Interim Report January - March 2000

Resco AB (publ) Interim Report January - March 2000 Internationalisation started * Sales amounted to SEK 70.8M (83.8). Including participations in associated companies, sales were SEK 73.4M. * Operating result amounted to SEK -12.2M (5.0). After financial items, the result amounted to SEK -11.4M (5.2). * Formation of Resco GmbH in Germany started. * The Finnish IT and Internet consulting company, Major Blue Company, was acquired in April. The company reported 1999 sales of SEK 45M and currently has 90 employees. * In February, the Internet bureau, Intra Kommunikation AB, which has 27 employees and sales in 1999 of SEK 10M, was acquired. * The Internet bureau, Canopus International AB, was acquired in April. The company, which has 9 employees, reported sales of SEK 10M in 1999. * A letter of intent was signed for the acquisition of the communication bureau, SandellSandberg AB. * The subsidiary, Resco Learning AB, and the Norwegian company, in2win AS, merged in February, whereby Involve Learning AS was formed. The new company has 85 employees and will have a leading position in e-learning. 1999 sales were SEK 43M pro forma. Resco's ownership is 45 per cent. * A new share issue of SEK 166.5M in cash was carried out after the end of the reporting period. The aim of the new issue is to finance the building of a strong brandname and increased internationalisation. The new issue was directed at investors in Sweden and abroad. * The number of employees was 381 (347) at the period-end. Including participations in associated companies, there were 423 employees. Taking into account ongoing acquisitions, the total number of employees amounts to approximately 570. PROSPECTS FOR 2000 Sales and result for the first quarter are on a par with Resco's expectations. The outcome is a consequence of the ongoing restructuring of the Group's operations and an effect of the weak market situation that prevails in some parts of Resco's more important segments, especially services relating to business systems. Taking into account items affecting comparability, sales and result are largely unchanged compared with the last quarter of the previous year. The investment in acquisitions will generate a high volume contribution during 2000 and new acquisitions so far this year, had they been consolidated during the whole of the first quarter, would have affected the operating result positively, even after goodwill depreciation. In addition, there are significant synergy effects throughout the organisation. Resco's business concept is: for customers with international ambitions to develop innovative solutions for business processes and communication via the Internet. To become a leading Internet consulting company in Europe, investments in both time and money are required. The focus during the beginning of the year was on revenue-creating measures such as on the market, development of new and existing customer relations and with a concentration on Finland and Northern Europe. Resco's criteria for an establishment are Internet maturity, access to a strategic partner or acquisition of local expertise. Resco expects to see the effects of these activities during the second quarter. All the power and energy that has been devoted to the repositioning of Resco is expected to have brought about a significant loss of earnings in the first three months of the year. This refers to, among other things, time for reorganisation, identification, definition and adaptation of the offer to the market, retraining of business consultants, training in businessmanship and reshaping of the operations of the former Business Area Training In addition, the Company spent approximately SEK 2M during the first quarter on internationalisation and acquisition activities which have been reported as operating expenses in the Income Statement. In February the subsidiary, Resco Learning AB, merged with the Norwegian company, in2win AS, and formed Involve Learning AS, one of the largest and most