TietoEnator Interim Report 1 January - 30 September 2002

TIETOENATOR CORPORATION STOCK EXCHANGE BULLETIN 25 OCTOBER 2002 8.00 AM 1 (12) TietoEnator Interim Report 1 January - 30 September 2002 ·Top line grew by 11% to EUR 912.9 million (820.3) for the first nine months, and by 11% to EUR 285.1 million (257.1) for the third quarter isolated ·Operating profit (EBITA) accumulated: EUR 90.6 million (99.6), operating margin (EBITA) 9.9% (12.2) ·Telecom & Media recovering, license sales in Banking & Finance and Resource Management weak ·Key strategic positions achieved in banking, forest and telecom sectors Market overview Market development during the third quarter continued in the same weak manner as in the first six months of the year. Interest in partnerships, outsourcing, and services providing fast improvements in internal efficiency and profitability continued to grow in all areas, whereas demand for new solutions and resource consulting-oriented services was low. Similarly customers started relatively few new large projects due to the financial situation. In spite of the weak market conditions TietoEnator improved and strengthened its relative market position in a number of areas. Following its strategy, TietoEnator also maintained its acquisition activity, continuously increasing market positions and building a base for future growth. The partnership agreement signed with Ericsson in September, under which the company will take over 860 employees within Ericsson's customer related product development and maintenance operations for fixed networks and mobile systems, makes TietoEnator the leading provider of research and development (R&D) services for the telecom industry in the Nordic region. The deal also increases business volume in Sweden by some 30%. Net sales Net sales during the third quarter isolated amounted to EUR 285.1 million, an increase of 11%. The nine-month accumulated net sales grew by 11% to EUR 912.9 million (820.3). Organic growth amounted to 7% for the quarter isolated and to 6% for the first three quarters accumulated. Geographically, nine-month growth expressed in local currencies amounted to 17% in Finland, -6% in Sweden, 9% in Norway, 7% in Denmark and 9% in Germany. The banking and finance industry segment accounted for 26% (23) of total sales, telecom for 13% (13) and public sector sales for 24% (25). The forest industry contributed 6% (7) of sales and the energy segment 5% (4). The order backlog, defined as services ordered with binding contracts, amounted to EUR 845 (713) million at 30 September 2002, an increase of 18%. Approximately 25% of this backlog will be invoiced during 2002 and approximately 40% during 2003. Profitability The weak telecom market as well as the decline within license-based sales of payroll, human resources management and finance systems and solutions, affected the margins negatively during the first nine months of 2002. The operating profit before amortisation of goodwill (EBITA) was EUR 27.5 million (31.5) during the third quarter isolated, corresponding to a margin of 9.7% (12.2). Operating profit after goodwill amortisation (EBIT) amounted to EUR 19.9 million (27.3), corresponding to a margin of 7.0% (10.6). Goodwill amortisation was 2.7% (1.6) of net sales. For the first three quarters accumulated, the operating profit before amortisation of goodwill (EBITA) and non-recurring items was EUR 90.6 million (99.6), corresponding to a margin of 9.9% (12.2%). The operating profit after goodwill amortisation (EBIT) and before non-recurring items for the same period amounted to EUR 70.9 million (88.7), corresponding to a margin of 7.8% (10.8). Goodwill amortisation was 2.2% (1.3) of net sales. Operating profit (EBIT) after non-recurring items was EUR 70.9 million (108.8) for the first nine months. Cash flow from operations amounted to EUR 49.1 million (102.1) and cash used for investments and acquisitions totalled EUR 180.8 million (44.9). During the quarter, the revolving credit facility was used for financing the acquisitions. Interest-bearing net-debt totalled EUR 14.0 million (- 69.8) and gearing was 8.9% (-11.7) Earnings per share, excluding goodwill amortisation, for the first three quarters was EUR 0.78 (1.02) and after goodwill amortisation EUR 0.54 (0.88). The rolling 12-month return on capital employed (ROCE) was 51.2% and on equity (ROE) 41.3%. Personnel Net recruitment stayed on a low level. A total of 188 (356) new employees were taken on during the third quarter. Together with acquisitions, divestments and leaves the net increase amounted to 228 (196). For the first nine months of 2002 altogether 616 (1 284) new employees joined the Group and the net increase amounted to 1 093 (1 048). The Group had an average of 11 392 (9 859) employees during the period and 11 587 (10 314) at 30 September. Employee turnover seems to have bottomed out