Preliminary Report on 1998 operations

Preliminary Report on 1998 operations *Net revenue rose 96% amounting to SEK 1,238 M (632). *IFS reported a profit of SEK 10 M after net financial items (loss: 39). *License revenue increased 78% to SEK 371 M (208). *License revenue accounted for 30% (33) of total sales. *In the fourth quarter net revenue increased 80% to SEK 472 M (263). *Fourth-quarter profit after net financial items was SEK 50 M (26). Group performance The IFS Group's net revenue in 1998 amounted to SEK 1,238 M (632), an increase of 96% (77) compared with the year-earlier period. The sharp increase in revenues was attributable to the continuing strong demand for IFS Applications , now in the second generation of object-based technology, and to the Group's international expansion. This expansion was most apparent in Western Europe as a result of strong sales, mainly in France and Great Britain. A substantial marketing program in North and South America, which commenced in 1997 and focuses on IFS industrial applications, began to show results after the second quarter in the form of more and larger customer contracts than previously. During the second half of 1998, IFS' North American operations underwent substantial restructuring. Consequently, these measures included increased profit responsibility for the regional offices in accordance with IFS' Nordic model. In October, Terje Vangbo was appointed new President of IFS Inc. in the U.S. Vangbo was previously President of IFS Norway. In terms of growth, IFS currently commands a top position among the world's ERP suppliers and is currently represented in 32 countries through wholly and jointly owned subsidiaries and business partners. The companies acquired since 1997 have developed favorably. The volume of larger contracts involving installations in several countries has risen. Demand for industry-specific IFS solutions has also increased. The number of employees at year-end was up 72%, to 1,937. Group sales IFS sales in markets outside Sweden amounted to 60% (52) of total net revenue. License revenue increased by 78% to SEK 371 M (208). Consulting revenues rose to SEK 705 M (344) - an increase of 105%. Of the Group's total net sales during the period, SEK 1,238 M, consulting revenue accounted for 57% (54), license revenue accounted for 30% (33) and other revenue for 13% (13). Other revenue consisted mainly of hardware sales and invoiced travel expenses. For the fourth quarter, the Group reported net revenue of SEK 472 M (263), an increase of 80% (96) compared with the same period in 1997. License revenue grew by 30% (134) amounting to 28% (38) of fourth-quarter net sales, while consulting revenue grew by 125% (34), amounting to 59% (47) of fourth-quarter net sales. The distribution of sales by geographical business area was: Nordic region 63% (76), Western Europe and the Middle East (EMEA) 18% (7), North America 9% (10), South America 3% (1), Central and Eastern Europe 5% (5) and Asia 2% (1). Product development During the year product development followed the established strategy. This year's new main version, IFS Applications 99 , was released in the third quarter. IFS Applications 99 is the second generation of IFS products based on object technology and it introduced completely new functions in several of IFS' high-priority markets. The reception has been positive and, due partly to favorable press coverage, the launch has led to increased attention for IFS brands in many countries. IFS operates development centers in Sweden, Sri Lanka, the U.S., Norway, Poland and Indonesia, all of which are led from Sweden. The component-based architecture of IFS systems makes it possible to conduct product development simultaneously in several countries. The global presence brings access to an enormous selection of personnel with different skills profiles and to different cost situations, which helps to promote a cost-effective product development. The Group's international development centers also provide proximity to varying market demands, enabling them to be more quickly integrated into product development. The development center on Sri Lanka is IFS' most rapidly growing development unit. In December, the center employed 81 (0) people. During the year, product-development costs amounted to SEK 190 M (117), of which SEK 58 M (35) have been capitalized. Depreciation of the year's capitalized development costs amounted to SEK 21 M (13). Acquisitions and sales of companies In 1998 IFS acquired the following: ¤ 15% of the shares of partner company IQSOFT in Hungary (75 employees) ¤ via subsidiary IFS Brazil (50% owned), 60% of the shares of Menthor Technologies in Sao Paulo ¤ 5% of the shares of IFS Argentina (8 employees) ¤ the remaining 25% of the shares of IFS Applications Danmark A/S in exchange for 51% of the shares of Pro:Con A/S, subsidiary of IFS Applications Danmark A/S. The remaining 49% of the shares of Pro:Con A/S were then sold to the company's management and personnel. The sale brought a capital gain of SEK 15 M. Half of the sale proceeds has been cleared. The plan is to clear the remaining amount in the year 2001. ¤ 100% of the shares of IDOK AB, Sweden (89 employees) ¤ 100% of the shares of GSB GmbH (122 employees) Companies acquired in 1998 accounted for 5% of net revenue. In 1999 IFS acquired: ¤ 73% of the shares in Exactium Ltd., Israel. The company specializes in the development and sale of "front-office software," an area where products for product configuration and sales support are important components. Exactium is registered in Tel Aviv, while its main operations