Page 63 - EVRY Annual Report 2012

From the Boardroom 63
uncertain outlook in 2012 had a marked effect on the IT ser-
vices market in Sweden in the second half of 2012. Customers
in Sweden were clearly taking a cautious approach, causing
them to defer decisions on IT investments with a resulting
drop in demand for consultants and projects. However, there
are signs of emerging optimism in the Euro zone. For exam-
ple, the OMX30 for the Swedish stock market has risen over
the last nine months, and this may indicate that investors
expect that the current period of weak economic growth in
Sweden will be relatively short-lived.
Based on this, EVRY expects the Swedish IT services market
to remain at the level of the fourth quarter of 2012 through-
out the first half of 2013, but expects to see the Swedish
economy improve leading to growth in the IT services market
in the second half of 2013. Customers in both markets insist
on an attractive profitability analysis when considering
investments in projects and solutions, but are also willing
to pay higher prices for specific domain competencies. This
has resulted in increases in hourly rates in some segments of
the market, while other market segments are still affected
by downward pressure on prices as the result of competition
from global vendors.
In relation to outsourcing, the Norwegian market was flat
throughout 2012, but the Swedish outsourcing market has
continued to grow. Global players have started to be seri-
ous contenders in these markets, and this is causing higher
expectations for price and quality on big customer contracts.
However, this is having only limited effect on the market
for other large and medium-sized customers, since global
vendors focus on the very largest customers. The SMB market
in Norway is in general growing markedly more quickly than
the enterprise market, although in Sweden there are only
small differences between these customer segments.
These trends are expected to continue over the course of the
quarters ahead.
EVRY does not expect the IT Operations segment to achieve
any improvement in EBITA in 2013 relative to 2012. This
relates to the downward trend for revenue in Enterprise &
Public Norway, as well as costs in respect of essential net-
work upgrades in order to ensure better quality and the costs
of the Future Proof program.
The company communicated its financial targets in con-
nection with the Capital Markets Day held in February
2012. The stated ambition was to achieve EBITA of NOK 1.3
billion in 2015. One year on, the current status in relation
to this target is as follows: The Solutions segment is cur-
rently slightly above its earnings target, while the Consulting
segment is slightly below its target due to the situation in
Sweden with weaker economic conditions and a challenging
economic situation. However, taken together the Solutions
and Consulting segments are performing in line with their
EBITA targets. In the IT Operations segment, three out of four
areas are in line with the original targets for both growth and
margins, and these areas account for 75% of the segment’s
total revenue. However, the fourth area of IT Operations,
which comprises enterprise customers (excluding banks) and
the Norwegian public sector, is below target with a relatively
large decline in both revenue and earnings. As a result, IT
Operations in total is below target in relation to the ambition
for 2015. In addition, the current weak economic conditions
in Sweden will in the short term cause significantly slower
growth than was assumed for the 2015 targets, and this in
turn will mean that the profit contribution in relation to the
2015 target will be smaller than originally planned. In total,
this means that EVRY finds it necessary to revise down the
EBITA target previously announced of NOK 1.3 billion in 2015
to NOK 1.1 – 1.2 billion in 2015.
At the Capital Markets Day in February 2012, EVRY presented
a target for working capital of 4% by the close of 2013. In
the first half of 2012, working capital increased to 6.8% of
revenue, but as the result of work carried out to address
this, working capital was reduced to 6% by the close of 2012.
EVRY maintains its target for working capital to be 4% of
revenue by the close of 2013, and will continue to have strong
focus on the initiated improvements.
The Future Proof improvement program will strengthen
the profitability of IT Operations and improve quality. The
main features of this program are industrialisation through
automation, standardisation, data centre consolidation and
greater use of offshoring. In addition, the segment has in-
creased its sales and market focus. The introduction of a new
and streamlined organisational structure with effect from
2013 will play an important role in achieving greater profit-
ability for IT Operations.
The Consulting segment has established a scalable lever-
age model that was announced as an important tool for
profitability at the Capital Markets Day in February 2012.
In addition, reorganisation of the Consulting Oslo unit has
been completed and is contributing to improved profitability
for the segment. Consulting will in the future place greater
focus on industry verticals. In order to strengthen further the
Solutions segment, the company has decided to concentrate
its focus on Nordic banking and finance customers into a
separate industry vertical that will have complete responsi-
bility for this market. In addition, the company will continue
to build other industry verticals in Norway and Sweden that
are positioned at the higher stages of the value chain in areas
where the company can benefit from its unique position in
the Nordic countries.
The changes to the group’s organisational structure that
EVRY approved in the third quarter of 2012 have been imple-
mented. This gives the group a sharper market focus based on
closeness to customers and understanding of their business,
ensuring that EVRY is well equipped to meet the challenges
caused by uncertain market conditions. Close dialogue with