STOCKHOLM, Sweden, August 15, 2001 (PRIMEZONE) - Intentia (SSE:INTB), interim report.
-- Earnings and cash flow continued to improve in line with the
action program. Operating earnings in the second quarter improved
by SEK 97 million and were SEK 7 million (-90). Cash flow from
operating activities improved by SEK 222 million and was SEK 65
million (-157).
-- With the release of Movex version 12, Intentia's product position
is stronger than ever. Pilot installations were implemented for a
number of customers during the period and the product is up and
running. Based on substantially improved breadth and
functionality, the new release will further strengthen Intentia's
leadership in the markets on which it focuses.
-- All regions posted growth and higher operating earnings for the
first half of the year. Net revenue was up by 15 percent to SEK
1.857 million, while operating earnings increased by SEK 160
million to 9 million (-169).
-- The slowdown in the global economy unsettled the market and
considerable uncertainty about the future remains. Nevertheless,
Intentia expects to earn a profit and enjoy a substantially higher
cash flow for the full year.
Group Progress
Restoration of Profitability and Positive Cash Flow Remain the Leading Priorities: An action program was launched by Intentia last year with the purpose of ensuring profitability and positive cash flows prior to embarking on the next phase of expansion. As a result, the company's highest priority is on measures that enhance cost-effectiveness. Productivity goals have been prioritized over volume. Reorganization efforts, along with the improvement and transformation of internal processes, are proceeding according to plan. These activities are constructing a foundation for the renewed prioritization of growth in tandem with profitability and balanced cash flows.
Economic Slowdown is Playing a Role in the Investment Decisions of Our Customers
Intentia concurs with the market that there is heavy long-term demand in its target group for enterprise applications aimed at supporting and upgrading the core processes of the manufacturing sector. The demand for integrated solutions among manufacturers and distributors is expected to remain firm. One of Intentia's key competitive strengths is the ability to provide its customers not only with integrated and functionally broad software, but implementation management and long-term partnership.
This year's economic slowdown has taken a heavy toll on many IT companies, including Internet consulting firms and best-of-breed suppliers that are incorrectly positioned in terms of either product or market. The impact has extended to Intentia's target group, which faces a great deal of uncertainty about the seriousness and length of the slowdown. Some companies have responded by opting not to initiate procurement projects, while others have delayed investment decisions in the middle of such projects. On the other hand, there are companies that have taken advantage of the downturn by accelerating their investment schedules in order to bolster their long-term competitiveness. The overall impact has been a temporary decline in new orders and procurement projects.
During the period and particularly in the second quarter, Intentia has received fewer orders involving license revenue in excess of EUR 1 million. Transactions of this magnitude are more vulnerable to postponement in an uncertain economy. However, the volume of orders entailing lower license revenue increased during the first half of the year. Purchasing patterns are similar among all of Intentia's customers, large or small, although big customers often prefer to sign smaller contracts rather than making a large investment up front. A general sense of uncertainty about the business cycle will loom over the market throughout this year.
License and Consulting Revenue During the Period
New license orders for the period rose from the first half of 2000 by 21 percent to SEK 567 million (468). Among the companies with which Intentia signed agreements during the period were Elkem, Findus, Gucci, Messier, Peacock, RENFE, Sapa, SMC, Syltone and Tine. The number of ongoing procurement projects continued to increase. Intentia's backlog of orders at the end of the period jumped from the first half of 2000 by 53 percent to SEK 615 million (403), an improvement of SEK 55 million since the beginning of the year. This upward trend confirms the strength of Intentia's broad offering, which is working in tandem with the company's global implementation organization to forge market leadership. License revenue for the period increased from the same period of 2000 by 8 percent to SEK 512 million (473).
Due to robust new orders late in 2000 and in 2001, Intentia is still engaged in a large number of ongoing implementation projects. Consulting revenue for the first half of the year rose by 28 percent to SEK 1,313 million (1.023).
