econocom annual report 1999 - ku leuven€¦ · 52% revenue growth and 61% increase in net income....
TRANSCRIPT
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the Scope ofEconocom Group
A revenue of 629 million Euro, a 52% increase comparedwith 1998.
Operating income (before amortization of goodwill)totaled 12.7 million Euro, up 60% compared with 1998.
Services revenues increased by 54% and accounted formore than 52% of total gross margin.
Solvability ratio increased from 13.6% to 30%.
The group had 1,180 employees at 1999 year-end, 790 of which are in services activities.
Shareholders’ equity rose from 27 to 57 million Euro.
Available cash rose from 24 to 46 million Euro.
A strong and diverse customer base of over 6000clients in Europe and the United States.
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Econocom’s previous strategic plan:A resounding success Econocom today:A strong and solid growthBusiness modelEconocom tomorrow:A group ready to meet the challenges of a network economy
annual report contents
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The scope of Econocom Group
Chairman's letter
1. The digital revolution
2. Econocom meets the market's needs
3. Key 1999 facts and figures
4. Consolidated financial statements
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Jean-Louis BouchardChairman
Econocom has the optimal business model to design,procure, manage and finance reliable, secure e Businessinfrastructures for corporations.
Chairman’s letter
With the exponential rise of the Internet and eBusiness, ourclients, our shareholders and our business partners want toknow what part Econocom plays in this revolution.
Over the past eighteen years Econocom has always proven itselfable to re-engineer its offerings to match the major changes thathave swept through the information technology industry.
Our mission is to assist our clients in this revolution as theInternet is creating a direct impact on all of our businesses:
- Services offerings with 800 technical professionals havebeen broadened to include the technical skills related to theeBusiness infrastructure solutions.
- The multi-vendor procurement and customization capabilityhas moved into the supply of Network Solutions and thecomponents of Internet infrastructures.
- Financing concerns all components of Internet architectureand eBusiness infrastructure: Products, Connections andServices.
Today, Econocom has the optimal business model to design,procure, manage and finance reliable, secure eBusinessinfrastructures for corporations.
The Econocom team, sharing the values of be enterprising,face reality, bounce back and share, is dedicated to achievethe objectives of its strategic plan Horizon 2002 – doublerevenue to 1.2 billion Euro, double employees to 2000 andachieve a net result of 2% of revenue.
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revolution
There’s a revolution going on. Time, distance and speed are no longerlimitations when we move from the physical to the digital world.
Today the advent of all digital (voice, video,data) and the implementation of the internetnetwork constitute a major technologicalrevolution. The revolution of all digital is goingto completely change communications andlead to a global economy.
the digital
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Econocom is meetingthe challenges of thenew deal
the digital revolution
In the last century, thecontrol of steam energy ledto the invention of railwayswhich was the starting pointfor the industrial revolution:all the cards of the economywere reshuffled.
Today, the invention of fullydigital communications invol-ving voice, video and data,added to the establishmentof the Internet, amounts to amajor technological revolutionreshuffling all the cards of theeconomy – The New Deal.
Companies increasinglyneed to adapt quickly to newtechnology. They thereforechoose to refocus their ope-rations on their core busi-nesses and look for external,best-in-class partners to helpthem access the networkeconomy. As partners, theyselect global companies offe-ring long-term visibility, with astrong local presence, ableto provide support servicesto implement these newtechnologies.
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Put a human in your network
When we talk about “Put a human in your network,” it is not just a neat turn of phrase; it forms thebasis of our vision. At Econocom we place people together with their intelligence and their strengths,at the center of our customers’ networks. In our book, the smartest technologies will always work bet-ter thanks to the people who keep them running day after day. It is not by chance that we assist over6,000 customers in Europe and the United States in the management of their networked computer sys-tems and internet infrastructures. And because we aim high and thrive on challenge, we have no inten-tion of remaining at a standstill. If you share our vision, we will make a great team. Sales Engineers,Network Engineers and Start-up Managers, we offer you a wealth of opportunities. To find out moreabout these and many more opportunities, visit our web site at www.econocom.com/jobs.
The major technological revolutionreshuffles all the cards of theeconomy
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the market’s needsEconocom meets
Over the past eighteen years, Econocom hasalways proven itself able to re-engineer itsofferings to match the major changes thathave swept through the information technolo-gy industry. The achievment of the medium-term strategic plan known as Eco 2000 overthe last three years allowed Econocom tobecome an international service provider.
econocom meets the market’s needs
Previous strategic plan: a resounding success
These two objectives have been reached:
1998 19990
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1,180 employees at Dec. 31, 1999 Share price of 32.8 euro at Dec.31, 1999(equivalent to BEF 5,291 before split)
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Comprehensive financing 26%
Network services 52%Products procurement
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Growth of Services employees Gross margin break-down by business
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The implementation of the Eco 2000 strategic plan over the last three years allowed Econocom to become an international service provider.
Econocom’s 1997 strategic plan included two objectives:
Raise the market value of theEconocom share from BEF 600 toBEF 2,000 in the year 2000, throughstrong, steady and profitable growth.
1,000 employees by the year2000, thereby reaching the criticalmass needed to be an internatio-nal service provider.
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In 1999, for the fifth consecutive year, Econocom bolstered itsposition in a sharply expanding information technology market.
At the year-end the company recorded:
52% revenue growth and 61% increase in net income.
A 26% increase in the workforce to 1,180 employees, inclu-ding 790 technical professionals in services activities.
This expansion concerned all Group operations:
The staff of our Network implementation services divisiondoubled between 1998 and 1999.
The Procurement and customization division saw its volumeincrease by 71%.
More than 400,000 components of network hardware werefinanced, a 42% increase over 1998.
The financial strength of the Econocom Group continued togrow in 1999, as shareholders' equity rose from 27 to 57million Euro. Over the past two years shareholders' equityhas tripled.
Satisfactory gross margin levels plus the results of cost-controlinitiatives led to operating income rising more rapidly than sales.
This strong performance was achieved by designing andimplementing appropriate management control systems anddrawing upon the experience of more than eighteen years.For the fifth consecutive year results are fully in line with ourforecasts.
A stable shareholder base:Econocom Group, an operational holding company, is quo-ted on the Brussels stock exchange. 57.46% of its sharecapital is held by Econocom International NV, the majorityshareholder of which is Jean-Louis Bouchard.
a new dimension
Growth in technical professionals (in number of individuals)
Growth in equipment provided under comprehensive financing packages
econocom meets the market’s needs
Econocom todayA strong and solid growth
a solid group
Breakdown of share capital (1999)
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209,000Public: 42.54%
econocom international NV:
57.46%
In 1999 Econocom procuredand customized more than600,000 network compo-nents, including 76,000desktops and servers, tomore than 3,000 clients inEurope and the USA.We provide the products andsolutions of the market's keymanufacturers and publi-shers, and we integrate themwith our clients' networks,offering unrivalled conditionsof quality and price. Econocom has selectedreputed brands and hasestablished solid partner-ships with leading IT manu-facturers and publishers(e.g. CISCO, IBM, MICRO-SOFT, NOVELL, TOSHIBA,HP, APPLE, 3COM, COM-PAQ, etc.),
while preserving its full inde-pendence:
Econocom places high valueon its client relationships,whether in consulting, pro-ject management or ser-vices. The most originalfeature of our businessmodel consists in outsour-cing all or part of our logisticsfunction (purchasing, inven-tory management, delivery)to partners with a strongreputation in the market.Logistics outsourcing givesclients daily direct access toavailable inventory worthmore than 50 million Euro.
