www.cybercomgroup.com/2006
Annual Report 2006
www.cybercomgroup.com/2006
About Cybercom 1
The year in brief 2
CEO's report 3
Business concept, objectives and strategies 6
Management report
2006 operations 8
Market in 2006 10
Business divisions 13
Business processes 15
Employees 17
The share 19
Risk management 20
Outlook 21
Proposed appropriation of profit 22
Accounts and notes
Income statement 23
Income statement - parent company 24
Changes in equity 25
Changes in equity - parent company 26
Balance sheet 27
Balance sheet - parent company 28
Cash flow statements 29
Cash flow statements - parent company 30
Key data and ratios 31
Financial performance summary 32
Definitions 33
Accounting and valuation policies 35
Notes 41
Auditors' report 61
Code of corporate governance
Corporate governance report 62
Board 64
Group executives 66
Auditors 68
Information
Annual general meeting of shareholders (AGM) 69
About the annual report 70
Cybercom is a high-tech consultancy that offers business-critical IT solutions and advising within telecom and selected
technologies. In 1995, Cybercom was launched in Sweden; in 1999 it was listed on the OMX Nordic Exchange.
The Group has customers worldwide and offices in Denmark, Singapore, Sweden, and the UK - plus a joint venture in India (since 2006).
Telecom management and networks
Cybercom offers expertise and consulting services in the telecom management and network areas. By using the latest
technologies, Cybercom develops customers' business operations.
Portals and mobile solutions
Cybercom's largest area of operation. Using its extensive experience, Cybercom helps customers create new services and offerings that are provided via the Internet or mobile devices.
E-commerce and billing
Cybercom supplies the entire business process value chain for e- commerce. This is a market with strong growth in all segments.
Embedded systems
Cybercom creates technical solutions and develops software with a series of new functions. This area is very competitive and demands fast product development.
Most of Cybercom's revenue comes from telecom, although its customer base continuously expands to enable spin-off deals in areas in which Cybercom has specialist expertise.
Telecom, 72% Banking & finance, 10%
Other, 5% Industry, 5%
Retail, 4% State & municipal, 4%
Frame agreements are crucial for Cybercom, because customers place increasing volumes of work with fewer consultancies. Cybercom has frame agreements for all large business relationships.
Frame agreement, 78% Other, 22%
Cybercom runs turnkey projects and carries out specialist assignments in leading technologies. Customer propositions fall into these areas and are spread as follows:
Turnkey, 46% Consulting services, 54%
About Cybercom
During Cybercom's 11-year history, 2006 generated the best bottom line. With an operating margin of 9.5% from running operations, Cybercom almost* achieved its 2006 financial objective of 10%. The company has expanded and broadened its market through organic growth.
* Cybercom achieved its target if special costs in conjunction with the take-over bid from the principal shareholder are excluded and costs related to management changes and recruitment.
1) Profit from running operations, excluding one-offs and divestment in Norway.
2) Profit including one-offs and divestment in Norway.
International operation
The UK operation developed well in 2006 and reported good growth. The Singapore operation reported 100% growth. And the Norwegian operation was dissolved due to weak development and no critical mass.
Offshore capacity
In 2006, Cybercom launched an operation in India - to offer competitive offshore services. Its first offshore project was for Sony Ericsson. Cybercom was responsible for application management, development, and testing of external web sites and associated functions.
Expansion in the Öresund region
Cybercom continued to expand in the Öresund region, where it employs 250 consultants. At year-end, Cybercom bought Varchar, an IT consultancy. The contract specified a January 2007 take-over. Varchar brings key customers and new market segments into Cybercom.
CEO recruitment
Mats Alders, Cybercom's former president and CEO, left the company for another industry. Cybercom recruited Patrik Boman to replace him; Patrik will start in May 2007. His most recent job was at HiQ, where he was MD for the Stockholm operation.
Sales
SEK million
15% increase
Jan-Dec 2006 1) 544.8 Jan-Dec 2006 2) 535.8
Jan-Dec 2005 466.4
Q4-06 1) 151.3
Q4-06 2) 149.5
Q4-05 131.0
Operating profit
SEK million
47% increase
Jan-Dec 2006 1) 54.3 Jan-Dec 2006 2) 50.9
Jan-Dec 2005 34.7
Q4-06 1) 21.9
Q4-06 2) 17.9
Q4-05 11.8
Operating margin
%
28% increase
Jan-Dec 2006 1) 10
Jan-Dec 2006 2) 9.5
Jan-Dec 2005 7.4
Q4-06 1) 14.5
Q4-06 2) 12
Q4-05 9
Profit
SEK million
44% increase
Jan-Dec 2006 1) 41.1 Jan-Dec 2006 2) 35.3
Jan-Dec 2005 24.5
Q4-06 1) 16.3
Q4-06 2) 10.5
Q4-05 8.9
No. employees
At period's end
16% increase
Jan-Dec 2006 1) 489
Jan-Dec 2006 2) 481
Jan-Dec 2005 414
Q4-06 1) 489
Q4-06 2) 481
Q4-05 414
The year in brief
Stockholm, March 2007
Cybercom is now among the top-ranking IT consultancies - thanks to the best earnings ever, in its 11-year history. I'm enormously proud of the fantastic performance of Cybercom's employees.
After ending the year with a big bang (Cybercom's best-ever quarter), we can say that we had the right strategy, i.e., to expand our market and offer our services offshore. We were able to validate this strategy, and we see that further opportunities continue to be great for expansion and offshore projects.
During 2006, we achieved most of our objectives for the year. In the 2005 annual report, we stated that our objectives were to continue growing (organically and via acquisitions), to strengthen our market position, and to expand our customer base. We also stated that we'd achieve a 10% operating margin.
We strengthened our already strong market position. We grew organically, and we expanded our customer based via several new key customer projects. At year-end, we signed a contract for the strategic acquisition of Varchar, an IT consultancy specialised in .Net technology. Sales increased 15%, and our operations achieved a 10% operating margin for the full year and a 14.5% margin for Q4 2006.
We also achieved most of our announced objectives, and I'm proud to say that today, we're a leading IT consultancy within telecom and selected technologies, so we can do better. And now I'll tell you why!
