Annual report 2008
Annual report from the Board of Directors
History and business concept
InfoCare is represented in 75 locations in the Nordic and Baltic regions. The Group’s head office is situated in Kristiansand, Norway. InfoCare offers a supplier-independent, refined service concept within the service, maintenance, repair, logistics and support of IT systems and consumer electronics. The Group’s biggest shareholders are funds managed by the private equity companies CapMan (51.9%) and Segulah (30.7 %), in addition to members of the Group’s Board of Directors and management (14.3%).
The Group's operations
InfoCare is an authorised service partner for leading international producers of electronic equipment and basic software. The company’s independent position and partnership philosophy has been, and will remain, of great importance to the development of the Group. The most important part of the Group’s turnover relates to partnerships with the biggest suppliers of IT equipment and consumer electronics. InfoCare’s operations are organised into two business divisions: Professional Services, which supplies service solutions within IT to the business market, and Consumer Services, which supplies service solutions within IT and electronics to the consumer market. The Group has operations in Norway, Sweden, Denmark, Finland and Estonia.
Strategic and competitive positioning
During 2008, InfoCare continued the work to strengthen the Group’s position as a leading supplier of service within IT and consumer electronics. The company further developed its cooperation with key producers and vendors in both the professional market and the consumer market. One of the biggest events in this regard was the acquisition of Logica’s IT service operation in Sweden, where InfoCare took over 120 employees and signed a strategic partner agreement with Logica within IT service for the business market. During 2008, a number of major service agreements were also signed with both existing and new customers.
The work to restructure and consolidate the Group continued throughout 2008. The restructuring began as a result of the acquisitions of Powermill Service Group and the bankrupt estate of Strax during the second half of 2007. These companies have now been integrated within the Consumer Services division of InfoCare. The economic downturn and the financial crisis in 2008 resulted in a need for further cost adaptations, primarily within the Consumer Services division, in order to adapt the operation to the new market situation. Surveys amongst our customers and partners show that the restructuring that has now been carried out has raised customer satisfaction levels and strengthened InfoCare’s position as a supplier in both the business market and the consumer market.
Market development, trends and initiative areas
2008 has been characterised by an economic downturn and negative market growth. This trend has been particularly apparent within the consumer market, where volumes fell markedly during the second and third quarters and then stabilised at a lower level for the remainder of the year. In the business market, developments have been stable and InfoCare has taken market shares and strengthened its market position.
The accelerating digitalisation that has taken place in the market for consumer electronics means that in recent years the consumer market has become an increasingly important market for InfoCare. Following major acquisitions during 2007, the business area Consumer Services is now on a par with the business area Professional Services in terms of both employee numbers and turnover.
Within the consumer market, InfoCare has continued to develop new service concepts which, combined with good logistics solutions, are creating new market opportunities for the company. This trend looks like continuing.
There is reason to believe that we will again see growth within the consumer market when the macroeconomic situation returns to normal. Together with its partners, InfoCare has created a strategic platform where the company is well-positioned to meet this development.
The professional market has for a number of years shown a low rate of underlying growth within the market niches in which InfoCare operates. The growth driver in this segment has to a large extent been the increasing trend towards consolidation and outsourcing amongst the company’s partners and end customers. This trend became even more apparent during 2008. It is therefore likely that InfoCare’s growth opportunities within the professional market will remain good in the future.
During 2008, the Group has continued the process to improve the efficiency of the delivery apparatus to both the professional market and the consumer market and, through this work, has improved both productivity and delivery quality and thus strengthened the company’s market position further.
Partly as a result of the acquisition of Powermill, growth has largely taken place outside the borders of Norway. New and existing customers and partners in all the Nordic countries are showing increasing confidence in the company’s concept and over 70% of the Group’s turnover originates from markets outside Norway. The Board of Directors considers the Baltic and Eastern European markets to be of particular interest as regards further geographic expansion.
Accounting and finance (figures in MNOK from 2007 in parentheses)
In 2008, the Group recorded consolidated operating income of MNOK 1,759.0 (1,346.5). EBITA amounted to 65.3 (26,7) before the charging of non-recurring restructuring costs of 55.8 (22,7). EBITA after the charging of restructuring costs was 9.5 (4,0). EBIT before the charging of non-recurring restructuring costs and the write-down of intangible assets of 8, amounted to 56.5 (19.9). EBIT after the charging of non-recurring restructuring costs and the write-down of intangible assets amounted to -7.3 (-2.8). EBT before the charging of non-recurring restructuring costs amounted to - 43.8 (-13.2). EBT after the charging of non-recurring restructuring costs amounted to MNOK -99.6 (-35.9).
Net financial items amounted to -92.3, of which 29.9 consists of interest paid; other financial costs primarily consist of non-payable interest and currency revaluations. Net income after tax amounted to MNOK -104.8 (-32.8). The Group’s amortisation and write-down of intangible assets was MNOK 16.8 (6.9). In its balance sheet, the Group’s parent company has performed an accounting write-down of balance sheet assets of the subsidiary InfoCare AB in the amount of MNOK 30. The Board of Directors is satisfied with the development in turnover during 2008, but is also aware that the development in net income has not been satisfactory.
