Atea Q1 2012 financial results
Highlights Q1 2012
- Revenue of MNOK 4,819.2, up 3.7% y-o-y
- EBITDA of MNOK 162.7, up 1.0% y-o-y
- EBITDA margin of 3.4%, down from 3.5% y-o-y
- Acquisition of BMK in Lithuania and Nworks in Denmark
Market update
IDC's preliminary figures for Atea's addressable market (the Blue Box) show a decline of 1.7% in the Nordics in Q1 2012. The preliminary figures show a hardware decline of 2.9%, a software growth of 0.1% and a consulting and services decline of 1.0%.
In comparison with the preliminary figures for market decline in Q1 2012 of 1.7%, Atea delivered an actual growth in constant currency of 5.1% and an organic growth of 3.7% in the Nordics. This demonstrates that Atea continues to gain market share.
The financial turmoil in Europe has also impacted the Nordic IT infrastructure market and the tougher market conditions which Atea experienced in the second half of 2011, and in Q4 in particular, have continued into 2012.
Financial review Q1 2012
Group
Group revenue in Q1 2012 was up 3.7% from MNOK 4,647.9 in Q1 2011 to MNOK 4,819.2 in Q1 2012. Hardware revenue was flat, consulting and services revenue was up 5.2% and software revenue was up 15.2%. The organic growth represents 4.0% in constant currency; thus Atea continues gaining market shares.
EBITDA in Q1 2012 ended at MNOK 162.7, up 1.0% y-o-y, which represents a margin of 3.4%, slightly down from 3.5% in Q1 2011. The gross margin was at the same level as Q1 2011, while total operating cost was organically up by 2.0% year over year.
Norway
Revenue in Q1 2012 was MNOK 1,401.8 which was up by 9.4% compared with Q1 2011. Product revenue was up 11.8%, while consulting and services revenue was up 3.0%. Organic revenue growth in Q1 was 5.2%. IDC prediction for annual 2012 growth y-o-y is 2.7%, thus Norway is continuing to gain market shares.
EBITDA in Q1 2012 ended at MNOK 51.6, up 11.9% compared with Q1 2011. Product margins ended at 16.2% in Q1 2012, which was up by 1.5% compared with Q1 2011 due to favourable product mix. Total operational expenses increased by 12.6% compared with the previous year. Organically, the total operational cost increased by 2.6%. The average organic increase in workforce in Q1 2012 compared with Q1 2011 was 1.9%. EBITDA margin in Q1 2012 ended at 3.7% versus 3.6% last year.
At the end of January, Atea AS entered into agreements with the Norwegian Labour and Welfare Administration (NAV) to deliver software and consulting services. The agreements are valid for 3 years, with an optional 2 years. Atea estimates the total value of the contracts at MNOK 70 over 5 years.
Sweden
Revenue reached MNOK 1,462.7 in Q1 2012, which was down 6.6% (3.8% in constant currency) compared with last year. Product revenue was down 7.3%, while consulting and services revenue was up 10.2% in constant currency. The reduction in product revenue of 7.3% during Q1 was mainly caused by reduced purchases from private customers within the banking, finance and telecom sector. Atea expects that the development of reduced hardware volumes will stabilize during the coming quarter and pick-up again during the second half of 2012. This is supported by planned deployment of school PCs in August/September and that several won projects will be started in the second half of 2012.
IDC prediction for annual 2012 growth y-o-y is 2.6%, split between 2.4% on hardware, 4.6% on software and 1.8% on services. Preliminary IDC figures for Q1 2012 show a decrease in hardware of 0.9%, an increase in software of 2.8% and an increase in consulting and services of 0.6%. Total market growth in Q1 2012 is therefore 0.3%. The expectation for full year market growth is hence skewed towards the second half of 2012.
EBITDA in Q1 2012 ended at MNOK 48.9 compared with MNOK 50.3 in Q1 2011. Total gross margin ended at 27.1% for Q1 2012, up from 25.4% in Q1 2011, due to increased services share.
Organically, total cost of operation was up 3.0% in constant currency compared with Q1 2011, mostly caused by an increase in workforce. EBITDA margin in Q1 was 3.3%, compared with 3.2% previous year.
Atea Sverige AB has, together with four other suppliers, been chosen for a framework agreement with Kammarkollegiet in their procurement of clients in five out of six agreements. The five agreements that Atea has been chosen for have an estimated total annual value of MNOK 400 for one year, with three more optional years.
Atea Sverige AB has, together with five other suppliers, signed a framework agreement with Gothenburg city and the municipalities surrounding Gothenburg to deliver IT products and services. The agreement is valid for two years, with an optional two years. The agreement has an estimated total value of approximately MNOK 170 per year.
Denmark
Revenue in Q1 2012 ended at MNOK 1,309.9, up 5.1% (8.1% in constant currency) compared with Q1 2011. Product revenue was up 8.6%, while consulting and services revenue was up 6.3% in constant currency. Organically, revenue was up 7.0% in constant currency. IDC prediction for annual 2012 growth y-o-y is 0.7%, thus Denmark is continuing to gain market shares.
EBITDA in Q1 2012 ended at MNOK 56.5, up from MNOK 55.8 in Q1 2011. Organically, operational cost shows an increase of 3.7% in constant currency compared to Q1 2011, mainly caused by an increase in personnel expenses. The EBITDA margin ended at 4.3% compared with 4.5% in Q1 2011.
On 27 March Atea A/S entered into agreement to acquire Nworks A/S, which is a leading provider of services within the business area of IT networks. The company has 40 employees, was established in 2000 and is headquartered in Copenhagen with a small office in Aarhus. The company is expected to deliver revenue of MNOK 64 and EBITDA of MNOK 19 in 2012. The estimated enterprise value is MNOK 70.
