Summary
- Strong cash flow from operations for 2001 (NOK 542 million)
- Q4 earnings in line with or better than budgets and expectations following Q3
- Telecommunications reported very strong profitability in Q4 (operating margin of 17.9%)
- Computer Operating Services returned to profit in Q4 (operating margin of 5.1%)
- Consolidated operating margin for full-year 2001 marginally up on the previous year (7.1%)
- Contracts with a total value of NOK 960 million signed with banking clients in Q4
- Implementation of restructuring measures is proceeding in line with plans

Turnover and operating margin in the fourth quarter
Turnover was 8% higher than for the same period in 2000, and 20% higher on a comparable pro forma basis (see appendix). In terms of the pro forma figures, the business areas Bank & Finance and Computer Operating Services showed growth in turnover, whilst Telecommunications and Consultancy Services reported somewhat lower turnover.

All business areas reported profitability in line with or better than the company's budgets and expectations at the close of the previous quarter. Telecommunications reported particularly strong profitability, with an operating margin of 17.9%. The group's operating profit before goodwill depreciation of NOK 207 million for the fourth quarter is NOK 57 million higher than the same quarter of 2000, but represents a reduction of NOK 27 million if capital gains are excluded. Operating profit for the fourth quarter includes capital gains of NOK 104 million (NOK 101 million from the sale of Ephorma shares and NOK 3 million from property sales) as compared to NOK 20 million in Q4 2000 (sale of shares in InfoMedica).

Turnover and operating margin for the full year
Turnover for 2001 was 13% higher than the previous year, representing a 16% increase in pro forma terms (see appendix). In terms of the pro forma figures, the business areas Bank & Finance and Computer Operating Services showed growth in turnover, whilst Telecommunications and Consultancy Services reported somewhat lower turnover. Bank & Finance reported particularly strong growth in turnover, but it should be noted that this business area experienced relatively low turnover in the early part of 2000. The total volume of new assignments and business acquired by the Computer Operating Services business area is greater than the reported growth in turnover. The fall in operating margin therefore implies that underlying volume growth for existing customers has not been sufficient to offset falling unit prices.

Telecommunications produced a particularly strong year-on-year improvement in margins. Bank & Finance reported a fall in margin compared to the previous year, but the first six months of 2000 were characterised by specific software sales that generated high margins. Consolidated operating profit before goodwill depreciation of NOK 360 million is NOK 43 million higher than in 2000, but represents a reduction of NOK 77 million if capital gains are excluded. Full year operating profit includes capital gains of NOK 140 million as compared to the NOK 20 million reported in 2000 (sale of shares in InfoMedica).

Employer's social security contributions on employee share options
The provision for employer's social security contributions in respect of employee share options was increased by NOK 1 million in Q4 2001 as compared to NOK 3 million in Q4 2000. The year as a whole saw a write-back of NOK 8 million as compared to a charge of NOK 46 million for 2000.

Previous business areas
Infrastructure ceased to be a business area with effect from 1 January 2001, and the part-owned company Itworks AS (43%) is now recognised in the accounts as an associated company. Infrastructure reported an EBITA loss of NOK 1 million for the final quarter of 2000 and a loss of NOK 6 million for 2000 as a whole.

Goodwill
Goodwill depreciation for 2001 was NOK 199 million, up by NOK 22 million from the previous year. The increase is largely due to the acquisitions of Fellesdata and DnB's IT operation.

Goodwill was written down by a total of NOK 1,262 million in 2001. The majority of these write-downs were recognised in the third quarter, and were carried out in view of the significant fall in value seen for the IT sector in general and consequently for the company. The write-downs of goodwill related to the business areas Consultancy Services, Computer Operating Services and Bank & Finance.

Interest in associated companies
The group's share of the results reported by associated companies represented a loss of NOK 61 million for 2001 as compared to a profit of NOK 1 million for the previous year. These figures are affected by weak results for Itworks AS, which experienced weak market conditions for much of the year. A significant restructuring of the Itworks operation was initiated in the fourth quarter in order to achieve cost savings, and Itworks recognised a provision of NOK 20 million in the fourth quarter in this respect. Itworks wrote down the value of goodwill in its accounts by NOK 46 million in the third quarter.

Capital gains on sales of shares and write-downs
Capital gains on sales of shares amounted to NOK 40 million in 2001 as compared to NOK 28 million in the previous year. The capital gain for 2001 was recognised in the fourth quarter accounts, and related to the sale of the group's 42% interest in European Medical Solutions Group (previously known as InfoMedica). The fourth quarter accounts also recognise write-downs of shares in associated companies and other smaller shareholdings totalling NOK 122 million.

