STOCKHOLM, Sweden, May 6, 2002 (PRIMEZONE) -- Teleca AB (publ):
- Key merger activities with AU-System in place and industrial
logic reconfirmed
- Teleca's margin (EBITA) in Q1 was 10.1% (combined new group
full year 2001 7.9%)
- Sales during Q1 amounted to SEK 431 M (298 M)
- Operating profit before goodwill amortization (EBITA) amounted
to SEK 44 M (52 M). Profit after tax amounted to SEK 10 M (26M)
- Focus on R&D: Outsourcing agreement with Ericsson in France
regarding 188 employees. Acquisition of Erda Technology
(30 employees). SandbergTrygg sold (80 employees)
- Forecast 2002 remains firm: Significantly increased profit
(EBITA) compared with the pro forma profit for Teleca and AU-System
Teleca consolidates AU-System as from February 1, 2002. This reportincludes comparative Teleca pro forma figures for previous year, whichexcludes Epsilon and Sigma.
The Teleca Group
Teleca is one of Europe's leading consulting companies focusing on new technology and R&D with a strong position in the Nordic countries, the U.K. and France. The Group has some 2,200 employees in 13 countries, of which approximately 25% are based outside Sweden, with revenue outside Sweden of approximately 37%.
The Group's customers are leading technology companies, service operators and world-class IT users that need to develop new technologies or enhance existing solutions in the following markets:
- Telecom: switches, base-stations, call handling, OSS, data
services, etc.
- Consumer Electronics: PC peripherals, PDAs, cameras, handsets,
set-top-boxes, hi-fi equipment, etc.
- Automotive: driver info, security and safety, engine
management, telematics, traffic handling, etc.
- Life Science: pharmaceutical production control, laboratory
instrumentation, treatment electronics, etc.
- Industrial: SCADA, robotics, materials handling, device
control, simulation, validation, etc.
- Finance: online banking, financialmessage processing, mobile
banking solutions, etc.
- Government: business critical Content Management Systems.
Customers rely on the engineering skills of the Group across the range from small devices such as mobile phones and smart-card readers to large- scale operations like financial networks, telecom networks and production plant control.
Examples of customers of the Group are; ABB, AMS, Ericsson, Hutchison 3G, Motorola, Nokia, One2One, Orange, Saab, Sagem, Siemens, Sony Ericsson, Telia, Vattenfall and Volvo.
The distribution of revenue by segment during Q1 2002 was as follows: Telecom & Consumer Electronics, 58%; Industrial, 19%; Automotive, 8%; Life Science, 8%; Government, 5% .Finance, 2%.
Merger between Teleca and AU-System
All organisational activities relating to the merger are complete. A new board of directors, organisation and management are in place. Four new subsidiary companies have been created in Sweden from the division of AU- System and the combination of one of Teleca's subsidiaries. These are now fully operational. Operations in the U.K. have been combined and other International operations have been rationalised into one group. There is a good motivation in the organisation for the merger and the opportunities ahead. We are now through the internal phase and the focus is on sales and internal efficiency so it is "business as usual." The margin in Q1 has increased to 10.1% compared to 7.9% for the combined group last year.
The industrial logic of the merger, and the potential to increase profit, is constantly reconfirmed according to the estimates made in the prospectus. The combination of Teleca's strong presence in France, with a broad customer base, and AU-System's experience in outsourcing has provided a winning formula for the latest outsourcing agreement with Ericsson in France (see "Important events after the period").
The new organisation and restructuring will reduce central expenses for the new combined group by an estimated SEK 23 M annually and there are still savings to be realised as other infrastructure and IT systems are combined. The AU-System international businesses have been profitable since February and the trend continues to improve. AU-System's action programs are fully effective from January 2002 and reduce costs by SEK 60 M.
Cross-selling activity and cooperation between subsidiaries increases daily and this is already bearing fruit. The first key area is in relation to international telecom Operators where several major contracts were won in Q1 with companies cooperating in sales and delivery. The second is in relation to the AU-System mobile components (Mobile Suite) where Teleca's broad and complementary customer base is showing significant interest and some new projects have already been won.
Mobile Components
During 2001 AU-System invested significantly in a suite of mobile components (Mobile Suite) building on its very successful WAP browser technology. Today Mobile Suite includes Mobile Internet Client, Security package, Java Application Manager, MMS-client, Sync-ML client and e-mail client. Investments have continued in 2002. The direct costs for this product development were SEK 3.8 M during February and March. Increasing licence revenues are expected to create positive results for the product business from the autumn.
The components have been a key driver for the consulting business where system integration revenues are approx four times licence revenues with good profitability. Mobile Suite products have so far been sold to more than 50 customers and there are many prospects in the pipeline making it some of the leading technology in its field. The components have opened many doors for consulting business and are one of the key ways AU-System has recovered from the downturn at Ericsson.
