IBS interim report April-June 2002

IBS' interim report April - June 2002 · The second quarter operating result was SEK -60m (-48m). The last twelve-month result was SEK -26m, which is lower than forecast. · The deviation from forecast is mainly due to lower professional services utilisation, increased bad debts and costs for excess capacity reduction, overall lowering the result by approximately SEK 30m. · The IBS software market share has grown in an otherwise shrinking market. Second quarter software revenue grew by 4% to SEK 110m. · To safeguard Group results, steps have been taken to further reduce Group costs, especially in countries with poor profitability. · Cash flow from operating activities improved and amounted to SEK 95m (16m), for the first six months. · Magnus Wastenson has been appointed new CEO, as from 1 October, 2002. · The budgeted full-year 1-2% operating margin is not expected to be met. On condition that the market is not further weakened, the new full- year forecast is to reach an operating margin within a +/- 1% interval. Software revenue grew despite a weakening market The market The global market has shown unexpectedly slow development since the first quarter. Due to the uncertain market, many companies have chosen to postpone investment decisions, and in some cases, to delay IT projects that have already been contracted. These conditions have been particularly evident in June, which is normally a strong month for the IBS Group. IBS continues to increase its market share in a slow market. During the first quarter, the five largest software companies in IBS' market segment showed an average 12% decrease in software licence revenue, whereas IBS' software revenue grew by 6%. Resources and efficiency It is at present difficult to judge when the business climate is going to improve. To ensure Group results, a further reduction of staff and costs in IBS units showing poor profitability has therefore been initiated. The target for these measures is to reduce total costs by approximately 5%, or SEK 100m on a full-year basis. One-time charges to achieve the target have in part already been booked during the second quarter. The average number of full-time employees was reduced by 87 persons, or by 4% compared to the second quarter 2001. Revenue per employee grew by 5%. Exchange rates In relation to the revenue distribution of IBS' subsidiaries, the value of the Swedish krona has remained unchanged both during the second quarter and the first half year. 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 second-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 second quarter, and by approximately SEK 2.0m during the first half year. The second quarter 2002 During the second quarter, revenue grew slightly to reach SEK 622m (616m), or by 1% compared to the equivalent period last year. The different revenue streams were distributed as follows: · Software: SEK 110m (106m), +4% · Professional services: SEK 344m (352m), -2% · Hardware etc.: SEK 168m (158m), +6%. Professional services revenue for the quarter was SEK 15m, or 4%, lower than forecast. The software margin grew from 82% to 85%. The growth is attributable to the change in accounting methods as presented in "Accounting principles", and there is an equivalent increase in product development costs. Gross margins for professional services as well as for hardware decreased, due to both competitive pressure within the industry and to internal excess capacity. The gross profit totalled SEK 195m, i.e. a decrease of approximately SEK 2m. A major launch and training event for the Group's new software version was held, and the corresponding costs of some SEK 6m have been booked during the period. Costs relating to product development and marketing decreased. One-time operating costs amounting to approximately SEK 15m have been booked during the period, in the form of costs for depreciation of accounts receivable and for capacity reduction. Regarding accounts receivable, IBS applies a conservative accounting policy, whereby receivables older than six months are always fully depreciated, whatever the extent of uncertainty. We do, however, expect to recover parts of these amounts. In all, the professional services revenue and gross margin for the period were approximately SEK 15m lower than budgeted, while operating costs were approximately SEK 15m higher. The operating result amounted to SEK -60m (-48m). The last twelve-month result was SEK -26m, which is lower than the break-even result forecast in the first-quarter report. Financial costs grew by approximately SEK 5m, mainly due to translation differences caused by fluctuating exchange rates. The first half 2002 During the first half, revenue grew by 5% to SEK 1,278m (1,215m). The different revenue streams were distributed as follows: · Software: SEK 255m (243m), +5% · Professional services: SEK 712m (715m), 0% · Hardware etc.: SEK 311m (258m), +21% The pre-tax result for the first six months amounted to SEK -70m (-67m). The European IBS units generally continued to show positive development, with a profit increase from SEK 14m to SEK 29m. The Parent Company result, including