Net financial expense
Net full-year financial expense of NOK 67 million represents an increase of NOK 18 million from the previous year. Net financial income for the first half of 2000 was positively affected by the interest earned on net proceeds of NOK 922 million raised by a share issue in February 2000.


Taxation
The write back of tax totalling NOK 252 million for the year reflects the total reorganisation of the group, which has created deferred tax assets recognised to profit and loss in connection with the write-down of the related goodwill items.

Earnings per share
Full-year profit after tax but before goodwill depreciation amounts to NOK 402 million, equivalent to NOK 4.48 per share as compared to NOK 2.62 per share for 2000.

Cash flow
The group reports strong cash flow from operational activities of NOK 400 million in Q4 2001 as compared to NOK 224 million for Q4 2000. Some NOK 120 million of the total arises from specific situations that would normally have been recognised in Q1 2002. Cash flow for full year 2001 totalled NOK 542 million as compared to NOK 425 million in 2000.

Net interest bearing liabilities and liquidity
Net interest bearing liabilities fell from NOK 538 million at the close of the third quarter to NOK 402 million at the close of 2001. Liquidity, including undrawn credit facilities, amounted to NOK 1,015 million at the close of the year. This represents an increase of NOK 443 million from the close of 2000 and of NOK 484 million from the end of the third quarter.


The group's business areas


Telecommunications
This business area comprises the sale of software, systems and consultancy services to the telecommunications sector. These activities focus in particular on the CCB (Customer Care and Billing) and Mediation product areas. The Telecommunications business area is made up of the legal entities EDB 4tel AS and the American subsidiary Telesciences Inc. as well as the Washington based consulting firm Logan Orviss Inc. The group has a 44% holding in Logan Orviss Inc., and this business is accordingly treated as an associated company in the group's accounts. In addition sales offices have been opened in Switzerland, Spain and the United Kingdom.

Turnover for the year as a whole shows a marginal decline from the previous year, and fourth quarter turnover was also lower than in the same period of 2000. The domestic market has shown some slowdown, but international sales have increased. The improvement in profit from the previous year can be attributed to a much higher proportion of licence sales with good profit margins. This relates particularly to sales of Mediation software. In addition the business area has reduced its use of external consultants, and the resultant increase in turnover per employee has had a positive effect on margins. Savings have also been made on general operating costs.

The business area has implemented further cost saving measures in response to continuing downward pressure on prices in the domestic market. These measures are intended to offset the impact of lower prices to the greatest extent possible. As part of this program it has been decided to close the operation in Ireland, and the fourth quarter accounts recognised a provision in this respect of NOK 20 million. The results reported for the first six months of 2000 were burdened by costs of NOK 44.2 million for the conversion of a major system to a new technology platform.

Licence sales accounted for a particularly high proportion of sales in the fourth quarter, and this together with the measures taken to improve margins noted above ensured good profit margins despite the restructuring provision of NOK 20 million. Underlying profitability for the fourth quarter was accordingly better than in the same period of 2000.


Bank & Finance
This business area comprises the sale of software, systems and consultancy services to the banking and finance market. The business area is made up of the legal entities EDB Fellesdata AS and the subsidiaries SysCon AS and AcceptData AS (from 1 August 2001) in addition to the Benelux-based company Maxware BV and the Swedish companies Infovention AB (from 1 September 2001) and eConnect AB.

The figures reported for year-on-year growth in turnover are affected by the acquisition of Fellesdata on 1 April 2000, but this business area nonetheless reports 33% growth in turnover on a comparable pro forma basis (see appendix). Much of the explanation for the reported increase lies in the low level of activity seen in the first quarter of 2000. The business area has also taken over additional operations and has increased its total staff capacity, and these factors increased turnover in 2001.

The underlying level of activity remains relatively strong, but is nonetheless somewhat lower than that seen in the first six months of 2001. The business area has a strong order book. In addition Bank & Finance has carried out a comprehensive conversion project which had a positive effect on full-year sales.

Profit margins were somewhat lower in the fourth quarter than in the same period of 2000, reflecting some degree of slowdown in the market. However profit margin was slightly stronger in the fourth quarter than in the previous quarter, and was somewhat better than the expectations the company communicated to the market at the time of the previous interim report.

There was some evidence of a halt to sales in the third quarter as result of a focus on the operational situation. This caused a number of customers to defer decisions until a later date than had been expected. However the decisions deferred at this time were, as expected, confirmed in the fourth quarter, and the company announced new contracts totalling NOK 960 million in this quarter.

A comparison of profit margins for 2001 with the previous year should take into account the particularly high margins seen in the first half of 2000. This situation reflected the introduction of the new Financial Contracts Act combined with pent-up demand following the moratorium on IT projects in the banking sector around the millennium shift, and these factors resulted in a high level of software sales with attractive margins.