experienced companies in e-learning. The aim is to list Involve Learning on the stockmarket within a year. The formation of Involve Learning should be seen as a good example of development which at a later stage may generate a not insignificant sales profit. As a step in strengthening Resco financially in its work of repositioning and internationalisation, a new share issue was directed at Swedish and foreign investors. The issue payment amounted to SEK 166.5M in cash. Resco's target is to grow with profitability in step with the Internet market. The target for 2000 as for previous years is a sales increase of 50 per cent. REPOSITIONING OF RESCO Over six months, Resco has been involved with repositioning the Company and its offer in line with the changed demands of the market. The IT and Internet market is now an integrated market. By integrating in-depth IT expertise with Internet knowledge, Resco has an expertise that is well in tune with market needs. During the first quarter, the Company also started to supply reference objects which support the new position. An example of comprehensive solutions with Internet and underlying major IT systems is Dafgårds, in which Resco provides both an e-commerce solution with connections in SAP R3 and produces Dafgards.se. Other examples of projects that Resco has received/supplied during the first quarter of 2000 and which illustrate Resco's repositioning are the website Världens Barn, CRM solutions for Telia Handel and Internet projects for Kraft-Freia-Marabou. REORGANISATION AND RECRUITMENT During the first quarter of 2000, the Company completed a reorganisation that is adapted to skills instead of business areas. The objective is to get an organisation which puts together the optimum mix of various skills to enable it to supply comprehensive solutions. With the reorganisation, the leadership has also been strengthened in several important positions with, among other things, strong regional managers. Work continues aimed at strengthening the organisation still further. Regional offices are needed to adapt Resco to local market conditions in Sweden. In Sweden, Resco will operate in the most important regions: Stockholm, Västerås, Gothenburg and Öresund. Although some regions will be smaller than others, all regions must be able to provide expertise for comprehensive solutions. This means that all the regions, with the exception of Stockholm, must broaden their expertise and become larger in number. THE LOGIC OF RESCO'S ACQUISITIONS Resco will be involved in the development in the sector that is important for the Internet of the future. The IT consulting sector has its base in system development for various technology platforms. Later, knowledge about operations was added to enable it to understand the customers' need for technical solutions. Web bureaux started in the mid-90s as a competitor of traditional IT consulting companies. Gradually, many companies began to understand the importance of pairing together various IT skills to broaden their offer to the customer. The understanding that CRM (Customer Relation Management) forms an important part of the Internet of the future did not become clear on the market until the latter part of 1999 and the beginning of 2000. That is where the development now stands and the knowledge exists for building solutions which are able to create enormous values but which no- one sees or knows exist. Soon, we will see traditional communicators enter the market and acquire an important role within the Internet of the future. Resco's Management and Board of Directors focus on meeting the new market demands and all activities and mergers support the above-described development. The Parent Company, Resco AB, is responsible for operations development with a concentration on business systems. Many years of operation provides a strong customer base with long relations and knowledge to bring companies with business systems into the new economy. Reference Interactive AB, which was acquired in autumn 1999, was