High ambition level
We set our sights high in 2006: we were very active on the market, and we enhanced our position. But we didn't manage to do everything before year-end. I expected that we would have implemented a large acquisition, and I think that we could have recruited more aggressively. Now it's time to get this done before another year passes.
During 2007, we continue our search for acquisitions and new employees. But note that here, the most crucial factors are that we employ only the best and that we acquire operations that reinforce our strategy for the future; consequently we must carefully evaluate candidates. We must feel good about our company - we must be proud of it.
Through experience, we know that cultivating new customers takes time and resources because customers rigorously assess their suppliers. During the past three to five years, we cultivated many long-term customer contacts, and interest in our services parallels incidences of applications increasingly becoming mobile.
Through experience, we know that cultivating new customers takes time and resources because customers rigorously assess their suppliers. During the past three to five years, we cultivated many long-term customer contacts, and interest in our services parallels incidences of applications increasingly becoming mobile.
We intend to identify new customer segments in which our knowledge of portals, mobile services, and e-commerce can be used - the same way that we achieved success with key customers in the financial services sector.
Excellent market situation in 2006
The market situation for IT consultancies and telecom was very advantageous. High activity levels and strong growth generally characterise the market. Increasingly, executive management makes IT service procurement decisions - as part of customers' overall strategies. IT projects also tend to be more complex.
Increase demand was also noticed for specialist services within system architecture and integration - particularly service-oriented architecture and architecture that enables easy, dynamic services integration. This trend greatly benefited the company; thanks to Cybercom's expertise in leading technologies, it contributed to company growth.
The pricing picture became somewhat better and was noticeable in the new frame agreements (master contracts) that we signed.
There's a wide price range - particularly in specialised services that constitute part of Cybercom's business. In 2006, demand increased for Cybercom's services, which positively affected the company. The year ended on a very strong note, and we could report the greatest profit ever.
We expect the economic upswing in 2006 to continue in 2007.
And with our extensive experience and range of expertise, we're open to many new opportunities afforded by all the new players that create their businesses on the Internet or via mobile technologies.
Three billion users
The mobile phone celebrated its 50th birthday in 2006. Today, sector analysts claim that there are more than 2.7 billion mobile service subscriptions and that this number will pass 3 billion in 2007. Soon every other person on earth will have a mobile device.
More and more persons get access to mobile communication.
Continued expansion, better capacity, increased competition with lower prices, and many more mobile services drive mobile device usage. Last year was a key year for content-rich
CEO's report
More and more persons get access to mobile communication.
Continued expansion, better capacity, increased competition with lower prices, and many more mobile services drive mobile device usage. Last year was a key year for content-rich consumer services - thanks to launch and expansion of mobile broadband.
When call prices quickly fall, operators broaden their propositions to compete for customers and to find new revenue sources.
Revenue streams from voice traffic and SMS still dominate among operators. But these streams successively dry up as investments in new, sophisticated services flood the sector. And landline and mobile networks are expanding.
Word is out that the Internet is starting to reach full capacity, i.e., services and content transmitted via the Internet are becoming more sophisticated and demanding more space, while the number of users constantly increases. So even the Internet must expand. Considering all these changes, the services that Cybercom can deliver are in demand. So going forward, we see many great opportunities for our business.
New opportunities
The telecom, Internet, and media (TIM) trend becomes clearer because the same types of services are required and offered within various areas. This trend creates new market segments and opens new opportunities for our strong solutions within portals, billing, and telecom management. New players in the operator segment e.g., content providers or other service providers, are appearing on the scene and expanding their businesses to cover and offer network services to existing and new customers. Here, Cybercom's experience is very attractive, so our customer base expands further.
At the same time telecom players continue to demonstrate investment and development appetite and to focus on expansion and increasing market shares. International operators'
investment pace has not slowed when it comes to expanding networks worldwide, developing services, and entering new areas. In 2006, consolidation characterised the Nordic market.
Operators' investments were mostly in support systems for broadband services and mobile services, e.g., mobile TV and other solutions for the entertainment sector. For example, we see mobile music services increasing in popularity. In Japan, more music is downloaded into mobile phones than into PCs from the web. More than 120 operators worldwide have launched mobile TV and video services.
So services traditionally delivered to the telecom sector are in demand on other markets. Today, companies in all sectors use functions and opportunities afforded by mobile solutions. So our capabilities and capacities are attractive to customers outside the traditional telecom market, e.g., industry and retail, where we acquired several new customers during the year. At the same
demand on other markets. Today, companies in all sectors use functions and opportunities afforded by mobile solutions. So our capabilities and capacities are attractive to customers outside the traditional telecom market, e.g., industry and retail, where we acquired several new customers during the year. At the same time, we were commissioned for many key projects within banking and financial services and insurance - thanks to our consultants' technology expertise.
Onshore and offshore combined to create bestshore
The trend for customers to stop running certain operations and to purchase these services continues to be a strong driver on the IT services market. Development and management of IT systems or testing operations are examples of areas that are outsourced.
Customers often keep overall responsibility and to procure subsystems or solutions for specific application areas. Offshore services are a key part of our customer proposition, and I believe that they will be even more significant. During large
procurements and in many frame agreements, offshore capacity is a requirements specification - even if it isn't immediate to the specific procurement. What's important here is that we're prepared to deliver the optimal, long-term solution when customers request it, namely, what we call bestshore.
In 2006, we established Cybercom Datamatics Information Solutions Pvt Ltd - a joint venture in India. So now we can fulfil customers' requirements for global deliveries. The venture in India is aligned with Cybercom's strategy to grow internationally and to develop a strong offshore solution. By offering offshore capacity, we can still own the business on the local market. We expect that offshore operations will generate 15-20% of our revenue within a three-year period.
Mature market
Standardisation and products characterise a mature market. But even if companies buy finished products, the products must often be integrated with their systems. So strategic partnerships become business critical for IT consultancies. In the autumn, Cybercom signed a valuable partnership agreement with BEA, which primarily works closely with our Danish operation. We work closely with IBM on several e-commerce projects in the UK.
And Cybercom has had partnerships with larger and smaller players such as Microsoft, Oracle, Akamai, Quest, iCore, and Polopoly. Our partnerships are crucial, and we've noticed that we get new business based on recommendations from them.
