Financial Statement 2001
1/29/2002 3:11 AM EST
Financial Summary 2001
Revenues amounted to SEK 217.3 m in 2001, an 88% increase, while gross
margin expanded six percentage points to 25%. Network expenses
consequently increased considerably less than revenues. Other expenses,
excluding items affecting comparability of SEK 18.1 m, were down SEK
27.1 m, to SEK 115.0 m in 2001. These advances implied that operating
losses excluding items affecting comparability virtually halved in 2001,
to SEK -60.2 m.
Highlights in the Period
Fourth quarter:
· Revenues grew to SEK 59.4 m, up 5% quarter-on-quarter;
· Earnings excluding items affecting comparability rose for the
fourth consecutive quarter. Fourth quarter earnings were SEK -6.6 m, up
SEK 5.1 m on third quarter earnings excluding items affecting
comparability.
January - September:
· Glocalnet launched Internet and mobile services in the first
quarter, attracting a very healthy influx of mobile customers during the
second and third quarters;
· The corporation embarked on an extensive strategic and
restructuring program in March, with implications including the
liquidation of the Danish operation and the Swedish headcount being
downsized by 11 to 47 staff;
· In June, Glocalnet effected a new issue with preferential rights
for existing shareholders, raising SEK 66.5 m net of issue expenses;
· During the third quarter, Glocalnet became party to a keynote
agreement with a primary provider of network capacity, which implied
increased margins in the second half-year.
After the End of the Period
· Mr. Jan Edholm-whose previous experience includes being CEO of SF
(Svensk Filmindustri) and www car reseller Autoo-was appointed as
Glocalnet's CEO.
· Glocalnet signed an agreement with IKEA Svenska Försäljnings AB
concerning a long-term, strategic collaboration.
Operations in the Year
During the first quarter, Glocalnet launched Internet and mobile
services, thereby becoming Sweden's first player to make a bundled fixed
and mobile telephony plus Internet services offering with a single bill
and self-service www portal. Glocalnet remains Sweden's only provider to
make an integrated offering of these services.
In March, a strategic and restructuring program was launched implying
the liquidation of Glocalnet's Danish operation including seven staff;
headcount in Sweden was downsized by 11. Coincident with this program,
operations were divided into two business areas: Glocalnet Service
Operator and Glocalnet Service Provider. The latter offers Glocalnet-
branded telecom services direct to consumers. Glocalnet Service Operator
offers turnkey telecom operation solutions that enable other
corporations-virtual operators-to launch proprietary-branded, integrated
telecom offerings.
Subsequent to approval at an Extraordinary General Meeting on May 2,
2001, a new issue of 86,679,850 shares with preferential rights for
existing shareholders was consummated in the second quarter.
Approximately 60% of this issue was underwritten with subscription
rights, with the remaining 40% subscribed by Glocalnet's main owner
Catella IT AB, pursuant to a guarantee agreement. The issue raised SEK
66.5 m after issue expenses.
Glocalnet's focus on profitability started to generate results, with
losses falling by SEK 20 m on the first quarter, thereby amounting to
SEK 17.5 m, with SEK 9.0 m of this difference attributable to items
affecting comparability relating to the restructuring program posted in
the first quarter. A further SEK 6 m or so was directly attributable to
savings related to the restructuring program. Accordingly, a total of
some SEK 15 m of the improvement relates to non-recurring effects, while
additionally, earnings improved by some SEK 5 m, mainly due to increased
sales and further cost-cutting.
In the third quarter, Glocalnet became party to a keynote agreement
valid until June 2002 inclusive, its counterparty being a primary
provider of network capacity, generating a distinct margin improvement
compared to the first half-year.
The implications of this deal include much of Glocalnet's network
equipment becoming unutilized for the time being, and therefore, the
corporation effected an SEK 9.1 m non-recurring write-down, accounted as
an item affecting comparability.
Earnings excluding items affecting comparability rose by a further SEK
5.9 m, to SEK -11.6 m, the consequence of increased revenues, primarily
related to a healthy influx of mobile customers, sustained cost-cutting
and expanding margins.
In the fourth quarter, revenues expanded to SEK 59.4 m, up 5% quarter-on-
quarter.
Fourth quarter earnings were SEK -6.6 m, gains of SEK 5.1 m on the third
quarter figure excluding items affecting comparability. The declining
losses are primarily due to reduced other external expenses, the
consequence of low marketing expenses and ongoing cost rationalization.
In December, the Stockholm tax board decided to impose a SEK 6.7 m tax
surcharge on Glocalnet for the fiscal year 2001. Glocalnet intends to
appeal against this decision, which it considers to have been reached on
erroneous grounds. After considering the various aspects and taking
counsel on this issue, the corporation perceives good prospects of
ultimately achieving success, and accordingly, Glocalnet has opted to
account this item as a contingent liability that does not burden
earnings.
