Interim Report 1 January - 30 June 2001

Interim Report 1 January - 30 June 2001 If not otherwise stated, the figures below are for the period 1 January - 30 June 2001. Figures in brackets are for the same period last year. Increased turnover in a weak market · Turnover increased by 90 percent to SEK 165.0 (86.7) million. Turnover increased by approximately 10 percent for comparable units 1) . · Operating loss before amortization of goodwill was SEK - 34.7 (-28.7) million and SEK -54.1 (-30.3) million after amortization of goodwill. · Earnings per share was SEK -2.93 (-2.13). · Sales from M2S overseas markets increased by 100 percent to SEK 131.0 (65.5) million which is 86 (76) percent of the Group's total sales. · Sales from the Swedish market increased slightly to SEK 21.2 (20.6) million. · During the third quarter a new cost reduction program will be carried out, to further reduce costs and staff levels with the aim of generating conditions for profitability in the Group. · In July, a loan of SEK 26 million was arranged with the bank SEB and a consortium including a group of the company's major shareholders. Second quarter 2001 Turnover increased by 45 percent in the second quarter to SEK 64.6 (44.6) million. Sales in the Swedish market fell in the second quarter to SEK 5.8 (7.8) million. Sales from M2S overseas markets increased by 45 percent to SEK 53.2 (36.8) million, which is 90 (83) percent of the Group's total sales. Included in this figure is a currency rate fluctuation contribution of SEK 5.6 million. Turnover per quarter 1998 - 2001 in SEKm Operating loss in the second quarter was SEK -49.3 (-29.2) million before amortization of goodwill and was SEK -58.6 (-30.5) million after amortization of goodwill. Earnings after financial items was SEK -59.0 (-31.0) million. First half year 2001 Sales Group turnover in the first half year was SEK 165.0 (86.7) million, an increase of 90 percent. Turnover for comparable units1 increased by approximately 10 percent. The year began with relatively weak sales in all markets which nevertheless recovered strongly at the end of the first quarter. However, the expected continued sales growth in the second quarter did not materialise. No large orders were received in this period which is mainly attributable to customers delaying large investment decisions. Group overseas sales in the first half year were SEK 131.0 (65.5) million, an increase of 100 percent. Turnover for comparable units1 increased by approximately 10 percent. Sales in Sweden increased slightly to SEK 21.2 (20.6) million, which was weaker than expected. Demand has been weak and hesitant in the second quarter, particularly in the Nordic markets. The European market in general has also been characterised by caution in the investment in information technology and related services. Turnover per quarter and rolling twelve months in SEKm Earnings The Group's operating loss before amortization of goodwill was SEK - 34.7 (-28.7) million and after amortization of goodwill was SEK - 54.1 (-30.3) million. Earnings after financial items was SEK -55.3 (-30.6) million. Earnings per share was SEK -2.93 (-2.13). Negative earnings relate to the second quarter only and are primarily a result of lower sales levels than expected in all markets and the lack of large orders. Operating income/loss before tax per quarter 1998 - 2001 in SEKm The Operations The proportion of so-called Custom projects has continued to increase during the first half year, particularly in Germany and Denmark. In Germany, Custom project demand has been strong mainly in SAP projects and therefore preparations are now being made in other subsidiaries to meet the expected demand in SAP projects. An important order was also received from the German state owned Bfa, Bundesversicherungsanstalt für Angestellte, regarding e-learning for Lotus Notes and SAP R3's application for Human Resources. The German operation have in the second quarter been organised into two legal entities, one focussing on e-learning and one focussing on traditional instructor-led training. The future ownership of the instrucor-led training unit is under review and talks have been conducted with potential buyers as well as strategic alliance partners. In Sweden, an important order has been signed in co-operation between M2S and Pricewaterhouse Coopers for a large multinational company's global SAP implementation. In Denmark, an agreement has been entered into with Carlsberg for an e-Procurement solution for implementation in seven countries. An important break-through in the so-called Soft Skills area has also been achieved in Denmark with an agreement with Grundfos for a training program for sales staff. The previously reported cooperation with Adecco in France has been terminated as therefore sales in France only amounts to SEK 1.1 million in the first half year. However, the French market is considered to be able to give good sales levels in the second half year. In Spain at the beginning of July, a strategically important order from the training company Wall Street Institute was received for Office training. 1) Equivalent to total number of full time employees. 2) Prokoda Germany and Switzerland consolidated from 1 June 2001. 3) Includes the joint Group functions of business/product development and production. At the end of June 2001 there were 29 (40) employees in these functions and 47 (40) in the Swedish company. Turnover was SEK 34.0 (21.2) million including an exchange rate contribution of SEK 12.8 (0.6) million. 4) Production company. 5) Cost reduction program The previously announced costs and staffing reduction program was carried out in the second quarter. The program has been carried out in general according to plan, with some rescheduling in Germany and has resulted in a reduction in costs of around 15 percent and a reduction in the number of employees by more than 50. The costs reduction will give full effect in the third quarter. The weak and hesitant market is now expected to continue for the rest of the year. In the third quarter, further reductions in costs and personnel will therefore be made, to create the conditions for profitability in the Group. The program will reduce costs by a further 20 percent. The program will cost SEK 20-25 million and will be charged to third quarter earnings. The costs reduction are expected to give full effect from the first quarter of 2002. Future Prospects Despite a generally weak market, M2S achieved an increase in turnover of 90 percent in the first half year and a turnover increase of approximately 10 percent for comparable units 2) . The market is expected to remain weak and hesitant for the rest of the year. M2S considers the growth shown by the company in both the first half year and the second to be higher than market growth in the different countries and market segments in which the company operates. The current movement towards Custom and other more advanced