholders have a put option in the third quarter of 2012. The value of the options in Span Systems is estimated to be USD 11 million.

Span Systems and Infopulse have reported good growth in revenue and earnings since 2007, and EDB ErgoGroup is of the view that these companies are fairly priced by comparison to similar companies.

Financial effects of the transactions related to the Ukrainian companies

EDB ErgoGroup will increase its ownership interest in Infopulse from 60.1% to 100%, and the transaction will involve a payment of USD 6 million in the third quarter of 2011 and a payment in the order of USD 6 million in 2014. 

As a result of the exit decision on the sale of Miratech, EDB ErgoGroup can no longer consider the companies in the Ukraine on a combined basis for accounting purposes, and this exposes the company to the risk of a write down of goodwill in the order of NOK 20-30 million in the third quarter of 2011.