Atea Q3 2012 financial results
Highlights Q3 2012
- Revenue of MNOK 4,450.5, up 8.2% y-o-y
- EBITDA of MNOK 157.5, up 5.0% y-o-y
- EBITDA margin of 3.5%, down from 3.6% y-o-y
- Cash flow of MNOK 39.5, up MNOK 197.5 y-o-y
- Acquisition of Total Storage Solutions in Norway
Market update
The financial turmoil in Europe continued to impact the Nordic IT infrastructure market in Q3 2012. As a consequence of tougher market conditions prices are under pressure, particularly in the product segment. In order to continue growing market share in the product segment, Atea has responded to the price pressure by winning some contracts with lower gross margin. Increased product revenue will be important for increased services revenue going forward.
IDC's latest forecast for Atea's addressable market (Atea's Blue Box) shows growth of 3.3% in the Nordics in 2012. The forecast shows hardware growth of 4.6%, software growth of 3.3% and consulting and services growth of 1.7%.
In comparison with IDC's forecasted market growth in 2012 of 3.3%, Atea achieved actual growth in constant currency of 7.5% and organic growth of 5.1% in Q3 2012 in the Nordics, which shows that Atea is continuing to gain market share.
Financial review Q3 2012
Group
Group revenue was up 8.2% from MNOK 4,112.8 in Q3 2011 to MNOK 4,450.5 in Q3 2012. Hardware revenue was up 5.5%, consulting and services revenue was up 12.0% and software revenue was up 15.4%. Organic growth amounted to 5.6% in constant currency, Atea is therefore continuing to gain market share.
EBITDA in Q3 2012 ended at MNOK 157.5, up 5.0% y-o-y despite lower earnings in the Swedish and Finnish markets, mainly as a consequence of lower hardware margins due to price pressure. Given tougher market conditions, Atea has chosen to win hardware deals and with the opportunity to offer services as well. The total gross margin for the Group was 25.4%, up from 24.8% in Q3 2011. This increase combined with the revenue growth explains the EBITDA improvement.
Total revenue year to date 2012 was MNOK 14,609.4, which is up 6.6% compared with the same period last year. Organic growth amounted to 5.5% in constant currency. EBITDA ended at MNOK 473.9, down from MNOK 496.2 last year, representing an EBITDA margin of 3.2% versus 3.6% last year.
Norway
Revenue in Q3 2012 was MNOK 1,505.4 which was up by 21.7% compared with Q3 2011. Product revenue was up 25.1%, while consulting and services revenue was up 11.4%. Organic revenue growth in Q3 was 15.2%. Revenue from the public sector was particularly strong in Q3 2012, mainly due to deliveries of school PCs. IDC predicts growth of 3.1% in Norway in 2012, split between 3.8% for hardware, 3.7% for software and 2.1% for services, Atea is therefore continuing to gain market share in Norway.
EBITDA in Q3 2012 ended at MNOK 60.7, up 10.4% compared with Q3 2011 and mainly reflects the increased revenue. Product margin ended at 12.6%, which was down 2.0% compared with Q3 2011 due to a higher software volume with lower margins and low margin school PC sales (hardware). Organically, total operational costs increased by 5.0%. The average organic increase in workforce in Q3 2012 compared with Q3 2011 was 6.5%. The EBITDA margin in Q3 2012 ended at 4.0% versus 4.4% last year.
On 24 August, Atea signed an agreement to acquire Total Storage Solutions Norge AS who specializes in data storage and backup solutions. Total Storage Solutions Norge (TSS) has offices in Oslo, Bergen, Stavanger and Kongsberg, and has 19 employees. The company is expected to generate total revenue of MNOK 70 and EBITDA of MNOK 8 in 2012. The agreed transaction value (enterprise value) was MNOK 31.5.
Atea has signed a frame agreement with NAV IKT to deliver hardware and services. The agreement is valid for two years, with an option for additional two years. Atea estimates the value of the agreement to be approximately MNOK 50 per year.
Sweden
Revenue reached MNOK 1,419.7 in Q3 2012, which was up 13.8% (9.5% in constant currency) compared with last year. Product revenue was up 9.8% in constant currency, mainly driven by a 40.7% increase in software revenue, while consulting and services revenue was up 8.4% in constant currency.
Organically, revenue was up 9.2% in constant currency. The macro-economic climate continues to have a negative effect 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. However, hardware revenue showed a 4.0% (organic 3.7%) growth compared with Q3 2011, to be explained by a high order backlog from Q2, especially within school PCs. IDC predicts growth of 3.3% in Sweden in 2012, split between 4.4% for hardware, 3.3% for software and 2.1% for services. Atea Sweden continues to gain market share.
EBITDA in Q3 2012 ended at MNOK 25.9 compared with MNOK 31.0 in Q3 2011. The product margin ended at 13.5%, which is 0.6% below the level of last year, caused by price pressure and a less favourable product mix. The total gross margin ended at 23.6% for Q3 2012, down from 25.5% in Q3 2011.
