Interim report January - June 2000

Interim report January - June 2000 Net sales for business areas grew by 6 %, for Finance Sector by 13 %. Operating profit (EBIT) excluding non-recurring items: EUR 39.5 million (53.7), including non-recurring items EUR 64.1 million (50.8). Strong performance in high-value-added services. Restructuring and focusing continued. Over 90 percent of the shareholders in Entra accepted the offer. Personnel participation rate in option loan 2000 over 60 % KEY FIGURES 2000 2000 2000 1999 % 1999 1-3 4-6 1-6 1-6 change 1-12 Earnings per share, 0.30 0.27 0.57 0.43 33 0.90 EUR Earnings excl. amortization of goodwill per share, 0.33 0.31 0.64 0.49 31 1.04 EUR Equity per share, EUR 4.95 4.42 4.23 4 4.59 Return on equity rolling 12 month, % 20.4 23.6 23.7 21.2 Return on capital employed rolling 12 month, % 28.3 32.0 31.6 29.5 Equity ratio % 59.3 57.5 52.1 52.8 Interest-bearing net debt, EUR mill. - -83.7-38.1 120-61.9 121.2 Gearing, % -28.5 -21.0 -8.9 -13.2 Investments, EUR 13.129.3 42.4 48.2 -12102.8 million a) Personnel at end of 9810 1005711251 -1111098 period Personnel on average 9824 9838 983410896 -1011058 Per employee, EUR 1000 b) Net sales 29.8 29.2 58.9 57.2 3114.3 Personnel expenses c) 15.7 14.9 30.6 29.0 6 56.4 Operating profit before amortization of goodwill excl. non-recurring items 2.8 1.9 4.7 5.6 -16 10.7 Of which EUR 9,2 million through exchange of shares The personnel figure used in the denominator is the number of employees in the associated companies calculated in proportion to TietoEnator's holdings in these companies. Personnel expenses include salaries, pension costs and other pay-related social costs but exclude social costs for personnel warrants. Currency rate 30 June 2000 1 EUR = 5,94573 FIM, 1 EUR = 8,4210 SEK NET SALES 1-61-6Growt 1-12 h 00 99 99-00 99 Finance sector -Under TietoEnator 97 87 11 % 178 management -In proportion to 77 68 13 % 140 TietoEnator holding Services 10097 4 % 193 Public Sector -Under TietoEnator 97 97 0 % 192 management -In proportion to 95 95 0 % 188 TietoEnator holding Process & 72 66 9 % 131 Manufacturing Processing & Network 1311209 % 250 Support Application Services 57 59 -3 % 120 Group elimination I -32-32- -72 BUSINESS AREAS 5004736 % 950 Reorganization Network 60 65 -8 % 145 Infrastructure Defense - 60 - 122 Other 14 13 - 21 Group elimination II -13-4 - -9 Total Net Sales 561607-8 % 1229 OPERATING PROFIT AND MARGIN Operating profit Margin 1-61-6Chan 1-12 1-61-6 1-12 ge 00 99 99- 99 00 99 99 00 Finance sector -Under TietoEnator management -In proportion to 7.58.7 -1418.4 9.712. 13.1 TietoEnator holding % 7 Services 6.07.6 -21 8.5 6.07.9 4.4 % Public Sector -Under TietoEnator management -In proportion to 13. 14. -8 %24.813.714. 13.2 TietoEnator holding 1 2 9 Process & 8.98.4 6 %15.412.312. 11.7 Manufacturing 7 Processing & Network13. 16. -1333.810.713. 13.5 Support 9 0 % 3 Application Services 4.38.0 -4618.2 7.613. 15.1 % 7 Group elimination I BUSINESS AREAS 53. 62. -15119. 10.713. 12.5 7 9 % 1 3 Reorganization Network - - --1.7-4.1 - -1.2 Infrastructure 2.50.9 1.3 Defense 3,44.1 - 9.8 -6.8 8.1 Other 19. - --8.7 - - - 110. 2 Social costs on - personnel warrants 4.5 Group elimination II Operating profit 69. 55. 24 %118. 12.39.2 9.6 before goodwill 2 9 5 amortizatoin Amortization of - - - goodwill 5.15.1 10,8 OPERATING PROFIT 64. 50. 26 %107. 11.48.4 8.8 (EBIT) 1 8 7 PERFORMANCE Demand is growing in high-value-added services although the overall market is still somewhat hesitant and sluggish in comparison with the same period last year. The overall trend of weak demand for low-value-added IT services, clearly visible during the first months of the year, continued. Demand for outsourcing solutions and electronic business services increased but sales of new licenses was slower than expected. The aggregate net sales of the six core business areas in the first half of the year grew by 6 % to EUR 499.6 million (473.3). Organic growth during the period in local currency for comparable units in the six business areas was 2 %. Group net sales declined by 8 % to EUR 560.9 million (606.7), mainly because of the divestment of the Defense business but also as a result of weak performance within the Network Infrastructure business. Net sales of the core business areas during the second quarter amounted to EUR 249.7 million (242.5), an increase of 3 %. The strongest growth, 13 %, took place within the Finance Sector business area, largely as a result of the consolidation of Entra. Net sales of both the Process & Manufacturing and Processing & Network Support business areas grew by 9 % over the first six months of the year; net sales of Services rose by 4 %, whereas Public Sector net sales were flat. Net sales of Application Services decreased by 3 % owing to substantially lower market demand compared to the all-time high recorded in 1999. Four major acquisitions were made during the second quarter, adding Entra AB in Sweden, Oy Visual Systems Ltd and Sypro System Professionals Oy in Finland and MAS GmbH in southern Germany to the TietoEnator Group. Entra is a leading provider of IT solutions for banking and finance, Visual Systems is a leading new media company, Sypro's expertise lies in embedded mainly for the telecom industry, while MAS concentrates on solutions for the forest industry and thus strengthens TietoEnator's position in this market in Central Europe. Network Infrastructure consists of the Swedish subsidiary Dotcom AB. The divestment of this subsidiary was hampered by turbulence in the market, and the target to reduce TietoEnator's holdings in the company to below 50 % during the first half of 2000 was not accomplished. The Group still aims to divest this company since hardware is clearly a non-core business for TietoEnator. As reported earlier, the Danish subsidiary Net Design was divested in March this year. Geographically, aggregate growth in local currencies was 4 % in Finland and 0 % in Sweden for the six core business areas. The six-month operating profit (EBIT) amounted to EUR 64.1 million (50.8), corresponding to a margin of 11.4 % (8.4 %). The operating profit (EBIT) before non-recurring items was EUR 39.5 million (53.7), corresponding to a margin of 7.0 % (8.8 %). The operating profit (EBIT) includes costs of EUR 1.1 million related to the Entra offer, non-recurring income of EUR 30.4 million (4.9) and non-recurring expenses of EUR 5.8 million (7.8). The non-recurring income consisted mainly of the surplus repayment from the Swedish Staff Pension Society (SPP). Non-recurring expenses included EUR 1.3 million related to the Tieto and Enator combination and EUR 4.5 million for social costs arising from personnel warrants. The provision concerning the unexercised warrants is not hedged and hence is exposed to changes in the TietoEnator share price. The operating profit (EBIT) in the second quarter was EUR 30.2 million (18.4) and the margin was 10.9 % (5.8 %). Business area Process & Manufacturing improved its profits compared to last year. The profits and margins of the remaining five business areas declined, mainly due to the slowdown in the markets following the strong demand in 1999. The aggregate margin for all the business areas amounted to 10.7 % (13.3 %). The profitability of Processing & Network Support improved during the second quarter of 2000 partly as a result of increasing demand for outsourcing; one sign of this recovery was a large outsourcing agreement with the city of Stockholm signed in early June. Earnings per share were EUR 0.57 (0.43) and, excluding amortization of goodwill, were EUR 0.64 (0.49). The average number of shares during the period was 77,242,709. Cash flow from operations amounted to EUR 61.3 million (64.6) during the first six months. Dividends of EUR 37.7 million were paid. The Sypro and MAS acquisitions were paid for in cash. An exchange of shares was employed in the case of Visual Systems as well as in the offer for the minority shares in Entra. The rolling 12-month return on capital employed (ROCE) was 32 % and on equity 24 %. The order stock, which comprises only those services ordered with binding contracts, totaled EUR 474.0 million on June 30, 2000. BUSINESS DEVELOPMENT BY BUSINESS AREA Finance Sector Demand for Finance Sector services continued to grow during the second quarter and was especially strong in new network applications. Second-quarter net sales rose by 10 % on the same period last year to EUR 39.4 million but the operating profit, EUR 2.7 million, represented a decrease of EUR 0.8 million. The