at a comparatively low level. The turnover rate on a 12-month rolling basis was 6%. TietoEnator continued its transition towards increased verticalisation and higher organisational efficiency. It was done by continuous adaptations of the size and scope of business activities according to market development and customer needs. Consequently personnel reductions both have and will continuously take place at separate business units during the year, while other areas increase their size and activities. Approximately 400 persons have or will be affected by these changes during the year. The overall pay-related pension charge in Finland has been 3 per cent units higher than previous year mainly due to the negative development of the asset values in TietoEnator´s own pension institutions. Development by Business Area Banking & Finance Overall IT investments by customers were kept at a low level, a trend strengthened by the ongoing structural changes. The situation varies strongly within different countries, services and customers, however. Customer focus has been set, and remains on fast cost reductions instead of new system developments or introduction of new license-based solutions, as customers aim to rapidly improve profitability and efficiency in their operations. The interest in consulting services diminished substantially, most obviously in the Swedish market and consequently TietoEnator continued its movement from this segment of the market towards more high value added services. The Nordic partnership business continued to develop comparatively healthily in the stable Finnish market, while the solutions-oriented businesses encountered a weak overall European market. There is a growing pent-up demand for new investments in different development projects now postponed. The integration of former Ementor in Norway continued successfully. Net sales for the third quarter amounted to EUR 44.1 million (38.5), an increase of 15% compared to last year. Operating profit before goodwill amortisation decreased by 42% to EUR 2.6 million (4.5). Telecom & Media As the fundamentals did not change during the quarter, the market situation for telecom and media was continuously difficult. Capital expenditure by customers among telecom operators was on a very low level and telecom vendors intensified their cost reductions and consolidated their R&D activities, either by closing down sites or outsourcing activities. An example of the latter was the partnership agreement signed with Ericsson in September under which TietoEnator will take over parts of Ericsson's product development activities within fixed and mobile networks and systems. In total some 860 employees will be transferred to TietoEnator. The agreement makes Ericsson one of the largest partnership customers of TietoEnator and TietoEnator the leading provider of these services in the Nordic market. The takeover is planned to take effect at the beginning of November. A joint venture agreement was also signed with the Finnish Broadcasting Company (YLE) regarding delivery of IT- services to YLE. The planned takeover is from the beginning of 2003. Recruitment to cover the extended responsibility towards Nokia Networks continued and will soon be completed. Net sales for the third quarter amounted to EUR 36.3 million (29.0), an increase of 25% compared to last year. Operating profit before goodwill amortisation decreased by 2% to EUR 3.0 million (3.1). Public & Healthcare The number of competitors has increased compared to some years back. Since TietoEnator, however, has been active in developing specific segments like healthcare, and also in building customer relations, it still outpaces the competition. Several larger deals regarding IT solutions for social welfare, health and dental care were signed with different customers in all Nordic countries during the quarter, as were deals with local and central government authorities in Sweden, Finland and Norway. The healthcare sector showed continuously good growth numbers. Several trends are expected to start affecting the public market in the near future. One is rising IT costs, which may affect new project funding negatively, while at the same time increasing the need for real high-value-added solutions provided by reliable players. Another is the upcoming shortage of personnel due to retirements in the public sector, which will create demand for investments in new types of self-services. Net sales for the third quarter amounted to EUR 42.8 million (36.5), an increase of 17% compared to last year. Operating profit before goodwill amortisation increased by 4% to EUR 3.3 million (3.2). Production & Logistics The Business Area's Nordic market was slow and sluggish. Customers are carefully evaluating all new investments, resulting in long sales cycles. Customers are also expressing a significant need for harmonisation of