one of the most experienced web bureaux in Sweden. The merger provided Resco with a new customer base and knowledge to turn processes and technology into an experience for the user. Intra Kommunikation AB, which was acquired in February 2000, is an Internet consulting company with considerable understanding of CRM and market communication. In addition, Intra provides Resco with information about how the information can be individualised over the Internet. Canopus International AB, which was acquired in April, develops administrative IT systems mainly for intranets. Within Canopus exists spearhead expertise in project managementm system design and database design. The acquisition provides Resco with additional strength on the technical side and also adds a couple of developed "products" which makes it possible to build solutions more quickly for the customer and more profitably for Resco. SandellSandberg, which is in the process of being acquired, is a communication company with very considerable understanding of total communication and brandname-building. The company contributes a customer base to Resco as well as an understanding of how Resco will build the brandname for customers and their solutions, and how the customer will communicate the solutions. Major Blue Company has spearhead expertise in technical systems for HR (Human Resources) and CRM as well as implementation of business systems. Major Blue Company has developed a number of its own products and therefore contributes knowledge to Resco of packaging consulting operations into "products". With Major Blue Company, Resco gets a strong position in Finland where Resco now has 100 employees. The investment in Finland is the first major phase in Resco's strategy to become a European operator and the transaction is in line with the increased international focus that Resco now has. PRO FORMA ACCOUNTS In the following table are stated sales and result before goodwill depreciation, taking into account implemented and agreed acquisitions and sales of operations during 1999 and 2000. Major Blue Company is not included in the table. Pro forma accounts Q1 / 2000 Net sales, Operating result Operating SEK M before margin before goodwill goodwill depreciation, SEK depreciation, M % Outcome quarter 1 / 2000 70.8 -11.0 -15.5 Less for sold units -4.0 -3.6 - Plus for acquired units 19.7 3.8 - Pro forma quarter 1 / 2000 86.5 -10.8 -12.5 Pro forma accounts Net Operating Operating full-year 1999 sales, result margin before SEK M before goodwill goodwill depreciation, depreciation % , SEK M Outcome full-year 282.9 -9.3 -3.3 1999 Less for sold -22.6 -7.5 - units Plus for acquired 110.4 17.5 - units Pro forma full- 370.7 0.7 0.2 year 1999 Under "Less for sold units" is included the outcome of sold units, which are included in the quarterly result, and sales result. Under "Plus for acquired units" is included an adjustment upward of the outcome of the acquired unit to comprise the whole period. FIRST QUARTER 2000 Sales amounted to SEK 70.8M (83.8), a fall of 15 per cent. For comparable units, sales fell by 25 per cent. Before goodwill depreciation, operating result amounted to SEK -11.0M (5.4). Operating result after goodwill depreciation amounted to SEK -12.2M (5.0), equivalent to an operating margin of -17.2 per cent (6.0). Result after financial items amounted to SEK -11.3M (5.2). The sale of the subsidiaries, Resco Interactive AB and Resco Learning AB, in connection with the formation of Involve Learning AS gave a positive result effect in the Group of SEK 1.4M which is reported in the operating result. The value at which the new shares in Involve Learning AS have been entered correspond with the book value of the sold shares. The lower sales compared with the first quarter in the previous year can be explained by a fall in the average number of consultants of 4 per cent, an increase in the hourly charge of 3 per cent and a fall in the charge ratio of 11 percentage points. The first quarter of 2000 had one available working