Year end report for 1999 from IBS

Year End Report for 1999 from IBS * Pre-tax profits better than forecast - increased by 36%, to SEK 163m. Profits per share after full dilution rose from SEK 4.95 to 5.69. * IBS has grown more than the market average of 5-10%. Given the temporarily weaker market for business systems, IBS has successfully focused on profitability and current customers, and prepared operations for renewed rapid growth. * Revenue increased by 16% to SEK 2,408m, after low hardware sales in December. Licence revenue reached SEK 410m (430m). Professional services increased by 34%, to SEK 1,495m, with steeply rising margins. * Considerably strengthened market expected to generate growth for 2000, following the end of the millennium issue and a focus on Internet and e- business. (The currency used in this report is the Swedish krona) 24 January, 2000 IBS, International Business Systems, is a world-leading supplier of Internet-integrated business software and professional services for distribution and supply chain management. We have 2,400 employees in 20 countries. Our 5,000 customers include Nintendo, Volvo, ABB, Nautor Swan, Ciba Vision, Pioneer, the Expert stores and Miele. A focus on profits, customers and renewed rapid growth 1. A temporary lull in demand 1999 has been an exceptional year for the business software industry. The market for new systems decreased considerably pending the millennium shift. One reason for this was that many businesses had already replaced their old systems. Others had opted to adapt existing systems to manage the transition to 2000. Many refrained from investing in IT systems during the last quarter, so as not to risk system security over the transition. Given this situation, IBS quickly adapted to the market by focusing on existing customers and preparing for the next phase of growth, which is now on its way. We have purposely refrained from business with unsatisfactory margins. There are strong signs that customer investment is again gathering momentum, especially within areas such as Internet-based commerce between companies and increased efficiency of distribution and customer service. In addition, there are many companies that previously did the bare minimum to manage the millennium transition, and who now need to replace their obsolete systems. 2. A focus on e-business between companies The first phase of Internet development has been dominated by consumer- oriented business within fields such as banking, travel, books and home appliances. It is mainly within these market segments that Internet companies have found their customers and developed tailor-made systems with a varying degree of integration with the underlying business software. The second phase of Internet development, which has a far greater potential, is in the field of business-to-business. IBS specifically targets this phase, characterised by large volumes of business-to-business transactions over the Internet. Many Internet consultants have experienced difficulties in building up the technical and business competence necessary for integrating e-business solutions with underlying business software. IBS has now launched a new strategic business unit, IBS NetCommerce, where resources for strategy advice, graphical design, e-business systems, Internet know-how and outsourcing are gathered under the same roof. This business model, whereby top-competence subsidiaries in the field of e-business co-operate with other IBS units, has been introduced in Sweden, with the aim of doing so in other IBS countries at a later stage. Within the next two years, we expect to have some 500 Internet consultants employed, working on an international basis. 3. Products During the last quarter, the new version of IBS' business software, ASW Release 4, has been launched locally by the subsidiaries. The product has been well-received in the different markets, especially as regards new functionality for Internet-based commerce, distribution and customer relations management. IBS continues the successful development of the current product line. At the same time, development of the next generation of business software is underway, software that is object-oriented and Java-based. This new generation of business software will be launched at the end of this year. Investment in product development has increased according to plan, from 121m to 175m, or by 45%. Capitalisation of development costs for products to be launched within 12 months exceeded depreciation by 13m. 4. Revenue and capacity 1999 revenue grew by 16%, to 2,408m (l.y. 2,083). The equivalent growth rate for the market as a whole was 5-10%. 12% of IBS' growth is attributable to organic growth, and 4% to acquisitions. Exchange rate fluctuations have had little influence on revenue and profits. IBS' core business sectors, i.e. software licences and professional services, grew by 23%, hardware sales excluded. Slower demand for hardware, a 6% decrease in revenue to 503m (535m), has had a negative influence on revenue. For the fourth quarter, hardware sales showed an unexpectedly severe decrease of 33%. We have also seen slower licence sales; -5% for the whole year. However, the decrease of these revenue streams has been compensated by considerable growth in our professional services, for which revenue increased by 34%, from 1,118m to 1,495m. We have also grown capacity and competence and are well-prepared for the expected rise in demand. The number of employees increased by 449, or 24%, totalling 2,340 at the end of the year. The average number of full-time employees rose by 31% to 2,165. 5. International expansion During the year, the IBS Group has successfully established new operations in Italy, Singapore and Australia. We have strengthened our position in Spanish-speaking South America through our acquisition of our Colombian business partner's operations. We have also increased our holding in IBS Brazil to 100%. Acquisitions of DAC Data A/S in Denmark and Progma Oy in Finland have strengthened our position in Scandinavia. In all, some 150 employees have joined IBS through these acquisitions. 