Market conditions
The Nordic market for IT services was still strong in 2011. Instability in the financial markets and slower growth in several countries in Europe has only to a minor extent affected the investment activities in the group’s customer base negatively.
Itera targets larger, long-term customer relationships in order to be a close business partner and actively participate in the customers’ strategic development. Furthermore, this will contribute to improved activity and profit visibility, larger order book and internal stability. The group has a solid customer base where more than half of all revenues originate from customers having more than 1000 employees. During 2011, Itera has signed new agreements with customers like Multidata-Bluegarden, Storebrand, Vattenfall, If, KLP, Elkjøp, Avinor, Aker Solutions, Sparebank1 and Eniro.
Itera has defined a set of strategic customers across the group. The customers are potential buyers of Itera’s complete range of services, from consulting, concepts and solutions to system development, project management, application management and operations. Further on, several of the customers operate in the same countries as Itera, they are innovation-driven, they represent sectors with high levels of change, and they see smart use of technology as a key driver to quickly adapt and attack new business opportunities.
Revenue related to the 10 largest customers shows a positive trend, increasing from 29 percent in the fourth quarter of 2012 to 33 percent in the same period of 2011.
Business Operation
The group is well-integrated, and represents a wide and complete range of services with Itera Gazette within Communication, Itera Consulting within Consulting and Itera Networks within Operations. In addition, Itera has two niche companies: Cicero Consulting within Banking and finance and Compendia within HR, quality and management. Delivery teams are assembled across the group structure and national boundaries to meet customer needs in the best possible way. Employee satisfaction showed further improvement in 2011 throughout the group. All employees show a strong commitment to deliver high quality in customer assignments and to participate in Itera’s further development.
Itera is headquartered in Oslo, with subsidiaries in Bryne, Stockholm, Copenhagen, Kiev and Lviv.
Group profit
Consolidated operating revenue for 2011 amounted to NOK 431.1 million, compared to NOK 383.7 in 2010. This represents an increase in sales revenue of 12 percent. Gross profit for 2011 amounted to NOK 339.5 million compared to NOK 309.2 million in 2010. This represents an increase of 10 percent.
Personnel expenses for the year amounted to NOK 274.5 million, an increase of 12 percent. The increase in personnel costs is due to a higher number of employees, while the average cost per employee in proportion to turnover decreases with increasing activity from the group’s nearshoring operation in Ukraine. Other operating expenses for the year amounted to NOK 50.3 million, an increase of 29 percent which is due to the organizational growth in general.
The operating profit before depreciation amounted to NOK 14.6 million, compared to NOK 25.6 million in 2010, which results in a profit margin before depreciation and write-downs of 3.4 percent, compared to 6.7 percent in 2010. The group’s total depreciation and write-downs for the period amounted to NOK 16.2 million compared to NOK 13.2 million in 2010. The operating profit was NOK -1.5 million, compared to NOK 12.3 million in 2010, which represents a profit margin of -0.4 percent, compared to 3.2 percent the previous year.
Net financial items amounted to NOK -0.6 million, compared to NOK 1.0 million in 2010. Pre-tax profit amounted to NOK -2.2 million, compared to NOK 13.3 million in 2010.
Tax for the year amounted to NOK -2.8 million, compared to NOK 1.7 million in 2010. Payable tax amounted to NOK 1 thousand, whereas no tax was paid in 2010. The group has NOK 16.8 million in total deferred tax assets, of which NOK 14.2 million is recognized in the balance sheet. Based on these deferred tax assets.
The profit for the year was NOK 0.6 million, compared to NOK 11.6 million in 2010.
In the Board of Directors’ opinion the financial statements present an adequate description of the group’s operations in 2011 and the financial position at year end.
Research and development
Investments in concepts that are related to subscription based fixed revenue amounted to NOK 8.4 million. This amount was capitalized, since the requirements relating to capitalization are considered to have been satisfied. These investments generate contracts with subscription based fixed income. In 2010 the investments were amounted to NOK 7.8 million.
Cash flow and financial position
Cash flow from operations amounted to NOK 5.2 million, compared to NOK -3.7 million in 2010. Dividend of NOK 8.2 million was paid to shareholders during 2011. Furthermore, purchases of own shares were made in the amount of NOK 0.3 million. Cash deposits for the group amounted to NOK 21.0 million at the end of the period, compared to NOK 40.1 million in 2010.
In addition to research and development, investments in machinery, equipment and software amounting to NOK 20.0 million have been made, compared to NOK 7.3 million in 2010. The increase is due to the group’s entering of new and larger operating contracts.
After cancellation of 2.4 million own shares, Itera holds own shares corresponding to a market value of NOK 1.9 million at the year-end.
The equity at the end of the year amounted to NOK 68.9 million, compared to NOK 77.0 million in 2010. This corresponds to an equity ratio of 40 (49) percent.
Financial risk
Itera is exposed to the following risks from its use of financial instruments: currency risk, liquidity risk and credit risk. The management is continuously monitoring the risks to be able to implement appropriate actions.
All income and expenses related to Itera’s activities in Scandinavia are recorded in local currency in Norway, Sweden and Denmark. The group’s profits will therefore be affected by changes in the exchange rates that apply to the Swedish and Danish kroner. However, the currency risks are limited as associated expenses are in the same currencies. Establishment of the offshoring company in Ukraine has resulted in the Corporations exposure in USD. The company is working on a hedging strategy to reduce this exposure.
