Atea Q2 2012 financial results
7/13/2012 1:55 AM EST
Highlights Q2 2012
· Revenue of MNOK 5,339.7, up 7.9% y-o-y
· EBITDA of MNOK 153.8, down 16.9% y-o-y
· EBITDA margin of 2.9%, down from 3.7% y-o-y
· Acquisition of NG Infra Oü in Estonia and IT
Partner in Norway
Market update
The financial turmoil in Europe has continued to
impact the Nordic IT infrastructure market in Q2
2012. As a consequence of the tougher market
conditions, prices are under pressure, particularly
in the hardware segment. In order to continue to gain
market share in the hardware market, Atea has
responded to the price pressure by winning some deals
with a lower gross margin. Increased revenue in
hardware is important for increased services revenue
going forward.
IDC's latest forecast for Atea's addressable market
(the Blue Box) shows a growth of 2.8% in the Nordics
in 2012. The forecast shows hardware growth of 3.4%,
software growth of 3.3% and consulting and services
growth of 1.8%.
In comparison with IDC's forecasted market growth in
2012 of 2.8%, Atea achieved actual growth in constant
currency of 8.7% and organic growth of 7.2% in Q2
2012 in the Nordics. This demonstrates that Atea
continues to gain market share.
Financial review Q2 and first half of 2012
Group
Group revenue in Q2 2012 was up 7.9% from MNOK
4,947.8 in Q2 2011 to MNOK 5,339.7 in Q2 2012.
Hardware revenue was up 4.5%, consulting and services
revenue was up 7.6% and software revenue was up
16.1%. The organic growth was 7.5% in constant
currency, Atea thus continues to gain market share.
EBITDA in Q2 2012 ended at MNOK 153.8, down 16.9% y-o-
y, representing a margin of 2.9%, down from 3.7% in
Q2 2011. The main reduction in EBITDA versus last
year is in the Swedish and Finnish markets, mainly as
a consequence of lower hardware margins due to price
pressure. Given the tougher market conditions Atea
has chosen to win hardware deals and then to get the
opportunity to offer services as well. The total
gross margin was 23.7%, down from 24.9% in Q2 2011,
while total operating costs were organically up 1.5%
year over year.
Total revenue in H1 was MNOK 10,158.9, which is up
5.9% compared with the same period last year. The
organic growth was 5.6% in constant currency. EBITDA
ended at MNOK 316.4, down from MNOK 346.2 last year,
representing an EBITDA margin of 3.1% versus 3.6%
last year.
Norway
Revenue in Q2 2012 was MNOK 1,524.5 which was up by
22.2% compared with Q2 2011. Product revenue was up
28.5%, while consulting and services revenue was up
6.1%. Organic revenue growth in Q2 was 17.3%. Revenue
from public sector was particularly strong in Q2
2012. IDC predicts growth of 3.2% in Norway in 2012,
split between 3.5% for hardware, 3.7% for software
and 2.5% for services, Atea thus continues to gain
market share in Norway.
EBITDA in Q2 2012 ended at MNOK 57.5, up 10.2%
compared with Q2 2011 and reflects the increased
revenue. Product margin ended at 13.7%, which was
down 0.4% compared with Q2 2011 due to a higher
software volume with lower margins. Organically,
total operational costs increased by 5.7%. The
average organic increase in workforce in Q2 2012
compared with Q2 2011 was 4.2%. The EBITDA margin in
Q2 2012 ended at 3.8% versus 4.2% last year. Order
backlog is strong going into H2.
On 1 June, Atea AS finalized agreements to acquire IT
Partner Finnmark AS (located in Alta) and IT Partner
Hammerfest AS, who are leading providers of IT
infrastructure in Finnmark. The two companies have 19
employees and are expected to generate total revenue
of MNOK 50 and an EBITDA of MNOK 3 in 2012. The
acquisition will strengthen the commitment towards
existing customers in the northernmost region of
Norway and secure a regional presence for the large
investments in IT infrastructure related to the
future oil development projects in the Barents Sea
that are expected in the coming years. The enterprise
value was MNOK 11.
Sweden
Revenue reached MNOK 1,721.5 in Q2 2012, which was up
3.6% (5.9% in constant currency) compared with last
year. Product revenue was up 5.0%, mainly driven by
27.4% increase in software revenue, while consulting
and services revenue was up 9.4% in constant
currency. The current economic situation is having a
negative influence on hardware volumes, mainly in the
private enterprise segment. In addition, the tougher
market conditions are causing increased price
pressure, particularly in the hardware segment. Atea
has responded aggressively to the market conditions
and has been winning more deals and customers, and
thus continuing to gain market share. This approach
resulted in a negative effect on the total gross
margin in Q2, but also resulted in a record high
order backlog. The high order backlog and a strong
pipeline indicate healthy top line growth in the
second half of 2012. IDC predicts growth of 3.3% in
Sweden in 2012, split between 4.3% for hardware, 3.3%
for software and 2.1% for services.
