Adcore AB-Financial Statement January-December 2001



Cash flow under control

Cash flow from operations amounted to SEK -2 m in the final quarter 2001 (SEK -132 m in Q3), with restructuring generating an SEK 18 m negative cash flow in the fourth quarter.

Sustained positive order bookings

At year-end, Adcore’s order backlog was some SEK 120 m-satisfactory in a problematic market. Adcore secured major new business in the period on its enterprise application and system integration sides. Its customer base comprises major multinational corporations. In the fourth quarter, Adcore’s billing rate was 65% (62% in 2001).


The market remains abrasively competitive, and securing customers’ trust necessitates the utmost in delivering quality as well as customer value. Certain market niches are tracing healthy growth-particularly process rationalisation and enhancements of existing systems. Against this background, Adcore has started hiring specialists with documented experience.

Market and outlook

Market conditions deteriorated drastically early in 2001, with the combination of reduced demand and a glut of consulting services unleashing severe profitability problems throughout the sector. Events gained an additional element of drama when client investments in new technology collapsed from extremely high levels to virtually zero in a very short space of time.

The most palpable downturn occurred in the demand for projects featuring new initiatives (such as new technologies, solutions, processes and business), major projects generally and in the market for strategic and business consultants in particular. Demand for more traditional IT services (such as technology/systems development) was more stable. Far more intensive sales efforts were necessary to secure each assignment than was the case in 2000.

This market deterioration and intensifying competition elicited general price pressure, and to some extent, altered client purchasing behaviour. Tendering for consulting services was centralised, with each client cutting their number of service providers. Greater caution meant far longer decision processes, with new investments delayed.

The market segment where demand has remained relatively firm centres on minor IT projects with shorter pay-back times intended to rationalise, cut costs and/or increase the productivity of existing IT systems.

In general terms, the market remained sluggish in the latter half-year, and into the new year 2002. Adcore anticipates sustained adverse market conditions this year, despite some market niches likely to experience healthy growth.

Financial objectives

Adcore’s objective is to achieve an operating margin of 10% over a business cycle.

Highlights in the year

Adcore has put an extremely turbulent year behind it, with upbeat expansion in 1999 and 2000, and its exclusive focus on growth, rapidly transformed into restructuring, the divestiture of enterprises and wind-downs.

When, in early 2001, it became clear that the entire European market was starting to wane, Adcore was not prepared for a weakened business cycle-in early 2001, Adcore had nearly 2,000 staff in 13 countries located in over 30 offices. Its structure was not entirely uniform, while the integration of all units was not complete. Several of Adcore’s European subsidiaries, more oriented towards the market for entry-level web services, rapidly started suffering losses. Adcore’s Swedish business also experienced profitability problems, albeit of nothing like the same magnitude as outside Sweden. Certain units, primarily in Stockholm, continued to proceed positively, but not sufficiently well to support an extensive and loss-burdened foreign operation. Indeed, Adcore’s heterogeneous structure rendered fast and consistent action to rectify all the group’s difficulties very problematic.

Against the above background, Adcore embarked on the liquidation of its unprofitable elements to concentrate all available resources on those businesses with the best prospects of success. The first units divested, in April, were the enterprises in France and Finland.

As the losses continued, the situation exacerbated, with Adcore’s former CEO Göran Wågström leaving in June, to be replaced by Board member Ole Oftedal. Simultaneously, Adcore announced the divestment or liquidation of all activities outside Sweden, its objective being to minimise financial risk, and thereby, avoid Adcore having to rely on a radical improvement of market conditions to survive.

In the summer, Adcore decided that all unprofitable activities would be wound down or divested, which in practice, meant concentration on Stockholm, with some 500 experienced consultants and satisfactory order bookings all year round. Thereby, Adcore would create the right prospects for securing a stable and profitable foundation to build the future, restructured, Adcore.

Because losses and a negative cash flow were depleting the corporation’s cash, a capital injection was needed to resolve the liquidity crisis Adcore was in in the late summer. These funding difficulties were resolved through a private placement in October, which raised SEK 169.5 m gross for the corporation.

The restructuring was implemented and basically complete by the third quarter, when 28 enterprises in 13 countries with a total of some 1.200 staff had either been divested or wound down. The private placement was consummated in parallel with this process.

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