Adcore s foundation has now been laid

Transcription

1 Financial Statement January Adcore s foundation has now been laid Net sales increase by 135% Operating profit growth: 132% Organic growth of 63% easily exceeds group target Aseantic acquisition consolidates Adcore s Swiss presence Fourth-quarter share of sales outside Sweden: 34% Adcore adjusts goodwill value non-recurring write-down: SEK 1,329 m. Group, SEK m January January Net sales 1, Operating profit EBITA margin,% Before goodwill amortisation and items affecting comparability All comparative figures for 1999 in this report are pro forma for Information Highway and Connecta. Address questions relating to this report to: Media: Ulf Kristersson, +46 (0) Financial markets: Frans Benson, +46 (0)

2 Market Adcore does not share the concerns of many observers in terms of declining demand. While the market is heading towards a maturing phrase, the growth of Adcore's services is continuing. First and foremost, this maturing phase implies customers setting higher standards as increasingly, projects affect their business-critical processes. Greater complexity and larger projects with an international profile imply new and sterner demands on consulting services providers. As never before, an appropriate skills mix and delivery capacity are becoming decisive competitive factors. While similarly, the requirements that projects must unequivocally add value for clients are getting stiffer. Those corporations that are wrongly positioned, and with insufficiently broad services offerings and in-depth knowledge of client business, will encounter a far harsher competitive climate. This trend became more apparent through, and will accentuate further through Adcore's challenge lies in developing new and existing customer relations, and to build on those skills that have been accumulated over the last two years, in order to further consolidate Adcore's market position. In geographical terms particularly, assuring delivery capacity Europe-wide is vital. Despite current signs of a general cyclical slowdown, Adcore considers that the market will also grow this year; the group's ambition is to grow organically by a minimum of 50% this year, with sustained profitability and positive cash-flow. Sales and profit growth Sales for the full year were SEK 1,294.5 m, up 135% on Organic sales growth was 63% easily exceeding the group's target for of minimum organic growth of 50%. Of consolidated sales, some 25% was generated outside Sweden, against 5% in In the fourth quarter, this figure was about 34%. Consolidated operating profit 1 increased by 132%, amounting to SEK (51.5) m. Adcore s operating margin was 9.2 (9.4)%. Extensive integration initiatives through much of exerted an adverse influence on profits, and relate to the merger between Information Highway and Connecta but also to efforts to integrate a total of 13 enterprises consolidated during the year. According to plan all basic integration efforts are now complete, although to some extent, the implementation of group-wide structures, business models and reporting routines remain, which will influence profits some way into the new year. The group considers that margins will improve gradually through With a few exceptions, group units are profitable although margin variations are relatively sizeable with distin ct potential for improvement in several contexts. For the consulting activities (excluding group-wide functions and development), operating profit 1 for the period was SEK (73.5) m, up 132% on the previous year. The operating margin for the consulting operations was 13.2%. Annualised average billing per consultant was SEK 1,253,000, an 18% increase on the full year Net financial items for the year were SEK 12.0 (0.4) m. Profit before tax excluding items affecting comparability and the non-recurring goodwill write-down described below, was SEK 35.5 (26.0) m. 1 Before g oodwill amortization and items affecting comparability. 2