Awareness of and demand for open systems and software increased among companies and public authorities. The software contains open source code, and in recent years it has become successful because it is so cost effective. Open source software releases resources for other tasks. So customers can afford more investments in customising for their specific needs. In the autumn, Cybercom invested in this area and signed a partnership
agreement with JBoss, for leading open source middleware products. Integration of standardised services and a continued push toward offshoring are key parts of the offering.
Introduction
CEO's report
Bright future
In 2006, our employees did a fantastic job. The executive team and I extend a big thank-you for everyone's valuable
contributions. Cybercom's consultants help customers create profitable businesses using opportunities afforded by technology.
Our work is strongly driven by sense, as is our company culture - our customers appreciate this, and it attracts new ones. During the year, we implemented key changes and large new initiatives that turned out very well. We passed the cross-road and started a new journey toward higher visions and new goals.
We're well positioned for 2007, and thanks to our leading position, we stand on a solid base from which we can take market shares and push the industry forward.
Stockholm, 28 March 2007 Peter Keller-Andreasen Acting president and CEO
CEO's report
From a shareholder's perspective, Cybercom's main task is to form the foundation for value development in the company;
from here, the company's business concept, vision, objectives, and strategies are formulated.
Business concept
With customers and partners, Cybercom creates businesses on the leading edge of technology.
Vision
By being the natural, obvious choice for deliveries of business- critical solutions within telecom and leading technologies, Cybercom will take market shares in other sectors.
General, overall objectives
Cybercom's long-term operational objectives are to:
z Hold a leading telecom market position and to be one of the three top-of-mind choices among customers on those markets in which Cybercom chose to concentrate z Hold an established position as a leading cross-industry
supplier of selected, cutting-edge skills and technologies;
consequently Cybercom's business will spread to sectors outside telecom
z Be an established offshore supplier, with 15-20% of sales from such contracts
z Have a larger internationalised operation, particularly in the Nordics and the UK, via locally established operations z Have a recognised brand among customers, employees, and
the labour market - as a top-notch company - thanks to the Driven by sense communications/message platform Financial objective
z Cybercom's long-term financial objective is to report a 15%
operating margin.
Objective fulfilment in 2006
In 2006, Cybercom established a joint venture with Datamatics in Mumbai, India. This is aligned with the company's objective to become an established offshore supplier.
Acquisition of Varchar, an IT consultancy in the Öresund region, gave Cybercom valuable .Net expertise and several new customer contacts in the region.
Cybercom delivers turnkey projects and consulting services. The percentage of turnkey projects reached 46% of sales and provided a stable revenue stream.
Cybercom reached its projected 10% operating margin, which was aligned with its objectives.
Strategies
Cybercom will achieve its objectives by working from strategies that are focused on technologies, growth, and telecom. The strategies also cover expanded services to several market segments and geographic areas. Cybercom will be managed in alignment with these main strategies:
z Strong positioning via expanded customer bases outside telecom and inside areas in which synergies exist with telecom deals, e.g., portals and embedded systems z Expanded telecom deals - so that Cybercom can
differentiate itself from other, mid-sized IT service providers that operate on the same market
z Extension of the service portfolio with at least one new customer proposition - either via development of cutting- edge competence or via acquisitions of companies with complementary service portfolios
z Enhanced profile and attractive to customers, employees, and the labour market - via brand-strengthening activities z Strengthened delivery capabilities via development of
Cybercom's offshore joint venture with Datamatics, its partner in India
z Create conditions for deliveries of customer propositions in several of our core areas within all prioritised regions:
Stockholm, Malmö, Copenhagen, London, and Mumbai z Fewer operations in regions that do not provide critical mass
Business concept, objectives and strategies
Cybercom's strategic position
The model shows that the company can earn money by either dominating a sector, i.e., positions itself to the right of the curve - or by specialising in a limited niche - a position to the left of the curve.
The dangerous position, in which margins are often narrower, is when the company is a well-established niche player but is too small to be a sector leader. Today, Cybercom's core area positions the company either as a sector leader or as a strong niche player.
Business concept, objectives and strategies
Cybercom's strategic position
A continued good market resulted in a very good 2006 for Cybercom. The company has benefited from greater price scope, primarily in specialised IT and telecom services. Cybercom stands firm, and business has become even stronger during the year.
The past year brought management changes as president and CEO Mats Alders and executive vice president Bengt Levin left Cybercom after many years of service. Patrik Boman will assume the position of president and CEO in May 2007. Until then, Peter Keller-Andreasen is acting president and CEO. He joined Cybercom in 2001 and is managing director of the Danish operation.
Operational management continued to drive the company forward and, for the eighth consecutive quarter, Cybercom shows strong operating margins: 9.5% for the year and 12.0%
for Q4 2006.
The 10% operating margin objective for the year was missed at the finish line; extraordinary costs from management changes and a buyout bid from JCE Group made the difference.
Excluding these extra costs, the operating margin was 10% for the full year and 14.5% for Q4 2006. This is a significant improvement compared to previous years - Cybercom's best result ever.
Joint venture in India
Offering offshore opportunities is becoming an increasingly key competitive factor because today's companies select outsourcing to an ever increasing extent. When large companies contract for consulting services, suppliers must be able to fulfil offshore capacity requirements in tenders.
In April 2006, Cybercom started a joint venture in Mumbai (previously called Bombay) with Datamatics Ltd, an operation in India. Already, Cybercom has 12% of its delivery capacity in India.
It is estimated that within three years, offshore operations will generate 15-20% of the company's revenues.
Frame agreement
In 2006, Cybercom retained and renewed a number of frame agreements (master contracts). One is with Telia Sonera and covers its entire Nordic operation during 2006 and 2007.
Work on Sony Ericsson's external web sites also continues. The agreement is valid until 31 December 2008. A large portion of this project is assigned to Cybercom's newly started offshore operations in India. This is Cybercom's first offshore project.
Cybercom has also signed frame agreements with new
Cybercom has also signed frame agreements with new
customers. One is the Swedish Civil Aviation Authority, which has named Cybercom as its IT services partner. The agreement runs until October 2009 with opportunity for a two-year extension.
Other key customers with which Cybercom signed frame agreements are Ericsson, Tetra Pak, and SMHI.
Frame agreements are crucial for Cybercom and for the industry as a whole, because customers place increasing volumes of work with fewer consulting companies. Cybercom now has frame agreements for all large business relationships. Together these amount to 78% of net sales.
