Teleca AB (publ) Year-end Report, January-December, 2001 - Pro forma

Teleca AB (publ) Year-end Report, January - December, 2001 - Pro forma Merger between Teleca and AU-System. Process going according to plan. Telecas margin (EBITA), excl. demerger expenses, increased in Q4 to 15.1% (14.8%) Sales advanced 35% to SEK 1,188 M during 2001. Operating profit before goodwill amortization (EBITA), excl demerger expenses, increased 48% to SEK 181.3 M (122.8 M). Profit after tax increased 172% to 162.9 M (60.0 M). The margin (EBITA) in 2001, excl demerger expenses, rose from 13,2% to 15,3%. Earnings per share, excl demerger expenses, was SEK 4.79 (1.67) and excluding goodwill amortization SEK 5.95 (2.41). Proposed dividend SEK 0.70 per share (1.10). Forecast for 2002: Significantly increased earnings (EBITA) compared with the pro forma figures for Teleca and AU-System. The focus in this report is on Teleca's Pro Forma figures, which is representative for the Teleca Group as per December 2001 and excludes Epsilon and Sigma. The consolidated report, which includes Epsilon until May and Sigma until September, is presented at the end of this report. In an appendix the pro forma figures for the merger between Teleca and AU-System are shown. Operations In the beginning of February 2002, Teleca acquired 99.1% of the shares in AU-System AB (publ) and has subsequently applied for the compulsory redemption of the outstanding shares. The merger of Teleca and AU-System creates one of Europe's leading consulting companies, with a focus on new technology and R&D and a strong position in the Nordic countries, Great Britain and France. The combined Group has some 2,200 employees in 13 countries, of whom approximately 25% are based outside Sweden, with revenue outside Sweden of approximately 32%. The Group's customers are leading technology companies, service operators and world-class IT users that need to develop new technologies or enhance existing solutions in the following markets: · Telecoms: handsets, switches, base-stations, call handling, OSS, data services, etc. · Consumer Electronics: PC peripherals, PDAs, cameras, set-top-boxes, hi-fi equipment, etc. · Automotive: driver info, security and safety, engine management, telematics, traffic handling, etc. · Medical: pharmaceutical production control, laboratory instrumentation, treatment electronics, etc. · Industrial: SCADA, robotics, materials handling, device control, simulation, validation, etc. · Finance: online banking, financial messaging, mobile banking solutions, etc. · Government: business critical Content Management Systems. Customers rely on the engineering skills of the Group across the range from small devices such as mobile phones and smart-card readers to large- scale operations like financial networks, passenger information systems and production plant control. Examples of customers of the Group are; ABB, AMS, Ericsson, Motorola, Nokia, One2One, Orange, Saab, Sagem, Siemens, Sony Ericsson, Telia, Vattenfall and Volvo. Based on combined pro forma figures for Teleca and AU-System, the distribution of revenue by segment during 2001 was as follows: telecoms and consumer electronics, 59%; automotive, 8%; medical, 5%; industrial, 17%; finance, 2%; government, 4% and SandbergTrygg, 5%. The merger process is going according to plan. The assessment of the industrial logic and the potential of profit increases are the same today as were described in the prospectus for the merger. As part of the merger the ownership structure has been strengthened. Shareholders, including the two main owners Bure Equity AB and Dan Olofsson, have proposed a new joint board of directors consisting of Konstantin Caliacmanis, Bengt Halse, Göran Larsson, Gunder Lilius, Dan Olofsson (Chairman), Peter Sandberg and Johan Vunderink for an extra shareholders meeting on the February 28. The first meeting of the new board will be held on the March 1. The management and the Merger Group are now working to prepare decision material for the board on key issues like structure, organisation, how to leverage on AU-Systems components, cost and revenue synergies etc. More detailed information will be presented after the board meeting. Market outlook Throughout 2001 Teleca worked hard to reduce unnecessary overhead and increase sales activity and effectiveness. This resulted in good margins on very difficult market conditions. Significant progress was made but there is still much