EBITDA in Q2 2012 ended at MNOK 39.5 compared with
MNOK 66.1 in Q2 2011. The reduction in EBITDA
reflects lower gross margins on products. The total
gross margin ended at 23.0% for Q2 2012, down from
25.3% in Q2 2011.
Cost reduction measures with an annual effect of MNOK
60 have been initiated during the quarter. The
effects of these initiatives are expected to be MNOK
15 in the second half of 2012. Atea believes that the
tougher market conditions will continue during the
second half of the year, but due to the strong order
backlog and cost reduction initiatives, it is
estimated that EBITDA in the second half of 2012 will
be in line with the second half of 2011. This means
that the expected EBITDA in Sweden for the full year
2012 is MNOK 230, down from MNOK 261 in 2011.
During Q2, Atea Sweden was chosen as the supplier for
several major products and related services to
municipalities and public customers. The most
important agreements are Uppsala and Umeå
Universities (MNOK 49 per year over 2 years),
Stockholm municipality (76 MNOK per year over 2
years), Gothenburg and surrounding municipalities
(MNOK 172 per year over 2 years together with five
other suppliers) and four framework agreements with
Kammarkollegiet (one of MNOK 401 for one year
together with four other suppliers, the second of
MNOK 723 per year for 18 months with seven other
suppliers and finally two agreements of MNOK 126.5
each per year for two years together with five other
suppliers).
Denmark
Revenue in Q2 2012 ended at MNOK 1,520.7, up 1.6%
(4.8% in constant currency) compared with Q2 2011.
Product revenue was up 4.3%, while consulting and
services revenue was up 7.0% in constant currency.
Organically, revenue was up 3.8% in constant
currency. IDC predicts growth of 1.6% in Denmark in
2012, split between 1.1% for hardware, 3.3% for
software and 1.3% for services, Atea thus continues
to gain market share in Denmark.
EBITDA in Q2 2012 ended at MNOK 44.5, down from MNOK
47.4 in Q2 2011. The product margin ended at 10.2%
which is down 0.7% from Q2 2011, mainly due to
increased price pressure and change in product mix.
Organically, operational costs show an increase of
1.8% in constant currency compared to Q2 2011. The
EBITDA margin ended at 2.9% compared with 3.2% in Q2
2011.
Finland
Revenue in Finland in Q2 2012 ended at MNOK 411.4,
down 9.2% (6.0% in constant currency) compared with
Q2 2011. Hardware revenue was down 18.5%, while
software revenue was up 4.5% in constant currency.
Total product revenue was therefore down 8.3%, while
consulting and services revenue was up 18.6% in
constant currency. The reduction in hardware business
reflects a weaker market in the private enterprise
sector. IDC predicts growth of 2.6% in Finland in
2012, split between 3.9% for hardware, 2.8% for
software and 1.2% for services.
EBITDA in Q2 2012 ended at MNOK 4.7, compared with
MNOK 13.2 in Q2 2011. The Q2 2012 decline in results
versus last year mainly reflects a reduction in gross
margin. As announced in the Q1 report, the full year
EBITDA estimate has been reduced to MNOK 24, down
from MNOK 48 in 2011, due to the overstatement of
booked inventory.
The Baltics
Revenue in Q2 2012 was MNOK 168.6, which was up 64.1%
(69.8% in constant currency) from Q2 2011. Organic
growth in constant currency was 20.6%, mainly due to
deliveries of EU funded projects.
EBITDA in Q2 2012 ended at MNOK 8.4, compared with
MNOK 4.2 in Q2 2011. Organically, operational costs
show a decrease of 1.2% in constant currency compared
to Q2 2011, due to synergies from the acquisitions of
Elsis IT UAB and UAB BMK. EBITDA margin ended at
5.0%, up from 4.0% in Q2 2011.
On 29 June 2012, Atea Baltic UAB finalized the
agreement to acquire Net Group (NG Infra Oü) with 27
highly skilled employees based in Tallinn. With
expected revenue of MNOK 66.3 and EBITDA of MNOK 3.2
in 2012, NG Infra Oü is one of the largest IT
infrastructure companies in Estonia. The acquisition
will add a service organization with important
expertise and certifications to the Estonian
operation. The acquisition is important for Atea in
the Baltics, as Atea post the acquisition will be
able to offer its customers the full range of IT
infrastructure products and services in all Baltic
countries. This is important since an increasing
number of customers are placing Pan-Baltic orders.
The estimated enterprise value is MNOK 14.5.
Outlook
IDC's forecast for 2012 for Atea's addressable market
in the Nordics shows growth of 2.8%. Since the
estimated growth in the first half of the year was
1.8%, the market growth is expected to be skewed
towards the second half of the year.
