Telelogic Annual Statement 2000

Annual Statement 2000 Telelogic January - December 2000: * Record year for Telelogic 177% growth in turnover during the year * Positive result excluding goodwill amortization 8.7 MSEK for the full year * Strategic acquisitions of world leading product companies, creating a total solution for the full development cycle * Strongly strengthened market position Market share of approximately 47% in real time and embedded software * Major successes with key customers Significant business within communication, automotive and aerospace sec- tors * Greatly enhanced international market organization US organization increased by 830%. Significant growth also in Europe and Asia "This document is essentially a translation of Swedish language original thereof. In the event of any discrepancies between this translation and the origi- nal Swedish document, the latter shall be deemed correct." Record year for Telelogic Year 2000 was a record year for Telelogic. The company has accelerated the growth each quarter over the year. From 96% in the first quarter to 226% in the fourth quarter, compared to the equivalent periods in prior year. This results in a growth rate of 177% for the year compared to 78% in 1999. Since for the first time exceeding 50% (59%) in 1997, Telelogic has continued to increase its growth rate. This has been achieved through strong organic growth and successful acqui- sitions. Telelogic has strengthened its position and developed the company to become one of the two leading suppliers of development tools for ad- vanced software development. Telelogic continues to experience strong de- mand for all products and services in all geographic markets and all seg- ments where the company is present. The estimated growth rate for 2001 re- mains more than 100%. During 2000, Telelogic increased turnover 551% in the important US market compared to prior year. The number of employees multiplied to 333 at year- end, including 251 in sales and consulting. During the fourth quarter, license revenues increased 224% and services revenues 230% compared to fourth quarter 1999. The full year growth rate for licenses and services was 171% and 189%, respectively. Services repre- sented 35% of total turnover at year-end, which also is Telelogic's goal for year-end 2001. Financial results Telelogic reported a profit after financial items of 8.7 MSEK excluding goodwill amortization, and a result of -41.6 MSEK after net financial in- come. Also net operating profit excluding goodwill amortization is posi- tive 0.6 MSEK. During the fourth quarter, the result after net financial income was 82.6 MSEK, excluding goodwill amortization. This shows the com- pany's ability to operationally manage a high growth rate including inte- grations of acquisitions. Acquisitions as part of the growth strategy Telelogic has a strategy to combine technically leading products in an in- tegrated solution and to offer a high level of service and a global deliv- ery capacity. Telelogic has created a unique position in a fast growth niche within the software market. The four acquisitions of product compa- nies/divisions and the two service companies acquired by Telelogic during the year have been instrumental in implementing this strategy. During the third and fourth quarters two companies were acquired that con- siderably strengthened Telelogic's business in the US - QSS Inc and Con- tinuus Software Corp. The companies were acquired at attractive prices and they already have made major contributions to Telelogic's success, notably in the US but also in Europe. Successful integration process The acquired companies have quickly become an integrated part of Tele- logic. Telelogic's management team now includes former senior management of Verilog, QSS and Continuus with great industry experience. These addi- tions to the management team have contributed to the continuity and sta- bility in the integration process. The single largest acquisitions were two US companies, QSS and Continuus. These two companies have many similarities: * Leading software companies with a global business * Technically the most advanced products adapted to large, complex pro- jects with distributed development teams. * Majority of the customers within the real time software industry, in- cluding a significant number of communication companies. * Strong marketing organizations in the US and Europe. The similarities between the two companies, and with Telelogic have in a significant way facilitated the integration effort. Another reason for the successful integration is the common, unchanged competitive focus before and after the acquisitions. The major difference after the time of acqui- sition is that as part of a larger integrated unit, these companies have strengthened their competitive position. The integration process will con- tinue with high intensity during 2001. Synergy effects With a broader product offering, opportunities for cross selling have been created. The acquisitions have given Telelogic a significantly stronger position in the market and significant customer interest in the complemen- tary products has been expressed. The acquired companies are being restructured to focus the combined busi- ness and take advantage of operational and cost synergies. Individuals best suited for the respective position have been identified. As a result of this process, some acquired management has left the company on an ami- cable basis without disruptions to the operations. Telelogic has an objec- tive to recruit approximately 400 people globally during 2001, therefore a number of colleagues affected by this process of change have been success- fully replaced. The reorganization of top management, middle management, administration and infrastructure have reduced the costs by approximately 3% compared to the companies operating as independent entities. Synergies can be found also within product development. Product develop- ment has been restructured and focused in four product divisions; Develop- ment, Test, Requirements and Change. The new structure also contains three complementary