Market
All markets where Adcore is active continued to make very positive progress in the third quarter; a continuous stream of new projects are being started, while at present, there are no signs of this trend being interrupted. During the quarter, utilization levels remained very favorable.
This positive progress applies both to existing clients and the influx of new projects. Adcore is scaling up its initiatives within existing customer relations, thereby enhancing its prospects of securing new, lucrative assignments with greater complexity and value content.
Adcore is being favored by the market increasingly demanding the ability to deliver, and solutions spanning the entire scale from strategy to implementation. The company considers that this trend will accentuate, and that consequently, the ability to offer a broad competency palette, and to provide complex solutions for demanding clients, will become increasingly important.
In this respect, Adcore is enviably positioned in a European perspective. Adcore currently services an array of large, renowned corporations; less than 2% of its sales are exposed to dotcom enterprises, and accordingly, the company has not been affected by declining demand in this segment.
Sales and Profit Growth
Sales in the first nine months of 2000 were SEK 877.2 m, up 138% on the corresponding period of 1999. Organic sales growth was 67% for comparable units, easily exceeding the group's target of minimum organic growth of 50%.
For the consulting activities (excluding group-wide functions and development), operating profit for the period was SEK 132.6 (52.2) m, up 154% on the comparable period of the previous year. The operating margin for the consulting operations was 15.1%.
Annualized average billing per consultant was SEK 1,243,000, a 6.4% increase on the second quarter of 2000, and up 17% on the full year 1999.
Operating profit1 for the entire group increased by 145%, amounting to SEK 85.9 (35.1) m for the period. The margin for the period was 9.8 (9.5)%. Third-quarter profits were subject to the customary seasonal variation resulting from holidays, and to some extent, were affected by ongoing integration projects that are being pursued at a high tempo, and at full capacity throughout the group.
For the last 12 months, operating profit1 was SEK 102.2 m; the margin was 9.7%.
At 45, the number of billable days in the third quarter was down significantly, mainly because of the holiday period, some 17% lower than the second quarter and 25% less than the first. Public and private holidays affect the number of billable days during the third quarter, generating seasonal profit variations. Typically, the first and fourth quarters have the most-some 60-billable days. The third-quarter profit effect was SEK -33 m, implying that the underlying, seasonally adjusted third-quarter margin was 12.8%.
Goodwill amortization for the period amounts to SEK -57.1 (-13.2) m, while third-quarter goodwill amortization was SEK -36.1 m. The increase between the second and third quarters this year is mainly attributable to acquisitions in Germany, the Netherlands and France, consolidated from 1 July onwards.
Items Affecting Comparability
No goodwill arises as a consequence of the merger between Information Highway and Connecta because this transaction has been accounted using the pooling method. This implies that costs normally included in the acquisition calculations must be posted to the Income Statement. SEK 150.2 m in merger costs have been charged to the first nine months, and accounted as an item affecting comparability. In net terms, these items affecting comparability amount to some SEK -150 m including non-recurring revenues for the full year 2000.
Cash Flow and Financial Position
Operating cash flow was SEK 58.3 m.
Total investments were SEK 2,350.1 m, of which corporate acquisitions comprised SEK 2,135.9 m. The closing balance of acquired goodwill in the balance sheet was SEK 2,262.3 m, of which tax-deductible goodwill arising from the purchase of net assets was SEK 1,297.7 m. The group's policy is to amortize goodwill over a period of 10-20 years depending on the nature of the acquisition.
Aggregate consolidated goodwill relating to enterprises that were consolidated during the third quarter amounts to SEK 1,709.4 m.
Liquid funds were SEK 416.9 m at the end of the period, up SEK 258.7 m since 1 January. The equity ratio was 89%, a 20-percentage-point increase on the full year 1999.
Customer receivables as of 30 September were SEK 277.2 m; the average number of days sales in customer receivables was 40 days.
Changes to Group Structure
Adcore's efforts to integrate newly acquired enterprises were successful; during the remainder of the year, these efforts will focus on consolidating Adcore's pan-European network, with the objective of becoming a full-service provider on all key European markets.
During the quarter, Facing Facts (the Netherlands), GroupeG (France), Implement (Denmark) and the operations of berens/partner (Germany) were consolidated. As of 1 September, Stockholm-based consulting practice Capito, with its employee headcount of 34, was acquired. Capito's primary business comprises consulting services relating to the e-business solution mySAP.com, and services in spheres including supply chain management. The price was SEK 75.5 m, paid entirely by 838,808 newly issued Adcore shares.
Subsequent to the end of the period, an agreement was reached regarding the acquisition of Cell Strategy from its employees, who are also its owners. This acquisition implies that at a stroke, Adcore's strategic consulting operation becomes Europe's leading out-and-out e-strategy corporation. Cell Strategy has 130 professionals located in ten countries, with operations that complement and reinforce Adcore's existing activities in a very advantageous manner. Adcore is paying SEK 370 m for this enterprise, through the issue of 7.6 million Adcore shares. Integration initiatives will begin immediately.
Neuer Markt
Adcore is examining its prospects of the Adcore's share's listing on Neuer Markt in Frankfurt, the intention being to effect a listing in 2001.
Human Resources
At the end of the reporting period, the employee headcount was 1,706, an increase of 829, or 95% since the beginning of the year. An additional 467 employees have been added through acquisitions.
Including Cell Strategy, Adcore's employee headcount is 1,836.
Ownership Structure, Changes in Shareholders' Equity
As of 30 September, Adcore had 31,963 shareholders; at the same time, the proportion of foreign-owned shares was some 30% (excluding the holdings of group employees) with the proportion of shares held by Adcore group employees estimated at 34%.
Parent Company
The parent company, with an employee headcount of 23, harbors the group's support functions and is responsible for the group's development activities. For the period, parent company net profits were SEK -119.1 (6.6) m.
Parent company liquid funds were SEK 305.0 m at the end of the period.
Forthcoming Reports
Full-year 2000 - 6 February 2001
The full report including tables is available to download from the enclosed link.
