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Financial Statement 2001


OM Financial Statement for year-end 2001 Highlights • Revenue for the year totalled SEK 3,072 m (3,152) • Net income after financial items at SEK -469 m (743) • Earnings per share for the year were SEK -0.30 (8.61) • Fourth quarter income after financial items totalled SEK 144 m (174) • Strong growth rate continues in Division Technology • SEK 481 m in non-recurring expenses • Jiway restructuring complete Please find enclosed OM AB’s Financial Statement for 2001. It is also available on For further information or comments, please contact Per E. Larsson, CEO OM +46 8 405 66 19 Magnus Böcker, COO OM +46 8 405 66 44 Jakob Håkanson, VP Investor Relations OM +46 8 405 60 42 Year-end financial statement 2001 • Revenue for the year totalled SEK 3,072 m (3,152) • Net income after financial items at SEK -469 m (743) • Earnings per share for the year were SEK -0.30 (8.61) • The Board proposes a dividend of SEK 1.00 (6.00) per share • Fourth quarter income after financial items totalled SEK 144 m (174) • High growth rate continues within Division Technology • SEK 481 m in non-recurring expenses • Restructuring of Jiway SIGNIFICANT EVENTS WITHIN THE GROUP A year of weak markets and restructuring For OM, 2001 was characterized by continued growth within the technology operations, heavy non-recurring expenses related to the restructuring of Jiway as well as the expense reduction program. OM was affected early on in the recession and market conditions in many of the markets on which OM operates became weaker during the year. Developments were mixed within OM’s exchange operations; equity trading turnover fell at the same time as there was an increase in the number of derivative contracts traded. However, throughout the year OM continued to gain market shares for both its technology as well as its exchange operations. Earnings development in 2001 Group revenue fell by 3 percent during the year to SEK 3,072 m (3,152 in 2000). Excluding gains from the sale of shares in Orc Software of SEK 95 m (250), group revenue increased however by 3 percent. Revenue from the technology operations rose sharply during the year. Trading revenue from OM’s exchange operations fell, largely as a result of lower market values and fee reductions on Stockholmsbörsen. OM’s operating income 2001 totaled SEK -453 m (703). Excluding items affecting comparability operating income totaled SEK 28 m (698). Including restructuring costs, Jiway has affected the operating result with SEK -832 m (-282) during the year. The increase in group expenses during the year to SEK 3,525 m (2,449) was primarily due to the continued operational growth within Division Technology as well as the items affecting comparability. These items totaled SEK - 481 m (5) of which SEK 408 m was attributable to the restructuring of Jiway and SEK 73 m related to expenses incurred by the expense reduction program initiated by OM during the summer. The expense reduction program was estimated to result in a decrease in OM’s annual operating expenses of at least SEK 150 m (calculation based on operating levels during the first quarter 2001), with the full effect expected during the first quarter 2002. Expensed investments in Research and Development (R&D) amounted to SEK 289 m (287) for the year. The restructuring of Jiway and the effects of the group’s cost-cutting program led to a reduction in group expenses during the fourth quarter of the year. Quarterly earnings SEK m Qtr 1 Qtr 2 Qtr 3 Qtr 4 Total 2001 Total 2000 Total 1999 Revenue 785 806 648 833 3,072 3,152 1,954 Operating expenses -770 -856 -1,223 -676 -3,525 -2,449 -1,431 Operating income 15 -50 -575 157 -453 703 523 Income afterFinancial items 25 -61 -577 144 -469 743 603 Income after tax 61 0 -193 107 -25 730 444 Earnings per share 0.72 0.00 -2.28 1.26 -0.30 8.61 5.23 Financial items totaled SEK -16 (40), the change attributable to an increased level of borrowing. The year’s tax revenue, totaling SEK 233 m (-127), was primarily due to positive taxation effects from the restructuring of Jiway. Including restructuring expenses, the total impact of Jiway on the year’s income after tax was SEK -348 m. The year’s income after tax was SEK -25 m (730). SIGNIFICANT EVENTS WITHIN DIVISION TECHNOLOGY Continued operational growth Growth continued within OM’s technology operations during 2001 with OM continuing to expand its share of the market. Year-on-year revenue in Division Technology increased by 30 (90) percent, from SEK 1,523 m to SEK 1,986 m. Excluding