Full-year report 2005
Fourth quarter 2005: • Consolidated revenues amounted to SEK 759.3 M (696.3), an increase of 9.1 percent compared to the corresponding period 2004. Organic growth accounted for 3.7 percent, exchange rate effects 5.1 percent and acquisitions 0.3 percent. • Operating earnings (EBIT) amounted to SEK 120.3 M (115.0). This includes a write-down of a British IT system with SEK 30.3 M. Excluding this item, EBIT was SEK 150.6 M, an increase of 31.0 percent compared to the fourth quarter 2004. The operating margin, excluding the write-down, was 19.8 percent (16.5). Full-year 2005: • Consolidated revenues for 2005 amounted to SEK 2,823.2 M (2,740.5). The operating margin (EBIT) increased to 17.8 percent (15.7). • Net earnings for the year amounted to SEK 333.6 M (323.4). • Earnings per share before dilution for the full-year amounted to SEK 3.84 (3.68). • Cash flow from operating activities improved to SEK 527.0 M (485.3). • The Board of Directors proposes a dividend of SEK 2.25 per share.
“The year 2005 was a record period for Intrum Justitia, and the Group’s position as Europe’s leading credit management company is stronger than ever. We are also pleased to note that Intrum Justitia raised its organic growth to 3.7 percent in the fourth quarter,” says Intrum Justitia CEO Jan Roxendal. “Every region, with the exception of United Kingdom & Ireland, reported higher revenues and earnings. Market conditions in 2006 are positive for our industry. Continued high consumption and increased demand for services to help businesses secure their liquidity are benefiting Intrum Justitia." January–December 2005: Revenues and Earnings Consolidated revenues during the period January–December amounted to SEK 2,823.2 M (2,740.5), an increase of 3.0 percent. Organic growth was –0.2 percent. The effect of fluctuations in exchange rates was 2.2 per-cent. Revenue growth of 1.0 percent corresponds to the contribution from the companies acquired in Ireland and Slovakia. The Group has strengthened its market shares in Italy, Portugal and Spain, and in Denmark, where Intrum Justitia now is the market leader. The Group has also gained market share in the Purchased Debt service line. Parts of Eastern Europe are reporting good growth. Sweden and Finland, both important countries, are also growing faster than the Group average. To overcome increased price pressure in England and Poland, among other countries, further efficiency improvements will be made. The Group’s increased focus on Purchased Debt and Debt Surveillance generated good growth during the year, a trend that was even more pronounced during the fourth quarter. Operating earnings for the full-year 2005 rose to SEK 503.6 M (430.6). Productivity and cost efficiencies have increased for a number of Group companies, especially in Denmark, Germany, the Netherlands, Portugal and Spain, which produced further earnings and margin improvements. The operating margin for 2005 was 17.8 percent (15.7). Earnings before tax for the full-year 2005 rose to SEK 472.2 M (394.2), while net earnings amounted to SEK 333.6 M (323.4). October–December 2005: Revenues and Earnings Consolidated revenues during the fourth quarter amounted to SEK 759.3 M (696.3). Of the increase of 9.1 percent, 3.7 percentage points is organic growth, 5.1 percentage points are due to exchange rate effects and 0.3 percentage points stem from acquisitions in Ireland and Slovakia. Growth was good in Italy, Portugal and Spain as well as a number of Eastern European countries. A thorough cost control has contributed to an expansion in operating earnings of most countries. Operating earnings amounted to SEK 120.3 M (115.0). Earnings include nonrecurring expenses of SEK 30.3 M relating to the development of an IT system for British operations. During 2005, two different IT projects were initiated, one in Norway and one in the UK. The Norwegian system is based on one currently used in Sweden and Finland, while the British system was a further development of the existing system. While the installation in Norway was successful and the system has been in operation since January 2006, the British system has encountered difficulties, which has resulted in a revised and extended implementation plan. As a result, the Group has decided to discontinue further development of the present British system and instead replace it with a new one based on the positive experience gained from the Norwegian installation. Earnings before tax for the quarter rose to SEK 111.6 M (108.0), while net earnings amounted to SEK 63.1 M (91.0). Geographic regions, October–December 2005 Sweden, Norway & Denmark Regional revenues in the fourth quarter of 2005 amounted to SEK 163.3 M (153.6), an increase of 6.3 percent. Operating earnings amounted to SEK 31.4 M (24.9) with an operating margin of 19.2 percent (16.2). Sweden is stable at a high level. Norway faced major challenges during the year, but is significantly better positioned for 2006 after the successful installation of a new production system that raises the efficiency and quality of