Atea Q1 2014 financial results

Highlights Q1 2014

• Revenue of NOK 5,884.3 million, up 15.7% y-o- y
• EBITDA of NOK 180.3 million, up 28.0% y-o-y
• EBITDA margin of 3.1%, up from 2.8% y-o-y
• Operational cash flow of NOK -141.1 million, up from NOK -224.1 million y-o-y

Financial review Q1 2014

  
Group

Group revenue was up 15.7% (up 8.7% in constant currency) from NOK 5,084.8 million in Q1 2013 to NOK 5,884.3 million in Q1 2014. Hardware revenue was up 14.5%, software revenue was up 21.7% and services revenue was up 13.1%. The currency effect for Q1 2014 was positive by 7.0%. Organic revenue was up 8.0% in constant currency. The increase in the hardware revenue was driven by revenue growth in the client business (PCs, tablets and smartphones), the software revenue was somewhat positively affected by postponements of a few large orders from Q4 2013 in Sweden, while the services revenue was driven by particularly strong growth in recurring revenue.

EBITDA in Q1 2014 increased to NOK 180.3 million, up from NOK 140.8 million in Q1 2013, reflecting double- digit revenue growth within all three business areas combined with a high focus on operational costs. In Q4 2013 an operational efficiency programme was executed, and the cost base was reduced with an annual effect of NOK 200 million per year from the run-rate in September 2013. The programme had a positive effect on operational costs in Q1 2014.

   
Norway

Revenue in Q1 2014 was NOK 1,569.6 million, up 9.4% compared with Q1 2013. Hardware revenue was up 18.2%, software revenue was up 0.2%, while services revenue was down 2.1%.

Organic revenue increased by 8.4%. Organic hardware revenue increased by 16.5%. The increase in the hardware revenue was driven by strong revenue growth in the client business. Organic software revenue increased by 0.2%. The moderate growth in software revenue is seasonal. Organic services revenue was down 2.6%. This mainly reflects fewer consultants this year than last year.

EBITDA in Q1 2014 increased to NOK 38.6 million, up from NOK 33.3 million in Q1 2013, reflecting revenue growth combined with a high focus on operational costs. Product margin ended at 14.2%, down from 14.5% in Q1 2013. The total gross margin ended at 27.4%, down from 29.6% in Q1 2013. An organic decrease in operational costs of 1.3% mainly reflects a decrease in the average workforce of 98 full-time employees. The EBITDA margin increased to 2.5%, compared with 2.3% last year.

   
Sweden

Revenue in Q1 2014 ended at SEK 2,268.5 million, up 11.2% compared with last year. Hardware revenue was up 1.3%, software revenue was up 35.5%, while services revenue was up 13.6%.

Organic revenue increased by 10.2%. Organic hardware revenue increased by 0.8%. Organic software revenue increased by 34.8%, somewhat affected by postponements of a few large orders from Q4 2013. Atea has a strong position within licence sales and continues to win new contracts. Organic growth in services revenue of 10.6% was driven by particularly strong growth in recurring revenue.

EBITDA in Q1 2014 ended at SEK 62.4 million, up from SEK 53.2 million in Q1 2013, reflecting revenue growth and a high focus on operational costs. Product margin ended at 11.3%, down from 12.4% in Q1 2013, influenced by a few high-volume deals with low margins. The services margin ended at 59.4% compared with 59.8% in Q1 2013. The total gross margin ended at 21.7% for Q1 2014, down from 22.4% in Q1 2013. The average workforce for Q1 2014 decreased by 53 full- time employees compared with last year. The EBITDA margin increased to 2.8%, compared with 2.6% last year.

   
Denmark

Revenue in Q1 2014 ended at DKK 1,384.3 million, up 3.6% compared with last year. Hardware revenue was up 3.7%, software revenue was down 0.2%, while services revenue was up 6.0%. Organic revenue increased by 3.6%. The increase in revenue reflects higher client sales to both the private and the public sectors.

EBITDA in Q1 2014 increased to DKK 68.6 million, up from DKK 56.6 million in Q1 2013, reflecting a high focus on operational costs. Product margin ended at 9.6%, down from 10.4% in Q1 2013, influenced by a change in product mix. The total gross margin ended at 21.7% for Q1 2014, down from 22.5% in Q1 2013. An organic decrease in operational costs of 4.6% mainly reflects a decrease in the average workforce of 102 full-time employees. Total EBITDA margin increased to 5.0%, compared with 4.2% last year.

   
Finland

Revenue in Q1 2014 ended at EUR 59.0 million, up 3.4% compared with last year. Hardware revenue was up 2.1%, software revenue was up 2.7%, while services revenue was up 13.0%. Organic revenue increased by 3.4%.

The increase in revenue was driven by higher client sales to the private sector and more consultants this year than last year.

EBITDA in Q1 2014 ended at EUR 0.4 million, compared with EUR 0.7 million in Q1 2013. The main reason for the decline in EBITDA is lower gross margin due to a change in product mix and more use of subcontractors. Total gross margin ended at 13.8%, down from 15.1% last year. Total EBITDA margin decreased to 0.6%, compared with 1.2% last year.