day more than the corresponding period in the previous year. The average payroll expense per employee fell by 5 per cent compared with the corresponding period in the previous year. Refund from SPP Of the surplus that has arisen in SPP, SEK 14M has been allocated to Resco. During spring, SPP will provide information about how the refund will be made. Resco has not taken the refund into account in the accounts. Investments Investments in equipment and improvement of premises amounted to SEK 2.3M (3.0), of which SEK 0.0M (1.5) was financed via leasing. Net investments in intangible assets, mainly goodwill, amounted to SEK 22.0M (-). Financial position The Group's liquid funds amounted to SEK 7.9M at 31 March 2000 (31 December 1999: 19.5). Of interest-bearing liabilities at 31 March 2000, pension commitments in accordance with the FPG/PRI system amounted to SEK 10.5M (9.6) and subordinated loans to SEK 5.7M (5.8). To enable new employees to participate retrospectively in the incentive programme in which the convertible subordinated loan is included, one of Resco's subsidiaries has subscribed for part of the loan for onward sale to new employees. The subordinated loans total SEK 7.7M. The Group's tax situation With the exception of goodwill depreciation, the Group's costs are essentially deductible. Goodwill depreciation for the first quarter in 2000 amounted to SEK 1.2M (0.4). Goodwill is depreciated by 5-10 per cent per annum. Shareholders' equity Shareholders' equity amounted to SEK 164.6M (77.1) at 31 March 2000. In connection with the acquisition of Intra Kommunikation AB, a new share issue was carried out and in addition a small part of the convertible subordinated loan, which was issued to the staff, was converted. Change in Number of Share Shareholders' Sharehold number of shares, capital, equity, Q1 / ers' shares and Q1 / 2000 Q1 / 2000, SEK M equity, shareholders' 2000, full-year equity SEK / 1999, SEK M At 991231 / 3,438,200 8,595,50 112.5 65.5 981231 0 Dividend - - - -2.8 New share issue in 266,385 665,962 63.0 52.1 connection with - acquisition - incentive - - - 7.9 programme Conversion 796 1,990 0.1 - Result for the - - -11.0 -10.2 period At 000331 / 3,705,381 9,263,45 164.6 112.5 990331 2 An Extraordinary General Meeting on 10 April 2000 decided on a new issue of 500,000 B shares directed at a number of investors both in Sweden and abroad. The issue payment, which amounts to SEK 166.5M, will be used to finance Resco's continued growth. The share capital will increase by SEK 1,250,000. On 12 April 2000, the Board of Directors, supported by the authorisation by a General Meeting on 21 February 2000, decided a directed issue of shares for the acquisition of Canopus International AB. The new issue means that the share capital is increased by SEK 184,082.50 via issue of 73,633 series B shares. The increase in shareholders' equity amounts to SEK 21.0M. Following these issues, the share capital amounts to SEK 10,697,535 and the number of shares to 4,279,014. On full conversion of outstanding convertibles and full exercising of outstanding warrants, the number of shares increases by 216,304, equivalent to 5.1 per cent of the share capital and 2.5 per cent of the number of votes. Incentive programme Resco's Board of Directors will propose that the Annual General Meeting resolve to issue a subordinated loan with detachable warrants for subscription of up to 500,000 new B shares directed at all employees and Board Members. Subscription of newly-issued shares will take place during 11-30 April 2002. The price at which new subscription could be made represents 125 per cent of the average price paid for the Resco share during the period, 28 April - 11 May 2000. The dilution effect represents 10.0 per cent for the share capital and 5.4 per cent for the votes. Personnel The average number of employees for the first quarter of 2000 was 360 (335), an increase of 7 per cent. The number of employees at the period- end amounted to 381 (347), an increase of 10 per cent. Of the