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Econocom has the optimal business model to design, pro-cure, manage and finance reliable, secure eBusiness infra-structures for corporations.
Econocom provides comprehensive offerings that can meetall IT related needs of companies ranging from multi-vendorprocurement and customization capability, to a wide range ofnetwork related services, to the financing of all componentsof network infrastructures (eBusiness infrastructure solutions).
A guarantee of independent advice
econocom meets the market’s needs
1. Product procurementand customization
1. Product procurement and customization2. Network services3. Comprehensive financial services
Econocom todayBusiness model
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Business model
Desktop assetmanagementInventory/auditDesktop asset management
Maintenance and operationWarranty extensionServer administration
Maintenance contracts
Remote servicesOffice software supportServer support
Systems managementEngineering, design, and implementation of ITinfrastructure and systemsmanagement (Tivoli)
EngineeringInstallationMigrationProjects
e-servicesDomain namesWeb sitesInternet infrastructuresDistribution Telecom offers
CoachingTechnical IT managementDedicated staff
AS400 CompetenceCenterHigh-technology services and products related to AS400 and Lotus Domino
Oracle CompetenceCenterImplementation of Oraclesolutions and databases(development, administration, pro-ject management)
Econocom’s Services offerings
2. Network services
These concern the deploy-ment, integration, manage-ment and service support ofnetwork equipment for over2,000 European clients.
We ensure the satisfactoryoperation and efficient admi-nistration of networkeddesktop assets for ourclients, through innovativeand individually-tailored solu-tions.
Administering and managingan install base of hundredsof computers is both costlyand complex. TheEconocom Group offers asolution based on providingthe client with on-site net-work engineers for short orlong-term assignments,according to need.
CoachingEconocom Services hasdesigned new solutions foreasier operation of the net-work systems it procures.These SLA (Service LevelAgreement) offerings, giventhe marketing name of"Coaching,” are designedfor users and technicalmanagers.
This Coaching relies on theexpertise of 790 technicalengineers who are regularlytrained in new technologydevelopments. They arerecognized by manufactu-rers and publishers, throughcertification or expert trainingprocesses. These specialistsare called upon as part ofnetwork operational servicescontracts (Network assetmanagement, Maintenance,Support, Network adminis-tration).
The staff of our Networkimplementation services divi-sion was doubled between1998 and 1999 to meetclient demand.
The key benefits of Coachingare on-site technical andmanagerial support, accessto a database of technicalinformation, backup systemsto prevent any interruption inthe services provided andpriority access to manufactu-rers' and publishers' hotlines.Through all of these services,Econocom guarantees theavailability, productivity andupgradability of its clients' ITsystems.
The upgradeable lease ope-rations developed byEconocom make us one ofthe market's key innovators.Our clients include bothsmall to medium-sized com-panies and major accounts,and our services are ofteninternational in scope. Today,more than 50% of leasingrevenue is derived from aproduct called "PC Lease"which gives our clients avery effective means ofaccess to network compu-ting. This product includesthe rental of computerequipment and the associa-ted services. Econocom'sPC Lease makes it possibleto optimize the total cost ofcomputing equipment, and itgives the IT manager thetools to keep strict budgeta-ry control and to track inven-tory at all times.
More and more companiescall upon outside financingof their IT equipment.
Econocom does not carryany financial risks: all of itscontracts are refinanced withfinancial institutions.
Limited residual values aredefined based on statisticaldata from our past 18 yearsof experience. An international brokeragedepartment is responsible forthe resale of equipment at thebest possible conditions.
Demand is constantly evol-ving towards rental servicesthat combine hardware, soft-ware and associated ser-vices, and Econocom’sunique offerings are sup-plying the market’s needs.
They allow for proactive andefficient asset management:
We offer our clients financialand operational flexibility thatmakes it easier to keep upwith the necessary constantupgrading of their IT installbase, while meeting theirrequirements of budgetaryand technical control.
Econocom Lease, one ofthe leading financial compa-nies, has redesigned itsclassic financial leases intofull desktop asset manage-ment solutions.
Our comprehensive financingofferings are second to none.Thanks to our firm groundingin the day-to-day reality ofthe IT market, we unders-tand the specific needs ofcompanies seeking solutionsthat fit their developmentstrategy. As a result, ourbudget timetable takes intoaccount the company's cashflow and the desired upgradeprofile.
Growth in financed volumes in millions of Euro
innure in repreheden olutaostru
Econocom’s financial offerings
Business model
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Finance leases
Econocom's answers
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operating : PC Lease
PC Start
managing : PC Report
Install base management, including a service operator (Coach)
Asset management, Inventory/audit, Invoicing by segments, simulation of upgrades, budgetary methods
Operational lease. Management of deployments, management of upgrades, resale
upgrading :
Buy-back of install base
3. Comprehensive financial services
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Econocom tomorrowA group ready to meet the challengesof a network economy
The Horizon 2002 plan gathers the Econocom team around the values we share
econocom meets the market’s needs
The development of a net-work economy is bound toproduce sweeping changes.
Group management hasdesigned a new strategicplan to assist its clients inthe three coming years tomeet the challenges of thenetwork economy - Horizon2002, with three objectives:double revenue to 1.2 billionEuro, double employees to2000 and achieve a netresult of 2% of revenue.
Amid a growing awarenessthat a new economy isemerging, the development
of communications techno-logy, spearheaded by mobiletelephony and the Internet,makes known to all thebenefits of being connectedand the requirement of notbeing left out.The most important issue forcompanies today is not somuch what IT equipmentthey have, but how reliablytheir network operates. Econocom weaves itsexpertise into close partner-ships with its clients, to gua-rantee and optimize theoperation of their networkson a long-term basis.
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Our results speak for themselves. In 1999consolidated revenue climbed 52 %, thenumber of employees rose 26 % and netincome was up 61 %. The Group expandedits business through internal growth (+ 34 %)and through three acquisitions: ECS DBSI aSwiss leasing company, EDS ProductServices in Netherlands and CSI, a Belgianservices company specialising in systemsmanagement. In 1999, the company reinfor-ced its policy of strengthening its equity base.Shareholders’ equity was doubled from 27 to57 million Euro.
key1999facts & figures
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Key 1999 facts and figures
Highlights of 1999
januaryAcquisition of ECS–DBSI (Switzerland)
Acquisition of the distribution business of EDS BeneluxEDS Product Services in Netherlands
februaryEstablishment of a Volume Licensing Competence center in Belgium for softwareproducts (MICROSOFT, NOVELL, IBM, LOTUS, SYMANTEC, etc.)
