Axis AB Interim Report January-June 2001

Operations in general Axis is one of the global leaders in the expanding market for network connectivity. The company develops network products and solutions for wired and wireless connection of printers, scanners and storage media, as well as network cameras and video servers. Axis also develops solutions for wireless access to the Internet and local networks. Axis´ vision is to enable network access to everything, from anywhere, any time. Axis, which was founded in 1984, is active globally with offices in fifteen countries and through cooperation with distributors and strategic partners. More than 95 percent of production is exported to more than 60 countries, with Europe, the U.S. and Asia as the main markets. Axis has been listed on the Stockholm Exchange O-list since June 27, 2000. Sales Sales during the six-month period amounted to SEK 353 M (320), an increase of 10 percent compared with the corresponding period in the preceding year. Sales were affected positively by exchange-rate gains of SEK 36 M. Sales in the second quarter amounted to SEK 177 M (169). As in the earlier part of the year, the improvement was partly attributable to the OEM market, which continued to develop favorably and reported an increase corresponding to 97 percent, and also to continued growth in the Camera Division, where there was an improvement of 46 percent compared with the year-earlier period. At the same time, the economic slowdown is affecting virtually all markets, particularly the U.S. and Japan. Axis is nonetheless able to report sales growth in comparison with the first quarter, especially in Europe. The contracts with new distributors were a major factor in this context. There are also favorable tendencies in the U.S., where there are signs of a stabilization of Axis' sales, with an increased focus on camera and video products. Operating result The Group's operating loss for the six-month period was SEK 122 M, an increase of SEK 9 M compared with the corresponding period in the preceding year. The loss after financial items was SEK 128 M (loss: 88). The operating loss during the second quarter amounted to SEK 50 M (loss: 57), which was an improvement of SEK 7 M compared with the corresponding period in the preceding year. ThinServer products, Axis' core operations, posted a profit for the third consecutive quarter. Exchange rate gains had a positive impact of SEK 10 M on the operating result. Restructuring measures Axis sold its shareholding in Netch Technologies AB to Wapplay AB. Axis' ownership interest amounted to 59 percent. The sales resulted in a positive effect on operating earnings of SEK 10 M in the second quarter. The negative impact on earnings for Axis related to Netch amounted to SEK 31 M for the half year. Since additional financing was required, Axis decided to sell its holding which was no longer strategic in nature. As a result of the sale, Axis has no further undertakings with regard to Netch. Mobile Access Server, a Mobile Internet product, was sold to the management of the product area. The business model is based on system sales to telecom operators, which does not comply with Axis' core operations. Axis intends to subscribe to a five-year SEK 7.5 M convertible in the new company, which corresponds to a potential holding of 47.5 percent. This change reduces the development costs for the Mobile Internet area of operations but does not affect future initiatives by Axis in access points and other wireless network products based on unlicensed radio technologies. In addition to the restructuring measures an action program was implemented during the period, which includes staff cutbacks of 15 percent. This is reflected in a charge against operating result of SEK 20 M for the second quarter. The restructuring measures implemented during the period, combined with the action plan, results in a cost reduction of more than SEK 100 M on annual basis from third quarter 2001. The average number of employees at the end of the period, following these restructuring measures was 356, to be compared with 581 at beginning of 2001. Business development A new advanced network camera, the AXIS 2420, which features a number of security functions, was launched in May. The target group is the professional security sector, where the demand for network cameras is expected to continue at a strong level. Axis has also started to cooperate with Milestone Systems, a Danish software company, enabling it to offer the growing security market complete digital solutions combining network cameras and video servers supplied by Axis with Milestone security software. During the period, Axis noted continued substantial interest among major end-users and OEM-customers, for advanced printer servers that can cope with various computer environments. There continues to be considerable interest in the Axis 9010 access point particularly in the Japanese market. During the period, Axis received an order worth approximately SEK 1 M for Bluetooth access points from NTT, the largest Japanese telecom operator. The contract is for a pilot project for local mobile services at a shopping center in Osaka. Technical delays are holding up a genuine breakthrough for Bluetooth and the flow of substantial revenues for this area of operations. Cash flow and financial position Cash flow from current operations was negative in an amount of SEK 44 M during the period. Net investments amounted to SEK 18 M. Axis has liquid funds amounting to SEK 165 M and unutilized committed lines of credit totaling SEK 75 M. As a result, Axis had a total of SEK 240 M in disposable funds at June 30, 2001. Equity The Group's shareholders' equity amounted to SEK 267.6 M. The change during the period reflects a loss of SEK 94.5 M for the period, a negative change of SEK 17.2 M in the Group structure and an exchange rate loss of SEK 0.4 M on warrants held in the companys own holdings. The total number of shares amounted to 68,900,000 at the end of the period. After full exercise of outstanding warrants, the total number of shares is 70,942,500. The Group's equity/assets ratio at June 30, 2001 was 51.3 percent. Parent Company The Parent Company's operations primarily focus on Group administration. The Parent Company has no employees. The operating loss amounted to SEK 2 before tax. Liquid funds amounted to SEK 81 M and borrowing to SEK 60 M. Incentive program On May 23, 2001, the Annual General Meeting approved the Board's proposal to provide company employees an opportunity to acquire warrants in Axis AB. Warrants are to be issued and transferred to employees during August 2001. Outlook for the second half of 2001 Taking into account the action plan and restructuring measures now implemented, Axis remains firm in its assessment that profitability will be achieved in the second half of 2001. Lund, August 20, 2001 Board of Directors BLUETOOTH is a registered trademark owned by Telefon AB LM Ericsson and licensed to Axis Communications. This interim report has been prepared in accordance with the RR20 Interim Reports recommendation issued by the Swedish Financial Accounting Standards Council. The accounting principles and calculation methods comply with those used in the most recent annual report. This six-month has been reviewed in accordance with the recommendations issued by the Swedish Institute of Authorized Public Accountants (FAR). A review is considerably limited in scope compared with an audit. There is nothing to indicate that this six-month report does not comply with the requirements of the Securities and Clearing Operations Act and the Annual Accounts Act. Lund, August 20, 2001 Öhrlings PriceWaterhouseCoopers AB Anders Lundin, Authorized Public Accountant Future financial reports Interim report January-September 2001 October 18, 2001 Year-end financial statement February 12, 2002 The full Interim Report, including tables, is available to download from the enclosed link. Axis AB Interim Report January-June 2001