Interim Report for the Period January 1, 2001 - September 30, 2001

Interim Report for the Period January 1, 2001 - September 30, 2001 Highlights in the Period First quarter: · Glocalnet launched Internet and mobile services. · Extensive strategic and restructuring program initiated in March, including the division of operations into two business areas-Glocalnet Service Provider and Glocalnet Service Operator-the latter with a new operational focus. Second quarter: · Losses cut to less than half first-quarter levels due to direct effects of the restructuring program, revenues increase and further cost rationalizations achieved. · A new issue with preferential rights for existing shareholders raised SEK 66.5 m after issue expenses. Third quarter: · Third quarter revenues were SEK 56.6 m, quarter-on-quarter gains of 5%, despite adverse seasonal effects in fixed telephony. For the first nine months of 2001, Glocalnet's revenues were SEK 158.0 m, up 103% year- on-year. · Glocalnet's third quarter earnings were SEK -20.7 m, and as indicated in previous press releases, this figure includes a SEK -9.1 m item affecting comparability; a write-down on much of the enterprise's network equipment. Excluding this non-recurring write-down, quarterly earnings were SEK -11.6 m, up SEK 5.9 m on the second quarter. Glocalnet's earnings for the nine-month period were SEK -75.8 m · The earnings gains during the third quarter are primarily a consequence of a robust improvement of gross margins, increased sales and reduced expenses. Gross margins have expanded as a consequence of Glocalnet entering an agreement with a primary provider of network capacity, implying lower purchasing costs for fixed telephony. · Glocalnet cut its fixed and mobile telephony prices further in mid- September and, despite this discounting, the enterprise also expects to post better margins in the fourth quarter than in the first half-year. Glocalnet launched its Internet and mobile services in the first quarter, and was thereby Sweden's first player to bundle fixed telephony, Internet and mobile telephony services with a single bill and self-service www portal. Glocalnet is still Sweden's only player to make such an integrated services offering. Glocalnet initiated its strategic and restructuring program in March, dividing operations into two business areas: Glocalnet Service Operator and Glocalnet Service Provider. Glocalnet Service Provider offers Glocalnet-branded telecom services direct to consumers. Glocalnet Service Operator offers turnkey telecom operation solutions to other corporations-termed virtual operators-intending to make integrated propriety-branded bundled telecom offerings. Coincident with the restructuring program, the Danish operation, with seven staff, was wound down while Glocalnet's headcount in Sweden was cut by 11. The Annual General Meeting of March 29, 2001 resolved to grant the Board authorization to issue a maximum of 40 million shares and two stock option programs, each encompassing one million options, one of which was consummated during the third quarter. During the second quarter, a new issue of 86,679,850 shares with preferential rights for existing shareholders was effected, in accordance with the approval of an Extraordinary General Meeting on May 2, 2001. A total of some 60% of this new 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 profitability focus started to pay off. Compared to the first quarter, losses reduced by SEK 20.0 m, to SEK 17.5 m. Of this difference, SEK 9.0 m was attributable to restructuring provisions posted in the first quarter, and a further figure of approximately SEK 6 m directly attributable to savings derived from the restructuring process. Additional gains of around SEK 5 m were due to increased sales, and further cost-cutting. Glocalnet's losses, excluding items affecting comparability, fell a further SEK 5.9 m to SEK -11.6 m in the third quarter. The earnings gains were a consequence of increased revenues and a sustained reduction to expenses. Glocalnet entered a keynote agreement with a primary provider of network capacity, implying fixed prices on national calls until June 2002. In return, Glocalnet has guaranteed minimum threshold volumes. Despite this deal not being finalized before the end of September, improved prices were possible in the quarter thanks to interim agreements. This new contract implies a considerable proportion of Glocalnet's network equipment not being utilized for the present. Accordingly, as has been announced in previous press releases, Glocalnet effected an SEK 