Apart from the components providing a profitable, growing business model they also hold significant additional shareholder value that has the potential to be realised. Teleca has a number of options to decide upon regarding the future of the components including spinning out a new company with external funding, industrial partnerships or keeping the product business within Teleca. A decision on which path to take will be made during this year.
Market outlook
During Q1 Teleca has focused on strengthening sales through increased cooperation and cross-selling activities to the complementary customer bases of the newly merged group. This has opened up many new opportunities despite the continued flat market conditions.
The turbulence has diminished and Teleca's markets are generally much more stable. Although, there are positive signs there is no indication of a rapid upturn ahead. Teleca's Automotive, Industrial and Life Science markets have continued in a stable way.
In Q1 some large contracts have been won with telecom Operators in relation to 3G services and Operational Support Systems. This may indicate real momentum towards operational 3G networks although it is difficult to predict when and how this will affect the telecoms sector overall. There is continued good demand in telecom suppliers although this is still characterised by competition and price pressure.
The telecom landscape is likely to change significantly in the coming years following the shake up of the past year. This has naturally led to increased Outsourcing opportunities, as companies focus on core business, where Teleca is well positioned to be a strong partner. Much attention is drawn towards a few telecom suppliers with major difficulties while many others continue to perform in a reasonable way.
Supplier consolidation continues, which is positive for established partners like Teleca with strong relationships. Recent examples where Teleca has significantly strengthened its customer relationships include AstraZeneca, Ericsson, Hutchison 3G, Nokia and Volvo.
The picture across Europe is similar with the outlook in France improving following the tougher situation there. With the recent Outsourcing agreement with Ericsson in France, Teleca has a strong platform to provide its full range of service offerings to an improving market.
Due to the synergies between Teleca and AU-System, and the resulting strengthened sales and market position, combined with more stable markets conditions, and some positive signs, we believe in continued gradual improvements during the rest of the year.
Sales and earnings
Sales during Q1 2002 increased 44% to SEK 430 M (298 M). Sales outside Sweden accounted for 37%. Sales per employee amounted to SEK 234 thousands (248).
Operating profit before goodwill amortization (EBITA) amounted to SEK 43.7 M (52.2 M). The margin (EBITA) was 10.1% (17.5%). There are also direct costs of SEK 3.8 M during Q1for the investment in product development of mobile components.
Q1 2002 has 1,5 fewer working days compared with 2001, which reduces sales and profit by SEK 10 M compared with the previous year.
Profit after financial items amounted to SEK 22.0 M (43.6 M). The profit margin was 5.1% (14.6%).
Personnel
The average number of employees increased 53% to 1,840 (1,202 ) (AU- System is consolidated from February 1). The number of employees at the end of the period was 2,188 (1,245, December 2001).
Liquid funds and financial position
The Group's liquid funds amounted to SEK 420 M (245 M December 2001).
The Group's interest bearing net debt amounted to SEK 110 (SEK 162 M December 31, 2001). Included in the net debt is a long term debt instrument to the sellers of Teleca Ltd. in the amount of SEK 314 M. The net debt/equity ratio was 5% (19% December 31, 2001).
Group shareholders' equity amounted to SEK 2,014 M (870 M, December 2001). The equity/assets ratio was 68% (58% December 2001).
Investments
The Group's investments during the period totalled SEK 1,074 M, of which SEK 1,030 M was invested in goodwill, which is almost entirely connected to the acquisition of AU-System AB. The remaining SEK 44 M was invested in machinery and equipment, whereof SEK 43 M belongs to consolidation of machinery and equipment from AU-System and SEK 1 M was new investments in the ongoing operation.
Acquisitions during the period
In December 2001, Teleca made a public offer to acquire all of the shares outstanding in AU-System AB (publ). The acquisition was completed in 2002 and today Teleca owns 99.1% of the shares in AU-System. Measures to acquire the remaining shares outstanding through compulsory redemption have been initiated. Teleca consolidates AU-System as from February 1, 2002. The effects on the balance sheet from the acquisition are SEK 1,151 M in increased equity and SEK 1,028 M (8 M amortization during Q1) in increased goodwill. The restructuring cost amounts to SEK 31 M and has been accounted in the balance sheet.
Projects and new agreements
The following are examples of assignments secured during the first quarter of the year, which may be mentioned without breaching the non- disclosure agreements with Teleca's customers:
PrintDreams Development partner for the new wireless pocket
printer
Epson Epson Technology Partner
BEDD Inc. Software and hardware design for a new wireless
consumer product
Hamworthy KSE Responsible for electronics and instrumentation
in a new natural gas plant in Norway
Siemens VDO Automotive Licensing and support for WAP browser
Beamtrust A/S Development of solution for in-store payments
from mobile phones
AstraZeneca Frame agreement regarding consultancy services
within Industrial IT/Automation
Getinge Desinfection; Industrial adaption of dishwashers
Arla Foods Rebuilding of dairy factory
Vodafone Installation and integration of system to
improve the monitoring of network and service
Important events after the period
Teleca and Ericsson signed a letter of intent to enter into an outsourcing agreement where, Ericsson's French research and development activities will be transferred to Teleca. As part of the agreement 188 employees will be moved from Ericsson to Teleca in France. The outsourcing contract will initially run for a period of three years.