Net revenue was up by 15 percent to SEK 1.857 million (1.610). On a comparable basis, after adjusting for the divestment of Informatikk net in 2000, revenue growth totaled 19 percent. Exchange rate effects upon consolidation had a positive impact of 5 percentage points on net revenue growth.
All Regions Experienced Growth and Better Profitability
Intentia remains heavily focused on improved earnings. Individual operations are enjoying steady progress in terms of profits. All regions posted both growth and higher operating earnings during the first half of the year. Earnings improved both in operations that were already profitable and in those that have had a weaker earnings situation. A number of operations, including Austria, the Czech Republic and Switzerland, managed to go from long-standing unprofitability to positive earnings during the period.
At SEK 780 million, the Northern European region's net revenue remained basically unchanged from the same period last year (777). On a comparable basis, adjusted for the sale of Informatikk net in Norway at mid-year 2000, net revenue rose by 8 percent. Both license and consulting revenue increased during the period. Central Europe experienced steep net revenue growth of 43 percent to SEK 233 million (163). The improvement stemmed from higher license, and to a lesser extent consulting, sales. Northwestern Europe also posted considerably better net revenue, climbing by 39 percent from the same period of 2000 to SEK 269 million (194).
As in Central Europe, the sale of licenses rose faster than that of consulting. Southern Europe's license sales were sluggish early in the year but showed more robust growth toward the end of the period. As a result, net revenue finished 25 percent higher than the same period last year at SEK 321 million (257). Consulting sales more than offset the small decline of license sales in the region. Spurred primarily by consulting sales, net revenue in Asia Pacific rose from the first half of 2000 by 20 percent to SEK 128 million (107). Due largely to higher consulting sales stemming from greater volumes in ongoing projects, net revenue in the Americas increased by 29 percent to SEK 126 million (98).
Basic Costs Remain Stable
Intentia's action program to restore profitability, which involves a short-term commitment to pursuing growth within the company's existing structure until efficiency and economies of scale improve, proceeded on track during the first half of 2001. The company remains determined to carry out this policy before significantly expanding its staff. The number of employees increased by 75 during the period, 57 of whom came from the acquisition of Intentia West in the United States. Intentia employed 3,299 people at the end of the period, 67 fewer than at the same time last year (3,366). The organization grew in selected areas where additional personnel was deemed necessary to satisfy demand. Consulting costs and indirect expenses were up by 10 percent to SEK 1,812 million (1,650). Exchange rate effects accounted for 5 percentage points, or SEK 91 million, of the increase.
A continued improvement in the utilization of consulting capacity, various cost-effectiveness measures and the ongoing review of contract terms combined to increase Intentia's consulting margin from the first half of 2000 by 11 percentage points to 16 percent (5). Although there were slightly fewer consultants during the first half of 2001, the increase in capacity utilization led to somewhat higher consulting costs.
Indirect expenses were up by 4 percent. The expenses borne by the sales and marketing organization rose due to continued higher activity conducted within the existing structure. In cases where the sales cycle has been extended, higher selling expenses are likely to ensue. Sales and marketing expenses totaled SEK 422 million (342). Product development expenses for the period were SEK 236 million (224), of which SEK 65 million was capitalized. Administrative expenses came to SEK 120 million (115).
The profitability restoration plan is intended to ensure that Intentia will continue to post higher license revenue within the basic constraints of its current product development and sales organization. The target is for ongoing cost-effectiveness improvements and a greater number of implementation projects to lift the consulting margin to 20 percent. Intentia is moving ahead in accordance with that plan.
Operating Earnings Continue to Grow as Planned
Intentia's gross margin, which increased for the third straight quarter, was 37 percent (31) for the first half of the year. The improvement reflected mainly the greater profitability of consulting operations. Moreover, during the first half of the year indirect expenses fell to 38 percent of net revenue (42). These two trends combined to considerably increase operating earnings. Operating earnings came to SEK -9 million (-169) after depreciation and amortization, and SEK 61 million (-104) before. Foreign exchange upon consolidation of operating earnings lowered the figure by SEK 2 million.
