Interim report for AudioDev AB (publ) 1 January - 30 September 2001

Interim report for AudioDev AB (publ) 1 January - 30 September 2001 (Figures in brackets relate to the period January- September 2000.) · Turnover between January and September amounted to SEK 156 (182) million. · Operating income between January and September amounted to SEK 35 (49) million. · As at 30 September 2001, the volume of orders totalled SEK 60 million representing a decrease of 29 per cent compared with 30 September 2000. · By the end of the quarter, a new analyser for DVD +RW was ready to be launched making AudioDev the first in the world to produce an analyser for both DVD -R/RW and DVD +RW. · Because of a continued delay of the expected market rise, the Board predicts that turnover as well as operating income will be lower than those of last year. July - July - Change % Jan- Jan- Change % Sept Sept Sept Sept 2001 2000 2001 2000 Net turnover 63.1 58.2 +8 156.0 182.4 -14 SEK M Operating 16.5 14.3 +15 34.9 49.2 -29 income SEK M - as % of net 26.1 24.6 - 22.4 27.0 - turnover Profits for 12.4 13.6 -9 23.7 38.2 -38 the period SEK M - as % of net 19.7 23.4 - 15.2 20.9 - turnover Volume of 59.5 83.6 -29 59.5 83.6 -29 orders SEK M The AudioDev Group AudioDev is a world leader in the production of test equipment for optical media such as CD and DVD. The Group, with 107 employees, has its head office in Malmö as well as subsidiaries in the USA and Hong Kong. In addition, AudioDev has a network of agents in all major world markets, providing the broadest market coverage in the sector. The company also offers the widest range of products in the market with analysers for all types of optical formats. Our clients include Microsoft, EMI, Warner, Sonopress, Pioneer, Ritek and Moser Baer. Market trends in the production equipment sector Over the past year, sectors of the market for production equipment for optical media, where test equipment is included, have undergone a structural change. A series of new formats has been introduced while the older ones have matured and stabilised. This development has led to the market for older formats becoming increasingly cost driven, while the market for the new formats continues to be driven primarily by technological advancement. The overall market for production equipment is characterised by cyclic demand, which leads to orders being received on an irregular basis. AudioDev has emphasised this fact repeatedly, but it is certainly unusual for a downturn to persist for as long a period of time as the one we are currently experiencing. Market trends for optical media CD-R sales are estimated to increase by approximately 35 per cent during 2001 compared with last year. This means that the number of produced discs has increased to approximately 5.5 billion in 2001 from 4.2 billion in 2000 (source: Understanding & Solutions, DVD Supply Situation, October 2001). This increase, together with wholesale price rises and modest investments in the CD-R medium, is being interpreted as an indication that a period of new investment is on the horizon. As far as pre-recorded CDs are concerned, there is nothing to indicate an upturn in sales and, in our opinion, demand has now settled at a relatively constant level. It is estimated that sales of DVD discs will rise by approximately 80 per cent compared with the previous year. In actual figures, this represents approximately 1.2 billion discs sold in in the year 2001 compared with 650 million discs sold 2000 (source: Understanding & Solutions, DVD Supply Situation, August 2001). To a large extent, this increase is due to the fact that the number of film titles available is growing. The company regards the increase in the number of produced and sold discs as a clear indication that a period of new investment in production equipment is to be expected for DVD as well. The substantial increase shown in CD-R and DVD sales is greater than that expected by AudioDev and demonstrates that the underlying market has been extremely good. The reason why this increase has still not been reflected in investments in production equipment is that, so far, the existing production capacity has been sufficient to meet demands. The market survey company Understanding & Solutions predicts an increase of approximately 20 per cent for CD-R during the next year. For DVD, Understanding & Solutions expects a corresponding increase of approximately 70 per cent. The company can see no reason for anticipating a falling off in the number of DVD players sold, nor for a reduction in the number of film titles sold on DVD. Furthermore, it is highly likely that the number of DVD-ROM based games will increase dramatically within the games industry. The launch of Sony's Playstation 2, Nintendo's Gamecube and Microsoft's Xbox should have a beneficial effect on production figures. In the DVD medium, AudioDev are also seeing an increased interest in writable and rewritable DVD (DVD R/RW), particularly in Japan. The DVD-R format is expected to increase from 25 to 170 million discs sold during the next year (source: Understanding & Solutions). If that prediction proves to be correct, 2002 will be a year of breakthrough for DVD-R. In view of the above rate of growth, AudioDev is of the opinion that over-capacity will be a thing of the past within a short period of time. Current production capacity is not sufficient to meet the production requirements for CD-R and DVD over the next few years. The company is, therefore, putting its faith in the materialisation of a new period of investment in production equipment and, consequently, test equipment over the next year. AudioDev's operations Problems in the industry have, inevitably, had an impact on AudioDev. Our current order intake continues to be low and the expected upturn before the Christmas rush in the USA will probably not materialise. Clearly, production capacity for all formats has been sufficient for the current year. AudioDev has, however, detected signs that an upturn can be expected. At the end of the period, within a short space of time, we received a number of new orders for test equipment for DVD and writable DVD discs as well as additional orders for Xbox analysers. AudioDev has also estimated that, over the past nine months, the company increased its market share in spite of the fact that the market for production equipment has probably halved. This