TietoEnator Interim Report January - March 2001, operating

TietoEnator Interim Report January - March 2001, operating profit grew by 40 % Comparable net sales grew by 12% Operating profit, excluding non-comparable items grew, by 40% to EUR 34.3 million (24.5), and including non-comparable items to EUR 55.3 million (33.9) Earnings per share grew by 47% to EUR 0.44 (0.30), before goodwill amortisation to EUR 0.48 (0.33) Operating margin increased to 12.2% (8.6%) Order and outsource intake was strong MARKETS During the first quarter of 2001, overall demand continued to grow for the high value-added IT services where TietoEnator has concentrated its business. The positive trend first clearly visible during the last quarter of year 2000 continued unchanged during the first months of 2001. TietoEnator's focus on leading Nordic industry sectors resulted in a number of new customer agreements as the stable companies of the "old economy" started to move into the digital economy of tomorrow, clearly looking for strong long-term IT partners. TietoEnator signed agreements with companies as Kesko, Rautaruukki, Nordea and Sampo. Sales in banking and finance accounted for 23 % of TietoEnator's total sales, an increase of 15%, while telecom, growing at a rate of 22% amounted for 14%. Public sales with a growth of 2% corresponded to 25 % of total sales, while forest, growing at 18%, accounted for 6%. NET SALES The aggregate net sales of the six business areas during the first three months of 2001 grew by 12 % to EUR 280.3 million (250.0). In local currencies the growth for corresponding units was 12 %. Group net sales declined by 1% to EUR 281.2 million (283.3) compared with the same period in 2000, following the divestment of the network infrastructure business at the beginning of 2001. The new business area Telecom & Media increased its net sales by 25 %, the highest rate of growth in the Group. The rapid changes in telecom arena may open up new opportunities for the business area, which contains activities directed towards telecom operators, telecom vendors, corporate networks and media. The Finance Sector business area grew by 16 %. TietoEnator Finance is now launching solutions on a pan-European basis, while at the same time expanding and developing partnerships with new and old customers. The business area is now developing the next generation of the Solo Internet banking concept for all Nordea's Nordic banks. Sales in the Public Sector business area recovered, recording 14 % growth compared to the first three months of 2000. Production & Logistics benefited from the ongoing consolidation in the forest industry, but was also able to sign important contracts with large customers such as the wholesale and retail chain Kesko , the steel company Rautaruukki and the oil company Shell. The business area contains TietoEnator's forest industry related activities and the activities for process and manufacturing industries plus the Nordic verticals retail, travel and transport, logistics and energy. Activities within the energy sector, above all in the oil and gas business unit, showed strong growth. The Processing & Network business area, which grew by 8 %, signed several large outsourcing contracts together with business areas Production & Logistics and Finance Sector. Resource Management grew by 5%, a clear sign that the applications market is recovering after the long and steep decline that followed Y2K. The strongest growth was reported in Finland, mainly due to Euro-related installations. Geographically the aggregate growth in local currencies was 19 % in Finland and 3 % in Sweden. Growth outside these countries was strongest in Norway with 41 % and Germany, 32%. The order backlog for the six business areas, which comprises only services ordered with binding contracts, totalled EUR 759.8 million (480.6) on 31 March 2001. PERFORMANCE The operating profit before non-comparable items (non-recurring items + social costs for personnel warrants) was EUR 34.3 million (24.5), a margin of 12.2 % (8.6%). Including non-comparable items, the operating profit (EBIT) was EUR 55.3 million (33.9). The main reasons for the increase in profits and margins compared to last year were the improved business conditions and the structural changes in TietoEnator´s Swedish operations. The Group has moved into high value-added and high-margin market segments, away from low value- added services. Non-recurring income amounted to EUR 20.6 million (10.1), from the divestment of shares in Atkos Printmail. There were no non-recurring costs (EUR 0.7 million). The aggregate margin for the six business areas amounted to 14.0 % (12.0%). Earnings per share were EUR 0.44 (0.30) a growth of 47 % and before goodwill amortisation EUR 0.48 (0.33), The average number of shares during the period was 82,334,414. Cash flow from operations amounted to EUR 68.3 million (42.1). TietoEnator continued to buy back its own shares during January, and EUR 6.6 million was spent on this, finalising the purchasing based on the authorisation given by the Annual General Meeting of 2000. Dividends totalling EUR 40.3 million were due in April. The rolling 12-month return on capital employed (ROCE) was 32.7 % and on equity 21.8 %. BUSINESS DEVELOPMENT BY BUSINESS AREA · Finance Sector Demand for the services of the Finance Sector's partner-client business remained at a good level during the period and co-operation with key customers continued to strengthen. Demand focused mainly on Euro-related amendments in Finland and on network and CRM solutions. Negotiations and studies concerning several innovative new solutions in the sector was a distinctive feature of product operations. Net sales during the period totalled EUR 44.2 million (38.0), a growth