Annual Report 2008
Connecta AB
Connecta in Brief
Connecta is a Swedish management and IT consulting practice that helps com- panies implement complex and lasting change. Sometimes against all odds.
587 employees (31 December 2008).
Offices in Stockholm and Öresund.
Five largest clients: Ericsson, Försäkringskassan, ICA, Länsförsäkringar and Sony Ericsson.
Client offerings in Change Management, Customer Relationship Management, Finance and Performance Management, IT Value, Strategy and Business Trans- formation and Supply Chain Management.
Strategic partnerships with IBM, Microsoft, Oracle and SAP.
Microsoft Gold Certified Partner and IBM Premier Business Partner.
Shares traded on Nasdaq OMX Nordic, Small Cap (ticker: CNTA) since 2005.
Highlights of 2008
Succession in Connecta’s Ownership: Connecta’s former main owner Tiktaal Holding divested its 21.7% holding. Shares corresponding to 10.5% of the equity were sold to newly incorporated Tikk2, which is owned by the management and key executives of Connecta.
The transaction made Tikk2 Connecta’s new main owner.
Connecta incorporated a company to control and own its joint ventures: Connecta Partner Investment AB (CPI) was formed in March 2008 to initiate, control and manage operations that enhance Connecta’s competitiveness, but do not fit in Connecta’s strategic base. Qube, Techta and Influence, a corporate training consulting business started in the year, are some of Connecta’s joint ventures.
Connecta hires a CEO for its new subsidiary : Per Westholm is hired as CEO of CPI; he joins the company from venture capital firm H2 Ventures.
Connecta starts a new round of its graduate trainee program: Connecta decided to run its gra- duate trainee program for the fourth consecutive year. This program started on 12 January 2009.
Connecta incorporates a new consulting practice in application management: Connecta and Deseven Capital incorporated a new joint venture, Tarento AB, which delivers application management services.
Proceedings from 2001 settled: The compulsory redemption process between Klövern and the minority shareholders of Adcore Stockholm AB (formerly Connecta AB) was settled. For Connecta’s part, the settlement resulted in a SEK 2.6 m earnings effect in the fourth quarter 2008.
Connecta’s profitable growth recognized in Sweden and Europe: Connecta was recognized in two surveys of profitable growth companies. Business Week rated Connecta sixth in its European Hot Growth listing, while keynote Swedish business daily Dagens Industri rated Connecta as a ‘Gazelle’ high-growth company.
Connecta and Sony Ericsson deepen collaboration: Connecta and Sony Ericsson agreed that Connecta would upscale its deliveries of development, operation and administration of integra- tion services to Sony Ericsson from year-end.
Highlights after the End of the Year
Connecta starts new skills segments: on 1 January 2009, Connecta created three new skills
segments: IBM, IT Business Solutions and Enterprise Web from the former Development
skills segment.
Contents
Connecta in Brief and Highlights ... 2
Contents ... 3
CEO’s Statement ... 4–5 About Connecta ... 6
Market and Clients ... 7–8 Offerings ... 9
Business Development ... 10
Skills Segments ... 11
Human Resources, Corporate Culture and Values ... 12–13 Financial Information Financial Goals ... 16–17 The Share ... 18–19 Directors’ Report ... 20–24 Consolidated Income Statement ... 25
Consolidated Balance Sheet ... 26
Statement of Changes in Consolidated Equity ... 27
Consolidated Cash Flow Statement ... 28
Parent Company Income Statement ... 29
Parent Company Balance Sheet ... 30–31 Statement of Changes in Parent Company Equity ... 32
Parent Company Cash Flow Statement ... 33
Notes ... 34–45 Audit Report ... 46
Five-year Review, Group ... 47
Consolidated Quarterly Data and Key Ratios ... 48
Corporate Governance Report ... 49–54 Board of Directors’ Report on Internal Controls of Financial Reporting ... 55–56 Definitions ... 57
Annual General Meeting ... 57
Board of Directors and Senior Executives ... 58
Financial Summary of 2008 ... 59
Contacts ... 60
CEO’s Statement
Personal leadership is a vital part of the way we work at Connecta, and it seems to me that this is more relevant than ever as we look back at 2008. In the first half-year, the recession was a popular discus- sion topic, but not many people wanted to acknowledge it. In the second half-year, no-one escaped the effects of the financial crisis and general downturn. In these conditions, businesses and other organizations in the service sector need a clear corporate culture and collective values to maintain their speed and direction.
Personal leadership is something everyone at Connecta needs to practice and use every day. It’s a matter of being accountable for what is unspoken, getting a group on track quickly and performing effectively together. These issues are central to Connecta, and I’d like to think they’re becoming even more important in our changing world. Given the choice of taking the back seat and letting change control us, or using personal leadership proactively to drive our own development, we always choose the latter.
This attitude has been useful when we quickly realigned in the face of change on the market. In the final quarter of the year, all our staff sharpened their focus on sales and delivery. We intensified our initiatives in the energy sector and addressing the public sector. Developing our offerings focused still more sharply on streamlining our operations and IT processes. We also moved quickly in-house. All internal develop- ment initiatives were conducted with cost-efficiency as their guiding principle. Moreover, Connecta’s cash flow increased in 2008, thanks partly to the efficiency of our internal processes. Going into 2009, we reviewed all internal costs, while becoming more prepared to make extra savings.
Naturally, the highlight of our year is everything we’ve done for our clients. In my time at Connecta,
our strategy has always been based on closeness to clients. This means that on all assignments, we
endeavor to deliver the best solution considering each client’s unique circumstances and needs. We
build long-term and secure relationships through this closeness—one of our prime assets as the econo-
my slows. The task going into 2009 is to be more deserving of, and to develop, our client relationships.
In the year, as previously, we drove ambitious busi- ness development where we saw opportunities on the market. Connecta enjoys an enviable position in the SAP segment, where as a service partner, we’re continuing to evolve as the market changes. We brought a wealth of positive experience from assign- ments at the interface between business and IT to develop other partnerships, and our Microsoft skills segment is a fantastic example of precisely this. In just two years, the segment has grown from some 30 staff to now approaching 100 consultants. This skills segment is now one of Microsoft’s most important partners in Sweden. We’re conducting a similar initiative alongside IBM: in 2008, we progressed from initial idea to launching a completely new skills segment in consultation with IBM. Our goal is to be best in Sweden at creating business value using se- lected IBM products. We already have IBM Premier Business Partner status and have a series of exciting assignments based on the IBM WebSphere platform.
