Interim Report January - March 2001

Resco AB (publ) Interim Report January - March 2001 Positive result during the first quarter before goodwill and items affecting comparability · Sales for the first three months of the year increased by 78 per cent to SEK 126.3M (70.8). 61 per cent was attributable to acquisitions during 2000. The pro forma increase compared with the first quarter 2000 was 21 per cent. Compared with the fourth quarter of 2000, sales rose by 11 per cent. · Operating result before goodwill amortisation (EBITA) and items affecting comparability amounted to SEK 0.7M (12.4), i.e. a result improvement of SEK 13.1M. The corresponding result for the fourth quarter 2000 amounted to SEK - 18.6M, i.e. a result improvement of SEK 19.3M compared with the current period. Operating result after goodwill amortisation amounted to SEK -1.1M (-12.2). Result after financial items was SEK -0.9 M (-11.4). · The operations in Germany and Finland are developing better than plan. · At the period end, the number of employees was 582 (381), an increase of 53 per cent. Staff turnover over a rolling 12-month period amounted to 17 per cent (16). Market The North European markets, Sweden, Finland and Germany, are characterised by a change in demand and a focus on measurable value creating projects and specialist competence. Customer companies' knowledge has increased and the need to achieve a return on investment is an important decision making parameter for customers. There is a strong demand for solutions for the integration of business-critical systems such as business systems with Internet, extranet and/or intranet solutions. These solutions have to prove themselves to be both value- creating and effective at the supplier stage and among customers and staff. As a result of the combination of a shift in customer demand with the importance of sector and operational knowledge as well as technical IT competence, the focus is once again on business-critical systems and integration. Content, functionality and user-friendliness are important. Resco's assessment is that the Swedish market is characterised by a continued significant need for competence and solutions linked to business systems and system integration, particularly in B2B, and an increased demand for CRM solutions within both B2B and B2C. Credibility in the form of reference projects and long-standing customer relations are crucial in the selection of supplier. For relatively straightforward projects, competition has increased putting pressure on prices. For more complex projects demanding high competence levels, a continued stable price trend is predicted. The Finnish market is characterised by continued high demand within the product segments in which Resco operates. Resco in Finland has a strong product family and a continued positive trend is expected. Continued high demand for the consulting services, which Resco provides within IT, business systems, operations development and communications, is predicted for the German market. Prospects for the future The assessment in the Preliminary Accounts Report of strong growth this year and a significantly improved operating result stand. The target of a positive result before goodwill amortisation and items affecting comparability for the full year also stands. Group Sales and results The upturn which started towards the end of last year continued during the first quarter. Resco Group reported sales of SEK 126.3M (70.8) in the first three months of the year, an increase of a full 78 per cent compared with the same period in the previous year. Compared with the fourth quarter of 2000, sales increased by 11 per cent. Operating result before goodwill amortisation and items affecting comparability improved significantly into a profit of SEK 0.7M compared with the losses of SEK -12.4M during the first quarter of 2000 and SEK -18.6M in the fourth quarter of 2000. The upturn is the result of a combination of measures such as concentration on e-integration and business systems, the implementation of rationalisation measures, continued cost control and continued trimming of the competence structure in accordance with the market's growing demand for Resco's core competence. The sales increase, equivalent to 61 percentage points of the aforementioned 78 per cent, is attributable to companies which were acquired during 2000. Pro forma consolidated sales rose by 21 per cent. Together with the acquired companies, Resco has created the offer as an e-integrator. By e-integration we mean the process of combining IT and business systems with the Internet to make the company's operations and interaction with its customers and the rest of the world more effective. Our competence is based on our long experience with business development using IT and the Internet as a tool, our extensive knowledge of business systems