consolidation adjustments, fell, mainly due to increased central reserves and one-time costs. The period's result per share amounted to SEK -0.63 (-0.58). Software IBS' new release of the Virtual Enterprise and ASW software was launched at a major customer event in May, with participants from more than 20 countries. The release includes a large number of new and improved functions, e.g. built-in profitability follow-up of IT investments made, extended profitability and management information, systems for customer analysis, customer relations and customer service, portals, new systems for inventory control, optimisation of collaborative supply chain management, integration of different ERP systems and processes, as well as extensive new functionality for financial and business control, aimed at mid-sized companies and international groups. The new product version has been well received by both current and potential customers, as well as by IBS' business partners. The co- operation with IBM Global Services regarding IBS' Virtual Enterprise software has developed well. As a consequence of this co-operation, IBS can now offer its customers parts of i2 Technologies' planning software, at prices suited to mid-sized companies. IBS' software for pharmaceutical distribution, IBS Pharma, has also developed well, with several new international sales. Investment Group investment in equipment has been restrained, and amounted to SEK 26m (35m). During the quarter, capitalised product development costs for products to be launched within twelve months, have exceeded depreciation by SEK 8m (-2m). Liquidity and financial position During the first six months, cash flow from operating activities amounted to SEK 95m (16m), mainly due to the decrease in accounts receivable being larger than last year. Tax for the period amounting to SEK 16m (21m) as shown in the income statement consists of SEK 0 (-5m) in current tax and SEK 16m (26m) in deferred tax. Tax paid during the period amounts to SEK 2m (16m). Compared to 30 June, 2001, cash and liquid assets including short-term investment grew to SEK 190m (177m). In addition, there are unused credit facilities amounting to SEK 62m (115m). Current assets represented 123% (137%) of current liabilities. Group equity amounted to SEK 664m (731m) and the equity to total assets ratio was 43% (47%). The Parent Company The Parent company provides centrally developed software and Group services. Parent Company net revenue amounted to SEK 82m (74m) and the pre-tax result was SEK -26m (-30m). In accordance with a decision made by the Annual General Meeting, previous years' balanced losses have been covered by using SEK 29m from the share premium reserve. Organisation As previously announced, Staffan Ahlberg has informed the IBS Board of his desire to step down this autumn, after 25 years as CEO. Magnus Wastenson, the Group's Vice President Global Marketing, has been appointed new CEO as from 1 October, 2002. The Global Sales and Marketing Departments at IBS Headquarters have been merged, and Gustaf Lindgren has been externally recruited as new Vice President Global Marketing and Sales. He will take office as from 1 September, 2002. The IBS share The share price per 30 June was SEK 12.10 per share, which represents a 29% decrease since the end of last year. The total number of shares per 30 June 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 As discussed above, the market has weakened once more, instead of gradually recovering as expected. For the industry, this means that several software deals and implementation projects will be postponed. Steps have therefore been taken to further increase the Group's efficiency and reduce deficits in non-profitable units. The aim is to both reduce costs and increase competitiveness. The measures taken will, however, incur one-time costs. Against this development, we expect that this year's budget, with a planned operating margin of 1-2%, will not be met. On condition that the market is not further weakened, the new full-year forecast is to reach an operating margin within a +/-1% interval. We do, however, estimate that in a longer perspective, the market will recover, as companies need to improve their business software to increase competitiveness. At that point, IBS will stand well equipped to meet the expected increase in demand. Information plan · In conjunction with publication of this report, a call-in conference for analysts and investors will be held, at 2.30 p.m. on 17 July, 2002. To register, call Kerstin Sandberg, +46-8-627 2401. · The next quarterly report will be published 17 October. · The year-end report for 2002 will be published 23 January, 2003. Solna, 17 July, 2002 Staffan Ahlberg CEO This report has not been audited. Questions concerning this report will be answered by CEO Staffan Ahlberg, tel. +46-70-627 2420, staffan.ahlberg@ibs.se or CFO Björn Bontin,tel. +46-8-627 2402, bjorn.bontin@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/2002/07/17/20020717BIT00400/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/07/17/20020717BIT00400/wkr0002.pdf The full report

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