Resco AB (publ) Interim Report January-September 1999

Resco AB (publ) Interim Report January-September 1999 Torstein Johansen appointed new Managing Director * Sales rose by 16 per cent to SEK 211.5M (182.8). * Operating result amounted to SEK -7.4M (5.5). * Operations at the offices in Södertälje and Västerås divested after the end of the reporting period. Operating result for the fourth quarter will be influenced positively by approximately SEK 10M. * Agreement made to acquire the Internet bureau, Reference Interactive AB. * Torstein Johansen was appointed new Managing Director on 25 October 1999. Kjell Jacobsson, former Managing Director, was appointed Executive Chairman * Number of employees amounted to 343 (328) at the end-September. MARKET There is large demand for advanced systems development and Internet-related services linked to business systems which have already been put into operation. Companies' insight regarding the benefits of developing their customer- and business relations via the Internet steadily increase. This leads to increasing demand for overall solutions within electronic trading and administrative systems. The trend towards concentration of the companies' operations and up-dating of IT support also leads to a need for process orientation as well as strategy and planning work ahead of future investments in new system generations after the turn of the year. However, the market is characterised by falling demand, mainly due to waiting for the change of the Millennium. THIRD QUARTER 1999 Sales and results Sales amounted to SEK 50.9M (51.2). However, excluding acquisitions, sales fell by 16 per cent. Operating result amounted to SEK -13.4M (-4.0). Result after financial items amounted to SEK -13.4M (-3.8). Operations developed weakly during the third quarter and the trend was clearly below expectations, especially for Business Areas Business Systems and Operations Development. The reason for the lower sales compared with the previous year, despite an increased number of employed consultants, was a larger-than-anticipated decline in capacity utilisation. As the number of consultants was higher, these also contributed to increased costs for the period. STRUCTURAL CHANGES With the aim of developing Resco's operations and to enable the Company to strengthen its range of fully-comprehensive Internet-related systems solutions, Resco made a decision to acquire the Internet bureau, Reference Interactive AB. As a result one of the largest full-supply Internet companies in Sweden has been formed with approximately 400 employees. Reference Interactive AB was established in 1995 and has steadily developed into one of the most successful and prize-winning companies in Sweden in the interactive training and communications segment. The formal merger of the two companies will take place on 8 November 1999 but preparations for this knowledge-merger has been underway since September when the principal owners of both companies accepted the plans. Resco has made an agreement to divest operations at the offices in Södertälje and Västerås. The divested parts have not developed as planned and the Board of Directors therefore made the assessment that they do not fit into Resco's structure. The sale involves 31 staff, of whom 28 are consultants. The purchase price amounts to SEK 15M. The sale will bring about a positive influence on Resco's operating result for the fourth quarter of approximately SEK 10M, after selling costs and write-down of Groupwise goodwill. See also a separate news release dated 25 October 1999. As a natural consequence of the structural changes which have been decided, Business Area Integration & Development and Business Area Technology & Communication were merged into a new Business Area named Systems Integration. During the period the subsidiary, OY Resco, was established in Finland. In an initial phase, operations will be directed towards the market for business systems within the Helsinki region. The establishment in Finland is also expected to increase demand for consulting services in the Swedish operations through close collaboration between the two companies. The establishment in Finland was charged to the consolidated result by SEK 0.1M (-) in the third quarter. JANUARY - SEPTEMBER 1999 Sales and results Sales rose by 16 per cent to SEK 211.5M (182.8). Operating result fell to SEK -7.4M (5.5), equivalent to an operating margin of -3.5 per cent (3.0). Result after financial items was SEK -7.2M (6.4). Result after tax per share was SEK -2.59 (1.50). Sales increase excluding acquisitions amounted to 3 per cent. Operating result was affected by acquisitions by SEK -2.3M (0.0). The sales increase, excluding acquisitions, can be split into a rise in the average number of consultants of 12 per cent, an increase in the hourly rate of 2 per cent and a fall in the charge ratio of 2 percentage points. In addition, the period had one available