Atea Q2 2013 financial results

Highlights Q2 2013

• Revenue of NOK 5,501.8 million, up 3.0% y-o-y

• EBITDA of NOK 140.4 million, down 9.0% y-o-y

• EBITDA margin of 2.6%, down from 2.9% y-o-y

• Operational cash flow of NOK 158.2 million, up from NOK 64.2 million y-o-y

• Paid dividend of NOK 5.50 per share, up from NOK 5.00 y-o-y

• Raised 5-year bank loan of DKK 500 million and issued 5-year bonds of NOK 300 million

Market update

The financial turmoil in Europe continued to impact the Nordic IT infrastructure market in Q2 2013. The market has remained weak, and margins have been under pressure. This is particularly the case in the hardware segment where demand for servers and PCs has declined.

According to IDC, Atea's target market (the Blue Box) grew 0.4% in the Nordics in Q2 2013. The hardware market declined by 4.1%, software grew 4.6% and services grew 3.2%.

In comparison with IDC's estimated market growth of 0.4% in Q2 2013, Atea achieved growth in constant currency of 1.7% and organic growth of 0.4% in the Nordics.

In H1 2013, Atea's target market (the Blue Box) declined by 0.2% in the Nordics. Atea achieved growth in constant currency of 3.6% and organic growth of 2.4% in the Nordics, indicating that Atea has gained market share.

Financial review Q2 and first half 2013

Group

Group revenue was up 3.0% (up 1.3% in constant currency) from NOK 5,339.7 million in Q2 2012 to NOK 5,501.8 million in Q2 2013. Hardware revenue was down 3.4%, software revenue was up 10.5% and services revenue was up 10.1%. Organic revenue was down 0.3% in constant currency. The drop in hardware revenue reflects tougher market conditions in particular in the PC and server segments.

EBITDA in Q2 2013 ended at NOK 140.4 million, down 9.0% y-o-y. The reason for the decline in EBITDA is lower hardware sales and lower hardware margin as a consequence of the challenging market conditions. The decline in the hardware segment was somewhat compensated for by strong performances in the software and services segments. The total gross margin for the Group was 24.3%, up from 23.7% in Q2 2012, mainly as a consequence of a higher share of services revenue. In light of the market development, Atea will continue to focus on costs and has initiated actions in order to decrease the cost base going forward.

Group revenue in H1 2013 was NOK 10,586.6 million, up 4.2% (up 3.4% in constant currency) compared with the same period last year. Hardware revenue was down 2.4%, software revenue was up 16.7% and services revenue was up 8.7%. Organic growth in constant currency was 1.7%. EBITDA in H1 2013 ended at NOK 281.3 million, down 11.4% y-o-y, reflecting lower hardware revenue and lower hardware margin in a tough market environment.

Norway

Revenue in Q2 2013 was NOK 1,555.4 million, up 2.0% compared with Q2 2012. Hardware revenue was up 0.2%, software revenue was down 4.9%, while services revenue was up 11.3%. Organic revenue decreased by 0.7% in a market which, according to IDC, declined by 1.0%.

Organic hardware revenue decreased by 3.1% compared with a market which was down 7.4%. Organic software revenue declined by 5.3% in a market which grew 3.6%. The decrease in software revenue is seasonal. Organic services revenue growth was 8.4% compared with a market which increased by 3.7%. Services show a positive development as a result of increased focus. Atea in Norway continues to gain market share.

EBITDA in Q2 2013 ended at NOK 52.1 million, compared with NOK 57.5 million in Q2 2012. Product margin ended at 13.4%, down from 13.7% in Q2 2012, influenced by increased public deliveries in Q2 2013. The total gross margin ended at 28.5%, up from 27.3% in Q2 2012, mainly due to an increased share of services revenue. Organic growth in operational costs of 5.0% reflects organic growth in the average workforce of 88 employees, mainly in services. EBITDA margin in Q2 2013 ended at 3.3% versus 3.8% last year.

