Interim report, January - June 2005

Continued growth and profitability

- Orders received increased by 25.1 per cent and amounted to SEK 253.8 million (202.8). - The order backlog amounted to SEK 209.4 million (205.6) at the end of the period of which on-going ASP and support contracts accounted for SEK 111.8 million (116.5). - Net sales increased by SEK 24.3 per cent and amounted to SEK 228.9 million (184.2). - Operating income amounted to SEK 11.7 million (4.1). - Income after tax amounted to SEK 9.5 million (4.3). - Earnings per share amounted to SEK 0.49 (0.27). - The directed new share issue of 2 million shares at market value provided the company with SEK 45.4 million, after deductions for issue expenses. - Large and strategic orders have been received from leading carriers in Southeast Asia and Russia President’s comments The company’s global growth continued during the first half of 2005, both as regards orders received and net sales. Orders received for the second quarter increased by 29.4 per cent and amounted to SEK 109.2 million compared with SEK 84.4 million in the second quarter 2004. Orders received during the first half-year increased by 25.1 per cent or SEK 51.0 million and amounted to SEK 253.8 million compared with SEK 202.8 million for the equivalent period last year. Net sales during the second quarter amounted to SEK 123.8 million, equivalent to an increase of 36.9 per cent compared with SEK 90.4 million in the second quarter 2004. This is the highest level ever of net sales in the history of the company for a single quarter. Net sales for the first half-year increased by 24.3 per cent to SEK 228.9 million from SEK 184.2 million compared with the same period in the previous year. Teligent’s growth and long-term profitability is driven by sales of new systems generating continuous support income and the subsequent upgrading of capacity and function. The sale and delivery of new systems, not the least to new customers in new regions is, however, more demanding and has, initially, a lower level of profitability. We have continued to incur significant expenses for product development and the build-up of our global marketing channels. Teligent has, in spite of this, achieved positive operating income for the first half-year 2005, which implies that we have now shown positive operating income with strong growth in four of the six most recent quarters. Our current assessment is that the level of orders received will continue to be strong during the second half of 2005. Operations The company’s strategy and investments in global growth regions, in combination with the European home market, has resulted in significant growth and strong positions with the market’s largest and most rapidly expanding carriers. During the first half-year large and strategic orders were received from one of Southeast Asia’s fastest growing carriers and also from one of Russia’s absolutely largest and most rapidly expanding carriers, as well as a number of systems orders from other globally expanding carriers. These orders, in combination with the on-going business with important existing customers in the European home market, provide a strong base for continued positive development. The company’s product portfolio is based on the Teligent P90/E platform. The most important transactions during the last 12 months have taken place within the following areas: - Messaging systems / voicemail - Payment solutions including Service Delivery Platforms and Content/Charging Gateways. - The Teligent P90/E base platform with development tools such as a central ”service network architecture” in the carriers’ networks. - Mobile IN and VPN solutions. Second quarter Orders received in the second quarter amounted to SEK 109.2 million (84.4), equivalent to an increase of 29.4 per cent. Net sales for the second quarter amounted to SEK 123.9 million (90.4), equivalent to an increase of 37.1 per cent. Net income for the second quarter amounted to SEK 4.9 million (-3.4). First half-year Orders Orders received for the period amounted to SEK 253.8 million (202.8), equivalent to an increase of 25.1 per cent. At the end of the period, the order backlog amounted to SEK 209.4 million (205.6), of which continuing support and ASP contracts accounted for SEK 111.8 million (116.5). Only those ASP and support contracts that are to be delivered within the next 12 months are reported in the order backlog. Net sales Net sales for the period amounted to SEK 228.9 million (184.2), equivalent to an increase of 24.3 per cent. Of net sales, a total of 54.6 million (52.9) referred to income for ASP and support contracts. Gross margin and income The gross