of 16% on the corresponding period in the previous year. Operating profit, before goodwill amortisation, rose by 39% to EUR 6.7 million (4.8). Both net sales and operating profit grew most strongly in partner- client operations in the Nordic countries and product operations that focus on Europe, including Eastern Europe. The company signed an agreement with Nordea to develop a new generation of the Solo network bank for all the Nordea banks, which are Merita, Nordbanken, Unibank and Christiania Bank. Network banking solutions are a key part of the Finance Portal product, which TietoEnator is aiming at global markets. The Transmaster payment card system was made compatible with EMV (Europay, Master Card, and Visa) chip card standards. Transmaster is now one of the few new technology payment card applications available for banks in the world. Structural changes are carried out in the Finance Sector to optimise the operating models. Projects aiming to improve processes, efficiency and profitability are implemented in the Swedish solutions operations. · Telecom & Media The telecommunication market has been in a state of turmoil during the first quarter. No significant change in the demand for IT services was seen, however. Restructuring and cost cutting by customers have temporarily increased uncertainty in the IT services market. Growing competition and the ongoing need for restructuring will provide outsourcing and sales opportunities for well-positioned players. Net sales during the first quarter were EUR 46.9 million (37.6), up 25% on last year. The operating profit before goodwill amortisation was EUR 7.3 million (5.9), an increase of 25 %. Growth in revenue was strong in all areas. In March TietoEnator acquired 40 % of the company Teledynamics in the Netherlands. The acquisition strengthens TietoEnator´s presence in the telecommunications industry in Europe and opens customer relationships with the Dutch operator KPN. A new customer during the period was Sonera Plaza with several parallel projects. A new order for a WCDMA simulator was received. For the Media business unit a definition project for a broadband and Digital-TV based Entertainment Portal was started with Bonniers in Sweden. · Public Sector The Public market is now moving in a positive direction following a rather static year in 2000. Net sales for the first quarter were EUR 42.2 million, compared to EUR 37.0 million last year. Net sales increased by 14 % in the first quarter. The operating profit before goodwill amortisation was EUR 4.7 million (5.4). Last year's profit was fuelled by the exceptional order intake in the period leading up to the new millennium. Public Sector is putting greater emphasis on "dGovernment" solutions and continued its penetration of the public sector market. This means focusing on two business units: Digital Government Services, concentrating on the partnership and professional service businesses, and Public Resource Management, concentrating on the main operational systems in the healthcare and local authority markets. Business in the healthcare area grew substantially compared to the first quarter last year. TietoEnator's objective of developing the Nordic market resulted in three acquisitions during quarter. These were the healthcare company DataFolket and parts of the healthcare operations of Solteq and MLAB. Celia, the Finnish Library for the Visually Impaired, has chosen TietoEnator to supply their new library information system. The new system will support the library's services and its strategic aim of building a digital library. Stockholm was the first place in Sweden to introduce web-based application to senior high school. More than 90 % of the 7,000 students applied over the Internet. TietoEnator has developed the system. · Production & Logistics The Production & Logistics business area focuses on the forest, energy, logistics, travel and transport, process and manufacturing, and retail industries. Net sales were EUR 53.5 million (48.9), 9 % growth on last year. Last year net sales included sales from businesses restructured later during the year. The operating profit before goodwill amortisation improved by 35 % compared to last year and reached EUR 7.5 million (5.5). A contract to outsource the internal IT operations of the steel company Rautaruukki was signed and operations started successfully at the beginning of March. A major outsourcing deal was also signed with the big Finnish wholesale and retail chain Kesko. TietoEnator will be the main IT partner for Kesko as Kesko renews its domestic chains and expands its international operations. In connection with the transaction, TietoEnator will take over TietoKesko, Kesko's internal IT company. This deal strengthens TietoEnator's leading position as a supplier of IT solutions for the Nordic retail sector. The forest sector continued to perform strongly, concluding two major paper mill contracts in Germany during the period. TietoEnator also signed a global license agreement with Shell International E&P, in the Netherlands, making a key business system available to Shell for oil and gas production reporting and accounting. TietoEnator is today one of the world's leading providers of reporting and accounting systems for oil and gas production. · Processing & Network Net sales for first quarter were EUR 71.6 million (66.4), an improvement of 8 % on the same period last year. The operating profit before non- recurring items for the period was EUR 7.2 million (4.7). Atkos Printmail is consolidated as an associated company, but the capital gain on the sale of shares is reported in non-recurring items. Other major contracts signed in the first quarter included the outsourcing agreements with Rautaruukki, Sampo and TietoKesko, made