Interim report from IBS January-September 2000

Interim report from IBS January-September 2000 The market for IT-related products and services remains slow. For the first nine months, pre-tax profits after financial items amount to SEK -45m (l.y. 72m), the weaker result being mainly attributable to lower professional services utilisation. Revenue for the period was SEK 1,564m, representing a 6% decrease in comparable currency rates. During the third quarter, Group software revenue grew by 6%, the highest growth rate being shown by our US subsidiary. IBS new software for collaborative Supply Chain Management, ASW Virtual Enterprise, has been well received. The Group's financial position is strong. The equity to total assets ratio is 54%. The full-year forecast for pre-tax profit after financial items has been adjusted to SEK -20m to +20m. 17 October, 2000 IBS is a leading international supplier of Internet-enabled business software and services, with a focus on distribution, supply chain management and customer relations management. IBS has approx. 2,400 employees in 20 countries. IBS' approx. 5,000 customers include ABB, CIBA Vision, Henkel, Miele, Nintendo, Nautor Swan, Pioneer and Volvo. Market remains slow The market The international market for IT-related products and services has generally been characterised by continued slow demand. However, the number of prospective customers for business software has grown. Many companies have a need for preparing the organisation for the strategic integration of e-business and supply chain operations. Due to this fact, decision-making processes are prolonged. The expected strong growth in signed orders has therefore not yet occurred. The third quarter, 2000 Third quarter revenue fell due to weaker demand for professional services, to SEK 450m (516m), or by 13% compared to the same period last year. The third quarter 1999 was exceptionally strong, due to the millennium shift's positive influence on professional services utilisation. Revenue streams were distributed as follows: Software: SEK 80m, +6% Professional services: SEK 269m, -21% Hardware etc: SEK 101m, 0% Software revenue, a leading indicator for professional services, grew by 6%. The table below shows the recovery that has taken place since the fourth quarter 1999 (last year recalculated using this year's exchange rates). Significant third quarter sales include Mayflex, Micronics, Volvo CE, CIBA Vision, Miele and Merry X-Ray. Average professional services utilisation remains low. However, professional services revenue increased in September. For the period, professional services margins, after distributed direct costs, fell from 28% till 19%. Given that utilisation is on the increase, and taking into account the high costs for first lowering and then raising consulting capacity, it is at the present time reasonable to only selectively reduce staff. At the same time, considerable cost reductions have been achieved, partly through decreased use of sub-contractors, and partly via bonus- based salary systems that have reduced the cost of staff. Third quarter pre-tax profits amounted to SEK -52m (6m). The main cause of the weaker results is the protracted periods being dedicated to strategy and pre-studies. In all, this means that full utilisation of IBS' professional services will be achieved at a later stage than previously expected. The lower third quarter services revenue represents a loss of some SEK 50m. The first nine months, 2000 During the first nine months revenue decreased by 8%, to SEK 1,564m (1,694m). In comparable currency rates, the decrease was 6%. Revenue streams were distributed as follows (last year recalculated using this year's exchange rates): Software: SEK 270m, +1% Professional services: SEK 947m, -11% Hardware etc: SEK 347m, +6%. Pre-tax profits for the first nine months amounted to SEK -45m (72m). Profit per share was SEK -0.40 (0.52). Results have been negatively influenced by the following factors: Operating losses in the US market and certain European subsidiaries. Software margins fell somewhat, due to increased depreciation of capitalised R&D investments. The professional services margin was considerably reduced due to lower utilisation. Costs for future product development grew, due to continued high investments in increased functionality and new technology. New marketing and sales capacity was added. Costs for a rapid development of Internet consulting capacity. Lower costs of staff have, however, reduced total costs. Operations Given the present market situation, IBS continues to adhere to a strategy of long-term profitability and balanced growth, choosing to: only marginally reduce current consulting capacity, maintain financial capacity for taking part in future industry restructuring, increase resources for marketing, sales and product development, increase market exposure through new strategic alliances. Even though the third quarter shows a new positive trend, in that software revenue increased by 6%, there is still a long way to go to reach the strong sales increase as forecast before the summer. The increase was strongest in the USA (+190%) and the UK (+40%), with a continued negative trend in smaller countries where IBS has a high market share, e.g. the Netherlands, Denmark and Portugal. Our US operations have been especially exposed to the markedly shifting trading conditions caused by the millennium issues. As previously reported, operations are well set to show renewed profitability and expansion following restructuring and reduced capacity. In Europe, operations in the UK, France, Belgium and Sweden have shown satisfactory development. Competitive capacity has been reduced, in the wake of some major software company mergers following significant long- term losses. At the same time, price is becoming more of an issue in the fight for new contracts, seen against the considerable over-capacity that remaining suppliers are still subject to. In Finland, demand for new systems in connection with the requirements posed by the introduction of the euro has shown marked growth. Growing demand is expected from companies in other parts of the euro zone as well. Growth has centred on the Group's Internet operations, in which the number of employees has increased. The Swedish consultancy organisation has by means of the acquisition of Vertex Data System AB, strengthened its expert position in the field of real estate systems. During