The Computer Operating Services and Telecommunications business areas saw relatively little change in market conditions between the second and third quarter. The Bank & Finance business area's market is currently characterised by customers taking an increasingly cautious approach to placing new orders. The market for general consulting services shows no signs of improvement. Computer Operating Services reported higher operating revenue than in the same quarter of last year, while Telecommunications, Bank & Finance and Consultancy Services reported a year-on-year fall in operating revenue for the quarter. The lower turnover reported by Telecommunications reflects lower sales to the domestic market combined with weaker international sales and a weaker US dollar exchange rate. Difficult conditions in the consulting market caused a 39% fall in comparable year-on-year operating revenue for Consultancy Services. The reduction in operating revenue for Bank & Finance reflects lower sales of software in the Norwegian market.

 

Third quarter operating profit before goodwill depreciation (EBITA) for the group as a whole was significantly stronger than both the same period last year and the first two quarters of the current year. The third quarter of last year was burdened by NOK 150 million of non-recurring costs and provisions for restructuring the Computer Operating Services business area. This area has shown an underlying improvement in profitability this year thanks to the major improvements achieved by the measures implemented to improve efficiency. Lower operating revenue in the third quarter for Telecommunications, Consultancy Services and Bank & Finance caused a reduction in earnings relative to the third quarter of last year, but the significant cost savings that have been put in place served to markedly reduce the impact of lower turnover on earnings.

 

The results reported for the third quarter of last year were burdened by NOK 1,182 million of goodwill written off, and normal goodwill depreciation was also somewhat higher than this year, so operating profit of NOK 30 million reported for the third quarter of this year represents an improvement of NOK 1,353 million from the same period last year. The group's share of earnings in associated companies represented a charge of NOK 3 million for the third quarter, an improvement of NOK 27 million from the same period last year. Post-tax profit for the third quarter of this year was NOK 5 million as compared to a post-tax loss of NOK 1,066 million for the same period last year.

 

Third quarter cash from operations of NOK 150 million for the group was NOK 25 million higher than in the third quarter of last year. This is equivalent to cash from operations of NOK 1.66 per share for the third quarter of this year as compared to NOK 1.40 for the same period last year. Year-to-date cash from operations for the group totals NOK -36 million. This is NOK 178 million weaker than for the first nine months of last year, of which NOK 120 million relates to advance payments made by customers last year that are accordingly not included in this year's cash flow figures.

Net interest bearing liabilities totalled NOK 526 million at the close of the third quarter. This represents a reduction of NOK 414 million from the same quarter last year, and is NOK 89 million lower than the second quarter of this year. Liquidity, including undrawn credit facilities, amounted to NOK 839 million at 30 September 2002, representing an improvement of NOK 308 million from the same period last year and an improvement of NOK 119 million from the second quarter of this year.

 

 

 

This business area comprises the sale of software, systems and consultancy services to the telecommunications sector, with a particular focus on the Mediation product area.  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 Telecommunications has sales offices in Switzerland, Spain and the United Kingdom. 

 

 

 

 

 

Turnover was down by 42% from the third quarter of 2001. The fall in turnover reflects lower business volumes and charge-out rates in the domestic market, as well as lower international sales and a weaker US dollar exchange rate. Earnings for the quarter were depressed by the fall in turnover from the same period last year, but the significant cost savings achieved served to markedly dampen the overall effect. The measures implemented to reduce costs provide the foundation for a significant improvement in profit margins from the domestic market, assuming that activity continues at the current level. Operating margin showed a sound improvement from the previous quarter.

 

The main source of cost savings for the Telecommunications business area has been a reduction of 100 in employee numbers. This includes 25 staff temporarily laid-off and due to return at the start of December. In view of the current level of activity their return will create excess capacity. The business area will therefore have to consider permanent measures to reduce staffing unless demand improves in a relatively short time.

 

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 company Infovention AB (from 1 September 2001).

 

 

 

 

 

Third quarter turnover was 18% lower than in the same quarter of last year, principally due to weaker software sales in the Norwegian market. Some contracts which have already commenced were not recognised to income in the third quarter. This was due in part to new banks to which these contracts relate not finalising the necessary formalities (licences etc) to commence business, and the business area expects to recognise a greater proportion of outstanding contracts to income in the fourth quarter. It should also be noted that there is a marked trend for Bank & Finance customers to take longer to finalise decisions on new orders. The Swedish market remains slow, and whilst this market is a little stronger than at the start of 2002 there was no improvement between the second and third quarters.

 

The reduction in turnover caused a fall in earnings for the quarter relative to the same period of last year, but the cost savings achieved served to markedly reduce the overall effect. Although the business area's Swedish operation has been able to report a monthly profit for some periods, it made a loss for the quarter as a whole in line with the previous quarter. The Swedish activities caused a reduction of NOK 4 million in profit for the third quarter as compared to the same period last year.

 

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. Ephorma is included up until it was sold on 1 December 2001.

 

 

 

 

 

Turnover for the third quarter showed a fall of 39%, equivalent to NOK 38 million, as compared to the same period last year. This comparison excludes businesses sold and also adjusts the earlier figures for the gross treatment of operating services on-charged to clients The fall in turnover for the quarter was the result of a general decline in market demand for consultancy services. The business area experienced weaker market conditions than in the previous quarter.

