TIETOENATOR CORPORATION STOCK EXCHANGE RELEASE 18 JULY 2003 8.00 AM 1 (10) TietoEnator Interim Report 2/2003 Net sales grew by 10% to EUR 693.6 million (627.8) for the first half of the year and by 8% to EUR 341.6 million (317.7) for the quarter isolated. Operating profit before goodwill amortisation (EBITA) amounted to EUR 62.5 million (63.1), corresponding to a margin of 9.0% (10.1) for the first half of the year and to EUR 29.2 million (28.7), and a margin of 8.5% (9.0) for the quarter isolated. The six-month profit after tax amounted to EUR 25.3 million (34.5) and for the quarter to EUR 10.8 million (13.3). Six-month earnings per share, excluding goodwill amortisation totalled EUR 0.54 (0.55), after goodwill amortisation EUR 0.30 (0.41). New outsourcing deal signed with TeliaSonera Sweden. General market overview There were no visible signs of general market recovery during the second quarter. Customers have focused on costcutting actions. Demand for high-value-added services was stable, but slack for low-value-added services and products and for licence-based sales of systems and solutions. Large hardware vendors are aggressively trying to increase market share in traditional infrastructure outsourcing services. Price pressure remained unchanged. TietoEnator market overview TietoEnator s strong market position is based on a proven mix of partnerships and solutions in specific industry segments. Customers in all markets are interested in partnerships due to growing technical complexity and rising IT costs. Some larger outsourcing cases took place, mainly in Sweden. For TietoEnator this resulted in the agreement with TeliaSonera, signed in late June, under which TietoEnator takes over the TeliaSonera mainframe data processing activities in Sweden, comprising over 100 employees. TietoEnator is striving to take the role as the leading provider of customer-specific, high-value-added outsourcing services, combining its sector expertise and proven processing abilities. The aim of this strategy is to counter the trend of decreasing margins evident in the traditional processing services market. Development Market conditions in the main addressable markets did not change. The need to digitalise and harmonise processes is increasing as old legacy systems reach the end of their lifecycle. Customers overall are carefully searching for sound partners to team up with. Sales cycles are growing longer and planned and discussed projects have a tendency to slide in time. The TietoEnator model of partnerships in R&D and product development services within telecom continued to develop positively, in spite of the rather negative overall market for this sector. Ti etoenator is now working to take advantage of the synergies offered by its existing partnerships in this area, and to build a platform for international leverage of its expertise. An example of this is the agreement signed with Siemens Mobile regarding the takeover of R&D activities in Finland. The development of government services remained stable in Finland but was weak in the remaining Nordic countries.
The demand for repeatable and tailor-made solutions stayed on a low level in all markets. This mainly affected the licence-based business within the banking and finance segment as well as the sales of generic systems, especially for financial administration and information management. An exception was the steadily growing sales of healthcarerelated systems and solutions to the entire Nordic public sector market. The forest industry segment noted good development in Europe and improvements in the North American market, partly due to the current rise in prices of pulp and paper products. TietoEnator is now aiming to form more global partnerships with pulp & paper companies. In the Energy sector, sales to the Nordic market increased as a result of consolidation in the market. Net sales The half-year net sales grew by 10% to EUR 693.6 million (627.8). Net sales during the second quarter isolated amounted to EUR 341.6 million (317.7), an increase of 8%. In local currencies the growth for the second quarter totalled 8 %. Organic growth amounted to 5 %, while for the half year the corresponding numbers were 11 % in local currencies and in organic growth 7%. Geographically the growth was 7% in Finland, 19% in Sweden and -8% in Norway for the first half of 2003. Among the industry segments, banking and finance accounted for 20% (21) of sales, telecom and media for 21% (14) and public sector for 21% (24). The forest industry segment contributed 6% (6) of sales and the energy segment 5% (5). The order backlog, defined as services ordered with binding contracts, amounted to EUR 951 million (904) at 30 June 2003, a year-on-year increase of 5%. Approximately 40% of this backlog is expected to be invoiced during 2003. Profitability For the half year accumulated the operating profit before goodwill amortisation (EBITA) was EUR 62.5 million (63.1), corresponding to a margin of 9.0% (10.1). Operating profit after goodwill amortisation (EBIT) amounted to EUR 42.6 million (51.0), corresponding to a margin of 6.1% (8.1). For the quarter isolated operating profit before goodwill amortisation (EBITA) increased 2% to EUR 29.2 million (28.7), corresponding to a margin of 8.5% (9.0). Operating profit after goodwill amortisation (EBIT) amounted to EUR 19.3 million (21.6), corresponding to a margin of 5.6% (6.8). Cash flow from operations for the first six months amounted to EUR 88.6 million (48.2) and cash used for investment activities totalled EUR 52.8 million (124.9). Six-month earnings per share, excluding goodwill amortisation, were EUR 0.54 (0.55) and after goodwill amortisation EUR 0.30 (0.41). The rolling 12-month return on capital employed (ROCE) was 24.8% and on shareholders equity (ROE) 12.8%. Personnel adjustments are expected to continue at the same level as during the beginning of 2003. Personnel costs related to employees subject to the notice period amounted to approximately EUR 5 million for the quarter isolated (approximately EUR 10 million for the period accumulated), and are estimated to stay at approximately the same level during the two remaining quarters of 2003 resulting in a cost of about EUR 20 million for the full year.