are conducted by the wholly owned subsidiary, Exactium Inc., in Atlanta, Georgia. The company has approximately 20 employees. Earnings In 1998 the Group's profit after net financial items was SEK 10 M (loss: 39) and fourth-quarter profit was SEK 50 M (26). IFS' strategy, which is to assign priority to rapid growth and international expansion, is cost-demanding. The surplus from mature markets is being invested in new markets in order to generate economies of scale more rapidly. These programs were carried out particularly intensively in North America. The profit/loss after net financial items by geographic area was as follows: Nordic region: SEK 117 M (41); EMEA: SEK 13 M (loss: 4); Central and Eastern Europe: loss of SEK 3 M (loss: 4); North America: loss of SEK 53 M (loss: 15); South America: loss of SEK 18 M (0); Asia: loss of SEK 10 M (loss: 10); Parent Company and remaining units: loss of SEK 36 M (loss: 47). Product-development costs charged to IFS delivery and sales companies have been prorated in proportion to the company's percentage of Group sales. Financing and liquidity In September, a Special General Meeting approved the Board's decision to carry out a new issue of shares in an amount of SEK 522 M in the period September 30 to October 16, 1998. Due to the negative developments on the stock market, only a limited portion of the issue was subscribed. On October 7, the Board decided to carry out a new issue of SEK 252 M. The issue was effected in the period from November 18 to December 4, 1998, and it was fully subscribed. Proceeds from the issues totaled SEK 236 M after issuing expenses. Investment in goodwill resulting from corporate acquisitions amounted to SEK 108 M (69), while investment in machinery and equipment amounted to SEK 66 M (79). Liquid funds amounted on December 31, 1998 to SEK 64 M. The Group also had access to unutilized lines of credit totaling SEK 79 M. During 1999, the total approved credit limit was increased by SEK 91 M. On December 31 the debt/equity ratio was 50% (48). Parent Company The Parent Company reported net revenue of SEK 17 M (21) and a loss of SEK 44 M (loss: 42) after net financial items. Investment in stocks and shares amounted to SEK 151 M (73), and in machinery and equipment, to SEK 1 M (36). During the second quarter the Parent Company sold the SEK-DVZ aircraft to BLN Förvaltnings AB, realizing a capital gain of SEK 2 M. BLN Förvaltnings AB is controlled by IFS president Bengt Nilsson. On December 31, the Parent Company's liquid funds amounted to SEK 4 M (2). Taxes The Group's tax expense amounted to SEK 12 M (1). The high tax expense, relative to earnings before tax, is due to the uneven distribution of earnings among Group companies and to the fact that opportunities for tax equalization are limited. Outlook The market for new sales of business systems is generally expected to develop more slowly during the first half of 1999 than in 1998. IFS expects that this market reserve will disappear in the second half of 1999 and that a pent-up need will then create increasing demand for business systems. It is expected that IFS will be less affected by declining growth in new sales in the first half of 1999 than many of its competitors. Consequently, growth in the Group is expected to exceed the industry average. The reasons are as follows: ¤ The third generation of the IFS Applications business system using object-based technology will be delivered in 1999. The Group's technological edge is a considerable competitive advantage. ¤ IFS operates in several geographic markets and industries with considerable growth potential. In 1997 and 1998, IFS invested heavily in marketing in these markets, which is expected to bring new-sales growth in 1999. ¤ IFS component-based systems require a minimum of implementation time. IFS expects the market for tactical investment in smaller subsystems will be favorable in 1999. ¤ Declining license sales are offset by increasing sales in consulting services, which was already apparent in the fourth quarter of 1998. ¤ In the past few years, IFS has reported growth well over the industry average and in 1998 the Group grew fastest of all ERP suppliers in the world. Due to economies of scale and the fact that submarkets are increasingly achieving a critical mass, it is expected that the Group's 1999 results will be considerably better than in 1998. Annual General Meeting The Annual General Meeting will be held on May 3, 1999 at 5:00 p.m., in the Collegium building at Teknikringen 7-9 in the city of Linköping, Sweden. Dividend The Board of Directors proposes that no dividend be paid for the 1998 fiscal year. Linköping, February 25, 1999 Bengt Nilsson President 1998 Annual Report Distribution of the Annual Report is expected to occur on April 10, 1999. The Annual Report will be available from IFS AB at Teknikringen 5 in Linköping, Sweden, as of April 1, 1999, and from 5:00 p.m. the same day on the IFS website, at www.ifsab.se Financial report dates 1999 Interim Reports 3 May, 10 August, 5 November Preliminary Report on February 2000 1999 operations For additional information, please call: Bengt Nilsson, President Tel. +46 (31) 709 39 00 / Fax. +46 (31) 709 39 01 Sverker Lundberg, Chief Financial Officer Tel. +46 (13) 20 15 00 / Fax. +46 (13) 20 15 01 Rolf Erichs, Corp. Comm. Director Tel. +46 (13) 13 37 10 / Fax. +46 (13) 12 43 73 Head Office: Teknikringen 5 S-583 30 Linköping Sweden Organization Number 556122-0996 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/25/19990225BIT00600/bit0001.doc http://www.bit.se/bitonline/1999/02/25/19990225BIT00600/bit0002.pdf