increase since the first quarter of the previous year, 80 were attributable to acquisitions, whereas the number of employees fell by 56 through sale of subsidiaries and operations, of whom 25 are now included in associated companies. Staff turnover over a rolling 12-month period amounted to 16 per cent (16). Operations During the first quarter, Resco's operations were changed in the direction towards an expressed skill-oriented organisation to support Resco's new offer to the market in the best possible way. The former business areas were dissolved and instead a number of areas of expertise were implemented. These are: Market Communications, Management Consulting, Enterprise Solutions, Competence Management, IT Architecture, Application Technicians, Application Consulting, Communications, Project Managers, System Development and Research & Process Development. By splitting the Company into small Areas of Expertise, we ensure that Resco's consultants develop their spearhead expertise. At the same time, overall solutions are facilitated and suboptimation minimised by appointing the most competent consultants from different Areas of Expertise who then work together on projects. The new organisation has been in full operation since 1 April. In the new organisation the development for operations outside Sweden will be given increased emphasis. Activities aimed at building-up independent units is underway both inside and outside Sweden, In the continued quarterly reporting outcome for the regions will be reported. REGIONS Sales, Share of Number of Q1 / 2000 SEK M total employees, 2000- sales, % 03-31 Stockholm 70.6 89 276 Öresund 5.7 7 39 Gothenburg 1.4 2 11 Västerås 1.4 2 7 Finland 0.3 0 4 Central - - 44 functions Group -8.6 - - eliminatio ns Total 70.8 100 381 CONSOLIDATED Q1 / Q1 / Full- 99-04-01 -- STATEMENT OF INCOME, 2000 1999 year / 00-03-31 SEK M 1999 Net sales 70.8 83.8 282.9 269.9 Share in results of 0.0 0.1 0.1 -0.0 associated companies Sale of operation 1.4 - 15.0 16.4 Total income 72.2 83.9 298.0 286.3 External costs -21.3 -22.4 -91.5 -90.4 Personnel costs -60.2 -54.8 -204.7 -210.1 Depreciation -2.9 -1.7 -8.2 -9.4 Cost, sale of - - -5.0 -5.0 operation Total costs -84.4 -78.9 -309.4 -314.9 Operating result -12.2 5.0 -11.4 -28.6 Financial items 0.9 0.2 0.2 0.9 Result after -11.3 5.2 -11.2 -27.7 financial items Minority share of 0.0 - 0.0 -0.0 the result Taxes 0.3 -1.5 1.0 2.8 Net result for the -11.0 3.7 -10.2 -24.9 period CONSOLIDATED BALANCE 2000- 1999- 1999-12- SHEET, SEK M 03-31 03-31 31 Fixed assets 157.4 34.8 84.3 Current receivables 77.3 84.7 76.9 Liquid funds 7.9 18.4 19.5 Total assets 242.6 137.9 180.7 Shareholders' equity 164.6 77.1 112.5 Minority share 0.1 - 0.1 Provisions 13.3 3.7 5.7 Interest-bearing 16.6 7.0 15.4 liabilities Non-interest-bearing 48.0 50.1 47.0 liabilities Total shareholders' 242.6 137.9 180.7 equity, provisions and liabilities CONSOLIDATED CASH Q1 / Q1 / Full- 99-04-01 - FLOW ANALYSIS, SEK M 2000 1999 year / - 00-03-31 1999 Cash flow from -10.0 6.0 2.4 -13.6 current operations Change in working 0.5 -18.2 -10.8 7.9 capital Total cash flow from -9.5 -12.2 -8.4 -5.7 current operations Cash flow from -2.1 -1.0 -6.8 -7.9 investment operations* Cash flow from 0.0 7.9 11.0 3.1 financing operations * Change in liquid -11.6 -5.3 -4.2 -10.5 funds * Acquisitions financed via non-cash issue are reported net. SENSITIVITY Chan Effect on ANALYSIS ge consolidated Rolling 12 months result Hourly charge, per +/- 2.1 cent 1 Charge ratio, per +/- 3.6 cent 1 Number of working +/- 1.0 days per annum 1 Personnel cost, -/+ 2.1 per cent 1 QUARTERLY REPORTING Q1 Q2 Q3 Q4 Full - year Available working days (disregarding holidays) 2000 63 59 65 63 250 1999 62 60 66 64 252 1998 62 59 66 63 250 1997 60 61 66 62 249 1996 63 59 66 62 250 Consolidated sales, SEK M 2000 70. 8 1999 83. 76 50. 71. 282. 8 .8 9 4 9 1998 66. 65 51. 78. 261. 0 .6 2 5 3 1997 45. 48 41. 60. 195. 0 .6 2 4 2 1996 29. 33 30. 41. 133. 4 .1 2 2 9 Consolidated operating result, SEK M 2000 - 13. 