Interim report from IBS

Interim report from IBS January-September 1999 * Pre-tax profits for the first nine months increased by 21%, from SEK 60m to 72m * Pre-tax profits for the third quarter reached SEK 6m (19m) * New subsidiaries acquired in Spain and South America * Successful launch of new Internet-based software - software sales expected to increase * Pre-tax profits for the full year estimated to reach SEK 140-160m, and revenue some SEK 2,7bn (The currency used in this report is the Swedish krona) 18 October 1999 Growing demand for new business systems 1. The market IBS reports profits for the traditionally weak third quarter. This year, the millennium issue has provided an additional damper on demand for new business systems. For IBS, the period has been characterised by an increase in market shares and professional services. The number of potential customers in the process of buying new business systems is on the way up again. This is particularly noticeable for new projects in the fields of Internet, Supply Chain Management and Customer Relations Management (CRM). The increase is in line with the research institute AMR's forecast for a steeply rising demand for such applications. As regards the Internet, there is an on-going e-commerce project for larger systems for, amongst others, the "Expert" retail chain and the Swedish Association of Property Owners. 2. Software The new Release 4 of IBS' business system, ASW, was launched in September. The product has had a positive reception, especially with regards to the new Java User Interface and the substantially extended Internet-based commerce, Supply Chain Management and CRM functionality. AMR has recently ranked IBS as one of the world's three largest software suppliers for Supply Chain Management. The parallel development of a whole new object-oriented software generation has benefited from the fact that the chosen development tool, SanFrancisco, has been incorporated as an essential component in IBM's system development environment, WebSphere. This constitutes substantial success for our selected technology. The launch of IBS' new software, based on this technology, is planned for the end of 2000, while our present ASW software will continue to be sold for many years to come. We will thus be in a position to offer the market two product lines representing the latest in technology, broad functionality and reliability, targeting slightly different markets. The latter product line can, without any modification, be utilised by customers who have chosen other operative systems than IBM's. Thus, the market opportunity for IBS products will treble. 3. Revenue and resources IBS goal is to maintain a comfortable profit margin, while achieving balanced growth. During the first nine months of the year, revenue increased to reach 1,694m (l.y. 1,312m), or by 29%. The increase is mainly in professional services, even though absence due to summer holidays reached an unusually high level this year. The temporarily weaker market for new licence and hardware sales has lead to a revision of the full-year revenue forecast, to 2.7bn. Our previous estimate for flat licence sales during 1999 remains unchanged. We are now further increasing our capacity, to meet new strong customer demand. After successfully having established operations in Brazil, IBS has also strengthened resources in the Spanish speaking parts of South America during the third quarter, by acquiring our Colombian business partner's operations. Furthermore, IBS Portugal has bought 75% of the shares in GTM SA, in Spain. Hereby, some 40 employees have been added to IBS staff. th Per 30 September, IBS had 2,251 employees, (1,780), a 26% increase. With the Spanish and South American acquisitions, IBS subsidiary operations now cover 17 countries. 4. Results Pre-tax profits for the first nine months rose from 60m to 72m, or by 21%, compared to the same period last year. The whole increase is attributable to growing volumes and increased efficiency in professional services. The operating margin for professional services has grown from 20% to 27%. The result has been charged with goodwill depreciation of 13m (5m). IBS' normal seasonal pattern has been to show a loss during the third quarter. For 1999, as for 1998, IBS has generated a profit, 6m (19m). This year's weaker market for new licence sales, in combination with the period in effect only covering two months' professional fees, have lead to the lower figure. We estimate that some 10m have been expended in connection with millennium issues, during the third quarter. Our previous estimate that the millennium reserve, totalling 32m, will cover remaining Group costs for such issues still holds. Preliminary calculations show that IBS' Swedish operations will receive a significant return on pension premiums previously paid to SPP, as the management of these funds has overachieved forecast returns. 5. Financial position During the period, Group investment in machinery and equipment amounted to 53m (32m). Cash flow before investments amounted to 104m (98m). Cash and liquid th assets per 30 September amounted to 264m (256m). In addition, the Group has unused credit facilities amounting to 192m (84m). The current assets to current liabilities ratio is 145% (124%). Group equity amounted to 491m (427m) and adjusted equity covered 39% (38%) of total assets. 6. Future prospects Pre-tax profits for the full year, excluding pension premium returns, are expected to rise to 140m-160m (120m) IBS' management forecasts, as do the majority of industry observers, that the year 2000 will show renewed strong demand for business systems. The positive trend is especially strong in the market segments on which IBS focuses. Thus, IBS is well-positioned, as regards both market and products, to reach our financial goals regarding a balanced growth of approximately 35%, to 3.6bn, a margin of 5-8% and a return on equity exceeding 15%. 7. Financial Information * For foreign investors and analysts, a telephone conference in English will th be held at 4 p.m. today, 18 October. Call-in information will be given by Kerstin Sandberg, tel. +46-8-627 2401, fax +46-8-29 16 60, kerstin.sandberg@ibs.se. th * A conference for analysts and media will be held on 19 October, 1999. th * The year end report is scheduled for 24 January, 2000. th Solna, 18 October, 1999 Staffan Ahlberg Group Managing Director Questions concerning this report should be directed to Group MD Staffan Ahlberg, tel. +46-8-627 2420, staffan.ahlberg@ibs.se, or Christina Wågström, Head of Investor Relations, tel. +46-8-627 2460, christina.wagstrom@ibs.se. This interim report has not been audited. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/10/18/19991018BIT00330/bit0001.doc The full report http://www.bit.se/bitonline/1999/10/18/19991018BIT00330/bit0002.pdf The full report