Year-end Report January – December 2005 (based on audited accounts)
A few words from the CEO 2005 was the year when we delivered on our promise from 2004, to create a strong new Nordic IT group. The year’s powerful expansion was driven by acquisitions and success in the market, at the same time that never strayed from our focus on long-term profitability. We have grown larger – with a dramatic surge in sales from SEK 214 million to SEK 635 million. We have grown stronger – through a near tripling in profit, profitability and positive cash flows in all business areas and a solid financial position. Our performance in the fourth quarter, when operating profit quadrupled and sales hit SEK 234 million, is a confirmation of recent years’ stable profitability trend. The starting point for 2005 was both promising and full of challenges. After achieving the best year in the company’s history – doubling our profit despite major changes and expansion – we ended 2004 with a public offer to acquire the O-listed TurnIT and IAR Systems. We thus entered 2005 with high ambitions and expectations. In the first half of the year we devoted our full attention to evaluating and integrating the acquired companies. We analyzed the business risks and sold operations that were found lacking in potential or inconsistent with our core offering. Listing expenses were significantly reduced, companies were moved into joint premises and new stock issues were carried out. The fast-paced and decisive integration process was largely completed by summer and the results were not long in coming – all of the business areas had reached profitability by the traditionally weak third quarter. The fourth quarter saw impressive performance in both sales and earnings. For the subsidiaries, the rapid integration brought well needed quiet and a host of new opportunities. Massive cuts in central expenses and more efficient utilization of premises and other resources have also lightened the cost burden for the individual companies. The largest business area, Distribution, rounded of the year with strong sales and profitability. One particular bright spot was a tangible improvement in sales and profitability for Network Innovation. Late in the quarter, Nocom Distribution won a number of major Nordic and Baltic contracts in the information security area, mainly consisting of solutions from Symantec. The focus on IT security will be further intensified in 2006 when these activities are conducted in a separate company, Nocom Security. In February 2006 Nocom Distribution announced plans to divide its operations into three separate companies focusing on different technical areas – information security, web analysis and IT infrastructure. The Software business area, consisting of IAR Systems, continued its positive development in the fourth quarter. The past year’s strategic realignment – with a stronger emphasis on software sales and a lower share of consulting services – has quickly borne fruit. Both sales and profitability are up and IAR Systems has advanced its position in the global market. The quarter closed with the signing of yet another strategic development and license agreement with a world-leading chip maker – the third in only one year. The latest contract, worth an estimated minimum of SEK 8 million, will give IAR Systems an excellent start in 2006. Still more valuable, however, is the potential for increased software sales in coming years when this technology reaches the chip maker’s customers. More and more chip manufacturers are choosing IAR Systems due to its technological lead and successful longstanding partnerships with prominent chip makers around the world. The Services business area was also profitable in the fourth quarter. Although demand is rising, the industry is still being held back by aggressive price pressure and competition for both operating and Internet-based services. The business area’s two companies, Nocom Drift and Nocom Networks, moved into shared premises in the summer and were organized under a joint President in early October. The goal is to capitalize on each other’s expertise and existing business relationships. Through joint management, the companies can create scope for additional synergies, a broader market offering and stronger profitability. In response to customer demand for more comprehensive solutions and multidisciplinary expertise, steps are being taken to bring these businesses closer together. These acquisitions have also given us occasion to welcome many new stockholders – who have grown in number from 5,600 to 18,600 during the year. As of January 2006 the Nocom share has been moved to Attract 40 – the Stockholm Stock Exchange’s segment for the most actively traded shares on the O list. We see this as proof of restored confidence from the financial market and a growing interest in Nocom – as a company and an equity investment. We also strengthened our financial position in 2005 by raising around SEK 107 million in equity capital through new share issues, warrant programs and divestitures. We are pleased and proud to have met our goals for the past year and to enter 2006 as the strong and stable IT group we promised to become. As earlier, our success will depend on decisiveness, flexibility, the capacity to seize business opportunities and the power to change. Our foremost goal is long-term profitability, but we will also invest in growth and highlighting what we have to offer and where we are headed. The Group still has considerable potential – for increased efficiency and profitability in Distribution, growth in Software and additional synergies in Services. That is what we aim to prove in 2006. Stefan Skarin Chief Executive Officer Nocom AB (publ)