Atea Q1 2013 financial results
Highlights Q1 2013
- Revenue of NOK 5,084.8 million, up 5.5% y-o-y
- EBITDA of NOK 140.8 million, down 13.7% y-o-y
- EBITDA margin of 2.8%, down from 3.4% y-o-y
- Operational cash flow of NOK -224.1 million, up from NOK -421.5 million y-o-y
- Acquisition of Itale AS in Norway and Exait AB in Sweden
Market update
The financial turmoil in Europe continued to impact the Nordic IT infrastructure market in Q1 2013. The market has remained weak, and margins have been under pressure. This is particularly the case in the hardware segment where the demand for servers and PCs has declined.
IDC's latest forecast for Atea's target market (the Blue Box) shows a growth of 1.8% in the Nordics in 2013. The forecast shows a hardware decline of 0.5%, software growth of 4.8% and consulting and services growth of 3.2%.
In comparison with IDC's forecasted market growth for the full year 2013 of 1.8%, Atea achieved growth in constant currency of 5.7% and organic growth of 4.6% in the Nordics in Q1 2013. Atea is therefore continuing to gain market share.
Financial review Q1 2013
Group
Group revenue was up 5.5% from NOK 4,819.2 million in Q1 2012 to NOK 5,084.8 million in Q1 2013. Hardware revenue was down 1.4%, software revenue was up 26.5% and consulting and services revenue was up 7.2%. Organic revenue was up 3.9% in constant currency. The drop in hardware revenue reflects tougher market conditions in particular in the PC and server segments, and postponement of some orders. Services revenue was somewhat affected by the fewer working days in the quarter due to Easter falling in Q1 this year and in Q2 last year.
EBITDA in Q1 2013 ended at NOK 140.8 million, down 13.7% y-o-y. The main reason for the decline in EBITDA is decreased earnings in the Norwegian market, as a consequence of lower hardware sales due to postponement of orders, and lower product margin. The total gross margin for the Group was 25.0%, down from 25.8% in Q1 2012.
Norway
Revenue in Q1 2013 was NOK 1,435.2 million, up 2.4% compared with Q1 2012. Hardware revenue was down 9.6%, software revenue was up 43.1%, while consulting and services revenue was up 11.1%. Organic revenue increased by 0.5%.
IDC predicts growth of 3.0% in Norway for the full year 2013, split between 1.4% for hardware, 4.9% for software and 4.1% for services.
Q1 2013 had fewer working days than Q1 2012 due to Easter falling in Q1 this year and in Q2 last year. The decline in hardware revenue was influenced by postponement of orders related to a few frame agreements which are already won by Atea. The organic growth in software revenue of 41.7% was driven by large orders in both the public and the private sectors. Organic consulting and services growth was 9.0%, well above IDC's prediction for 2013. Consulting and services show a positive development as a result of increased focus.
EBITDA in Q1 2013 ended at NOK 33.3 million, compared with NOK 51.6 million in Q1 2012. Product margin ended at 14.5%, down from 16.2% in Q1 2012, influenced by increased public deliveries in Q1 2013. The total gross margin ended at 29.6%, up from 29.5% in Q1 2012. Organic growth in operational costs of 4.6% reflects organic growth in the average workforce of 98 employees. EBITDA margin in Q1 2013 ended at 2.3% versus 3.7% last year.
On 28 February Atea AS completed acquisition of Itale AS through the acquisition of the holding company Mobility Invest AS. Itale is a nationwide supplier of mobile and telecommunications, has offices in Oslo, Stavanger, Bergen, Larvik and Sandefjord and has 25 employees. Itale delivers customized mobile communications solutions to business customers and has frame agreements with many of the largest companies and public, local and central government in Norway. The company is expected to generate revenue of NOK 115 million and EBITDA of NOK 12 million in 2013. The acquisition of Mobility Invest, and thereby Itale, is in line with Atea's strategy to gain a significant position in the mobile terminal market. Itale delivers both products and services in a rapidly growing market based on smartphones and tablets. The agreed enterprise value was NOK 49 million.
