Year-end report 2000

Year-end report 2000 * Commission income increased by 98 percent to MSEK 129.1 (65.1). * The result before restructuring expenses and depreciation of goodwill amounted to MSEK -11.6. * The number of active customers increased by 149 percent to 65,200 (26,200). * Net inflow into HQ.SE Fonder amounted to MSEK +1,360 (+20). * Both business areas are expected to report positive results during 2001. * The Board of Directors proposes a spin-off and separate listing of the HQ.SE Fonder business area. * The Board of Directors proposes that no cash dividend will be paid out for 2000. * The Board of Directors proposes a change of company name from HQ.SE Holding AB to HQ.SE Aktiespar AB. Operations During the fourth quarter, both business areas within the HQ.SE Group have advanced significantly, notwithstanding a difficult market climate. Akti- espar Fondkommission has been fully integrated with HQ.SE Fondkommission, resulting in the formation of the new business area, HQ.SE Aktiespar. As a result of the integration, it has been possible to achieve significant economies of scale with respect to expenses, and HQ.SE Aktiespar is cur- rently Sweden's largest Internet broker measured in number of customers. HQ.SE Fonder concluded the year with a very positive net inflow into the funds. Inflows in both the Pension Premium System selection and on the mu- tual funds market in general exceeded internal targets, and HQ.SE Fonder thereby increased its market shares during the year. In order to finance the acquisition of Aktiespar Fondkommission, during the fourth quarter HQ.SE carried out a new issue of new shares amounting to MSEK 161 and a non-cash issue amounting to MSEK 60. A share option pro- gramme directed at all Group employees was carried out simultaneously with the new share issue. Results and financial position The Group The result before restructuring expenses and depreciation of goodwill amounted to MSEK -11.6. Restructuring expenses totalled MSEK 19.7, of which MSEK 11.0 relate to the distribution of the shares in Hagströmer & Qviberg and MSEK 8.7 to the integration with Aktiespar Fondkommission. De- preciation of goodwill amounted to MSEK 3.6. The operating result before tax thus amounted to MSEK -34.9. Marketing expenses within the Group amounted to MSEK 35.1. During 2000, commission income amounted to MSEK 129.1 (65.1) and operating income amounted to MSEK 107.2 (67.3), corresponding to increases of 98 percent and 59 percent. The operating margin before restructuring expenses and depreciation of goodwill was negative (25.7 percent in 1999) and the return on equity was negative (3 percent in 1999). The balance sheet total at the end of the year amounted to MSEK 582.9, of which goodwill accounted for MSEK 217. Equity as of 31 December 2000 amounted to MSEK 346.1 or SEK 16.49 per share. The Group's liquid funds amounted to MSEK 210.9. At the end of the year, the number of employees had increased to 74 (30). The parent company HQ.SE Holding AB reported a result for 2000, before allocations and taxes, of MSEK -9.9 (-37.1). Commission income during the period amounted to MSEK 0 (32.2). The company's liquid funds amounted to MSEK 4.5 (76). HQ.SE Aktiespar HQ.SE Aktiespar's operating income amounted to MSEK 16.7 and the operating result before restructuring expenses and depreciation of goodwill amounted to MSEK -43.4. Restructuring expenses amounted to MSEK 8.7. Goodwill from the acquisition of Aktiespar is written off over a period of five years and affected the result for 2000 by MSEK 3.6. Commission income amounted to MSEK 20.1. During the fourth quarter, com- mission income amounted to MSEK 9.9, an increase of 102 percent compared with the third quarter. Aktiespar Fondkommission, which has been consoli- dated in the accounts since December 2 2000, contributed commission income of MSEK 3.7 in December. The increase in income is also due to a continued inflow of new customers and a significant increase in activity during De- cember. On average, customers executed 2.0 transactions per customer and month during the last month of the year compared with an average of 1.6 transactions per customer and month for the year as a whole. Commission income during December amounted thereby to MSEK 6.2. Marketing expenses during the year affected the operating result by MSEK 23.1. Marketing expenses were especially large during the fourth quarter as a result of a major campaign. However, the results of the campaign failed to meet expectations, primarily due to the weak stock market during the final quarter. As of the end of December, there were 39,000 (100) active customers, of whom 29,000 were acquired from Aktiespar Fondkommission. Total managed as- sets on accounts at HQ.SE Aktiespar currently amount to just under seven billion kronor. When the stock of