STOCKHOLM, Sweden, April 12, 2002 (PRIMEZONE) -- Frango:
-- Revenues for the period January - March rose by 20 per cent to
SEK 57.4 million (47.7m)
-- Earnings net of financial items amounted to SEK -17.4 million
(-3.3m) for the reporting period.
-- The average number of permanent employees for the period was 228
(187), an increase of 22 per cent compared with the previous year.
-- Development expenditure amounted to approximately SEK 9.5
million (9m).
-- The equity ratio at the end of the period was 41 per cent (51%).
-- New versions of Frango Advisor and Frango Consolidator launched.
Frango in Brief
Frango is a leading software company that specialises in the field of corporate financial control for organisations and groups. The company develops and sells software and services through its international network of subsidiaries and distributors. Frango is headquartered in Stockholm. The Frango share is quoted on the 'O' list of the Stockholm Stock Exchange (Stockholmsborsen).
Significant Events During the First Quarter of 2002
A new version of Frango Advisor, version 9.0, was launched in February. A new version of Frango Consolidator, version 6.0, was launched in March. Both products have been updated to include a range of new features which will help Frango to further strengthen its position. Agreements were also signed with IKEA International and NV Nuon during the period.
Sales Trends and Earnings
January - March 2002
The year got off to a weaker start than expected. The first quarter is traditionally less dynamic due to seasonal factors and the fact that relatively few license agreements are concluded during this period. Frango's customers are generally busy completing their annual accounts and subsequently publishing annual reports. The first quarter of 2002 has also been characterised by more cautious attitudes in light of the general economic trends. Further, the impending international launch of Frango Controller has lead to some delays in the conclusion of license agreements, as customers await the release of the new product. However, recent successes can be reported from Sweden, where companies including IKEA have signed license agreements, and from the Netherlands, where energy company NV Nuon has signed a license agreement. Both of these agreements concern licenses for the new version of Frango Consolidator. The first quarter of the previous year produced a relatively strong performance, with revenues for that quarter accounting for 18 per cent of total revenues for the year. During the past four years, first quarter sales have on average accounted for 15 per cent of overall sales for the year. Sales trends are expected to improve during the latter part of 2002 as the effects of product releases earlier in the year start coming through as of the second quarter, and as improvements in general economic trends are anticipated.
Revenues for the first quarter of 2002 rose from SEK 47.7 million to SEK 57.4 million, an increase of 20 per cent compared with the corresponding period of the previous year. The proportion of revenues attributable to new licenses during the period was 32 per cent, compared with 39 per cent for 2001. Customers outside Sweden accounted for 77 per cent (78%) of overall revenues. Revenues from software licenses remained on a similar level to those reported for the first quarter of 2001, at SEK 18.3 million (18.7m). Revenues for maintenance and consulting services continued to show strong growth, rising by 51 per cent and 30 per cent respectively. Earnings net of financial items totaled SEK -17.4 million (-3.3m), down SEK 14.1 million on the previous year. The decline is primarily attributable to the reduction in license sales, which to a certain extent also has an impact on revenues from consulting services. Costs have also risen as a consequence of marketing and internal training costs incurred in relation to the product launches. The strengthening of the Swedish krona in relation to the euro and U.S. dollar has given rise to negative exchange rate differences of SEK -2 million. The situation last year was the opposite, resulting in positive exchange rate differences of SEK 1.8 million. External royalty costs rose by SEK 1.9 million compared to the previous year.
Operating expenses before the capitalisation of development expenses rose from SEK 56.8 million to SEK 77.0 million, an increase of 35 per cent or SEK 20.2 million compared with the corresponding period of the previous year. Of overall operating expenses, a total of SEK 2.5 million, attributable to the development of the new software, has been reported as capitalised development expenditure in accordance with the Swedish Financial Accounting Standards Council's recommendation (recommendation no. 15) pertaining to Intangible assets.
Net Revenues January - March 2002
Product Development
The international launch of the company's new software, Frango Controller, is due to take place during the second quarter. Overall, the product has taken more than two years to develop. The earlier version of Frango software, Frango Consolidator, has continued to be developed separately, which means that the company can now offer customers two consolidation systems: Frango Consolidator and Frango Controller. The new version of Frango Consolidator was launched in March. The overall development and maintenance costs for the period January - March 2002 amounted to around SEK 9.5 million (9m), including development costs of SEK 2.5 million (5.8m) that have been capitalised in the balance sheet. These development expenses are related to the development of Frango NavigatorXT, to the development of a manual and online help function for Frango Controller and to costs related to the international version of Frango Controller. Overall, SEK 16.5 million (5.8m) has been capitalised in the balance sheet. Depreciation has already begun and depreciation of SEK 1.2 million (0m) has been charged to the net earnings for the period.
Rolling 12 Months
Based on the developments noted during a rolling twelve-month cycle, from April 2001 to March 2002, revenues amounted to SEK 277.7 million, to be compared with SEK 216.5 million as at March 31, 2001. This corresponds to a 28 per cent increase in revenues.