The agreement is part of Teleca's strategy to focus growth in major European markets and to expand the outsourcing business. The agreement is expected to be effective from June 1, 2002, and will increase Teleca's staff in France to more than 300 employees. Teleca expects the outsourcing agreement to have an immediate positive effect on Teleca's earnings and normal Teleca margins are expected within two years.
The R&D centre will form the basis of a new Teleca subsidiary focused on projects and outsourced R&D. Leveraging from the centre's long experience in full lifecycle projects, Teleca will work on a variety of telecom services including core network and mobile technologies. Teleca will also work as an integration partner to Ericsson within mobile services and service platforms.
In order to strengthen Teleca's focus on R&D, a deal with Bure Equity has been reached. Teleca has acquired the IT consulting company Erda Technology AB with 30 employees. Erda strengthens Teleca's position in Life Science. Erda will be incorporated with the operation of Teleca's subsidiaries in Uppsala and Linkoping. Due to the size of the acquisition the effects on Teleca's results are marginal.
Teleca intends to sell the Business-to-Business agency SandbergTrygg with 80 employees to Bure Equity. This is not core business for Teleca. SandbergTrygg will have a better platform for development within Bure's business area Media & Communication. The sale should be looked upon as part of Teleca's focus on new technology and R&D. A sale was taken into account in the merger with AU-System, and thus there will be no effect on the result, or in goodwill or equity, in the Teleca Group. An additional payment might be paid, based on the result in SandbergTrygg.
Forecast
Teleca continues to focus on margins in priority to growth and has increased the EBITA in Q1 to 10.1% compared to 7.9% (for Teleca and AU- System combined) for 2001. This is a major step towards our goal of 15% (as achieved by Teleca pre merger with AU-System). If conditions continue in the same way recruitment is likely to pick up in the second half of the year.
Teleca has had a good start to 2002 and the merger with AU-System has gone according to plan. The implementation of the industrial logic of the merger is delivering real advances in sales with a more efficient organisation and lower overall group costs. The recent Outsourcing agreement with Ericsson strengthens our position in France, one of the major markets for Teleca services.
We see a very interesting future potential and substantial value in the components for mobile solutions that AU-System has developed. Significant investments in these continued during Q1, which has had a negative impact on the results, but we expect positive effects from this investment during the coming quarters.
As stated in our full year report for 2001 we expected a gradual increase in earnings during the year due to effects of the merger. There is no change in this forecast. AU-System components and the recent Outsourcing agreement with Ericsson in France will add additional earnings during the second half of this year.
The Board of Directors' forecast for 2002 remains firm, which means significantly increased profit (EBITA) compared with the pro forma profit for Teleca and AU-System
Actual Jan-March 2002 as well as March 31, 2002 shows Teleca incl. AU- System consolidated as from February 1, 2002 Pro forma Teleca Jan-March 2001 as well as March 31, 2001 shows Teleca excl. Epsilon and Sigma Actual Jan-March 2001 as well as March 31, 2001 shows Teleca incl. Epsilon and Sigma Pro forma Teleca Jan-Dec 2001 as well as December 31, 2001 shows Teleca excl. Epsilon and Sigma
Stockholm, May 6th, 2002 Teleca AB (publ) (Corp. reg. no. 556250-3515)
Board of Directors
This report has not been subject to an examination by the company's auditors.
The interim report may be ordered from the Company or downloaded from Teleca's website: www.teleca.com
For further information, please contact:
Nick Stammers, President and Chief Executive Officer, Teleca AB Mobile phone: +44-7768-32 35 35 e-mail: nick.stammers@teleca.com Thomas Pantzar, Executive Vice President, Teleca AB Tel: +46-31-744 80 10, mobile phone: +46-703-79 18 30 e-mail: thomas.pantzar@teleca.com Joachim Jaginder, Chief Financial Officer, Teleca AB Tel: +46-8-579 116 01, mobile phone: +46 706 69 76 64 e-mail: joachim.jaginder@teleca.com Johannes Rudbeck, Investor Relations, Teleca AB Tel: +46-8-579 116 16, mobile +46 705 82 56 56 e-mail: johannes.rudbeck@teleca.com This information is also available in Swedish.
This information was brought to you by Waymaker http://www.waymaker.net
The following files are available for download:
www.waymaker.net/bitonline/2002/05/06/20020506BIT00140/wkr0001.doc The Full Report www.waymaker.net/bitonline/2002/05/06/20020506BIT00140/wkr0002.pdf The Full Report