In tandem with the IBM initiative, we’re creating the Enterprise Web skills segment, which will be a leader in Internet applications. Our focus is on inte- grating portals and ERP systems, where progress in e-commerce is an example of why this is becoming more central to our clients. Greater usability is also in demand, and thus we’re seeing a need for sharper portal solutions from several of our clients, and now have a strong offering with our combination of strat- egy, technology solutions, usability, integration and change management skills. IT Business Solutions, which focuses on business-driven system develop- ment, is another new skills segment. Our consult- ants in this segment are experts in structuring and acting on the issues that arise when implementing complex system solutions. This is being integrated with specialist skills from other sectors, platforms and our other offerings. I’m really looking forward to the progress of these three new initiatives in 2009!
The business ideas that don’t fit into Connecta’s operations are managed by our wholly owned subsidiary Connecta Partner Investment AB (CPI).
CPI ensures the efficient control and ownership of our joint ventures: Qube, Techta, Influence and Tarento. The latter two were incorporated in 2008.
Together, these new enterprises contribute to creat- ing a sphere of businesses that enhance our delivery capacity and our attraction to clients and the labor market. We think several of these entities have off-
erings that are attractive in a recession, and take a positive view of their ongoing progress.
In late 2007 we reviewed our strategy and came to the conclusion that we’d acted consistently from Connecta’s strategic foundation and predetermined business goals. Our strategy work was updated going into 2008, with several exciting development processes initiated. In 2008, we took momentous steps across a raft of segments, and are continuing our journey in 2009 with several focuses in place, and some of them have already been implemented.
We are also upscaling our sector initiatives, putting a big emphasis on developing more specialist skills in telecom, retail, banking, insurance, energy and manufacturing. Alongside initiatives in new ven- tures in our sphere and our offerings, we will keep driving our development and the change processes our clients are demanding.
After two years as Connecta’s CEO, I’m still struck by how much there is to be proud of when I see what our people achieve. I’ve mentioned just a few exam- ples from last year. With this background, our ability to set our own agenda offers an illustration of last year. I think this is about personal leadership, and with this under our belts, we create a special ability to stay in the driving seat through all the twists and turns—something our clients really benefit from.
When we say we’ll do something, we do it. No matter whether this is an internal initiative or a delivery that seems impossible. And it’s just as fantastic to see it happen every time. The key is that our business isn’t led by managers, but by leading consultants, trained to always contribute to the group’s best, and who operate in a changeable and results-oriented corporate culture.
I’m really looking forward to 2009, while the chal- lenges the year will bring in the form of a fast- changing and complex market are humbling. Finally, I’d like to thank all the people at Connecta who are doing wonders, big and small, every day. It’s your efforts, your energy and personal leadership that made 2008 such an exciting year, and sets our course for the way ahead.
Per Agelii, CEO of Connecta
Connecta is a Swedish management and IT con- sulting practice that helps companies implement complex and lasting change. By combining its own and other parties’ skills in strategy, business under- standing and IT, Connecta delivers the optimal solution for every client.
Connecta’s consultants possess broad business understanding and in-depth knowledge of one or more specialist segments. Their experience ena- bles extensive change projects to be implemented, delivering solutions that maintain market-leading quality—always proceeding from the client’s objec- tives, organizational resources, market situation and IT structure.
Connecta’s assignments feature close collaboration with clients and partners. They often meet chal- lenges lying at the interface between business and IT activities.
Connecta endeavors to set a higher standard for what consultants can achieve, and knows that its professionals are at their best when assignments are not routine, but rather when the change seems as impossible as it is imperative.
Connecta’s operations are based in Sweden, with offices in Stockholm and Öresund.
Business Concept
Connecta’s business concept is to help corporations and non-profit organizations to change and achieve desired results by integrating its own and other parties’ skills in management and IT.
Vision
Connecta’s vision is to create a new, higher stand- ard for what consultants can achieve.
Mission
Connecta’s mission is to make our clients and em- ployees successful.
Business Model
Connecta’s underlying business model is based on its corporate management and consultants identi- fying companies that need to change to enhance
their competitiveness. Often, such companies need consultants that can manage challenging change projects with the aid of the right combination of skills and capacity. The consistent aim is to achieve lasting results quickly and efficiently. Connecta’s consultants can create substantial values for the client on change projects, while simultaneously developing themselves.
That’s why Connecta’s objectives and strategies must consider clients, professionals and profitabil- ity equally.
Connecta’s Strategy
Connecta's long-term strategy is to be a stable and successful foundation to build on. The combi- nation of the different components of this foundation is what makes Connecta unique.
Strategy 2009-2013
This foundation supports a number of focuses the company views as important milestones for the years 2009-2013. These initiatives mean Connecta will:
■
build strong partnerships with IBM, Microsoft, Oracle and SAP
■
be sector experts in telecom, retail, banking, insurance, energy and manufacturing
■
work on developing its offerings at the inter- sections between sectors and partners
■
expand the number of project engagements
■
develop more joint ventures that enhance Connecta’s offering and raise awareness of Connecta
About Connecta
Change consultants Management & IT
Model
Flexible cost
structure Building the
company Organic growth
Professionalism A culture
that makes a difference
Limited client base
Management focus:
clients and consultants
Market and Clients
Closeness to the Client as a Strategy
In 2008, Connecta continued to operate as the consulting partner that best understands the client’s unique problems and needs. In the year, the company’s tried-and-tested working meth- ods based on the client were supplemented by a sector focus. This means that Connecta ac- cumulates its own sector knowledge, so that clients can benefit from specific experiences and assignments. For Connecta’s part, the result is that sales and delivery are coordinated so that best practice from different assignments is utilized. Over time, this improves prospects of sup- porting clients with unique skills for the conditions and challenges in each sector.
Connecta is now utilizing this type of services development in the telecom, retail, banking, in- surance, energy and manufacturing sectors. For example, this work includes hiring specialist skills, investigating sector trends, developing sector-specific skills, client activities and verify- ing delivery.
Connecta expects its sector focus to progressively attract a broader client portfolio. The objec- tive is for 60-70% of revenues to be sourced from Connecta’s key clients and 20-30% from strategic clients, the latter being those the company expects to see an increasing need for consulting serv- ices, or that need specific assignments and services where Connecta is the best provider.