  
The Baltics

Revenue in Q1 2014 ended at EUR 20.1 million, up 4.4% compared with last year. Despite increased uncertanties in the macroeconomy, organic revenue increased by 2.3%. Challenging market conditions are affected by the Euro adoption in Lithuania from January 2015. Furthermore, 2014 is a transition year in between two five-year EU funding programmes.

EBITDA in Q1 2014 ended at EUR 0.8 million, compared with EUR 0.5 million in Q1 2013. The main reason for the increase in EBITDA is a higher gross margin, driven by specific high margin projects. Total gross margin increased to 21.7%, up from 20.9% last year. Total EBITDA margin increased to 4.0%, compared with 2.5% last year.

   
Equity and cash flow

Shareholders' equity at 31 March 2014 was NOK 3,573.5 million, corresponding to an equity ratio of 37.3%, down from 44.4% compared with 31 March 2013, due to extraordinary payment of dividends of NOK 412.4 million in November 2013.

The Group generated an operational cash flow of NOK - 141.1 million in Q1 2014, compared with NOK -224.1 million in the corresponding quarter last year. The improvement of NOK 83.0 million reflects increased cash earnings and further achievements within working capital optimization.

The working capital in relation to annualized Q1 2014 revenue was -0.2%, down from 1.5% at 31 March 2013.

Capital expenditures in Q1 2014 amounted to NOK 56.5 million, compared with NOK 77.1 million in the corresponding quarter last year. These investments relate to general maintenance investments, including further development of internal systems and investments in the Group's hosting centres.

At the end of Q1 2014, the Group's net financial position was NOK -631.6 million, down from NOK -419.1 million at the end of Q4 2014.

Liquidity reserves at 31 March 2014 were NOK 1,209.2. The reserves include unutilized credit facilities and are limited by a gearing ratio of 2.5x (financial covenant from loan agreements linked to "net interest bearing debt/EBITDA").

   
Trends and outlook

The IT industry is currently undergoing a number of fundamental shifts. IT is becoming more and more important to organizations, the technology is more advanced than our utilization of it, we capture more data than we can analyze, we can access information from anywhere at any time from more devices and categories of devices, we put more and more of our data and intellectual property on the net and in the cloud, and the complexity is increasing.

  
Mobility

One of the fundamental changes is the mobile mind shift - our increasing expectation that we can access information wherever we are and using whatever device we find appropriate. Work is no longer a location but an activity, and productivity per employee is increasing significantly. As mobility is one of the ways to increase productivity, organizations are incorporating mobility into all aspects of IT. It's tempting to look to simple solutions, but this exposes company data to significant control and security issues. Complex solutions taking these issues into account are therefore needed. Atea ties together all the aspects of IT infrastructure, and is well positioned for further growth in this area.

   
Cloud

Another fundamental shift in the IT industry is cloud computing. The initial thoughts about the cloud were that all organizations would move all their data to a few large datacenters placed at strategic locations around the world, as this would imply the lowest possible costs. This is referred to as the public cloud.

As the thought of the cloud has matured, organizations have realized that transferring all data to the cloud is neither required nor desirable, as this would compromise security and the control of confidential and vital data. Regardless of the extra costs, organizations therefore must keep their most vital data in their own datacenters, where they know precisely where their infrastructure is physically located, and who has access to it. This is referred to as the private cloud.

The trend is therefore now that the most sensitive data is kept in the private cloud and some less sensitive data is kept in the public cloud. Each organization is tailoring their own mix of the two platforms instead of shoehorning it into someone else's idea of the right platform. One size does not fit all. Atea is therefore very relevant as a partner to organizations, advising on which data to keep on which platform, and offering private and public cloud solutions.

    
IT as a service

In an increasingly complex IT infrastructure environment, with an increasing number of devices, new types of devices, more operating systems, more applications, increasing demand for mobility, access, availability and demand for security, more and more IT departments find themselves struggling to keep up with the development. The time and competencies required to know the IT infrastructure in every detail is no longer available in-house. Maintaining and developing the IT infrastructure environment is today a very complex issue and requires a team with specialized resources within each area of the infrastructure.

A strong trend in the IT infrastructure market is therefore the concept "IT as a service". This is a solution in which products are bundled with all related services from cradle to grave for a fixed monthly fee per user. As Atea is an end-to-end solution provider within IT infrastructure, Atea is therefore well positioned to take advantage of this trend in the market.

   
Outlook

Investments in IT infrastructure are an integral part of the solution to the major challenge facing the western world, which is increasing the efficiency of the workforce. IDC therefore believes that the IT infrastructure market in the Nordics will grow faster than GDP at an average annual rate of 3.1% towards 2017. Atea is well positioned to take advantage of the opportunities ahead.

The uncertainty in the outlook primarily relates to macroeconomic developments. A macroeconomic downturn or increased uncertainty may result in hesitancy to commit to large investment programmes. However, because of the relatively short lifespan of the IT infrastructure environment, investments cannot be postponed for longer periods of time.

Atea has a strategic market share target of 20%, and will achieve this by growing the revenue organically faster than the market and continuing to be a disciplined buyer of companies. A continued focus on operational excellence and total customer satisfaction will ensure that EBITDA grows faster than revenue.

For further information, please contact:
Steinar Sønsteby, CEO Atea ASA, mobile +47 930 55 655
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 6,100 employees. Atea is present in 83 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 22 billion in 2013 and is listed on Oslo Stock Exchange.
www.atea.com

Tags: