28 Annual report, consolidated accounts and audit report 1 29 Board of Directors’ report 34 Proposed disposition of profi t 35 Income statements 36 Balance sheets 38 Cash fl ow statements 39 Changes in shareholders’ equity 40 Notes 63 Audit report • Revenues amounted to SEK 2,823.2 M (2,740.5). • Operating earnings (EBIT) rose to SEK 503.6 M (430.6). • Net earnings rose to SEK 333.6 M (323.4). • Cash fl ow from operating activities remained strong at SEK 527.0 M (485.3). • Earnings per share before dilution amounted to SEK 3.84 (3.68). • The Board of Directors proposes a dividend of SEK 2.25 per share. 1 The annual report and the consolidated accounts for 2005 on pages 29–62 constitute the offi cial fi nancial reports according to paragraph 3.6.1 in the Swedish Code of Corporate Governance. These sections have been audited by the company’s auditor in accordance with the audit report reproduced on page 63. The offi cial fi nancial reports have been prepared based on the rules and in accordance with the accounting recommendations in Note 1 on page 40.
Board of Directors’ report The Board of Directors and the President of <strong>Intrum</strong> <strong>Justitia</strong> AB (publ) hereby submit the following annual report and consolidated fi nancial statements for the fi nancial year 2005. The company has its registered address in Stockholm and corporate identity number 556607-7581. THE INTRUM JUSTITIA GROUP Founded in 1923, <strong>Intrum</strong> <strong>Justitia</strong> is Europe’s leader in Credit Management Services (CMS). The Group’s services cover the entire credit management chain, from credit information via invoicing, reminders and collection to debt surveillance and collection of written-off debt portfolios. Most services are grouped within the service lines Consumer Collection & Debt Surveillance and Commercial & International Collection. <strong>Intrum</strong> <strong>Justitia</strong> also works with purchased debt and a number of specialized services related to credit management. Operations are organized into seven regions. The Group has around 2,900 employees in 22 European countries. KEY EVENTS DURING THE YEAR To supplement and clarify previous agreements, <strong>Intrum</strong> <strong>Justitia</strong> and Visegrad NV, the minority owner of the Group subsidiary <strong>Intrum</strong> <strong>Justitia</strong> Central Europe BV, signed a new agreement in January 2005 that governs investments in purchased debt portfolios in Poland, the Czech Republic and Hungary, and specifi es the calculation of the variable commission on these portfolios. Following the acquisition of the Slovakian company <strong>Intrum</strong> <strong>Justitia</strong> Slovakia s.r.o. (formerly Creditexpress Slovakia s.r.o.) in June 2005 (see below), the above mentioned agreement was extended to include this country as well. The Annual General Meeting in April resolved to amend the articles of association to facilitate a share redemption program proposed by the Board of Directors. An Extraordinary General Meeting in June resolved to implement the program. Shareholders were offered the opportunity to redeem every twelfth share for SEK 84, corresponding to a payment of approximately SEK 6.95 per share. In total, 7,029,353 shares were tendered for redemption, corresponding to an acceptance rate of 99.25 percent. The redemption proceeds were paid out at the end of June. To facilitate a timely payment to shareholders, the EGM also resolved on a directed issue of 7,029,353 redeemable series C shares to Svenska Handelsbanken AB and the redemption of a corresponding number of shares to fund a payment to the shareholders of SEK 590.5 M through reductions in the share premium reserve and share capital. After receiving court approval for the reduction, the series C shares were redeemed in October. The share capital of <strong>Intrum</strong> <strong>Justitia</strong> AB thereby amounts to SEK 1,559,125.02, distributed among 77,956,251 shares. In June the company received a verdict from the Irish High Court in the proceedings related to <strong>Intrum</strong> <strong>Justitia</strong>’s purchase of the shares in Legal & Trade Collections (Ireland) Ltd, now named <strong>Intrum</strong> <strong>Justitia</strong> Collections (Ireland) Ltd. The court has directed that the seller, Legal & Trade Financial Services Ltd, must pay compensation to <strong>Intrum</strong> <strong>Justitia</strong> as a consequence of inaccurate fi nancial information provided by it. The company has been consolidated in the <strong>Intrum</strong> <strong>Justitia</strong> Group since July 2005, effective as of October 2004. In June <strong>Intrum</strong> <strong>Justitia</strong> acquired all the shares in the Slovakian company Creditexpress Slovakia s.r.o., now named <strong>Intrum</strong> <strong>Justitia</strong> Slovakia s.r.o. In July the company strengthened its position in the Polish market for writtenoff debt portfolios by establishing an Investment Fund Society (IFS) that will manage one or more investment funds, which invest in portfolios with different investment strategies. The investment funds will issue investment certifi cates