Cybercom's major customers include:
z Assa Abloy z Ericsson z Millicom z Nokia z PFA Pension z Regeringskansliet z Reuters
z SEB z SKF
z Sony Ericsson z Tele 2 z TeliaSonera z Teracom
Broadening the customer base
Most of Cybercom's revenue comes from the telecom sector, but the customer base has widened during the year. New sectors include industry, banking and financial services, and more projects from state and local authorities. This closely follows Cybercom's strategy to develop spin-off business in areas in which the company has specialist competence.
New notable customers include:
2006 operations
Operating margin
z E.ON z Ica z Lowe Tesch
z Swedish Civil Aviation Authority z SAS Institute
z Sirius z Stokab z Svenska Spel
Other events in 2006
z Cybercom closed its Norwegian operation because of a weak earnings trend and not enough critical mass. Costs for this were taken in Q4 2006. The closure has no negative effect on EBIT for 2006.
z The UK operation shows a very strong earnings trend, and operations in Singapore grew 100% since it was acquired in April 2005.
z Testing and verification of Ericsson Mobile Platform (EMP).
Events after year-end 2006
z Acquisition of Varchar, an IT consultancy with operations in the Öresund region. The acquisition gives Cybercom access to valuable .Net expertise and new customer possibilities in the region.
Sales and income
Operating profit for 2006 totalled SEK 50.9 million (34.7), a 47%
increase and Cybercom's strongest result ever. This corresponds to a strong 9.5% operating margin (7.4).
In 2006, Cybercom simultaneously displayed growth and strong profitability. Sales for the entire year amounted to SEK 535.8 million (466.4), a 15% rise in revenue compared to 2005.
Cybercom reported 10% organic growth.
Net financial items stood at SEK -0.8 million (4.4). Profit after net financial items totalled SEK 50.1 million (39.0), a 9.4% net margin (8.4).
Investments in 2006
Investments in property, plant, and equipment stood at SEK 5.0 million (6.2) on 31 December 2006. Net investments in intangible assets, excluding goodwill, totalled SEK 0.7 million (4.7).
Liquidity and cash flow
The Group's cash and cash equivalents totalled SEK 88.9 million (55.5) on 31 December 2006. Cash flow before changes in working capital amounted to SEK 55.0 million (38.8) during 2006.
Working capital fell by SEK 20.6 million during the same period. In total, cash flow from operating activities was SEK 34.4 million (26.5).
Financial position
Equity on 31 December 2006 was SEK 272.4 million (238.2), yielding a 66.6% equity/assets ratio (67.7). Equity per share amounted to SEK 22.11 (19.33).
2006 operations
Revenue by industry
Telecom 72% Banking & finance 10%
Other 5% Industry 5%
Retail 4% State & municipal 4%
The IT and telecom consulting market has been very good and characterised by many activities and strong growth that generate high demand for Cybercom's services.
Cybercom's development has been strongest in the expanding Öresund region, where Cybercom has offices in Malmö, Lund, and Copenhagen. Cybercom has also held its own in Stockholm during the year, despite tough competition. Market development in the UK has also been very positive.
Large investments in telecom
Telecom industry players continue to invest with the purpose of expanding and taking market share. The result? A good market position for IT and telecom consultancies. International players invest in network expansion and development of new areas and services. In the Nordics, focus is more on optimising existing systems than on building new systems.
A few large companies that sign frame agreements with several selected consultancies now dominate the telecom market. Size, niche offerings, and an international presence are increasingly key factors for consulting companies.
Telecom, Internet and media convergence Distinctions between IT and telecom - and who delivers what - are being redefined. Reduced calling costs force operators to find alternative revenue streams.
Together with more sophisticated technology, the result is convergence of telephony, broadband, and TV, and new types of content and services. For instance, music through mobile phones has grown quickly. TV through the telephone is also advancing, assisted by development of the DVB-H technology that adapts digital TV for mobile telephones.
Development of content and technology parallels an increase and diversification of the number of market players. Today, the combination of telephony, broadband, and television are delivered by traditional operators and by content-producing media companies such as MTG and net owners such as Teracom and Vattenfall.
The key to a fast-growing, online market is the transformation of traditional media and communication channels into IP technology. Players in the new media's value chain must quickly snap up new technologies to handle increasing online activity.
Access capabilities for mobile Internet are global and seamless.
This has allowed for visions such as single sign on, always best connected, and 24/7 media consumption.
Customers require offshore capacity
Today's customers require suppliers with global capacity and preferably 24/7 availability. Service, efficiency, and particularly competitive pricing are key issues. The trend shows that companies primarily choose outsourcing, e.g., for mature, standardised development and maintenance processes. This changes the role of Swedish and western European
consultancies. It is difficult for them to compete over prices for standard services. Instead, they focus on the profitable specialist assignments and turnkey projects.
Cybercom has had offshore capacity since April 2006 via a joint venture in India, described in the Operations section.
Cybercom's competitors
Cybercom has several competitors in various market situations.
Competitors range from large, global companies such as . . .
z Accenture z Cap Gemini z Incode z Logica CMG
. . . to local companies such as:
z Connecta z HiQ z Sigma z Teleca z Tieto Enator
Competitors also include many specialised consulting companies that operate on the international telecom market.
Skills shortage on shifting labour market
The IT and telecom labour market typically shifts a lot. And most companies will tell you that there's a skills shortage. Consulting companies have difficulties finding and retaining competent employees.
For instance, the IT sector in Sweden now lacks almost 9,000 persons, according to IDC, a business intelligence agency. Fewer
Market in 2006
For instance, the IT sector in Sweden now lacks almost 9,000 persons, according to IDC, a business intelligence agency. Fewer applications to IT education programmes, combined with upcoming retirements, will escalate the problem within the near term.
Increased recruitment and professional development activities will occur in 2007 to fortify the company's position as an attractive employer that's capable of competing on the labour market.
2007 and onward
Technical paradigm shifts drove IT sector changes in recent decades. The sector is now expected to enter a mature phase, and the service sector is expected to become more affected by economy-driven fluctuations. The good economic trend from 2006 is expected to continue in 2007.
Mobile communication represents the most growth in the industry and is expected to increase by 10-14% annually through the end of 2010. Growth will primarily come through large investments in the mobile networks of Asia, Africa, and Russia.
The 3G network in Europe will also continue to expand gradually.
Operators' revenues will gradually move from voice traffic and SMS to other sources; this is due to several factors:
z Quickly reduced calling costs, causing operators to expand their offerings.
z More complex mobile phones with space for more services.
z Content providers, such as the music industry and news agencies, gain influence over operator's service offerings.
The ongoing merger of telephony, broadband, and TV, called triple-play, will include mobile telephony. The combined offer of communication, entertainment, and services will become wireless, i.e., quadplay or quadruple play. So new media is creating a new market.
Customer proposition
Cybercom runs turnkey projects - providing solutions and application management and it provides specialist services - involving leading technologies. Cybercom delivers onshore or offshore; its offerings fall into four operation areas:
Telecom management and networks
Cybercom offers expertise and consulting services in the telecom management and network areas. Cybercom has strengthened its international presence in 2006, primarily through its non- European ventures.
Cybercom's Singapore office has become a central point for Asia and Africa, particularly when co-operating with Millicom.
International projects do operational audits to optimise the operators' businesses when setting up organisational models and process models. Tele2 and Teracom are key customers in Sweden.
Cybercom's Singapore office has become a central point for Asia and Africa, particularly when co-operating with Millicom.
International projects do operational audits to optimise the operators' businesses when setting up organisational models and process models. Tele2 and Teracom are key customers in Sweden.
Landline and mobile convergence parallels increased demand for consulting services. Operators want to offer the same or similar services regardless of which technology the customer uses to connect. This creates demands for new types of architecture and solutions that support implementation of IP-based services.
Cybercom has several training projects within IP multimedia subsystems (IMS). IMS simultaneously supports landline and mobile access that enables operators to easily develop and add new IP-based services. At Cybercom's facilities in Linköping, network simulators are developed to simulate traffic in 2G and 3G networks.
Portals and mobile solutions
Cybercom's largest area of operation is in portals and mobile solutions. Using its extensive experience, Cybercom helps customers create new digital services and customer propositions that are delivered via the Internet or mobile devices. Customers include Sony Ericsson, Assa Abloy, and Reuters.
Many new players seek to supply content services for mobile phones, and a new market is now being created. These needs benefit Cybercom with its solid experience and extensive expertise in the area.
Cybercom won its first offshore project in 2006 - an agreement between Cybercom and Sony Ericsson for application
management, development, and testing of Sony Ericsson's external web sites and corresponding functionality. The contract runs until 31 December 2008. Cybercom's commitment includes daily administration and participation in key development and testing projects.
During the year, Cybercom won several new portal development projects, including an internal purchasing portal for a UK company in the fashion industry. Cybercom also has several ongoing portal projects that are spread across several years.
E-commerce and billing
Cybercom supplies the entire business process value chain for e- commerce. This is a market with strong growth in all segments.
Integration of new or improved solutions for e-commerce parallels company's efforts to take market shares.
Market in 2006
Revenue by project type
Turnkey 46%
Consulting services 54%
Cybercom supplies the entire business process value chain for e- commerce. This is a market with strong growth in all segments.
Integration of new or improved solutions for e-commerce parallels company's efforts to take market shares.
Cybercom partners with IBM and has sought-after competence in IBM's e-commerce suite. This partnership provides new, attractive customers primarily in the UK. Projects are for customers in industry, telecom, and retailing.
The areas of billing and business support systems (BSS) are becoming more standardised and module based, even if customer adaptations are always done. Within billing, Cybercom is a product partner with solutions that are integrated into other systems. Telia Sonera, Tele2, and Suntel in Sri Lanka are key customers. Cybercom is concentrating on widening its customer base for billing outside of telecom; in during 2006, it won a project to integrate billing solutions for e-invoicing systems.
Embedded systems
New, better mobile telephone models require more sophisticated content functionality. Cybercom produces technical solutions and develops software with a series of new functions. This area is very competitive and demands fast product development.
Cybercom has important projects with Nokia, Sony Ericsson, and Ericsson.
Cybercom develops applications for customers outside the telecom sector. Examples include transaction cards, electronic locks, and systems for rescue services and surveillance. Projects are with customers such as Saab Tech and Assa Abloy.
Cybercom has a co-ordinating roll in the standardising work of the Open Mobile Services Interface (OMSI) Forum within device management. The aim is to create a common standard for all mobile telephone manufacturers when updating mobile telephone software.
Market in 2006
Cybercom's operation has two divisions: Sweden and International. The operative organisation, division of sales, and number of employees are described below:
In the diagram, the two, top navy-blue boxes change this:
Business Area
To this: Business division
-- to match the title of the section (Business divisions) Sweden division
In Sweden, operations focus on telecom and selected technologies for e-commerce and billing, portals and mobile solutions, and embedded systems. The number of employees at the end of the period was 377 (348).
Sales for Sweden increased 11% during 2006 to SEK 469.5 million (422.2). Organic growth in the division was 5%. Operating profit for the division amounted to SEK 44.5 million (27.6), which is a strong improvement of 61%. As a result, the operating margin increased to 9.5% (6.5).
Cybercom Group Europe Acting CEO & president
Peter Keller- Andreasen
Business Area Sweden
Cybercom Nord MD Henrik Gavelli
Cybercom Syd MD Thomas Barge
Cybercom Netcom Consultants Acting MD Johan
Glimskog
Business Area International
Cybercom Denmark Acting MD Karsten Adelmark
Cybercom UK MD Terry Hunter
Cybercom Datamatics 50 percent-owned joint
venture
Sales
Sweden 86%
International 14%
No. employees
Sweden 82%
International 18%
The strongest growth comes from the operation in the booming Öresund region. In 2006, Cybercom opened another office in the region - in Lund. Around year-end, Cybercom signed an agreement to acquire Varchar, an IT company that specialises in .Net. The acquisition brings 24 employees and SEK 20 million in annual sales - starting January 2007. Varchar contributes key customers from new market segments, for example,
Smittskyddsinstitutet, Wihlborgs Fastigheter, Cerdo Bankpartner, Alfa Laval, and Lunds Energi.
Cybercom paid a fixed purchase price of SEK 12.5 million. There may be an additional purchase payment if certain profit levels are reached within eight months. The acquisition was effective January 2007 and integration is planned to be completed during H1 2007. No structural costs are expected.