Connecta’s strategy is closeness to the client; the company is continuing to work for the long term and for Connecta’s central client relations. To do this successfully, long-term assignments with the same client are prioritized. By adding sector focuses, this continuity will also capture somewhat smaller-scale consulting clients in some sectors. For clients, this means improved deliveries, where Connecta can combine best practice from different players in a specific sec- tor. Meanwhile, more client assignments diversify Connecta’s risks.
Connecta’s clients are leaders in the Swedish retail, banking and insurance, public, energy and manufacturing sectors. Connecta’s largest clients in 2008 were Ericsson, Försäkringskassan (the Swedish National Social Insurance Office), ICA, Länsförsäkringar and Sony Ericsson. Oth- er major clients include Apoteket (the Swedish national pharmacy Corporation), DeLaval, Däc- kia, ITT Water & Wastewater and Nynas.
Progress on Connecta’s Market and Client Base
Connecta’s market remained strong in the first half-year 2008, enabling the company to increase revenues from several clients, and in several segments. In the first half-year, high demand also resulted in Connecta’s average pricing increasing. This trend was most apparent in management consulting, where clients were demanding more specialized services than previously.
From September onwards, the market featured a general slowdown. Due to the resulting un- certainty, Connecta’s growth rates declined. The trend of progressively increasing pricing was interrupted, replaced by clients wanting to renegotiate contracts, demanding price reductions, especially for consultants with general skills. These pricing changes did not affect Connecta’s average pricing in the final quarter of the year.
Despite these changes on the market, Connecta is retaining its positioning with many clients. As
clients concentrate procurement onto fewer suppliers, who have more responsibility, Connecta
has been able to continue, or expand, its assignments in several cases. With some other clients,
progress has been more gradual, with for example, master agreements concentrating procure-
ment onto fewer suppliers. In many cases, Connecta has been appointed as a main supplier of
higher-end consulting services, further enhancing the company’s positioning as a high-quality
supplier.
Assignments intended to achieve operational excel- lence are increasingly in demand. This has resulted in several of Connecta’s skills segments evolving from general system development to more specialist services in portal development or changing IT strat- egy, for example. To address increasing demands on how portal solutions are developed and implement- ed, Connecta has integrated skills in strategy and implementing effective internal and external portals into a single skills segment—Enterprise Web.
The trend towards increased specialization has also meant that Connecta’s close collaborations with strategic partners have been further reinforced.
Now Connecta has three skills segments, focusing on services and experience of implementing solu- tions from SAP, Microsoft and IBM. The IBM initia- tive intensified in the year, with many successful hirings and a number of new assignments.
A Stronger Brand
Connecta is building its brand through strong deliveries for clients, though external communica- tion activities via advertising, PR and activities ad- dressing Connecta’s target groups. The brand was strengthened further in 2008, apparent in contexts including market research that has been conducted by Radar Group on a semiannual basis since spring 2007. From the start, this research has shown brand recognition of Connecta increasing in the meas- ured parameters, including awareness and prefer- ence. A wide range of activities was conducted in PR, advertising and client relations in the year.
Connecta is also putting a sharp focus on commu- nication and leadership training in-house, which it judges to have an important impact on Connecta’s brand-building. Increased awareness of Connecta is apparent in work on the company’s new business and in hiring staff. Increased media interest in the company’s view of issues affecting the consulting sector and trends in the company’s skills segments is also apparent.
Delivery Quality
Connecta associates delivery quality with its vision and values. In this way, quality consciousness becomes a key component of Connecta’s culture.
All staff are introduced to the company’s quality model, with additional training in the company’s skills enhancement program, and with clients. This is fundamental to the company being able to satisfy the progressively more stringent demands made by clients, and to manage the risk Connecta takes on in its major engagements. Connecta has a highly developed quality model and the company’s qual- ity resources measure its quality continuously, internally and externally—the results are positive.
Connecta measures its performance with its larger clients and on its most critical engagements using a Customer Satisfaction Index, CSI. These meas- ures express the client’s perception of quality.
They create the right prospects for strategic and operational actions. Connecta’s CSI has improved progressively since Connecta started measuring customer satisfaction.
Connecta runs a range of initiatives to increase delivery fulfillment continuously, through a delivery forum, whose members are staff responsible for delivery. Here, they exchange their experiences, highlighting strengths and areas for improvement.
Connecta has reduced its already low project risk write-downs, and its bad debt is low.
Competitors
Connecta has a broad offering and encounters a range of competitors depending on the type of assignment and related skills. At an overall level, the primary competitors are Accenture and Cap Gemini, which have consulting operations with a similar focus to Connecta. On more technology- intensive assignments, Connecta competes with Logica and HiQ, as well as smaller, niche consult- ing players. Meanwhile, Connecta also competes with McKinsey, Bain or The Boston Consulting Group on management assignments. Connecta endeavors to be the Swedish-owned alternative.
The implication of market progress, with increased rates of change in client corporations, means that issues become more complex, bridging more skills segments. This puts more demands on consulting practices’ breadth of consulting services, and as a result, overly niche-oriented or smaller consultants can encounter problems satisfying customer stand- ards and needs. Connecta is one of few Swedish players with enough skills breadth and size in the management and IT segments to compete success- fully with the major multinational players.
86 %
55 %
SaleS 20 largest clients Sales share, 20 largest clients: 86%
Sales share, other clients: 14%
SaleS 5 largest clients Sales share, 5 largest clients: 55%
Sales share, other clients: 45%
Market and Clients, cont.
Connecta delivers services in six over-arching seg- ments that match the central needs of the com- pany’s clients—Change Management, Customer Relationship Management, Finance and Perform- ance Management, IT Value, Strategy and Business Transformation and Supply Chain Management.
In 2008, Connecta conducted several keynote as- signments in these segments, sharing its knowl- edge and experience through channels including breakfast seminars for the company’s clients.
Change Management
“For the management of complex change processes”
Change Management is a structured approach to implementing operational change processes, focusing on the client’s staff and business results.
Connecta’s role is the practical implementation of new business strategies, working methods and IT systems. Consistently, this is about getting companies, departments and organizations to work with what’s new. To change behavior, get leaders to show the way and staff to take change on board. Connecta collaborates on a committed basis close to the customer based on its situation, organization and culture. Connecta has concrete tools and processes based on rigorous experience, which bring know-how to the client’s key staff on a structured basis.