Personnel The number of employees decreased modestly during the second quarter. The net change in personnel amounted to -82 (334), mainly as a result of the ongoing adjustments. Recruitment was on a low level and a total of 137 (213) new employees were taken on. For the first half of 2003 accumulated altogether 340 (419) new employees were hired to the Group and the net change amounted to -109 (743). The Group had 11 829 (11 117) full-time employees at the end of the period and 11 938 (10 879) on average during the first six months. Employee turnover went down to 5% on a rolling 12-month basis. Prospects for 2003 The economic slowdown and uncertainty in the market are dampening overall IT spending. Services with a strong contribution to added value and productivity are of larger interest to customers than low-value-added services and will continue to be so. Outsourcing services are in solid demand in all customer segments. Demand for tailor-made projects and repeatable solutions will most likely stay modest during the rest of 2003. At the same time the partnership business provides opportunities and is expected to generate most of the Group s revenue growth in 2003. No major changes in demand are expected during the coming quarter and the sales for the third quarter 2003 are forecast to grow in the range of 6-8% compared with the third quarter last year. Should the weak economic conditions persist and planned projects slide in time, full-year growth could be under 10%. The third-quarter EBITA margin is expected to range between 9-10%. Full-year absolute EBITA is expected to be higher than in 2002. The annual goodwill amortisation for all transactions closed or announced is calculated to amount to EUR 41 million. Regarding the annual effective tax rate on the pre-tax profit after goodwill amortisation, no material changes compared to 2002 are expected. The full-year cash flow from operations is expected to develop positively and to exceed the 2002 level. Shares and options In April TietoEnator s Board of Directors made the first allocation from the 1 800 000 stock options of the 2002 programme and offered 500 000 options to approximately 500 employees. A total of 481 250 options were subscribed for by 469 employees. Listing of the warrants under the bonds with warrants 2000 programmes was started on the Helsinki and Stockholm Exchanges on 2 May 2003. The subscription period for the 1999/2003 warrants (212 868) ended on 30 May 2003. The Board authorisations to issue or repurchase shares have not been used during the period. Interim Report 3/2003 The interim report for January September will be published on 23 October 2003.