The Weaker Krona and Higher Interest Rates Cut into Net Financial Income
Net financial income was down substantially from the first half of 2000. Higher interest rates hurt net interest income, while the depreciation of the krona increased the interest expense on convertible notes. The weaker krona reduced net financial income by SEK 39 million, of which SEK 32 million was attributable to recalculation of convertible notes. Earnings after financial items totaled SEK -84 million (-193), while earnings after tax were SEK -52 million (-174).
Acquisitions in Australia, the United States and Norway
When Intentia acquired a 51 percent stake in Intentia Australia during 1998, it signed an agreement covering the future acquisition of the remaining shares. Intentia increased its stake by 14 percent to a total of 65 percent during the first half of 2001. Intentia will acquire the remaining 35 percent throughout this year. Intentia has now taken over the customer base and personnel from the previous owners of Intentia West in the United States. In accordance with the model introduced in Europe, Intentia coupled the takeover with the establishment of a US organization consisting of four operating units.
Upon acquiring a 49 percent stake in the Norwegian software company Scase AS during the period, Intentia became the first supplier of enterprise systems to the food industry that provides integrated origin marking throughout the supply chain. Intentia acquired goodwill worth a total of SEK 43 million during the first half of 2001.
Cash Flow Strengthens Considerably
Intentia's cash flow from operating activities rose sharply to SEK 105 million (-273) during the first half of the year. The improvement stemmed from both increased earnings and reduced working capital tied up. Accounts receivable were SEK 1,043 million (936) at the end of the period, down 2 percent from the first half of 2000 in relation to total sales. Accounts receivable declined by SEK 224 million compared to the beginning of 2001. Cash flow after investing activities was SEK -37 million (-319). Intangible fixed assets increased investing activities by a total of SEK 109 million.
During the period, Intentia carried out its previously announced issue of new shares with preferential rights for current stockholders. The company raised SEK 399 million before underwriting costs of SEK 13 million, which were charged directly to restricted reserves. Intentia paid off loans in the net amount of SEK 309 million during the first half of the year.
Cash and bank balances and short-term investments came to SEK 448 million (440) at the end of the period. Net borrowings at June 30th totaled SEK 119 million (72) excluding, and SEK -799 million (-769) including, convertible notes. The proportion of shareholders' funds was 47 percent (51), while the equity/assets ratio was 14 percent (12).
Second Quarter Results: Intentia Posts an Operating Profit
Intentia received orders worth SEK 273 million (223) during the second quarter, an improvement of 22 percent. License sales for the quarter were up by 26 percent to SEK 274 million (217). Consulting revenue rose again to SEK 689 million (506), an improvement of 36 percent over the same period of 2000 and 10 percent over the previous quarter. Intentia's consulting margin increased by 11 percentage points to 16 percent (5) and operating earnings continued upward to SEK 7 million (-90). Earnings after financial items totaled SEK -34 million (-128), while earnings after tax were SEK -10 million (-124).
Cash flow from operating activities increased again by SEK 222 million to SEK 65 million (-157). Cash flow after investments totaled SEK -25 million (-176).
Group Progress, July 2000 - June 2001
From July 2000 through June 2001, net revenue totaled SEK 3,492 million, as opposed to SEK 3,138 million during the same period of 1999-2000. License orders continued to grow and came to SEK 1,200 million (825), while license revenue came to SEK 1,044 million (834). Operating earnings for the period climbed to SEK -130 million (-295). Excluding items affecting comparability in the fourth quarter of 1999, operating earnings rose by SEK 220 million. Largely due to the weaker krona, net financial income declined considerably. Thus, earnings after financial items totaled SEK -291 million (-329). Earnings after tax rose to SEK -222 million (-301).