9.1 m write-down in the third quarter. Depreciation on this equipment has amounted to some SEK 1.4 m per quarter. In mid-September Glocalnet cut prices on both fixed and mobile telephony, with prices of SMS text messages cut to SEK 1.15 each and fixed-line daytime nationwide call tariffs reduced to SEK 0.19 per minute. Glocalnet also reached an agreement regarding the transfer of its network in Denmark to a Danish operator in the third quarter, with this operator purchasing much of the equipment located in Denmark, while also taking over existing network capacity contracts. The provisions for liquidation of operations posted to first quarter earnings thereby proved correct, with no positive or negative variance. Financial Reporting (Unless otherwise indicated, 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 Interim Report are identical to those in the previous accounting year and are stated in the Annual Report for 2000. Revenues Revenues for the nine-month period were SEK 158.0 (77.8) m, up 103% year- on-year. Third quarter revenues were SEK 56.6 m, up 5% from SEK 54.0 m in the second quarter, gains due primarily to revenue increases on mobile telecom services, which were SEK 8.5 m, up SEK 5.4 m on the previous quarter. Fixed-line revenues declined somewhat, due primarily to adverse seasonal changes. In September, a total of some 88,000 customers actively utilized Glocalnet's fixed telephony services, the same level as June, but 1,500 higher than in December 2000. Average monthly revenues per active fixed telephony user were SEK 180 in the third quarter, down SEK 7 quarter-on- quarter, a reduction mainly the consequence of reduced national traffic volumes due to adverse seasonal changes in the summer. Glocalnet's Internet service had 3,100 customers in September, up 500 on June. The influx of mobile customers during the quarter was healthy, and in phases of brisk growth, the number of customers signing subscriptions is often greater than those that actually use the service. Therefore, assessing the precise proportion of registered customers that become active is problematic. The total number of customers actively utilizing Glocalnet's mobile telephony services during September, however, amounted to approximately 12,000. Network Expenses and Margins Network expenses were SEK 118.8 (61.1) m in the period, the consequence of expanded traffic volumes. Gross margins in the first nine months were 24.8%, a 3.3 percentage-point gain on the corresponding period of the previous year. Third quarter network expenses were SEK 41.3 m, SEK 0.1 m up on the previous quarter. Quarterly gross margins were 27.1%, 3.4 percentage points up quarter-on-quarter, mainly because of reduced fixed telephony purchasing costs, the consequence of the aforementioned network capacity purchasing contract. Other Expenses and Earnings Operating expenses excluding network expenses were SEK 111.9 (90.4) m in the first three quarters. Third quarter operating expenses excluding network expenses were SEK 35.1 m and include SEK 9.1 m in items affecting comparability, relating to a write-down on much of Glocalnet's network equipment, which will not be used at present as a consequence of the recent network capacity purchasing agreement. Third quarter operating expenses excluding network expenses and items affecting comparability were SEK 26.0 m, SEK 3.6 m lower than the previous quarter. The majority of this reduction was due to reduced personnel expenses and other external expenses. The staff headcount at the end of the period was 46, down 1 quarter-on- quarter. Third quarter personnel expenses were SEK 5.7m, down SEK 2.5 m quarter-on-quarter. The reduction was due primarily to seasonally reduced expenses through the summer months, the consequence of the dissolution of vacation provisioning coincident with staff vacations. Other external expenses include marketing, external customer services and consultants and were reduced by SEK 0.9 m to SEK 12.5 m in the third quarter. This downturn is due to factors including reduced fees for consultants. Operating earnings for the period were SEK -72.7 (-73.6) m; third quarter operating earnings were SEK -19.8 m. Excluding items affecting comparability, operating earnings were SEK -10.7 m, up SEK 6.1 m quarter- on-quarter. Net financial items were SEK -0.9 m, and accordingly, earnings for the quarter were SEK -20.7 m, against SEK -17.5 m for the previous three-month period. Assets and Liabilities The closing balance of total assets was SEK 156.5 (181.0) m, comprising fixed assets of SEK 21.2 (36.2) m, current