and our ability to see the big picture. With our skill in understanding and realising the value-creating opportunities offered by IT as a tool, we go way beyond building attractive user interfaces. Strong growth in Germany and Finland also contributed to the positive sales increase. The demand for Resco's core business, business systems with e- integration, is growing particularly strongly. Customers are mainly large industrial companies, banks, insurance companies and telecom companies. Resco Group, Q1 2001 Sales Adjusted Adjusted Sales , SEK M operating margin, pro forma result* % SEK M SEK M Sweden 87.5 -0.4 -0.5 84.9 ** Finland 23.5 1.8 7.7 19.7 ** Germany 15.7 -0.7 -4.5 - Group eliminering -0.4 - - - Totalt 126.3 0.7 0.6 104.6 * Relates to operating result before goodwill amortisation and items affecting comparability ** Pro forma Sweden Sales and results Resco in Sweden increased its sales by 24 per cent to SEK 87.5M (70.6) during the first quarter compared with the same period in the previous year. This increase was essentially attributable to acquisitions. Pro forma sales in Sweden rose by 3 per cent. Operating result before goodwill amortisation and items affecting comparability improved significantly compared with the corresponding period in the previous year and amounted to SEK -0.4M (-11.7). The corresponding result for the fourth quarter of 2000 was SEK -17.3M. The implemented savings programme, a continued focus on sales, and a market re positioning in recognition of a change in demand have contributed to the improvement. Operations Resco's offer is based on the customer's business process and its different components, i.e. communications, sales, delivery and customer care. Resco is able to meet the customers' needs by offering competence throughout the customer's business process. Resco's strength is that it possesses cutting edge competence within every segment which is combined with an overall concept and experience of integration projects. During 2001, work on adapting the structure of competence and geographic presence has continued. The purpose of these activities is to ensure that the Swedish operations have a cost volume and structure of different competences, which is adapted to Resco's core operation as an e-integrator. There is a need for some recruitment, particularly within business systems. Operations are carried out from the head office in Stockholm and from offices in Gothenburg, Malmö, Västerås and Östersund. The following table shows sales in Sweden distributed through the different regions, in which SandellSandberg is regarded as a separate region with no real geographic connection. Sales, SEK M Share of total Number of Q1, 2001 sales, % employees, 2001-03- Region 31 Stockholm & Hackås 59.4 68 205 Öresund 3.8 4 22 Gothenburg 6.1 7 26 Västerås 2.9 3 13 SandellSandberg 17.7 20 59 Central functions - - 61 Group eliminations -2.4 -2 - TOTAL 87.5 100 386 Assignments/customers Customers which Resco worked with during the first quarter include AstraZeneca, Svenska Dagbladet, Arla, Telia Mobile and Nordbanken Finans. An example of an interesting assignment in which Resco makes use of its strength as an e-integrator is Resco's delivery of a self-service solution for Nordbanken Finans' product, First Card. Through Resco's solution, holders of First Card are able to view their own transactions, write invoices, etc. Resco's self-service solution consists of a web site and a voice answer function, both with direct links into First Card's business critical system. The aim of the solution is to simplify everyday life for First Card holders. For example, it is much easier to produce travel expenses accounts with Resco's solution. Finland Sales and results Resco's operation in Finland reported its best quarter ever in 2001. Sales increased to SEK 23.5M (pro forma 19.7). Compared with the fourth quarter, when sales amounted to SEK 21.4M, sales rose by 10 per cent. Sales of software within HRM (human resource management), ERP (enterprise resource planning) and CRM (customer relationship management) increased significantly and many new customers were added. Operating result before goodwill amortisation and items affecting comparability amounted to SEK 1.8M. The corresponding result for the fourth quarter of 2000 was SEK 1.8M. Result before financial items amounted to SEK 1.7M (pro forma -1.1). Operations, assignments/customers Through Major Blue Company, Resco acquires knowledge and the ability to package consulting operations into products and software. In addition, the products are marketable internationally and many customers are located both inside and outside Europe. Skanska and Toyota are examples of new customers which have purchased software for HRM systems. Resellers of car manufacturer, Ford, in Estonia have installed software for CRO from Resco in Finland and there