After the End of the Period
On 14 January, Mr. Jan Edholm-whose previous experience includes being
CEO of SF (Svensk Filmindustri) and www car reseller Autoo-was appointed
Glocalnet's CEO. The previous CEO and Glocalnet's founder, Stefan Krook,
will continue to head up a number of strategic projects until the end of
March, to then concentrate on his Board position.
Glocalnet signed an agreement with IKEA Svenska Försäljnings AB
concerning a long-term, strategic collaboration where Glocalnet will
offer telephony to IKEA Family customers in Sweden. The offer will be
presented parallel to IKEA's launch of the new IKEA Family at the end of
February.
Financial Reporting
(The following are consolidated figures. Figures in brackets are
comparatives with the corresponding period/date of 2000.)
Accounting Principles
The accounting principles applied in this Financial Statement are
identical to those in the previous accounting year, and are stated in
the Annual Report for 2000.
Revenues
Revenues amounted to SEK 217.3 (115.5) m in 2001, an 88% year-on-year
increase. Traffic revenues were SEK 217.2 (115.1) m, SEK 192.2 (115.1) m
of this total being fixed-line telephony, SEK 21.9 (0) m being mobile
telephony and SEK 3.1 (0) m derived from Internet services. The fixed
telephony revenue gains were primarily due to brisk customer base growth
in 2000 generating its first full-year effects in 2001, as well as
increased volumes, and the resulting higher revenues per customer.
Fourth quarter revenues were SEK 59.4 m, up 5% quarter-on-quarter, due
largely to a SEK 1.5 m expansion of mobile telecom services revenues on
the previous quarter, to SEK 10.1 m. Fixed telephony revenues also
increased slightly, mainly the consequence of higher revenues per
customer.
The number of customers actively utilizing Glocalnet's fixed telephony
services in December amounted to some 85,000, down 3,000 on September,
and 1,500 fewer than in December 2000. Average monthly revenues per
active fixed telephony customer were SEK 187 in the fourth quarter, up
SEK 7 quarter-on-quarter, an upturn mainly due to increased domestic
traffic volumes due to a recovery from adverse summer seasonality. 3,500
customers used Glocalnet's Internet service in December, up by 400 since
September. The number of customers actively utilizing Glocalnet's mobile
telephony services in December was some 13,000, up by 1,000 since
September.
Network Expenses and Margins
Network expenses were SEK 162.6 (93.1) m in 2001, a consequence of
growing traffic volumes. Gross margins were 25.2%, up 5.8 percentage
points year-on-year, primarily the consequence of significant reduced
discounting in 2001, and the aforementioned agreement with a primary
network capacity provider.
Fourth quarter network expenses were SEK 43.7 m, up SEK 2.5 m quarter-on-
quarter. Accordingly, gross margins reduced to 26.3%, and were 0.8
percentage points lower than in the third quarter, but higher than in
the first half-year, consistent with expectations stated in the Nine-
month Interim Report. This was mainly due to price reductions effected
in September.
Other Expenses and Earnings
Operating expenses excluding network expenses stood at SEK 133.1 (142.1)
m in the year, with the year-on-year reduction mainly due to reduced
marketing expenses and ongoing cost rationalizations enabling growth,
simultaneous with reducing expenses. Excluding items affecting
comparability of SEK 18.1 m, these expenses amounted to SEK 115.0 m,
down by SEK 27.1 m on 2000. The items affecting comparability comprised
a SEK 9.0 m provision for liquidation expenses coincident with
restructuring in the first quarter, and a SEK 9.1 m write-down of
network equipment effected in September.
Fourth quarter operating expenses excluding network expenses were SEK
21.2 m. Excluding items affecting comparability, this represented a
decrease of SEK 4.8 m quarter-on-quarter, mainly due to reduced other
external expenses and depreciation.
The employee headcount at the end of the period was 45 (73), one less
than at the end of the third quarter. Personnel expenses amounted to SEK
32.7 m in the year, down SEK 6.1 m on 2000, the consequence of a reduced
average headcount. Fourth quarter personnel expenses were SEK 7.5 m, up
SEK 1.8 m quarter-on-quarter, largely the consequence of a seasonal
downturn in expenses in the third quarter, in turn the result of staff
vacations. Other external expenses include items such as marketing,
external customer service and consulting expenses, and reduced by SEK
4.6 m, amounting to SEK 7.9 m in the fourth quarter. Marketing
initiatives during the fourth quarter were limited, because Glocalnet
did not consider that customer acquisition expenses were at a level that
could confer attractive long-term profitability.
Operating earnings for 2001 were SEK -78.3 (-119.7) m; excluding items
affecting comparability, operating earnings were SEK -60.2 (-119.7) m.
Net financial income was SEK -4.1 (1.7) m; net earnings were SEK -82.4 (-
118.0) m. Fourth quarter operating earnings stood at SEK -5.6 m, a SEK
5.1 m quarter-on-quarter upturn, excluding items affecting
comparability. Net interest income was SEK -1.0 m, and accordingly,
quarterly earnings were SEK -6.6 m, against SEK -20.7 m in the previous
quarter.