work to do. During the fourth quarter Teleca's markets have broadly continued in a similar way to the third reinforcing our view that the downturn has plateaued. The most stable markets in the fourth quarter were Telecom terminals, Industrial Automation, Automotive and Medtech. Telecas focus during the autumn has been on margins and not on growth due to the market conditions, over 15% EBITA-margin is the result of this. Growth will start again when the market has stabilized for a couple of months. Competition has been high as everyone chases fewer opportunities and nervousness in investments continues to propagate volatility. A number of customers delayed decisions in November and December on a number of new and existing projects. This volatility has reduced with many contracts signed during February especially with Telecom operators. This may indicate an upward trend, although it is probably too early to draw any real conclusions. Across Europe we have seen a similar picture with the exception of France, which has had a tougher situation, particularly in Telecoms where all the major equipment manufacturers have made significant cuts. The trend for customers to consolidate suppliers continues, which is positive for established partners with strong relationships. Outsourcing opportunities of R&D are also increasing as companies focus on profit and core business. The merger with AU-System creates one of Europe´s leading consulting firms focused on new technology and R&D. With some 2,200 highly skilled employees, a large portfolio of leading international blue-chip clients and a good geographic spread, the group is well equipped to play a key role in the European consolidation of the sector. This, combined with a market that seems to have plateaued and where we see some positive signs, makes us believe in gradual improvements during 2002. Sales and earnings Full year 2001 Sales during year 2001 increased 27% to SEK 1,188 M (932 M). Excluding the sales to Sigma AB that took place during first quarter, and for which the comparability figures have not been adjusted, the sales growth amounted to 35%. Organic growth accounted for 29% and acquisition for 6%. Sales outside Sweden accounted for 44%. Sales per employee increased to SEK 956 thousands (928). Teleca's industry distribution in 2001 is: Telecom and consumer electronics, 50%; process industry and power, 11%; other engineering industries, 19%; automotive, 12% and pharmaceuticals and medical technology industry, 8%. Operating profit before goodwill amortization (EBITA), excl. items affecting comparability, rose 48% to SEK 181.3 M (122.8 M). The margin (EBITA) was 15.3% (13.2%). Profit after financial items excl. items affecting comparability, advanced 50% to SEK 143.1 M (95.6 M). The profit margin, excl. items affecting comparability, was 12.0% (10.3%). This includes goodwill amortization with 3.7% (2.8%). Profit after tax increased with 172% to SEK 162.9 M (60.0M), including demerger costs amounting to SEK 17.2 M and a tax credit of SEK 88 M (see page 5). [REMOVED GRAPHICS][REMOVED GRAPHICS] [REMOVED GRAPHICS] Fourth quarter Sales during Q4 2001 amounted to SEK 297 M (299 M for Q4 2000). Adjusted for the sales made to Sigma AB during the first quarter of 2001, the rate of sales growth during the final quarter of 2001 was 7%. Operating profit before goodwill amortisation (EBITA), excluding items affecting comparability, rose to SEK 45.0 M (44.4 M) during Q4. Compared with the preceding year, the operating margin (EBITA) for the fourth quarter improved to 15.1% (14.8%). It should be noted that there was one working day less in Q4 2001 compared with the previous year. Personnel The average number of employees increased 24% to 1,243 (1,005, December 2000). The number of employees at the end of the period was 1,245 (1,223, December 2000). Adjusted for internal transfers of 71 employees to the Sigma Group, the increase at the end of the period was 8%. Liquid funds and financial position The Group's liquid funds amounted to SEK 190 M (155 M, December 2000). Of the Group's overdraft facilities of SEK 139 M, SEK 51 M had been utilized as of December 31, 2001. The Group's interest bearing net debt amounted to SEK 162 (interest- bearing net funds of 63 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 320 M. The net debt/equity ratio was 18.6% (net fund/equity ratio 9.5% December 31, 2000). Group shareholders' equity totalled SEK 870 M (664 M, December 2000). The equity/assets ratio was 58% (56%, December 2000). Tax situation In conjunction with the distribution of Sigma AB, an estimated taxable loss of SEK 314 M arose in Teleca AB. This is due to the fact that the market value of Sigma when distributed was lower than the fiscal value of the shares in Teleca AB. As a result, the tax expense in Teleca was positively affected during the fourth quarter by of SEK 88 M. Investments The Group's investments during the period totalled SEK 180 M, of which SEK 162 M was invested in goodwill which is mainly explained by changes made in the acquisition of Teleca Ltd, see Interim Report January-March 2001. The remaining SEK 18 M was invested in machinery and equipment in the ongoing operation. Sales and acquisitions during the period In December 2001, Teleca made a public offer to acquire all of the shares outstanding in AU-System AB (publ). The acquisition was completed in 2002 and today Teleca owns 99.1% of the shares in AU-System. Measures to acquire the remaining shares outstanding through compulsory redemption have been initiated. Information about the new Group has been published in a prospectus and an information memorandum, copies of which can be ordered through the Company, or downloaded from www.teleca.com Earlier during the year, on July 1, 2001, the outstanding 60% of the shares in Norwegian company Arconova AS were acquired. Following the acquisition, this company, which has 20 employees and is based in Oslo, was renamed Benima Norway A/S. As of the same date, the subsidiary Sigma Power Software was sold to IFS AB. The transaction, which was part of the spin-off process involving Teleca, Sigma and Epsilon, will generate coordination gains for Sigma Power Software. Projects and new agreements The following are examples of assignments secured during the fourth quarter of the year, which may be mentioned without breaching the non- disclosure agreements with Teleca's customers: Texas Instruments Development of Symbian OS multimedia components for TI´s OMAP platform Arts Council of England Requirements and process analysis, development and enhancement of processes within the Oracle environment of their funding and grant management system Wincor Nixdorf Strengthened relationship under Wincor Nixdorf´s Development Partner programme providing services on projects in the UK, Germany and Taiwan for Wincor Nixdorf's range of self-service banking products Skanova Development of decision-support system for broadband services Wolfson Microelectronics Development of Windows CE device drivers for mixed signal devices. IKEA CH Modernisation of Warehouse Operating System Scania Trucks and ABB Design and programming in connection with modernisation of the paint shop Stockholm Vatten New frame agreement Eastman Chemical Exchange of control system Donnelly Development of embedded SW in automotive control unit Saab Automobile Integration of Multimedia system in Saab 9-3X SCA Mölnlycke SW development for LabVIEW based testsystem Swedish Space Corporation Project management for completion of the System Unit to Europe´s first lunar spacecraft SMART-1. PaintDreams Partner in development of HW and SW for the wireless mobile market Forecast Teleca specializes in new technology and R&D on a broad international base. In 2001 operating profit (EBITA) increased 48% to SEK 181.3M (122.8 M) and the margin was 15.3% (13.2%). Delays in November and December caused a drop in the order book. This has strengthened from February and with continued focus on sales is expected to improve throughout 2002. We see a very interesting future potential and substantial value in components for mobile solutions that AU-System is developing. AU-System has made substantial investments in these during Q4 2001 and Q1 2002. This has had a negative impact on the results in these two quarters but during the autumn we expect positive effects from this investment. We expect a gradual increase in earnings during the year due to effects of the merger and AU-System components. The Board of Directors' forecast for 2002 for the new Teleca Group (including AU-System) is significantly increased profit (EBITA) compared with the pro forma profit for Teleca and AU-System. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/02/21/20020221BIT00020/bit0003.doc The Full Year-End Report http://www.waymaker.net/bitonline/2002/02/21/20020221BIT00020/bit0003.pdf The Full Year-End Report