working day more than the corresponding period in the previous year. The average payroll expense per employee increased by 3 per cent compared with the previous year. Operations Operations are carried out in four, previously five, Business Areas which changed their names during the third quarter: ERP Solutions (formerly Business Systems), Systems Integration (formerly Integration & Development and Technology & Communication), Business Consulting (formerly Operations Development) and Training. Operations are carried out from offices in Stockholm, Lund, Malmö, Uppsala, Västerås, Hackås and Helsinki. Business Area Sales, Share SalesOperat Operat Number SEK M ofgrowth ing ing of sales, , %result margin employ % , SEK , % ees M ERP Solutions 80.9 37.4 23 7.5 9.3 101 Systems 79.2 36.6 -5 -14.0 neg 135 Integration Business 31.3 14.5 12 1.4 4.4 34 Consulting Training 24.9 11.5 - -2.3 neg 32 Group -4.8 - - - - 41 eliminations / Groupwide functions Total 211.5 100 16 -7.4 -3.5 343 Business Area ERP Solutions The price trend was positive, whereas the charge ratio was below anticipation. A very satisfactory trend in the first two quarters turned into a substantial loss during the third quarter, mainly due to significantly reduced demand for new implementations of business systems. Measures aimed at increasing sales and profitability are now being implemented through strong focusing on sales, both long term and short term. Business Area ERP Solutions implements, manages and develops further business systems. Resco has a market-leading position with regard to SAP- and Agresso- related services in Sweden. The Business Areas is also involved with services regarding the Baan and Guda systems. Business Area Systems Integration A new marketing programme containing extensive sales activities has been initiated and is expected to show positive effects as early as in the fourth quarter. The price level for the Business Area's advanced services is satisfactory and the price trend for these is positive. For less advanced services on the other hand, such as computer operation as well as simple systems development and technology services, prices are subjected to downward pressure. Development this year has been very unsatisfactory. Problems with capacity utilisation, especially within software have been significant. The charge ratio was also too low to create profitability in other parts of the Business Area. New assignments during the period included work for Arla, Atlas Copco, Observer, Rymdbolaget, Svenska Journalistförbundet and Tegma. The Business Area provides systems development, integration and technology services for leading platforms such as Microsoft, Lotus Notes and AS400. Within the category, systems development, the Business Area is involved with developing customer-specific system solutions. The Business Area provides project managers, system architects and system developers. Within the category, integration, the Business Area is involved in identifying and making available business-critical information and integrating this with business systems and the Internet. Technology services are aimed at providing operating services and cateriing for requisite technology expertise with regard to our integration services. Business Area Business Consulting The trend for the Business Area was positive during the first two quarters and thereafter weakened. The price scenario remained positive during the third quarter but the charge ratio fell to an unsatisfactory level. The subsidiary, Resco International Program Management (IPM) AB, which works within the Business Area with a focus on internationally-operating customers, has begun to show a positive trend following the first establishment phase During the period, a number of important strategy assignments were received within the electronic business and the Internet segments. The Business Area operates in the segments: process development, IT strategy and strategy development within Electronic Business and Internet Management. Process development comprises the entire process of change from early phases when the improvement potential in the operations is identified, to the management of change in connection with the implementation of new processes and forms of control. Process development also includes optimisation of the operations benefit on implementation of business systems. Business Area Training Demand for training programmes which are linked to Resco's other operations, mainly training within business systems, have increased during the year and the organisation has been expanded to enable it to meet this need. However, the majority of the courses operated by the Business Area have so far been linked with time-limited labour market activities, primarily for SwIT (Sweden Information Technology). Despite high volume, the Business Area has not been able to report positive results as the price level for this type of training