the sale of shares in Orc Software, the Division’s revenue rose by 49 (55) percent. By the year-end the value of Division Technology’s orders amounted to SEK 3,599 m (3,008) of which orders to a value of SEK 1,220 m (1,014) are due for delivery in 2002. Orders relating to OM’s exchanges amounting to SEK 957 m (784) is included in the order value. The Division’s income before depreciation totaled SEK 323 m (445). The operating margin, excluding the sale of shares in Orc Software as well as internal sales and depreciation, was 15 (20) percent during the reporting period. Internal sales to OM’s exchanges totaled SEK 401 m (301). Division Technology was divided into three business areas during 2001: Financial Market Systems, Securities Systems and Energy Systems. The Division’s lower operating margin compared to 2000 was largely due to increased operational growth as well as losses within Securities Systems, the business area that develops systems for banks and brokerage firms. As part of OM’s comprehensive efficiency program the workforce was cut by 60 people within the Securities Systems and Energy Systems business areas in addition to which OM is introducing a new organization with effect from January 2002. Expensed investments in R & D within the Division amounted to SEK 262 m (200), representing 13 (13) percent of gross turnover. New major orders for Division Technology during the year Throughout the year OM continued to expand its areas of co-operation with its customers. OM announced a number of major orders during the year. In January an announcement was made that the American Stock Exchange (AMEX), USA’s second largest options exchange, had purchased both OM’s SAXESS and CLICK exchange systems at an order value totaling SEK 300 m, of which the major part was included in OM’s total order for 2000. AMEX intends to use each of these platforms as the central trading system for its options and equity trading. In March it was announced that Hong Kong Exchanges, one of Asia’s largest exchange organizations, had chosen OM’s SECUR clearing system. The order was valued at around SEK 120 m. In May Borsa Italiana signed an agreement with OM for the delivery of the CLICK exchange system at an order value of over SEK 115 m. In July ABN AMRO signed an agreement with OM for the delivery of the One World Settlement System for running the back-office section of its equity trading operations in Australia. The order value was calculated at SEK 30 m. In September the Minneapolis Grain Exchange signed an agreement with OM for the delivery of the CLICK exchange system at an order value of SEK 60 m. For OM this order is the first of a new type of contract where OM manages the systems operation for a platform to be shared by a number of exchanges. In January 2002, after the end of the reporting period, it was announced that NASD and OM had signed an agreement for the delivery of OM’s SAXESS exchange system. The order is included in OM’s total year-end order value. Also in January 2002 OM announced that it would be extending the scope of its co-operation with the Australian SFE. The project, which was initiated in the fall of 2001, means that OM will develop a new system for settlement & safekeeping - a Central Security Depository system - for the SFE. OM will also manage the operation of this and, for a period of time, will also operate the SFE’s existing system. The order value of SEK 280 m, including facility management, is included in OM’s total year-end order value. The new system being developed will be marketed globally by OM under the product name EXIGO CSD. Other significant events within Division Technology From March 2001 OM VPS, formerly part of the Parent Company, has been part of Division Technology. With effect from the fourth quarter Jiway’s former back-office-for-hire business, Jiway Broker Services (JBS), has been included in Division Technology. Sales within JBS during the fourth quarter totaled SEK 34 m (28) and operating income amounted to SEK -26 m (-43). Both JBS and OM VPS have been part of the business area Securities Systems. In April OM acquired the remaining minority share in OM Technology Energy Systems AS. A new office was established in Hong Kong during the year. On October 25 OM sold 1.0 million shares in Orc Software. The sale, which generated a gain of around SEK 95 m, meant that OM reduced its ownership in Orc Software from 40 to 34 percent. OM owns 5.0 million shares in Orc Software, which at the year-end corresponded to a market value of SEK 733 m. In January it was also announced