The operation in Singapore is a subsidiary to Netcom Consultants, a Stockholm-based acquisition from 2005, and is thus reported within the Sweden division. The operation in Singapore shows strong growth and generated SEK 25.6 million in net sales during the year.
International division
This division includes operations in Denmark, the UK, and Cybercom's share in the joint venture in India. The division has 84 employees (44). The Norwegian operation was excluded from this report after a decision to close the operation was taken in Q4 2006.
Because all losses from the Norwegian operation were excluded, the division's operating profit stood at SEK 2.4 million (2.8).
The UK operation was very successful in 2006 with considerable growth and a substantial earnings trend. Its focus is on financial information services, and Reuters is a key customer. The operation also offers e-commerce solutions and IT infrastructure advice. By concentrating on e-commerce in 2006, Cybercom won several new customers within retail. New customers include Pentland Brands, John Lewis, and Tomy.
Business divisions
Key data and ratios, Sweden division
SEK MILLION 2006 2005
Q4 2006
Q4 2005
Q3 2006
Q2 2006
Q1 2006
Sales 469.5 422.2 127.1 114.2 101.8 123.4 117.2
Operating profit, EBIT 44.5 27.6 15.3 7.5 10.3 9.5 9.4
Operating margin, % 9.5 6.5 12.0 6.6 10.1 7.7 8.0
No. of employees at year's end
377 348 377 348 360 359 351
Cybercom's Danish operation ended the year with a very strong quarter. A large part of the operation is focused on banking, financial services, and pension insurance companies. PFA Pension, BRF Kredit, and Nordea are key customers. In 2006, the Danish operation focused on recruiting in the .Net area - with good results. Strong demand for consultants within specialist services in Denmark enabled price hikes. Cybercom also signed a
partnership agreement with BEA, which has J2EE and Weblogic products, and this resulted in new projects.
Cybercom's joint venture in Mumbai, India is reported using proportional consolidation. So Cybercom's share of assets, debts, revenues, and costs are reported with the corresponding items in the Group's income and balance sheet. The company had 56 employees at year-end. Of these, 50% are included in Cybercom's employee count.
Sales in 2006 for Cybercom's operations in Denmark, India, and the UK amounted to SEK 76.4 million (63.2), a 21% increase over 2005. The division's organic growth was 21%. Operating profit rose to SEK 9.7 million (8.0), corresponding to a 12.7% margin (12.7).
In Q4 2006, net sales were SEK 23.1 million (18.7). Operating profit was SEK 4.7 million (2.2), giving a 20.3% operating margin (11.8).
Business divisions
Key data and ratios, International division
SEK MILLION 2006 2005
Q4 2006
Q4 2005
Q3 2006
Q2 2006
Q1 2006
Sales 76.4 63.2 23.1 18.7 19.6 16.4 17.3
Operating profit, EBIT 9.7 8.0 4.7 2.2 1.8 1.6 1.6
Operating margin, % 12.7 12.7 20.3 11.8 9.2 9.8 9.2
No. of employees at year's end
84 44 84 44 69 46 50
A fast-moving market, on which customers have high expectations on delivery capacity and quality, puts heavy demands on organisation and leadership. This is why Cybercom has processes to strengthen its status as supplier and employer and to improve control and profitability.
Cybercom has three main processes in its operation, which are of central importance to the company's continued success:
z Business development - all activities surrounding Cybercom's solutions, commitments, and services - from customer proposition to development.
z Sales - all activities, planning, and operative work with sales and customer relations.
z Delivery - all activities surrounding production and delivery of solutions, commitments, and services and follow-up and evaluation together with the customer.
The three main processes are supplemented by several support processes including marketing communication, personnel, IT, and finance.
The business processes and operative systems were developed to allow Cybercom to retain and use knowledge and experience continually developed in the organisation. The results are constantly documented.
Clear, user-friendly processes increase the quality of analysis and decision-making, and facilitate knowledge transfer. They also reduce risk of losing important experiences and knowledge if key personnel leave.
Business development
Development of new solutions can be a long process, taking 6-18 months from concept to final solution. New or existing solutions and services development occurs in close partnership with customers - particularly embedded systems, portals, and billing solutions. While development is primarily customer specific, a general solution for a larger market is occasionally developed.
Key customers
Cybercom's account managers follow key customers regardless of geographic market, because most companies in telecom have global or regional operations. Cybercom's account managers are totally responsible for business relations with customers, which puts stringent demands on the position. Cybercom supports account managers with assistance from other functions, e.g., ongoing support from the executive team and from new concepts.
Recruitment
Recruitment is one of the critical factors for assuring continued growth. To fortify its recruitment base, Cybercom focuses on
Recruitment is one of the critical factors for assuring continued growth. To fortify its recruitment base, Cybercom focuses on more systematic identification of future skill/capability needs.
Cybercom developed a recruitment process to ensure that the most suitable candidates emerge via professional, fundamental recruitment initiatives.
Increased recruitment and professional training and development will occur in 2007 - to strengthen Cybercom's position as an attractive employer and to compete on the labour market.
Quality
Cybercom's quality initiatives comply with ISO 9001. One of the primary key objectives is delivery quality. Here, Cybercom aims to always have 100% satisfied customers. To compete
internationally, it's business-critical that Cybercom fulfils customer's requirements for service, quality, and precision.
Environment
Cybercom's operation has low environmental impact. It mostly consists of use of office materials and disposal of old computers.
Suppliers are required to comply with the TCO 95 and TCO 99 environmental requirements, and all materials must be recyclable. Cybercom participates annually in Folksam's Climate Index/Green Index for companies listed on the stock exchange.
Cybercom's efforts in this area are aligned with good practices.
IT
To meet customers' demands for shorter lead times, and to support continued growth, a uniform business and support system was introduced in all subsidiaries. Operating procedures are well documented in the information security policy and in business support systems. Cybercom continually conducts systematic security initiatives to protect data and systems against perceived threats. The Group's goal is to continually improve use of IT support in all processes.
Branding
Cybercom's branding is primarily based on three basic documents:
z The brand platform defines fundamental values of the Cybercom brand.
z The communication platform defines how the brand is to be communicated to its various target groups.
Business processes
z The brand platform defines fundamental values of the Cybercom brand.
z The communication platform defines how the brand is to be communicated to its various target groups.
z The graphic profile defines how the brand's visual identity should be perceived and controlled.