Creation in the Netherlands of an Oracle Unit within the Services activity
marchLaunch of the "Working Global Mail" offer
aprilNew Econocom logo
Increase in equity capital from 28 to 51 million Euro
mayCreation of an AS400 Competence center in Belgium
junePublication of economail in Belgium
Four-to-one stock split of the Econocom share
julyClosing of a premier partner international contract with Network Solutions
Acquisition of CSI in Belgium, the Tivoli leader
Establishment of Econocom Germany
augustNew Econocom headquarters in Belgium
This 3,600m2 high-tech style building, designed by the architect Jo Beelen from the Jasper and Partners agencyis located in Zaventem
septemberEconocom Group numbers over 1,000 employees
Client satisfaction survey in Belgium: 89% of clients are prepared to recommendEconocom to other companies 65% of clients consider the services business as the most important in the field ofdesktop asset managementSetting up of Services offerings in Switzerland
octoberNew econocom.com websiteRenewal of ISO 9002 certification for the Services business in Belgium
novemberRecruitment of new Country Manager in Belgium: Luc Pintens
Establishment of Econet Italia
decemberClosing of a Vendor Lease program with TSA (Telecoms) in Switzerland
Good: 26%
Poor: 6%
Very poor: 1%
Excellent: 5%
Very good: 61%
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Group revenues from 1997 to 1999(in millions of Euro)
Group employees, number of salesreps and agents
Group employees by sector: 1180
Key figures
Key 1999 facts and figures
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Services employees, growth overpast 3 years
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Agents: 92
Comprehensive financing: 116
Holding: 14
Products: 168 Services + internet: 790
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Network services
Products procurement
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52%
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Comprehensive financing
Gross margin break-down by business unit
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Comprehensive financingServices Products
Revenues by business, growth over past 3 years (in millions of Euro)
Key figures
Key 1999 facts and figures
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Cash assets(in millions of Euro)
Financial debts(in millions of Euro)
Equity net of Goodwill(in millions of Euro)
Shareholders’ equity(in millions of Euro)
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Operating income after interest before taxand amortization of goodwill (in millions of Euro)
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Econocom GroupOrganization Chart
Commercial entities
99.94%
99.99%
100%
99.99%
41.67%
99.99%
99.99%
100%
99.99%
99.97%
100%
80%
Econocom Lease (Netherlands)100% Econocom Product Services (Netherlands)100% Econocom Services (Netherlands)
Asystel Computer & Services (Belgium)
Econocom Services (Belgium)100% Econocom Luxembourg 99.99% Econocom Lease (Belgium)99.99% Econocom Services France 99.99% CSI
Econocom Distribution (Belgium)
G.I.E. Econocom
Econocom (France)99.99% Econocom Location (France)
Econocom Distribution France
Econocom UK
Econocom España
Econocom Suisse
Econocom USA
Econet Italia (not consolidated)
(Intercompany Partnership) 58.33%
Econocom Group
Capital ownership (as of Dec 31, 1999)
Econocom International
Econocom Group Public 42.54%
57.46%
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99Consolidated Financial Statements
Management report
Independent auditor’s report
Consolidated Financial Statements as of December 31, 1999
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1. Corporate structure
Management report
Published figures in millions of euros 1999 1998 % change
Revenue 628.8 413.4 +52%Operating profit* 13.2 8.9 +48%Profit from ordinary activities* 12.7 7.9 +60%Profit before tax* 12.1 7.6 +59%Net income* 9.4 5.9 +61%Goodwill amortization (3.0) (1.7)Net income 6.4 4.1 +55%*before amortization of goodwill
Published figures in millions of euros 1999 1998 % change
in millions of euros 1999 1998 % change
Network services 56.3 36.6 +54%Comprehensive financing 380.5 258.7 +47%Product procurement 192.0 118.1 +63%
Total 628.8 413.4 +52%
The three business lines made the following contributions to operating profit:
in millions of euros 1999 1998 % change
Network services 5.8 2.9 +100%Comprehensive financing 5.0 2.9 +72%Product procurement 2.4 3.1 -22%
Total 13.2 8.9 +48%
Network Services andComprehensive Financing had aparticularly good year in 1999 withsubstantial revenue growth andincreased contributions to opera-ting profit. Despite the fact thatmost of its costs are variable (dueto the business model based onpurchase and logistics outsourcingand commercial agents), theProduct Procurement and custo-mization business experienced
more limited growth in the face ofintense competition, which had anegative impact on margins.
On a comparable Group structurebasis, the Network Services seg-ment experienced the most remar-kable growth, (up 43%).Coaching, which involves detach-ment of technicians and engineersto client sites, continued to expand,and several complex integration
and deployment projects were suc-cessfully completed over the year.Substantially enhanced productivityand economies of scale paved theway for improved profitability in theServices business.
The Group’s total staff increased to1,180 people, including more than200 sales people.
ECS DBSI was consolidated in1999 for the full year.
EDS Product Services businessand CSI were consolidated, res-pectively, as of March 1 andAugust 1, 1999.The newly acquired companies orbusiness, including Keydata (whichwas only consolidated for Q4 in1998), contributed Euro 105.7 mil-lion to revenues. As some of thecompanies merged in 1999, their
contribution to 1999 net incomecannot be precisely determined.
Revenues advanced to Euro 628.8million, a 52% increase over 1998revenues. Growth improved in1999, on the strength of externalgrowth, which contributed 18% (34% on a like-for-like basis).
The main balance sheet move-ments included the increase inshareholders’ equity, which
brought the capital adequacy ratiofrom 22% to more than 35% oftotal assets as a result of the April1999 issuance of shares, and theincrease in cash and cash equiva-lents to Euro 46.1 million.
As of December 31, 1999, cashand cash equivalents exceededborrowings (mainly factoring),which stood at Euro 16.1 million.
Following the purchase in October1998 of the Keydata Companies–two French companies operatingin the Product and NetworkServices businesses–, the Groupcontinued to expand its businessthrough three acquisitions in 1999.The impact of the February 1999acquisition of ECS DBSI, a SwissLeasing company, was backdated to November 1, 1998. EDS
Benelux Product Services wasacquired as of March 1, 1999, andCSI, a Services company speciali-sing in Systems Management, wasintegrated in July 1999.
In addition, at the end of 1999, theGroup incorporated Econet ItaliaSRL, a Services company in Italythat will specialise in Coaching.
Econocom International NV, theCompany’s majority shareholder,reduced its interest from 69 % toapproximately 57.4% during 1999.
We hereby submit for your approval our report on the Company’s business and thefinancial statements as of and for the year ended December 31, 1999, as required by lawand the Company’s bylaws.
2. Results
2.1 Consolidated results
2.2 Results by business lines
Revenues for the three business lines were as follows:
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3.1 Belgium: Econocom Services SA/NV
Accelerating the trend enjoyed in1998, revenue grew by 41% in1999, reaching Euro 35 million(versus Euro 25 million in 1998).Total employee headcount rea-ched 428 as of December 31,1999, an increase of 35% on ayear-to-year basis.
The company developed a neworganisation with threeCompetence Centers and fourStart-up Units. The CompetenceCenters are departments devotedto dedicated technical solutions inthe field of e-business, AS400products, systems managementand Tivoli, as well as Internet sitesand Intranets. Start-up Units aresmall teams of 20 to 30 techni-cians or engineers who maintaindedicated customer relationshipsthat emphasize rapid responsetimes and open communication.Each team is led by a managerwho utilizes an entrepreneurialapproach.
Two additional Competence Centerswill be opened in 2000 in the fieldsof telecommunications/connectivityand security. The number of Start-up Units will be increased fromfour to 18 in the course of 2000.All engineers will be integrated intosuch teams.
All the business lines achievedhigher revenue than in 1998.Coaching services, which repre-sents 50% of the company’s busi-ness, grew 50%. Integrationservices doubled through internalgrowth and the acquisition of CSI(which specialised in SystemsManagement) in July 1999. The maintenance of PC’s and sys-tems represented respectively16% and 15% of the total activity ;they experienced more limitedgrowth in 1999.
The company intends to developfurther by offering packaged ser-vices and Internet related solu-tions, supported by strongermarketing actions.
3.2 Belgium: Econocom Distribution SA/NV
Econocom Distribution enjoyed fur-ther growth in sales in 1999, withincreases of 12% in value and 23%in volume (36,335 PC’s deliveredcompared with 29.547 in 1998). This subsidiary reported 1999revenue of Euro 104 million. Inearly 1999 the company imple-mented a new ERP software(Movex) to manage its procure-ment and sales processes.Designed to improve the qualityand reliability of deliveries and rela-ted services provided to custo-mers, this software will be thebase for future developments inthe field of e-commerce.