Stockholm 17 July 2003 TietoEnator Corporation Board of Directors The figures in this Interim Report are unaudited. Key figures 2003 2003 2003 2002 change 2002 1-3 4-6 1-6 1-6 % 1-12 Earnings per share, EUR a) 0.17 0.13 0,30 0.41-27 0.77 Earnings excl. amortisation of goodwill per share, EUR 0.29 0.25 0.54 0.55-2 1.14 Equity per share, EUR 5.64 5.30 5.20 2 5.53 Average number of shares (1000 shares) 82.886 82.886 82.886 82.827 0 82.857 Number of shares at end of period (1000 shares) 82.886 82.886 82.886 0 82.886 Return on equity rolling 12 month, % 12.0 12.8 44.7 13.7 Return on capital employed rolling 12 month, % 22.1 24.8 57.9 23.0 Equity ratio % 55.1 57.6 61.0 55.5 Interest-bearing net debt, EUR million 23.4 44.7-46.1-197 42.8 Gearing, % 10.6 17.5-4.6 13.6 Investments, EUR million 19.4 16.4 35.8 140.2-74 282.9 Personnel at end of period 11.947 11.829 11.117 6 11.991 Personnel on average 12.000 11.876 11.938 10.879 10 11.153 Per employee, EUR 1000 a) Net sales 29.3 28.8 58.1 57.7 1 114.0 Personnel expenses b) 16.1 15.8 31.9 30.8 4 60.2 Operating profit before amortisation of goodwill excl. social costs on personnel warrants 2.8 2.4 5.2 5.8-10 11.7 a) There is no dilutive effect from warrants and stock-options, because the average share price has been below all subscription prices during 2002 and 2003. b) Personnel expenses include salaries, pension costs and other pay-related social costs but exclude social costs for personnel warrants. Currency rate 30 June 2003 1 EUR = 9,2488 SEK Net sales and profit by quarter, EUR million 2002 2002 2003 2003 7/2002-7-9 10-12 1-3 4-6 6/2003 Net sales 285.1 358.2 352.0 341.6 1,336. 9 Operating profit (EBIT) 19.9 28.9 23.3 19.3 91.4 Net financial items -1.2-0.4-0.4-1.0-3.0 Profit before taxes 18.7 28.5 22.9 18.3 88.4
Net sales by business area, EUR million 2003 2002 hange 2003 2002 change 2002 4-6 4-6 % 1-6 1-6 % 1-12 Banking & Finance 47 55-15 100 103-3 200 Telecom & Media 68 40 70 135 80 69 177 Public & Healthcare 48 47 1 98 94 5 192 Production & Logistics 62 59 4 124 117 7 230 Processing & Network 96 93 4 191 183 4 371 Resource Management 42 43-3 85 89-4 175 Group elimination incl. other -21-19 -39-38 -74 342 318 8 694 628 10 1271 Operating profit, EUR million 2003 2002 change 2003 2002 change 2002 4-6 4-6 % 1-6 1-6 % 1-12 Banking & Finance 4.2 6.1-31 11.0 12.4-11 20.4 Telecom & Media 8.1 3.8 115 15.1 7.9 92 15.9 Public & Healthcare 2.3 4.7-51 5.3 9.6-45 20.2 Production & Logistics 7.0 5.5 28 13.3 13.7-3 25.2 Processing & Network 10.4 10.0 3 18.9 18.7 1 41.8 Resource Management 0.7 3.6-81 4.7 9.0-48 20.8 Business areas 32.7 33.7-3 68.3 71.3-4 144.3 Group function incl. other -3.7-4.6-6.3-8.1-15.0 Associated companies outside BA 0.2 0.0 0.5-0.1 0.7 Operating profit (EBITA) before goodwill amortisation and social costs on personnel warrants 29.2 29.1 0 62.5 63.1-1 130.0 Social costs on personnel warrants 0.0-0.4 0.0 0.0 0.0 Operating profit (EBITA) before goodwill amortisation 29.2 28.7 2 62.5 63.1-1 130.0 Amortisation of goodwill -9.9-7.1-19.9-12.1-30.2 Operating profit (EBIT) 19.3 21.6-11 42.6 51.0-16 99.8 Operating margin, % 2003 2002 change 2003 2002 change 2002 4-6 4-6 1-6 1-6 1-12 Banking & Finance 9.0 11.1-2.1 11.0 12.0-1.0 10.2 Telecom & Media 11.9 9.5 2.5 11.2 9.9 1.3 9.0 Public & Healthcare 4.8 9.9-5.1 5.4 10.3-4.9 10.5 Production & Logistics 11.4 9.2 2.2 10.7 11.7-1.0 11.0 Processing & Network 10.8 10.8 0.0 9.9 10.2-0.3 11.3 Resource Management 1.6 8.2-6.6 5.5 10.2-4.6 11.9 Business areas 9.6 10.6-1.0 9.8 11.4-1.5 11.4 Operating margin (EBITA) before goodwill amortisation and social costs on personnel warrants 8.5 9.2-0.6 9.0 10.0-1.0 10.2 Operating margin (EBITA) before goodwill amortisation 8.5 9.0-0.5 9.0 10.1-1.0 10.2 Operating margin (EBIT) 5.6 6.8-1.2 6.1 8.1-2.0 7.9