Revenue in H1 2013 was NOK 2,990.6 million, up 2.2% compared with the same period last year. Hardware revenue was down 4.6%, software revenue was up 14.7% and services revenue was up 11.2%. Organic revenue was down 0.1% in a market which, according to IDC, decreased by 1.2%. EBITDA in H1 2013 ended at NOK 85.4 million, compared with NOK 109.1 million last year, reflecting lower hardware revenue and a lower hardware margin.

Sweden

Revenue in Q2 2013 ended at NOK 2,130.3 million, up 23.7% (up 18.4% in constant currency) compared with last year. Hardware revenue was up 4.9%, software revenue was up 42.4%, while services revenue was up 12.2% in constant currency. Organic revenue in constant currency increased by 16.7% in a market which, according to IDC, was flat.

Organic growth in hardware revenue of 4.1% compared with a market which was down 5.0% was driven by particularly strong revenue growth in the public sector. Organic software revenue increased by 41.9% compared with market growth of 5.6%. Atea has a strong position within license sale and is winning many new cases. Organic services revenue growth was 7.3% compared with a market which increased by 3.3%. Atea in Sweden continues to gain market share in all market segments.

EBITDA in Q2 2013 ended at NOK 44.8 million compared with NOK 39.5 million in Q2 2012. Product margin ended at 11.4%, down from 12.6% in Q2 2012 as Atea has successfully won a number of large public deals with lower than average margins. The services margin ended at 58.6% compared with 62.2% in Q2 2012. The decrease in the services margin is a result of increased use of subcontractors on a number of projects. The total gross margin ended at 20.8% for Q2 2013, down from 23.0% in Q2 2012. EBITDA margin ended at 2.1% versus 2.3% last year.

Revenue in H1 2013 was NOK 3,914.9 million, up 22.9% (up 18.9% in constant currency) compared with the same period last year. Hardware revenue was up 11.0%, software revenue was up 43.0% and services revenue was up 9.8% in constant currency. Organic revenue was up 17.4% in a market which, according to IDC, decreased by 1.4%. EBITDA in H1 2013 ended at NOK 91.4 million, compared with NOK 88.4 million last year, reflecting increased revenue.

Denmark

Revenue in Q2 2013 ended at NOK 1,354.8 million, down 10.9% (down 11.3% in constant currency) compared with last year. Hardware revenue was down 14.3%, software revenue was down 14.2% due to seasonality, while services revenue was up 0.2% in constant currency. Organic revenue in constant currency decreased by 11.3%. The decline in hardware revenue mainly reflects reduced activities in the private sector.

According to IDC, the market grew 1.7% in Denmark in Q2 2013, split between -0.4% for hardware, 4.3% for software and 3.0% for services, indicating that Atea is losing market share.

EBITDA in Q2 2013 ended at NOK 36.2 million, compared with NOK 44.5 million in Q2 2012. The product margin ended at 9.8% compared with 10.2% in Q2 2012. The tough market conditions are causing increased price pressure on hardware. The services margin increased to 64.9% from 60.4% in Q2 2012. The increase in margin was due to less use of subcontractors. The total gross margin ended at 22.5% for Q2 2013, up from 20.5% in Q2 2012. Total EBITDA margin ended at 2.7% compared with 2.9% last year. The overall achievement was lower than expected, but due to a promising backlog the performance is expected to improve going forward.

Revenue in H1 2013 was NOK 2,686.5 million, down 5.1% (down 4.2% in constant currency) compared with the same period last year. Hardware revenue was down 9.0%, software revenue was up 5.1% and services revenue was up 1.3% in constant currency. Organic revenue was down 4.6% in a market which, according to IDC, increased by 1.4%. EBITDA in H1 2013 ended at NOK 92.6 million, compared with NOK 101.0 million last year, reflecting lower hardware revenue and a lower hardware margin.

Finland

Revenue in Q2 2013 ended at NOK 340.7 million, down 17.2% (down 18.1% in constant currency) compared with last year. Hardware revenue was down 16.4%, software revenue was down 22.1%, while services revenue was down 8.2% in constant currency. Organic revenue in constant currency declined by 18.1% in a market which, according to IDC, increased by 0.6%.

The decline in revenue was caused by strong competition in both the private and the public sector.