increase occurred exclusive of the Xbox order. The fall in net turnover for CD-R in the current period, compared with the corresponding period in 2000, is due to the fact that investments were high during the first three quarters of 2000 while, this year, we find ourselves in a situation still characterised by over-capacity. The relative increase in net turnover for DVD analysers can be explained by deliveries made to Microsoft's Xbox, where AudioDev is the exclusive supplier of test equipment. The relative reduction for CDs can be explained by the fact that the medium settled at a fairly stable level during the year. During the same period of the previous year, relatively large additional investments were made in production equipment for CDs, but this has not been the case in the current year. AudioDev's operations continued The downturn in sales in the Asian market is attributable to low investment levels in the CD-R medium as a consequence of over-capacity. The relatively large sales increase in the US market is attributable chiefly to deliveries of analysers for the Xbox games platform. The poor sales seen in the European market are mainly due to the general economic downturn. During the third quarter of the year, AudioDev concentrated its efforts on restructuring the organisation to adapt it to the prevailing market situation. Above all, this has meant intensifying work on our development projects in order to advance our technical lead before the next upturn in the market. This intensification has already resulted in an analyser for DVD +RW which was launched at the beginning of October 2001 (the current quarter). Last spring, AudioDev also launched an analyser for the rival format DVD-R/RW, making us the only company in our niche with analysers for both competing formats. This is of enormous strategic importance for the company as, in future, whichever format prevails for writable DVD, AudioDev will set the de facto standard. Order intake and volume July - September Order intake during the July-September period amounted to SEK 30.5 (52.4) million and, at the end of the period, the order volume totalled SEK 59.5 (83.6) million. January - September Order intake during the January-September period was SEK 170.7 (171.7) million and, at the end of the period, the order volume amounted to SEK 59.5 million compared with SEK 44.8 million at the end of 2000. During the period, the order intake has been dominated by DVD analysers while demand for CD-R analysers remains sluggish. Net turnover July - September Net turnover reached SEK 63.1 (58.2) million during the period. January - September Net turnover reached SEK 156.0 (182.4) million during the period. Operating income and margin July - September Operating income was SEK 16.5 (14.3) million during the period. The operating margin saw an improvement in the same period to 26.1 (24.6) per cent. January - September Operating income reached SEK 34.9 (49.2) million in the first nine months of the year. The deterioration of the operating margin from 27.0 to 22.4 per cent is attributable to weak net turnover in the first quarter. The Group's invoicing is predominantly made in USD. Seventy-five per cent of the estimated net flow in USD is hedged through forward exchanges. Due to the high proportion of forward exchanges the strong US dollar only had a marginally positive influence on the Group's results in the first nine months of the year. As at 30 September 2001, future flows to the equivalent of USD 20 million were hedged against Swedish kronor at an average rate of SEK 10.25 due to mature between October 2001 and August 2002. Investments Investments in tangible fixed assets amounted to SEK 3.5 (3.1) million in the first nine months of 2001. Financial position and liquidity As at 30 September 2001, liquid assets totalled SEK 134.4 million compared with SEK 148.5 million at the end of 2000. At the end of September, the equity/assets ratio stood at 86 per cent compared with 81 per cent at the end of 2000. At the end of the period, Group shareholders' equity amounted to SEK 266.4 compared with SEK 245.1 million at the end of 2000. Cash flow July - September The Group recorded a positive cash flow between July and September from operating activities amounting to SEK 2.3 (-0.6) million. Capital tied up in operating capital has increased by SEK -11.0 (-14.9) million in the third quarter. January - September Cash flow from operating activities amounted to SEK -8.2 (-1.8) million during the period. Captial tied up in operating capital has increased by SEK 34.5 million in this period. The increase is mainly due to a decrease of accounts payable, an increase of accounts receivable as well as tax payments. Personnel The number of employees increased by 10 in the first quarter of 2001, following the positive development and extensive expansion in 2000. From the second quarter of 2001, the recruitment of new staff was halted in view of the poor order intake. The average number of employees during the period totalled 107 (86). The Parent Company Net turnover in the Parent Company totalled SEK 149.4 (172.8) million with operating income amounting to SEK 42.8 (46.8) million. Investments in tangible fixed assets of SEK 2.5 (2.8) million were made in the first nine months of 2001. Disposable liquid assets reached SEK 125.6 million compared with SEK 145.6 at the end of 2000. Future prospects The Board's earlier assessment that turnover as well as operating income would exceed that of the previous year was based on the assumption that the market would pick up speed during the fourth quarter. As such an upturn is delayed, the Board now makes the assessment that turnover as well as operating income will be lower than that of the previous year. Forthcoming financial report AudioDev's year-end financial report for 2001 will be published on 12 February 2002. Other information This interim report has not been audited by the company's accountants. Malmö, 31 October, 2001 Jan Barchan President and CEO For further information please contact: Jan Barchan, Chief Executive Officer Tel: +46 40 690 49 49 E-mail: jan.barchan@audiodev.com Björn Pysander, Chief Financial Officer Tel: +46 40 690 49 42 E-mail: bjorn.pysander@audiodev.com ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/31/20011031BIT00880/bit0001.doc http://www.waymaker.net/bitonline/2001/10/31/20011031BIT00880/bit0001.PDF Table