In 2005, the Cybercom - Driven by sense communication concept was produced - based on the company's values and culture.
Work with the concept continued in 2006.
Finance
Cybercom continually works with financial reporting and profitability monitoring, with the purpose of insuring correct evaluation of planned and implemented measures. Financial reporting is based upon the annual budget and is followed up monthly. Continuous reporting provides a good basis for quarterly forecasts.
R&D
Cybercom has no R&D operation.
The Cybercom model
The Cybercom model provides a general overview of company methodology - from concept to implementation and customer delivery.
Business processes
The Cybercom model
Evaluation and/or continued development Sales
Stage 1
Needs analysis Stage 2
Business case Stage 3
Strategy Stage 4
Implementation Management
In today's mobile labour market, it's important to have a long- term perspective on skills provision. Keeping key employees and attracting new ones are strategic issues for Cybercom. Skills development is one of the most crucial prerequisites for Cybercom's future growth.
The labour market for IT and telecom was very mobile in 2006.
As a result, the Group has widened its recruiting to include other sectors. Co-operation with universities through international career fairs has also meant an increase in recruitment of new graduates.
Employee statistics, 2006
z Average number of employees: 414 persons (352).
z Total number of employees on 31 December: 481 persons (414).
z Of all employees, 21% were women and 79% men (22/78) z Level of education: 91% have academic credentials (90) z Costs for external training: SEK 2,056,000 (1,587,000) z Average age: 35 (36)
z Average number of years in the sector: 10 (10) z Value-added per employee: SEK 851,000 (864,000) z Personnel costs SEK 319.4 million (284.4)
Skills enhancement
Skill enhancement occurs in external courses, expert groups, and customer projects. Besides pure skills enhancement, a series of seminars is also held to promote company culture and the Group's technical interests.
In 2006, Cybercom initiated the Career Ladder development programme. A consulting company with a career path for consultants is more prepared to meet competition over projects and skills. Defining expectations for consultants - and measuring, communicating, and rewarding based on those expectations - results in top-notch consultants.
The purpose of Career Ladder is to have a tool in which leadership and employees can work in a structured way with professional development. Cybercom defines measurable skill requirements; fulfilment of requirements determines salary and other benefits.
Cybercom employees can see how their skills relate to their professional roles and how they can improve their skills to move up the career ladder. The primary goal is for consultants to grow in their consulting roles.
In 2007, Cybercom will continue to work with skills
enhancement, primarily through company-adapted courses. This is to ensure that courses are aligned with our consultants' high skill levels.
In 2007, Cybercom will continue to work with skills
enhancement, primarily through company-adapted courses. This is to ensure that courses are aligned with our consultants' high skill levels.
Company-adapted courses are often given internally by external trainers. In addition, we purchase individual courses as needed and often work with communities.
Employees are Cybercom's primary source of profitability and success. For employees to develop, and for Cybercom to always be able to offer the best consultants on the market, Cybercom actively works to improve employee competence in leading technologies and to strengthen company solidarity.
Employees
Employee statistics Years of employment
< 1 year 33%
1-3 years 33%
3-5 years 10%
5-7 years 14%
> 7 years 10%
Employee ages
< 25 years 6%
26-30 years 25%
31-35 years 24%
36-40 years 22%
41-45 years 14%
> 45 years 9%
Gender distribution
Women 21%
Men 79%
Recruitment increasingly crucial
The excellent market situation generated increased labour market activity, while an IT skills shortage is clearly visible.
Universities' IT programmes are not filled. It's difficult to find specialists in certain areas. And this will be even more obvious in a few years. Cybercom is known for its top-notch capabilities and strong drive among its consultants. Experts attract other experts, which benefits Cybercom's recruitment process.
These driving forces cause employees to become self-employed when times are good. So as in the rest of the IT sector, smart employees left Cybercom in 2006. While in the short term this is a loss for the company, the right amount of HR turnover is good for Cybercom - it vitalises the company and creates space for new ideas.
In 2006, Cybercom hired 168 persons. They were particularly recruited for their combined skills in technologies and business.
Increased recruitment and professional development activities will occur in 2007 - to fortify Cybercom's position as an attractive employer that's competitive on the labour market.
Recruitment in 2006 was fruitful. Recruitment is one of the most critical factors for continued success. Cybercom will further focus on it to assure continued growth.
Employees
Skills enhancement
Years of industry experience
Education
< 1 year 6% 1-5 years 25%
5-10 years 30% 10-15 years 17%
15-20 years 12% >20 years 10%
Ph.D. 1% Academic 16%
System analyst 12% Other technical (academic) 22%
Engineering 40% Other post-secondary 9%
On 1 December 1999, Cybercom's share was listed on the Stockholm Stock Exchange (now OMX Nordic Exchange). In 2006, Cybercom's share price rose 4% to SEK 41 at year-end.
The share is traded under the CYBE designation. A round lot consists of 500 shares.
Share capital
On 31 December 2006, Cybercom's share capital amounted to SEK 12.3 million, distributed on 12,321,757 shares. All shareholders have equal right to a share in the company's assets and profits. The share's quota value is 1.
At year-end, there were 115,000 warrants representing an equal number of shares. With fully subscribed shares, the dilution effect is 0.9% and the total number of shares would then amount to 12,436,757. On 31 December 2006, Cybercom held 85,000 warrants.
After the end of the financial year, 114,000 warrants have been exercised. The remaining 86,000 warrants expired 16 January 2007. At that time, the number of shares was 12,435,757.
Stock price trend and sales
In 2006, Cybercom's share price rose 4% - a much better outcome than OMX IT Services, which rose 0.7% during the same period (OMX IT Services includes Cybercom's share). OMX All-Share rose 23.6% (this is the exchange's general index).
Cybercom's share price was SEK 41 on 31 December 2006. The share's high stood at SEK 42.00 and low at SEK 25.20. At year- end 2006, Cybercom's market capitalisation was SEK 505 million.
In 2006, 8,336,018 Cybercom shares were traded on the exchange at a value of SEK 300 million. On average, 33,613 shares were traded daily, equivalent to SEK 1.2 million per trading day. During the year, there were 6,215 transactions for Cybercom shares on the exchange. The annual turnover rate amounted to 67.6%.