to investors within the <strong>Intrum</strong> <strong>Justitia</strong> Group and its partners in order to fund portfolio purchases. In September <strong>Intrum</strong> <strong>Justitia</strong> and Goldman Sachs jointly purchased a written-off bank loan portfolio from one of Spain’s leading banks. The portfolio comprises non-performing loans (without tangible security) with an aggregate outstanding principal and interest value of approximately EUR 1.4 billion. REVENUES AND EARNINGS As on January 1, 2005 the Group applies the International Financial Reporting Standards (IFRS). The introduction of the new accounting standards has necessitated a change in accounting principles with a signifi cant effect on the income statement and balance sheet. Comparative fi gures for 2004 have been restated in accordance with the new principles. Consolidated revenues during the year amounted to SEK 2,823.2 M (2,740.5), an increase of 3.0 percent. Organic growth was –0.2 percent. The effect of fl uctuations in exchange rates was 2.2 percent. Revenue growth of 1.0 percent corresponds to the contribution from the companies acquired in Ireland and Slovakia. The Group has strengthened its market shares in Italy, Portugal, Spain, and in Denmark, where <strong>Intrum</strong> <strong>Justitia</strong> now is the market leader. The Group has also gained market share in the Purchased Debt service line. Parts of Eastern Europe are reporting good growth. Sweden and Finland are also growing faster than the Group average. To overcome increased price pressure in England and Poland, among other countries, further effi ciency improvements will be made. The Group’s increased focus on Purchased Debt and Debt Surveillance led to good growth during the year, a trend even more pronounced during the fourth quarter. Operating earnings for the full-year 2005 rose to SEK 503.6 M (430.6). Productivity and cost effi ciencies have increased in a number of Group companies, especially in Denmark, Germany, the Netherlands, Portugal and Spain, which produced further earnings and margin improvements. The operating margin for 2005 was 17.8 percent (15.7). Earnings include nonrecurring expenses of SEK 30.3 M related to the development of an IT system for the British operations. During 2005, two different IT projects were initiated, one in Norway and one in the UK. The Norwegian system is based on one currently used in Sweden and Finland, while the British system was a further development of the existing system. While the installation in Norway was successful and the system has been in operation since January 2006, the British system has encountered diffi culties, which has resulted in a revised and extended implementation plan. As a result, the Group has decided to discontinue further development of the present British system and instead replace it with a new one based on the positive experience gained from the Norwegian installation. Earnings before tax for the full-year rose to SEK 472.2 M (394.2), while net earnings amounted to SEK 333.6 M (323.4). GEOGRAPHIC REGIONS Sweden, Norway & Denmark The Swedish company reported stable revenues and maintained good margins, particularly in Consumer Collection & Debt Surveillance and Purchased Debt. Other services is not yet profi table. The company in Norway faced major challenges during the year, but is signifi cantly better positioned for 2006 after the successful installation of a new production system that raises the effi ciency and quality of its client offering. Market shares in Denmark have increased. Volume increases and improved collection results led to an increase in the company’s revenues and margin. Regional revenues for the year amounted to SEK 655.3 M (624.4), an increase of 4.9 percent. Operating earnings amounted to SEK 169.8 M (153.0) with an operating margin of 25.9 percent (24.5). United Kingdom & Ireland The UK company developed poorly during the year with lower volumes and a negative operating result. Additional volume from new and existing clients could not fully compensate for lower volume from certain major clients in Consumer Collection & Debt Surveillance. Moreover, operating problems in connection with the delayed implementation of a new IT system have led to lower collection effi ciency, which mainly affected purchased debt operations. The impact on earnings was limited, however, by cost reductions primarily achieved through redundancies. Looking ahead to 2006, a review is being conducted of the cost structure of the English operations in order to increase effi ciency and gradually eliminate the losses. The Irish company, which is reporting growth but posted overly high expenses in 2005 in connection with the integration of <strong>Intrum</strong> <strong>Justitia</strong> Collections (Ireland) Ltd, is expected to have better prospects in 2006, partly since operations will be consolidated in a single offi ce. Regional revenues for the year amounted to SEK 315.8 M (370.1), a decrease of 14.7 percent. Operating earnings amounted to SEK –62.0 M (11.3) after an impairment loss of SEK 30.3 M related to the IT system. 29
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