IBS' interim report July-September 2002

IBS' interim report July-September 2002 · During the first nine months of the year, IBS' software revenue grew by 4%, in a weak market. · The comparable operating result for the third quarter 2002 was SEK -58m (-39m). · The comparable operating result for the first nine months of the year was SEK -104m (-107m). · The quarterly result has been charged with one-time costs for staff reduction, restructuring and write-down of accounts receivable, to an amount of SEK -97m. · During the first nine months, cash flow from operating activities amounted to SEK 54m (9m). · The full-year forecast for the operating result, before one-time costs, is adjusted from +/-1% to -2%, i.e. from SEK +/-25m to approximately SEK -50m. The IBS Group's extensive cost reductions, combined with its competitive solutions, are expected to generate a positive result for 2003. 17 October 2002 Strengthened market position Cost reductions for profitability 2003 The market The global economy has further deteriorated during the third quarter. In consequence, the global market for investment in new business software has continued to be weak. However, there are considerable variations between different industry sectors and countries. For example, market demand in Sweden has been reasonably good, whereas demand in other countries has been weaker. IBS forecasts that the global market will continue to be weak through the last quarter 2002 and during 2003, due to deteriorating economic prospects as a whole. IBS does not expect the market to grow until 2004. IBS holds a strong market position, with competitive software and services for its chosen target market, primarily mid-sized and larger companies in selected industry sectors. IBS has a large share of successful projects and high customer satisfaction ratings compared to many competitors. Combining these factors with a continued specialisation on selected industry sectors and an enhanced sales concept, IBS expects to continue to grow software sales. New management Magnus Wastenson, previously Vice President Sales and Marketing, is new Group CEO as of 1 October, 2002. He succeeds the company's founder, Staffan Ahlberg, who continues as member of the Board of Directors of the company. Per-Arne Sendrén has been appointed new Vice President and CFO, and Gustaf Lindgren is new Vice President Sales and Marketing. Strengthened cost reduction program IBS operations and overall result comprise the Parent Company and subsidiaries in 22 countries. The latter include both companies showing satisfactory profitability and those with a less satisfactory result. A series of measures targeting subsidiaries with less satisfactory profitability are under way, in order to improve results. These measures include staff reduction, restructuring, replacing operative managers and improved sales efficiency. At the same time, measures have been taken to further improve results in the already profitable subsidiaries. Today, large parts of the IT sector have an excess capacity and cost levels that are too high, and so does IBS. The Group management's analysis of current business conditions shows that in the short term, further strong measures are necessary to reduce total costs and put a stop to losses in non-profitable subsidiaries. In conjunction with the quarterly closing, the result has been charged with SEK -97m for one-time costs for staff reduction, restructuring and write-off of accounts receivable. During the fourth quarter, the result is expected to be charged by further one-time costs for staff reduction, restructuring and write-off of accounts receivable, to an amount of approximately SEK -20m. An increased co-ordination of product development within the various parts of the Group will be implemented. Exchange rates During the third quarter, the value of the Swedish krona has risen by approximately 2%. For the first nine months, the value of the Swedish krona has remained unchanged, in relation to the revenue distribution of IBS' subsidiaries. Accounting principles IBS adheres to the recommendations made by the Swedish Financial Accounting Standards Council. New accounting recommendations valid from 1 January 2002 have not had any impact on third-quarter accounting. As from 2002, two calculation methods have been modified to improve analysis of the development of operations and to achieve comparability with other software suppliers. One modification is that depreciation costs for capitalised product development, approximately SEK 12m per quarter, have been moved from cost of revenue for software licences to product development costs. The other change is that the depreciation period for product development capitalised as from 2002, is extended from three to five years, which has resulted in booked costs decreasing by approximately SEK 1.5m during the third quarter, and by approximately SEK 3.5m during the first nine months. The third quarter 2002 As a rule, the third quarter is the weakest for IBS, mainly due to the holiday season. During the third quarter, revenue decreased by 11%, compared to the equivalent period last year. The different revenue streams were distributed as follows: · Software: SEK 95m (96m), 0% · Professional services: SEK 278m (315m), -12% · Hardware etc.: SEK 130m (156m), -17%. January-September 2002 During the first nine months, revenue remained unchanged at SEK 1,782m (1,782m). The different revenue streams were distributed as follows: · Software: SEK 351m (338m), +4% · Professional services: SEK 990m (1,030m), -4% · Hardware etc.: SEK 441m (414m), +6% The comparable operating result for the first nine months of the year amounts to SEK -104m (-107m). In addition, there are one-time costs amounting to SEK -113m (0). The period's result per share amounted to SEK -2.83 (-1.30). Software IBS has a competitive range of software and services for its target market, which mainly comprises mid-sized and larger companies in selected industry sectors. The company's latest version (Release 5) of the ASW business software has been very well-received by current and potential customers. IBS Pharma, which is the specialised version of ASW that targets the broadening market for pharmaceutical distribution, has also been met with interest, resulting in many new prospects. The new Virtual Enterprise software, which integrates and co-ordinates different ERP systems, has received considerable attention, and the co- operation with IBM Global Services has been further strengthened. In a weak market, IBS grew software sales by 4% during the first nine months of the year, while the total market volume appears to have decreased considerably. IBS currently has a large number of ongoing sales projects, but due to the reigning economic conditions, the time- span for evaluation and selection of new business software has in many cases been seen to increase. Today, top management are to a much greater extent involved in the procurement of new business software, a fact that is expected to be to IBS' advantage, as our software covers powerful functionality for management information. The Group is introducing a new and strengthened concept to support management in customer companies in identifying and measuring achieved value and earning capacity regarding IT investment. IBS will also continue to focus on chosen market sectors, among others pharmaceutical distribution, electronics, consumer durables, the automotive and parts industry, food and industrial supplies. Investment Group investment in equipment has been restrained, and for the first nine months amounted to SEK 26m (33m). During the quarter, capitalised product development costs for products to be launched within twelve months, have fallen short of depreciation by SEK -6m (12m). Liquidity and financial position During the first nine months, cash flow from operating activities amounted to SEK 54m (9m), mainly due to a decrease in accounts receivable. Tax for the period amounting to SEK -4m (6m) as shown in the income statement consists of SEK -3 (-4m) in current tax and SEK -21m (10m) in deferred tax. Tax paid during the period amounts to SEK 14m (23m). Per 30 September, cash and liquid assets including short-term investment amounted to SEK 173m (184m). In addition, there were unused credit facilities amounting to SEK 66m (57m). Current assets represented 109% (132%) of current liabilities. Group equity amounted to SEK 487m (697m) and the equity to total assets ratio was 35% (45%). The Parent Company The Parent Company provides centrally developed software and group services. Parent Company net revenue during the forst nine months of the year amounted to SEK 131m (112m), and the pre-tax result was SEK -13m (-11m). Staff The number of employees per 30 September was 2,141, a decrease during the quarter by 66. During the third quarter, the average number of employees was 2,199 (2,295), a reduction by 96. The IBS share The share price per 30 September was SEK 3.80 per share, which represents a 78% decrease since the end of last year. The total number of shares per 30 September was 79.6 million. In addition, IBS has two warrants programs; 98/02 with 5 million warrants at a strike price of SEK 40.60 per share, and 00/04 with 5 million warrants at a strike price of SEK 65 per share. After full dilution, the number of shares would be 89.6 million. The future Despite the weakness of the market, mid-sized and larger companies are investing major funds in improving their information systems. Management in many companies are dissatisfied with their current IT systems' lack of support for business targets and possibilities for measuring the profitability and return on investment of IT investments. IBS foresees major opportunities in this market. We have competitive software and services that can help companies increase profitability. In the second-quarter report, the full-year forecast was for an operating margin within a +/- 1% interval, on condition that the market was not further weakened. The full-year forecast for operating margin before one-time costs, is now adjusted from +/-1% to -2%, i.e. from SEK +/-25m to approximately SEK -50m. On condition that the already weak market is not subject to serious deterioration, the IBS Group's extensive cost reductions, combined with its competitive solutions, are expected to generate a positive result for 2003. Information plan The year-end report for 2002 will be published 23 January, 2003. Solna, 17 October, 2002 Magnus Wastenson CEO This report has not been audited. Questions concerning this report will be answered by CEO Magnus Wastenson, tel. +46-70-627 2515, magnus.wastenson@ibs.se or CFO Per-Arne Sendrén, tel. +46 8 627 2360 per-arne.sendren@ibs.se ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/10/17/20021017BIT00260/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/10/17/20021017BIT00260/wkr0002.pdf The full report

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