Bull 2003 results

Paris, March  31, 2004 - 

The Board of Directors of Bull met today and examined the financial statements for the full year 2003. The results give evidence of Bull's turnaround in a difficult environment and in spite of uncertainties related to its recapitalization plan, detailed terms of which were unveiled only late 2003.

Results

The revenue, in line with expectations reached € 1265 million against € 1514 million in 2002. The gross margin¹ increased significantly from 21.4% in 2002 to 27% of the turnover for 2003, reaching € 340 million. Both products and services activities have experienced the same improvement.

SG&A expenses decreased from 24.5% in 2002 to 19% of the turnover for 2003 while R&D expenses were maintained at 4.8% of the turnover.

Earnings before tax, financial expenses, goodwill amortization and exceptional items, (EBIT² ) amount to € 40.7 million, i.e. 3.2% of the revenue, to be compared to a loss of € 133 million in 2002: Bull here achieves its third profitable semester in a row (+ € 18 million in 2nd half 2002, + € 20 million in 1st half 2003 and + € 20.7 million in 2nd half 2003).

Financial expenses amount to € 47.6 million, of which € 24.7 million related to interest expenses on the French State loan.

The Group net result is a profit of € 4.1 million to be compared with a loss of € 548 million in 2002.

The free cash-flow³ generated by Bull in 2003 amounts to € 55.2 million compared with a negative cash-flow of € 207 million in 2002.

¹ Gross margin is the difference between the revenue and cost of products and services sold

² EBIT is the operating profit +/- gain or loss on exchange rate

³ The free cash flow is the operating cash flow +/- exceptional expenses related to the restructuring and other exceptionnal items

Operations

In 2003, Bull has enhanced the deployment of its strategy, as defined in 2002 and adapted to its new configuration, which has ambitions to deliver open IT solutions including products and services to targeted customers.

In the servers business, Bull's strategy is focused around the design and production of high-end servers for networked infrastructures. In 2003, Bull launched NovaScale, a new generation of modular enterprise servers based on standard components.

This range of systems has already won recognition from scientific, technical and business environments, notably with Dassault-Aviation and Conforama in France, HLRS, the first High Performance Computing centre in Germany and the Oceanography centre in Southampton, UK. More than a hundred servers have been delivered, showing a strong growth in the course of the second semester.

This new range of computers offers a significant evolution path for the future and provides a safe, economic and long term evolution for Bull's mainframe (GCOS) customers.

Bull also consolidated its GCOS customer base in Europe and the US, through the sales of high end DPS 9000 servers launched in 2002, and also strongly increased the sales of its DPS 7000 range of servers (GCOS 7 on Intel).

As to the Unix market, Bull has renewed its Escala range of servers (POWER/AIX) sustaining business activity, and showing a significant growth mainly in the high-end servers during the second semester.

Bull has also seen important successes in the security domain, with its products and solutions dedicated to the security of networks and information systems.

The services activities strengthened their position in some key areas: telecommunications, e-government, defence, ERPs, payment systems, business intelligence and outsourcing. They also increased their position in the deployment of complex infrastructures.

Finally, Bull reinforced its contribution in the innovative area of open source, notably through improvements of JOnAS, an application server, as well as through the development of a new range of customer based support services for open source solutions.

Recapitalisation

The Board has approved today the implementation of the recapitalization plan called "shareholders and partners" it had chosen and presented on November 20th 2003.

This solution involves firstly a very significant and similar reduction in the economic value of the debts shown in the December 31st 2003 balance sheet towards the bondholders (€ 204 million) and the French State (€ 490 million of which € 450 million principal) subject to the approval of the European Commission and secondly a capital increase subscribed by a group of investors (NEC, France Telecom, AXA Private Equity, Groupe Artemis, Debeka and 350 Group managers).

