Atea Q4 2012 financial results

Highlights Q4 2012

• Revenue of MNOK 6,320.9, down 3.0% y-o-y
• EBITDA of MNOK 348.2, down 7.1% y-o-y
• EBITDA margin of 5.5%, down from 5.8% y-o-y
• Cash flow of MNOK 1,130.2, up 8.4% y-o-y
• Net cash positive at MNOK 49.3 at end of 2012
• Board proposes dividend of NOK 5.50, up from NOK 5.00

Market update

The financial turmoil in Europe continued to impact the Nordic IT infrastructure market in Q4 2012. The market has decreased 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 preliminary figures for Atea's addressable market in the Nordics (Atea's Blue Box) in Q4 2012 show a decline of 4.2%. The market data shows a hardware decline of 8.3%, a consulting and services decline of 1.6% and a software growth of 2.0%.

As the second largest IT infrastructure player in Europe, Atea has a stronger purchasing power than the majority of its competitors. Atea is therefore able to offer their customers competitive prices and win contracts with relatively higher margins. In Q4 2012 Atea had an actual revenue decline of 1.5% in constant currency and an organic revenue decline of 2.4% in the Nordics. IDC's preliminary Q4 2012 figures show a market decline of 4.2%, thus Atea is continuing to gain market share.

  
Financial review full year 2012

Group

Revenue was up 3.5% from MNOK 20,227.8 in 2011 to MNOK 20,930.3 in 2012. Hardware revenue was down 0.8%, consulting and services revenue was up 7.3% and software revenue was up 13.0%. Organic growth in constant currency was 2.8% in a market which according to IDC increased by 3.4%.

EBITDA for the full year ended at MNOK 822.1, down from MNOK 871.1 in 2011. EBITDA margin ended at 3.9%, down from 4.3% in 2011, reflecting lower hardware revenue and margins in a tough market environment.

Cash flow from operations was MNOK 812.4 which is down from MNOK 1,046.4 in 2011, reflecting extraordinarily strong cash flow in 2011 combined with lower 2012 earnings. The continued strong cash flow in 2012 implies that the Group ended the year net cash positive at MNOK 49.3. With the solid financial position the Board of Directors proposes to the General Assembly to pay NOK 5.50 per share in dividend for 2012, up from NOK 5.00 in 2011. This represents a dividend yield of 9.2% based on the share price at 31 December 2012.

  
Financial review Q4 2012

Group

Group revenue was down 3.0% from MNOK 6,519.2 in Q4 2011 to MNOK 6,320.9 in Q4 2012. Hardware revenue was down 9.5%, consulting and services revenue was up 5.3% and software revenue was up 8.1%. Organic revenue was down 2.8% in constant currency, in a market that according to IDC fell by 4.2%. The drop in hardware revenue reflects the tougher market conditions, including postponement of some deliveries to 2013.

EBITDA in Q4 2012 ended at MNOK 348.2, down 7.1% y-o- y. Earnings were down in the Swedish market, mainly as a consequence of lower hardware margins due to price pressure. The total gross margin for the Group was 23.1%, up from 21.8% in Q4 2011.

  
Norway

Revenue in Q4 2012 was MNOK 1,921.8, down 6.0% compared with a strong Q4 2011. Product revenue was down 10.6%, while consulting and services revenue was up 14.7%. Organic revenue decreased by 7.9% in a market which according to IDC declined by 6.7%. This reflects reduced product deliveries, especially caused by postponements of deliveries to a few, major public customers. Organic consulting and services growth was 7.5%, well above IDC's preliminary figures which show a market decline of 2.3%. Consulting and services show a positive development as a result of increased focus.

EBITDA in Q4 2012 ended at MNOK 105.6, up from MNOK 104.6 in Q4 2011. Product margin ended at 13.7%, up from 12.0% in Q4 2011, influenced by more public deliveries in Q4 2011 with a lower margin than average. Organic growth in cost of 10.8% reflects growth in the workforce of 120 employees mainly within services. EBITDA margin in Q4 2012 ended at 5.5% versus 5.1% last year.

Full year 2012 revenue ended at MNOK 6,353.4, up 9.4% y-o-y. Product revenue was up 9.5% and consulting and services revenue was up 8.9%. Organic revenue grew by 5.3%, which is driven by growth in products of 6.0%. This increase can be explained by a strong 12.1% growth in software and a more moderate 4.6% growth in hardware, mainly caused by a slower pace within the client business towards the end of the year.

Full year EBITDA ended at MNOK 275.3, up 6.8%, corresponding to an EBITDA margin of 4.3%.

  
Sweden

Revenue in Q4 2012 ended at MNOK 2,033.6, down 0.4% (down 0.2% in constant currency) compared with last year. Product revenue was down 0.7% in constant currency, while consulting and services revenue was up 1.9%. Organic revenue in constant currency declined by 0.2% in a market which according to IDC decreased by 3.8%. Hardware revenue declined by 5.8% compared with a market which was down 8.9%. This is mainly caused by a slow-down in the private sector, especially within client and print business. Software revenue increased by 8.6% compared with a market growth of 4.6%. Atea is still taking a strong position within the licence business in the public sector. Atea in Sweden continues to gain market share.