are excellent opportunities for reaching additional Ford resellers. Within business systems, Resco in Finland made its first installation in Lithuania in a textile company. Lithuania has the potential to become a significant export market for Resco in Finland. Software was also sold to a retail clothing company in Portugal. The integration of the four companies included in the Finnish operation has also been successful. Resco's Finnish subsidiaries, Toneco Oy, Dataform Oy and Resco Oy, were merged with Major Blue Company Oy at 1 January 2001. The Major Blue Company brand name has now been established for the whole product range. Consulting capacity utilisation was high throughout the period and sales of software remain strong. The current high sales of software are partly a result of an earlier wait-and-see market but also of several years' product development which is now gaining acceptance in the market. Operations in Finland are carried out at offices in Helsinki, Tampere and Turku. At the period end, the number of employees was 129. Germany Sales and results Resco's operations in Germany did not start in earnest until October last year when the strategic recruitment of a group of consultants was implemented. Despite the short period of operation, demand is very high, particularly for business systems and integrated solutions, and Resco's cutting edge competences within IT, business systems, operations development and communications are doing themselves justice. During the first quarter of the current year, the operations reported sales of SEK 15.7M. This is an increase of 39 per cent compared with the fourth quarter of 2000 when sales amounted to SEK 11.3M. The operating result was only moderately negative, SEK -0.7M, even though the company is in the midst of an intensive build-up period. In the fourth quarter of 2000, the loss amounted to SEK -3.0M. Operations, assignments/customers Resco in Germany operates within three segments: IT and business systems which account for 60 per cent of the operation; business development and IT architecture (business consulting) which is equivalent to 30 per cent; and communications and web which is equivalent to the remaining 10 per cent. The list of customers includes Siemens and the power company, HEW. AM- Informatic, Hapag Lloyd and Philips Medical Systems are examples of customers acquired during the period. A number of customer activities directed at Swedish companies during the period were carried out in co- operation with the Swedish Embassy in Hamburg and Berlin. Activities aimed at recruiting additional consultants for expansion continue. However, the capacity is high for handling the growing demand. During the period, the number of employees increased from 54 to 75. Resco in Germany is based in Hamburg, the centre in Germany for IT, web and design. Associated companies Hackås IT-Partner AB in Hackås, which is 50 per cent owned by Resco, did not have any significant operations during the current period as the company's seven employees were transferred to Resco AB during the fourth quarter of 2000. Involve Learning ASA, which is 45 per cent owned by Resco and has its head office in Oslo, operates within e-learning. The company has 114 employees in the Nordic countries and reported sales of SEK 15.9M during the period January-March and a result before income taxes of SEK -1.9M. Involve Learning has not been consolidated in accordance with the equity method so the shareholding is reported at its acquisition value. This is because e-learning is not part of Resco's main strategy and core operations and Resco intends to divest or float this company on the stock market. Final negotiations are underway regarding a sale of Resco's shareholding in this company. The negotiations are expected to be completed by mid-year. Parent company Resco AB (publ) reported sales of SEK 71.1M (54.8) during the period January-March 2001 and a result after financial items of SEK -0.9M (- 10.4). Investment in tangible fixed assets amounted to SEK 0.7M (1.7). At the period end, the parent company's liquid funds amounted to SEK 0 (31 December 2000: 7.8). SEK 6.5M of the bank overdraft facilities was utilised. For more information about the financial status and cash flow, please refer to the section Financial position below. Accounting principles Resco's Interim Report has been prepared in accordance with Swedish Financial Accounting Standards Council's recommendation RR 20 Interim Reporting. A number of new accounting recommendations from the Swedish Financial Accounting Standards Council with obligatory application from the 2001 financial year came into force during the period. Adopting these recommendations has not impacted net income or required restatement of equity. At 31 March 2001, accumulated fiscal deductible deficiency (so-called losses carried forward) amounted