its client offering. Denmark reported a steadily improving operating margin over the course of the year. United Kingdom & Ireland The region’s quarterly revenues amounted to SEK 66.1 M (80.1), a decrease of 17.5 percent. Problems with an IT installation have affected collections from purchased debt portfolios. Operating earnings of SEK –57.2 M consist of an op-erating deficit of SEK 26.9 M and the write-down of IT systems of SEK –30.3 M. The operating loss is attributable to both England and Ireland. Even though certain expenses are not of recurring nature, it has been decided to further review the cost structure in the English operations in order to raise efficiency. The goal in 2006 is to gradually eliminate losses. Ireland, which is reporting growth but posted overly high expenses in 2005 in connection with the integration of Legal & Trade Collections (Ireland) Ltd, is expected to have better prospects in 2006, when operations will be consolidated in a single office. Regional responsibility for United Kingdom & Ireland has recently been transferred to the regional manager for the Netherlands and Belgium. Netherlands, Belgium & Germany Fourth-quarter revenues amounted to SEK 152.8 M (142.5). Operating earnings amounted to SEK 32.1 M (18.5), with an operating margin of 21.0 percent (13.0). Operations in the Netherlands have continued to develop positively in terms of revenue as well as efficiency and cost control. Germany has been successful in improving efficiency and cost control but had a weak revenue trend. Belgium posted stable revenues with slightly higher expenses. Switzerland, Austria & Italy The region’s quarterly revenues amounted to SEK 111.8 M (102.7). Operating earnings amounted to SEK 29.7 M (22.0) with an operating margin of 26.6 percent (21.4). The revenue increase is mainly due to a positive volume trend in Italy. The increase in operating earnings comes from Italy and Switzerland. Austria improved slightly during the year and the quarter compared to last year. Finland, Estonia, Latvia & Lithuania Revenues for the quarter amounted to SEK 108.8 M (93.2). Operating earnings amounted to SEK 50.1 M (45.2) with the operating margin remaining at a pleasing level of 46.0 percent (48.5). Finland, the largest country in the region, is reporting strong, stable development with organic revenue growth around the Group average. France, Spain & Portugal The region’s revenues for the fourth quarter of 2005 amounted to SEK 106.3 M (82.2), an increase of 29.3 percent. Operating earnings amounted to SEK 30.1 M (15.5) with an operating margin of 28.3 percent (18.9). The higher volume is having a positive effect on the operating margin. The largest increases are in Portugal and Spain, both of which have gained market share in Purchased Debt. Poland, Czech Republic, Slovakia & Hungary Quarterly revenues amounted to SEK 50.2 M (42.0), an increase of 19.5 percent. Operating earnings amounted to SEK 17.3 M (8.7) with an operating margin of 34.5 percent (20.7). The Polish company continues to be affected by low activity in Purchased Debt. Substantial cost cuts have not fully offset the volume decline. Positive development in the Czech Republic and Hungary has contributed to regional revenues and earnings. The Slovakian company Creditexpress, now Intrum Justitia Slovakia s.r.o., is consolidated from the second quarter and has had a marginally positive impact on regional revenues and earnings. Since April 2003 there is a 40 percent minority interest in the region’s companies. Purchased Debt service line Service line revenues amounted to SEK 116.8 M (68.3) in the fourth quarter. Operating earnings amounted to SEK 41.6 M (10.6). The increase of 71 percent compared with the previous year is due to the Group’s higher investment rate in 2005. The earnings growth originated in several of the Group’s operating countries, but especially Spain. Revenues in England and Poland have declined. In accordance with IFRS, Intrum Justitia applies an ac-counting model where the book value of each debt portfolio, and therefore quarterly earnings, is based on an esti-mate of future cash flows updated quarterly. For the fourth quarter this estimate resulted in a net re-evaluation of SEK 1.9 M, which affected operating earnings positively with the same amount. The operating margin was 35.6 percent, against 15.5 percent in the previous year, which was affected by a net write-down of SEK 18.9 M for Norwegian portfolios. The Group’s emphasis on this service line and the in-creased resources dedicated to it continued in the fourth quarter. Investments in portfolios during the full-year 2005 amounted to SEK 821.7 M, compared to SEK 266.8 M for 2004. At year-end the Group’s purchased debt portfolios had a book value of SEK 933.0 M, which is below the current investment limit of SEK 1.2 billion. Depreciation/amortization Quarterly operating earnings were charged with depreciation/amortization of SEK 21.8 M (24.3). Operating earnings before depreciation/amortization therefore amounted to SEK 142.1 M (139.3). Depreciation/ amortization for the