TietoEnator Interim Report 2/2002

TietoEnator Interim Report 2/2002 · Top line grew by 11% to EUR 627.8 million (563.2) for the first half year, and by 13% to EUR 317.7 million (282.0) for the quarter isolated · Operating profit (EBITA) accumulated: EUR 63.1 million (68.3), operating margin (EBITA) 10.0% (12.1%) · Full year growth expectation 11-15%, EBITA in line with previous year Market overview For TietoEnator, focused on high-value-added services, the development during the second quarter continued in the same stable manner as during the first quarter of the year. Following its strategy, TietoEnator, utilizing its strong financial position, maintained its high level of acquisition activity, taking market positions and building the base for future growth through a number of smaller acquisitions in the Nordic countries and Continental Europe. After the acquisition of the US-based company Majiq in mid-July, TietoEnator is now the global leader in IT systems for the pulp and paper industry. Demand for partnerships, outsourcing, solutions and services aimed at fast improvements in internal efficiency and profitability continued to grow in all areas. The resource consulting-oriented segments of the market, on the other hand, developed more weakly and the decline continued on the telecom market. The main part of the company's business showed, considering the market conditions, a positive development. Net sales Net sales during the second quarter isolated amounted to EUR 317.7 million (282.0), an increase of 13%. In local currencies the growth was 12%. The half-year net sales grew by 11% to a total of EUR 627.8 million (563.2). Organic growth amounted to 5% for the quarter isolated and to 6% for the full period. Geographically, growth expressed in local currencies amounted for the first six months to 19% in Finland, -2% in Sweden, 10% in Norway, 10% in Denmark and 12% in Germany. The banking and finance industry segment accounted for 26% (23%) of total sales, telecom for 13% (14%) and public sales for 24% (24%). The forest industry contributed 6% (7%) of sales and the energy segment 5% (4%). The order backlog, comprising only services ordered with binding contracts, amounted to EUR 904 million (661) at 30 June 2002, an increase of 37%. Approximately 40% of this backlog will be invoiced during 2002. Profitability The ongoing downtrend in the telecom area as well as the decline within resource management affected the margins negatively during the first half of 2002. The operating profit before amortisation of goodwill (EBITA) and non- recurring items was EUR 28.7 million (30.4) during the second quarter isolated, corresponding to a margin of 9.0% (10.8%).Operating profit after goodwill amortisation (EBIT) and before non-recurring items, amounted to EUR 21.6 million (26.8), corresponding to a margin of 6.8% (9.5%). For the half year accumulated, the operating profit before amortisation of goodwill (EBITA) and non-recurring items was EUR 63.1 million (68.3), corresponding to a margin of 10.0% (12.1%). The operating profit after goodwill amortisation (EBIT) and before non-recurring items for the same period amounted to EUR 51.0 million (61.5), corresponding to a margin of 8.1% (10.9%). Operating profit (EBIT) after non-recurring items was EUR 21.6 million (26.3) for the quarter isolated, and EUR 51.0 million (81.6) for the half year. Cash flow from operations amounted to EUR 47.6 million (91.3) and cash used for investments and acquisitions totalled EUR 124.9 million (38.5). Earnings per share, excluding goodwill amortisation, for the half year was EUR 0.55 (0.75) and after goodwill amortisation EUR 0.41 (0.66). The rolling 12-month return on capital employed (ROCE) was 58% and on equity (ROE) 45%. Personnel Net recruitment continued on a low level compared to the corresponding quarter last year. A total of 217 (421) new employees were taken on during the second quarter. Together with acquisitions, divestments and leaves the net increase amounted to 370 (478). For the first half of 2002 accumulated altogether 428 (928) new employees were hired to the Group and the net increase amounted to 865 (806). The Group had an average of 11 322 (9 668) employees during the period and 11 567 (10 150) at 30 June. Employee turnover continued to decrease during the period, but in a slowing pace. The turnover rate on a 12-month rolling basis was 6%. Development by Business Area Banking & Finance Uncertainty regarding the direction of overall economic development kept IT investments by customers at a low level, a trend which was strengthened by the ongoing structural changes among customers. Customer focus is now set on fast cost reductions instead of new system developments as they aim to rapidly improve profitability and efficiency in their operations. The Nordic partnership business continued to grow and develop healthily, while the solutions-oriented businesses still encountered a weak European market. However, there is pent-up demand for new investments in different development projects that have been postponed. Integration of Ementor Financial Systems, acquired in February 2002 and consolidated from April, has been successful. Net sales for the second quarter amounted to EUR 50.3 million (37.6), an increase of 34% compared to last year. Operating profit before goodwill amortisation increased by 4% to EUR 6.2 million (6.0). Telecom & Media The market situation for telecom and media is still difficult and the market fundamentals did not change during the quarter. Telecom operators were careful when investing. Telecom manufacturers continued or intensified their cost reductions, including downsizing of R&D operations. The roll-out of 3G systems has been further delayed and will probably not reach full speed until late next year. Customers decreased their purchases of resource consulting but demand for larger assignments, including outsourcing, was strong and the market active. R&D cooperation with Nokia Networks developed positively and recruitment was started to meet the enhancement ordered by Nokia during the spring. A joint venture company was created in Lithuania with the local operator Lietuvas Telekomas. 