operating profit includes costs of EUR 0.6 million related to the Entra offer. Co-operation was further strengthened with Finance Sector's key customers and several new contracts were closed. Agreement was reached with MeritaNordbanken to expand co-operation in the Baltic states and Poland. A letter of intent was signed with Handelsbanken's regional office in Finland giving TietoEnator primary responsibility for maintenance and development of the bank's systems. This co-operation is aimed at creating a new operating model and IT architecture commensurate with the challenges of networked banking. Growth in sales was most pronounced in the eastern European markets driven by a number of new contracts for the international Transmaster payment system. A significant contract for this payment system was signed with Vnesheconombank, the second largest bank in Russia. The offer regarding acquisition of all outstanding minority shares in Entra has been accepted by over 90 % of the shareholders in about the middle of July. The aim is now to further integrate Entra's operations with the other operations of the Finance Sector and thereby to increase specialization and accelerate the internationalization process. Services Demand for IT services by key customers remained high during the second quarter especially in Finland, Germany and Norway in the areas of Telecom, Logistics and Retail. Demand among other customer groups grew more slowly in Sweden and Denmark. Net sales for the second quarter grew by 1 % compared with the previous year and were EUR 48.1 million. The operating profit before goodwill amortization decreased from EUR 2.4 million to EUR 1.3 million. Refocusing of operations in line with the key customer strategy slowed down short-term growth in Sweden and Denmark. In May TietoEnator acquired all the remaining shares in Oy Visual Systems Ltd, one of Finland's leading new media companies with a clear key customer focus. One half of the company was consolidated with Services and the other half with the Public Sector business area. The Energy sector took a major step with the signing of a contract to deliver its Energy Components solution to the Zuata heavy oilfield in the Orinoco area of Venezuela. The field is operated by SINCOR, a consortium of TotalFina Elf, Petroleos de Venezuela and Statoil. TietoEnator signed a letter of intent with SAP on worldwide co-operation to integrate TietoEnator Energy Components with SAP products to manage the Energy value chain. Public Sector Public Sector demand was slightly weaker overall than last year. Several customers are exploring the potential of TietoEnator's Digital Government concepts and e-commerce solutions. The acquisition of Visual Systems will also enhance and strengthen development in Digital Government. Second-quarter net sales were EUR 46.3 million, a decrease of 4 % compared with 1999. The operating profit before goodwill amortization decreased from EUR 7.6 million to EUR 5.3 million. The decrease in net sales compared to last year can partly be explained by the high market activity during 1999, when two elections were held in Finland. IT services related to Healthcare and Social Welfare had the highest growth in the business area. Business activity was fairly high during the second quarter. Among several interesting deals, TietoEnator won a prestigious 3.5 year contract from the City of Stockholm with options for two additional years to develop, maintain, process and support the city's IT services. The value of the order is estimated at approx. EUR 44 million. Both Helsinki and Gothenburg have chosen TietoEnator's software for IT support in Social Welfare. An agreement was made with EDB Business Partner ASA to combine activities in the Healthcare area in Sweden and Norway. TietoEnator owns 58 % of this joint venture, which has about 115 employees and net sales of roughly EUR 16 million. TietoEnator is providing consulting services in the design of an Internet portal for Finland's public administration. Process & Manufacturing Demand and activity levels in eBusiness are high with many customers now formulating their eBusiness strategies and starting up pilot projects. Demand for consulting services for embedded systems supporting product development remained