full-year amounted to SEK 87.6 M (99.3). Operating earnings before depreciation/ amortization for the full-year was SEK 591.3 M (529.9). Expenses for Incentive Program Operating earnings for the year were charged with SEK 7.5 M (5.0) for warrants for the Group's Employee Stock Option Program 2003/2009. Of this amount, SEK 1.9 M (1.9) was reported in the fourth quarter. The expense does not represent an actual disbursement by the company. The Employee Stock Option Program comprises of war-rants to subscribe for 3,358,250 shares. The dilution effect for 2005, calculated according to IAS 33 Earnings per share, corresponds to 673,038 shares. The Employee Stock Option Program did not dilute earnings for the full-year 2004 since the share’s average market value was less than the present value of the option premium. The warrants were allotted in May 2004. Net Financial Items The fourth quarter’s net financial items amounted to SEK –8.7 M (–7.0). Interest expense was higher than in the third quarter due to a higher debt level following the share redemption. Tax The tax rate of 29.4 percent in the annual accounts is somewhat higher than the 25.0 percent previously estimated for the year. The increase is due to a revaluation of a tax dispute in Norway, where SEK 8.1 M has been allocated for possible additional expenses, as well as to losses in England that do not have a corresponding positive tax effect. The tax expense in 2004 was positively affected by SEK 15.6 M for the reversal of a previously reported tax expense in the English company. The Group’s English company has tax loss carry forwards corresponding to SEK 297.5 M for which no deferred tax receivables are reported. The tax loss carry forwards can be offset against taxable earnings in the future without time constraints. There is no reason to believe other than that the tax loss carry forwards will eventually be utilized, but because the company reported a loss for the year no deferred tax receivables are reported in the accounts for reasons of prudence. The Group’s tax expense is dependent in part on how earnings are distributed between subsidiaries in different countries with different tax rates. For 2006 and forward, the tax expense is estimated at 25 percent of pre-tax earn-ings. Cash Flow and Investments Cash flow from operating activities amounted to SEK 527.0 M during the year, compared to SEK 485.3 M in 2004. The year’s investments in debt portfolios amounted to SEK 821.7 M. For the full-year 2006 the Group anticipates investments in tangible and intangible fixed assets of SEK 100–120 M, compared to SEK 96.9 M in 2005. Financing Net debt as of December 31, 2005 amounted to SEK 1,192.7 M, compared to SEK 480.2 M at year-end 2004. The increase is mainly due to share redemptions of SEK 590.5 M during the year. Shareholders’ equity including minority’s share amounted to SEK 1,316.1 M, compared to SEK 1,531.0 M on December 31, 2004. As of December 31, 2005 the Group had liquid assets of SEK 198.5 M, compared to SEK 338.3 M on December 31, 2004. On December 31, 2005 unutilized credit facilities amounted to SEK 628.8 M. The corresponding figure on December 31, 2004 was SEK 385.8 M. Goodwill Consolidated goodwill amounted to SEK 1,573.4 M, compared to SEK 1,505.8 M at year-end 2004. The change during the year is due to fluctuating exchange rates. All goodwill in the Group was tested for impairment at year-end 2005, with the results showing no need for write-downs. Intangible fixed assets reported in the balance sheet as a result of an adjustment to fair value of assets in acquired companies amount to SEK 19.6 M (0.0) and were amortized by SEK 4.9 M (0.0) during the year, of which SEK 1.2 M (0.0) in the fourth quarter. Amortization in Ireland accounted for SEK 4.3 M of the total and Slovakia for SEK 0.6 M. Human Resources The average number of employees during the year was 2,863 (2,945). The number of employees decreased mainly in the English subsidiary, while more staff was added in Spain to handle previously outsourced opera-tions and to work with purchased debt portfolios. Parent Company The publicly listed parent company, Intrum Justitia AB (publ), owns the subsidiaries, provides the Group’s head office functions, and handles certain Group-wide devel-opment, services and marketing activities. The parent company had revenues of SEK 29.0 M (39.0) and reported pre-tax earnings of SEK 2.1 M (–67.5). It invested SEK 0.7 M (0.5) in fixed assets during the year and had liquid assets of SEK 0.0 M (7.7) at year-end. The average number of employees was 23 (23). Other The Extraordinary General Meeting held on November 24, 2005 resolved to reduce the number of Board Members from eight to seven ordinary members with no deputy members. Furthermore, it resolved to elect Mr Sigurjón Th. Árnason as a new Board Member. This means that until the next Annual General Meeting Intrum Justitia AB’s Board consists of Bo Ingemarson (Chairman), Björn Fröling (Deputy Chairman), Sigurjón Th. Árnason, Helen Fasth-Gillstedt, Lars Förberg, Leif Palmdahl and Jim Rich-ards. Gerard