Operating profit (EBITA) reaches an all time high in the third quarter

EDB Business Partner reports third quarter results which show sound growth in all business areas. Turnover after nine months of NOK 3,092 million represents growth of 26% from the same period last year, and operating profit before goodwill depreciation of NOK 167.4 million shows a 21% improvement from last year.

The third quarter saw a 50% increase in operating revenue compared to the same period last year, and growth was relatively evenly distributed across all business areas. The market for general consultancy services improved, and has now returned to normal relative to the first half of the year. Sales to the banking and finance sector have continued to grow strongly. The company views the market for com-puter operating services and outsourcing with considerable optimism, and this area of activity con-tinues to show sound growth. EDB Business Partner was awarded a major and significant out-sourcing assignment by Christiania Bank during the third quarter, and this reinforces EDB Business Partner's position as a competitive and trend-setting outsourcing partner. Market conditions for sales of hardware and related services showed some improvement relative to the first six months of the year, but there is still scope for considerable improvement in this market. The public sector and health service markets have shown a somewhat weaker performance than had been expected.

Operating profit before goodwill depreciation for the nine months to 30 September 2000 amounted to NOK 167.4 million, representing a NOK 29.2 million improvement from the same period last year. Computer operating services produced a particularly strong improve-ment, whilst sales of consultancy services and systems have shown a sound improvement over the most recent two quarters following a slow start to the year. A charge of NOK 42.1 million was recognised in the first nine months in respect of employer's tax liability arising from the employee share option scheme. The equivalent charge for the same period last year was NOK 3.3 million.

Operating profit before goodwill depreciation for the third quarter in isolation amounted to NOK 93.7 million, representing a 64% improvement over the third quarter of last year and an all-time high for EDB Business Partner. This strong performance reflects a return to normality for the market sectors which made a slow start to the year. In addition the group's restruc-turing measures have resulted in cost reductions for certain areas of the group's consultancy activities.

The group's operating margins continue to improve in line with the long-term goal for ope-rating mar-gin before goodwill appreciation to reach 10% during 2002. The third quarter produced a margin of 7.1% whilst the margin for the first nine months of this year was 5.4%.

Fellesdata is consolidated into the group accounts with effect from the second quarter of this year. This report provides a pro forma profit and loss account and balance sheet to show the group's accounts as if the acquisition had taken place on 1 January 1999. EDB Business Part-ner acquired 100% of the share capital of the consultancy company BDC with effect from 1 July 2000. Prior to this EDB held a 38% interest in BDC.

Goodwill depreciation amounted to NOK 116.5 million for the first nine months, representing an increase of NOK 60.8 million from the same period last year. Goodwill arising from the acquisition of Fellesdata accounted for NOK 52 million of this increase.


Net financial items represented income of NOK 3.6 million for the nine months to 30 September 2000, of which the share in results of associated companies accounted for NOK 3.3 million and capital gains on the sale of shares in the first quarter accounted for NOK 27.6 million. The group's net interest-bearing indebtedness amounted to NOK 987 million at 30 September 2000.

Calculated tax for the nine months to 30 September is NOK 38.1 million, producing a figure for profit after tax of NOK 16.3 million as compared to NOK 44.8 million for the same period in 1999. An increase of NOK 60.8 million in goodwill depreciation makes up the largest single element of the change from last year's figures.

Profit after tax but before goodwill depreciation amounted to NOK 132.8 million, and represents NOK 1.63 per share as compared to NOK 1.45 per share for the same period in 1999 and NOK 1.91 for 1999 as a whole.

The group’s cash flow from operational activities of NOK 201 million for the first three quarters is equivalent to NOK 2.47 per share, as compared to NOK 2.36 per share for the same period last year. Investment amounted to NOK 2,832.3 million over the first nine months, of which NOK 2,627.1 million relates to businesses acquired, NOK 35 million was received from the sale of businesses and NOK 75.0 million was invested in the purchase of land. Investment in operational fixed assets amounted to NOK 165.1 million, with the bulk of this amount being for the group’s computer ope-rating centre.


Consultancy Services and Systems

This business area comprises services related to project management, consultancy advice, systems development and the administration of computer systems, as well as the development and sale of software. The latter activity is concentrated on applications for banking and finance, the health care sector, telecommunications and public sector administration.