high in the telecommunications industry. Overall the customers in this segment are now taking longer to reach decisions than one year ago. Net sales during the second quarter increased 8 % compared with 1999 and were EUR 36,0 million. The operating profit before goodwill amortization was EUR 3.0 million, a decrease of EUR 0.8 million. TietoEnator acquired 51 % of the shares of MAS GmbH in Germany. This action strengthened TietoEnator's position in the forest industry in Central Europe and also added complementary products to its portfolio of paper mill products. Synergy effects will come from an increase of sales and reduced product development costs. TietoEnator acquired Sypro System Professionals Oy, a product development company operating in telecommunications. This will strengthen TietoEnator's position in Finland through knowledge transfer of embedded technology from Sweden into the Finnish market. A major deal and several small deals were signed with paper mills. TietoEnator has initially agreed with SAP to develop a standard interface between the SAP R/3 system and the Paper Mill product family. Processing & Network Support Demand for outsourcing and eBusiness operations is increasing. Demand for Technology Consulting in Sweden was lower than a year ago but is now improving slightly. Second-quarter net sales increased 10 % compared with 1999 and were EUR 67.9 million. The operating profit before goodwill amortization grew 11 % to EUR 9.3 million. The process of raising profitability in Sweden has already improved the monthly profit level significantly. The process will be completed during the current year. Sales growth totalled 10 % in Finland, 6 % in Sweden and was strong in Central Europe. Growth by Competence Center Finland was 70 %. This Competence Center offers consulting and project services for IT modelling and development as well as e-mail services, development and maintenance services. The agreement with the City of Stockholm has great value for this business area. Half of the contract consists of processing and network support services. One step towards expansion in Central Europe was a new three-year agreement with a key customer. The first phase will require involvement by 15 employees in the Düsseldorf office. StoraEnso has selected TietoEnator as its e-mail service provider for the next three years. Application Services Customers' interest in application packages has been improving and was visible in a growing number of requests for offer and prospects. As expected, however, this was not reflected in sales figures during the second quarter. Second-quarter net sales amounted EUR 28.4 million, 5 % down compared to the same period in 1999. The operating profit before goodwill amortisation was EUR 2.3 million, which was EUR 1.6 million less compared to the previous year. Sales in Financial Accounting and Payroll decreased 4 % on last year while sales in Technology Consulting were 5 % higher. An increase in activity was already evident in Sweden where Payroll and HR sales increased 18 %, as well as in Norway where Payroll and HR sales rose 19 % compared to the second quarter last year. Application Services entered into an agreement with Onyx Software Corporation in Washington USA to distribute Onyx CRM (Customer Relationship Management) software products in the Nordic countries. Onyx product and service sales will be started in Finland during the third quarter and will be extended to the other Nordic countries later. Application Services is rapidly developing new international products for digital accounting, payroll and Human Resource Management. Three new products were launched. Tieto Economa Workflow is a solution for digital handling of purchasing invoices and other documents. Mobile Tieto Economa Fakta is a WAP- based reporting tool for financial information. Tieto Economa TETime represents new time registration software and is delivered in both WEB and WAP versions. OTHER OPERATIONS Demand in Network Infrastructure (Dotcom) continued to be weak during the second quarter and this had a negative impact on net sales and profit. The Defense Company owned jointly with Celsius showed weaker development during the second quarter. Comparison with last year does not give a completely accurate picture