The group has in 2011 established agreements for leasing of equipment used in operating activities. Furthermore, the group has been given extended operating credit from the bank. On this background, the Board considers the group’s liquidity satisfactory. The credit risk is considered low as the groups bad debt losses have historically been low, and this trend has continued in 2011.
Organisation
The number of employees at the end of the year was 461 compared to 382 in 2010. The increase of 79 employees represents a growth of 21 percent. Average number of employees for the year as a whole amounted to 422 (374). The main part of the group’s operations is located in Norway, where the company has 282 (241) employees. The Swedish operations have 82 (68), the Danish operation 27 (27) and the Ukrainian operation 70 (46) employees.
Absence due to sickness in 2011 amounted to 2.8 (2.9) percent, which is considered to be satisfactory by the Board. No injuries or accidents occurred during the year. The Board considers the group’s working environment to be good and regular evaluation surveys are carried out with respect to this environment.
The Board would like to express its gratitude towards all employees of the group for their contribution in 2011.
Equality and diversity
Itera emphasizes equality. Women and men should be given equal compensation and opportunities for professional and personal development. Itera seeks to ensure that both male and female employees have the opportunity to combine their work and private commitments and supports this policy through leave programmes, home office solutions and part-time jobs.
The total share of female employees is 26 (28) percent. The group’s senior management consists of two men, while the Board is made up of two women and three men.
There are major differences between the companies in the group with respect to the percentage of women employees. There are fewer female employed by those companies where the focus is on technology, while the female employment level is around 50 percent in the companies that provide communication and content services. Management positions are unevenly divided between men and women, and one of the group’s targets is to improve the gender balance within its various management groups. However, the need for having the right expertise will always take precedence.
Itera actively seeks to ensure diversity in the group, and will recruit, develop and retain the best employees regardless of gender, ethnicity or disability. The group has ethical guidelines to promote equality and prevent discrimination.
External environment
Pollution of the external environment as a result of activities engaged by the Itera group is minimal. The Itera group’s environmental initiatives are directed towards utilization of organized recycling schemes for scrapped equipment, reduced travel by means of an increase in the use of telephone and video meetings as well as the responsible disposal of waste.
Shares and shareholders
Itera ASA’s share capital stood at NOK 24 882 104 at the end of 2011, through 82 940 346 shares with a face value of NOK 0.30 per share. The share capital is reduced by NOK 720 000 through the year through cancellation of 2 400 000 own shares.
At the end of the year the group owned 753 722 (3 164 137) of its own shares, amounting to 0.9 (3.7) percent. Itera has one outstanding stock options program, where the exercise price is significantly above the current share price.
At the end of 2011, Itera ASA had 1 997 shareholders. The 20 largest shareholders owned 49.3 million shares, equivalent to 59.5 percent of the group’s share capital.
Dividends amounting to NOK 8.2 million were paid out during 2011, the equivalent of NOK 0.10 per share.
Corporate governance
The management of Itera is based on the Norwegian accounting and company law as well as the Norwegian recommendations on Corporate Governance. See also the section about Corporate Governance in the annual report.
The parent company
Internal processes and group solutions are organized as Group Functions in the parent company, Itera ASA, in segments where considerable economies of scale and synergies can be realized. Group Functions is developed in line with the companies’ needs and now covers segments such as accounting/finances, HR, information, communication and internal IT.
The parent company’s main income is group contributions from the subsidiaries. In 2011, the parent company has received NOK 8.5 million in group contributions. The parent company has contributed with NOK 0.95, assigned to investments. The carrying value of investments in subsidiaries are after this transaction NOK 93.2 million.
The number of employees at the end of the year was 16 (15), of which 10 are women. Absence due to sickness in 2011 amounted to 2.7 (2.3) percent, which is considered to be satisfactory by the Board. No injuries or accidents occurred during the year. The Board considers the working environment to be good. In the Board of Directors’ opinion the financial statements present an adequate description of the parent company’s operations in 2011 and the financial position at year end.
Going concern
Pursuant to section 3-3a of the Norwegian Accounting Act, the Board confirms that the 2011 financial statements have been prepared based on the assumption that Itera is a going concern. This assessment is based on the company’s projected earnings for 2012 and the group’s equity and liquidity situation.
Allocation of loss
The Board proposes that the net loss in the parent company Itera ASA of NOK 2 290 000 is allocated as follows: - NOK 2 290 000 from other equity.
Further, the Board proposes a group contribution of NOK 950 000 to the subsidiary Compendia AS. In the parent company’s financial statements, this group contribution has been recognized against investments rather than carried over to expenses on the profit and loss account.
The parent company’s equity is NOK 113.5 million, of which distributable equity amounts to NOK 81.2 million.
OUTLOOK
The group is experiencing good activity in all the markets where the group is represented. The operational adjustments carried out in the fourth quarter have adapted the group’s capacity to the actual growth.
The strategy is well implemented in all parts and levels of the group, and the goal-oriented work will continue. With adjustments implemented in the organization, enhanced control and solid customer relationships the company is properly positioned for profitable growth.
Oslo, 18 April 2012
Board of Directors of Itera ASA
Ole J. Fredriksen - Board chairman
Mimi K. Berdal - Vice chairman
Trude S. Husebø - Board member
John M. Lervik - Board member
Johan Lindqvist - Board member
Arne Mjøs - CEO