Shareholders
At year's end there were 2,863 (4,691) registered shareholders, of which 71% (72) owned 500 or fewer shares.
Swedish institutional shareholders owned 70.2% (50.1), Swedish private shareholders, 18.1% (33.1), and company executives, 0.7% (0.7).
Foreign shareholders owned 11.7% (16.1), of which 11.5% were institutional and 0.2% private shareholders.
Ownership structure on 29 December 2006:
Dividend policy
The board set a goal of securing Cybercom's continued growth.
Regard must always be paid to the Group's investment needs and financial position before dividend-related decisions are made.
The board proposes to the AGM that no dividend be issued for the 2006 financial year.
Name No. of shares Holdings, (%)
JCE Group AB 5 144 957 41.76%
Skandia Liv 1 669 000 13.55%
Goldman Sachs International Ltd. 491 082 3.99%
Praktikertjänst AB pensionsstiftelse 290 000 2.35%
Ålandsbanken AB 252 200 2.05%
Handelsbankens småbolagsfond 200 000 1.62%
Natexis Bleichroeder Inc. W9 175 260 1.42%
Didner & Gerge Aktiefond 161 500 1.31%
SIS Segaintersettle AG/Zürich 155 780 1.26%
Deutsche Bank, London Branch, W-8BEN 130 500 1.06%
Total for the 10 major owners 8 670 279 70.37%
Other 3 651 478 29.63%
Total 12 321 757 100.00%
The share
Stock price trend and sales
Shareholder structure Categories
Foreign institutions 11,5% Private owners, foreign 0,2%
Swedish institutions 70,2% Private owners, Swedish 18,1%
Holdings, no. of shares
No. of
shareholders No. of shares Holdings, (%)
1-500 2 041 337 351 2.70%
501-1000 347 315 580 2.60%
1001-5000 344 847 667 6.90%
5001-10000 58 463 993 3.80%
10001-15000 21 275 700 2.20%
15001-20000 15 266 239 2.20%
20001- 37 9 815 227 79.70%
Total 2 863 12 321 757 100.00%
The Group is exposed to various operational and financial risks in its operation. Operational risks include market changes and sensitivity to economic trends. Financial risks include effects from changes in currency exchange rates and interest rates. In 2006, a new business system for managing and following up risks was implemented. It improves control over Cybercom's financial risks.
Operational risks Market changes
A few companies dominate the telecom market. This trend led to signing frame agreements with a few consultants and suppliers. Cybercom now has frame agreements for all large business relationships. Together these amount to 78% of net sales.
Sensitivity to economic downturn
Customers adapt their businesses and IT investments to market conditions. Cybercom positioned itself so that market swings have a limited effect on business and revenue. Cybercom offers turnkey solutions in close co-operation with customers.
Acquisitions
Company acquisitions constitute part of Cybercom's growth strategy. Cybercom has developed a strategic method to insure that integration occurs as quickly and efficiently as possible Customers
Cybercom's 10 largest customers account for 78% of its income.
Cybercom has maintained long-term relationships with many of its customers.
Competitors
Market fluidity means that the players, customer propositions, and pricing models constantly change. Establishing a niche and positioning itself in relationship to other players enables a company to create its own market sphere. Cybercom has a clear, niched offering.
Recruitment and skills
Skilled consultants are a prerequisite for successfully
implementing customer projects and satisfying customers. When hiring personnel, Cybercom strongly emphasises skills and experience, and it actively works to ensure that it has access to the right skills and expertise.
Sensitivity analysis
This summary shows effects on operating profit from a 1%
change in certain factors, calculated on the 2006 outcome.
Recognised effects should be seen independently of each other and presume that other factors have not changed.
Financial risks Currency
In 2006, sales in the foreign subsidiaries in Denmark, Norway, Singapore, the UK, and Cybercom's joint venture in India accounted for 16% of the Group's total sales. The Group's net assets are exposed to currency conversion risks in Danish and Norwegian krona, British pound, Singapore dollar, and Indian rupee.
Receivables and cash and cash equivalents can be partly in Swedish currency and partly in foreign. Foreign currency is valued at the closing day rate as per stated accounting policies.
Receivables are valued individually and requisite allowances are made. Derivative instruments are used to manage large
exposures to fluctuation risks in foreign currency exchange rates.
Interest
Group income and cash flow from operations do not depend on changes in the market's interest rate. The Group has interest- bearing assets in the form of a bank balance.
Credits
The Group had no liabilities to credit institutions at the end of the accounting period.
Cash and cash equivalents
Caution is exercised when handling liquidity risks, which involves maintaining sufficient cash and cash equivalents and saleable securities. Any excess liquidity is placed in low-risk, interest- bearing funds
Expenses
HR cost is the largest cost item, representing 63% of total expenses.
+/-1% SEK million
Price to customer 3.7 Debiting/charging level 2.2 Number of consultants 0.5
HR costs 3.0
Risk management
The 2007 market outlook is optimistic. Cybercom established a strong position as a consultancy in telecom and selected technologies, with an attractive proposition for technology- intensive sectors and global players.
Cybercom will continue to focus on growth in technology and telecom and to widen its service offerings to include more market segments and geographic areas. This will happen through organic growth complemented with high-quality acquisitions. The financial objective is to report a 15% operating margin in the long term.
Technical paradigm shifts drove changes in the IT sector in recent decades. The sector is now expected to enter a more mature phase and become more affected by economy-driven fluctuations.
The ongoing merger of telephony, broadband, and TV, called triple play, will include mobile telephony in the future and become wireless. The new media is creating a new market.
Cybercom is now positioned to help all types of new media players with mobile solutions.
Outlook
Parent company
These amounts are at the AGM's disposal:
The board and CEO propose that this profit is carried forward to a new account: SEK 18,867,321.
Assurance
The board assures that to the best of its knowledge:
z The annual report is prepared as per good accounting policies for stock exchange companies.
z Submitted information agrees with the current circumstances.
z No important information is missing that could affect Cybercom's image created by the annual report.
Accumulated profit: 23 215 763 Loss for the year: - 4 348 442
Total: 18 867 321
Proposed appropriation of profit
Stockholm mars 28 2007
Per-Eric Fylking Chairman
Per Edlund Eva Gidlöf
Ulf Körner Per Norén
Lars Persson Peter Keller-Andreasen
Acting president and CEO