3 Tax for the year was SEK 32,6 m, with tax paid of SEK 14.0 m. Net profit stood at SEK 1,211,7 (28) m. Earnings per share, excluding items affecting comparability and the non-recurring goodwill writedown were SEK 0,09. Items affecting comparability No goodwill arises as a consequence of the merger between Information Highway and Connecta because this transaction has been accounted using the pooling method. This implies that costs normally included in the acquisition calculations must be posted to the Income Statement. Merger costs for the year totalled SEK m, SEK 0.8 m arising in the fourth quarter. This figure includes SEK 24.7 m net in capital gains from the sale of shares in subsidiaries, etc. The items affecting comparability are distributed as follows: Full year Q4 9 months Transaction costs Change of corporate name and brands IT integration Divestment, office real estate Other integration costs Total costs of merger Loss/profit on sale of subsidiaries Total items affecting comparability Cash flow and financial position Operating cash flow for the year was SEK 95.1 m. Total investments were SEK 2,726.2 m, of which corporate acquisitions comprised SEK 2,641.4 m., that was financed by non-cash issues amounting to SEK m. Liquid funds were SEK m at the end of the period, up SEK 43.3 m since 1 January. The equity ratio, net of the aforementioned goodwill write-down, was 82%, a 19-percentage-point increase on the full year The equity ratio, excluding goodwill, was 63%. Customer receivables as of 31 were SEK m, the average number of days sales in customer receivables was 50. Adjustment of goodwill in Adcore s Balance Sheet Adcore utilises several valuation models when evaluating acquisition targets, although one feature they share is that the stock market's valuation of Adcore serves as the initial assumption when determining valuation parameters. The value of acquisitions is then modified to reflect each target s financial position and prospects. Thereby, the acquisition value of acquired enterprises relates to Adcore's market value at the relevant time of acquisition. If, at such juncture, the market valuation of Adcore is high, the book value of the acquired enterprise will also be high, while the converse applies if the stock market valuation of Adcore is low. Because the majority of acquisitions have been financed by Adcore issuing stock, Adcore s shareholders' equity is also related to the value of acquired enterprises. This methodology implies that 3

4 the dilution the price shareholders pay for an acquisition through the issue of new stock is insensitive to Adcore s market valuation at any given time. Adcore made several acquisitions through the year; all acquired enterprises progressed according to plan and made a favourable contribution to Adcore s operations. The majority of such acquisitions were implemented when stock market valuations of Adcore, and other corporations in its sector, were far higher than the corresponding valuation at the end of. The market has made a fundamental revaluation of the entire sector, and accordingly, the Board has decided to modify the value of acquired enterprises in its balance sheet to conform to prevailing market conditions. This adaptation is being effected through an SEK 1,329 m non-recurring writedown of goodwill, with Adcore s closing share price at the end of the year forming the initial assumption for this measure. The fact that this write-down will not influence the corporation's present or future cash flows, while the prospects of future dividends have improved, were key components to this decision. Accordingly, the write-down has been effected on the basis of the market's revaluation of the sector as a whole. Adcore's assessment of the acquired enterprises' earnings ability and development potential has not changed. Subsequent to the aforementioned write-down, the closing balance of acquired goodwill in the balance sheet was SEK 1,294.4 (233.7) m, of which tax-deductible goodwill arising from the purchase of net assets of enterprises amounted to SEK 525 m. Excluding the non-recurring write-down, goodwill amortisation stood at SEK 95.8 (-25.9) m for the year, of which SEK 38.7 m was in the fourth quarter. Subsequent to the write-down, Adcore expects goodwill amortisation, with the present balance sheet, of approximately SEK 75 m in The group policy is to depreciate goodwill over a period of 5-20 years, depending on the nature of the related acquisition. Aggregate consolidated goodwill relating to enterprises consolidated in the fourth quarter amounts to SEK 99 m (after the non-recurring write-down). Changes to group structure Integration efforts and the creation of a solid foundation in the new group for the future set a hallmark on. These efforts were broad based and at a high intensity. The structural efforts have created very bright prospects to proceed in the creation in a full-service provider of digital business solutions Europe-wide. During the fourth quarter, the Swiss company Aseantic was acquired. Aseantic was consolidated from 1 November, making a sales contribution of over SEK 8 m in the fourth quarter. In total, 13 enterprises were consolidated in the year. Cell Strategy, which will be consolidated from 1 January 2001 onwards, is additional. A new organisational structure was introduced at the end of the year, with in operational terms, Adcore being divided into Strategy Practice and BIT (business, interactive, technology) operations, each with a dedicated Chief Operating Officer. The new structure is intended to facilitate Adcore s delivery to its various market segments and to clarify operational responsibility through the organisation. 4