3.3 Belgium:Econocom Lease SA/NV
Econocom Lease ended the yearwith sales of Euro 58.2 million inBelgium compared to Euro 48.6million in 1998. By developingstrong relations with large multina-tional companies, the companysucceeded in increasing the ave-rage size of its ComprehensiveFinancing contracts.
Software is being developed toprovide customers with access toinformation about their leasedequipment through an Internetbased system. The implementa-tion will be made in 2000 and willfurther enhance the quality of theservice provided by EconocomLease.
3.4 Luxembourg
Following a material slowdown inrevenue in 1998 due to the repla-cement of commercial agents, thecompany formed a new sales teamwith experienced salespeople andhired a technical manager.
Thanks to this new structure, thecompany increased its revenue by42% in 1999 compared to 1998.
For 2000, management expectscontinued growth in revenue andimproving net results.
2.3 Parent company balance sheetand results (non-consolidated)
In 1999, the company continuedto strengthen its equity base, withshareholders' equity doubling fromthe previous year, mainly as aresult of the public share offering in April 1999.
This public offering led to the crea-tion of 159,253 new shares, whichrepresented a total equity capitalinjection of Euro 23.09 million,including common stock of 1.25million and additional paid-in capi-tal of Euro 21.84 million. Proceedsfrom the offering were used tofinance the second part of theKeydata acquisition and bolsteredavailable cash.
In early 1999, 3,248 shares nottaken up by existing shareholdersduring the subscription period ofDecember 1998 were sold on theopen market for Euro 0.24 million(Euro 0.03 million of commonstock and Euro 0.21 million ofadditional paid-in capital).
In addition, several share issuesreserved to employees were carriedout in the course of the year follo-wing the exercise of stock options.
These represented a total of 58,068 new shares (after the four-for-one stock split), and a totalequity capital injection of Euro 0.64million (Euro 0.11 million of com-mon stock and Euro 0.52 millionof additional paid-in capital).
Shareholders' equity after appro-priation of net income for the yeartherefore amounted to Euro 47.06million at December 31, 1999, or73% of the balance sheet total.
Amongst other balance sheetitems, start-up costs rose in linewith share issue costs of Euro 0.6million. Financial fixed assets roseby Euro 3.9 million, mainly follo-wing the share capital increases ofEconocom Spain for Euro 0.9 mil-lion and Econocom SA (France) forEuro 2.8 million.
Revenue for 1999 rose slightly toEuro 13.3 million, up from Euro12.8 million in 1998. Net incomerose from Euro 0.35 million to Euro0.49 million, mainly as a result ofcapital gains on the sale of sharesto a subsidiary. The improvementin net interest income and non-recurring income only partly offsetthe increase in operating charges.
3. Review of the main subsidiaries
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3.8 France: Econocom Distribution
The merger between EconocomDistribution and Keydata's Productbusiness gave rise in 1999 to acompany with share capital ofnearly Euro 11 million and sales ofEuro 77 million, up from the pre-vious year on a comparable struc-ture basis.
The sales force for the Paris areamoved to Econocom Franceheadquarters to be closer to theother sales teams. With the imple-mentation of the Movex ERP, thecompany was able to apply logis-tics outsourcing to a large part ofits sales.
In the course of 2000, furthersynergies with ComprehensiveFinancing operations should berealized, leading to combinedsales of systems and solutions.Automation of low-end salesshould also be stepped up as theoutsourcing model ramps up andappropriate e-commerce toolsbecome increasingly available.
3.9 Econocom U.K.
Econocom U.K. maintained itsrevenue (Euro 26 million) and profi-tability in 1999 and continued todevelop its partnership agree-ments with equipment vendorsand service companies.
This strategy will be continued in2000 as Econocom U.K. imple-ments a Web-based Partner Linkbased on the Econocom U.S.A.model.
This will allow the vendor salesforceto access a site dedicated to theircompany and help them to providefinancing solutions to their custo-mers.
3.10 Econocom Spain
In Spain, 1999 was a year of tran-sition. A new management teamwas set up, with the aim of develo-ping the Group's operations in thepromising Spanish market. Comprehensive Financing andCoaching will be the two areasof focus. As a result, the ProductsProcurement and Customizationoperations were discontinued inSeptember 1999, and the divesti-ture of the maintenance businesswas organized and realized duringthe first quarter of 2000.
3.11 Econocom Switzerland
Econocom Switzerland's Compre-hensive financing operations grewsignificantly in 1999. With theacquisition in February 1999 ofECS DBSI, a company with annualrevenue of Euro 15 million, thecompany strengthened its positionas the market leader in French-speaking Switzerland. The twocompanies were merged, withretroactive effect to January 1,1999, in order to simplify adminis-trative processes and organizatio-nal structures.
In the course of the second half of1999, Services operations werelaunched and met with early suc-cess. In spite of the start-upexpenditure for this launch, netincome rose faster than revenue.
Econocom Switzerland’s head-count doubled in 1999.
3.12 Econocom U.S.A.
Revenues generated by the U.S.subsidiary continued to grow in1999, an increase of 38% over1998. During 1999 EconocomU.S.A. continued to implement itsvendor leasing model nationallywith installations ranging fromsmall networks to millions of dol-lars of IT equipment in 44 states.
Today, 70% of the revenues comefrom the vendor channel (hardwaredistributors, solutions providers,software designers, telecom inte-grators, voice-video and data com-panies and value-added resellers).
The implementation of a Web-based Partner Link in 1999 allo-wed the vendor channelsalespeople to access valuableproduct information and salestools to provide seamless finan-cing solutions for their customers.
The focus in 2000 is to partner withlarger solutions providers and manu-facturers and implement globalComprehensive Financing solutionsthroughout the Econocom Group.
3.13 Germany
In 1999, Econocom Lease BV (TheNetherlands) bought a portfolio ofleasing contracts in Germany. Anew agent has been hired to servi-ce German customers. This newventure achieved satisfactory reve-nue in 1999, allowing it to be profi-table in its first year.
3.5 The Netherlands:Econocom Lease BV and its subsi-diaries, Econocom Services BV andEconocom Product Services BV.
In 1999, the Dutch companiescontinued to experience stronggrowth in sales and earnings.
The Comprehensive Financingbusiness nearly tripled its revenueas a result of the continuing suc-cess of the “Budget Lease” and“Gemlease” products. The lattertargets the public sector, particular-ly municipalities and regional autho-rities. Customers of this typeincreased from 47 in 1998 to 88 in1999, representing a 15% marketshare of all the Dutch municipalities.
Total sales for the ComprehensiveFinancing business reached Euro128.3 million (versus Euro 45.6million in 1998). The net profitnearly doubled on a year-to-yearbasis.
Econocom Lease BV should main-tain high revenue and profitabilityin 2000, albeit at a lower growthrate than in 1999.
Econocom Services BV increasedits revenue by 46% (Euro 6 millionin 1999 versus Euro 4.1 million 1998),with a net profit in excess of Euro1 million. The activity covers threetypes of services: systems mana-gement, ERP and project manage-ment. The number of technicalengineers increased from 45 atyear-end 1998 to 51 as ofDecember 31, 1999.
On March, 1, 1999, EconocomDistribution BV bought the ProductServices business of EDS andchanged its name to EconocomProduct Services. This segmentreported revenue of Euro 23.5 mil-lion. Due to lower than expectedrevenue partially related to the year2000 freeze on investments bycustomers, the company showeda small net loss (before amortiza-tion of goodwill). A resizing of thecommercial and administrativestructure was implemented inDecember 1999 in order to impro-ve operating results in 2000.