initiatives that are deemed to have great potential. Since the start of the year these initiatives are run as separate profit centers within Telelogic: Bluetooth PreQual, Vision Map and Components. Increasing market shares Telelogic has its strongest position in the communication industry, in which segment the company has proved its leading position. During the fourth quarter, three of the largest deals were from leading communication companies. A Nordic telecom company prolonged an extensive consulting agreement. A leading German communication company has invested in tools for configuration management and US InterDigital Communications Corp. has ordered licenses for development and test tools for one of its 3G related projects. During the year Telelogic had an objective to increase its market share within the real time industry by 20%. The objective has been exceeded and in 2000 Telelogic has a market share for development tools for embedded systems of approximately 47%, according to VDC (VDC, 2000 Embedded Soft- ware Program Volume IV). The acquired products have also been very suc- cessful. Major deals include, for example, requirement management systems sold to a European space company and a British company active in the aero- space industry. In the automotive segment, Telelogic's German daughter company has enjoyed a strong position historically and during the year Telelogic was chosen as a partner by Volkswagen. The automotive industry is one of the real time segments that Telelogic will address globally in 2001. In December, Telelogic received its largest license contract ever from a US communications company. The contract is another example of the increas- ing number of corporate deals where Telelogic, with its extended product portfolio, is very well positioned. Investments The investments amounted to 1803 MSEK, of which QSS and Continuus ac- counted for 1117 MSEK and 420 MSEK respectively. For a dilution of ap- proximately 20% Telelogic acquired two companies that alone has a current turnover exceeding Telelogic's total turnover in 1999. QSS has been consolidated from September and Continuus from December. Both acquisitions are depreciated over 20 years while other acquisitions during the year are depreciated over 10 years. Financial position Liquid assets per December 31 amounted to 237,4 MSEK compared to 30,9 MSEK in 1999. A new equity issue was conducted during the first quarter result- ing in 417 MSEK after costs for the issue. The equity to asset ratio is 76% compared to 23% the previous year. Accounts receivable per December 31 averaged 83 days, somewhat lower than the average for the year. The number of shares at the turn of the year amounted to 125,4 million. In addition to that 9.2 million shares have been registered after the turn of the year to complete the financing of the Continuus transaction. The number of outstanding options at the turn of the year represent 13,3 million shares. Of these 11,1 million are directed to employees, corresponding to 8% of the total number of shares at full dilution. Employees During the fourth quarter the company has grown rapidly, adding 344 em- ployees. The work force during the full year increased by 810 people, 270 people organically and 540 through acquisitions. The largest increase oc- curred in the US where 306 employees were added, mainly through the acqui- sitions of QSS and Continuus. Staff turnover continues to be low. General meeting The ordinary general meeting will be held in Malmö on March 29, 2001. The Board of Directors will propose that no dividend be paid for the financial year 2000. Proposals from shareholders regarding the nomination of members for the Board can be given to Mats Lönnqvist, Kjell Spångberg or Bo Wahl- ström. Outlook for 2001 For year 2001 the conditions exist for continued strong growth. Revenue growth is estimated to exceed 100%, including smaller acquisitions. Telelogic's objective is to deliver a 5% operating profit margin excluding goodwill amortization for the year 2001. Thereafter Telelogic will successively increase the operating profit mar- gin through 2004 with the objective of attaining a 20% operating profit margin excluding goodwill amortization. The seasonal variations that Telelogic has experienced in previous years will continue. Therefore the result for the first, second and third quar- ters 2001 will be negative, while quarter four is forecasted to be posi- tive. Malmö, Sweden, January 23, 2001 The Board of Directors Financial information: Dates for financial information: Interim report for the period January 1 - March 31, 2001, to be re- leased on April 19, 2001. Interim report for the period January 1 - June 30, 2001, to be re- leased on July 18, 2001. Interim report for the period January 1 - Sept 30, 2001, to be re- leased on Oct 17, 2001. Requirements Management When developing software, structuring the requirements is the first step. For extensive, complex projects it is necessary to use specific software that supports the developer to answer questions like for example: Why are we building this product? How is the project lead-time changed if the re- quirements change? In advanced software development, best results are achieved when the requirements management tool is integrated with the ac- tual development tool, like the integration of Telelogic Tau with Tele- logic DOORS. Configuration Management In typical software projects multiple teams' work on the same code base. They work simultaneously on new and old releases, while delivering multi- ple variants for different operating systems, databases, or native lan- guages. A Configuration Management (CM) tool helps software engineers han- dle different versions of the software, ensures that any changes are made simultaneously on the same place in the system, and allows older versions to be easily restored. Modern CM tools, such as Telelogic Synergy, also keeps track of why any change is made. ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/01/23/20010123BIT00630/bit0001.doc Year end report http://www.bit.se/bitonline/2001/01/23/20010123BIT00630/bit0002.pdf Year end report