Earnings net of financial items calculated on a rolling twelve-month basis amounted to SEK 0.8 million, a reduction of SEK 17.1 million compared with the first quarter of the previous year, when rolling twelve-month earnings amounted to SEK 17.9 million. In addition to the above-mentioned comments relating to the first quarter, the earnings calculated on a rolling twelve-month basis were significantly affected by the period of generally poor economic development witnessed during the last six months of 2001 and by increasing concern following the terrorist attacks in New York in September. Further, earnings during the last six months of 2001 were affected by non-recurring costs totalling SEK 8 million.
Market
Frango specialises in group financial control. The particular niche in which Frango operates is termed Corporate Financial Management (CFM) and covers systems and services for group control, management reporting and budgeting. CFM comes under the wider concept of "Analytical Applications". According to the International Data Corporation (IDC), the sector for CFM is expected to report sales of USD 2.3 billion in 2005, which would correspond to an annual growth rate of 20 per cent.
Frango has historically outperformed the market. During the past five- year period, the average rate of revenue growth per year on license sales and maintenance services has been 64 per cent. Frango has benefited from this positive market trend, which has been driven by the increasing trend towards internationalisation seen in recent years, making the preparation of consolidated financial statements and financial reporting far more complex. The financial markets have progressed rapidly, demanding improvements in corporate transparency and reporting speed. At the same time, legal requirements for statutory consolidation have become increasingly extensive and detailed, and are being introduced in a growing number of countries. It is expected that these underlying business drivers will continue to prevail, even in the longer-term perspective. The recent debate following the Enron scandal has also illustrated the need for reliable, standardised system solutions that can provide effective support to executive management teams and other parties involved in the management and administration of groups of companies.
Employees
The average number of employees rose during the period to 228 (187), corresponding to an increase of 22 per cent. At the end of March, the number of employees was 240, to be compared with 199 last year.
Liquidity, Investments and Financial Position
The company's financial position remains healthy. The company reported a negative cash flow for the period, SEK -1.6 million (-5.0m). The Group's liquid funds at the end of the period amounted to SEK 31.7 million (37.3m). Including short-term investments, liquid assets amounted to SEK 34.6 million (40.4m). As in the past, business activities have been financed with funds generated internally and shareholders' equity. The Group has no bank loans. The equity ratio at the end of March was 41 per cent (51%). Investments for the period amounted to SEK 4.2 million (7.9m), including SEK 2.5 million (5.8m) relating to capitalised development expenditure for software. The purchase of computers and peripheral equipment accounted for most of the remaining expenditure. Shareholders' equity at the end of the period amounted to SEK 69.6 million. The reduction in shareholders' equity - SEK 14.0 million since the turn of the year - is the result of a SEK -13.3 million reduction in net earnings for the period and negative translation differences of SEK -0.7 million.
Parent Company
Parent Company revenues amounted to SEK 12.5 million (12.3m), including intra-group invoicing of SEK 12.5 million (12.3m). Earnings net of financial items amounted to SEK -11.8 million (-1.7m). Investments for the period amounted to SEK 1.1 million (0.5m). The Parent Company's liquid funds at the end of the period, including short-term investments, amounted to SEK 3.6 million (7.4m).
Developments in the Share Price
The beginning of the year has been characterised by low revenues and falling share prices. During the first quarter of 2002, a total of 454,183 shares (268,242) were traded, with share purchases representing a turnover of SEK 38.0 million (34.5m) for the period. This corresponds to an average share price of around SEK 84 (129). The highest share price noted during the period was on January 3 and 4, when the share closed at SEK 97 and the lowest share price was on March 25, when the share closed at SEK 75. On March 28, the Frango share closed at SEK 80. Frango's market capitalisation at the end of March was SEK 365 million. The share was listed on the 'O' list of Stockholmsborsen on April 23, 1999. The initial share price was SEK 62. At the end of March, institutional investors accounted for around 30 per cent of shareholdings. Approximately 65 per cent of the total number of shares are today in market circulation.
Prospects
In the longer-term perspective, it is felt that demand for the company's products will remain buoyant and be accompanied by strong growth and good profitability.
The company's clear focus on its core business, supplying systems for group financial control, is well illustrated by its simple yet comprehensive product portfolio. With the Frango Management Perspective Suite, comprising Frango Consolidator, Frango Controller and Frango Advisor, the company is well-positioned to capitalise on existing and future market opportunities. The company's latest product, Frango Controller, which will be launched internationally in the second quarter, is expected to generate significant revenues in 2002. In conjunction with this product release, Frango Consolidator and Frango Advisor have also been upgraded to include new and improved functions.
In connection with the introduction of a new earnings-related, Group- wide stock option programme for Frango employees, a long-term target was set. According to this target, the Frango Group must by no later than 2005 achieve revenues of at least SEK 1,000 million (currently equivalent to about USD 100 million) and, by the same time, earnings net of financial items of at least SEK 100 million.
Auditing
The company's auditors have not reviewed this interim report.
Release of Next Financial Report
The interim report for the second quarter of 2002 will be published on July 12, 2002.
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