Page 99 - EVRY Annual Report 2012

Annual Accounts Group 99
However, there are signs of emerging optimism in the Euro zone. The OMX30 for the Swedish stock market has
risen by around 20 % over the last six 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, the company expects the Swedish
IT services market to remain at the level of the fourth quarter of 2012 throughout 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. 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 serious 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.
The company anticipates an EBITA target of NOK 1.0 – 1.2 billion in 2015. In relation to this overall target, the
Solutions services segment is currently slightly above its earnings target, while the Consulting services segment
is slightly below its target due to the situation in Sweden with weaker earnings in the fourth quarter of 2012 and a
challenging economic situation. In the IT Operations services segment, three out of four areas are in line with the
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 in 2012. 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. The company has implemented a program of improvement (Future Proof) in order
to strengthen the profitability of the IT Operations services segment and improve quality. The main features of this
program are greater use of offshoring and automation, together with data centre consolidation. In addition, the
segment has increased its sales and market focus. The introduction of a new and streamlined organisational struc-
ture with effect from 2013 will play an important role in achieving greater profitability for IT Operations.
The Consulting services segment has established a scalable leverage 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 Norwegian consulting activities.
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 sepa-
rate industry vertical that will have complete responsibility 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 the company approved in the third quarter of 2012 have
been implemented. This gives the group a sharper market focus based on closeness to customers and understanding
of their business, ensuring that the company is well-equipped to meet the challenges caused by uncertain market
conditions. Close dialogue with customers and greater focus on attractive sectors that are showing growth will en-
sure that revenue will now grow more strongly than the company reported in 2012. Together with the streamlined
and cost-effective structure for IT Operations, this will ensure that the company reaches its EBITA target.
The estimates used to determine future cash flows and the discount rate used when calculating value in use are
subject to uncertainty. The assumptions applied are as follows:
Growth rate
Average rates of growth in operating revenue are based on management’s expectations of future conditions in the
markets in which the business operates. The long-term growth rate beyond the budgets and strategic plans ap-
proved by the Board cannot be higher than the long-term rate of growth in the economy where the business oper-
ates. A growth rate of 2.5 % has been applied for all cash generating units with the exception of Global Sourcing,
where a growth rate of 5 % was assumed which is in line with growth achieved historically.
EBITA margin
EBITA margins are based on the volume/margins achieved historically, adjusted for expected future developments
in market conditions. Programs to improve efficiency that are approved and committed are taken into account in
determining the expected future EBITA margin.