In total, the Dutch Group of com-panies achieved revenue in excessof Euro 150 million. This provides asound base for further develop-ment of all three activities in 2000,with an emphasis on recruitmentof technical engineers, allianceswith suppliers and manufacturers,and expansion of the sales force.
3.6 France: Econocom Location
In 1999, Econocom Locationenjoyed substantial growth of 20%and a sharp increase in net income.
The Euro 2.5 million share capitalincrease in the second quarter of1999 consolidated the company'sfinancial strength, providing asound basis for future revenuegrowth.
In 2000, the "Junior" salespeopleand the administrative departmentare expected to continue to impro-ve their productivity.
3.7 France: Econocom Services
In 1999, Econocom Services inte-grated Keydata's Service opera-tions for the Paris area and otherFrench regions. Even on a consoli-dated basis, the company achie-ved considerable growth, with a50% increase in revenue as wellas a sharp rise in net income. Thiswas in large part due to the strongdevelopment of Coaching opera-tions as part of Service LevelAgreements.
In 2000, the company is expectedto sustain and consolidate itsgrowth through the setting up ofclient-focused Start-Up Units andtechnology-focused CompetenceCenters (on the Internet, Systems,Applications).
4140
The Board of Directors will propo-se that the Annual GeneralMeeting of May 16, 2000 approvethe appointment as Director ofNasri Béjani, currently Chairmanand Chief Executive Officer of theFrench subsidiaries.
In early 2000, the Board ofDirectors appointed its Mana-gement Committee, composed ofMessrs. Bouchard, Kouyoumdjian,Roesch and de Water, who will bespecifically in charge of definingand implementing Group strategy.M. Bejani will become a Memberof this Committee as of April 2000.
8. Euro and year 2000
As all steps necessary to preparethe Group's information systemsfor the changeover were comple-ted at an early stage, the transitionto the year 2000 proved seamless.
In the market, however, preparationfor this milestone led to a slow-down in hardware orders in thesecond half of 1999, as manyclients who had completed theirY2K work preferred to postponethe acquisition of any new equip-ment at the end of the year in orderto avoid destabilizing their net-works.
During 2000, the Group will conti-nue the necessary steps for thechangeover to the Euro. TheAnnual General Meeting on May18, 1999 approved the change inthe company’s bylaws and theconversion of the share capital intoEuro. The company’s consolidatedfinancial statements for 1999(balance sheet, income statementand notes) will be published only inEuro.
9. Auditors
As in prior years, the company'sfinancial statements have been audi-ted by PricewaterhouseCoopersReviseurs d’Entreprises representedby Emmanuèle Attout, replacingMichel Massart.
10. Subsequent events
A sales agreement for the Spanishmaintenance portfolio (with trans-fer of dedicated technicians) wassigned in early February 2000; duediligences in process should becompleted before March 31, 2000.
Moreover, at the end of February adispute arose between Econocom’sBelgian service subsidiary and oneof its partners regarding the com-pensation plan to Econocom ofsome intermittent breakdowns.Econocom asked for an expertise.There is no specific provision for thisdispute as the potential stake can-not yet be determined.
11. Outlook and dividends
The prospects for the year 2000 arefavourable in Network Services andComprehensive Financing. TheProduct Procurement and customi-zation business has less visibility,due to changes in manufacturers'strategies. The Group's new three-year plan, called Horizon 2002, conti-nues the strategy of profitable growthin all three business lines. TheNetwork Services business, whichrepresented over 52% of the Group'sadded value in 1999, should showthe strongest growth, driven in par-ticular by solid demand in the field ofInternet architecture.
The Board of Directors will recom-mend to the Annual Shareholders’Meeting the payment of a grossdividend for 1999 of Euro 0.2, yiel-ding a net dividend of Euro 0.15per share, up 33% year-over-year(gross value of Euro 0.15 per shareafter the four-for-one stock split).
4. Listing of Econocom Groupon the Brussels stock exchan-ge, increase in the free floatand four-for-one stock split.
As a result of increasing investorinterest and expansion in tradingvolume, Econocom Group shareswere transferred on March 11,1999 to the Forward Market (semi-continuous settlement) on theBrussels Stock Exchange. Theshares outperformed the market,rising approximately 40% in 1999.
The free float increased from 31%to more than 42% during 1999.The majority shareholder, EconocomInternational NV, sold shares bet-ween early February and mid-March 1999 so as to raise theresources required to subscribe tothe issuance of shares in April1999.
Another measure designed toincrease liquidity of the shares wasthe four-for-one stock split, whichtook place in June 1999. As ofDecember 31, the share capitalwas represented by 7,048,044shares.
5. Share capital increase
The company's share capital wasincreased in January 1999 follo-wing the exercise of subscriptionrights for shares not taken upduring the public offering ofDecember 1998, through the crea-tion of 12,992 shares (after thefour-for-one stock split).
In addition, a public offering wasmade in April 1999, on the basis ofone new share for every ten outs-tanding. The 637,012 shares (afterthe four-for-one stock split) offeredwere fully subscribed. An additio-nal 58,068 shares (after the four-for-one stock split) were createdas a result of the exercise of stockoptions by employees. This lastincrease in share capital was car-ried out with a restriction on thepreferential rights of existing share-holders. The Board of Directorsbased this restriction on the insi-gnificant level of the dilution stem-ming from this operation in view ofthe results of the ECO 2000 planand the lower cost compared to apurchase of shares on the market.
6. Stock option plan
The plan set up in 1997 was conti-nued. Options are regularly exerci-sed, in accordance with theconditions defined for beneficiaries.
A new plan was launched inOctober 1999. Its conditions arein compliance with new Belgianlegislation passed in March 1999in respect to stock options, provi-ding both the beneficiaries and thecompany with more favorableconditions with regard to incometax and social security contribu-
tions. This plan concerns a morelimited number of beneficiaries atmanagement level. At December31, 1999, 62,000 options hadbeen granted under this plan,at a price of Euro 35, slightlyhigher than the market price at thedate of granting. The text of thisnew stock-option plan, as well ascontracts signed at the end of1999, were approved by theBoard of Directors at their meetingon January 25, 2000.
At December 31, 1999, the totalnumber of outstanding optionswas 199,120, equivalent to 2.8%of share capital.
7. Directors/corporate governance
As announced in the ManagementReport for 1998 and in compliancewith the recommendations onCorporate Governance issued bythe market authorities of theBrussels Stock Exchange, theBoard of Directors is now compo-sed of both executive Directors(Jean-Louis Bouchard, Chairman;Rafi Kouyoumdjian, ChiefExecutive Officer; Jean-PhilippeRoesch and Christian Levie,Directors) and non-executiveDirectors (Thierry Janssen, PierreVerbeke and Gaspard Dürrleman).The latter two were appointed atthe Annual General Meeting onMay 18, 1999. At the Extraordinary GeneralMeeting on February 22, 2000,Charles de Water, currently ChiefExecutive Officer of the Dutch sub-sidiaries and German sister-com-pany, was appointed to a six-yearterm as Director.
Brussels, March 6, 2000
The Board ofDirectors,
4342
To the Chairman of the BoardEconocom GroupClos du Parnasse, 13AB1050 BrusselsBelgium
We have audited, in accordance with generally accepted auditing stan-dards in Belgium, the consolidated balance sheet of Econocom Group asof December 31, 1999 and the related consolidated statement of incomefor the year then ended (not entirely presented herein) prepared in accordancewith generally accepted accounting principles in Belgium; in our reportdated March 7, 2000, we expressed an unqualified opinion on those conso-lidated financial statements.