Consultancy Services
This business area comprises services related to project management, consultancy advice, systems development and systems administration. The activities of this business area cover all industries and sectors, and it comprises EDB Business Consulting and EDB Dolphin. In addition Ephorma and EDB InfoMedica formed part of this business area until the sale of these businesses with effect from 1 December 2001 and 1 October 2000 respectively.

Turnover for the year shows zero relative to 2000 after correcting for capital gains and activities sold. Consultancy Services experienced a difficult period in the early part of 2000, and whilst the same period in 2001 proved far more positive, margins have nonetheless been affected by stagnating demand. Market conditions showed no sign of improvement in the fourth quarter, and this business area is currently experiencing a low level of capacity utilisation. However the business area reported good performance in certain areas of activity such as sales of IVR and Call Centre systems as well as advisory consulting services.

The figures reported for turnover and profit for the fourth quarter include a gain of NOK 101 million on the sale of Ephorma shares. The equivalent figures for Q4 2000 included a NOK 20 million gain on the sale of InfoMedica shares. The accounts for this business area include a 50% interest in Ephorma up to 1 December 2001, and the impact of Ephorma on quarterly figures for the Consultancy Services business area is shown in a separate table in the appendix to this report.

The Consultancy Services business area was subject to extensive restructuring in 2000, and most of its activities now report a strong improvement in profitability from a somewhat slimmer cost base. However market conditions have changed somewhat from the situation seen in the first six months of 2001, and we now see a general reluctance to implement new projects.

Capital gains on businesses sold in 2001 amount to NOK 105 million as compared to NOK 20 million in 2000. The subsidiary Maxware International was sold at the turn of the year, but this transaction created neither gain nor loss. This company reported turnover of NOK 20 million in 2001, with an EBITA loss of NOK 3 million.

The number of employees involved in this business area fell from the previous year's level due in part to businesses sold, as well as to the effect of restructuring measures.


Computer Operating Services
This business area comprises both the centralised and remote operation of computer systems, data communications and services related to backup and publishing. The activities of this business area cover all industries and sectors. The legal entities that make up this business area are EDB Teamco the subsidiary PDS AS (with effect from 1 April 2001) and the Swedish company Unigrid AB (from 1 August 2001).

The strong year-on-year growth in turnover reported for the year is principally the result of the acquisition of Fellesdata on 1 April 2000, and comparable pro forma figures show an increase of 18% (see appendix). It was noted in the previous interim report that the company then expected that growth in transaction volumes would fall short of the level previously expected, and also anticipated a shift in production volume from OS/390 to Unix systems. These factors form the basis for a restructuring of this unit to reduce its cost base in order to match weaker production volumes. The restructuring principally involves staff reductions, reorganisation and changes in the infrastructure of EDB Teamco, and will be completed over the course of the first six months of 2002.

The group recognised the financial liability to which it believes it is exposed as a result of the operational breakdown on 2 August, together with its own costs in this respect, in its third quarter accounts.

New outsourcing assignments have the effect of reducing margins somewhat by comparison to 2000, both because they involve a high proportion of sub-contractor involvement which is invoiced through the company and because it takes some time before synergies can be realised. The sale and leaseback of the premises at Skøyen has caused a reduction of ca. 1 percentage point in EBITA margin since the beginning of 2001, but it has had a positive effect on consolidated net financial items. The margins reported for the early part of 2000 were unusually high as a result of particular circumstances arising from the millennium transition.

The company indicated that it expected margins for this business area to be in the order of 3-5% in the fourth quarter of 2001, and the margin actually achieved was at the higher level of this range. The restructuring program is proceeding in line with plan.


Other matters
The costs incurred by the holding company EDB Business Partner ASA are reported as a separate business area titled 'Administration'. Operating expenses for the year amounted to NOK 30 million. Capital gains realised on sales of real estate totalling NOK 35 million are included in the income reported for Administration.

The group employed 3,247 staff in its wholly owned subsidiaries at the end of the year as compared to 3,020 at the close of 2000. This represents an increase of 227, largely due to organic growth.

The group operates a share option scheme for all of its employees. Options over a total of 10.0 million shares were outstanding at the end of the year, of which options over 4.0 million shares were granted in November 1999 at a market share price of NOK 40.00, options over 4.8 million shares were granted in June 2000 at a market share price of NOK 123.60, options over 0.5 million shares were granted in December 2000 at a market share price of NOK 96.90 and options over 0.7 million shares were granted in August 2001 at a market share price of NOK 79.80. The exercise price for all these options is the original market share price increased by 1% for each new calendar month to the date of exercise.


