EDB ErgoGroup reports operating revenue for the third quarter of 2011 of NOK 2,928 million, representing organic growth of 3% from the same quarter last year.
Operating profit before intangible asset amortisation (EBITA) was NOK 227 million, as compared to pro forma NOK 124 million for the third quarter of 2010. Pre-tax profit (EBT) was NOK 94 million, as compared to a pre-tax loss of pro forma NOK 192 million for the same quarter of last year.
"I am pleased that we were able to demonstrate our strength in the third quarter with improved profitability and better margins, both for the group as a whole and for all the business areas across the group. It is now a year since the merger of EDB and ErgoGroup was formally approved. We are seeing the benefits of the merger, with stronger earnings than this time last year", comments Terje Mjøs, CEO of EDB ErgoGroup.
As part of its work on the merger integration, EDB ErgoGroup took steps to resolve a number of pending matters in the third quarter. The Global Sourcing strategy has been clarified and the Miratech business in the Ukraine has been sold, and settlements have been agreed both for a pension dispute with employees of the former EDB and for a dispute with the City of Oslo.
"We have said since the merger was approved that our main focus is to take good care of what we have - our customers and our employees. This meant that it was important for me to resolve the dispute with the City of Oslo and to reach agreement with the employees affected by the pension dispute. We can now put these matters behind us, and focus our full attention on the important task of building EDB ErgoGroup into the Nordic region's leading IT services company", says Terje Mjøs.
Key figures and main features of the third quarter of 2011
• Operating revenue of NOK 2,928 million as compared to pro forma NOK 2,823 million in the third quarter of 2010.
• EBITA of NOK 227 million (including a positive pension effect of NOK 28 million) as compared to pro forma NOK 124 million in the same quarter last year.
• EBITA margin improved frrom 4.4% pro forma to 7.8%.
• Cash flow from operations of NOK 272 million as compared to pro forma NOK 198 million in the third quarter of 2010.
• Earnings per share NOK 0.22 as compared to NOK -2.04 for the same quarter last year. Earnings per share for the third quarter of 2011 before non-recurring items was NOK 0.38.
• Organic growth of 9% in Sweden. EDB ErgoGroup continues to win market share through growth in all business areas in Sweden.
• Revenue growth and stronger margins for all business areas. Consolidated organic growth for the quarter of 3%.
• The group's order backlog at the close of the third quarter of 2011 was NOK 16.8 billion.
• Implementation of the synergy program is proceeding as planned, with a run rate of NOK 170 million. 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.
• As a further step in its Global Sourcing strategy, EDB ErgoGroup has sold the company Miratech in the Ukraine. EDB ErgoGroup's activities in the Ukraine will continue through a clear and focused strategy on deliveries from the company Infopulse.
Third quarter 2011 figures for the business areas
IT Operations: The IT Operations business area reported operating revenues of NOK 1,440 million for the third quarter of 2011 as compared to pro forma NOK 1,436 million in the third quarter of 2010. EBITA was NOK 114 million as compared to pro forma NOK 105 million in the third quarter of 2010.
Solutions: The Solutions business area reported operating revenues of NOK 1,011 million as compared to pro forma NOK 894 million in the third quarter of 2010. EBITA was NOK 98 million in the third quarter of 2011 as compared to pro forma NOK 21 million in the third quarter of 2010.
Consulting: The Consulting business area reported operating revenues of NOK 745 million for the third quarter of 2011 as compared to pro forma NOK 725 million in the third quarter of 2010. EBITA was NOK 31 million as compared to pro forma NOK 30 million in the third quarter of 2010.
Performance in Sweden in the third quarter of 2011
Revenue in Sweden in the third quarter of 2011, including some revenue from Finland, was NOK 751 million, equivalent to organic growth of 9% from the third quarter of 2010. All segments of the Swedish activities reported organic revenue growth in the third quarter of 2011. IT Operations reported organic growth of 6%, Solutions 11% and Consulting 7%. EBITA was NOK 58 million compared to pro forma NOK 43 million in the third quarter of 2010.
The IT services market in Norway and Sweden continued to show a positive trend in the third quarter of 2011, and the market research companies IDC and Gartner expect to see moderate growth in the IT services market over the second half of 2011 and into 2012.
There is, however, a risk that the turbulence affecting the financial markets and the downgraded forecasts for economic growth in Norway and Sweden may also have an adverse effect on growth in demand for IT services.
EDB ErgoGroup expects moderate growth 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, and by sound growth in outsourcing for the SME segment of the market.
The Board is committed to ensuring that the company strengthens its profitability and improves its cash flow. Accordingly, the task of realising the targets for synergy benefits that the company has announced is a high priority. The Board is also focused on ensuring that the integration of the former EDB and ErgoGroup is carried out in a way that properly takes into account the interests of its customers, employees and shareholders, as well as ensuring high quality standards at all stages of the delivery chain.
The company expects EBITA in the range of NOK 760 - 800 million for the financial year 2011, as compared to pro forma EBITA of NOK 553 million for 2010.