5 Human resources At the end of the period, the employee headcount was 1,747, an increase of 870, or 99% since the beginning of the year. Acquisitions added 535 employees through the year. At the time of the report s publication, Adcore s employee headcount was some 2,000. In the year, personnel turnover was about 9%. Ownership structure As of 31, Adcore had 33,723 shareholders; at the same time, the proportion of foreignowned shares was some 26% (excluding the holdings of group employees). According to VPC's (the Central Swedish Securities Depository) share register, Adcore's five largest shareholders (excluding foreign holdings registered with custodian banks in the share register) are as follows: Shareholder Shareholding Proportion, % Berens/partner AG 16,319, Christer Jacobsson 1 8,936, SEB funds 5,289, Nordea funds 5,150, Gladiolus 2 4,077, At the end of the year, the number of registered shares was 145,875,837. Full utilisation of existing stock option programs in the former Information Highway would create a further 1,318,818 shares. The stock option program targeted at all Adcore employees created in summer encompasses a total of 13,275,000 warrants, which have largely been bought back at market price. In their place, a new program has been created, and late in the year, employees were offered the opportunity to subscribe for newly issued warrants. In total, this new program and residual stock options from the old programme encompassed 14,000,000 warrants, corresponding to the same number of shares. This new program runs until May 2003, with an exercise price of SEK 53 (old) and SEK 125 (new). The Adcore share is quoted on OM Stockholm Exchange, Attract 40. The last price paid in was SEK Parent company The parent company, with an employee headcount of 25, harbours the group's support functions and is responsible for the group s development activities. For the period, parent company net profits after write-downs on shares in subsidiaries and goodwill from the purchase of net assets of enterprises, were SEK 1 475,8 (10.2) m. Parent company liquid funds were SEK 92.9 m at the end of the period. The Board will propose that the share premium reserve is reduced to cover losses for the year. 1 Including indirect holding in Connect Network holding 2 The majority of this company is owned by group employees 5

6 Forthcoming reports and Annual General Meeting 2001 First quarter Annual General Meeting Second quarter Third quarter 25 April 25 April 24 August 26 October The Annual Report will be produced commencing in the week ending 24 March, and will be distributed to all shareholders that have applied to receive it. Stockholm, Sweden, 6 February 2001 Göran Wågström CEO and President 6

7 Summary Consolidated Income Statement, SEK m January January - Net sales Operating costs Personnel costs Depreciation Other costs Operating profit before goodwill amortisation and items affecting comparability Goodwill amortisation Non-recurring write-down of goodwill Items affecting comparability Operating profit Financial items Profit after financial items Tax -32, Deferred taxes 268,1 - Net profit Reversal of non-recurring write-down of goodwill and items affecting comparability Adjusted profit Summary Consolidated Balance Sheet, SEK m 31 Dec. 31 Dec Assets Intangible assets Fixed assets Deferred taxes Current receivables Accounts receivable Liquid funds Total assets Liabilities and shareholders equity Shareholders equity Provisions and long-term liabilities Current liabilities Total liabilities and shareholders equity

8 Cash Flow Statement, SEK m January 1999 January - Operating profit, in cash terms Change in working capital Cash flow from operations Cash flow from investment activity Cash flow from financing activity Items affecting comparability Change in liquid funds Key figures January 1999 January - Operating margin before goodwill amortisation and items affecting comparability 9.2% 9.4% Operating margin Neg 7.6% Profit margin Neg 5.1% Return on equity Neg 11% Return on capital employed Neg 14% Employee headcount at the end of the period Employee headcount, average Sales per employee, 12 months, SEK Sales per consultant, 12 months, SEK Value-added per employee, SEK Net financial assets, SEK m Equity ratio, % Per share data January - After Full Dilution No. of shares at the end of the period Ave. no. of shares in the period Earnings per share, SEK Neg Neg Cash flow per share Shareholders equity per share, SEK

9 Quarterly Consolidated Income Statement, SEK m 1999 Q4 Q 3 Q 2 Q 1 Q 4 Net sales Operating costs Profit before goodwill amortisation and items affecting comparability Goodwill amortisation Non-recurring write-down, goodwill Items affecting comparability Operating profit after depreciation Financial items Profit after financial items Tax -19, Deferred taxes 268,1 Net profit Reversal of non-recurring write-down of goodwill and items affecting comparability ,8 Adjusted profit ,0 Operating margin before goodwill amortisation and items affecting comparability 8.0% 7.1% 10.5% 12.5% 9.0% Operating margin Neg Neg Neg 9.0% Neg 9