receivables of SEK 59.5 (36.7) m and SEK 75.7 (108.1) m in cash. The increasing current receivables are due to accrued income and accounts receivable. As of September 30, 2001, shareholders' equity was SEK 53.5 (108.7) m, long-term liabilities were SEK 33.0 (13.8) m and current liabilities were SEK 69.9 (58.5) m. Primarily, the increase in short-term liabilities is due to accrued expenses, the consequence of increase network expenses relating to sales gains. The increase in long-term liabilities is due to drawing down an SEK 20 m loan. Investments Investments in fixed assets were SEK 6.9 (24.1) m in the period, SEK 2.3 (9.4) m of this total were financed by leasing. Glocalnet's investments in the third quarter were SEK 1.1 m, financed with liquid assets. Investments effected in the period were mainly upgrades of the enterprise's billing and customer care technology platform. Cash Flow and Financial Position Cash flow after financing activities for the period was SEK -1.7 (94.8) m. In the third quarter negative cash flow before financing activity was reduced as a consequence of declining working capital and amounted to SEK -4.4 m. Cash flow after financing activity in the quarter was SEK - 6.3 m. As of September 30, Glocalnet's liquid assets were SEK 75.7 m. Change in Shareholders' Equity Shareholders' equity was reduced from SEK 62.8 m as of December 31, 2000 to SEK 53.5 m as of September 30, 2001, a change due to losses of SEK 75.8 m in the period, an SEK 66.5 m new issue net of issue expenses effected in the second quarter, and option premiums paid by staff amounting to SEK 4,000. Parent Company Total parent company revenues in the first three quarters of the year were SEK 210.5 (53.2) m; earnings after financial items were SEK -107.9 (-88.3) m; investments in fixed assets in the period were SEK 6.9 (24.1) m. Forthcoming Reports Glocalnet intends to publish its Financial Statement for 2001 on January 29, 2001 Market and Outlook The third quarter was another three months of Glocalnet heading in the right direction, with sales up 5% on the previous quarter despite adverse seasonal effects within fixed telephony. Earnings increased as a consequence of pronounced rationalization. Margin gains had a big impact due to interim agreements with providers, implying reduced prices during the quarter, despite the fact that this new deal was not finalized before the end of September. Glocalnet anticipates slightly lower gross margins in the fourth quarter than in the third, the result of price reductions in mid-September, although the company expects figures higher than in the first half-year. Savings have been realized faster than Glocalnet anticipated; the management considers that, essentially, the activities of its two business areas are highly efficient, although there are insufficient volumes since at present they only process Glocalnet's in-house, organically accumulated, business. In order to take advantage of the substantial economies of scale in the company's infrastructure, Glocalnet will prioritize growth above further earnings improvements, providing that average customer acquisition expenses can be kept low. Consequently, if the management considers that average customer acquisition costs can be sustained at a level offering healthy long-term profitability, and thereby decide to intensify sales initiatives in the fourth quarter, earnings may temporarily deteriorate. The management will continuously monitor these expenses in relation to the sustainable profitability of its mobile and fixed telephony customers, prioritizing initiatives in the most lucrative segment. For example, mobile phone number portability, as implemented in Sweden, may increase these costs rather than reduce them, which may have consequences on the priorities of Glocalnet's marketing initiatives. The enterprise's new business area, Glocalnet Service Operator, which intends to be an outsourcing partner for corporations from other sectors intending to become virtual telecom services operators, did not enter any agreements in the third quarter. While negotiations are being pursued with a number of major players, gaining an overview of the sales process is problematic, and accordingly, Glocalnet is not issuing any forecast. The Interim Report will be presented at 12 noon on October 17, 2001 at Gamla Stans Bryggeri, Tullhus 2, Skeppsbron, Stockholm, Sweden. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/17/20011017BIT00130/bit0002.doc The full report http://www.waymaker.net/bitonline/2001/10/17/20011017BIT00130/bit0002.pdf The full report