processes and applications, although they are unable to take action due to the weak market and economy. Several customers are looking at IT-partnerships as a way of solving these needs. The acquisition of the US-based forest industry company Majiq was finalised during the third quarter and the company is now being integrated. Majiq strengthens the position and credibility of TietoEnator in this important market. TietoEnator is now the world's largest independent provider of IT-solutions. The forest industry operations noted a growing number of requests from outside the normal market area for forestry, wood supply and sawmill solutions. This is an indication that TietoEnator has positioned itself as a leading brand in the global marketplace. Energy market related activities recorded good growth and new agreements were signed with existing customers, mainly within the oil and gas areas. Net sales for the third quarter amounted to EUR 50.9 million (47.4), an increase of 7% compared to last year. Operating profit before goodwill amortisation increased by 12% to EUR 4.4 million (3.9). Processing & Network The interest in outsourcing was and is growing generally among customers in all areas, but at the same time customers' hesitancy regarding new investments continues to slow down the development. The overall price pressure continued in all markets. The Finnish market showed relatively stable development, while the Swedish market was more demanding. There are, however, good opportunities for growth and identified targets in the Swedish market within all the prioritised areas. TietoEnator's strategy to combine its expertise in focused industry segments with reliable traditional outsourcing services will be used in order to seize these targets. During the later part of 2002 an efficiency program will be started in the Swedish operations aiming for more concentrated activities and improved marketing efforts towards large potential customers. Net sales for the third quarter amounted to EUR 89.8 million (79.4), an increase of 13% compared to last year. Operating profit before goodwill amortisation increased by 2% to EUR 12.8 million (12.5). Resource Management Investments in different types of enterprise applications continued to be weak also during the third quarter and license sales decreased. Customers are focusing on various value-added solutions and outsourcing, postponing renewal of systems related to Human Resources and Finance. Demand for standard payroll solutions was low. The interest in payroll process outsourcing exists, but the sales cycles are long. Both the private and the public sector were more interested in employee self- service solutions (ESS), web services and time/manning solutions. There is also growing interest for document handling and content management within the public sector. Overall customers are clearly expressing a need for investments in more effective administrative processes, but at the same time they are postponing these investments due to the general market conditions. Net sales for the third quarter amounted to EUR 36.9 million (40.3), a decrease of 8% compared to last year. Operating profit before goodwill amortisation decreased by 25% to EUR 4.1 million (5.5). Prospects for the rest of the year and 2003 The permanent fundamental drivers of demand for IT services are digital production and productivity. The economic slowdown and uncertainty in the market, however, are dampening overall IT spending in 2002 and this is foreseen to continue in the beginning of 2003. Growth of customer demand is slow in most of TietoEnator´s business segments. Services with a strong contribution to added value and productivity are growing faster than low-value-added services and will continue to do so. Outsourcing services are in solid demand in all customer segments. TietoEnator's net sales growth in 2002 is expected to be in the range of 11-15%. To predict the result for the fourth quarter is more uncertain than normal owing to the market conditions. However, TietoEnator still believes it can reach an EBITA in line with previous year. TietoEnator expects the sales growth to continue in 2003. Financial Statements 2002 The full year report for 2002 will be published on Friday 14 February 2003. Annual General Meeting TietoEnator's Annual General Meeting will be held on Thursday 20 March 2003. Interim Reports 2003 TietoEnator will publish three interim reports in 2003. The publishing dates are · Interim Report 1: Tuesday 29 April · Interim Report 2: Friday 18 July · Interim Report 3: Thursday 23 October Stockholm 24 October 2002 TietoEnator Corporation Board of Directors The figures in this interim report are unaudited. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/10/25/20021025BIT00030/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/10/25/20021025BIT00030/wkr0002.pdf The full report