in co-operation with the Production and Logistics (Rautaruukki and Kesko) and Finance Sector (Sampo) business areas, and the outsourcing of the Swedish printing service to Capella. Growth in Swedish operations was weak and measures to improve profitability are implemented. In February TietoEnator assumed responsibility for the IT services of the City of Stockholm, following a fast and successful changeover. TietoEnator also signed an agreement with Stora Enso to create a platform for their global SAP activities covering the next six years. · Resource Management Demand for outsourcing services, especially in the payroll area, showed an increase during the period. Conversion from FIM to EUR has started within the payroll area, which had a positive impact on revenues during the first quarter in Finland. Net sales increased 5 % on last year to EUR 43.7 million (41.7), and the operating profit before goodwill amortisation increased by 64 % to EUR 5.9 million (3.6) During the period, TietoEnator acquired Eurotime AB, a company that develops time registration and management systems connected to payroll. The publishing house SanomaWSOY outsourced payroll services to TietoEnator. Major contracts were signed in the banking, telecom and oil industries for document management solutions. Nordea decided to select Documentum 4i WCM for the whole organisation for Web Content Management and publishing, covering information services for Internet based banking, Intranets and Extranets. The development has started in Finland, followed by projects in Sweden, Denmark and Norway. Investments in the business portal apptoyou.com continued. Denmark and Sweden started activities to open apptoyou-portals during the second and third quarter. PERSONNEL A high overall level of recruitment was a key feature of the first quarter. Altogether 507 (367) new employees joined the group. Including smaller acquisitions, growth was 328 persons within the business areas. Recruitment is expected to be at a more moderate level during the coming months. The group had an average of 9 488 (9824) employees during the period and 9 602 (9810) at 31 March. The average total number of business area employees rose 5 % to 9 359 (8912). Personnel turnover in the business areas was 13 % (on a rolling 12 months basis), which is similar to last year. However, the first quarter shows a slightly decreasing trend. The supply of IT personnel is considered satisfactory, apart from technical consultants and certain specialists. TietoEnator clearly kept its position as a very attractive employer in the IT labour market. SHARES During the quarter, the number of shares increased by 210.432 through the exercise of warrants attached to the 1996 bonds. The company purchased 214,282 of its own shares for EUR 6.6 million in January. Last autumn, the company had purchased 1,329,273 shares. At the Annual General Meeting in March 2001, these shares were nullified. The registered number of shares at the end of March was 82,522,098. Based on the former Enator warrants and the warrants attached to the 1996, 1998, 1999 and 2000 bonds, the total number of shares may increase by 9.113.569 shares. The subscription period for the remaining 205.811 warrants of the 1996 bond is until 31 January 2002. The subscription period for the 1998 warrants begins on 15 June 2001. These warrants entitle their holders to subscribe for 1.200.000 shares. At the Annual General Meeting, the Board of Directors received an authorisation to purchase the company's own shares. This authorisation is in force from the decision of the AGM until 22 March 2002. The company's own shares can be purchased in order to develop the company's capital structure and to reduce its negative gearing. The Board also received an authorisation to issue shares, option rights and convertible loans for one year from the decision of the AGM. Based on this authorisation the number of shares may be increased by at most 14,103,422 shares. This is to ensure the company's ability to develop its operations by enabling and financing the acquisition of companies and business operations, other corporate arrangements, and to a minor extent by incentive systems. TietoEnator´s biggest shareholder Sonera Group sold all its holdings, 18.6%, (15.6 million shares) during February. PROSPECTS FOR THE REST OF THE YEAR The growth in demand for high-value-added IT-services will continue. The slow down in economic growth and the following restructuring may temporarily cut IT spending, but it will make clients more interested in outsourcing and in looking for a strong IT partner. TietoEnator's strategy, based on high value-added services, strong expertise in its vertical fields and client-partnerships, provides an excellent match to market requirements and supports healthy organic growth. As restructuring in the sector continues and the focus for TietoEnator's external growth has moved from the Tieto and Enator combination to company acquisitions, these factors will also maintain the growth in net sales. The growth of the full year net sales, including acquisitions, is expected to be faster than the first quarter growth. The effect of the improvement in net sales and the structural changes made in Sweden in 2000 will be to boost profitability in the current year. The Group's operating profit in 2001 is expected to improve significantly on the previous year, and exceed the 10% margin target. INTERIM REPORT 2/2001 TietoEnator will publish its interim report for January - June on 1 August 2001. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/04/26/20010426BIT00090/bit0001.doc Full Report http://www.bit.se/bitonline/2001/04/26/20010426BIT00090/bit0001.pdf Full Report

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