Interim report jan-september 2007 Semcon AB

Continued strong growth

Q3
Sales rose by 102.0% to SEK 690.2 million (341.7 m). Organic growth reached 17.0%
• The operating profit after depreciation was SEK 30.1 million (12.2 m), giving an operating margin of 4.4% (3.6)
• The operating profit after deprecation was hit by one-off costs of SEK 9.3 million (0 m) consisting of SEK 2.2 million for the divestment of businesses and SEK 7.1 million for the integration of Caran and organisational changes. Excluding these items, the operating profit would have been SEK 39.4 million (12.1 m) and the operating margin 5.7% (3.6)
• The profit after tax was SEK 14.1 million (8.2 m)
• The EPS was SEK 0.68 (0.38)

January– September
• Sales rose by 57.5% to SEK 1,844.3 million (1,171.2 m). Organic growth reached 16.8%
• The operating profit after depreciation was SEK 79.5 million (66.7 m), giving an operating margin of 4.3% (5.7)
• The operating profit after deprecation was hit by one-off costs of SEK 41.3 million (5.9 m) for a cost-cutting scheme of SEK 18.8 million, the dismissal of the CEO, SEK 5.0 million (5.9 m), divesting businesses SEK 7.2 million, integrating Caran and IVM and organisational changes, SEK 10.3 million. Excluding these items the operating profit would have been SEK 120.8 million (72.6 m) and the operating margin 6.5% (6.2)
• The profit after tax was SEK 44.9 million (46.2 m)
• The EPS was SEK 2.12 (2.49)


Significant events during the period
Semcon acquired 100 per cent of the shares in Caran AB, Caran Design Limited, A2 Acoustics AB and Caran Embedded Intelligent Solutions AB on 31 August. The Caran companies have sales of around SEK 900 million a year and about 1,000 employees. Semcon also acquired IVM Automotive in Germany on 1 April. The company has sales of around SEK 900 million and today has about 1,000 employees. The strategy behind the acquisitions of Caran and IVM Automotive is to create a bigger global business, partly to take on bigger, more complex engineering assignments and partly to be close to customers. The new Group is now one of the world’s biggest
suppliers of technical development services to the automotive industry, for both cars and trucks and is well equipped to meet the demands set by our international customers. The acquisition of Caran also means that we can expand our range of services to the engineering industry and become one of the biggest suppliers in Northern Europe.
The Board has decided to dispose of all business in the Zpider business area. The business area is very successful, but for Semcon to be an internationally-leading dvelopment company means we must focus on our core business of product development and information solutions.
Furthermore, a central cost-cutting scheme was introduced in Q2. These measures are expected to save around SEK 30 million in Sweden and SEK 15 million in Germany, achieving their full effect in the 2008 financial year.
The acquisition of Caran will also give us excellent cost-cutting opportunities, including the possibility of utilising joint IT systems and premises. Semcon’s and Caran’s businesses will be coordinated at a number of sites in Sweden and the UK. The overall savings are estimated at around SEK 40 million. This coordination will have a positive effect on results as early as this year. The cost of implementing
the cost-cutting scheme is expected to hit Q3 by SEK 3.6 million. The remainder of the integration are expected to hit Q4 by around SEK 10-15 million.

Sales and earnings analysis
Group sales rose by 102.0% in Q3, compared to the same period last year, and amounted to SEK 690.2 million (341.7 m). Not counting
acquisitions and disposals of businesses, growth was 17.0%. Between January and September Group sales amounted to SEK 1,844.3 million (1,171.2 m). Organic growth for the first nine months of the year was 16.8%.

Compared to Q3 2006, the operating profit after depreciation (EBIT) rose by SEK 17,9 million to SEK 30.1 million (12.2 m). This gave an operating margin of 4.4% (3.6). During Q3, one-off costs have hit EBIT by SEK 9.3 million (0). Not including these items the operating margin would have been 5.7% (3.6). The profit after net financial items was SEK 19.9 million (12.1 m) and profit after tax was SEK 14.1 million (8.2 m). The EPS was SEK 0.68 (0.38).
Between January and September the operating profit after depreciation rose by 19.2% to SEK 79.5 million (66.7 m). This gave an operating
margin of 4.3% (5.7). Not including items of a one-off nature the operating profit after depreciation would have been SEK 120.8 million, giving an operating margin of 6.5% (6.2). The profit after net financial items was 64.0 million (66.2 m) and the profit after tax was SEK 44.9 million (46.2 m). The EPS was SEK 2.12 (2.49).