6. Results Pre-tax profits grew by 36%, from 120m to 163m. Swedish operations contributed 52m (26m), the rest of Europe 147m (154m), the rest of the world -10m (19m) HQ and Group adjustments, -26m (-79m). The strong profit development is mainly due to our professional services operations, which have seen growth in both volume and margin. The latter is a result of a combination of increased fee rates, a lower percentage of sub-contractors, a decrease in costs and a higher utilisation ratio. Per consultant, revenue grew by 5%, whilst direct costs decreased by 9%. The changing circumstances over the year produced a unique situation, whereby the contribution in profits from professional services, 416m, was greater than from software licences, 362m. Another factor behind increasing profits is a restraint of administrative, sales and marketing expenses. However, depreciation of intellectual capital in the form of goodwill rose from 11.5m to 17m. In all, the millennium shift went very well. IBS customers experienced an unproblematic and secure transition. Over the year, IBS recognised costs associated with the millennium amounting to some 20m, a lower amount than the previous millennium reserve, which now only totals 1.4m. In accordance with new legislation regarding accounting standards, reserves for individual projects with potential losses or guarantee costs have in the balance sheet been moved from Current Liabilities to Reserves. Profits have benefited from successful cash management. The management of our external pension fund, SPP, has informed IBS that our share of overachieved returns on pension premiums previously paid amounts to 53m. As there is still some uncertainty regarding how and when these funds are to be credited IBS, this amount has not yet been recognised. 7. Financial information Net Group profits after tax and minorities increased from 68m to 84 m. The average number of shares after full dilution has been 16.3 million. Including pro forma interest on future equity from outstanding warrants, profit per share grew from 4.95 to 5.69. Post-tax return on opening equity amounted to 18% (23%). Total assets grew less than revenue, or by 8%, mainly by further decreasing outstanding debtors. At year-end, amounts owed from customers fell from 29% to 25% of revenue. Cash flow after investments totalled -27m (-61m). The improvement is mainly due to limited investment in acquisitions. Group investment in equipment and machinery amounted to 63m (60m). The acquisition of DAC Data A/S in Denmark resulted in goodwill to a sum of 30m. At the year end, cash and liquid assets amounted to 241m (213m). Current assets represented 152% (134%) of current liabilities. Group equity amounted to 529m (467m) and the equity to total assets ratio improved to 38% (36%). The fact that equity rose by a lesser amount than net profit, is mainly attributable to negative differences when translating net assets of foreign subsidiaries to the Swedish krona, which was strengthened towards the end of 1999. 8. Financial targets In 1997, the Board of Directors set the following financial targets for IBS: Growth: A yearly average of 35%, whereof a smaller part from acquisitions. Operating 5-8% on total margin: revenue during the phase of rapid expansion, then 15-20%. Sales/Tota A yearly l assets: average of 1.8-2.0 times. Equity/Tot 30-40%. al assets: Return on 15-25% during equity: the phase of rapid growth. For 1998, IBS met all these targets. For 1999, IBS met all financial targets except growth. 9. The Parent Company The Parent Company's primary role is to manage software development and Group services. The Parent Company's revenue amounted to 129m (122m) and pre-tax profits to -22m (34m). Dividends from subsidiaries, amounting to 27m (51m), are included in the financial net. Investments in equipment and machinery amounted to 3m (5m). 10. Ownership During 1999, we have seen a positive development of the IBS ownership structure. The number of shareholders now totals some 11,500 and several large institutions have become shareholders, e.g. SPP, Trevise and Roburs Miljöfond. The share price at the end of the year, 239 krona/share, represents an increase of 44% over the year. On average, the share price has increased by 80% per annum over the last five years. 11. Future prospects 1999 has confirmed the strength of IBS' business model. Nearly all our subsidiaries around the world are indicating that more and more companies are prepared to invest in new business systems. We are well-equipped to exploit this opportunity through our global network and the strong market position of our software. Taking into account the time needed for evaluation and decision-making when investing in new business systems, the growing demand is not expected to generate strong licence revenue growth until the second or third quarter. With our emphasis on e-business and supply chain management, combined with our successful business model, we feel we are well-positioned to meet growing demand. For 2000, IBS is planning for a 30% increase in revenue and an operating margin of 5-8%. 12. Annual General Meeting and dividends The Board will invite shareholders to attend the IBS AGM on Thursday, 27th April, at 6 p.m. The Board proposes that no dividend be paid for 1999. 13. Information plan * For investors and analysts, a telephone conference in English will be held at 4 p.m. today, 24th January. Call-in information will be given by Kerstin Sandberg, tel. +46-8-627 2401, fax +46-8-29 16 60, kerstin.sandberg@ibs.se. * A conference in Swedish for analysts and media will be held on 25th January, 8.30 a.m. at Operaterrassen in Stockholm. * Interim reports are planned for publication on April 27th, July 17th and October 17th. * The year end report for 2000 is scheduled for January 24th, 2001. Solna, 24th January, 2000 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. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/01/24/20000124BIT00480/bit0001.doc http://www.bit.se/bitonline/2000/01/24/20000124BIT00480/bit0002.pdf