Customer Relationship Management
“For marketing sales, services and understanding customers”
Successful marketing, sales and service always build on a company’s overall strategy and objec- tives. Combined with Connecta’s in-depth knowl- edge of customer needs, value and positioning in the customer life-cycle, this creates positive long- term growth. Connecta helps companies generate, analyze and act on business-critical customer information, which in turn, creates the prospects to successfully differentiate their offerings, operate cost-efficiently, create customer satisfaction and profitable growth. CRM is about emphasizing the customer in all encounters and processes, without losing the long-term business financial perspective.
Finance and Performance Management
“For financial and corporate control”
Finance and Performance Management is about operational and financial efficiency, corporate con- trol and business development. Often, Connecta’s assignments are about clarifying strategic cross- roads, and practical implementations of models, methodologies and systems in the accounting and
corporate management segment. With Connecta’s assistance, CFOs and other managers can create substantial values in their businesses. In Finance and Performance Management, Connecta works on maximizing cash flow, optimizing capital tied-up, controlling and monitoring, and managing systems support for these activities.
IT Value
“For effective IS/IT”
Connecta helps companies and non-profit organi- zations to enhance their operational efficiency by adapting their IT resources to overall business objectives. Connecta is active on all points of CIO*
agendas and challenges. This enables the client to ensure that their IT operations are run effectively and on a businesslike basis. The activities of these operations should be transparent, quantifiable, have clear goals and strategies, and focus on the current and future needs of business operations.
Connecta’s IT Value offering extends from coordi- nating IT and business operations to optimizing the control of IT deliveries and the operational efficiency of IT processes.
* Chief Information Officer
Strategy and Business Transformation
“For strategic development, decision support and company-wide change”
In Strategy and Business Transformation, Connecta helps corporate managements address the challeng- es at the top of their agendas. Combining rigorous analysis and drive with an in-depth understanding of business and strategic development, Connecta rolls out initiatives with a decisive impact on the client’s success. This might be about internal effi- ciency, profitability, growth and expansion, chang- ing business models or operationalizing strategies in business plans, organizations and processes.
Supply Chain Management
“For procurement, logistics, production and planning”
Supply Chain Management is about rationalizing goods, information and payment flows. To achieve these objectives, operations and IT systems must interact on a day-to-day basis—at the client and its suppliers. If correctly managed, this helps main- tain an overall grasp of procurement, production, logistics and spare parts management, and integra- tion between off-the-shelf systems and specific IT tools. Connecta’s SCM activities include the review and re-engineering of complete supply chains, the rationalization of existing logistics processes and the development of sophisticated automated order processing tools, for example.
Offerings
Business Development
To be a successful services company, constant change is a necessity. Connecta operates as a change consultant and the company features a very high rate of change.
To address accelerating change on the market, Connecta works proactively on business develop- ment. The company’s business development process has two clearly defined components. One component focuses on the continuous enhancement of Connecta’s services offering and satisfying clients’ changing needs for consulting services. The second component focuses on creating joint ventures and expanding Connecta’s presence into segments outside the company’s core business.
The first component of business development is managed completely within Connecta’s organizational resources, where new services are developed in focuses. The focus of business development is on businesses that are strategic to the company’s market positioning. New offerings are created by developing new skills or integrating existing skills. For example, in 2008, Connecta took the ‘IBM WebSphere’ focus from being a niche integration offering to a complete package. Connecta can now deliver a broad palette of consulting services linked to IBM Software’s products and solutions.
Connecta is also developing its business and skills by combining strong partnerships with a sector focus. The SAP skills segment, which focuses on the SME segment and retail, is an example of this, supported by Connecta’s partner, SAP. In the banking and financial sector there is a clear link to IBM’s product portfolio, implying interaction between Connecta’s partner IBM, Connecta’s skills segment and Connecta’s sector initiative.
The collaboration with Oracle in solutions for retailers is another development segment Connecta started in 2008. Connecta is well positioned to combine the company’s experienced management consultants in retailing with application and technology skills in Oracle’s products and platforms.
The second component of business development is designed to complement Connecta’s services with entirely new offerings that do not fit into its existing organization and strategy. In 2008, this resulted in several business concepts being identified and developed into new joint ventures.
Tarento, a joint venture delivering application management services, and Influence, which delivers
consulting services to larger companies that need to build and nurture strong corporate cultures,
are examples here. These joint ventures have offerings tailored to the markets in the offshore, sys-
tem administration and infrastructure segments. These entities employ a total of some 45 people
and help sharpen Connecta’s competitiveness.
Connecta is a pure-play consulting practice whose skills segments deliver uniform services to a col- lective client base. Both the company’s regions—
Stockholm and Öresund—deliver services across all Connecta’s skills segments. Connecta’s skills seg- ments command similar margins over a business cycle, and the whole business is monitored using the same key ratios. This uniformity means that risks and opportunities are analyzed from a holistic perspective rather than by business skills segments.
The company’s consulting services are delivered by project teams that mix skills depending on the particular needs of the project. Connecta’s consult- ants have extensive consulting experience and a high educational standard, and regardless of skills segment, consultants conform to the company’s delivery model. Connecta offers skills enhancement to all consultants, which assures consistent delivery to the company’s collective client base.
Connecta now has some 200 management consult- ants divided across its skills segments, most work- ing in Management and IT Management. There are some 250 consultants that work on platform-based technology (IBM, Microsoft, SAP). Another 150 developers and project managers work on platform- independent technology.
Management—“Offering management support on change projects and strategic issues”
Consultants in Management mainly work along- side the client’s senior business and operational managers. They assist on issues including imple- menting change and strategies in operations.
IT Management—“Maximizing the value of client IT investments”
IT Management identifies and realizes client busi- ness values from IT by increasing IT departments’
profitability and efficiency, through means includ- ing supporting decisions, implementing outsourc- ing and insourcing projects and integrating IT operations with the company’s business processes.
SAP—“Delivering ERP solutions on the SAP platform”
In SAP, Connecta integrates specialist know-how with long-term and rigorous skills in the SAP ERP system. These consultants specialize in imple- menting, project managing and developing SAP’s product portfolio across all client segments.
IT Business Solutions—“The best in business-driven system development in complex environments”
IT Business Solutions deals with the issues that arise when implementing complex system solutions.