De Geer and Christian Salamon have resigned from the Board. Proposed Dividend The Board of Directors proposes that shareholders receive a dividend of SEK 2.25 per share. The proposed record day for the dividend is April 28, 2006. Market Outlook Economic activity in Europe is expected to remain high in 2006, as will consumer spending. A further increase in debt levels can therefore be anticipated. As a whole, market development in 2006 should bene-fit Intrum Justitia, with the opportunity to increase volumes in its core business and generate a steady flow of collection cases. For 2006 to be successful, it is also important that the Group takes advantage of opportunities in the Purchased Debt service line. Events After Closing Date New legal structure In January 2006 the Group modified its legal structure, whereby most of its operating subsidiaries, which were previously owned through a wholly owned holding company in the Netherlands, are now owned directly by the parent company, Intrum Justitia AB (publ). The restructuring provides more efficient controls, simplifies administration and makes it possible for profit-generating subsidiaries to pay share dividends directly to the Group’s parent company. Nomination Committee’s proposal to Annual General Meeting 2006 On February 1, 2006 the Nomination Committee announced its proposal to increase the number of Board Members to eight. The Nomination Committee will propose the re-election of Sigurjón Th. Árnason, Helen Fasth-Gillstedt, Lars Förberg, Bo Ingemarson and Jim Richards and election of Lars Lundquist, Michael Wolf and Lars Wollung as new Board Members. Björn Fröling and Leif Palmdahl have declined re-election. Furthermore, the Nomination Committee proposes the election of Lars Lundquist as Chairman of the Board and Bo Ingemarson as Deputy Chairman. Shareholders representing about 49 percent of the total votes and shares in the company support this proposal. Annual General Meeting 2006 The Annual General Meeting will be held at 4:00 p.m. (CET) on Tuesday, April 25, 2006 at World Trade Center, Stockholm, Sweden. Intrum Justitia’s audited annual report will be available at the company’s website, www.intrum.com, and at the head office, Marcusplatsen 1A in Sickla, from April 3, 2006. The Intrum Justitia Share Intrum Justitia’s market capitalization as of December 31, 2005 was SEK 5,710 M (4,249). During 2005 the share rose from SEK 51.50 to SEK 73.25 on December 31, or by 42.2 percent. The number of shareholders on December 31, 2005 was 4,277 (4,833). Capital Markets Day On May 18, 2006 Intrum Justitia will arrange a capital markets day in Stockholm for analysts, investment managers and journalists. An invitation and preliminary program will be distributed in early March. Reporting Dates The Interim Report for the first quarter (January–March) 2006 will be published on April 25, 2006. The Annual General Meeting will be held on the same date in Stockholm, Sweden. The Interim Report for the second quarter (April–June) 2006 will be published on July 25, 2006. The Interim Report for the third quarter (July–September) 2006 will be published on November 8, 2006. Stockholm, February 15, 2006 Intrum Justitia AB (publ) Jan Roxendal President & Chief Executive Officer Auditors’ Report We have reviewed the interim report of Intrum Justitia AB (publ) for the twelve-month period ending December 31, 2005. Our review has been conducted in accordance with the recommendation issued by the Swedish Institute of Authorized Public Accountants. The review has been planned and performed to obtain limited assurance that the interim report is free of material misstatement. A review is largely limited to queries of the company's personnel and an analytical evaluation of financial data, and our assurance is limited compared to an audit. Nothing has come to our attention during the review that causes us to believe that the interim report does not comply with the requirements for interim reports according to the Annual Accounts Act and IAS 34. Stockholm, February 15, 2006 KPMG Bohlins AB Carl Lindgren Authorized Public Accountant This Full-Year report and other financial information are available at Intrum Justitia’s website: www.intrum.com Denna bokslutskommuniké finns även på svenska. Presentation of the Full-Year Report The Full-Year Report and presentation material are avail-able at www.intrum.com > Investors. President & CEO Jan Roxendal and CFO Monika Elling will comment on the report at an analyst meeting and telephone conference today at 9:00 a.m. CET. Location: Operaterrassen in Stockholm. The presentation can also be followed via www.financialhearings.com To participate by telephone, call +44 207 162 0025. A recorded version will be available through February 23, 2006 by telephone +44 207 031 4064, using the code 691 061. For further information, please contact: Jan Roxendal, President & CEO Tel: +46 8 546 10 200 Monika Elling, Chief Financial Officer Tel: +46 8 546 10 200, mobile: +46 705 120 201 Anders Antonsson, Investor Relations Tel: +46 8 546 10 206, mobile: +703 36 78 18