programme has been low. In step with a shift in focus from labour market- related courses, the average price level is expected to improve and generate gradually improved profitability The Business Area provides services within tailor-made and general training in IT and business systems, training in project management and process of change as well as charting and developing expertise. Associated companies The consultants of the 50 per cent-owned company, Hackås IT-Partner AB are mainly involved in assignments on behalf of Resco and the other stakeholder. Resco employs 12 of a total of 20 consultants. Sensitivity analysis In the table below is reported a sensitivity analysis with regard to a number of key factors. The analysis is made on the basis of 12-month average values. Parameter Change Effect on consolidated earnings, SEK M Hourly charge, per +/- 1 2.4 cent Charge ratio, +/- 1 4.1 percentage point Number of working days +/- 1 1.1 per annum Personnel cost, per -/+ 1 2.0 cent Personnel The number of employees at the period-end amounted to 343 (328), an increase of 5 per cent. Average number of employees during the period was 321 (260), an increase of 23 per cent. Staff turnover amounted to 15 (10) per cent. Investments Investments in equipment and improvement of premises amounted to SEK 11.4M (13.6), of which SEK 6.3M (5.8) was financed via leasing. The leasing financing refers to company cars as well as computer equipment which is used in the training operations. Investments in intangible assets amounted to SEK 0.0M (6.0). Financial position The Group's liquid funds amounted to SEK 11.9M at 30 September, compared with SEK 23.7M at 31 December 1998. Of interest-bearing liabilities, pension commitments in accordance with the FPG/PRI system amounted to SEK 8.9M, compared with SEK 6.3M at the turn of the year. Settlement paid for the convertible loan, which was issued during the second quarter, amounted to SEK 5.4M at 30 September 1999. Shareholders' equity Shareholders' equity amounted to SEK 63.4M at 30 September 1999, a decrease of SEK 2.1M from the turn of the year. Shareholders' equity of SEK 7.9M was contributed via a new share issue which was reported in a news release dated 25 March 1999. A dividend of SEK 2.8M was paid to shareholders. In total, the number of shares amounted to 2,803,200 which means that equity per share amounts to SEK 22.63. The equity ratio amounted to 52 per cent at 30 September 1999 which is one percentage point lower than at the turn of the year. EXTRAORDINARY GENERAL MEETING An Extraordinary General Meeting on 25 October 1999 passed the following resolutions: Share issue It was resolved that a non-cash issue be carried out of a total of 635,000 shares as a result of which the Company's share capital increases by 1,587,500. The newly-issued shares will be subscribed for in full by the shareholders of Reference Interactive AB not later than 8 November 1999. All the shares in Reference Interactive AB will be contributed as payment for the shares. The non-cash issue involves an increase in the share capital of 21.7 per cent and an increase in the number of votes of 8.8 per cent after full conversion of outstanding convertibles and full exercising of outstanding warrants. Changes to the Board of Directors The Chairman, Björn Ogard, and Board Member Kjell Strömlid both resigned their Board assignments. Mats Ohlsson, one of the principal owners of Reference Interactive AB was elected new Board Member. NEW MANAGING DIRECTOR Torstein Johansen, previously Deputy Managing Director of Mind Innovative, took over as Managing Director from 25 October 1999. On the same date, Kjell Jacobsson, previously Managing Director of Resco AB, becomes Executive Chairman of the Company. SURPLUS IN SPP ALLOCATED TO RESCO AB Of the surplus which has arisen within SPP, a total of SEK 14M has been allocated to Resco including subsidiaries. SPP intends to revert with definite information, among other things is approval awaited in accordance with competition legislation rules. Resco awaits this final information from SPP before Resco decides how the allocated funds will be reported. INTERNATIONAL COLLABORATION WITH GERMAN PARTNER Resco has made an agreement to begin collaboration with the German IT consulting company, GMO, which has 370 consultants within strategy consulting and business systems. The collaboration will mainly concentrate on marketing and sales. Together, the new constellation will offer more than 750 consultants with expertise in design as well as communication and links to business-critical systems. Stockholm, 29 October 1999 Board of Directors Resco AB (publ) I have reviewed this Interim Report and in so doing followed the recommendation issued by the Swedish Institute of Authorised Public Accountants, FAR. A review is significantly limited compared with an audit. Nothing has emerged which indicates that the Interim Report does not comply with