the period, an acquisition in Brazil has further positioned IBS in this large market. IBS' Brazilian operations are co-ordinated and managed via IBS Portugal. Staff The number of employees decreased during the third quarter by 34, or by 1%. Over the last twelve months, the number of employees has risen by 4%, or by 81. Per 30 September, the total number of employees amounted to 2,332 (2,251). The organisation has been subject to considerable structural change. Some 100 employees have been added by means of smaller acquisitions or start-up operations in Australia, Italy and Brazil. Internet and strategic consulting have increased in terms of volume. In countries where operations have shown a positive development despite weak markets, e.g. the UK, Spain and Germany, a small expansion has taken place. In all, the initial consulting capacity has been reduced by approximately 150 persons, or by 10%. Virtual Enterprise - new software for tomorrow's digital supply chain management In early October, IBS announced new software for tomorrow's collaborative commerce and supply chain management. This new software concept, ASW Virtual Enterprise, offers a broad range of possibilities for handling new business models and supply chain set-ups. The software can integrate an unlimited number of companies, customers, suppliers, portals and business partners via the Internet. The system can run on AS/400, NT servers and Unix-based computers. It is built on IBM's WebSphere Business Components. ASW Virtual Enterprise is developed in Java and can be fully integrated with IBS' ASW software, or used with ERP systems from other suppliers. The initial target group is mainly large and mid-sized companies wanting to increase profitability through extended integration of commerce and supply chain operations in the new digital economy. The software includes support for a whole group's or group of companies' supply chain set-ups. It enables direct integration between any number of data sources, software applications, business portals and mobile devices such as WAP phones and Palm Pilots. This allows for improved service, speedier deliveries, and reduced transaction costs. The first deliveries of the software will start early next year, with functionality for so-called Collaborative Sales, Collaborative Procurement and Supply Chain Visibility. The announced software has been very well received by several large customers and leading IT analysts. Liquidity and financial status The Group's financial status remains strong. Group equity amounted to SEK 708m (491m) and the equity to total assets ratio increased considerably, totalling 54% (39%). For the first nine months, cash flow after investment totalled SEK -158m (-17m). Cash flow from operating activities amounted to SEK -41m (98m). Cash and liquid assets, including short-term investment, as per 30 September, amounted to SEK 179m (264m). Current assets represented 163% (145%) of current liabilities. Per 30 September, cash and liquid assets, including unused credit facilities, amounted to approx. SEK 500m. Investment Group investment in equipment was limited and amounted to SEK 38m (53m). During the quarter, acquisitions have been made in Brazil and Sweden. During the first nine months, capitalised R&D costs for products to be launched within twelve months exceeded depreciation by SEK 17m (10m). Acquired goodwill now amounts to SEK 230m. The equivalent amount at the beginning of the year was SEK 233m. Group policy is to depreciate goodwill over a 10-20 year period, depending on the nature of the acquisition. The number of shares The total number of shares is 79.1 million. IBS has two current warrants programs, 98/02 with 5 million warrants to a strike price of SEK 40.60 per share and 00/04 with 5 million warrants at SEK 65 per share. After full dilution, the number of shares is 89.1 million. SPP As announced by SPP, the Swedish Pension Fund, IBS will be refunded pension premiums amounting to some SEK 53m. The whole amount is reported as an item affecting comparability and was booked during the second quarter, 2000. During the period, SEK 9m has been paid to IBS by SPP. SEK 17m is expected to be refunded within a year, and has therefore been booked as current receivables. The remaining sum, SEK 27m, represents the value of future lower pension premiums over the following year, and has been booked as long-term receivables. The net present value is almost equal to the nominal sum. Future prospects We foresee that the market for new business software is facing a new growth phase. IBS, with its focus on supply chain management and e- business has a strong strategic position in this market. With the new product, ASW Virtual Enterprise, IBS is ahead of most competitors. In a market under pressure, IBS continues to enjoy a strong financial position and a very satisfactory equity to total assets ratio. In our half-year report of 17 July, a year-end profit after financial items amounting to SEK 80m-130m was forecast. Given the delayed market recovery, the year-end forecast for profit after financial items has been adjusted to SEK -20m to +20m. Thus, we expect a traditionally strong fourth quarter. Information plan @ Analyst meeting 18 October, 2000, at 8 a.m. @ Year-end report for 2000, 24 January, 2001 @ Solna, 17 October, 2000 Staffan Ahlberg CEO This report has not been audited. Questions regarding the report should be directed to Staffan Ahlberg, CEO Tel. +46-70-627 2420, staffan.ahlberg@ibs.se Christina Wågström, Director of Investor Relations Tel. +46-8-627 2460, christina.wagstrom@ibs.se Björn Bontin, CFO Tel. +46-8-627 2402, bjorn.bontin@ibs.se . ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/10/17/20001017BIT00770/bit0001.doc http://www.bit.se/bitonline/2000/10/17/20001017BIT00770/bit0002.pdf

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International Business Systems (IBS), the leading business application supplier for wholesale and distribution helps companies differentiate themselves on the strength of their distribution operations. Founded in 1978, IBS has over 30 years of experience in the distribution industries ranging from automotive and electronics to paper, publishing, pharmaceuticals, food and beverage. This deep understanding of distribution models and best practices is embodied within IBS Enterprise, a distribution resource management application suite on which thousands of the world’s most successful companies now rely.