Product
Intentia's product position is stronger than ever. The company is continually expanding the breadth and functionality of its products with the aim of supporting and making more efficient collaboration among various companies in the value chain. Version 12 pilot installations were implemented at a number of customers during the period and the product is up and running. Thanks largely to the introduction of several new applications that support collaboration among companies, the new release has further bolstered the system's position in the market. These applications include Multi-Site Planner (ability to transparently plan multiple production units), e-Collaborator (permits flexible configuration of input/output data to Movex), and Movex Business Messages (XML-based business transactions). Additional new functionality includes Call Center Integration, Demand Planner (optimizes the flow of information throughout the value chain), and Employee Self-service. The new release also contains global capable-to-promise functionality in the areas of Supply Chain Management/Execution and e-business, both of which are key to electronic cooperation among companies. By including all scarce resources and alternate sources of supply, this functionality guarantees more reliable delivery date estimates. Furthermore, cross-docking decreases capital tied up in stock by synchronizing goods transport. The vendor-managed inventory function optimizes value chains by providing a supplier with access to its customer's inventory data so that it can take charge of ensuring the stock levels desired by the customer. Movex version 12 also offers new functionality in the areas of point-of-sales integration, self-billing, e-billing, Web-based product configuration and personalized corporate portals. These improvements and new applications will further bolster Intentia's leadership in the markets on which it focuses.
Movex NextGen, the Java-based version of Movex, accounts for a steadily growing percentage of Intentia's license revenue. Benchmark tests performed this year demonstrate that Movex NextGen provides scalability superior to that of competing products. As a result, the system is in the forefront of the market when it comes to price/performance. The strengths in Movex are pivotal to the transition among Intentia's customers to more collaborative business models that sharply increase transaction volumes.
Parent Company
Net revenue totaled SEK 27 million (29) for the Parent company, while earnings after financial items were SEK -114 million (-41). Investments came to SEK 0 million (1), and liquidity was SEK 345 million (434). Excluding convertible notes, borrowings were SEK 250 million (280). The issue of 4,862,200 new shares increased the Parent company's shareholders' equity by SEK 386 million. Of the increase, SEK 49 million went to capital stock and the remaining SEK 337 million was transferred to the premium reserve.
Outlook for 2001
Intentia's incoming orders during the period were partly affected by this year's gradual economic slowdown. The market remains highly uncertain about the seriousness and length of the slowdown. Based on our prospect base, order backlog and competitive position, we continue to anticipate that Intentia will post positive operating earnings and considerably improved cash flow for the full year.
Accounting Principles
This interim report was prepared in accordance with the Annual Accounts Act and the recommendations of the Swedish Financial Accounting Standards Council (Redovisningsradet). Intentia's accounting principles have changed since its 2000 annual report in compliance with Redovisningsradet's recommendations, parts of which took effect on January 1, 2001 and parts of which will take effect on January 1, 2002. Intentia has implemented changes in accordance with RR11 Revenue Recognition, RR9 Income Taxes, RR15 Intangible Assets, RR18 Earnings Per Share and RR20 Interim Reporting. Historical figures related to RR9 and RR15 have been recalculated. "Change in shareholders' equity" shows the impact of the recalculation on shareholders' equity. In accordance with Redovisningsradet's recommendation, comparison figures related to RR15 have not been recalculated.
We have reviewed this Interim Report in accordance with recommendations issued by the Swedish Institute of Authorized Public Accountants. A review is substantially limited in relation to an audit. Nothing has come to our attention that indicates that this Interim Report fails to comply with the requirements of the Securities Exchange and Clearinghouse Act and Annual Accounts Act.
Bjoern Algkvist President and Chief Executive Officer
Lars Gattberg Authorized Public Accountant, KPMG
Stefan Aelgne Authorized Public Accountant, KPMG
The full Interim Report including tables is available to download from the enclosed link: http://reports.huginonline.com/830861/92990.pdf