that, to support its facility management services, OM had acquired the operations and employees of Hostmark, a company with the business concept of operating and hosting business-critical systems via an Internet Data Central (IDC) in Stockholm. SIGNIFICANT EVENTS WITHIN DIVISION TRANSACTION Fee reductions and weak markets Revenue generated by Division Transaction totaled SEK 1,260 m (1,699) during 2001. This fall in revenue compared with 2000 is due largely to lower market values and lower equity trading activity as well as fee reductions for equity derivatives trading. Income before depreciation in the Division amounted to SEK 517 m (954). Expensed investments in R & D amounted to SEK 27 m (87). In 2001 Division Transaction contained Stockholmsbörsen, OM Fixed Income Exchange, OM London Exchange, Xact Fonder, Lendtech, Natural Gas Exchange (NGX), UK Power Exchange (UKPX), Pulpex and OM Environment Exchange. Developments on Stockholmsbörsen Trading activity on Stockholmsbörsen was mixed during the year. Share prices and equity trading activity fell at the same time as derivatives trading reached record high levels. Compared to the previous year average daily turnover during 2001 in equity trading fell 10 percent to SEK 16.0 bn (17.8) per day. Despite the recessionary climate during the year equity trading levels were still more than 50 percent higher in 2001 than in 1999. In 2001 the average number of trades executed per day was 42,512 (54,835). The turnover velocity in equity trading was on average 134 (107) percent, the highest rate in the history of the exchange. At the year-end Stockholmsbörsen had 153 (142) members. In February Stockholmsbörsen introduced lower fees for trading and clearing of equity related derivative contracts. These lower fees, of on average 40 percent, contributed to the record-high turnover levels in derivatives trading on Stockholmsbörsen during the year. During the year the number of derivatives contracts traded on a daily basis on Stockholmsbörsen rose by 17 percent to 250, 943 (214,882). In November it was announced that a new price list for issuer services would come into effect on Stockholmsbörsen on January 1, 2002. The change means that the fees for those listed companies on the exchange’s A and O lists will become uniform, i.e. the minimum fee has been increased while the maximum fee and the ongoing issuer fee has been lowered. Also in February, Stockholmsbörsen extended its trading hours to 2000hrs CET. However, on October 15 the exchange reverted to closing trading at 17.30 hrs CET. The exchange section of Jiway (formerly Jiway Limited) became part of Stockholmsbörsen’s subsidiary OM London Exchange, with effect from October 1, 2001. Other significant events within Division Transaction Trading in XACTOMX, OM’s exchange traded fund, increased successively during the year. During the fourth quarter an average of 93,000 units in XACTOMX were traded every day, compared with 13,700 units per day during the first quarter of the year. At the same time the capital under management in XACT increased to SEK 1,839 m from SEK 142 m. OM Fixed Income Exchange launched electronic trading in Swedish Government bonds during the year. Since it started in May this electronic trading has represented around 50% of the total Interbank trade in Government bonds. Since January 1, 2001 OM has owned 100 percent (previously 51 percent) of the Natural Gas Exchange (NGX) in Alberta, Canada. During 2001 trading on NGX increased by 20 percent, while revenue increased by 41 percent to SEK 59 m (42) year-on-year. Since the introduction of spot trading in March, the UK Power Exchange (UKPX), where operations are in a build-up phase, has become the leading electricity exchange in the United Kingdom. At the year-end the exchange had 45 members. During 2002 the UKPX also plans to introduce OTC clearing for electricity contracts. During 2000 the Swedish tax authority consented to a request made by Stockholm’s Fondbörs AB and Stockholmsbörsen AB for the reassessment of VAT paid during the period 1993 up to and including February 2000 relating to trading on the exchanges. In view of this certain members have demanded that the VAT they paid to the exchanges for the services in question, including interest, should be refunded to them. The exchanges have rejected these demands as in the exchanges’ opinion no basis exists for these demands to be accepted. At the end of the year OM sold its ownership in Pulpex and OM Environment Exchange. SIGNIFICANT EVENTS WITHIN jiway Due to considerably weakened market