In our opinion, the information set forth in the accompanying condensedconsolidated financial statements is fairly stated, in all material respects, inrelation to the consolidated financial statements from which it has beenderived.
Brussels, March 9, 2000
PricewaterhouseCoopers Reviseurs d’Entreprises S.C.C.R.L.represented by
Emmanuèle Attout
consolidated balance sheetas of December 31, 1999
1999 1998EURO,000 EURO,000
Ref Dec. 31 Dec. 31
Fixed assets 36,218 29,105Intangible fixed assets 3.1 1,190 497Tangible fixed assets
• Buildings, fixtures and fittings 3.2 4,989 4,108• Finance leases and similar rights 3.3 39 2• Leased assets 3.4 14,000 10,007
Financial fixed assets 3.5 2,607 2,491Goodwill 3.6 13,393 12,000
Current assets 122,828 94,722Inventory of computer equipment 3.7 3,675 3,747Receivables
• Trade receivables 3.8 51,066 46,720• Refinancing Institutions 3.8 10,830 7,595• Other receivables 9,313 9,504• Prepaid expenses and other assets 1,855 2,708
Cash assets and short term investment 3.10 46,089 24,448
Total assets 159,046 123,827
Current Liabilities 86,571 82,272Current portion of long-term debt 3.12 246 357Bank overdrafts and short-term loans 3.12 2,038 2,947Factoring debt 3.12 6,761 1,149Accounts payable 46,398 43,844Accrued expenses and other payables 3.14 31,128 33,975
Long-term debt 3.12 7,093 7,818
Provisions 3.13 8,364 6,496
Group equity 57,018 27,241Stockholders’ equity 3.10 57,015 27,239Minority interests 3.10 3 2
Total liabilities 159,046 123,827
Independent auditor’s report Econocom Group
4544
1999 1998EURO,000 EURO,000
Dec. 31 Dec. 31
Revenue 628,792 413,360 52%
Operating expenses (615,587) (404,438)Cost of sales (532,841) (348,477)Services and other goods (37,567) (26,064)Remuneration, social security costs and pensions (44,005) (29,331)Other operating expenses (1,174) (566)
Operating profit 13,205 8,922 48%
Financial result (480) (992)
Profit from ordinary activities before tax 12,725 7,930 60%
Extraordinary result (610) (320)Income taxes (2,715) (1,777)
Profit for the period 9,400 5,833 61%
Minority interest (1) 20Amortization of goodwill (2,973) (1,706)
Profit for the period available for appropriation 6,426 4,147 55%
Econocom Group
1999 1998
Net income (Group share) 6,426 4,147Minority interests 1 (20)Amortization and depreciation 4,139 3,786Provisions 1,938 716
Cash flow (a) 12,504 8,629
Changes in operating assets and liabilitiesChange in inventory 72 2,057Change in accounts receivable -- less than one year (6,110) (7,261)Change in accounts receivable -- more than one year (64) 175Change in deferred charges 779 (302)Change in trade payables 222 2,239Change in other amounts payable (deposits, payroll and related expenses, other) (1,714) 9,609Change in deferred income and accrued charges (1,874) 317
Change in working capital (b) (8,689) 6,834Net cash provided by operating activities (a+b) = (c) 3,815 15,463
Cash flows used in investing activitiesFormation expenses (617) (52)Net cash used by changes in property, plant and equipmentand intangible fixed assets used in the business (2,474) (2,134)Acquisition of EDS Product Services operations (in Benelux) (3,352)Net cash used by changes in other intangible and tangible fixed assets allocated to the leasing business (770) (2,761)Proceeds from sales of and decrease in long term investments (26) 20Impact of foreign exchange rate fluctuations on cash flows used in investing activities (20) (325)Purchase of companies and activities (1,756) (9,911)
Cash used in investing activities (d) (9,015) (15,163)Free cash flow (c+d) = (e) (5,200) 300
Cash flows used in financing activitiesIncrease in capital 23,968 7,342Increase (decrease) in long-term borrowings (726) 2,699Increase (decrease) in short-term borrowings 4,592 (4,297)Dividends payable (1,410) (1 048)
Cash used in financing activities (f) 26,424 4,696Change in cash and cash equivalents (e +f) 21,224 4,996
Movements in balance sheet items (inventory and accounts receivable) include provisions for depreciation.
consolidated income statementfor the year ended December 31, 1999
Econocom Groupconsolidated statement of cash flowsfor the year ended December 31, 1999
in Euro,000
4746
Econocom Group
1.1 Principal activities
The Econocom Group is an inter-national service provider with com-prehensive offerings includingNetwork Services, ComprehensiveFinancial Services and ProductProcurement and customization.
1.2 General principles of consolidation
The consolidated companies areover 50% held subsidiaries andsub-subsidiaries ; all operationalcompanies are consolidated usingthe full consolidation method.A list of consolidated companies ispresented in note 4.All significant intercompany tran-sactions, balances and incomefrom intercompany transfers wereeliminated from the consolidatedfinancial statements.Minority interests in shareholders’equity and earnings of consolida-ted subsidiaries are shown separa-tely in the balance sheet and theincome statement.
1.3 Accounting principles
1.31 Accounting policies and principles for leasing contractsLeased equipment and minimumlease payments are transferred tofinancial institutions. Proceedsfrom the transfer representing thepresent value of future lease rentalpayments and the contractual resi-dual value of the equipment soldare taken in revenues at the timeof the transfer.Cost of equipment sold is taken incost of sales.Refinancing agreements generallyinclude a bargain repurchaseoption or a repurchase obligationand, therefore, the companyretains an economic residual inter-est in the equipment.The company accounts for its resi-dual interest in the leased assetsand its repurchase commitmentsas follows:A comparison is made betweenthe contractual residual value andthe estimated economic residualvalue at the end of the contract.This value, called “PAO4 value”, is computed using an accelerateddepreciation method.
Intangible fixed assets 2 to 5 years
Leased equipment other than computer equipment 5 years
Leased computer equipment:
assets are depreciated concurrently to capital repayment
according to the depreciation tables of refinancing institutions
Furniture and fittings 10 years
Office equipment 5 years
Building leased until June 30, 1992, fully owned since then 33 years as from January 1, 1984
Goodwill 3 to 10 years
notes to the consolidated financial statementsas of December 31, 1999
1. Presentation and summary of the main accounting principles used On a portfolio basis, per country,when the total of the contractualresidual values exceeds the esti-mated economic residual values,a provision is set up for the diffe-rence. As from 1995, in accordan-ce with generally acceptedaccounting principles, when on aportfolio basis, per country, theestimated economic residual valueexceeds the contractual residualvalue, the difference is taken intoprofit, and booked under “leasedassets”.
PC Lease contractsPC Lease contracts are contractswhereby the lessee pays a fixedrent over the contract period forequipment, software and otherservices delivered progressivelyover the period of the contract.
Such contracts are also refinancedwith financial institutions.Upon signature of the contract,only the margin generated by thecomparison between the presentvalue of the future rental paymentsand the estimated purchase priceof the equipment is recognized.The turnover and the related mar-gin generated by the estimatedvalue of the equipment at the endof the contract are recognized onthe delivery date.Rental and lease contractsFor rental or lease contracts notrefinanced, the related assets areincluded in the balance sheetunder “Leased assets”. Rentalpayments are included in revenueover the contract period.Equipment is depreciated using anaccelerated depreciation method.
