Download - Intrum Justitia

Board of Directors’ report
The Board of Directors and the President of Intrum Justitia 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, Intrum Justitia 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. Intrum Justitia 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, Intrum Justitia and Visegrad
NV, the minority owner of the Group subsidiary Intrum Justitia 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 Intrum Justitia 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 Intrum Justitia 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 Intrum Justitia’s purchase of the shares in Legal & Trade
Collections (Ireland) Ltd, now named Intrum Justitia Collections (Ireland) Ltd. The
court has directed that the seller, Legal & Trade Financial Services Ltd, must pay
compensation to Intrum Justitia as a consequence of inaccurate fi nancial information
provided by it. The company has been consolidated in the Intrum Justitia
Group since July 2005, effective as of October 2004.
In June Intrum Justitia acquired all the shares in the Slovakian company
Creditexpress Slovakia s.r.o., now named Intrum Justitia 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 Intrum Justitia Group and its partners in order to fund portfolio
purchases.
In September Intrum Justitia 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 Intrum Justitia 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 Intrum Justitia 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