EBITDA in Q2 2013 ended at NOK 3.9 million, compared with NOK 4.7 million in Q2 2012. The decline in revenue was somewhat compensated for by a higher hardware margin and lower operational costs. Gross margin ended at 17.1%, up from 15.7% in Q2 2012.

Revenue in H1 2013 was NOK 764.7 million, down 17.4% (down 16.9% in constant currency) compared with the same period last year in a market which, according to IDC, increased by 1.5%. EBITDA in H1 2013 ended at NOK 8.8 million, compared with NOK 5.5 million last year.

The Baltics

Revenue in Q2 2013 was NOK 155.5 million, down 7.8% (down 8.4% in constant currency) compared with last year. Organic revenue in constant currency declined by 17.3%.

The revenue in Q2 2013 has been affected by delayed public spending due to a temporary macroeconomic uncertainty as a consequence of the potential adoption of the Euro in Lithuania in the near future.

EBITDA in Q2 2013 ended at NOK 8.3 million, compared with NOK 8.4 million in Q2 2012. The decline in hardware revenue was compensated for by a higher hardware margin than last year and a higher share of services revenue. Total gross margin ended at 23.0% compared with 18.0% in Q2 2012.

Revenue in H1 2013 was NOK 298.2 million, down 2.4% (down 1.7% in constant currency) compared with the same period last year. EBITDA in H1 2013 ended at NOK 12.0 million, compared with NOK 15.2 million last year, reflecting lower hardware revenue.

Equity and cash flow

Shareholders' equity as of 30 June 2013 was NOK 3,524.3 million, corresponding to an equity ratio of 36.8%, down from 38.2% compared with 30 June 2012.

The Group generated an operational cash flow of NOK 158.2 million in Q2 2013, which was NOK 94.0 million above the corresponding quarter last year. This is primarily explained by working capital improvements in the relationship between trade receivables and trade payables.

The working capital ratio as of 30 June 2013 was 1.3%, down from 2.8% as of 30 June 2012.

Capital expenditures in Q2 2013 amounted to NOK 57.0 million and relate to general maintenance investments, including further development of internal systems and investments in the Group's hosting centres.

At the end of Q2 2013, the Group's net financial position was NOK -772.8 million, down from NOK -266.7 million at the end of Q1 2013. The change in net financial position includes the effect of the 2012 dividend payout on 14 May 2013 of NOK 561.6 million, which corresponds to NOK 5.50 per share.

Liquidity reserves, including unutilized credit facilities, as of 30 June 2013, were NOK 1,189.0 million.

On the basis of Atea's strong cash flow performance and deleveraged balance sheet, the company conducted a thorough review of its financing strategy over the last period in order to create maximum value for its shareholders while maintaining a robust capital structure. Atea has historically been financed through short-term bank facilities only. In order to decrease the dependency on such short-term financing and diversify the sources of financing, Atea concluded to raise long-term bank debt and bonds in addition to its existing facilities.

Based on this conclusion, Atea raised a DKK 500 million, 5-year non-amortizing bank loan from Nordea. In addition, Atea has issued a total of NOK 300 million of senior unsecured bonds with 5-year maturity in the Norwegian bond market. The bank loan and the bonds have a covenant limiting the Leverage Ratio (net interest bearing debt/EBITDA) to less that 2.5 at quarter-end. Please see note 8 for further information.

Outlook

IDC's latest forecast for the second half of 2013 for Atea's Blue Box in the Nordics shows growth of 3.7%. The services market is expected to grow by 4.2% and the software market by 5.7%. The hardware market is expected to improve substantially from a decline of 4.5% in H1 2013 to growth of 2.7% in H2 2013

IDC believes that the hardware market in the second half of 2013 will be driven by continued decline in the PC and server markets, while networks, smartphones and tablets will grow. This is supported by the ongoing shift in the client market, where the use of desktop PCs is declining, the use of laptop PCs is stagnating, and the 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 related to this that are being launched in H2 2013.

Atea's current view on the development in the hardware market in H2 2013 is more conservative than IDC's expectations, as Atea is still experiencing prolonged sales processes with the customers.

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 investment 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 3.0% towards 2017. 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. Key initiatives in the strategy 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 monitor 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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