CommissionsCommissions due on the differen-ce between commercial residualvalues and economic residualvalues are provided for.
1.32 Fixed assets depreciationmethodThe method used for Benelux-based companies is the following: Formation expenses are bookedas assets and are amortized yearlyby 20% from initial invoicing usingthe straight-line method.
Tangible and intangible fixedassets are booked at their purcha-se value and depreciated overtheir estimated economic life usingthe straight-line method:
In respect of subsidiaries acquiredsince January 1995, the deprecia-tion period used is shorter thanthat for those subsidiaries alreadyintegrated in the ECONOCOMGROUP before January 1, 1995.
Affected items are buildings (20years instead of 33) and fixturesand fittings (5 years instead of 10).Given the immaterial amountsinvolved, no adjustment wasmade.
49
2 Exchange rates used (countries outside Euro area)
1.33 InventoriesInventories are valued at the lowerof cost or net realizable value onan individual basis.Depreciation in excess of net bookvalue of the equipment is booked,for the Leasing activity, as a liabilityunder “Provisions for risks andcharges”.
1.34 Income taxIncome tax expense is equal toincome tax payable for eachconsolidated company.
1.35 Converting foreign currency itemsPayables and receivables in foreign currency are converted into each subsidiary’s operatingcurrency using the December 31,1999 exchange rate. Foreign cur-rency transactions are convertedusing the exchange rate at thetransaction dates. Exchange gainsor losses are booked in the profitand loss account.
The foreign subsidiaries’ assetsand liabilities were translated intoEURO using the exchange rate as of December 31, 1999.Profit and loss accounts weretranslated into EURO using the1999 average exchange rates.Translation differences are bookedin Shareholders’ equity under“Foreign currency translationadjustment”.
Exchange rate Average rate Exchange rate Country as of Dec. 31, 1999 as of Dec. 31, 1998
United Kingdom 1.6085 1.5177 1.4178Switzerland 0.6230 0.6244 0.6220USA 0.9954 0.9386 0.8568
Dec. 31, Dec. 31,1999 1998
Fittings and machines 39 2
Total 39 2
Benelux 2,078 1,061 3,139 3,024United Kingdom 70 70 73Spain 87 87 146Switzerland 199 199 56USA 134 134 77France 1,360 1,360 731
Total 2,078 2,912 4,989 4,108
Item “Land and Buildings” includesEconocom Group’s current head-quarters at Clos du Parnasse,Brussels and land bought in June1998 in Zaventem (Euro 1.1Million) on which the new head-quarters in Belgium have beenconstructed. The other tangible
fixed assets are mainly IT equip-ment depreciated over three years.The increase in France is linkedto the relocation of Product opera-tions into new premises and to lease-hold improvements in the registeredoffice of the French companies.
Dec. 31, Dec. 31,1999 1998
Formation expenses - Benelux 564 67Formation expenses - Spain 21 5
Sub-total 585 72
Development costs 62 71Franchises, patents, licences 426 246Other 117 109
Sub-total 605 425
Total 1,190 497
3.2 Tangible fixed assets
3.3 Finance leases and similar rights
3. financial statements analysis (all amounts in Euro 000)
3.1 Intangible fixed assets
48
land and equipment,furn Dec. 31, Dec. 31,buildings and fixt.fittings 1999 1998
5150
Net amount New AmortizationGross December 31, acquisitions 12 months Net amountValue 1998 1999 1999 Dec. 31, 1999
ECS-DBSI - - 466 (47) 420CSI - - 388 (32) 356EPS BELGIUM - - 483 (3) 480EPS NETHERLANDS - - 2,874 (479) 2,395
Sub-total 0 0 4,211 (561) 3,651
1998 acquisitions
Keydata 6,241 5,929 154 (1,283) 4,800
1996 acquisitions
France SA 1,085 759 0 (108) 651France Leasing 2,270 1,589 0 (227) 1,362
Sub-total 3,355 2,348 (335) 2,013
1995 acquisitions
Spain 1,310 786 0 (131) 655United Kingdom 2,950 1,770 0 (295) 1,475Switzerland 869 521 0 (86) 435USA 728 437 0 (73) 364
Sub-total 5,857 3,514 (585) 2 929
Previous acquisitions
Distribution & Serv. France 1,304 209 0 (209) -
Total 16,757 12,000 4,365 (2,973) 13,393
The cash collateral amount inSwitzerland is a deposit given torefinancing companies to guaran-tee financial residual values. Theother financial fixed assets include
The increase in goodwill is due tothe three companies or businessesacquired in 1999 (ECS-DBSI, aSwiss leasing company; CSI, aBelgian systems management ser-vices company; and EPS, a Dutchand Belgian Product Servicesbusiness acquired from EDS
Group). This external growth,together with the full year amorti-zation of Keydata’s goodwill (threemonths in 1998), explains theincrease in goodwill amortizationfrom Euro 1.8 Million in 1998 toEuro 3 Million in 1999.The EPS goodwill calculation takes
into consideration the price alreadypaid but not the contractualvariable price (minimum of Euro1.3 Million with deferred paymentfrom 2000 to 2002) on which thereis litigation, as the Group believesthat the seller has not fulfilled hiscontractual obligations.
deposits due from factoring com-panies and, for the French Compre-hensive Financing subsidiary, thebalance of a VAT credit due fromthe tax administration.
cash collateral other financial Dec. 31, Dec. 31,(> 1 year) assets 1999 1998
Benelux 46 423 469 173United Kingdom 4 3 7Switzerland 560 29 589 314Spain 32 32France 1,510 1,510 2,004
Total 610 1,997 2,607 2,491
3.4 Leased assets
Dec. 31, Dec. 31,1999 1998
Benelux 1,992 3,061United Kingdom 2,306 1,624Spain 379 617Switzerland 2,041 640USA 2,406 846France 4,876 3,219
Total 14,000 10,007
Equipment not yet refinanced andself-financed contracts are enteredat purchase value and depreciatedstraight line over 60 months. Forself-financed contracts, additionaldepreciation to reach the PAO4value is included in provisions.When on a portfolio basis, per
country, the estimated economicresidual value exceeds the contrac-tual residual value, the difference isbooked under “leased assets”. Thisdifference amounts to approximate-ly Euro 7 million as of December31, 1999.
3.5 Financial fixed assets
3.6 Goodwill
1999 acquisitions
5352
The global inventory representsless than two days of turnover; theFrench Product procurement com-pany still holds inventories as itdoes not yet apply Econocom’soutsourcing (to wholesalers) pur-chase and logistics model.
3.9 Other receivables
This category includes mostly VATreceivables and tax payments tobe recovered.
Comprehensive Product Network Dec. 31, Dec. 31,financing procurement services 1999 1998
Benelux 22 1,182 1,204 1,530France 38 1,714 384 2,136 1,819Spain 255 255 384USA 19 19 14United Kingdom 61 61
Total 118 1,736 1,821 3,675 3,747
Dec. 31, Dec. 31,1999 1998
Benelux 1,116 38,904 40,020 38,332Spain 759 1,733 2,492 2,468United Kingdom 753 1,224 1,977 299Switzerland 4,146 1,345 5,491 2,691USA 545 22 567 272France 3,511 7,838 11,349 10,253
Total 10,830 51,066 61,896 54,315
from othercustomers
from refinancinginstitutions
Receivables from refinancing insti-tutions are very short-term recei-vables (administrative delay). Thelevel of receivables from other cus-tomers is partly due to a largesales volume in the PC Productsoperations in December, and to
the quarterly advance billingmethod used by the Services operations.The trade receivables figuresincreased by 14%, significantlyless than the 52% increase inrevenue.