These consultants possess a combination of broad- based business and in-depth IT expertise. They are specialists in investigating, planning, leading and implementing complex system development projects close to business. This skills segment started in January 2009.
Microsoft—“Leading and delivering business-criti- cal solutions based on Microsoft technology”
Consultants in this skills segment are experts on Microsoft products in the Integration, Portals, Dynamic IT and CRM segments. The skills seg- ment won the .Net Awards 2007 in the Information Worker category.
Business Services—“Connecta’s specialized busi- ness support close to operations”
This skills segment consists of the Accounting, Support, HR and IT units. By working close to client business and proactively, Business Services will set a new and higher standard for what central func- tions can achieve—internally and externally.
IBM—“The leader in creating business value based on IBM software”
The goal of the IBM skills segment is to become a market leader in creating business value for Connecta’s clients from selected IBM software. This offering encompasses specialist services in Busi- ness Process Management, Integration and Portals.
This skills segment started in January 2009.
Enterprise Web—“Creating value for business through Internet-based portals”
Enterprise Web delivers services in development and advisory services on internal and external portals. Examples of such services are e-com- merce and channel strategies, web management and interaction design. Advisory services and development for internal and external portals are delivered independent of platform. This skills seg- ment started in January 2009.
Nova—“The best consultants with less than five years’ experience”
Connecta has run its Nova graduate trainee pro- gram since 2006. This program is by far the sector’s most ambitious, where consultants combine as- signments with training over three years. For many of the company’s clients, “Nova consultant” has be- come a hallmark of highly ambitious, well-educated and results-oriented young consultants.
Skills Segments
Human Resources,
Corporate Culture and Values
The success of any consulting company is built on its ability to attract, develop and retain the best professionals. To integrate new staff and develop existing people, Connecta conducts regular, sustainable goal-oriented training packages.
Skills Enhancement
Skills enhancement is Connecta’s unique way to transform its vision and strategies into practi- cal everyday work. Many of its professionals chose Connecta because they wanted to develop professionally and as individuals. To maintain its focus on being a value-controlled company, Connecta is focusing aggressively on education and training, directed by its vision. Much of this training is led by Connecta’s managers and senior consultants, sometimes alongside external providers.
Connecta’s collective skills enhancement is based on a few simple principles, the clearest be- ing experience-based skills training and control through values. Skills enhancement focuses on five segments:
Culture and leadership Consultantship Project management Entrepreneurship Leadership
All training builds on the foundation laid in the culture and leadership training Connecta has conducted on the island of Utö in the Stockholm archipelago since the end of 2002. Connecta’s training packages rate highly in the employee surveys it regularly conducts. All employees par- ticipate in regular appraisal interviews and have individual development plans. Connecta also uses mentorships as part of developing its professionals and corporate culture.
Employee training should result in greater willingness to take individual responsibility for learn-
ing on assignment. Advanced internal and external training packages help sharpen the special-
ist skills necessary for employees to be able to deliver Connecta’s specialist offerings.
employee age Profile 2008 (2007), No.
age Men Women
20–29 75 (53) 41 (31)
30–39 242 (242) 85 (73)
40–49 93 (82) 27 (27)
50–59 15 (11) 4 (3)
60–69 2 (1) 3 (3)
Total 427 160
Percentage 73 27
employee Key Ratios
2008 2007
No. employees at year-end 587 526
Ave. no. employees in the year 579 502
Active consultants, % 89 88
Average age 35 35
Average length of service, years 3 3
Staff turnover, % 26 18
Search & Selection
In 2008, Connecta continued its organic expansion, albeit at a reducing rate late in the year. Many skilled and strategic professionals chose to join the company in the year, a high share resulting from recommendations from Connecta’s employees. At year-end 2008, Connecta had 587 employees, 27%
of whom were women. The average number of employees in the year was 579.
Despite stiff competition on the labor market, Connecta receives a substantial number of highly qualified job applications. In 2008, 210 new staff joined Connecta. The company will continue to expand selectively through targeted initiatives, including hiring specialists in Connecta’s new skills segments. Connecta sets high standards on consulting experience and specialized skills from its prospective employees.
Staff turnover was 26% in 2008 (18), which is high in relation to Connecta’s goal of 10-15% over a business cycle. In the year, staff turnover was concentrated
on specific skills types. Connecta assesses that this is partly due to staff turnover staying low for an extended period. For the second half-year, the company judges that a high share of staff turnover was related to the economy.
The company is still working actively on selectively hiring and retaining staff without altering its flex- ible cost structure.
In exit interviews with employees that chose to leave Connecta, 86% said they could envisage returning to the company in the future.
Connecta is continuing its Nova graduate trainee program. The fourth program started in early 2009.
The first graduates of the Nova program sat their exams in 2008, and have now strengthened Con- necta’s other skills segments. There are a total of 35 trainees in Nova, of which some 37% are women.
Environment
Connecta takes an active approach to environmen- tal issues. Proceeding from the group’s environ- mental policy, the company has formulated an action plan for the environmental efforts that will make a practical contribution to satisfying the group’s overarching environmental goals, and that Connecta’s environmental ambitions are clarified.
“Connecta’s values are ambition, team spirit, personal leadership, honesty and integrity, plus health and a work-life balance.”
employee educational Standard
%
Graduates approx. 86
Post senior high school professional qualifications approx. 6
Senior high school graduates approx. 7
Financial Goals 16–17
The Share 18–19
Directors’ Report 20–24
Consolidated Income Statement 25
Consolidated Balance Sheet 26
Statement of Changes in Consolidated Equity 27
Consolidated Cash Flow Statement 28
Parent Company Income Statement 29
Parent Company Balance Sheet 30–31
Statement of Changes in Parent Company Equity 32
Parent Company Cash Flow Statement 33
Notes 34–45
Audit Report 46
Five-year Review, Group 47
Consolidated Quarterly Data and Key Ratios 48
Corporate Governance Report 49–54
Board of Directors’ Report on Internal Controls of Financial
Reporting 55–56
Definitions 57
Annual General Meeting 57
Board of Directors and Senior Executives 58
Financial Summary of 2008 59
Contacts 60
Financial Information
Profitability and Growth
Connecta’s prime goal is to deliver good profitabil- ity. Over a business cycle, the company’s goal is to deliver an operating margin of 10–15% excluding subcontracting consultants. In 2008, the operat- ing margin excluding subcontracting consultants was 14.3%. Connecta regards growth as a neces- sity and its objective is for the company to achieve annual organic growth of over 10% over a business cycle. Growth can be expressed as an increasing number of consultants as well as increasing rev- enue per consultant. Sales growth was 6% in 2008.