to SEK 97M in the Group. This deductible deficiency can be utilised to reduce the tax on future profits. However, as there is uncertainty regarding precisely the period within which it will be possible to utilise this deficiency, the company has elected not to report deferred income taxes recoverable relating to this deficiency at 31 March 2001. A new evaluation of whether or not deferred income taxes recoverable for deductible deficiency should be reported will be made at the time of every quarterly accounts. In all other material aspects, accounting principles and measurement methods are unchanged compared to the prior reporting period that ended December 31, 2000. Investments Investments in tangible fixed assets amounted to SEK 1.2M (2.3) in the Group. Investments financed via leasing have not been included as they are only of marginal importance. Financial position The cash flow during the period amounted to SEK -13.8M (-11.6), of which SEK -6.5M is from current operations, SEK -8.0M from change in working capital, SEK -3.1M from investment operations and SEK 3.8M from financial operations. The Group's liquid funds amounted to SEK 10.6M at the period end (31 December 2000: 24.4). Utilised credit amounted to SEK 6.5M at 31 March 2001. At the same date, the acid-test ratio was 184 per cent (178). The sale of Resco's shareholding in Involve Learning ASA, which is expected to be completed before mid-year, will be made for payment in cash. During 2001, the company was granted an increased credit limit of up to SEK 40M for the whole Group (31 December 2000: SEK 10M). However, the Group can and has elected not to utilise this opportunity in full, as it has not been deemed necessary. Currently, the company has assessed its credit requirement at approximately SEK 30M. Of this credit, SEK 20M relates to the parent company and is drawn up as an invoice pledge credit. The receivables are thus transferred to a credit institution. This is a step aimed at optimising the cash flow. The remaining credit relates to the foreign operations. Of the Group's interest-bearing liabilities, pension commitments in accordance with the FPG/PRI schedule amounted to SEK 13.7M (10.5) and subordinated loans to SEK 5.4M (5.7). To enable new employees to participate retrospectively in the incentive programme in which the convertible subordinated loan is included (1999/2002), one of Resco's subsidiaries has subscribed for part of the loan for onward sale to new employees. The subordinated loans total SEK 7.4M in the parent company. The Group's tax situation With the exception of goodwill amortisation, the Group's costs are essentially deductible. Goodwill amortisation for the period amounted to SEK 1.8M (1.2). The Group's goodwill totals SEK 126.8 at 31 March 2001. Goodwill is amortised by five per cent per annum. Shareholders' equity Shareholders' equity amounted to SEK 306.3M (164.6) at the period end. Number of Share Shareholders Shareholders Change in number of shares, capital, ' equity, ' shares and 2001-03-31 2001-03-31, 2001-03-31 equity, 2000- shareholders' equity SEK SEK M 12-31, SEK M At 001231 / 991231 26,573,903 13,286,951 307,1 112.5 Non-cash issue - - - 301.2 New cash issues* - - - 165.6 Conversions - - - 0.4 Non-cash issue under 810,000 405,000 - 0.4 registration** Premium paid for - - - 3.4 warrants Share of capital, - - 0.1 associated companies Translation - - 0.1 -0.1 difference Result for the period - - -0.9 -276.4 At 010331 / 001231 27,383,903 13,691,951 306.3 307.1 * New cash issues are accounted for net after deduction of costs associated with the cash issue of SEK 5.8M. ** Acquisitions of Toneco and Dataform in November 2000, total 810.000 shares. This registration is now completed. Resco's Board of Directors will propose that the Annual General Meeting pass a resolution to authorise the Board to decide, on one or several occasions with a departure from the shareholders' right of preference, to carry out a new share issue or issue of convertible debt instruments or debt instruments linked with warrants for subscription of new shares. It should be possible to subscribe for the shares with property other than money (capital contributed in kind). The authorisation shall comprise up to 4,000 series B shares and shall remain in force until the next Annual General Meeting. The issues carried out with the support of the authorisation will be used for financing and acquisitions on market terms. On full exercising, the proposed authorisation will involve a dilution of the share capital of 12.7 per cent and a dilution of the votes of 7.5 per cent. The previous authorisation by the Annual General Meeting on 21 April 2000, of which 1,240,000 shares remain, will expire with the Annual General Meeting on 7 May 2001. Incentive programme A convertible subordinated loan (1999/2001) with detachable warrants