Net sales by country, EUR million 2003 change share 2002 share 2002 change 1-6 % % 1-6 % 1-12 % Finland 388 7 56 363 58 728 14 Sweden 195 19 28 164 26 329 4 Norway 43-8 6 47 8 91 12 Denmark 20 25 3 16 2 32 6 Germany 12-6 2 13 2 25 5 USA 8 >100 1 2 0 8 >100 Great Britain 5-25 1 6 1 15 >100 Other 23 36 3 17 3 43 17 694 10 100 628 100 1271 12 Net sales by industry segment, EUR million 2003 change share 2002 share 2002 change 1-6 % % 1-6 1-12 % Banking and finance 137 2 20 135 21 266 22 Public 145-3 21 150 24 301 8 Telecom and media 145 66 21 87 14 189 11 Forest 46 23 6 37 6 78 6 Energy 34 12 5 30 5 63 26 Manufacturing 50-15 7 59 9 111 10 Retail 61 11 9 55 9 115 32 Logistics 18-15 3 21 3 40-24 Non-allocated 58 8 8 54 9 108 7 694 10 100 628 100 1271 12 The industry segment figures for the associated companies under TietoEnator s management responsibility are reported according to our holding. Personnel End of period Average 2003 change share 2002 2002 2003 2002 By business area 1-6 % % 1-6 1-12 1-6 1-6 Banking & Finance 1 758-9 15 1 932 1 822 1 791 1 811 Telecom & Media 2 616 58 22 1 656 2 603 2 646 1 613 Public & Healthcare 1 692 2 14 1 660 1 724 1 713 1 637 Production & Logistics 2 005-3 17 2 072 2 130 2 051 2 054 Processing & Network 2 339 2 20 2 290 2 253 2 283 2 249 Resource Management 1 336-6 11 1 428 1 382 1 373 1 433 Group function incl. other 83-1 79 77 80 82 11 829 6 100 11 117 11 991 11 938 10 879 2003 change share 2002 2002 2003 2002 By country 1-6 % % 1-6 1-12 1-6 1-6 Finland 6 415 0 54 6 388 6 323 6 421 6 243 Sweden 3 311 16 28 2 853 3 490 3 386 2 880 Norway 881-11 8 987 941 908 861 Denmark 312 20 3 259 293 310 273 Germany 265 4 2 254 272 264 250 Czech 172 70 1 101 189 180 100 Latvia 125-2 1 128 122 125 132 USA 105 >100 1 7 123 107 6 Other 243 73 2 140 238 237 134 11 829 6 100 11 117 11 991 11 938 10 879
The personnel figures for the associated companies under TietoEnator s management responsibility are from 2003 reported according to our holding. Personnel figures including these associated companies to 100% give a total of 12 264 (11 567) at the end of period. Income statement, EUR million 2003 2002 change 2003 rolling 2002 1-6 1-6 % 4-6 7/02-6/03 1-12 Net sales 693.6 627.8 10 341.6 1,336. 9 1,271. 1 Other operating income 1.3 4.1 0.8 4.3 7.1 Personnel expenses 380.4 334.8 187.4 716.6 671.0 Other operating expenses 223.2 206.2 111.3 438.6 421.6 Share of associated companies' results 0.9-0.4 0.3 2.0 0.7 Depreciation according to plan excl. amortisation of goodwill 29.7 27.4 14.8 58.6 56.3 Operating profit before amortisation of goodwill 62.5 63.1-1 29.2 129.4 130.0 Amortisation of goodwill 19.9 *) 12.1 64 9.9 38.0 30.2 Operating profit 42.6 51.0-16 19.3 91.4 99.8 Financial income and expenses -1,4 2.2-164 -1.0-3.0 0.6 Profit before extraordinary items and taxes 41.2 53.2-23 18.3 88.4 100.4 Extraordinary items - - - - - Income tax -15.9-18.7-15 -7.5-32.4-35.2 Minority interest -0.3-0.7-57 -0.2-0.9-1.3 Profit for the period 25.0 33.8-26 10.6 55.1 63.9 The provision for bonuses is EUR 6.1 million (8.6 in previous year). Income tax consists of EUR 17. 