Swedish IT consulting and software company Frontec AB, labeled a poorly performing outfit in the past, has undergone a reorganization in order to bring clarity to its fiscal operations and independence to its business lines.
The company has made substantial investments over the past few years to launch its enterprise application integration (EAI) product, AMTrix, onto the global stage. The investment has been such that, on revenues of $106.2m, Frontec recorded a net loss of $5.4m in the year ended December 1998. The previous year, it posted a net loss of $8.2m on revenues of $87.3m. To date, AMTrix is installed in over 2,700 sites in 40 countries and the company now claims to be one of the top five providers in the EAI space.
Another aspect of the reorganization saw the establishment of a software house – unsurprisingly dubbed Frontec Software (though it is soon to be re-named Viewlocity) – and Frontec Nordic, as an IT consulting arm with $88.8m in revenue for fiscal 1998 and $4.8m in net profit. This represents an 18% rise on the previous year’s revenue. Carl-Erland Schr÷der, head of investor relations at the Solna, Sweden-based company says the company is on course for growth of around 40% in the coming year.
In 1998, Frontec paid out the equivalent of $13.5m to make a number of acquisitions which are now being integrated into the company as a whole. In December 1998, it bought a Gothenburg, Sweden-based consulting and software development company known as Prosolvia Research and Technology AB, boosting Frontec’s head count by 140. This was followed by the purchase of Stockholm-based Upec Data AB in October 1998, an e-commerce consulting company. And in July 1998, the company bought NC Datasupport AB, a Swedish help-desk specialist.
Schr÷der reports that the company intends to make further acquisitions in Scandinavia of companies with 100 to 250 employees, although he says there are no plans at this stage for Frontec Nordic to break into new markets in continental Europe or the UK.
For the quarter ending March 31 1999, Frontec Nordic recorded revenues up 52% to SEK 262m ($31.1m), 22% of which was attributed to organic growth. Frontec Nordic’s head count at the end of the first quarter 1999 stood at 1,023, up from 737 in the same quarter in 1998. Employee turnover is reported as 3.7%, which is very low and an improvement on a rate of 4.8% for the same quarter last year. The figure may belie a cyclical trend though, as the turnover rate for fiscal 1998 stood at 15%, a point higher than the previous year. Operating margin for the quarter ending March 31 was reported at 7%, three points up on operating margin for the same quarter in the previous year.
Although Frontec’s industry sector focus is in the telecoms, public sector, healthcare and retail areas, it has an important ongoing contract with Swedish car manufacturer Volvo. When Volvo recently cut back the number of IT service suppliers from 150 to just four, Frontec was lucky enough to be among the chosen few. However, rumors persist that there are to be further cuts in the volume of the car maker’s IT service contracts following the ongoing discussions over the 50% acquisition by Ford of Volvo IT. Frontec is not selling consulting hours. We have specialist knowledge – that is why Volvo retained our services and, if Ford moves in, I don’t see this changing, Schr÷der commented.
Frontec groups its services around five divisions – process development, information systems, integration and soft outsourcing and technical systems. In process development, Frontec Nordic has developed its own method for BPR (business process re-engineering) called Valued-Added Control (VAC). In fiscal 1998, the division accounted for SEK 47m ($5.6m). Information systems accounted for SEK 287m ($34.2m) and focuses primarily on the development of customized administrative systems, although it also implements standardized systems. Projects are often conducted together with the technical systems division. Know-how in this area led to Frontec’s involvement in Telia’s Tradebase consortium bid. Telia is one of the three main suppliers to the public sector in Sweden. The division also handles sales of AMTrix, information services for purchasing systems and Frontec’s SAP ERP implementation unit.
Frontec’s integration division also deals with ERP integration and base systems work and accounted for SEK 114m ($13.6m) in revenue last year. It claims integration expertise on enterprise scale electronic commerce systems using the internet and/or traditional EDI. Its SEK 72m ($8.6m), so-called ‘soft outsourcing’ business refers to the flexibility of the contracts struck between Frontec and clients compared with more traditional outsourcing engagements. To back up its outsourcing activities, Frontec currently has three operations centers in Norrk÷ping, Stockholm and Gothenburg.
Frontec’s technical systems division is the second-largest group, accounting for SEK 205m ($24.5m) in 1998. Services offered include object-oriented systems development technology, real-time programming and the development and verification of AXE (Ericsson’s digital switching systems).