the requirements stipulated in the Stockmarket and Annual Accounts Acts. Stockholm, 29 October 1999 Anders Roos Authorised Public Accountant CONSOLIDATED INCOME Q 1-3 Q 1-3 Q 1-3 Full- 98-10- STATEMENT, SEK M 1999 1998 1997 year 01 - 1998 99-09- 30 Net sales 211.5 182.8 135.7 261.3 290.1 Other income 0.0 0.4 -0.8 0.4 0.0 Total income 211.5 183.2 134.9 261.7 290.1 External costs -63.2 -48.8 -34.3 -67.6 -82.1 Personnel costs -150.2 -125.4 -96.4 -177.2 -201.9 Depreciation -5.5 -3.5 -2.6 -5.4 -7.5 Operating result -7.4 5.5 1.6 11.5 -1.4 Financial items 0.2 0.9 0.4 0.9 0.2 Result after financial -7.2 6.4 2.0 12.4 -1.2 items Minority share of the 0.0 - - - 0.0 result Taxes 0.0 -2.3 -0.8 -4.0 0.0 Net result for the -7.2 4.1 1.2 8.4 -1.2 period CONSOLIDATED BALANCE 1999- 1998- 1997- 1998- SHEET, SEK M 09-30 09-30 09-30 12-31 Fixed assets 34.5 32.3 23.1 35.7 Other current assets 76.7 62.5 48.8 64.8 Liquid funds 11.9 13.5 8.1 23.7 Total assets 123.1 108.3 80.0 124.2 Shareholders' equity 63.4 61.2 47.4 65.5 Minority share 0.1 - - - Long-term liabilities 18.0 8.3 5.4 10.3 and provisions Current liabilities 41.6 38.8 27.2 48.4 Total shareholders' 123.1 108.3 80.0 124.2 equity, provisions and liabilities CONSOLIDATED CASH FLOW Q 1-3 Q 1-3 Q 1-3 Full- 98-10- ANALYSIS, SEK M 1999 1998 1997 year 01 - 1998 99-09- 30 Cash flow from current 0.6 8.5 4.5 18.5 10.6 operations Change in working -18.7 -9.6 -9.1 -2.9 -12.1 capital Total cash flow from -18.1 -1.1 -4.6 15.6 -1.5 current operations Cash flow from -4.7 -13.8 -15.5 -19.7 -10.6 investment operations Cash flow from 11.0 -1.7 -1.3 -2.3 10.4 financing operations Change in liquid funds -11.8 -16.6 -21.4 -6.4 -1.7 Q 1-3 Q 1-3 Q 1-3 Full- 98-10- KEY FIGURES 1999 1998 1997 year 01 - 1998 99-09- 30 Operating margin, % -3.5 3.0 1.2 4.4 -0.5 Profit margin, % -3.4 2.2 0.9 4.7 -0.4 Return on equity, % -10.8 6.5 2.6 13.4 -4.8 Return on capital -9.2 9.5 4.5 19.0 -0,6 employed, % Return on capital -13.1 12.1 5.6 28.1 -2.3 employed in operations, % Return on total -5.6 6.2 2.9 11.6 -0.4 capital, % Equity ratio, % 52 57 59 53 52 Debt ratio, % 22 8 3 10 22 Net debt ratio, % 3 -15 -15 -28 3 Interest coverage ratio -17 38 8 30 -1 Capital turnover rate 3.7 4.4 4.8 6.6 4.9 (capital employed in operations) Investments, SEK M 4.7 13.8 15.5 19.7 10.6 Cash flow after -22.8 -14.9 -20.1 -4.1 -12.0 investments, SEK M Average number of 321 260 213 277 323 employees Number of employees at 343 328 233 347 343 period-end Sales per employee, SEK 659 703 637 943 899 K Salaries excluding 46 41 44 41 44 payroll overheads as a percentage of sales Value added per 440 467 441 638 609 employee, SEK K Value added ratio, % 67 66 69 68 68 SHARE DATA Q 1-3 Q 1-3 Q 1-3 Full- 98-10- 1999 1998 1997 year 01 - 1998 99-09- 30 Number of shares at 2,803 2,724 2,624 2,724 2,803 period-end, 000 Average number of 2,786 2,724 2,624 2,724 2,770 shares during the period, 000 Result after tax per -2.59 1.50 0.46 3.07 -1.06 share, SEK Cash flow of current -6.51 -0.40 -1.75 5.72 -0.53 operations per share, SEK Equity per share, SEK 22.63 22.46 20.20 24.05 22.63 Number of shares, 000 * 2,920 2,804 2,624 2,804 2,920 Result after tax per -2.47 1.48 0.46 2.98 -1.01 share, SEK * Cash flow of current -6.21 -0.39 -1.75 5.55 -0.50 operations per share, SEK * Equity per share, SEK * 26.18 24.67 20.20 26.21 26.18 * after full conversion and full exercising of warrants Quarterly reporting Available working days Q 1 Q 2 Q 3 Q 4 Full- (disregarding holidays) year 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 Q 1 Q 2 Q 3 Q 4 Full- M year 1999 83.8 76.8 50.9 1998 66.0 65.6 51.2 78.5 261.3 1997 45.0 48.6 41.2 60.4 195.2 1996 29.4 33.1 30.2 41.2 133.9 Consolidated operating Q 1 Q 2 Q 3 Q 4 Full- result, SEK M year 1999 5.0 1.1 -13.4 1998 7.5 2.0 -4.0 6.0 11.5 1997 0.5 0.8 0.3 6.6 8.2 1996 0.9 1.0 0.5 3.4 5.8 Consolidated operating Q 1 Q 2 Q 3 Q 4 Full- margin, % year 1999 6.0 1.3 Neg 1998 11.4 3.0 Neg 7.6 4.4 1997 1.1 1.6 0.7 10.9 4.2 1996 3.1 3.0 1.7 8.3 4.3 Future reporting dates 18 February 2000 Preliminary Accounts Report 1999 March 2000 Annual Report 1999 April 2000 Annual General Meeting Annual Reports and Interim Reports are also available on Resco's home page: www.resco.se For further information, please contact Kjell Jacobsson, Chairman, Tel +46 8- 519 030 00. Resco's business concept Resco will actively contribute to its customers' business development by offering the highest level of expertise available on the market in operations development, the Internet and training. Resco is a pure and supplier-independent consulting company within the IT sector. Resco AB (publ) S:t Eriksgatan 60 A SE-112 34 Stockholm Telephone +46 8-519 030 00 Telefax +46 8-519 032 00 resco@resco.se www.resco.se Corporate identity number: 556220-8511 Stockholm, Lund, Malmö, Uppsala, Västerås, Hackås, Helsinki ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/10/29/19991029BIT00920/bit0001.doc The full report