0 million in direct taxes, EUR 0.3 million in taxes for previous years and EUR 1.4 million change in deferred taxes. *) of which EUR 11.2 million not tax deductible. Balance sheet, EUR million 2003 2002 change 2002 30 June 30 June % 31 Dec Intangible assets 26.1 20.1 30 23.7 Goodwill 244.3 176.2 39 265.2 Tangible assets 155.9 160.5-3 162.1 Non-current assets 21.9 19.6 12 25.1 Current assets, interest-bearing 5.3 9.6-45 7.9 Current assets, non-interest bearing 311.2 286,6 9 306.5 Securities and cash in hand and bank 23.6 54.3-57 54.5 788.3 726.9 8 845.0 Share capital 82.9 82.9 0 82.9 Other shareholders' equity 353.1 347.8 2 375.6 Minority interest 2.9 3.0-3 3.6 Provisions for liabilities and charges 0.3 0.6-50 0.4
Non-current liabilities 17.8 28.8-38 28.6 Current liabilities 331.3 263.8 26 353.9 788.3 726.9 8 845.0 Interest-bearing loans 61.0 3.2 86.4 Finance lease liability 12.6 14.6-14 18.8 The group has a 364 day EUR 150 million credit facility out of which EUR 40 million was in use end of June and a commercial paper programme for EUR 250 million out of which EUR 19 million was in use. In addition the group has uncommitted credit limits of EUR 13 million that were not in use end of June. Net working capital in the balance sheet, EUR million 2003 2002 change 2002 30 June 30 June % 31 Dec Accounts receivable 199.0 196.8 1 211.3 Other working capital receivables 89.9 82.5 9 67.8 Working capital receivables included in current assets 288.9 279.3 3 279.1 Operative accruals 160.8 153.2 5 150.4 Other working capital liabilities 106.4 95.9 11 89.8 Working capital liabilities included in current liabilities 267.2 249.1 7 240.2 Net working capital in the balance sheet 21.7 30.2-28 38.9 The change in net working capital in the balance sheet does not equal to that in the cash flow due to acquisitions and disposals. Cash flow, EUR million 2003 2003 2003 2002 2002 1-3 4-6 1-6 1-6 1-12 Cash flow from operations Operating profit 23.3 19.3 42.6 51.0 99.8 Adjustments to operating profit Depreciation and amortisation on goodwill 22.2 22.1 44.3 34.8 77.0 Profit/loss on sale of fixed assets and shares 0.0-0.1-0.1-2.6-5.0 Share of associated companies' result 1.3-0.5 0.8 1.7-6.7 Other adjustments -0.1 0.0-0.1-0.2-0.3 Change in net working capital 13.1 5.8 18.9 2.7-15.7 Cash generated from operations 59.8 46.6 106.4 87.4 149.1 Net financial items received -0.1-1.9-2.0 2.7 1.5 Income taxes paid -4.0 *) -11.8-15.8-41.9-75.5 Net cash flow from operations 55.7 32.9 88.6 48.2 75.1 Cash flow from investing activities Acquisition of Group companies and business
operations net of acquired cash -15.1 **) -7.7-22.8-87.7-180.1 Capital expenditures -20.3-10.3-30.6-26.0-51.4 Disposed Group companies, net of disposed cash 0.0 0.0 0.0 1.0 1.0 Sale of other shares 0.0 0.2 0.2 0.0 0.2 Other investing activities 0.3 0.1 0.4-12.2-4.9 Net cash used in investing activities -35.1-17.7-52.8-124.9-235.2 Paid dividend -0.9-41.6-42.5-83.3-83.3 Net cash used in other financing activities 0.2-22.6-22.4-1.4 82.0 Change in cash flows 19.9-49.0-29.1-161.4-161.4 Liquid assets at beginning of period -54.5-73.2-54,5-214.8-214.8 Exchange differences 1.2 0.6 1.8-0.9-1.1 Liquid assets at end of period 73.2 23.6 23.6 54.3 54.5 19.9-49.0-29.1-161.4-161.4 *) includes tax refund from previous year **) of which EUR 13 million remaining payment relat ed to Ericsson paid in January 2003 Contingent liabilities, EUR million 2003 2002 change 30 June 31 Dec % For TietoEnator obligations Pledges 0.9 2.7-67 Mortgages - - On behalf of associated companies Guarantees 1.5 1.6-6 