conditions Jiway did not develop as planned since its start-up in November 2000. Consequently, during the fourth quarter 2001 Jiway was restructured in order to create the conditions needed to continue its operations with a substantially reduced cost base. In order to integrate Jiway with OM’s operations, with effect from October 1,2001, OM took over Morgan Stanley’s 40 percent stake in Jiway. From that date Jiway’s exchange operations have been included in Division Transaction, while JBS, Jiway’s facility management business for settlement and back-office services, has been included in Division Technology. The negative impact on OM’s operating income following the restructure, calculated from the revenue level in September 2001, of operating Jiway’s exchange business will amount to a maximum of SEK 20 m per quarter (with effect from the first quarter 2002). JBS is expected to report positive operating income during the second quarter 2002. The restructuring of Jiway has had a non-recurring effect on OM’s consolidated income statement and balance sheet in 2001. (See page 1) Jiway’s revenue during the first nine months of the year totaled SEK 132 m (22). Jiway’s revenue during the fourth quarter totaled SEK 35 m, of which the majority related to JBS. Jiway’s group income before depreciation during the first nine months of the year was SEK -307 m (-154). During the fourth quarter 2001 the negative impact on OM’s operating income for running Jiway was SEK 46 m, of which SEK 26 m has been charged to Division Technology and SEK 20 m has been charged to Division Transaction. At the end of the year Jiway had signed up 21 client companies and was offering integrated trading, clearing and settlement in more than 2,300 European and US equities. The restructuring of Jiway has had no significant impact on Jiway’s service offer. REVENUE AND INCOME per division REVENUE PER DIVISION* Amounts in SEK m Qtr 4 2001 Qtr 4 2000 2001 2000 1999 Division Technology 602 630 1,986 1,523 802 Division Transaction 316 409 1,260 1,699 1,335 Jiway** - 28 132 50 - Parent Company 32 139 165 291 94 Group eliminations*** -117 -150 -471 -411 -77 Total 833 1,056 3,072 3,152 1,954 INCOME BEFORE DEPRECIATION per division Amounts in SEK m Qtr 4 2001 Qtr 4 2000 2001 2000 1999 Division Technology 168 311 323 445 123 Division Transaction 106 223 517 954 675 Jiway** - -120 -307 -274 - Parent Company -37 -55 -146 -198 -106 Items affecting comparability - -95 -257 5 - Total 237 264 130 932 692 DEPRECIATION per division Amounts in SEK m Qtr 4 2001 Qtr 4 2000 2001 2000 1999 Total deprec. Of which goodwill Total Deprec. Of which goodwill Total deprec. Of which goodwill Total deprec. Of which goodwill Total deprec. Of which goodwill Division Technology 35 13 26 9 122 49 95 41 69 33 DivisionTransaction 28 19 22 14 100 70 81 55 79 50 Jiway** - - 7 0 71 0 8 0 - - Parent Company 17 - 34 13 66 - 45 2 21 2 Write-downs 0 0 0 0 224 - 0 0 0 0 Total 80 32 89 36 583 119 229 98 169 85 * During the reporting period OM has had three divisions: Division Technology, Division Transaction and Jiway. Revenue in Division Technology is primarily technology and systems related revenue as well as revenue from facility management services. Revenue from Division Transaction is mainly trading and clearing revenue, issuers’ revenue and information sales revenue. Jiway’s revenue comes mainly from facility management services as well as trading revenue. Parent Company expenses for 2000 included costs related to synthetic options of SEK 30 m. ** With effect from Quarter 4 Jiway has ceased to be a separate division and is, with its different operations, part of Division Transaction and Division Technology respectively. *** Internal sales are at cost price. Most internal sales are from Division Technology to OM’s exchanges. Of Parent Company revenue SEK 2 m (2) relate to internal sales. OTHER SIGNIFICANT EVENTS IN THE GROUP Stock options program for all employees In May 2001 the Board of Directors of OM AB decided to introduce a new stock options program aimed at all group employees. The options are allocated to the employees at no charge and become successively available to the holder over three years, though no earlier than June 15, 2002. The maximum lifetime is seven years. Each option corresponds to one share and in a total of around 1.1 million shares are covered by the program. Overall 2.5 million employee options have been allocated during the year 2000-2001. The program is aimed at attracting and retaining competent employees as well as intensifying the focus on value creation