Staff and organisation
The average number of employees was 2,580 (1,708). The headcount
at the period’s end was 3,932 (1,731) of which 2,826 in Sweden and 1,106 abroad. Staff turnover in Sweden was 18.2%. The average number of employees in the respective business area at the end of the period was: Automotive 2 450 (610), Design & Development 908 (609), Informatic 343 (283) and Zpider 231 (229).

Semcon’s business areas
Semcon’s business is divided into four business areas: Automotive R&D, Design & Development, Informatic and Zpider. Semcon AB is the parent company of the Group and is responsible for Group-wide issues.

Automotive R&D
The acquisition of IVM and Caran will provide a major sales boost compared to 2006. Excluding sales from these acquisitions, organic growth in Q3 was 16.1% and 20.0% for the first nine months. The German business showed a weak operating profit over the quarter. The cost-cutting scheme will show effect from Q4, but only show a full effect in 2008. Of Caran’s total sales, 65% was from the business area.

Demand for advanced technical specialist expertise, mainly in Europe, continues to be strong. Following the acquisition of IVM and Caran, Semcon is one of the world’s biggest suppliers of development services to the auto industry, something that’s been seen as very positive by our customers. There is a strong demand on the market for engineering and development partners who provide complete services. Over the period we signed major contracts with companies like GM Europe and BMW in Germany who confirmed that we are one of their strategic partners. Other strategically important assignments included Audi and Porsche. Orders from Volvo and Scania remain good. The European auto industry is currently seeing major growth and we need to recruit a further 300 people. Growth in Brazil is also good. We see continued expansion opportunities in other BRICK countries where, apart from Brazil, we will be focusing our efforts on Russia and Korea.

We signed two contracts with German automotive suppliers after the end of the period. In both cases Semcon was chosen as development partner for project management and engineering for new car projects. The value of the order is around SEK 100 million and the orders will span three and five years respectively.

Design & Development
Growth in Q3 was 23.4% and sales stood at SEK 130.9 million (106.1 m). Organic growth was 3.8% for the quarter and 12.4% for the first nine months of the year. Costs for the companies and units sold or disposed of amount to SEK 4.4 million for the year. Excluding these costs the operating margin would have been 8.2%. Of Caran’s business, 35% is part of the business area.

The business area received an order worth SEK 20 million from FMV during the period with an option of a further SEK 20 million for the production of 40 specially-developed composite containers for use by the Swedish armed Forces’ major venture, Nordic Battlegroup.

The acquisition of Caran also complements and strengthens Semcon’s range in Design & Development. We are becoming one of the Nordic region’s biggest players in the Embedded business with around 150 employees and Medical & Life Science is continuing to expand its business in the Öresund region. The number of assignments
are increasing in Norway. A strategically important deal is with Vetco Gray, which supplies systems, products and service to the oil and gas industry. The deal is paving the way for an entry into the offshore market.
Furthermore we have signed framework agreements with Vattenfall, Emtunga and Husqvarna. After the period’s end we signed a framework agreement with SEB concerning the PROPS project method.

There is an overall strong demand for the business area’s services, which means that we have a huge need to recruit more people.

Informatic
Sales for Q3 went up by 12.3% compared to 2006, giving sales of SEK 76.0 million (67.7). The main reason for this increase was the start-up of the partnership deal with Jaguar/Land Rover. The transfer of staff and production responsibility from Jaguar/Land Rover to Semcon’s premises in Kineton is now complete. More than 50 people now work there on everything from development and production of owner-manuals to service and diagnostic information, as well as the production of training material for service technicians. The deal is expected to show full effects on results in 2008.

In addition, we are continuing to process the German market. We have received a project in China and the business in Hungary is continuing to develop with local customers as well as back-office production to other parts of the business. The volume reduction relating to some customers in the auto industry due to natural cycles in the model programme is partly counteracted by the business area receiving more new orders and customers in the industry sector.

During the period the interactive firm, Zooma by Semcon, which is part of the business area, received four prizes at the American Web Market Association’s annual WebAwards. These included Volvo Cars’ online magazine, which received Best Magazine Website award and their information site for Volvo owners, which received an Outstanding Website award. Sail Racing’s website received the Fashion Standard of Excellence award and SKF’s website received the B2B Standard of Excellence award.

Zpider
Growth during Q3 was 40.5% and sales amounted to SEK 75.7 million (53.9 m). The accumulated growth was 38.3% and sales amounted to SEK 242.8 million (175.6 m). Excluding Zetup, organic growth for the quarter was 64.6% and 49.1% for the first nine months of the year.

The business area is continuing to show good growth with a strong demand and sales trend. All companies in the business area reported good sales and growth. Zipper and Zingle are growing and have received many new customers. Zuite is continuing to strengthen its relationship with Ericsson.

In addition, IBM chose Zystems as “Competence Partner of the Year”. Zpider has also started its trainee programme, which is run in collaboration with Göteborg’s IT University.

The Board decided to sell off all its operations in the business area.
Zetup was sold during the period. Danske Bank Corporate Finance was assigned to help with the sale of other companies within Zpider. The sales are expected to be finalised during the year.

Financial items, investments and share information
The operation’s cash flow from current activities was SEK -31.7 million (+93.9 m). The Group’s liquid assets stood at SEK 61.2 million (14.4 m).The Group’s investments in hardware, licences, office supplies and equipment was SEK 27.3 million (11.8 m). Investments in goodwill amounted to SEK 568.0 million (26.1 m). Shareholders’ equity at the end of the period stood at SEK 311.4 million (260.2 m) and the equity/assets ratio was 16.5% (41.3). Net loan borrowings stood at SEK 830.2 million (29.3 m). The increase is due to the acquisitions of IVM and Caran.

Ownership structure
On 30 September, the JCE Group held 29.9% of Semcon’s shares, Skandia Liv held 13.1%, Deutsche Bank held 8.8% and Handelsbankens fonder held 5.8 %. Deutsche Bank had sold all its shareholding of Semcon shares after the end of the period. Foreign ownership of Semcon on 30 September was 23.9% (34.5) and the number of shareholders was 3,673 (6,658). The number of shares at the end of the period was 17,782,534. Semcon is listed on the OMX Nordic Exchange Stockholm under the SEMC ticker and has a share class with equal voting rights.

Acquisition and sales of companies
Semcon acquired 100 per cent of the shares in Caran AB, Caran Design Limited, A2 Acoustics AB and Caran Embedded Intelligent Solutions AB. The transition of ownership took place on 31 August 2007. Semcon also acquired the German company IVM Automotive during the year. More information about the acquisition is on page 10.

Zetup by Semcon AB, which was part of the Zpider business area, was sold on 7 September. Propeller by Semcon AB, which was part of Design & Development, was also sold on 1 April. The capital loss from the sale was SEK 4.9 million. Sales from Zetup are included in the Q3 report, amounting to SEK 13.1 million (21.7 m) and a net loss of SEK 1.0 million (+2.6 m) and sales from Propeller of SEK 6.2 million and a net loss of SEK 0.6 million (-2.4 m).

Risk and instability factors
The Group’s and parent company’s risks and instability factors include business risks in the form of high exposure towards a certain industry. In general terms the acquisition of businesses involved increased risk. This also includes financial risks mainly concerning interest and currency risks. In addition to the risk described in Semcon’s Annual Report 2006 at page 30-31 for an extensive description of the Group’s and parent company’s exposure and risk management, no other significant risks exist apart from the increased risk exposure that has arisen due to the integration of IVM Automotive and Caran.

Important events after the period’s end
Semcon has received two contracts from German OEMs worth in total SEK 100 million. In both cases Semcon has been chosen as the development partner for project management and engineering in a new car project.


Outlook
Semcon will continue focusing on profitable growth, internationalisation and increased streamlining. We will continue to develop and refine our product development and information solutions, both in terms of greater project responsibility and partnership by offering alternative solutions to customers for taking advantage of our specialist skills. We expect the market’s upbeat economy to continue for the rest of the year.

Other information
Nominating Committee
At Semcon’s AGM on 26 April 2007 it was decided that the Board’s Chairman should convene a Nominating Committee, consisting of one representative for each of the three biggest shareholders by number of votes on 30 September 2007. Elected to the Nominating Committee until the next AGM were Christer Ericsson, representing the JCE Group, Erik Sjöström, representing Skandia Liv and Joakim Spetz, representing Handelsbanken Fonder.

Accounting principles
Semcon follows the IFRS standards and interpretations thereof used by the EU (IFRIC). This quarterly report for the Group has been produced in accordance with IAS 34. The same accounting principles have been applied in this quarterly report as in the latest annual report. The new or revised IFRS standards that came into effect on 1 January 2007 do not affect the reported results or position.


Göteborg, 25 October 2007

Björn Strömberg, acting CEO

SEMCON AB (PUBL)
417 80 Göteborg

Co. Reg. No. 556539-9549

www.semcon.com