as the company has been merged and its figures have been consolidated as a share of associated companies' net results since the beginning of this year. PERSONNEL The Group had an average of 9 834 employees during the period and 10 057 at 30 June. The average total number of business area employees rose 5 % to 8 962. Most of the increase was generated by the several acquisitions made during the second quarter. A total of 706 new people were employed during the second quarter. Employee turnover in the business areas was equivalent to 13 % on an annual basis, which represented no change since the previous quarter. TietoEnator started a project to set up an electronic learning centre called TE Academy, which is intended to cover all skills and knowledge development within the group. TE Academy will start up in the early autumn. The personnel option loan 2000 participation rate was over 60 %, clearly higher compared to earlier option programs within the Group. SHARE CAPITAL TietoEnator's Annual General Meeting authorized the Board to issue shares in order to safeguard the company´s ability to develop its operations. Based on this authorization the number of shares may be increased by at most 15.4 million. The authorization is valid until 29 March 2001. The Board has used this authorization twice: TietoEnator made an offer for the outstanding shares in Entra Data AB. Full acceptance of the offer would add some 5.6 million shares to the total number of TietoEnator shares. The offer period has been extended until 31 August 2000. Related to the acquisition of Oy Visual Systems Ltd 1,039,102 shares were issued. PROSPECTS FOR THE REST OF THE YEAR Growth in demand for IT services is being maintained by investments in digital production and distribution. Owing to the high level of investments at the close of the last millennium, however, overall investment growth during 2000 will be lower than last year, remaining well below 10 %. TietoEnator's focus on growth sectors and high-value-added services will continue to drive growth but will also reduce growth in the short term owing to ongoing structural changes in parts of the Group's Swedish operations. The Group's long-term growth target of 20 % is based on growth in demand in its core businesses and on an increase in company acquisitions. Growth in net sales for 2000 will depend substantially on both the timing of acquisitions and on recovery in demand during the second half of the year. The increase in investments in research and development, intellectual capital and acquisitions will strengthen long-term profit growth at the expense of short-term profitability. During the second half of 2000 the Group is expected to report an operating profit (EBIT) in line with the previous year. RESULT, 12-MONTH ROLLING FIGURES, EUR MILLION 1999 1999 2000 20007/1999 - 7-910-12 1-3 4-6 6/2000 Net sales of TietoEnator business areas 214.7262.5249.9249.7 976.8 Reorganization and 63.6 81.6 33.4 27.9 206.5 other Total net sales 278.3344.1283.3277.6 1183.3 Operating profit before goodwill amortization 26.6 36.0 36.4 32.8 131.8 Net financial items 0.3 0.4 0.5 1.3 2.5 Profit before taxes 23.6 34.0 34.4 31.5 123.5 NET SALES BY COUNTRY, EUR MILLION 2000GrowthShar 1999Share 1999Growt e h 1-6 % % 1-6 % 1-12 % Finland 249 4 50 240 51 476 14 Sweden 188 6 38 178 38 356 17 Norway 30 -4 6 31 7 61 6 Denmark 12 11 2 11 2 26 65 Germany 9 41 2 6 1 16 35 Other 12 58 2 7 2 15 19 BUSINESS AREAS 500 6 100 473 100 950 16 Sweden 61 120 242 Other 0 14 37 561 -8 607 1229 14 PERSONNEL ON AVERAGE 2000GrowthShar 1999Share 1999Share e BY BUSINESS AREA 1-6 % % 1-6 % 1-12 % Finance Sector 1523 9 17 1398 16 1447 17 Services 1808 3 20 1758 21 1793 21 Public Sector 1733 -2 19 1766 21 1767 20 Process & Manufacturing 1205 2 13 1176 14 1164 13 Processing & Network 1715 15 19 1494 17 1575 18 Support Application services 978 2 11 957 11 975 11 BUSINESS AREAS 8962 5 100 8549 100 8721 100 Network Infrastructure 698 -5 733 760 Defense Sweden - - 1331 1241 Other 174 - 283 336 9834 -10 10896 11058 2000GrowthShar 1999Share 1999Share e BY COUNTRY 1-6 % % 1-6 % 1-12 % Finland 4888 7 55 4582 54 4600 53 Sweden 2995 0 33 2996 35 3096 35 Norway 589 3 7 572 7 581 7 Denmark 227 37 3 165 2 202 2 Germany 123 18 1 105 1 106 1 Latvia 86 2 1 84 1 84 