Connecta’s consulting and salary model is a cen- tral and unique success factor for the company.
The model combines experience and training lev- els with responsibility and authority. Connecta’s consultants will be offered competitive salaries, while the company maintains control over sales and margins. The consulting model is intimately linked to a consistent salary model based on a fixed basic salary and performance-related vari- able salary component. Connecta’s model creates strong incentives for individual consultants to improve performance and to develop, while also conferring a flexible cost structure for the com- pany. One of the most significant key ratios is the utilization ratio, which was 78.3% (84.5%) in 2008.
Connecta takes an active approach partly to devel- oping and growing its business with selected cli- ents, and partly to limit the number of clients with a small share of Connecta’s business. The objective is for the company’s five largest clients to generate 50% of the company’s sales and for the 20 largest to generate 80%. As a result, Connecta expects this to lead to longer-term assignments, more customer benefit and reduced cost of sales. In 2008, Connec- ta’s five largest clients generated 55% (60%) of sales, and the 20 largest, 86% (91%) of sales.
Staff turnover in 2008 was 26% (18%), which is high in relation to Connecta’s goal of 10-15% over a busi- ness cycle. For more information, see page 13.
Equity/assets Ratio
Connecta’s target equity/assets ratio is a mini- mum of 35%. The equity/assets ratio on 31 Decem- ber 2008 was 43.9% (42.2%).
Dividend Policy
Connecta’s ambition is to provide shareholders with healthy dividend yields, and accordingly, all distributable earnings will be paid to sharehold- ers providing the needs for trading liquidity and business-promoting investments are covered.
Against the background of a distinct increase in uncertainty on Connecta’s market, the Board of Directors is proposing dividends of SEK 4.06 + 2.71 per share to the AGM, paid on two occasions, totaling SEK 6.77 per share. The second round of dividends is proposed as conditional on the Board’s judgment that dividends are justifiable at the time of the Second-quarter Interim Report.
Connecta is self-financing. The company’s acid test ratio as of 31 December 2008 was SEK 92.4 m;
Connecta also has access to unutilized overdraft and factoring facilities of SEK 80 m.
Currency Policy
Potential exposure to foreign currency should be limited, so that given a 10% change in exchange rates, the company does not incur a loss exceeding SEK 0.3 m. Currency positions should be hedged beyond the extent specified above.
Financial Goals
Variable effect on sales effect on operating profit
+/- 5 percentage point utilization ratio +/- 6 % +/- SEK 23 m
+/- 5% revenue per hour (hourly rate) +/- 5 % +/- SEK 26 m
+/- 1 working day per year +/- 0.4 % +/- SEK 1.5 m
+/- 5% change in payroll expenses - +/- SEK 23 m
Period adjusted no. of working days 2008* adjusted no. of working days 2009*
Q1 60 60
Q2 58 56
Q3 43 43
Q4 61 62
Total 222 221
*Actual number of workdays reduced by vacation based on the assumptions of average vacation of 30 days per employee and vacation split 5, 15, 75 and 5% respectively for quarters 1-4.
Seasonality
Like other consulting practices, Connecta exhibits earnings variations through the year depend- ing on the number of available working-hours.
The number of working days and seasonality are important for comparability between periods. The summer period adversely affects revenues because the number of available hours reduces significantly
coincident with vacations. The consulting sector is dependent on the number of available hours, which also varies between the same months in different years, depending on, for example, when Christmas and Easter holidays fall. The above implies sales and profit seasonality. The following table reveals how the number of available days varies between quarters in 2008 and 2009.
Sensitivity Analysis
Connecta’s net sales and profit are primarily affect- ed by two factors: utilization ratio and revenues per consultant and hour. Revenue per hour depends on consultant skills, price sensitivity in each client and skills segment, and the extent Connecta can reuse know-how and structural capital. Utilization ratio is a function of the capacity to maintain a balance be- tween client demand and supply at any time, which
raises demands on continuous skills enhancement,
good project management and active sales close
to the customer. The annualized sales and operat-
ing profit effect of changes in these variables are
illustrated below. The stated effects are based on
year-2008 accounts and should be viewed as an
indication of the effects given an isolated change in
each variable for the short term.
Ten largest shareholders as of 31 December 2008 No. of shares Proportion of votes and capital, %
Tikk2 AB 1,091,079 10.50
Swedbank Robur 987,200 9.50
Livförsäkringsaktiebolaget Skandia 828,073 7.97
Fourth AP (Pension Insurance) Fund 481,800 4.64
Fidelity Nordic Fund 451,498 4.35
The Northern Trust Company, W9 436,250 4.20
Awake Swedish Equity Fund 300,424 2.89
Thyra Hedge 263,765 2.54
Hagströmer & Qviberg Svea 247,091 2.38
GTM Holdings AS 159,046 1.53
Total 5,246,226 50.50
Share Capital
Connecta’s share capital is SEK 5,193,677.50 divided between 10,387,355 shares. The nominal value per share is SEK 0.50. Each share carries the right to one vote, and every shareholder entitled to vote may vote for the full number of shares held and represented at Annual General Meetings. All shares confer equal rights to participation in the company’s assets and profits.
Listing
Connecta’s shares trade on Nasdaq OMX Nordic Small Cap (ticker: CNTA). As of 31 December 2008, Connecta AB had 2,816 shareholders, a 22% in- crease on year-end 2007. The number of sharehold- ers increased in every quarter of 2008 compared to the corresponding quarters of 2007.
Share Price and Turnover
Between 2 January 2008 and 30 December 2008, Connecta’s share price fell from SEK 69.00 to SEK 40.10 (closing price), a reduction of SEK 28.90 or 41.9%. The highest price paid in the year was SEK 79.50 on 14 March (closing price SEK 77.50), and the lowest price paid was SEK 31.30, on 24 November (closing price SEK 36.70). In 2008, a total of 6,034,817 (8,671,162) shares were traded, equivalent to a value of SEK 365.9 (662.5) m. On average, this means 23,984 (34,824) shares worth some SEK 1.4 (2.6) m were traded each trading day. To offer shareholders healthy liquidity and efficient pricing, Connecta has appointed Re- mium Securities as market maker.