The legal entities which are involved in providing the products and services offered by this business area are the wholly owned subsidiaries EDB 4tel, Telesciences, EDB Fundator, BDC, EDB eConnect, EDB InfoMedica, EDB Stradec and EDB Dolphin, as well as part of the activities of EDB Novit and Fellesdata. In addition to this the business area involves Ephorma, in which the group has a 50% interest.

Operating revenue for this business area amounted to NOK 1,608.1 million for the first nine months, representing an increase of 27% from the same period in 1999. Turnover in the third quarter was almost at the same level as in the second quarter even though the third quarter normally produces lower turnover as a result of a lower level of charge-out during the holiday season. This positive trend reflects a situation in which conditions in the consultancy market are, on the whole, returning to a more normal situation following a slow start to the year.

Growth has been particularly strong in sales of systems to the banking and finance sector. There was some improvement in sales to the telecommunications market, but the domestic Norwegian telecom-munications market shows some signs of stagnation. In terms of the international progress of the group's focus on the telecommunications sector, the American subsidiary Telesciences continued to perform very strongly and 4tel's international marketing produced a strategically important expansion of its contract with Swisscom. Market conditions for sales of general consultancy services have retur-ned to a more normal situation, and the level of charge-out is now at an acceptable level in most areas. However the level of activity in the public sector and health service markets has been somewhat lower than we anticipated at the end of the last quarter.

Operating profit before goodwill depreciation amounted to NOK 87.5 million for the nine months to 30 September, representing an increase of NOK 30.5 million from the same period of last year. The results for the year to date reflect strong growth in turnover, but also benefited from cost savings arising from the restructuring measures carried out in parts of the consultancy business. As part of the ongoing restructuring process, and with a view to further increasing the focus of the group's consul-tancy activities, it has been decided that the computer training and SAP consultancy activities will be sold. The integration of Novit and Fellesdata has produced co-ordination benefits in the form of lower costs for the group's activities in the banking and finance sector.

The period to 30 September 2000 was burdened by NOK 28.7 million of costs in connection with the conversion of a major telecommunications system to a new technology platform as compared to costs of NOK 7 million on this project for the same period last year. Work on the conversion project started in 1999 and was completed as planned by the close of the first half of this year.


Computer Operating Services

This business area comprises both the centralised and remote operation of computer systems, com-puter communications and services related to backup and publishing.

The legal entities which make up this business area are EDB Teamco in its entirety together with part of the activities of EDB Novit and Fellesdata.

Computer Operating Services generated operating revenue of NOK 1,306.3 million for the first nine months, representing an increase of 35% from the same period last year. This increase includes the contribution of businesses acquired, and turnover on a like-for-like basis for the first nine months of this year was slightly lower than for the same period last year. However the figures for operating revenue in 1999 were boosted by sales in respect of the Y2K test centre, which of course do not feature in this year's figures.

New outsourcing assignments from Christiania bank and Vesta came into operation in September, and will represent annual volume of approximately NOK 185 million.

This business area continues to perform strongly, with profit for the year to date of NOK 151.7 million representing a profit margin of 11.6%.

The main reason for the strong improvement in profit can be found in a combination of continuing high production volumes and the business area's cost-effective operation. The general picture for costs in this area has been very favourable, and reflects in particular the realisation of synergy gains as a result of the consolidation of the operating centres of EDB Fundator and EDB Teamco. In addition we are now beginning to see synergy benefits from the integration of the computer operating environ-ments of Teamco, Fellesdata and Novit.

The activities currently carried out by the Oslo publishing units of Teamco, Fellesdata and Novit are to be brought together at Fellesdata's dialogue centre at Linderud before the start of next year. This will create the largest unit in northern Europe for this area of services.


Infrastructure

This business area comprises the sale of equipment and services related to deliveries of PCs and networks. Aspects of this business were previously carried out by a number of the entities in the group, but with effect from 1 January 2000 all infrastructure activities are now concentrated into EDB Intech.

Agreement has been reached to merge EDB Intech AS and the equivalent activities of Telenor Busi-ness Systems. The new business is expected to have annual turnover of NOK 1.5-2 billion, and it is likely that the merger will be carried out with accounting effect from 1 January 2001. EDB and Tele-nor will each have a 50% interest in the new company. The rationale for the merger is to create a larger unit that will be more competitive and have a stronger market position.