margin amounted to 60.1 (48.9) per cent. Increased volumes in combination with a larger number of standardized products and software have lead to an improved gross margin. Operating income for the period amounted to SEK 11.7 million (4.1) and net income for the period amounted to SEK 9.5 million (4.3). Earnings per share amounted to SEK 0.49 (0.27). TAX The Group reported a loss carry forward of SEK 372.7 million at the start of the year, of which SEK 353.7 million was reported by the Parent Company. Of this fiscal deficit, SEK 46.5 million has been settled against deferred income tax liabilities referring to temporary differences in the Group. The remaining value of deferred tax assets has not been capitalised. New Share Issue With the aim of financing increased working capital tied up, which is a result of the large increase in orders received during the first half of the year, the Board of Directors decided to execute a directed share issue of 2 million shares on the basis of the resolution made by the Annual General Meeting of Shareholders. On 14 June 2005, a total of 2 million shares were issued at the market price prevailing at that time, which was SEK 23.80 per share. The shares were acquired by Scandinavian institutional investors and provided the company with SEK 45.4 million after deduction of issue expenses. Financial position, cash flow and investments As of 30 June 2005, consolidated equity amounted to SEK 272.4 million (204.3) and the equity/assets ratio was 60.7 per cent (57.4). Liquid funds, excluding unutilized credit facilities, amounted to SEK 24.5 million (21.2) as at 30 June 2005. In addition, the company had unutilized credit facilities amounting to approximately SEK 49.9 million. Cash flow from operating activities amounted to SEK –6.3 million (-24.3). Investments during the period amounted to SEK 34.5 million (18.9) of which intangible assets accounted for SEK 28.6 million (16.6) and tangible fixed assets accounted for SEK 5.9 million (2.3). Employees The number of employees in the Group increased by 17 during the period to 316 (291), of which 200 (183) are employed in Sweden. Accounting principles From financial year 1 January 2005 the company will prepare its consolidated financial statements in accordance with IFRS and any further requirements arising from the regulations of the Swedish Annual Accounts Act. This interim report is prepared in accordance with IFRS and with IAS 34 Interim Financial Reporting and the IFRS standards and the IFRIC interpretations, which came into effect on 31 March 2005. The IFRS standards and IFRIC interpretations which will be applicable as of 31 December 2005, including those that will be applied on an optional basis, are not known with certainty at the time of preparing this interim report. Until 2004 the company applied the recommendations and statements of the Swedish Financial Accounting Standards Council. The transition to IFRS is reported in accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards, for which the transition date is 1 January 2004. IFRS 1 prescribes that the comparative year 2004 is also to be reported according to IFRS. Financial information referring to previous financial years other than 2004 has not been recalculated. Teligent has prepared an opening IFRS balance sheet as of 1 January 2004 for the Group, in order to facilitate comparison between the 2004 and 2005 outcomes. In conjunction with this, the reported quarterly figures for 2004 will be recalculated in order that comparison can be made with 2005 financials. The changes in the accounting principles caused by this transition and the transitional effects on the consolidated income statement and balance sheet are presented at the end of this report, including the alternative exceptions from full retroactive application stipulated in IFRS 1, as chosen to be implemented by the company. Forecast 2005 The company refrains from presenting a forecast for 2005. Other information Annual General Meeting and New Share Issue The Annual General Meeting of shareholders was held on 7 April 2005. The Annual General Meeting resolved to authorise the Board of Directors to decide on a new share issue of a maximum of 2 million new shares. The Annual General Meeting also decided on the principles regarding the Election Committee for the forthcoming year. The following individuals were re-elected to the new Board of Directors: Lars-Erik Nilsson (Chairman), Anders Björkman, Olle Isberg, Bengt Jörgensen, Mikael Karlsson and Pekka Peltola. Forthcoming reports Interim report for Jan – Sept 2005, 21 Oct 2005 Year-End Report 2005, 3 Feb 2006 Nynäshamn, 15 July2005 Ulf Lindstén President and CEO