Other TietoEnator obligations Rent commitments 146.1 159.8-9 Lease commitments 30.1 36.9-18 Other contingent liabilities 10.2 13.0-22 Lease commitments are principally three-year lease agreements which do not have redemption clauses. Derivative contracts Currency derivatives Forward contracts Value of underlying instruments 80.9 93.9-14 Market value of currency forward contracts 0.4-1.5 Derivatives are only used for hedging. TietoEnator Corporation/Major shareholders 30 June 2003 Shares % 1 Robur Mutual Funds 2.144.752 2,6 2 Varma-Sampo 1.883.423 2,3 3 Svenska Litteratursällskapet i Finland 1.314.000 1,6
4 Tapiola insurance group 1.137.980 1,4 5 Handelsbanken Funds 1.009.321 1,2 6 Ilmarinen Mutual Pension Insurance Company 838.618 1,0 7 Didner & Gerge Mutual Fund 790.000 1,0 8 The Local Government Pensions Institution 786.945 0,9 9 OP Mutual Funds 763.074 0,9 10 The State Pension Fund 760.000 0,9 Remaining Nominee registered 53.014.068 64,0 Others 18.444.263 22,3 Total 82.886.444 100,0 Based on ownership records of the Finnish and Swedish central security depositories Press conference for analysts and media in Helsinki, at Finlandia Hall, meeting room Aurora, Mannerheimintie 13 e, 00100 Helsinki, at 9.00 am (EET). The conference will be hosted in English by CEO Matti Lehti, Deputy CEO Åke Plyhm, CFO Tuija Soanjärvi, Investor Relations Manager Päivi Lindqvist and SVP Corporate Communications Eric Österberg. Notification of attendance to Anne Sämpi, anne.sampi@tietoenator.com, +358 9 862 62502. The conference will be webcast and published live on the Internet at TietoEnator s website www.tietoenator.com and there will be a possibility to present questions on-line. An on-demand video will also be available after the conference. Conference call starting at 4.00 pm (EET), (2.00 UK time). The call will be hosted by CEO Matti Lehti, Deputy CEO Åke Plyhm, CFO Tuija Soanjärvi, Investor Relations Manager Päivi Lindqvist and SVP Corporation Communications Eric Österberg. Call lines to be reserved ten minutes before start of conference call, service number +44 20 7162 0181, code TietoEnator. A replay will be available until 25.7.2003. To listen, please call: +44 20 8288 4459, access code 183962. An audiocast of the conference will also be available at www.tietoenator.com by 21.7.2003. For further information, please contact: Åke Plyhm, Deputy CEO, tel. +46 8 632 14 10, +46 705 658 631 Tuija Soanjärvi, CFO, tel. +358 9 8626 2213, +358 40 5455476 Eric Österberg, Senior Vice President, Communications, tel. +46 8 632 1426, +46 70 590 0599 Päivi Lindqvist, Investor Relations Manager, tel. +358 9 862 63276, +358 40 708 5351 TietoEnator Corporation Business ID 0101138-5 Kutojantie 10, P.O. Box 33 FIN-02630 Espoo, Finland tel. +358 9 862 6000 telefax +358 9 862 63091 Kronborgsgränd 1 SE-164 87 Kista, Sweden tel + 46 8 632 1400 telefax +46 8 632 14 20 email: info@tietoenator.com www.tietoenator.com TietoEnator is one of the leading architects in building a more efficient information society and the largest IT services company in the Nordic countries. TietoEnator specialises in consulting, developing and hosting its customers business operations in the digital economy. The Group s services are based on a combination of deep industry-specific expertise and latest information technology. TietoEnator has 13,000 experts in more than 20 countries. www.tietoenator.com TIETOENATOR CORPORATION DISTRIBUTION Helsinki Exchanges Stockholmsbörsen Principal Media