1 Other 54 20 1 45 1 52 1 BUSINESS AREAS 8962 5 100 8549 100 8721 100 Sweden 815 2134 2125 Other 57 213 213 9834 -10 10896 11058 The personnel figures include all the personnel in the associated companies under TietoEnators management. Calculating total personnel in relation to TietoEnators holding in these companies, TietoEnator had 9523 (10599) employees. INCOME STATEMENT, EUR MILLION 2000 1999 % Rolling 1999 6 MO 6 MOchange 7/99- 12 MO 6/00 Net sales 560.9606.7 -8 1183.31229.1 Other operating income 33.2 7.5 52.7 27.0 Personnel expenses 296.3307.4 595,0 606.1 Other operating expenses 211.0228.6 469.2 486.8 Share of associated companies' 4.3 0.6 5.0 1.3 results Depreciation according to plan excl. amortization of goodwill 21.9 22.9 45.0 46.0 OPERATING PROFIT BEFORE AMORTIZATION OF GOODWILL 69.2 55.9 24 131.8 118.5 Amortization of goodwill 5.1 5.1 0 10.8 10.8 OPERATING PROFIT 64.1 50.8 26 121.0 107.7 Financial income and expenses 1.8 0.9 100 2.5 1.6 PROFIT BEFORE TAXES 65.9 51.7 27 123.5 109.3 Income tax (estimate) -21.2-17.9 18 -40.5 -37.2 Minority interest -0.5 -1.1 -55 -2.4 -3.0 PROFIT FOR THE PERIOD 44.2 32.7 35 80.6 69.1 Other operating income includes EUR 29,2 million of the SPP surplus. Personnel expenses include EUR 4,5 million social costs of the personnel warrants (of which 4,1 related to unexercised warrants) and EUR 4,8 million provision for bonuses (5,7 in previous year). Other operating expenses include costs of EUR 1,1 million related to the Entra offer. Financial income includes a EUR 0,8 million tax refund related to dividends from associated companies. Income tax consists of EUR 15,8 million in direct taxes and a EUR 5,4 million change in deferred taxes. In minority interest, Entra has been treated with a minority of 44,3% BALANCE SHEET, EUR MILLION 2000 1999 % 1999 30 30change31 Dec June June Intangible assets 9.8 10.4 -6 11.0 Goodwill 61.8 53.7 15 65.8 Tangible assets 145.3 163.5 -11 156.8 Non-current assets 38.9 20.6 89 26.7 Current assets 281.9 306.9 -8 328.5 Securities and cash in hand and bank 105.0 100.5 4 113.8 642.7 655.6 -2 702.6 Share capital 69.2 64.5 7 64.7 Other shareholders' 294.9 260.2 13 288.5 equity Minority interest 3.8 12.9 -71 12.2 Provisions for liabilities and charges 3.5 26.3 -87 28.1 Non-current liabilities 32.8 41.2 -20 33.0 Current liabilities 238.5 250.5 -5 276.1 642.7 655.6 -2 702.6 Interest-bearing 24.7 62.4 -60 55.0 liabilities The Group has uncommitted credit limits of EUR 20 million and commercial paper programmes for EUR 200 million, which had not been used at June 30, 2000. CASH FLOW, EUR MILLION 2000 1999 1999 1-6 1-6 1-12 Net cash from operating 61.3 64.6117.2 activities Net cash used in investing -24.9-27.6-65.0 activities Paid dividend -37.7-33.3-33.5 Net cash used in other financing activities -8.7 7.1 -0.2 Change in cash flow -10.0 10.8 18.5 Liquid assets at beginning of --84.6-84.6 period 113.8 Restructuring effects and exchange differences -1.2 -5.1-10.7 Liquid assets at end of 105.0100.5113.8 period -10.0 10.8 18.5 CONTINGENT LIABILITIES, EUR MILLION 2000 1999 change 30 June31 Dec % For TietoEnator obligations Pledges - 2.6 Mortgages 2.7 2.3 17 On behalf of associated companies Guarantees 25.7 *) 1.3 Other TietoEnator obligations Rent commitments 92.4 103.8 -11 Leasing commitments 29.6 37.1 -20 Other contingent liabilities 3.6 19.7 -82 *) of which EUR 22 million on behalf of AerotechTelub Leasing commitments are principally three-year leasing agreements which do not have redemption clauses. Currency derivatives Forward contracts Value of underlying 1.0 16.9 -94 instruments Market value of currency forward contracts 0.0 -0.3 -100 Derivative contracts are made only for hedging purposes. The figures in this report are unaudited. TietoEnator will publish its Interim Report for January - September on 31 October 2000. For more information, please contact: Eric Österberg, Senior Vice President, Communications, tel. +46 8 632 14 26, +46 70 590 05 99 Tuija Soanjärvi, CFO, tel. +358 9 8626 2213, +358 9 40 5455476 TIETOENATOR CORPORATION DISTRIBUTION Helsinki Exchanges Stockholm Stock Exchange Principal Media ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/08/01/20000801BIT00040/bit0001.doc http://www.bit.se/bitonline/2000/08/01/20000801BIT00040/bit0002.pdf