Teleca AB (publ) Interim Report, six months ending June 30, 2001

Teleca AB (publ) Interim Report, six months ending June 30, 2001 Teleca AB (publ) consolidated report - includes Teleca, Sigma, and Epsilon until May 2001 - Sales increased by 46% to SEK 1,610.3 M (1,104.7 M). - Operating profit before amortization of goodwill (EBITA), excluding demerger expenses, rose 30% to SEK 134.8 M (103.7). Profit after financial items, excluding demerger expenses, increased 4% to SEK 78.1 M (75.0). Teleca: Strong growth - Sigma: Focus on increased increasing margins profitability - action plan implemented (former business area (former business area e- embedded solutions) solutions) q The margin (EBITA) excl. q Net sales rose 70% to SEK demerger expenses rose from 721 M (SEK 424 M in year- 11.8% to 15.4% earlier period) q q Sales advanced 45% to SEK q Operating profit (EBITA) 608 M (418 M). amounted to SEK 13.7 M (36.0). Earnings after net q Operating profit before financial items, including goodwill amortization listing expenses of SEK 9.7 (EBITA), excl. demerger M, amounted to a loss of SEK expenses, increased 89% to 29.2 M (profit: 22.5) SEK 93.8 M (49.5 M). Profit after net financial items q Action plan is including demerger expenses implemented during 2nd and increased 85% to SEK 67.0 M 3rd quarter (36.2 M) q Forecast for 2001: q Forecast for 2001: Continued favorable operating Continuing strong sales profit (EBITA) and positive growth and better margin cash flow compared with the preceding year The demerger of the group into Teleca, Sigma and Epsilon is on its way and is following plans. Epsilon became a public company June 2001 and Sigma AB (publ) changed name into Teleca AB (publ). The plan is to distribute Sigma e-solutions to the shareholders at the end of September/ beginning October. This report consists of the following three parts: · Teleca - excluding Sigma e-solutions and Epsilon · Sigma · Consolidated numbers - includes Teleca and Sigma. Epsilon is consolidated until May 2001. Epsilon AB (publ) is publishing its own report today. Espilon is running with a good and stable growth and has increased the profit during the second quarter compared with the preceding year. Teleca AB - Pro Forma Interim Report January-June 2001 Strong growth - increasing margins q The margin (EBITA) excl. demerger expenses rose from 11.8% to 15.4% q Sales advanced 45% to SEK 608 M (418 M). q Operating profit before goodwill amortization (EBITA), excl. demerger expenses, increased 89% to SEK 93.8 M (49.5 M). Profit after net financial items increased 85% to SEK 67.0 M (36.2 M) q Operating profit before goodwill amortization (EBITA), excl. demerger expenses for the second quarter isolated, increased 106% to SEK 41.6M (20.2 M). q The total number of employees was 1,239 on June 30, 2001 (951 on June 30, 2000). q Forecast for 2001: Continuing strong sales growth and better margin compared with the preceding year Teleca - excluding Sigma AB (publ) and Epsilon AB (publ) Teleca is a world-class supplier of software engineering services for advanced systems, electronic equipment and applications. Our business concept is to strengthen our customers' market position and time-to-market. This is achieved by providing professional teams with specialist technical expertise, working in partnership with development- intensive companies worldwide. The company's operations encompass the development of software within the framework of the "The Teleca Universe" (Networks, Operators, Devices & Services), which describes the products that Teleca works with, its market and how the various parts of the industry interact. Teleca has a wide range of R&D departments of international blue-chip companies as customers, and sales outside Sweden were 43% during the period. Teleca has development offices in Denmark, France, Ireland, Italy, Norway, Poland, Portugal, Spain, United Kingdom and Sweden. Teleca's industry distribution in 2001 was: Telecom & IT, 56%; process industry and power, 11%; other engineering industries, 16%, pharmaceuticals and medical technology industry, 7% and the automotive, 10%. Market outlook The market slowed down across Europe in the first half of this year and realism and profit-focus has returned to the electronics and telecoms sectors. Several of the major customers have re-evaluated their more speculative product initiatives, and in some cases they have withdrawn from less profitable markets altogether. This can be described as "concentrating on the knitting", i.e. returning to the basics of profitability, core-competence and added value. Selling into the current market is harder than it was 12 months ago but a high focus on sales has balanced the downturn in the market. The strong relationships and frame agreements with many of the leading electronics companies are judged to strengthen Teleca's position and increase the market share. There is still a feeling that Teleca's world-class expertise in software, electronics and systems engineering continues to be in great demand across all of the main markets (telecoms, automotive, medical, industrial automation). Even in the face of major redundancy programmes within some of the major telecoms players, there is a skills-shortage for advanced engineering competence, particularly the skills and experience required for large-scale infrastructure and new service developments. In these cases better, more efficient and user-focused technologies are not optional. They make the difference between keeping customers or losing them. We continue to expect stable and growing business in the telecoms sector across our international operations. The automotive and medical sector which are two of Teleca's key market, have shown sustained strong demand and the focused sales efforts in this area are expected to continue to contribute to results in the second half of the year. Sales and earnings Sales during the six months increased 45% to SEK 607.8 M (418.5 M pro forma). Organic growth accounted for 34% and acquisition for 14%. Sales growth during Q1 was 45% and during Q2 46%. Sales per employee increased 14% to SEK 499 thousands (437). This is due to price increases and better utilisation. Operating profit before