The result for 2008 is affected by the restructuring and consolidation that has been carried out within the Group during the year, primarily within the Consumer Services. Restructuring initiated at the end of 2007 and through 2008 has resulted in eight workshops being closed and more than 350 people have been made redundant. The restructuring has affected the result, partly through substantial non-recurring restructuring costs and partly through the temporary production losses that have arisen while these restructuring processes are ongoing. The company’s finance costs are significantly higher than during the previous year. This is partly because of the generally higher interest rate levels, partly because of increased borrowing and partly because of the uncapitalised currency losses recognised in the accounts linked to the Group’s financing in foreign currency. The booked currency losses are a direct result of the substantial exchange rate fluctuations which occurred at the end of 2008 as a result of the financial crisis. The Board of Directors believes that the restructuring and consolidation initiatives that have been carried out will result in substantial improvements to the Group’s earnings in the near future.
The equity ratio was 8.3% at the end of 2008 (13.7%). In addition to the pure equity, the Group is financed through shareholder loans from equity funds managed by CapMan and Segulah, so that the proportion of self-financing at the end of 2008 amounts to 22.3% (23.9%). An itemisation of shareholder loans is presented in Note 16 in the notes to the annual accounts.
The cashflow from operations amounted to MNOK -74.6 (-37.2). The reduction in cashflow of MNOK 37.4 is due partly to slightly high capital binding in current assets and partly to higher interest costs. Net interest-bearing debt at the year-end was MNOK 797.1 (651.6). Of this amount, MNOK 434.2 consists of loan financing via Nordea Bank. The remainder consists of loans from equity funds managed by CapMan and Segulah and loans from mezzanine funds managed by CapMan. The liquidity reserve for the Group, including unused drawing rights, was MNOK 76.1 (91.3) at the year- end. The company has submitted the accounts on the going concern assumption. This assumption is based on the Group’s financial position and the expected development in results for 2009.
The parent company’s net income before tax amounted to MNOK – 99.5 (-28.1). The parent company’s balance sheet total consists of investments in subsidiaries, and financing. Equity as of 31.12.2008 amounted to MNOK 38.7 (141.1). During 2008, the Group has continued the work which was begun in 2006 linked to upgrading of the Group’s own IT systems. This project is progressing as planned. Development work associated with this project has been recognised in the balance sheet in the amount of MNOK 6.0 in 2008.
Financial risk
The Group's ordinary operations result in normal credit risk and currency exposure. The Group’s credit policy and finance strategy ensure that exposure within each of these areas is kept within defined limits. The Board of Directors believes that the Group operates within an acceptable level of risk. Since the year-end, the company’s capital structure has been strengthened, as a further MNOK 40.0 has been invested in the Group in the form of shareholder loans.
Interest rate hedging is still performed for part of the company’s debt through the establishment of interest rate swap agreements.
The company is to some extent exposed to changes in interest rate levels, as the remainder of the company’s debt is subject to variable interest rates.
Human resources, working environment and the natural environment
At the end of 2008, the Group had 2,546 employees, compared with 2,578 at the previous year-end. However, there has been a substantial shift in the number of employees within each business division. There has been considerable growth within Professional Services, offset by an almost corresponding reduction within Consumer Services due to restructuring. The working environment within the Group must be considered to be good, as the company has a normal personnel turnover and there is little absence due to illness (3.8%). No accidents have occurred in the company. The Group’s companies participate in statutory initiatives in order to protect the environment, including return schemes for discarded ICT equipment. The Group’s companies do not manufacture physical products. The operation therefore causes little pollution to the natural environment.
The operation's proportion of women is 13.5%. The company’s human resources policy is based on equal pay for equal work, a policy which means that women and men in equal positions receive equal pay , provided that other circumstances are equal. The company strives to ensure that both genders have the opportunity to combine work with family life. The company had 125 part-time employees at the end of 2008. 39.2% of these were women and 60.8% were men. For positions where it is practicable, InfoCare has facilitated for part-time work. At the end of 2008, 102 employees were on leave, of whom 40.2% were women. Most women are employed in administrative posts.
Corporate governance
The company's principles for corporate governance are established by the company’s Board of Directors. These principles aim to protect shareholder values and ensure a healthy company culture and a sound reputation. The Group’s Board of Directors consists of external shareholder-elected members who are not linked to the company’s operation. The company’s employees also have three representatives on the Board of Directors. The employee representatives contribute constructively to the work of the Board of Directors in the best interests of both the company’s employees and its shareholders.
Net income and transfers
The Board of Directors has decided to recommend to the Annual General Meeting that the parent company’s net income for 2008, TNOK -102,401, be distributed as follows:
| Transferred from the premium fund | TNOK | - 102,401 |
| Total distributed | TNOK | - 102,401 |
The parent company has no unrestricted equity as of 31.12.08
The Board of Directors is unaware of any other circumstances of importance to the assessment of the company’s position and the result of the operation. Together with the report from the Board of Directors, the accounts with notes provide comprehensive information on the year’s operations and the financial position at the year-end. Other than the abovementioned investment of shareholder loans, no other circumstances have arisen since the end of the financial year which alter the basis for the assessment of the company’s position and result.
Future prospects
2008 has been characterised by a marked economic downturn. At the start of 2009, there is considerable uncertainty linked to the macroeconomic situation and future economic prospects. In spite of historically low interest rate levels and government intervention to counter the economic downturn, it remains likely that 2009 will see weak economic growth and the continuation of the adverse economic situation in the national markets in which InfoCare operates.
During 2008, InfoCare has strengthened its market position in the markets in which the company operates. At the same time, the Group has continued the restructuring and consolidation processes started in 2007. Together with the Group’s broad range of services, local presence and close partnerships with the leading technology suppliers, the company has an excellent platform from which to further strengthen its position as the Nordic region’s leading supplier of services within ICT and consumer electronics.
The Board of Directors believes that the company is well-positioned to face the market challenges of the future and has firm foundations for further growth and value creation.