Future prospects
The company starts 2002 with a strong order book and a good level of activity in most segments of its business. Certain areas which have seen a trend for declining demand over recent quarters are expected to report improving conditions in the second half of 2002. The company maintains its target for growth in turnover in 2002 to be 1-2% greater than expected market growth. The company is on the whole satisfied with the margins achieved over recent quarters, with the exception of the business areas Computer Operating Services and Consultancy Services. A significant restructuring of the Computer Operating Services business area is now underway in order to secure the group's overall profitability. The slowdown seen in the banking and finance market has made it necessary to adjust the group's cost base in this area, and the necessary measures are being implemented.

The Telecommunications business area has enjoyed a high level of activity for international sales of Mediation products, and the prospects for further sales are considered to be good. Important orders have been won in this area from international telecommunications operators, in part as a result of their preparations for GPRS and UMTS, and this serves to demonstrate that we offer competitive products. The process of internationalisation continues to be a major focus, and order books for both the European and American markets are at a good level. The business area's performance in the USA has been particularly good despite the recent turbulent situation. The performance of this business area serves to demonstrate that EDB 4tel is in the process of establishing a position as one of the world's leading suppliers of Mediation software. There is some degree of downward pressure on prices in the domestic market, but by implementing cost reducing measures the business area is well placed to offset any decline in margins to the greatest extent possible. On the basis of expected volumes in the domestic market, we expect that the factors mentioned above will reduce the business area's margins by around 1-2 percentage points in total.

Sales of applications and services by the Bank & Finance business area have shown a good level of activity, but there have seen some signs of slowdown in this market over the second half of 2001. As stated in the third quarter interim report this is expected to cause margins over the next 2-3 quarters to remain at around 7-8%. As already communicated, the group considers it necessary to reduce the cost base of this business area in order to ensure strong margins over the longer term. In this respect a decision was taken in January 2002 to reduce employee numbers by approximately 90. This will cause a non-recurring provision of circa NOK 25 million in Q1 2002, and the surplus personnel will cease to be included in the company's personnel expenses with effect from Q2 2002. This will help to ensure that the business area achieves an expected margin in the order of 8-10% for 2002 as a whole. The necessary reduction in personnel numbers reflects the fact that the work involved in integrating two product platforms to a single platform is now largely complete, and in the current market conditions it is not realistic to expect that the surplus personnel can be found chargeable work within a reasonable time. The group has a strong order book and a good level of prospective future sales, and this provides the basis for some degree of growth in future months. The banking community has demonstrated its confidence in the company by renewing and expanding their contracts, and the fourth quarter saw an inflow of NOK 960 million to the order book. New long-term contracts have been entered into with Svenska Handelsbanken, Terra Gruppen and Sparebank 1 among others. The process of internationalisation for this business area continues to attract considerable emphasis, and a number of products are now ready for international sales. We believe that the acquisition of Infovention in Sweden will give access to a broader international market segment.

The Computer Operating Services business area won a number of major new outsourcing contracts in 2001, and this plays an important role in reinforcing the group's position in the Nordic market as well as securing access to economies of scale over the longer term. The contracts entered into with banking and finance customers in the fourth quarter mentioned above represent a vote of confidence in EDB Business Partner as a supplier of operating services, and are seen as an important milestone following the operational breakdown experienced in autumn 2001. The business area is strongly focused on implementing its restructuring, and this has so far proceeded in accordance with plan. The restructuring now underway will play an important role in ensuring that the business area can achieve acceptable margins over the longer term. This process includes restructuring the DnB IT unit, and this acquisition will have a negative effect on the business area's margins of 1-2 percentage points over the first 12-18 months of the operational period. Some customer contracts provide for annual price reductions by way of reduced unit prices, and margins will be somewhat lower in Q1 2002 than in Q4 2001 before recovering over the course of 2002 in pace with the effect of restructuring measures. The second half of 2002 is expected to show a margin in the order of 7-9%. The acquisition of Unigrid has created opportunities for a closer involvement in the Swedish market for computer operating services, and marketing is in full swing with a satisfactory base of prospective customers.

The Consultancy Services business area reported somewhat weaker margins for the last quarter of 2001, and market conditions remain difficult. This business area is experiencing weak capacity utilisation, and whilst cost-saving measures have been implemented these have not been sufficient to fully counteract lower demand. No significant change in margins from the current level is expected for this business area for the next two quarters.

The company's long-term strategic targets continue without change. The focus of attention is on profitable growth, restructuring and operational reliability as well as international sales of applications and systems to the banking and finance market and the telecommunications sector.



Oslo, 29 January 2002
The Board of Directors of EDB Business Partner ASA




Attachments:

Interim report with tables:
http://reports.huginonline.com/846520/98679.pdf

Presentation of 4th quarter 2001:
http://reports.huginonline.com/846522/98681.pdf