Sweden
Revenue in Q1 2013 ended at NOK 1,784.5 million, up 22.0% (up 19.5% in constant currency) compared with last year. Hardware revenue was up 16.8%, software revenue was up 44.4%, while consulting and services revenue was up 7.3% in constant currency. Organic revenue in constant currency increased by 18.3%.
IDC predicts growth of 1.8% in Sweden for the full year 2013, split between -0.9% for hardware, 5.1% for software and 3.5% for services.
Organic growth in hardware revenue of 16.3% was driven by particularly strong revenue from the public sector. Software revenue increased by 43.6% organically. Atea has a strong position within sale of licenses and is winning many new cases. Atea in Sweden continues to gain market share.
EBITDA in Q1 2013 ended at NOK 46.5 million compared with NOK 48.9 million in Q1 2012. Product margin ended at 12.4%, down from 14.2% in Q1 2012 as Atea has been successful in winning a number of large public deals with lower than average margins. The services margin ended at 59.8% compared with 69.0% in Q1 2012. The decrease in the services margin is due to the use of subcontractors on a number of projects. The total gross margin ended at 22.4% for Q1 2013, down from 27.1% in Q1 2012. Organic operational costs were down by 2.2% in constant currency as a consequence of increased focus on costs and an organic decrease in the average workforce by 38 employees y-o-y. EBITDA margin ended at 2.6% versus 3.3% last year.
On 21 February Atea AB in Sweden completed the acquisition of Exait AB. Exait is recognized for its strong service organization, covering the northernmost region of Sweden with offices in Luleå, Piteå, Skellefteå, Kiruna and Stockholm. Due to the focus on services, services revenue constitutes 65% of the total revenue. The company has 91 employees, was established in 2000 and has since then had a successful growth track record. The acquisition will strengthen Atea's market position in the northern region of Sweden and scale up the service organization within this region considerably. The acquired company is expected to deliver revenue of NOK 114 million and EBITDA of NOK 7 million in the fiscal year ending 30 September 2013. The agreed enterprise value was NOK 40 million.
Denmark
Revenue in Q1 2013 ended at NOK 1,331.7 million, up 1.7% (up 4.1% in constant currency) compared with last year. Hardware revenue was down 3.9%, software revenue was up 54.8%, while consulting and services revenue was up 2.5% in constant currency. Organic revenue in constant currency increased by 3.1%.
IDC predicts growth of 0.3% in Denmark for the full year 2013, split between -3.0% for hardware, 4.8% for software and 2.6% for services.
The decline in hardware revenue mainly reflects lower PCs sales to the public sector. Software shows a strong organic increase of 54.0%, which was driven by a few high-volume deals, primarily in the public sector. Atea in Denmark continues to gain market share.
EBITDA in Q1 2013 ended at NOK 56.4 million, compared with NOK 56.5 million in Q1 2012. The product margin ended at 10.4% compared with 11.8% in Q1 2012. The tougher market conditions are causing increased price pressure on hardware. The consulting and services margin increased to 65.5% from 60.5% in Q1 2012. The increase in margin was due to less use of subcontractors. The total gross margin ended at 22.5% for Q1 2013, down from 22.7% in Q1 2012. Organic operational costs were down by 0.5% in constant currency, caused by a continued focus on costs. Total EBITDA margin ended at 4.2% compared with 4.3% last year.
Finland
Revenue in Q1 2013 ended at NOK 423.9 million, down 17.7% (down 15.9% in constant currency) compared with last year. Hardware revenue was down 18.5%, software revenue was down 14.9%, while consulting and services revenue was down 10.9% in constant currency. Organic revenue in constant currency declined by 15.9%.
IDC predicts growth of 2.2% in Finland for the full year 2013, split between -1.1% for hardware, 4.2% for software and 2.5% for services.
The decline in revenue was caused by a weaker market and strong competition in both the private and the public sector.
