Interim Financial Report January-September 2001

Interim Financial Report January - September 2001 The rationalisation program in Sweden has started to have an effect * Total sales for the period January to September 2001 increased by 46 percent to MSEK 332.8 (228.4), of which 32 percent were attributable to company acquisitions during 2000. The pro forma increase in total sales was 8 percent. During the third quarter 2001, total sales amounted to MSEK 90.8 (78.2), representing an increase of 16 percent compared with the third quarter 2000. * The operating loss before amortisation of goodwill (EBITA) and extraordinary items during the period January to September 2001 amounted to MSEK -28.9 (-66.9), representing an improvement of MSEK 38. * During the third quarter 2001, the EBITA amounted before extraordinary items to MSEK -17.0 (-28.4). The operating loss after amortisation of goodwill for the nine- month period amounted to MSEK -44.8 (-59.7), of which the third quarter stood for MSEK -29.4 (last year MSEK -32.8 including a refund from SPP of MSEK 14.5). Reorganisation costs related to the termination of employees have burdened the operating result of the third quarter in the amount of MSEK 10.6. The loss after financial items amounted to MSEK - 46.0 (-59.0). * An extensive rationalisation program was carried out in Sweden, implying a reduction in personnel of approximately 50 people. This resulted in September being profitable before amortisation of goodwill. * Good sales development in the Finnish operations. * Lower rate of expansion in Germany. Profitability is being prioritised before growth. * Kjell Jacobsson, Chairman of the Board and Acting Group President, was appointed CEO in October and at the same time resigned as Chairman. Jan-Olof Engström, one of Resco's principal owners and a member of the Board, was appointed as new Chairman. * The number of employees at the end of the period, after the implementation of the rationalisation program, amounted to 538 (516), representing an increase of 3 percent. The increase is attributable to Germany and Finland. Staff turnover over a rolling twelve-month period amounted to 14 (14) percent. Market The general economic climate is having an influence on Resco. Resco currently has difficulty in forecasting the development of the total market during the coming quarter, but is constantly monitoring the situation in order to maintain an organisation and an offer that correspond to the needs of the market. We are experiencing a stabilisation within those segments where Resco is active in Sweden, and forecast a possible recovery towards the end of the current year, or within the first quarter 2002. We can see continued strong demand within the ERP sector. Traditional IT projects, however, are divided by customers into several phases which has led to the size of each individual contract having decreased considerably, which in turn has implied increased sales efforts and lengthened decision-making processes within client-companies. Decision-making processes are characterized by caution and increased competitive pressure. At the same time, we can observe an accumulating current need to realise important IT investments within several sectors and segments where Resco is active. Resco's position in the Finnish market has developed positively in comparison with the third quarter 2000. One reason is that Resco in Finland is focused on a number of niche products within CRM, HRM and ERP where demand is good and where Resco has strengthened the product portfolio through acquisitions and own development. Resco has increased its growth, both organically and through acquisitions, as well as through the successful export of software to the Baltic States, Portugal and Scandinavia. We see continued good growth potential for the Finnish operations, both nationally and internationally. The German market is in a later phase of the economic cycle, and we can see signs of a slowdown. The German market has basically so far gone through the same phases as the Swedish market. Resco has been forced to reduce activity within certain sectors due to cost rationalisation measures having been implemented by our customers. Resco GmbH's strength lies in extremely high specialist skills, making us attractive even in a market that is increasingly characterised by "resource consulting", but also because of our customers' trust through long and stable relations. We have compensated the shortfall within certain sectors by an increase in activity within, for example, Volkswagen and British Petroleum, of which the latter is a new customer in Germany. Resco has a clear strategy to deepen the collaboration with its most important partners - SAP, Microsoft (Resco is Gold Partner), IBM and Navision - in order to create and develop business together. The collaboration ensures that the customer solutions that we offer are cost- effective and are based on dominating technical platforms in the market. Resco's continued development of leading-edge skills within our partners' products and services will be within those areas that support e-integration, such as mobile solutions, CRM and SCM. Rationalisation Program In spite of previously implemented rationalisation measures in the Swedish consultancy operations, as well as an increase in sales towards the end of the second quarter, capacity utilisation during July and in particular August was considerably less than expected. In view of this situation, and together with the continued long-term strategic plan to adapt Resco's geographic, size and skills positioning to the demand in the market, a considerable rationalisation program was carried out during the reported period. The number of employees has been reduced by approximately 50 people in Sweden, primarily in Stockholm, concerning consultants, managers and staff employees. The consultants that were most affected were those who worked with pure marketing projects over the Internet. The cost of carrying out this rationalisation program amounted to MSEK 10.6. As a result, the Swedish consultancy operations could report a profit in September, before amortisation of goodwill, and an increase in the average rate of billing. The capacity utilisation in Stockholm, which represents 77 percent of the Swedish consultancy operations, increased from 52 percent in the beginning of September to 68 percent in the last week of September. The number of hours that could be billed did not decrease during this period, which implies that Resco did not significantly lose sales in connection with the cutback on the consultancy side. The rationalisation program will imply a cost saving of approximately MSEK 3 per month. Further to the latest rationalisation program, Resco has achieved total cost reductions on a rolling twelve-month basis equivalent to approximately MSEK 180 before extraordinary items and goodwill, compared with costs during 2000, representing an average saving of MSEK 15 per month. Prospects for the Future The assessment contained in the annual report of strong growth this year and a significant improvement in the operating result still stands. However, the profit target for the full year, before amortisation of goodwill, will not be achieved. In view of the implemented rationalisation program in Sweden, and the expected development in other countries, Resco believes that the Group will be able to report a profit, before goodwill amortisation and extraordinary items, for the fourth quarter of this year. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/11/06/20011106BIT00890/bit0001.doc The Full Report http://www.waymaker.net/bitonline/2001/11/06/20011106BIT00890/bit0001.pdf The Full Report