Finland
Revenue in Finland in Q1 2012 ended at MNOK 514.8, up 13.3% (16.8% in constant currency) compared with Q1 2011. Hardware revenue was down 18.4%, while software revenue was up 62.7% in constant currency.
Total product revenue was therefore up 15.9%, while consulting and services revenue was up 27.7% in constant currency. Organically, revenue was up 16.3% in constant currency, mainly caused by the strong increase from software sales to the public sector. IDC prediction for annual 2012 growth y-o-y is 1.4%. The overall picture is that Finland has been losing market share within hardware and has been gaining market share within software and services.
EBITDA in Q1 2012 ended at MNOK 0.9, compared with MNOK 8.3 in Q1 2011. The Q1 2012 reduction in results versus last year is mainly reflecting a reduction in gross margin on hardware. The main reason is overstatement of booked inventory related to the implementation of a new ERP system in Finland. Due to this issue, Atea expects an EBITDA of MNOK 24 for the full year 2012, down from MNOK 48 in 2011.
The Baltics
Revenue in Q1 2012 was MNOK 136.9, which was up 50.9% (55.6% in constant currency) from Q1 2011. Organic growth in constant currency was 15.9%, mainly caused by an EU project for the Ministry of Education.
EBITDA in Q1 2012 ended at MNOK 6.9, compared with MNOK 3.2 in Q1 2011. Organically, operational cost shows a decrease of 6.1% in constant currency compared to Q1 2011, caused by synergies from an acquired company. EBITDA margin ended at 5.0%, up from 3.5% in Q1 2011.
On March 14, Atea Baltic UAB entered into agreement to acquire UAB BMK, which is the leading IT infrastructure company in Lithuania within the business areas of AV and print/copy. The acquisition will strengthen Atea within the product and service portfolio in the Baltics and Lithuania in particular, as Atea is not currently present in the business areas of AV and print/copy in the Baltics. The company has 71 highly skilled employees and with headquarter in Vilnius. The acquired company is expected to deliver revenue of MNOK 80 and EBITDA of MNOK 5 in 2012. The estimated enterprise value is MNOK 18.
Outlook
IDC's forecast for 2012 for Atea's addressable market shows a growth of 1.4%. The full year market growth expectation of 1.4% is expected to be skewed towards the second half of the year where the growth is expected to be 2.4%. In the first half of the year a marginal growth of only 0.4% is expected.
IDC believes that growth in the hardware market will be driven primarily by smart phones and tablets, and growth in the software markets will be driven primarily by the deployment of large Windows 7 projects.
A strong market trend is outsourcing of internal IT functions to external partners, and outsourcing of client management in particular. This trend is boosted by the increasing complexity in the client environment as a whole. In Q1 2012 Atea signed several new long-term service contracts. This trend is expected to continue.
Over the last years, Atea has invested in high-growth areas such as Collaboration, Mobility, Virtualization, Software Asset Management, Windows 7, Consumerization and Green IT. Leveraging on these investments in high growth areas gives comfort that Atea can continue to grow at a pace which is faster than the market in general.
On 23 November 2011, Atea launched the strategy "Together Towards the Top", which sets the scene for Atea's development towards 2015. The target in 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 the implementation of initiatives has started according to plan. During 2012, Atea will continue the implementation of key initiatives from the new strategy. These key initiatives include increasing services revenue and in particular contracted services revenue, dedicated sales focus on mid-market and international customer groups, together with a continued focus on operational excellence. On this basis, it is expected that Atea will win further market shares and increase the profitability in the coming years.
Equity and cash flow
Shareholders' equity as of 31 March 2012 was MNOK 3,929.9 corresponding to an equity ratio of 46.1%, up from 43.1% compared to 31 March 2011.
The Group generated an operational cash flow of MNOK - 421.5 in Q1 2012, which was MNOK 351.4 below corresponding period last year. The Q4 2011 operational cash flow was record strong with more than one billion and has affected the first quarter of 2012 somewhat more negatively than corresponding quarter last year. In addition, the inventory has increased by MNOK 99.4 through the quarter due to a build-up related to customer-specific projects. Norway, in particular, has in addition experienced a negative Easter effect on accounts receivable, as a number of customer payments due end of March where postponed and instead paid in April, after Easter. The dedicated focus and hard work to optimise working capital continues with full strength. Despite a somewhat more challenging start to the year than in 2011, a strong operational cash flow for the full year 2012 is still expected.
The working capital ratio as of 31 March 2012 was 2.9% which is up from 2.2% as of 31 March 2011.
During Q1 2012 capital expenditures were MNOK 50.7. These are maintenance investments related to hosting centres, Atea's internal "ONE infrastructure" project, ERP development, equipment to employees and other office/furniture related investments.
Payments regarding acquisitions were MNOK 64.1. The acquisition payments were related to the purchase of UAB BMK in Lithuania, Nworks A/S in Denmark and the remaining 9.9% non-controlling interests in the Atea Finance companies.
At the end of Q1 2012, the Group had a net financial position of MNOK -299.7, down from MNOK 283.2 end of Q4 2011. Cash reserves including unutilised credit facilities as of 31 March 2012 were MNOK 1,191.9.
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 www.newsweb.no
Please go to www.atea.com/reports for the quarterly report and presentation.
Video of the press conference is available at www.atea.com/webcast
About Atea
Atea is the leading Nordic and Baltic supplier of IT infrastructure with approximately 6,000 employees. Atea is present in 79 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.
www.atea.com
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