Interim report 1 January - 31 March 1999

Interim report 1 January - 31 March 1999 Net turnover increased by 15.5 percent to SEK 96.9 million (SEK 83.9 mil- lion). Results after financial items amounted to SEK -7.2 million (SEK-7.8 million) including a SEK -0.3 million minority share in the loss of the newly estab- lished ASG Direct. The company is positioned for anticipated further strong growth during 1999, which will entail a certain increase in costs in 1999 compared with 1998. Programme for more efficient capacity utilisation has commenced. CityMail is suing Sweden Post for damages in the amount of SEK 296 million after the Market Court held that Sweden Post had abused its dominant position in order to eliminate competition from CityMail. Employees' educational benefits savings scheme with Skandia. Revenues During the first quarter of 1999, CityMail's revenues amounted to SEK 96.9 million, a growth of 15.5% compared with the first quarter of 1998 and an in- crease of 12.2% compared with the last quarter of 1998. In November, Sweden Post unilaterally contacted contracting customers and ex- tended existing agreements until 31 March 1999. Accordingly, CityMail's con- tractual negotiations with the customers were postponed until the first quar- ter of 1999. Accordingly, a growth in volume in the first quarter of 1999 was achieved notwithstanding that very few new major customer contacts entered into force during the period in question. Of the increase in revenues, only approximately 1.5% are comprised of price effects. A new price list was introduced by CityMail as per 1 April 1999 and, thus, further increases in average revenues per item of mail can be expected during the remainder of the year. CityMail's major customers account for approximately 55% of the increase in revenues. Most of this increase within the customer group derives from in- creased business from existing customers. Revenues from small and medium-sized customers accounted for approximately 45% of the increase in revenues and were almost exclusively derived from new sales. During the first quarter, the first agreements were signed regarding outgoing foreign mail. The value of these contracts is estimated at approximately SEK 5-8 million on an annual basis. It is anticipated that distribution will com- mence in April. Costs During 1998, CityMail carried out investments for the expansion of the sales organisation with respect to those divisions responsible for end customers and the divisions responsible for distributors (printers, printing companies, etc.). In addition, costs for the distribution organisation were dimensioned for a forecasted higher volume at the end of 1998. This resulted in a certain increase in costs for 1999 compared with 1998. As a result of these invest- ments, the company is now well prepared to achieve and handle an anticipated additional strong growth. During the first quarter of 1999, CityMail's operating costs amounted to SEK 103.3 million (SEK 91.1 million). Of these costs, SEK 76.0 million related to distribution organisation costs; SEK 6.9 million to marketing and sales or- ganisation costs; SEK 9.1 million to logistical organisation costs; and SEK 6.7 million to miscellaneous administrative costs, IT and legal advice. Depre- ciation amounted to SEK 4.6 million. The preparatory legal work has been complicated and costs therefore have also been borne during the first quarter. An extensive program for more efficient capacity utilisation has been com- menced. The work covers all sections of the logistical chain and begins al- ready with the customer where, among other things, the distributor processing aims to ensure what is, for CityMail, an optimal production sequences and rou- tines. Freight agreements have been re-negotiated during the first quarter, which will result in lower costs and more reliable deliveries. Costs in the distribution organisation have been negatively affected by the increased mobility of personnel which, among other things, is a consequence of the strongly improved labour market in Stockholm. A series of measures have been implemented in order to counteract this trend and, thereby, lower the costs for existing capacity. In addition to the above, a structural change with respect to the allocation of distribution areas will be used during the weak volume month of July. The aim is to reduce personnel requirements and, thereby, the large deficit which normally arises during this month. Results CityMail's result during the first quarter of 1999 improved to SEK -7.2 mil- lion, compared with SEK -7.8 million during the first quarter of 1998 and SEK -14.1 million during the last quarter of 1998. The result for the period has been affected by the company's minority interest in ASG Direct AB in the amount of SEK -0.3 million. The operating result for the first quarter improved to SEK-6.4 million, com- pared with SEK -7.2 million during the first quarter of 1998. The increase in net turnover by 15.5% has contributed to improved operating result. Costs related to increased capacity, increased mobility of personnel and legal advice have reduced the improvement of operating result. Net financial items excluding minority participations amounted to SEK-0.5 mil- lion, compared with SEK-0.6 in the preceding year. Result per share, excluding outstanding warrants, amounted to SEK -1 (SEK - 15). As previously, the Board of Directors is of the opinion that the prospects are good for a significant improvement in results in 1999 compared with 1998. Claims for damages After the Market Court held, in November 1998, that Sweden Post had abused its dominant position in order to eliminate competition from CityMail, CityMail's Board of Directors has today decided to submit a writ of summons against Swe- den Post. The claim amounts to SEK 296 million. The practices which caused the damage covered by the claim took place in 1996 and 1997. In March 1999, the Competition Authority published a follow-up of the Market Court's decision whereby Sweden Post, in conjunction with the announcement of a new price list, must have objectively-based reasons relating to costs in or- der to be able to differentiate prices. The Competition Authority found that Sweden Post lacked the requisite current cost data even with respect to the new price list which entered into force on 1 April 1999. Accordingly, the new price list constitutes a new abuse by Sweden Post of its dominant position. Several of CityMail's major foreign shareholders are of the opinion that this behaviour is remarkable, but not least since Sweden Post is a state-owned com- pany which, year after year, violates the rules which are common throughout the entire EC. To this can be added the fact that, on no occasion during the whole of the 1990s, has Sweden Post attempted to clearly identify its costs. Enclosed to this report is a summary of the speech that will be held by pro- fessor Erik Nerep at CityMails Annual General Meeting. Financial position The company's liquid funds, including unutilised credits, amounted to SEK 38.6 (15.1) million on 31 March 1999. Cash flow amounted to SEK -4.1 (12.2) mil- lion. The equity ratio as per 31 March 1999 amounted to 30.4 percent (24.6). Investments Investments during the period amounted to SEK 6.4 million (3.9). Personnel The number of full-time employees was 964 (882). The work of implementing Balanced Scorecards has continued during the period. This procedure constitutes an important part in creating participation with respect to the company's vision and strategy and, thereby, increased profit- ability in the company. During the period it was decided to offer all of the company's employees an educational benefits savings scheme with Skandia. The scheme means that all employees are given increased possibilities to continually educate themselves. The insurance is based on matched contributions from the individual and the company, and is also intended to counteract the increased personnel mobility. The interim report has not been audited by the company's auditors. For information please contact: Håkan Ohlsson, Deputy Managing Director +46 8-709 43 00, +46 70-752 42 01 hakan.ohlsson@citymail .www.citymail.se Future reports 1999 Half yearly report: 11 August 9 months' interim report: 8 November 1999 Press release of unaudited results for 1999 : February 2000 Stockholm, 27 April 1999 Bror Anders Månsson Managing Director CityMail Sweden AB (publ) Västberga Gårdsväg 36 Box 90108, 120 21 Stockholm Financial information per quarter SEK million ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/04/27/19990428BIT00050/bit0001.doc http://www.bit.se/bitonline/1999/04/27/19990428BIT00050/bit0002.pdf http://www.bit.se/bitonline/1999/04/27/19990428BIT00050/bit0003.doc Bilaga http://www.bit.se/bitonline/1999/04/27/19990428BIT00050/bit0004.pdf Bilaga