The Share
Shareholders
The above table illustrates Connecta’s ownership structure based on information from Euroclear Sweden AB as of 31 December 2008. The ten larg- est shareholders held 50.5% (51.4%) of the equity.
Connecta had a total of 2,816 (2,306) shareholders at the above date, of which 94.3% (93.8%) were domi- ciled in Sweden. Swedish legal entities held 58.5%
(61.5%) of Connecta’s share capital at year-end.
In February 2008, Connecta’s former main owner Tiktaal Holding divested its 21.7% holding. Shares corresponding to 10.5% of the equity were sold to newly incorporated Tikk2, which is owned by the management and key executives of Connecta.
The transaction made Tikk2 Connecta’s new main owner. Connecta has no share-based incentive schemes.
Profit-Share Fund
In February 2006, Connecta started its Profit-Share Fund, which will help make Connecta an even more attractive workplace. The fund invests 33%
of its assets in Connecta shares. For every SEK 100 invested in Connecta shares, since February 2008, Connecta has contributed another SEK 52.50 to the Fund. Before February 2008, the contribution was SEK 40 per SEK 100. The total cost of this incentive scheme is largely dependent to the extent that em- ployees choose to participate, although the cost is estimated at some SEK 2-3 m per year. The compa- ny’s commitment to the Fund is made once yearly.
Connecta’s profit-share fund is the 12th largest
shareholder as of 31 December 2008, with a holding
of 120,460 shares, corresponding to 1.16% of the vot-
ing rights and equity.
Holding No. of shares Holding, % No. of shareholders
1–500 289,846 2.79 1,544
501–1,000 479,041 4.61 592
1,001–2,500 618,159 5.95 364
2,501–,5000 560,707 5.39 157
5,001–10,000 531,148 5.11 71
10,001– 7,909,454 76.15 87
Total 10,387,355 100.00 2,816
Ownership Structure
The division of Connecta’s shareholdings, based on the share register maintained by Euroclear Sweden AB as of 31 December 2008 follows:
Share price performance and trading volume 2008
0 0
10 20 30 40 50 60 70 80 90
50,000 150,000
100,000 200,000 250,000 300,000 350,000 400,000
January VOLUME
February March April May June July August September October November December 1,232,600
SHARE PRICE CNTA SMALL-CAP INDEX TRADING VOLUME
00 20 40 60 80 100
0 100 200 300 400 500 600 700 800
Q4 Q1 Q2 Q3 Q4
Operating profit (SEK m) Sales (SEK m)
2007 2008
Directors’ Report
The Board of Directors and Chief Executive Officer of Connecta AB (publ) corporate identity number 556610-5705 and registered office in Stockholm, Sweden, hereby submit the annual accounts and consolidated accounts for the financial year 1 Janu- ary 2008–31 December 2008.
Connecta is a management and IT consulting practice that helps corporations and non-profit organizations enhance their competitiveness and achieve desired results by integrating in-depth IT know-how with broad-based management skills.
Market and Clients
Connecta’s market remained strong in the first half- year 2008, enabling the company to increase rev- enues from several clients, and in several segments.
In the first half-year, high demand also resulted in Connecta’s average pricing increasing. This trend was most apparent in management consulting, where clients were demanding more specialized services than previously.
From September onwards, the market featured a general slowdown. Due to the resulting uncertain- ty, Connecta’s growth rates declined. The trend of progressively increasing pricing was interrupted, replaced by clients wanting to renegotiate con- tracts, demanding price reductions.
Connecta continued to develop its offerings in Change Management, Customer Relationship Man- agement, Finance and Performance Management, IT Value, Strategy and Business Transformation and Supply Chain Management in 2008, resulting in deeper, and new, client relationships.
In the year, Connecta worked intensively on strengthening its strategic partnerships with IBM, Microsoft, Oracle and SAP.
Connecta’s clients are leaders in the Swedish telecom, retail, banking, insurance, public, energy and manufacturing sectors. Connecta’s five largest clients in 2008 were Ericsson, Försäkringskassan (the Swedish National Social Insurance Office), ICA, Länsförsäkringar and Sony Ericsson.
Financial Performance
Revenues for the period January - December 2008 were SEK 765.2 (721.8) m, a 6% increase. This is explained partly by a robust market in the first eight months of 2008, and a slowdown in the final months of the year compared to 2007, and partly that the share of subcontracting consultants was lower in 2008 than 2007 at 3% (10%).
Sales growth excluding subcontracting consult- ants was 13%. The utilization ratio reduced in the fourth quarter and was 78.3% (84.5%).
Average sales per active employee on a rolling 12-month basis were SEK 1,350,000 (1,377,000) at year-end 2008, a 2% decrease on year-end 2007.
Operating profit for the full year was SEK 100.8 (96.4) m, a 5% increase. As illustrated in the following graph, operating profit (rolling 12 months) remains at a high level. Progress reflects Connecta’s strong historical growth, and in the fourth quarter, a lower growth rate and utilization ratio, partly offset by stable progress of average pricing and internal cost- efficiency.
The operating margin was 13.2% (13.4%). Operating margin adjusted for subcontracting consultants and non-recurring costs* was 14.3% (14.9%).
* Non-recurring costs relate to the costs for the compulsory redemption in 2008 totaling SEK 4.6 m
Sales and Operating Profit, Rolling 12 Months, SEK m
The group’s net financial income/expense was SEK 1.4 (1.0) m. Profit before tax was SEK 102.2 (97.4) m.
Net profit for the period was SEK 70.3 (68.4) m.
Balance Sheet and Cash Flow
Connecta’s total assets were SEK 348.9 (357.8) m at year-end. Equity was SEK 153.0 (151.1) m. The eq- uity/assets ratio as of 31 December 2008 was 43.9%
(42.2%), a 1.7 percentage point improvement. Con- necta’s objective is to achieve a minimum equity/
assets ratio of 35%.
Non-current Assets
At year-end, the company’s non-current assets were reported at SEK 65.3 (62.9) m, of which intangi- ble assets were SEK 48.0 (47.4) m.
Current Assets
At year-end, the company’s current assets were SEK 283.6 (294.9) m. At 31 December 2008, current receivables were SEK 191.2 (205.2) m.