OCEANES bonds restructuring

The bondholders General Assembly held on December 11th 2003, approved with more than 95% of the votes, the resolutions proposed by the Board of Bull regarding the amendments to the bonds issuance contract, leading to a decrease of 90% of the economic value of their debt :

- Postponement of the maturity date to January 1st 2033 ;

- Decrease of the coupon to 0.1% from January 1st 2004 ;

- Redemption value fixed to 100% of the bond's nominal value (against 116.5% to 117.5% initially) i.e. €15.75

State loan restructuring

In order to allow the French State to contribute to the recapitalization plan and in compliance with the rules and procedures of the European Commission, the following scheme has been developed :

- Notification in February 2004 by the French State to the European Commission of a restructuring aid projected for Bull amounting to € 517 million (principal and interests) combined with a profit-sharing agreement (equal to 23.5% of the current consolidated profit before taxes over € 10 millions for the next 8 years period to start in 2005); this aid would not be paid before December 31st 2004 ;

- Conversion of the rescue aid in a subordinated loan (maturity date 2033) with an interest rate of 5.23% until end 2004 and then 0.3% until 2033. The subordination is subject to a minimum conversion rate of 80% of the outstanding OCEANES bonds;

- Repayment of the loan by Bull, after approval of the restructuring aid by the European Commission;

- Payment of the restructuring aid by the French State after the repayment of the loan, and at the earliest on December 31st 2004.

The Commission has carried out a preliminary assessment of the aid in the light of the Commission guidelines on state aid for rescuing and restructuring firms in difficulty. More detailed investigations have to be carried out to ascertain, as formally stated by the European Commission, whether :

-"the plan guarantees a return to viability, in the light of a financial situation for the company which appears to have been better for some time;

- undue distortions of competition are avoided;

- the aid is limited to the minimum needed and does not provide the company with unnecessary cash resources".

After preliminary contacts with the European Commission, the Board of Directors State representative has declared to be "confident on the compliance of the aid notified with the Commission rules and procedures, as well as on an examination of the case within a short timeframe to end-up with a formal decision within the next six months".

Capital increase and conversion offer in June 2004

On basis of the above, the Board of Directors has approved the conclusion of the new loan agreement with the French State. It has also decided to launch, in parallel with the restructuring of the French State loan, the market operations for recapitalisation, which will demonstrate the efforts of both shareholders and creditors :

Therefore the Board of Directors has approved the launch of :

- a capital increase of € 44 million, maintaining the preferential subscription rights for the current shareholders which will be allowed to subscribe 13 new shares at the price of € 0.1 per share for 5 shares previously owned ; only holders of preferential subscription will be able to subscribe and the Board has declared its intention to distribute the non exercised subscription rights to investors underwriting the capital increase.

- A public exchange offer proposed to the bondholders with a parity of either 20 new shares per bond or 16 new shares plus 16 warrants per share (each warrant carrying with it the right to subscribe to one share at a subscription price of € 0.1)

These operations will be submitted to the next General Assembly of Bull which has been called on May 25th 2004. Subject to the agreement of the market regulation authorities, both the capital increase and the public exchange offer will be launched on June 2004, , possibly prior to the European Commission approval.

Nominations

The Board, on Pierre Bonelli's proposal, has decided to co-opt Didier Pineau Valencienne as member of the Board.

The Board has also decided to propose to the next shareholders meeting the nomination of Gilles Cosson as new member of the Board.

The accession to the Board of these two new additional independent members will reinforce corporate governance in Bull just before its shareholding extension.

In addition, the Board, on Pierre Bonelli's proposal, has nominated Gervais Pellissier, currently Chief Financial Officer and member of the Board, as Chief Operating Officer. Gervais Pellissier will strengthen the Group Management in running the operations and implementing the recapitalisation.

Perspectives

In a market which is still waiting for recovery, Bull forecasts a turnover of around € 570 million and an EBIT of € 17 million for the first half year 2004.

Within two years, Bull has exceeded the profitability objectives of its turnaround plan, as proposed to the Board of Directors on March 13th, 2002.

Backed-up with a new and adapted organisation, a financial restructuring, a strong industrial strategy based on the Company's specific assets, Bull now meets the requirements in terms of viability and competitiveness, for being a profitable company in the long run.

Bull - P&L 2003

Bull
Anne-Marie Jourdain
rue Jean Jaurès - 78340 Les Clayes sous Bois - France
Phone: +33(0)1 30 80 32 52
E-mail: anne-marie.jourdain@bull.net