Assets and Liabilities
The closing balance of total assets was SEK 143.7 (174.7) m, comprising
fixed assets of SEK 20.1 (44.3) m, current receivables of SEK 50.3
(53.0) m and SEK 73.3 (77.4) m in cash. Explanations for the distinct
downturn in fixed assets include the write-down of much of the
corporation's network equipment, of SEK 9.1 m, effected in the third
quarter.
As of December 31, 2001, shareholders' equity amounted to SEK 46.9
(62.8) m; long-term liabilities were SEK 29.1 (28.9) m, and short-term
liabilities stood at SEK 67.7 (82.9) m. The reduction in current
liabilities is due to factors including reduced accounts payable.
Investments
Investments in fixed assets were SEK 9.2 (37.6) m in the period, SEK 2.3
(19.7) m financed through leasing contracts. The corporation's fourth
quarter investments amounted to SEK 2.3 m, financed with liquid assets;
investments effected in the year were mainly upgrades of the
enterprise's billing and customer care technology platform.
Cash Flow and Financial Position
Cash flow after financing activity for the year was SEK -4.1 (64.1) m,
with the negative cash flow before financing activity down quarter-on-
quarter, the result of reduced working capital in the fourth quarter,
and amounting to SEK -0.7 m. Quarterly cash flow after financing
activity was SEK -2.4 m; as of December 31, 2001, Glocalnet's liquid
assets stood at SEK 73.3 m.
Change in Shareholders' Equity
Consolidated shareholders' equity reduced from SEK 62.8 m as of December
31, 2000 to SEK 46.9 m as of December 31, 2001, a change consisting of
losses of SEK 82.4 m, a SEK 66.5 m new issue after issue expenses
effected in the second quarter and option premiums paid by staff of SEK
4,000.
The Annual General Meeting on March 29, 2001, resolved to grant the
Board of Directors authorization to issue stock within the framework of
two option incentive schemes targeted at Glocalnet's staff, each
encompassing one million options, one of which was effected in the third
quarter.
Allocation of Earnings/Dividends
Consolidated accumulated losses amounted to SEK -287.8 m; the Board of
Directors and Chief Executive Officer propose that these losses are
carried forward.
Market and Outlook
Glocalnet has experienced yet another eventful year, achieving
substantial sales growth; in 2001, Glocalnet evolved from being a single-
product enterprise, offering fixed telephony exclusively, to its current
positioning with the market's most comprehensive services offering in
integrated form. Glocalnet now offers fixed and mobile telephony plus
Internet connections with single-point customer service, a facility for
customers to utilize a self-service www portal, and easily
comprehensible billing on a single statement. On the marketing side, the
biggest challenge has been to be able to launch these new services,
while maintaining healthy growth with limited resources. The overall
corporate focus has been to stake out a clearly defined path towards
profitability rapidly, and within the framework of the capital raised in
the new issue consummated in the second quarter.
Glocalnet's efforts have been fruitful; sales were up 88% year-on-year,
and are now converging on annualized sales of SEK 250 m. The new
services, particularly mobile services, were launched successfully and
together, now generate one-fifth of Glocalnet's revenues.
Glocalnet's profitability focus has also generated clear results-in the
final quarter of the year, operating losses fell below SEK 6 m, against
SEK 46 m a year previously. Part of this improvement is due to a
significant reduction of marketing initiatives in the quarter compared
to 2000, but even adjusted for this, the improvement is radical. This is
the consequence of intense efforts during the year to enhance processes,
minimize system expenses and renegotiate contracts with primary
providers. Significant headcount downsizing was also effected in late
March.
Despite the favorable results already achieved, it is worthwhile noting
that the full effect of rationalization is not yet visible in
Glocalnet's earnings. Systems and organizational resources are now
adapted for handling additional volume with only marginal headcount
expansion and infrastructure investments necessary. Accordingly, over
time growth would imply a significant positive earnings impact.
In 2001, Glocalnet achieved healthy sales gains from a basically
unchanged customer base, in the face of limited market resources. This
year, customer base growth will also be prioritized. The collaboration
with IKEA is expected to have the most growth potential. Glocalnet has
worked out special offers for IKEA customers and will in return be
helped by IKEA's marketing, distribution and brand. Although the
potential of this collaboration is deemed big, one should not
underestimate the difficulties in successfully realizing it.
Overall, Glocalnet now possesses a uniquely integrated services
portfolio and the organizational, systems and financial prospects to
achieve profitability through both marketing initiatives in
collaboration with IKEA and other initiatives. From this vantage point,
the management and Board will continue to evaluate various merger and
acquisition alternatives in the hope of identifying opportunities to
shorten the path to profitability further, thereby consolidating the
corporation.
This Financial Statement will be presented at 12 noon on January 29 at
Operaterrassen in Stockholm, Sweden.
Annual General Meeting and Forthcoming Reports
The Annual General Meeting of Glocalnet AB will be convened on April 8,
2002; the Annual Report will be available at the corporation's offices
from the last week in March.
The first quarter Interim Report is scheduled for publication on April
25, 2002.