 

The EBITA figure reported for last year included NOK 4 million from Ephorma and a capital gain from the sale of NOK 4 million. The fall in earnings of NOK 3 million on a comparable basis reflects the effect of lower turnover, whilst the cost savings achieved served to offset this to some extent. Certain niche product areas showed a strong performance, including e-commerce, call centre systems and IVR (Interactive Voice Recognition).

 

Part of the cost savings achieved by the Consultancy Services business area involved temporarily laying off 40 employees who are due to return to work in mid-November at the end of the lay-off period. In view of the current level of activity their return will create excess capacity. The business area will therefore have to consider permanent measures to reduce staffing unless demand improves in a relatively short time.  

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).

 

  

 

 

Computer Operating Services reports sound underlying growth in operating revenue. Unigrid was only consolidated for two months of the third quarter of last year, and in addition comparison with last year is affected by a shortfall of NOK 40 million relating to the loss of certain contracts as previously communicated, as well as the contractual price reductions that came into effect on 1 January 2002.

 

Third quarter EBITA shows a sharp improvement from the same quarter of last year, which was burdened by NOK 150 million of non-recurring costs and provisions for restructuring. The business area has generated stronger underlying profitability this year thanks to the significant results achieved by the measures implemented to improve efficiency. The operating margin of 9% achieved in the third quarter is somewhat better than the company's expectations and budgets when it initiated the restructuring of this business area 12 months ago. The restructuring is proceeding according to plan in terms of organisational structure, staffing and infrastructure. The measures implemented to improve margins are achieving the desired effect, and operations have remained stable. The business area has enjoyed an encouraging performance in the Swedish market, and Unigrid reports a stable and sound financial performance.

 

 

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 to date amount to NOK 25 million, including a loss of NOK 1 million realised on a sale of real estate. The group's property at Sandsli, Bergen, was sold on 1 March 2002 for consideration of NOK 101 million and leased back for 10 years. The group had 2,909 employees in its wholly owned subsidiaries at the end of the third quarter, representing a reduction of 361 from 30 September 2001.  The employee numbers reported include 66 persons currently laid-off.

The group operates a share option scheme for all of its employees. Options over a total of 9.7 million shares were outstanding at 30 September 2002, of which options over 3.9 million shares were granted in November 1999 at a market price of NOK 40.00, over 4.5 million shares in June 2000 at NOK 123.60, over 0.4 million shares in December 2000 at NOK 96.90, over 0.7 million shares in August 2001 at NOK 79.80 and over 0.2 million shares in February 2002 at NOK 52.35. The exercise price for all these options is the original market price increased by 1% for each new calendar month to the date of exercise. 

 

 

 

Telecommunications showed a stable performance in line with the second quarter. Given the current order book and taking into account the difficult conditions currently experienced by international telecommunication operators, the Telecommunications business area does not expect to see any improvement in international sales until the first quarter of next year at the earliest. The level of activity seen in the domestic market has been significantly weaker than was anticipated at the start of the year, and no early improvement in market conditions is expected. The Telecommunications business area has implemented major cost savings this year in response to the state of the domestic market, and assuming no further deterioration in current business volumes or prices this will provide the basis for stronger margins. In view of the current level of activity the return of staff currently temporarily laid-off will cause excess capacity. The business area will therefore have to consider permanent measures to reduce staffing unless demand improves in a relatively short time.

 

Bank & Finance experienced a deterioration in the domestic market since banks are currently taking a cautious approach to IT investment expenditure. This reluctance to finalise purchasing decisions is expected to depress the market for some time to come. The Swedish market has not shown any further strengthening since the middle the year, but the Swedish subsidiary has shown an improvement since the start of the year thanks to new operating assignments and the effect of cost saving measures. Many attractive prospects for new business are currently being pursued, and the business area still has an acceptable order book. Cost savings have been achieved in accordance with the business area's budgets, but the lower cost base cannot fully compensate for weaker sales. The business area expects to achieve a margin in the order of 8-10% for the fourth quarter. Bank & Finance will carefully evaluate its capacity in the light of market trends for the medium to longer term.

 

Computer Operating Services has attracted a number of major new outsourcing assignments over the last year, and this together with contract renewals and additional business from existing customers has ensured that the business area has the critical mass necessary to maintain its economies of scale in the long run. This makes it possible to maintain satisfactory margins and offer competitive prices to the market. Computer Operating Services expects to achieve an EBITA margin of 8-9% over the second half of the year. The Swedish subsidiary Unigrid is developing positively and the business area continues to focus on marketing its services to the Swedish computer operating services market.

  

Consultancy Services has reported weak margins over recent quarters, and this business area has seen a deterioration in market conditions since mid-year. This business area is experiencing poor capacity utilisation, and has therefore implemented measures to reduce its cost base, principally by laying-off staff. No significant changes in turnover or margin other than normal seasonal fluctuations are expected for this business area until towards the end of this year at the earliest. In view of the current level of activity the return of staff currently temporarily laid-off will cause excess capacity. The business area will therefore have to consider permanent measures to reduce staffing unless demand improves in a relatively short time. Strategic alternatives for this business area are currently being explored.

 

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Oslo, 23 October 2002