6* 1999 5.0 1. - - - 1 13. 14. 21.4 4 1* * 1998 7.5 2. - 6.0 11.5 0 4.0 1997 0.5 0. 0.3 6.6 8.2 8 1996 0.9 1. 0.5 3.4 5.8 0 Consolidated operating margin, % 2000 Neg * 1999 6.0 1. Neg Neg Neg* 3 * 1998 11. 3. Neg 7.6 4.4 4 0 1997 1.1 1. 0.7 10. 4.2 6 9 1996 3.1 3. 1.7 8.3 4.3 0 * Adjusted for items affecting comparison. KEY FIGURES Q1 / Q1 / 199 199 199 199 199 (koncernen) 2000 1999 9 8 7 6 5 Net sales, SEK M 70.8 83.8 282 261 195 133 106 .9 .3 .2 .9 .6 Change in net sales, % -15 + 27 + 8 + + + + 34 46 26 45 Operating margin, % - 6.0 - 4.4 4.2 4.3 8.9 17.2 4.0 Profit margin, % - 6.2 - 4.7 4.4 5.4 9.9 16.0 4.0 Net margin, % - 4.4 - 3.2 2.9 3.7 7.0 15.6 3.6 Return on equity, % -8.6 5.2 - 13. 11. 19. 40. 13. 4 5 4 9 7 Return on capital -7.8 6.6 - 19. 16. 19. 60. employees, % 10. 0 2 3 7 8 Return on capital employed - 8.8 - 28. 33. 48. 144 in operations, % 10.7 14. 1 6 2 .2 8 Return on total capital, % -5.7 3.9 7.1 11. 10. 14. 28. 6 6 9 9 Equity ratio, % 68 56 62 53 63 65 52 Acid-test ratio, % 178 206 205 173 228 257 193 Capital turnover rate, 2.5 5.9 3.6 6.6 8.1 11. 14. (capital employed in 2 0 operations) Cash flow after - - - - - - 8.2 investments, SEK M 11.6 13.2 15. 4.1 4.5 5.0 2 Number of employees at 381 347 358 347 240 200 128 period-end Average number of 360 335 322 277 213 165 114 employees Sales per employee, SEK K 197 250 879 943 917 811 935 Salaries including payroll 51 42 46 41 43 44 37 overheads as a percentage of sales Value added per employee, 130 176 588 638 629 579 608 SEK K Value added ratio, % 66 70 67 68 70 71 65 SHARE DATA Q1 / Q1 / 199 199 199 199 2000 1999 199 8 7 6 5 9 Number of shares at 3,70 2,80 3,4 2,7 2,7 2,6 2,0 period-end, 000 5 3 38 24 24 00 00 Average number of shares 3,53 2,75 2,8 2,7 2,6 2,1 2,0 during the period, 000 0 1 98 24 24 25 00 Number of shares on full 3,92 2,80 3,5 2,8 2,7 2,7 2,0 conversion, 000 2 3 55 04 24 00 00 Result after tax per - 1.33 - 3.0 2.1 2.3 3.7 share, SEK 3.14 3.5 7 5 2 3 1 Result after tax per - 1.33 - 2.9 2.1 2.1 3.7 share, SEK * 2.96 3.3 8 4 5 3 7 Cash flow per share, SEK - - - 5.7 4.3 1.2 4.4 2.70 4.45 2.8 2 5 9 9 9 Cash flow per share, SEK - - - 5.5 4.3 1.0 4.2 * 2.55 4.45 2.7 5 4 0 9 7 Equity per share, SEK 44.4 27.5 32. 24. 21. 17. 10. 2 1 74 05 82 75 03 Equity per share, SEK * 53.3 27.5 35. 26. 21. 19. 10. 6 1 31 21 82 91 03 Dividend per share, SEK - - 0** 1.0 0.8 0.7 1.1 0 5 5 2 *after full conversion ** Board of Director's proposal STOCKMARKET-RELATED KEY Q1 Q1 199 199 199 199 199 FIGURES / / 9 8 7 6 5 200 199 0 9 Market value per share, 295 117 230 162 85 83 N/a SEK Market capitalisation, 1.0 328 791 441 230 216 - SEK M 93 Market capitalisation per 2.9 0.9 2.2 1.3 1.0 1.1 - employee, SEK M Market capitalisation in Neg 22* Neg 53 41 44 - relation to result after tax (P/E ratio) Market capitalisation in 3.9 1.0 2.8 1.7 1.2 1.6 - relation to sales (P/S * * ratio) * Quarterly outcome multiplied by 4. N/a = not applicable Future reporting dates Interim Report January-June 2000 will be published on 25 August 2000. Interim Report January-September 2000 will be published in October 2000. Preliminary Accounts Report for 2000 will be published in February 2001 and the Annual Report for 2000 in March 2000. The Annual General Meeting will be held in April ??2000??. Annual Reports and Interim Reports are available on Resco's website: www.resco.se. Stockholm, 27 April 2000 Torstein Johansen Managing Director This Interim Report has not been examined by the Company's Auditors. For further information, please contact: Torstein Johansen, Managing Director Fredrik Härén, Head of Information Håkan Mathiasson, Controller Telephone +46 8-519 030 00 Resco AB (publ), S:t Eriksgatan 60 A, SE-112 34 Stockholm Telephone +46 8-519 030 00 Telefax +46 8-519 032 00, Info@resco.se www.resco.se Corporate identity number: 556220-8511. The registered office is located in Stockholm. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/04/28/20000428BIT01490/bit0001.doc http://www.bit.se/bitonline/2000/04/28/20000428BIT01490/bit0002.pdf