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!
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. 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.
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. Increased 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.
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 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.
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 time, we were commissioned for many key projects within banking and financial services and insurance - thanks to our consultants' technology expertise.
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.
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.
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
Acting president and CEO
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