within the company. New organization to be introduced during 2002 Within effect from January 1, 2002, OM has introduced a new organization based on five business areas: Broker Services, Energy Market Solutions, Financial Market Solutions, Global Services and Stockholmsbörsen. The new organization is aimed at increasing the focus on customer-adapted solutions. The reorganization is estimated to lead to an annual cost saving of SEK 35 m with the full effect expected from the second quarter 2002. Increase in employee numbers At the year-end OM had 1,583 (1,354) employees, of which 474 (482) were located outside Sweden. THE CONSOLIDATED BALANCE SHEET OM’s total assets amounted to SEK 5,985 m (5,505) at the year-end. Intangible fixed assets of SEK 1,317 m (1,394) included SEK 982 m (947) of consolidated goodwill, of which SEK 674 (917) m relates to the acquisition of the Stockholm Stock Exchange in January 1998. Group investments in equipment amounted to SEK 363 m (336). The increase in financial fixed assets to SEK 1,474 m (766) consists mainly of deposits for premises and the options program as well as an increase in participations in associated companies, including NLK Näringslivskredit. The market value of OM’s holding in Orc Software (5.0 million shares) was, at the period-end, SEK 733 m with a book-value of SEK 73 m. OM owns 15 percent of the share capital of Helsinki Exchanges, the book value of the holding is SEK 72 m. OM’s employee stock option program has had an SEK -133 m impact on shareholders’ equity during the period. The restructuring of Jiway has had an SEK -145 m impact on shareholders’ equity. Liquidity and financing Interest-bearing net assets totaled SEK -119 m (1,349) at the end of the reporting period. OM's interest-bearing financial assets amounted to SEK 2,013 m (1,992), of which SEK 359 m is made up of financial fixed assets. Interest-bearing financial liabilities were SEK 2,132 m (643), of which SEK 55 m (55) were long-term. Authorized credit agreements totaled SEK 2,910 m (3,300) of which SEK 2,060 m (480) have been utilized. Liquid funds totaled SEK 1,654 m (1,992). THE WORK OF THE BOARD OF DIRECTORS During the year the Board of Directors has held eight meetings. In addition, work was carried out within the committees specifically linked to the Board, these being the Presiding Committee, the Auditing Committee and the Salary and Remuneration Committee. FUTURE DEVELOPMENTS With its unique core competence within transaction technology OM commands a strong position. OM possesses considerable opportunities for continuing to gain shares in growing markets. Technical developments, deregulation and increased international competition are important driving forces behind the constantly increasing need for advanced systems solutions on the world’s financial and energy markets. OM will be able to fortify its position as market leader within certain sectors while at the same time establishing positions within new markets. Despite 2001 being a weak year on the world’s stock markets, the long-term trend of trading growth has not been interrupted. Turnover in equity trading on Stockholmsbörsen was, for example, 54 percent higher in 2001 compared to 1999. Stockholmsbörsen has every intention of continuing to strengthen its position as one of the world’s most efficient and competitive exchanges. There are great opportunities for OM to participate in the industry consolidation that is currently taking place among Europe’s exchange organizations. OM’s financial target is for the group’s total revenue to grow by no less than 20 percent on an annual basis, at the same time as the return on shareholders’ equity shall be at least 20 percent. This target will be achieved through a combination of organizational growth and increased cost-efficiency. The group’s investments are expected to lie above planned depreciation during the coming year. Proposed distribution of retained earnings As shown in the consolidated balance sheet, the funds available for distribution by the group amount to SEK 242 m. No allocation to restricted reserves is required. The Board proposes that the retained earnings of SEK 88 m at its disposal in the Parent Company, be distributed as follows: SEK m Dividend to shareholders, SEK 1 per share 84 To be carried forward 4 Total 88 ANNUAL GENERAL MEETING The Annual General Meeting will take place on Wednesday, March 20 at 17.30 hrs at Berwaldhallen, Stockholm. Stockholm, January 23, 2002 OM AB The Board of Directors Full Year-End Report

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