EBITDA in Q1 2013 ended at NOK 4.9 million, compared with NOK 0.9 million in Q1 2012. Gross margin ended at 15.1%, up from 12.2% in Q1 2012.
The Baltics
Revenue in Q1 2013 was NOK 142.8 million, up 4.3% (up 6.5% in constant currency) compared with last year. Organic revenue in constant currency declined by 13.3%.
The revenue in Q1 2013 has been affected by delayed public spending due to a change of government in Lithuania, as well as a temporary increase in macroeconomic uncertainty as a consequence of the potential adoption of the Euro in Latvia and Lithuania in the near future.
EBITDA in Q1 2013 ended at NOK 3.6 million, compared with NOK 6.9 million in Q1 2012, reflecting weaker revenue. Total gross margin was 20.9% compared with 18.0% in Q1 2012.
Equity and cash flow
Shareholders' equity at 31 March 2013 was NOK 3,976.1 million, corresponding to an equity ratio of 44.4%, down from 45.5% at 31 March 2012.
The Group generated an operational cash flow of NOK - 224.1 million in Q1 2013, which was NOK 197.4 million above the corresponding quarter last year. This is primarily explained by a lower level of inventory compared with last year.
The working capital ratio at 31 March 2013 was 1.5%, down from 2.8% at 31 March 2012.
Capital expenditure in Q1 2013 amounted to NOK 77.1 million. NOK 44.9 million relate to general maintenance investments including further development of internal systems. Additionally, the Group has invested NOK 32.2 million in a ware-house in Denmark consolidating and optimizing inventory handling and reducing the number of warehouses from three to one.
Cash flow related to acquisitions amounted to NOK - 77.9 million. These investments are related to the acquisition of Exait AB in Sweden and Itale AS in Norway.
At the end of Q1 2013, the Group's net financial position was NOK -266.7 million, down from NOK 49.3 million at the end of Q4 2012. Cash reserves, including unutilized credit facilities, were NOK 1,392.6 million at 31 March 2013.
Outlook
IDC's forecast for 2013 for Atea's Blue Box is growth of 1.8%. The services market is expected to grow by 3.2% and the software market by 4.8%, while the hardware market is expected to decrease by 0.5%.
IDC believes that the hardware market in 2013 will be driven by a continued decline in the PC and server markets, while networks, smartphones, tablets etc. will grow. This is supported by the ongoing shift in the client market, where the use of desktop PCs is declining, use of laptop PCs is stagnating, and use of smartphones and tablets is increasing. Growth in the product market will be driven by a gradual increase in Windows 8 projects and the new touchscreen products that are being launched related to this.
The outsourcing of internal IT functions to external partners represents a strong trend in the services market, particularly the outsourcing of client management. This trend is being reinforced by increasing complexity in the client environment, with more and new types of equipment, more operating systems and programs, as well as increased demand for access and availability. Atea is well positioned for further growth in this area.
The uncertainty in the outlook primarily relates to macroeconomic developments. A macroeconomic downturn or increased uncertainty may result in hesitancy to commit to large investments programs. However, because of the relatively short lifespan of the IT infrastructure environment, investments cannot be postponed for longer periods 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 at an average annual rate of 2.7% towards 2015. Atea is well placed to take advantage of the opportunities ahead.
In November 2011, Atea launched the 'Together Towards the Top' strategy, which sets the stage for Atea's development towards 2015. Implementation of key initiatives has started according to plan. 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 expects to gain market shares and improve profitability in the coming years. The goal of the strategy is to increase revenue to NOK 30 billion and EBITDA to NOK 1.8 billion by 2015. A key assumption for achieving this financial goal was that the market conditions would be positive and that the market would grow at an average rate of 4.3% from 2011 to 2015. In light of the market development in 2012 and IDC's expectations for 2013, Atea will follow the development during 2013 and will revisit the goal later this year.
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 6,500 employees. Atea is present in 82 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 approximately NOK 21 billion in 2012 and is listed on Oslo Stock Exchange.
www.atea.com
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