IDC believes that growth in the hardware market in
2012 will be driven primarily by smart phones,
tablets, and the delivery of school PCs in Sweden and
Norway. Growth in the software market will be driven
primarily by the deployment of large Windows 7
projects.
There is a strong trend in the services market
towards outsourcing internal IT functions to external
partners, and outsourcing client management in
particular. This trend is fuelled by the increasingly
complex client environment with more and new types of
devices, more operating systems and applications,
increased demand for accessibility and availability,
and a greater focus on IT security as company data
can no longer only be accessed from the office, but
is brought everywhere the users bring their devices.
The risks and uncertainty in the outlook primarily
relate to macroeconomic developments. A macro-
economic downturn or increased macroeconomic
uncertainty will result in hesitancy to commit to
larger investment programmes. However, because of the
relatively short lifespan of the IT infrastructure
environment, postponements cannot be sustained for a
longer period of time.
Investments in IT infrastructure are an integral part
of the solution to the major challenge facing the
Western World, which is increasing efficiency. IDC
therefore believes that the IT infrastructure
market in the Nordics will grow faster than GDP in
general, at an average annual rate of 3.0% until 2015.
In the last few years, Atea has invested in high-
growth areas such as Collaboration, Mobility,
Virtualization, Software Asset Management, Windows 7,
Consumerization and Green IT. Leveraging these
investments in high growth areas, gives comfort that
Atea can continue to grow at a faster pace than the
market in general.
On 23 November 2011, Atea launched its "Together
Towards the Top" strategy, which sets the scene for
Atea's development towards 2015. The goal of the new
strategy is to increase revenue to NOK 30 billion and
EBITDA to NOK 1.8 billion by 2015. The plan has been
well received by employees, key vendors and
customers, and implementation of the initiatives has
started according to plan. During 2012, Atea will
continue to implement key initiatives from the
strategy. These key initiatives include market-
oriented actions aimed at increasing services
revenue, and in particular contracted services
revenue, a dedicated sales focus on mid-market and
international customer groups, as well as internal
actions to improve gross margins, improve processes
and lower the cost base. On this basis, Atea is
expected to win further market shares and improve its
profitability in the coming years.
Equity and cash flow
Shareholders' equity as of 30 June 2012 was MNOK
3,501.4 corresponding to an equity ratio of 38.7%,
down from 42.9% compared to 30 June 2011.
The Group generated an operational cash flow of MNOK
64.2 in Q2 2012, which was MNOK 173.7 below the
corresponding quarter last year. The difference is
explained by lower cash earnings and an increased
build up in inventory related to school PC projects
to be delivered in the third quarter of 2012. The
Group has also experienced a negative effect on
customer payments of approximately MNOK 100 compared
to last year as a result of the last day in the
quarter being a Saturday and customer payments thus
being postponed to the beginning of July instead of
being paid at the end of June. A strong cash flow for
the full year 2012 is still expected, driven by
increased earnings and decline in working capital in
the second half of 2012.
The working capital ratio as of 30 June 2012 was
2.9%, which is up from 1.6% as of 30 June 2011.
During Q2 2012, capital expenditures were MNOK 56.9.
These are maintenance investments related to hosting
centres, Atea's internal "One Infrastructure"
project, ERP development, equipment for employees and
other office related investments.
Payments relating to acquisitions amounted to MNOK
42.9. The acquisition payments were related to the
purchase of IT Partner AS in Norway, the IT
infrastructure activities of Net Group in Estonia,
and earn out payments in Finland related to the
previous acquisitions of A Communications OY and
PALnet OY.
On 26 April 2012 the annual general meeting adopted
the board of directors' proposal concerning paying a
dividend of NOK 5 per share. A dividend payment
totalling MNOK 500.9 was thus made to shareholders on
9 May 2012.
At the end of Q2 2012, the Group's net financial
position was MNOK -844.3, down from MNOK -299.7 at
the end of Q1 2012. Cash reserves, including
unutilised credit facilities, as of 30 June 2012 were
MNOK 1,012.3.
For further information, please contact:
Claus Hougesen, CEO Atea ASA, Mobile +45 3078 1200
Rune Falstad, CFO Atea ASA, Mobile +47 906 14 482
Enclosures on [http://www.newsweb.no]
Please go to [http://www.atea.com/reports] for the
quarterly report and presentation.
Video of the press conference is available at
[http://www.atea.com/webcast]
About Atea
Atea is the leading Nordic and Baltic supplier of IT
infrastructure with more than 6,000 employees. Atea
is present in 81 cities in Norway, Sweden, Denmark,
Finland, Lithuania, Latvia and Estonia. Atea delivers
IT products from leading vendors and assist its
customers with specialist competencies within IT
infrastructure services. Atea had revenue of more
than NOK 20 billion in 2011 and is listed on Oslo
Stock Exchange. [http://www.atea.