Sales of hardware and related services experienced a slow start to the year, resulting in a loss for the first quarter. The level of activity in the market improved somewhat towards the end of the second quarter and through the third quarter, but there is still some scope for improvement. This business area has produced a profit for the last two quarters.

Operating revenue for the nine months to 30 September 2000 amounted to NOK 318.2 million, which is 13% better than the same period last year even though last year’s figures were boosted by a major order for home PCs from the Norwegian defence authorities. Operating revenue is traditionally lower in the third quarter as a result of holiday leave for both our sales force and customers' purchasing staff.

The business area reported an operating loss before goodwill depreciation of NOK 5.2 million for the first nine months of the year, which represents a deterioration of NOK 6.3 million from the same period in 1999. Earnings were to some extent affected by the costs associating with restructuring, but principally reflected the low level of equipment sales in the first two months of the year and the fact that sales of services failed to reach a satisfactory portion of total turnover.


Other matters

The holding company EDB Business Partner ASA reports as a separate business area titled ‘Administration’. The holding company has no operating revenue, and its operating expenses for the first nine months of 2000 amounted to NOK 20.0 million. The increase from the comparable period of last year reflects an increase in the holding company’s staff numbers from 2 to 6 in connection with the merger between EDB and Telenor Programvare.

The group employed 3,140 staff in its wholly owned subsidiaries at the end of the third quarter as compared to 2,116 at the same date last year. This represents an increase of 48%. The increase includes the 924 employees of the acquired businesses of Telesciences, Fellesdata and BDC.

The group operates a share option agreement for all of its employees. As at 30 September 2000 options over a total of 12.8 million shares were outstanding, of which options over 6.7 million shares were granted in November 1999 on the basis of a market share price of NOK 40 and options over 6.1 million shares were granted in June 2000 on the basis of a market share price of NOK 123.60. An amount of NOK 42.1 million has been expensed so far this year in respect of employer’s tax and social security contributions arising from these options, as compared to NOK 3.3 million in the same period last year.


Future prospects

At the close of the second quarter the company expected to see an improvement in future prospects, and the third quarter saw these expectations materialise in the form of sound improvement in both turnover and earnings for the majority of the group's main areas of activity. We do not see any signs to suggest that this positive trend will not continue. Given the group's strong order book and the restruc-turing measures that have been carried out in certain business areas, we expect to see further growth in turnover and profit in the fourth quarter.

The integration of Fellesdata continues to be a major focus of activity, and the group attaches high priority to the process of realising synergy gains. The future annual value of the synergy benefits to be created by the integration is expected to amount to NOK 150-200 million. The consultancy and sys-tems activities of Novit and Fellesdata have now been merged, and the process of identifying a joint product platform has now been completed. We are already beginning to see specific co-ordination benefits in the form of reduced costs. The computer operating and publishing operations of Fellesdata and Novit will be transferred to Teamco.

The public sector and health service markets have been somewhat weaker than expected. EDB's busi-ness in the health service markets is principally represented by the subsidiary EDB Infomedica. This subsidiary merged with the equivalent activities of TietoEnator with effect from 1 October 2000, and EDB Business Partner retains a 42% interest in the merged company.

The group continues to be optimistic over the prospects for further growth in sales of systems to the banking and finance sector. We also intend to focus on international sales of systems and services for the banking and finance sector through specialist units within the group.

We see no signs of any significant change in the outlook for profit margins on computer operating services, and there is nothing to suggest any reduction in the volume of business handled for existing customers. In addition we are now seeing an increasing number of requests for bids on new outsourcing assignments.

Sales to the telecommunications market have not yet reached an acceptable level, but the order received from Swisscom and the status of prospective new business serve to strengthen our believe that the company will win additional orders from new customers in the international market.

Hardware sales have shown clear signs of improvement over recent months, and we believe this trend is set to continue. The first quarter of the year saw lower than usual interest from customers for hard-ware purchases, and it seems likely that this reflects a situation which many companies brought for-ward necessary replacements and upgrades in advance of the millennium transition. However the weak conditions seen in the first quarter will affect results in this area for the year as a whole.

For full report with tables, follow the enclosed link:

3rd quarter 2000

Oslo, 25 October 2000
The Board of Directors of EDB Business Partner ASA