account customers acquired from PFK (which will be consolidated in the accounts from the middle of February 2001) is included, there are almost 53,000 customers, and assets on custo- dian accounts amount to just over 7 billion kronor. Through the merger with Aktiespar Fondkommission, it has been possible to achieve major cost savings. The integration entailed the discontinuation of Aktiespar Fondkommission's previous IT platform and the two organisa- tions were merged. Significant savings could thus be achieved in relation to, among other things, expenses for systems development, computer opera- tions, information, and back-office. In December 2000 and January 2001, HQ.SE Aktiespar's market share of the number of transactions on the Stockholm Stock Exchange was 3.7 and 3.8 percent respectively, and 0.6 and 0.5 percent respectively with regard to turnover, which makes HQ.SE Aktiespar the second largest independent Internet broker. Access to HQ.SE Aktiespar's Internet Service was very high towards the end of the year with an access rate in excess of 99.9 percent. The increas- ingly complicated systems environment, together with the increasing number of customers, entailed, however, an increase in response times on the homepage on the Internet. At the beginning of 2001, work was commenced in order to rectify this situation and response times have subsequently gradually improved. In November, a cooperation was launched with American Express with respect to a loyalty programme. Customers can currently obtain American Express Membership Rewards points when they conduct share transactions through HQ.SE Aktiespar. The cooperation is the first of its kind carried out by American Express in Europe. HQ.SE Aktiespar is currently engaged in development work on a new version of the homepage on the Internet. HQ.SE Aktiespar will thereby be able to offer customers significantly improved information and functionality. A launch is planned for the middle of the spring. HQ.SE Fonder Operating income increased by 54 percent to MSEK 80 (52) and the operating profit increased by 106 percent till MSEK 33 (16). The increase in income is due to the fact that the managed assets during 2000 were significantly greater than during 1999. This is a consequence of the positive stock market development during 1999 and a very positive net flows during 2000. The operating profit was affected by marketing expenses of MSEK 10.8 (1.1). Marketing has primarily concentrated on the launching of two new funds and the Pension Premium System selection. HQ.SE Fonder manages a total of twelve mutual funds, of which eight are equity funds, three fixed-income funds, and one a mixed fund. At the end of the year, managed assets amounted to MSEK 8,270 (7,480), broken down into MSEK 7,860 in equity funds, MSEK 320 in fixed-income funds, and MSEK 90 in the mixed fund. At the end of the year, there were 26,200 (26,100) customers. 2000 was a record year for savings in mutual funds in Sweden. Compared with 1999, net savings, i.e. investments less withdrawals, increased by 71 percent to SEK 99 billion, including SEK 36 billion from Pension Premium Savings. HQ.SE Fonder's share of the net savings amounted to MSEK 1,360, including MSEK 460 from Pension Premium Savings, compared with MSEK 20 in 1999. HQ.SE Fonder thereby increased its market share of the net flows to 1.38 (0.03) percent. HQ.SE Fonder's market share, in terms of managed as- sets, amounted at the end of the year to 0.92 (0.88) percent. The most im- portant event on the Swedish mutual funds market during the year was the Pension Premium Savings selection in the autumn when millions of Swedes were able to choose funds for a total of SEK 56 billion. Nearly 70 percent made an active choice and thereby influenced the manner in which a portion of their general retirement pension would be managed. 1.2 percent of these funds went to HQ.SE Fonder. Following a fantastic 1999, several stock markets experienced negative trends in 2000. This was primarily due to a reassessment of the valuations of technology stocks. This also very clearly affected the Stockholm Stock Exchange, which declined by 12 percent. In addition, price fluctuations were unusually large. As a consequence of the weak stock market, fixed- income funds were able to demonstrate a relatively good performance. HQ.SE Obligationsfond performed best, +7.8 percent, followed by HQ.SE Swedish High Yield and HQ.SE Likviditetsfond. Among equity funds, HQ.SE Ryss- landsfond performed best, +1.4 percent, at the same time as the comparison index declined by 18.1 percent. HQ.SE's largest funds, HQ.SE Strategifond and HQ.SE Sverigefond, which primarily invest on the Swedish stock market, declined during the year but nevertheless significantly outperformed the respective comparison indices. During 2000, HQ.SE