solutions continues and the ability to supply services in project management, implementation, integration, technology and pedagogic will become more important. In summary, M2S relatively strong market position in Europe, generates a good basis for future profitability. This is reinforced by higher growth rates than the market growth rates in the different countries and market segments in which the company operates. The previously stated goal of achieving a 50 percent turnover increase in 2001 and positive operating income after goodwill and before capitalization of specific development costs will not be achieved. Investments The Group's investments in fixed assets in the period was SEK 37.4 (3.6) million excluding subsidiary acquisitions. Investment in product development was SEK 25.3 (-) million of this amount which has been capitalized in accordance with the new accounting recommendations. The first half year direct investments were SEK 4.8 million, as opposed to SEK 3.6 million in the same period last year. The remainder relates to currency rate fluctuations and the revaluation of leasing contracts. Liquidity and financial position Group net liquid assets including an overdraft facility of SEK 34.7 million as at 30 June 2001 was SEK 25.8 (238.9) million. The equity/assets ratio at 30 June 2001 was 83 (84) percent. The company's interest bearing liabilities at the end of the period was SEK 45.5 (25.3) million. The Group's accounts receivable was SEK 70.9 (74.8) million at 30 June 2001. Loan In July, a loan of SEK 26 million was arranged with the bank SEB and a consortium of the founder and main shareholders. In association with the loan, the company's main shareholder Harald Nilsonne has issued to the consortium's members 374,640 call options on his own holding of series B shares. After the loan, net liquid assets are SEK 51.8 million including an overdraft facility of SEK 34.7 million. The company's interest bearing liabilities at the end of the period was SEK 71.5 million including the loan, the net debt equity ratio was 6 percent and the equity/assets ratio was 80 percent. Goodwill There are currently signs that the Group's goodwill is too high and needs to be adjusted. However, due to the structural changes in the German subsidiary, as described above, there is currently no adequate and verifiable basis for making a correct goodwill adjustment. A revaluation will be carried out at the latest by year end. Parent company The parent company's sales were SEK 49.4 (46.9) million, of which SEK 28.9 (26.6) were sales to the Group company. Parent company earnings were SEK -20.1 (-11.8) before disposals and tax. Changed accounting principles from 2001 In accordance with the Swedish Financial Accounting Standards Council's recommendation on capitalization of development costs for items such as software, the company will from the accounting year 2001 capitalize specific development costs, which will be depreciated over three to five years. Capitalized development costs include investment in M2S's e-learning platform and production tools and development of new titles (e-learning courses) which are developed in eleven different languages. The company's accounting principles are otherwise unchanged on last year end. M2S ten largest shareholders 30 June 2001 Hamilton and Kleman each own 16 percent of the shares in the company Särimner Förvaltnings AB Of which Prkoda's former shareholders own 2,303,418 shares. Coming information releases Interim Report Jan - Sept 2001 25 October 2001 Interim Report Jan - Dec 2001 January 2002 Stockholm 17 July 2001 M2S Sverige AB (publ) org nr 556375-7011 The Board I have performed a review of this interim report and in accordance with the recommendations set out by the Swedish Institute of Authorized Public Accountants, FAR. A review is significantly limited in scope compared to an audit. I have found nothing to suggest that this interim report does not comply with the requirements set out in the Securities and Clearing Operations Act and the Annual Accounts Act Stockholm 17 July 2001 Björn Fernström Authorized Public Accountant Questions regarding the report, please contact: President and CEO Stefan Gardefjord, Tel +46 8 506 424 00 Email: stefan.gardefjord@m2s.com CFO Johan Linglöf, Tel +46 8 506 424 00 Email: johan.linglof@m2s.com {0>» Consolidated income statement, in thousand SEK «<0} Consolidated balance sheet, in thousand SEK Consolidated turnover and earnings per quarter in thousand SEK Consolidated cash flow statement, in thousand SEK Group key ratios Definition key ratios Operating Operating margin income/loss as a percentage of net turnover. Profit margin Net profit as a percent of net turnover. Return on Earnings after tax equity divided by average shareholders' equity. Return on Operating capital income/loss plus employed financial income as a percentage of average capital employed. Capital Total assets less employed non interest bearing liabilities. Average capital employed has been calculated as the opening plus the closing capital employed divided by two. Shareholders' Shareholders' equity equity at the end of the year. Average shareholders' equity is calculated as the opening plus the closing shareholders' equity divided by two. In the event of new issues, a weighted average is used. Equity/assets Shareholders' ratio equity as a percent of total assets. Investments Net investments made in the period including financial leasing contracts and goodwill. Sales per Net turnover for employee the period divided by the average number of employees. Number of The number of shares at the shares at the year end of the end adjuster for year script issues and splits. Earnings per Earnings after tax share divided by the average number of shares. Earnings per Earnings after tax share after divided by the full dilution average number of shares, adjusted for the redemption of all outstanding warrants. Equity per Shareholders' share equity at the period end divided by the number of share at the period end. Turnover increases for comparable units have been calculated so that turnover of Prokoda AG is adjusted to proforma for the period January to May 2000. Turnover increases for comparable units have been calculated so that turnover of Prokoda AG is adjusted to proforma for the period January to May 2000. M2S in brief M2S's business idea is to develop, produce and market interactive e- learning programs. The programs are marketed under the trade names Wit and TutorWin and are available in eleven languages. As Europe's leading player in the e-learning IT training market, M2S has established subsidiaries in Denmark, Finland, France, Ireland, Norway, Switzerland, Spain, Great Britain, Sweden and Germany. M2S is listed on the Stockholm Stock Exchange's Attract 40 list. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/07/17/20010717BIT00070/bit0001.doc http://www.waymaker.net/bitonline/2001/07/17/20010717BIT00070/bit0001.pdf