Accounts receivable were SEK 154.0 m as of 31 December 2008, a SEK 13.2 m decrease since the previous year-end. Prepaid expenses and accrued income were SEK 36.6 m as of 31 December 2008, down SEK 0.7 m since the previous year-end. Work- ing capital as a proportion of total sales was lower at the end of 2008 than at the beginning of the year, explained by Connecta’s ongoing internal rationali- zation efforts.
Cash and cash equivalents were SEK 92.4 (89.7) m as of 31 December 2008.
Equity and Liabilities
Equity was SEK 153.0 (151.1) m at year-end. Interest- bearing non-current liabilities were SEK 8.3 (9.1) m.
At year-end, current liabilities were SEK 187.6 (197.7) m, with accounts payable representing SEK 17.9 (14.2) m and tax liabilities being SEK 22.0 (18.8) m.
The Share
Connecta’s share capital is SEK 5,193,677.50 divided between 10,387,355 class B shares, with one vote per share and a nominal value of SEK 0.5 per share.
Each share confers the right to one vote, and every shareholder entitled to vote may vote for the full number of shares held and represented at Annual General Meetings. All shares confer equal rights to participation in the company’s assets and profits.
There are no restrictions in terms of dividends or other forms of capital repayment.
Tikk2 AB holds 10.5% of the shares and has 67 part- ners, the majority being management and execu- tive staff of Connecta.
More information on the share is on pages 18-19.
Cash Flow
Connecta successfully reduced capital tied-up in 2008. Its rationalization project covers a range of internal processes such as procurement and “from assignment to payment”, the latter resulting in shorter lead-times and more reliable invoicing.
Cash flow from operations was SEK 89.6 (88.6) m for the full year. The change in working capital was SEK -11.5 (-45.9) m. Cash flow from operating activi- ties was SEK 78.1 (42.7) m. Cash flow was affected by payments of annualized performance-related pay and taxes.
Cash flow from investment activities was SEK -3.9 (-0.8) m. Cash flow from financing activities was SEK -71.4 (-43.0) m, which was mainly attributable to dividends paid of SEK 68.4 (40.3) m. Total cash flow was SEK 2.7 (-1.1) m. Adjusted for dividends, cash flow was SEK 71.1 (39.2) m. Adjusted for divi- dend and normal seasonality, Connecta’s total cash flow made positive progress through the full year.
Human Resources
Connecta’s organic expansion continued in the year, albeit at a declining rate late in the year. At year-end 2008, Connecta had 587 (526) employees, of which 27% (26%) were women. The average number of employees in the year was 579 (502). In 2008, 210 (177) new staff took up employment. Connecta will continue to expand selectively through targeted initiatives, with aims including hiring specialists in Connecta’s new skills segments.
Staff turnover was 26% (18%) in 2008.
Parent Company
Connecta’s operating activities are integrated in the parent company. Revenues for the full year 2008 were SEK 765.0 (721.8) m. Profit after financial items was SEK 98.3 (92.0) m.
As of 31 December 2008, parent company equity
was SEK 114.1 (116.2) m. Investments in the year
were SEK 3.9 (0.8) m. Cash and cash equivalents
were SEK 92.2 (89.6) m as of 31 December 2008.
Financial Risks
Financial instruments and risk management are reviewed in Note 26 on page 44.
Board Activities
A special review of Board activities is stated in the Corporate Governance Report on page 49-55.
Guidelines for Remunerating Senior Executives The AGM 2008 approved the following guidelines for remunerating senior executives.
Connecta’s management will receive remunera- tion pursuant to the same salary model as other Connecta employees, i.e. that employees (and thus the management) share the risks and successes of the company. This means that outcomes in cyclical upturns may be perceived as positive, while employees participate and take responsi- bility for the challenges and potential utilization problems that arise in cyclical downturns. The salary model has two parts: basic salary depend- ent on employees’ roles and responsibilities, and a performance-related portion controlled by employee performance. The salary model is intended to give employees a long-term incentive to grow and take new roles and responsibilities, while simultaneously, short-term performance is also rewarded. The performance components that determine performance-related pay are individu- ally determined; but all share a clear link to the company’s success and relate to quality, customer relationships, extra sales, long-termism, progress, invoicing or performance versus budget, etc. The objective is for all employees to have 50% basic sal- ary and 50% performance-related pay.
The performance-related pay of members of the SM (Strategic Management) is linked to a per- formance-related pay system. The total outcome of this performance-related pay system is linked to Connecta’s profit growth and the individual share of the outcome is linked to the satisfaction of individual goals (see above) and responsibilities within the company. The purpose of the salary model is partly cost flexibility, and partly the common interest of shareholders and staff. The Chief Executive Officer has a notice period of six months and severance pay of another six months coincident with termination initiated by the com- pany. The pension premium of the Chief Executive Officer is a maximum of 27% of basic salary. Other
senior executives have 3 – 6 month notice periods and no severance pay.
The proposed guidelines for remunerating senior executives will be submitted to the AGM on 26 March 2009 and are unchanged from those sub- mitted to the AGM 2008. For more information on remuneration to the corporate management, see Note 8 on page 40.
Proposed Appropriation of Profits
The following funds in the parent company are at the disposal of the Annual General Meeting
Retained profits SEK 20,834,056 Net profit SEK 66,366,820 Total 87,200,876
The Board of Directors and Chief Executive Officer propose that these funds are appropriated as follows:
Dividend to shareholders
SEK 4.06 per share SEK 42,172,661 Carried forward SEK 45,028,215 Total 87,200,876
The Balance Sheets and Income Statements of the group and parent company will be submitted at the AGM on 26 March 2009.
The dividend is calculated on the number of outstanding shares as of 31 December 2008, i.e.
10,387,355.
1 The Board of Directors is proposing dividends of SEK 4.06 + 2.71 per share to the AGM, paid in two rounds, totaling SEK 6.77 (6.59) per share. The second round of dividends is proposed as conditional on the Board’s judgment that dividends are justifi- able at the time of the Second-quarter Interim Report.
2 The carried forward item includes the above conditional second dividend of SEK 2.71 per share or SEK 28,149,732. If both dividends are paid, this means a total of SEK 70,322,393 will be paid to the company’s shareholders, and distributable earnings of SEK 16,878,483 will remain.
Directors’ Report, cont.
1 2