3.7 Inventories (by business line)
3.8 Trade receivables
Cash assets 38,717 18,732Short term investments 7,372 5,716
Total 46,089 24,448
The increase is due to the cash-flow from 1999 operations and theEuro 23,1 Million increase in capitalof Econocom Group in April 1999.This growth was achieved despitethe policy of systematic cash-pay-ment against discount applied in1999 in the Product Procurementsubsidiaries and the cash used forexternal growth (approximately
Euro 9 Million in 1999 including thesecond contractual payment forKeydata - 03/99).
3.11 CapitalThe issued capital and the sharehol-ders’ equity of the holding company(Econocom Group) amounted toEuro 13,849 and Euro 47,058, res-pectively, as of December 31, 1999.
The expansion of short-term debtwas mainly due to an increasedrecourse to factoring in the
Product Procurement businessline, which was attributable togrowth in activity.
The Econocom Group consolidatedequity amounts to Euro 57,015.Econocom International NV, themajority shareholder, was holding57.46 % of the 7,048,044 sharesrepresenting the issued capital asof December 31, 1999. Moreover,as of December 31, 1999,199,120 (2.8 % of capital) optionshad been granted.
Dec. 31, Dec. 31,1999 1998
Dec. 31, Dec. 31,1999 1998
Financial lease payables 6 33 39 1Factoring debt 6,198 6,761 12,959 8,090Credit institutions 219 851 2,039 3,109 2,397Other 21 11 32 1,783
Total 246 7,093 8,800 16,139 12,272
withinone year
over 1 year less than 5 years
bank overdraft & ST lines of credit
3.10 Cash assets and short-terminvestments
3.12 Indebtedness
5554
The main item is the cost of therestructuring of the Spanishdistribution (stopped inSeptember 1999) and mainte-nance (which is in the processof being sold) activities.
The increase of these commit-ments is mainly due to significantportfolio development in all thecountries; the increase is in linewith the growth of the purchaseprice of equipment leased. Thestatistics maintained by Econocomdemonstrate that this level of com-
mitment does not bear any risk, asthe portfolio management or theremarketing of the equipmentallows positive results at the end ofthe contracts.
3.13 Provisions
Dec. 31, Dec. 31,1999 1998
3.16 Residual value commitments (in millions of Euro)
Dec. 31, Dec. 31,1999 1998
3.15 Extraordinary items, net
Deferred revenue is mostly related tothe PC lease and service operations.
The dividends payable in June2000 are included for Euro 1.4Million. The rise in social chargesis explained by the increase inheadcount (220 additionalpeople). The decrease in otheraccruals is due to the additionalpayment of Euro 4.2 million madein March 1999 for the acquisitionof the Keydata shares; thisamount was accrued as ofDecember 31, 1998.
These provisions mostly covermedium-term risks or commissioncharges.
3.14 Accrued expenses and other payables
Deferred revenue 9,778 9,334Taxes payable 9,112 10,269Social charges and commissions payable 6,728 5,231Dividends payable 1,410 1,048Other accruals 4,100 8,093
Total 31,128 33,975
Dec. 31, Dec. 31,1999 1998
Provision for deferred commission charges 4,114 2,726Provision for legal disputes 725 744Provision for leasing contracts risks 2,130 2,006and inventory depreciationProvision for other risks and charges 1,395 1,020
Total 8,364 6,496
Dec. 31,1999
Net loss on sale of fixed assets (87)Restructuring expenses (467)Litigations (274)Others, net 218
Total (610)
Belgium 4,9 4,3The Netherlands 7,9 4,8United Kingdom 3,1 3,2Switzerland 5,6 4,2Spain 0,9 0,7France 5,1 4,9
Total 27,5 22,1
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Econocom SA Clichy 99.99 % Econocom GroupEconocom Location SA Clichy 99.99 % Econocom SAG.I.E Econocom Clichy 100 % Econocom SAEconocom Distribution France SA Clichy 99.99 % Econocom GroupEconocom Services France SA Clichy 99.99 % Econocom Services SA/NV
Econocom Distribution SA/NV Bruxelles 99.99 % Econocom GroupEconocom Services SA/NV Bruxelles 100 % Econocom GroupEconocom Lease SA/NV Bruxelles 100 % Econocom Services SA/NVCSI Bruxelles 99.99 % Econocom Services SA/NVAsystel Computer & Services SA Bruxelles 99.99 % Econocom GroupEconocom Luxembourg SA Luxembourg 100 % Econocom Services SA/NV
Econocom Lease BV. Houten 99.94 % Econocom GroupEconocom Products Services. Houten 99.94 % Econocom Lease BVEconocom Services BV. Houten 99.94 % Econocom Lease BVEconocom UK Ltd Richmond 100 % Econocom GroupEconocom Suisse SA Nyon 99.97 % Econocom GroupEconocom Espana SA Madrid 99.99 % Econocom GroupEconocom USA Inc Memphis 100 % Econocom Group
4. consolidated companies
4.1 Fully consolidated
4.2 Not fully or not consolidatedsubsidiaries
SRL Econet Italia, a new Servicescompany incorporated inNovember 1999, is not consolida-ted ; Econocom Group holds 80%of the shares of the company,representing an investment of 75KEuro. No revenue was generatedby this company in 1999.
Registered Immediate HoldingName office % shareholding Company
addresses
Econocom GroupClos du Parnasse 13 AB1050 Bruxelles - Belgiumwww.econocom.com
Parc HorizonLeuvensesteenweg 510, bus 801930 Zaventem - BelgiumTel: 32 2 790 81 11Fax: 32 2 790 81 20www.econocom.com
Econocom Belgium Parc Horizon Leuvensesteenweg 510, bus 801930 Zaventem - BelgiumTel: 32 2 790 81 11Fax: 32 2 790 81 20www.econocom.be
Econocom Luxembourg 6 rue d'Arlon8399 Windhof - LuxembourgTel: 352 39 55 50Fax: 352 39 55 88 www.econocom.lu
Econocom France 42-46, rue Médéric92110 Clichy - FranceTel: 33 1 47 56 37 00Fax: 33 1 47 31 03 00www.econocom.fr
Econet Italia Via Leopardi, 2620123 Milan - ItalyTel: 39 02 46 10 35Fax: 39 02 480 22 662 www.econocom.com/italia
Econocom Deutschland Agentur Mallaustraße 69-7368219 Mannheim - GermanyTel: 49 621 8774 0Fax: 49 621 8774 100www.econocom.com
Econocom NetherlandsKokermolen 113994 DG Houten – The NetherlandsTel: 31 3063 58 333Fax: 31 3063 58 300 www.econocom.nl
Econocom España Calle la Granja, 100 - Nave 10Polígono Industrial de Alcobendas28108 Madrid - SpainTel: 34 91 484 18 20Fax: 34 91 661 60 12 www.econocom.es
Econocom Switzerland Chemin de la Vuarpillière, 291260 Nyon - SwitzerlandTel: 41 22 994 88 70Fax: 41 22 994 88 71 www.econocom.ch
Econocom UK Merevale House-ParkshotRichmond Surrey TW9 2RG - UKTel: 44 20 89 48 83 77Fax: 44 20 89 48 84 81www.econocom.co.uk
Econocom USA 965 Ridge Lake Blvd, Suite 207Memphis, Tennessee 38120 - USATel: 1 901 685 00 21Fax: 1 901 685 11 05 www.econocomusa.com