for subscription of B shares was signed by the subsidiary, Resco Utbildning, and the right to subscribe for the warrants was directed at some senior executives. Subscription for shares could be made during the period 1-16 February 2001 at a price equivalent to 125 per cent of the average latest price paid for B shares in the company quoted on the official price list of the OM Stockholm Exchange during the period 14-28 January 2001. None of these warrants was exercised. A convertible subordinated loan (1999/2002) could be subscribed by the staff in May 1999. The loan matures for payment not later than 1 July 2002. Conversion into shares shall be made during the period 22 June 1999 to 14 June 2002. The price at which conversion shall be made shall be made at amounts equivalent to 180 per cent for the period 22 June 1999-21 June 2000, 150 per cent for the period 22 June 2000-21 June 2001, and 120 per cent for the period 22 June 2001-14 June 2002 of the average latest price paid for B shares in the company quoted on the official price list of the OM Stockholm Exchange during the period 28 April-11May 1999. However, the conversion price shall not be less than SEK 20. To enable new employees to participate retrospectively in the incentive programme in which the convertible subordinated loan is included (1999/2002), one of Resco's subsidiaries has subscribed for part of the loan for onward sale to new employees. During 2000, a stock option programme (issue of a subordinated loan with detachable warrants for subscription of up to 2,500,000 new B shares) was initiated. It is directed at all employees and Board Members (2000/2002) and could result in an addition of 2,500,000 new shares, equivalent to an increase in shareholders' equity of SEK 155.5M and a dilution of share capital and votes of 8.4 and 4.9 per cent, respectively. In total, warrants equivalent to 1,225,500 shares have been subscribed (potential dilution would then amount to 4.3 per cent of share capital and 2.4 per cent of votes). The outstanding warrants remain in the subsidiary, Resco Utbildning, which is wholly-owned by Resco AB. Subscription of newly issued shares shall be made during 11-30 April 2002 and the subscription price has been set at SEK 62.20. Resco's Board of Directors will propose that the Annual General Meeting will pass a resolution to issue debt instruments (subordinated loans) for SEK 100,000 with detachable warrants for subscription of up to 1,000,000 B shares in Resco AB with departure from the shareholders' right of preference. Only the wholly-owned subsidiary, Resco Utbildning, shall have the right to subscribe for the subordinated loan and the stock option programme is directed at the employees in Resco Group, in which all employees are guaranteed warrants with a right to subscribe for 1,000 shares. Full exercising would involve an increase in share capital of SEK 500,000 and a dilution of 3.5 per cent of share capital and 2.0 per cent of votes. On full conversion of outstanding convertibles (1999/2002) and full exercising of the stock option programme described above (2000/2002 and the proposed programme for the Annual General Meeting to decide on 7 May 2001), the number of shares would increase by 3,847,687, equivalent to 12.3 per cent of share capital and 7.3 per cent of number of votes. Personnel The average number of employees during the period was 478 (360), an increase of 33 per cent. The number of employees at the period end amounted to 582 (381), a rise of 53 per cent. Of the net increase since the corresponding period in the previous year of 201, 213 were attributable to acquisitions, whereas the number of employees fell by 59 through sale of subsidiaries and operations. The change since 31 December 2000, when the number was 608, is a decrease of 26. Staff turnover over a rolling 12-month period amounted to 17 (16) per cent. Resco's target is that staff turnover should be below 10 per cent. At the period end, 40 per cent of the Group's employees were women. Future information dates Interim Report January-June 2001 will be published on 23 August 2001. Interim Report January-September 2001 will be published on 30 October 2001. The Preliminary Accounts Report for 2001 will be published on 20 February 2002. Stockholm, 7 May 2001 Board of Directors This quarterly report has not been the subject of examination by the company's auditors. For further information, please contact: Kjell Jacobsson, Chairman and Acting CEO Maria Sin, Chief Financial Officer Eva Eliasson, Head of Marketing and Corporate Communications 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 Board of Directors has its registered office in Stockholm. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/05/15/20010515BIT01050/bit0003.doc The full report http://www.bit.se/bitonline/2001/05/15/20010515BIT01050/bit0003.pdf The full report