Cost reduction measures initiated during Q2 with an annual effect of MNOK 60 (MNOK 15 in 2H) are proceeding according to plan. The combination of a strong order backlog and cost reductions are expected to generate Q4 2012 EBITDA in line with Q4 last year, indicating an estimated full year EBITDA of MNOK 230, down from MNOK 261 in 2011.
Atea was, together with five other suppliers, selected by Kammarkollegiet in their procurement process for network solutions, products and services for a large part of the public sector in Sweden. The agreement has an estimated total annual value of MNOK 347 and is valid for one year, with an option for additional three years.
Atea was also, together with four other suppliers, selected by Kammarkollegiet in their procurement process for audio visual products and related services for a large part of the public sector in Sweden. The agreement has an estimated total annual value of MNOK 97.5 and is valid for one year, with an option for additional three years.
Denmark
Revenue in Q3 2012 ended at MNOK 1,157.1, down 7.5% (2.6% in constant currency) compared with Q3 2011. Product revenue was down 6.0%, while consulting and services revenue was up 8.5% in constant currency. The decline in product revenue reflects a reduction in hardware revenue. The reduction in hardware revenue is primarily a consequence of reduced PC sales related to the launch of Windows 8 in Q4 2012. Organically, revenue was down 4.2% in constant currency. IDC predicts growth of 3.0% in Denmark in 2012, split between 4.3% for hardware, 3.3% for software and 1.3% for services. Atea still expects full year hardware growth in line with IDC market predictions and growth well above market expectations for services. Atea is therefore expecting to gain market share in Denmark for the full year 2012.
EBITDA in Q3 2012 ended at MNOK 56.6, up from MNOK 52.1 in Q3 2011. The product margin ended at 10.3% in line with Q3 2011. Total gross margin ended at 23.6% compared with 20.8% for Q3 2011, reflecting an increased margin within services. Organically, operational costs show an increase of 3.4% in constant currency compared to Q3 2011. Workforce increased organically by 5.2% in the same period, implying that cost focus is bridging the temporary shortfalls of hardware sales. The EBITDA margin ended at 4.9% compared with 4.2% in Q3 2011.
Finland
Revenue in Finland in Q3 2012 ended at MNOK 256.4, down 16.9% (11.9% in constant currency) compared with Q3 2011. Product revenue was down 14.9%, while consulting and services revenue was up 12.0% in constant currency. The reduction in hardware business reflects a weaker market in the private enterprise sector. IDC predicts growth of 3.6% in Finland in 2012, split between 6.1% for hardware, 2.8% for software and 1.2% for services.
EBITDA in Q3 2012 ended at MNOK 0.4, compared with MNOK 7.0 in Q3 2011. The Q3 2012 decline in results versus last year mainly reflects the reduction in product gross margin.
The Baltics
Revenue in Q3 2012 was MNOK 144.9, which was up 87.5% (96.8% in constant currency) from Q3 2011. Organic growth in constant currency was 27.7%, mainly due to deliveries of EU funded projects.
EBITDA in Q3 2012 ended at MNOK 7.2, compared with MNOK 3.1 in Q3 2011. Total gross margin was 21.4% compared with 20.9% in Q3 2011. EBITDA margin ended at 5.0%, up from 4.0% in Q3 2011.
Outlook
IDC's forecast for 2012 for Atea's addressable market in the Nordics estimates growth of 3.3%.
IDC believes that growth in the hardware market in 2012 will primarily be driven by smart phones, tablets, and the delivery of school PCs in Sweden and Norway. Growth in the software market will primarily be driven 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 an increasingly complex client environment with more and new types of devices, more operating systems and applications as well as increased demand for accessibility and availability.
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 time period.
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.
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 provides reassurance 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 stage 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.
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 is expected to win further market shares and improve its profitability in the coming years.
Equity and cash flow
Shareholders' equity as of 30 September 2012 was MNOK 3,561.2 corresponding to an equity ratio of 42.1%, down from 44.5% compared to 30 September 2011.
The Group generated an operational cash flow of MNOK 39.5 in Q3 2012, which was MNOK 197.5 above the corresponding quarter last year. The improvement is mainly explained by a decrease in inventory and some postponements in customer payments at the end of the second quarter which were paid in the beginning of July instead of June. A strong cash flow for the full year 2012 is still expected, driven by increased earnings and a decline in working capital in the last quarter of 2012.
The working capital ratio as of 30 September 2012 was 4.1%, which is up from 3.9% as of 30 September 2011.
Capital expenditure in Q3 2012 amounted to MNOK 48.6. These were 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 47.9. The acquisition payments were related to the purchase of NG Infra in Estonia, Total Storage Solutions in Norway and earn-out payment in Sweden related to the previous acquisition of Portal AB.
At the end of Q3 2012, the Group's net financial position was MNOK -884.1, down from MNOK -844.3 at the end of Q2 2012. Cash reserves, including unutilized credit facilities, as of 30 September 2012, were MNOK 1,275.7.
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 6,300 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 more than NOK 20 billion in 2011 and is listed on Oslo Stock Exchange.
www.atea.com
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