goodwill amortization (EBITA), excl. items affecting comparability, rose 90% to SEK 93.8 M (49.5 M pro forma). The margin (EBITA) was 15.4% (11.8% pro forma). The corresponding numbers for Q1 is 17.5% (14.3%) and for Q2 13.4% (9.5%). Due to less working days, Q2 has over the years had the lowest margins among the four quarters. Profit after financial items excl. items affecting comparability, advanced 112% to SEK 76.7 M (36.2 M pro forma). The net margin, excl. items affecting comparability, was 13.3% (9.5% pro forma). This includes goodwill amortization with 3.4% (3.0% pro forma). Profit after net financial items increased with 85% to SEK 67.0 M (36.2 M pro forma) Three units, with a total of 84 employees at the end of the period, with operations in borderline areas between embedded solutions, the current Teleca Group, and e-solutions, the current Sigma group, have, in conjunction with the internal treatment of the break up, been transferred from the Teleca Group to the Sigma Group. The reason for this is that synergies are somewhat greater for the companies within the Sigma Group. If this transfer had not occurred, the Teleca Group would have had sales of SEK 636.0 M and a growth rate of 52.0%. Personnel The average number of employees increased 27% to 1,217 (957 June 2000). The number of employees at the end of the period was 1,239 (951 June 2000) Adjusted for internal transfers of 84 employees to the Sigma Group, the increase at the end of the period was 38%. Liquid funds and financial position The Group's liquid funds incl. other interest-bearing assets amounted to SEK 344.9 M (154.6 M, December 2000). The Group's interest-bearing net debt amounted to SEK 122.5 M (interest- bearing net funds of 63.3 M December 31, 2000). Included in the net debt is a long term debt instrument to the sellers of Teleca Ltd in the amount of SEK 321.8 M. The net debt/equity ratio was 15.5% (9.5% December 31, 2000). Group shareholders' equity totaled SEK 790.3 M (664.4 M December 2000). The equity/assets ratio was 52% (56% December 2000). Investments The Group's investments during the period totaled SEK 149.9 M, of which SEK 139.2 M was invested in goodwill which totally is attributable to changes made in the acquisition of Teleca Ltd, see Interim Report January-March 2001. The remaining SEK 9.4 M was invested in machinery and equipment in the ongoing operation. Projects and new agreements The following are examples of assignments secured during the second quarter of the year, which may be mentioned without breaching the non- disclosure agreements with Teleca's customers: Anoto Partnership agreement for the commercialization of the Anoto concept - digital paper-based services. Ericsson Teleca is among the preferred suppliers with whom Ericsson strengthens the partnership. Nortel Networks Agreement to provide wireless e- Business solutions Matsushita Framework agreement for developing Communications communications software for their GD35 phone and other models. Symbian Customisation of a third-party web browser to match the look and feel of a Symbian Communicator device Hewlett Packard Development of a process administration client for next generation process management software JCS Ingenieurburo Delivery of complete software AG/Sulzer Switzerland solution for an ethanol distillation plant for a pharmaceutical plant in Denmark Aerocrine Development of the first tailor-made NO analyzer , NIOX® , for routine clinical use with asthma patients. EdgeMobility Development of a complete outsourcing solution of electronic communications need for a LatinAmercan customer Xfera (Spanish UMTS Frame agreement for development of operator) messaging solutions and test environments for SMS and Unified Messaging Telenor Development of FLOW PILOT - a workflow system supporting ADSL services GN Resound New embedded SW platform including proprietary OS for a high performance medical device with extreme requirements on performance, size and battery life. VTS AB Complete automation system for new steam boiler for Tarkett in Hanaskog The Auna group (eresMas, Project to establish a test and Amena, Retevision, development environment for their QuieroTV) Location Based Services Other developments during the period Teleca was one of the first Symbian Competence Centers in the world. In the second quarter the strong relationship with Symbian was once again demonstrated as Teleca was appointed Sweden´s first Symbian Competence Center. The appointment means that Teleca is expanding its partnership with Symbian and its licencees with regard to the development of wireless technologies. Establishment of new office in Denmark. Teleca now has two offices in Denmark - one in Copenhagen and one in Århus/Jylland. The two offices are within comfortable reach of the important telecom clusters in Denmark as well as the growing industry for medical instrumentation. Aquisitions after the end of the period As per July 1, 2001, the remaining 60% of the Norwegian company Arconova AS was acquired. Arconova, based in Oslo, has 20 employees with a focus on industrial IT and automation and a broad experience from the oil and gas industry. Forecast There are many analyses and predictions about the world economy, many of which are gloomy. In this climate it is difficult to predict the future. The outlook for Teleca remains positive because Teleca focuses on sales and internal efficiency. The autumn has started well and the next quarters could be summarized in "business as usual". Teleca's focus on high-end software engineering and sales on a broad international base has been rewarded during the second quarter with a 3.9% increase in operating margin to 13.4% (9.5%). The order book for the autumn is good, with continued good margins. There is no change in the long term ambitions of a growth that exceeds our industry average and a EBITA-margin above 15%. The Board of Directors' forecast for 2001 of continued strong sales growth and better margins compared with the preceding year (13.2% EBITA) stands firm. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/20/20010820BIT00440/bit0001.doc The full report http://www.waymaker.net/bitonline/2001/08/20/20010820BIT00440/bit0001.pdf The full report