51% of the shares in the Germany-based Sykora Group were acquired, and the holdings in the Dutch company TE Consulting BV (Former Teledynamics) were increased to 80% in June. Net sales for the second quarter amounted to EUR 45.8 million (42.7), an increase of 7% compared to last year. Operating profit before goodwill amortisation decreased by 11% to EUR 3.3 million (3.7). Public & Healthcare The public sector is not directly affected by a slower market as such but indirectly through increased competition and price pressure. Thus the number of competitors has increased compared to some years back. TietoEnator, however, has been able to develop both specific segments like healthcare and also intimate customer relations, which has helped the company to outpace the competition. As a result, several larger deals regarding IT solutions for social welfare, health and dental care were signed with different customers in the Nordic countries. In the longer perspective there are a number of factors that may affect the public market in the years ahead. One is the shortage of personnel due to retirements, which is creating a need for investments in new self- service types of solutions. Another is rising IT costs, which may affect new project funding negatively, thereby further increasing the customers need for truly high-value-added solutions. Net sales for the second quarter amounted to EUR 45.9 million (41.2), an increase of 12% compared to last year. Operating profit before goodwill amortisation increased by 64% to EUR 5.1 million (3.1). Production & Logistics The cautious increase in demand visible during the beginning of the year seems to have halted. Customers have developed a "wait and see" attitude on new projects, while their focus now is fully on cost-reducing measures, in many cases also involving lay-offs. The Nordic market was therefore slow for the business area. Customers are carefully evaluating all new investments, resulting in long sales cycles. The forest industry operations received a growing number of requests from outside the normal market area, clearly an indication that TietoEnator has positioned itself as a leading brand in the global marketplace. This will be further enhanced by the recent acquisition of the US-based company Majiq. Development within the energy sector continued positively and the business area is now focusing on intensifying the cooperation with large international customers. During the quarter TietoEnator acquired all the outstanding shares in the forest IT- oriented TietoEnator MAS Gmbh in Germany, and also the assets of ABB Energy in Sweden. Net sales for the second quarter amounted to EUR 59.2 million (54.6), an increase of 9% compared to last year. Operating profit before goodwill amortisation decreased by 12% to EUR 5.5 million (6.2). Processing & Network Despite the economic conditions the interest for outsourcing was and is growing generally in all areas, but at the same time is hampered by customer hesitancy regarding new investments. The Swedish market is - fragmented. Combined with the overall market conditions, this has resulted in steady price pressure. There are, however, substantial growth opportunities identified on the Swedish market within all the prioritised areas. The company's main tool in this market will be its unique strategy to combine the expertise it has built up in focused industry segments with reliable traditional outsourcing services. The joint venture company set up in Lithuania also opens the possibility to expand in the Baltic market. Net sales for the second quarter amounted to EUR 93.9 million (82.1), an increase of 14% compared to last year. Operating profit before goodwill amortisation increased by 21% to EUR 10.4 million (8.6). Resource Management Investments in different types of enterprise applications were weak during the first half of the year and license sales decreased. The main reasons underlying this slow market were the lingering effect of the Y2K phenomenon and the completion of the first wave of Euro-conversion projects during 2001. Customers have renewed their systems related to Human Resources and Finance during the past two years and are now focusing on various value-added solutions and outsourcing, the latter mainly in smaller companies. TietoEnator increased its revenues from maintenance, consulting and outsourcing, somewhat compensating decreasing license sales. Demand for traditional payroll solutions has been low, with both the private and the public sectors showing more interest in more complete support, focusing on employee self-service solutions (ESS), web services and time/manning solutions. The subsidiary Seal Document Services GmbH has also pushed sales of Invoice Hotels overall, also in the Nordic countries. Net sales for the second quarter amounted to EUR 41.9 million (46.4), a decrease of 10% compared to last year. Operating profit before goodwill amortisation decreased by 53% to EUR 3.2 million (6.7). Short-term prospects 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. Services with a strong contribution to added value and productivity are continuing to grow faster than low-value-added services. Organic growth is slow in most of TietoEnator´s business segments, and in Telecommunications investment activity will continue to decline in the short term. Outsourcing services however, are of large interest in all customer segments. TietoEnator's net sales growth in 2002 is expected to be in the range of 11-15% , while full year EBITA is expected to be in line with previous year. Interim Report 3/2002 The interim report for January - September will be published on 25 October 2002. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/07/25/20020725BIT00040/wkr0001.doc The full report http://www.waymaker.net/bitonline/2002/07/25/20020725BIT00040/wkr0002.pdf The full report