commenced the marketing of two new funds in order to make the range of funds more attractive. HQ.SE Absolut Strategi, which started at the end of December 1999, is a global mixed fund that invests as we consider best on both the equity and fixed-income markets. The risk level of the fund varies over time, among other things due to the portion of fixed-income securities being adjusted depending on market prospects. In April 2000, HQ.SE Gorilla was started. This is an equity fund that in- vests in the Internet, technology, telecommunications, and media sectors. A common feature of these two new funds is that the management fee con- sists of a fixed fee, which is lower than for the other funds, and a vari- able fee charged on any surplus yield. During the year, operational activities have been primarily focused on creating continued positive conditions for good management results, devel- oping cooperation with the most important distributors, establishing new forms of cooperation with distributors, and developing new product con- cepts. In addition, work has taken place on improving communications with holders of shares in mutual funds, primarily through the Group's Internet Service. Since April, it has been possible to trade in HQ.SE's funds via the Internet. Spin-Off of HQ.SE Fonder Earlier than anticipated, both HQ.SE Aktiespar and HQ.SE Fonder have achieved the critical mass required for profitability and the possibility to use own internal resources in order to develop the operations. The or- ganisational development and growth in earnings capacity within the re- spective business areas during the past year have created the conditions for additional focusing and streamlining within the HQ.SE Group. During the past year, markets for both fund management and securities trading on the Internet have also undergone consolidation, and the sig- nificant synergies achieved through structural transactions on the respec- tive markets are also expected to lead to continued consolidation in the future. HQ.SE intends to play an active role in this consolidation proc- ess. As a result of the above, the Board of Directors has resolved to propose to the Annual General Meeting of the Shareholders that the operations within the HQ.SE Fonder business area to be spun-off. It is intended that the resolution will be adopted at the Annual General Meeting on the Share- holders in accordance with Lex Asea. The Group synergies existing today, among other things within the distribution of funds via the Internet, will also be guaranteed after a spin-off through a long-term co-operation agreement. It is proposed that Hans Hedström, the head of the HQ.SE Fonder business area, assume the position of managing director of the spun-off company. It is estimated that it will be possible to carry out the spin- off towards the end of May. Prospects for 2001 The organic growth and the structural measures carried out during 2000 have created the conditions and the economies of scale required for prof- itability. Fixed operating expenses, including marketing expenses within the Group, currently amount to MSEK 12-13 per month. Assuming normal mar- ket conditions, the Group as a whole and both business areas separately are expected to report positive results before depreciation of goodwill during 2001. Miscellaneous Distribution of shares in Hagströmer & Qviberg and redemption In June 2000, the shares in the subsidiary, Hagströmer & Qviberg AB, were distributed and, in September a redemption programme was concluded pursu- ant to which a total of MSEK 203 was distributed to the shareholders. Issue of new shares and share option programme As a result of the acquisition of Aktiespar Fondkommission, in November 2000 a new 1:2 stock issue involving 6,424,857 shares was carried out sub- ject to pre-emption rights at SEK 25 per share, and a non-cash issue in- volving 1,715,000 shares was made to Aktiesparinvest AB. Following the is- sues, there were 20,989,571 outstanding shares. In conjunction with the issues, a share option programme was carried out aimed at all employees in the Group. The programme covers warrants relat- ing to 1,528,470 shares, equivalent to a dilution of 6.8 percent in the event of full exercise of the warrants. The exercise price is SEK 43.23 per share and the term of the warrants is until February 2003. Shareholders According to the share register, at the end of 2000 the following compa- nies and persons were the largest registered shareholders. The portion of shares owned by Swedish institutions is estimated at 52 percent and the portion owned by foreign shareholders is estimated at 8 percent. There were 6,804 shareholders. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/02/08/20010208BIT01100/bit0001.doc http://www.bit.se/bitonline/2001/02/08/20010208BIT01100/bit0002.pdf