Resco AB Interim Report January-September 2000

Resco AB Interim Report January-September 2000 Strong growth, profitability in focus * Sales for nine months rose by eight per cent to SEK 228.4M (211.6). For the third quarter, sales increased by 54 per cent to SEK 78.2M (50.9). * Pro forma, salesfor nine months improved by 37 per cent to SEK 290M (211.6). * The operating result amounted to SEK -59.7M (-7.4). Operating result before goodwill amortisation (EBITA) amounted to SEK -51.2M (-6.2). The operating result for the third quarter (EBITA) amounted to SEK -28.4 (- 13.0). * A combination of the need to make a provision for costs relating to staff redundancies and the substantial costs which were directly attributable to the aborted transaction with Fi System has contributed significantly to the negative result for the third quarter. * The restructuring of Resco, which was initiated during the first quarter, will lead to cost effectivisation of SEK 40M on a full-year basis. This is expected to make full impact from the first quarter of 2001. * Relatively high sales growth and a good foundation for making an operating result around break-even (EBITA) is expected in the fourth quarter. * The number of employees was 516 (343) at the period-end, an increase of 50 per cent. Staff turnover over a rolling 12-month period amounted to 14 (17) percent. * A number of strategic customer agreements were signed during the third quarter. For example, Resco was appointed web supplier to British Airways in Northern Europe. * In October, Resco signed an agreement to acquire two Internet consulting companies in Finland - Dataform Oy and Toneco Oy - with a total staff of 42. As a result, Resco has more than 150 employees in Finland. Since October 1, Resco has employed nearly 60 staff in Germany. * The e-learning company, Involve Learning, which is the result of the merger of the Norwegian company in2win A/S and Resco Learning, continues to report very high growth. Resco's ownership in Involve Learning, which employed 115 staff at the end of the third quarter, is equivalent to 45 per cent. Resco plans to divest its participation in Involve Learning within nine months. Comments: * The transformation of Resco is generating significant sales increase, strong growth in the third quarter. * The results were not satisfactory, but there is a good foundation for making an operating result around break-even (EBITA) in the fourth quarter. * The restructuring of Resco, which was initiated at the turn of the year, will lead to cost effectivisation of approximately SEK 40M on a full-year basis from the first quarter of 2001. Resco reports a 54 per cent growth for the third quarter compared with the corresponding period in the previous year. The growth rate for the first nine months of the year is also higher than in the corresponding period in 1999. This is clear evidence that the new strategy, organisation model and market profile are beginning to make a significant impact. The fact that a large proportion of the growth is generated outside Sweden, as well as organically, is especially satisfactory. At the end of the nine-month period, nearly 35 per cent of Resco's employees were located in Germany and Finland, compared with an insignificant proportion outside Sweden on the same date in 1999. Continued methodical expansion in strategically selected regions in Europe will be prioritised in the future. Profitability during the third quarter did not quite meet internal expectations. Factors which have especially given rise to the negative result is the overall under-utilisation of consulting capacity; substantial costs for internationalisation; provision for restructuring costs for staff redundancies; and significant costs which were directly attributable to the aborted transaction with Fi System*. The forecast for the full-year 2000 of a total sales growth, including the participation in Involve Learning, is revised downward from 50 to 40 per cent. However, taking into account the comprehensive and demanding restructuring work in Resco, whilst the market situation at the same time was relatively weak during the first half of the year, the downward adjustment is viewed as acceptable. From an industry perspective, the forecast for full-year growth can be regarded as highly competitive. Resco is working in a very focused way to achieve improved profitability; both through the close and effective interplay between the sales and the delivery processes, and via the continuous efforts aimed at permanently reducing the total cost volume. The assessment is that these internal efforts to improve profitability will have an impact from the last quarter on. At the same time, as a result of the repositioning initiated 12 months ago, Resco is higher up the customer's value chain, which is resulting in a steady improvement in profitability. An analysis of the restructuring work in Resco, which has been underway for more than three quarters, shows a total cost effectivisation, i.e. a positive effect on the result, in the range of SEK 40M on an annual basis, starting in the first quarter of 2001. The new Resco has structured a market offer, which is primarily concentrated on cutting edge solutions within e-business, ERP and CRM. The principal line is to continue along the chosen route - with profitability as the stated key factor. During the third quarter, Resco entered into a number of strategic customer agreements, which are further evidence of a highly successful repositioning. For example, Resco was appointed as an extensive web partner for British Airways in Northern Europe. In all, Resco has a very promising order backlog for the end of the year 2000. During the third quarter, a large number of Resco's industry colleagues have faced difficulties after the Dot.com market was hit by an acute financing crisis. Resco is only marginally affected by a decline in the dot.com market, as less than five per cent of the combined sales are exposed to that sector. Prospects for the future Rising demand during September, combined with a relatively large number of potential orders, means that Resco is looking forward to the fourth quarter with optimism. The assessment is that Resco will achieve a relatively high growth rate and that there is a good basis for an operating result (EBITA) in the area of break-even during the fourth quarter. The relatively established industrial and service providing companies are expected to account for the largest increase in demand through assignments linked to the integration of business systems and the Internet. As far as the merger of underlying databases and the Internet is concerned, Resco is equipped with strong references and possesses established marketing channels which indicate that there will be a very positive market response. Acquisitions (January-September): During the first nine months, a number of strategically important acquisitions were made. * Intra Kommunikation AB, which was acquired in February, is an Internet consulting company with considerable understanding of CRM and market communication. In addition, Intra provides Resco with the knowledge about how the information can be individualised over the Internet. The acquisition of Intra is a strong supplement to the acquisition of the web bureau, Reference, which was completed during autumn 1999. * Canopus International AB, which was acquired in April, develops administrative IT systems, mainly for intranets. Canopus also possesses cutting edge competence within project management, system design and data base 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 was acquired in June, is a communication company with a very considerable understanding of total communications and brandname building. The company contributes a customer base to Resco as well as an understanding of how Resco can build a strong brandname for customers and their solutions. It also provides an understanding of how the customer will communicate the solutions. * Major Blue Company in Finland, which was acquired in May, possesses cutting edge competence within technology systems for HR (Human Resources) and CRM as well as implementation of business systems. Major Blue Company has developed a number of products and therefore contributes to Resco the knowledge of packaging consulting operations into products. With Major Blue Company, Resco attains a strong position in Finland where Resco now has 105 employees. The deal is in line with the increased international focus which Resco now represents. * In October, Resco signed a declaration of intent to acquire Dataform Oy, which is an IT and Internet consulting company with a staff of 35 in Finland. Dataform Oy has cutting edge competence within ERP-systems and CRM via niche products that have been developed by the company's which are especially directed at the retail industry. The largest individual customers include Kesko Oy which is the largest retail chain in Finland. Dataform Oy also has customers in Sweden, Norway, Germany as well as a number of customers outside Europe. * In October, Resco signed a declaration of intent to acquire Toneco Oy, which is an IT and Internet company with seven employees in Finland. Toneco Oy has developed a number of object-oriented CRM products and thus adds further competence to Resco relating to the ability to package the consulting operations into "products". In addition, the company has developed internationally marketable products which make possible an integration of SMS based communication with the underlying databases. Aborted transaction with Fi System* On 11 September, the French company, Fi System, made a share offer for Resco AB which amounted to approximately SEK 1,567M. This meant a premium of approximately 41 per cent calculated on Resco's closing price on 8 September 2000, and a premium of approximately 55 per cent calculated on the last 10 trading days prior to the announcement of the offer. Calculated from the offer date to 16 October, the share price in Fi System fell by approximately 60 per cent. This contributed to the fact that some of the major shareholders, who had not committed themselves to the offer and who together represented more than 10 per cent of the number of shares in Resco, indicated to Resco's board of directors that they would not accept the offer. On 17 October, Resco's board announced that, due to changed market circumstances, it no longer recommended Fi System's offer to the shareholders. During the afternoon of 17 October, Fi System announced that it was withdrawing its offer for Resco. THIRD QUARTER 2000 Net sales in the third quarter amounted to SEK 78.2M (50.9), an increase of 54 per cent. Operating result before goodwill amortisation amounted to SEK -28.4M (-13.0) and operating result after goodwill amortisation to SEK -32.8M (-13.4), Result after financial items amounted to SEK -32.7M (-13.4). JANUARY - SEPTEMBER 2000 Net sales amounted to SEK 228.4M (211.6), an increase of 8.0 per cent. Operating result before goodwill amortisation amounted to SEK -51.2M (- 6.2). Operating profit after goodwill amortisation amounted to SEK -59.7M (7.4). Result after financial items amounted to SEK -55.7M (7.2). Factors which have especially given rise to the negative result include: the overall under-utilisation of consulting capacity; substantial costs for internationalisation; provision for restructuring costs for redundant staff; and significant costs which were directly attributable to the aborted transaction with Fi System. Included in the operating result, as items affecting comparability, are: SEK 1.4M which refers to the sale during the first quarter of the subsidiaries, Resco Interactive AB and Resco Learning AB, in connection with the formation of Involve Learning AS, SEK 14.5 relating to the SPP refund (see below) and -0.2M, relating to the sale of the subsidiary, Resco IPM AB, in which Resco owned 70 per cent. Refund from SPP Of the surplus that has arisen within SPP, SEK 14.5M has been allocated to Resco. This refund has been reported under items affecting comparability. Out of this, SEK 1.9M has already been refunded, whereas the remaining portion of SEK 12.6M has been accounted for as receivable, of which SEK 10.9M has been reported as a current receivable and SEK 1.7M as a long- term receivable. Taking the short repayment period into account, no discounting has been made. Investments Net investments in goodwill amounted to SEK 257.2M (-). Investments in tangible fixed assets amounted to SEK 17.8M net (5.1), mainly indirectly through acquisitions, the majority of which were financed via non-cash issues. Investments financed via leasing have not been included as they are only of marginal importance. Financial position The Group's liquid funds amounted to SEK 74.0M at the period-end (31 December 1999: 19.5). Of interest-bearing liabilities at 30 June 2000, pension commitments in accordance with the FPG/PRI schedule amounted to SEK 14.9M (9.6) and subordinated loans to SEK 5.5M (5.8). To enable new employees to participate retrospectively in the incentive programme in which the convertible subordinated loan is included (1999/2000), one of Resco's subsidiaries has subscribed for part of the loan for onward sale to new employees. The subordinated loans total SEK 7.5M 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 first six months in 2000 amounted to SEK 8.5M (1.2). The Group's goodwill totals SEK 309.7M. Goodwill is amortised by 5-20 per cent per annum. Shareholders' equity Shareholders' equity amounted to SEK 512.1M (63.4) at the period-end. During the period, four new share issues were carried out in connection acquisitions (non-cash issues), and one new cash issue. In addition, a new share issue was carried out in connection with the incentive programme (warrants 1999/2000) and a small part of the convertible subordinated loan (1999/2002), which was issued to the staff, was also converted. During the period, a split 1:5 was carried out. An adjustment for this has been made in the following table. For further information, please contact: Kjell Jacobsson, Chairman Viktor Svensson, Head of Investor Relations and Information Maria Sin, Chief Financial Officer 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/2000/11/01/20001101BIT00540/bit0001.doc The full report http://www.bit.se/bitonline/2000/11/01/20001101BIT00540/bit0002.pdf The full report