EBITDA in Q4 2012 ended at MNOK 86.6 compared with MNOK 113.6 in Q4 2011. The product margin ended at 12.9%, which is 0.4% below last year's level, caused by price pressure and a less favourable product and customer mix. The total gross margin ended at 21.8% for Q4 2012, down from 22.5% in Q4 2011. In Q4 2012 the number of employees has been reduced by 25, and severance payments of MNOK 8 have been charged. The full-year effect of these reductions will be MNOK 18 for 2013. EBITDA margin ended at 4.3% versus 5.5% last year.

Full year 2012 revenue ended at MNOK 6,637.5, up 1.9% (up 2.4% in constant currency) y-o-y. Product revenue was up 1.2% in constant currency and consulting and services revenue was up 7.1%. Increase in product revenue reflects a strong 15.2% increase in software and a 4.2% decrease in hardware. The decrease in hardware is mainly within client and print business and is related to private sector.

Full year EBITDA ended at MNOK 201.0 compared with MNOK 261.0 in 2011. The EBITDA margin ended at 3.0% in 2012, down from 4.0% in 2011. 1.0% lower hardware margin and higher level of operational expenses beginning of the year are main causes of decline in EBITDA margin.

  
Denmark

Revenue in Q4 2012 ended at MNOK 1,741.9, down 1.7% (up 3.5% in constant currency) compared with last year. Product revenue was up 3.5%, while consulting and services revenue was up 3.2% in constant currency. Organic revenue growth in constant currency was 2.5% in a market which according to IDC declined by 2.7%. Hardware revenue was down 0.8% compared with a market which decreased by 3.2%. This reflects lower sales in public sector relating to client business. Software shows a strong increase of 21.3% compared with a market which declined by 2.7%. Atea in Denmark continues to gain market share.

EBITDA in Q4 2012 ended at MNOK 124.5, down from MNOK 129.7 in Q4 2011. The product margin ended at 9.3% compared with 11.0% in Q4 2011. The tougher market implies tougher price competition, especially within client business and with public customers. Consulting and services margin was higher than last year, caused by less use of subcontractors. EBITDA margin ended at 7.1% compared with 7.3% last year.

Full year 2012 revenue was MNOK 5,729.6, down 0.6% (up 3.5% in constant currency) y-o-y. EBITDA for the year ended at MNOK 282.1, down from MNOK 285.0 in 2011. EBITDA margin ended at 4.9% for both years.

  
Finland

Revenue in Q4 2012 ended at MNOK 424.8, down 15.2% (down 10.7% in constant currency) compared with last year. Product revenue was down 11.5%, while consulting and services revenue was down 2.8% in constant currency. Organic revenue in constant currency declined by 10.7% in a market which according to IDC decreased by 3.7%. This reduction is mainly explained by a decline in hardware business reflecting a weaker market in both private and public sector.

EBITDA in Q4 2012 ended at MNOK 17.8, compared with MNOK 19.3 in Q4 2011. Product margin was 1.0% above last year's level, mainly because of a positive development in software margins.

Full year 2012 revenue was MNOK 1,607.5, down 6.4% (down 2.4% in constant currency) y-o-y. EBITDA for the year ended at MNOK 23.6, down from MNOK 47.9 last year, mainly reflecting the reduction in revenue. EBITDA margin ended at 1.5% compared with 2.8% for 2011.

   
The Baltics

Revenue in Q4 2012 was MNOK 198.0, up 19.8% (up 26.0% in constant currency) compared with last year. Organic revenue in constant currency declined by 10.5%, where hardware revenue was affected by postponements in EU funded public projects.

EBITDA in Q4 2012 ended at MNOK 15.4, compared with MNOK 9.5 in Q4 2011. Total gross margin was 22.9% compared with 17.8% in Q4 2011. EBITDA margin ended at 7.8%, up from 5.7% in Q4 2011.

Full year 2012 revenue was MNOK 648.4, up 48.7% (up 55.0% in constant currency) y-o-y. Organic growth in constant currency was 9.9%. EBITDA for the year ended at MNOK 37.8, up 89.5% (up 97.6% in constant currency) y-o-y. EBITDA margin ended at 5.8% compared with 4.6% for 2011, reflecting a year with several successful acquisitions.

   
Equity and cash flow

Shareholders' equity as of 31 December 2012 was MNOK 3,834.8 corresponding to an equity ratio of 38.5%, up from 37.9% compared with 31 December 2011.

The Group generated an operational cash flow of MNOK 1,130.2 in Q4 2012, which was MNOK 87.1 above the corresponding quarter last year. This is explained by a decrease in working capital through a further decrease in inventory and improvements in the relationship between trade receivables and trade payables. For the full year 2012 the Group generated an operational cash flow of MNOK 812.4, which was MNOK 234.0 below the corresponding period last year.

The working capital ratio as of 31 December 2012 was - 0.2%, which is down from -0.1% as of 31 December 2011.

Capital expenditure in Q4 2012 amounted to MNOK 90.7. These were maintenance investments related to hosting centres, Atea's internal 'One Infrastructure' project, ERP development, equipment for employees and other office-related investments.

Cash flow related to sale of subsidiaries amounted to MNOK 6.1.

At the end of Q4 2012, the Group's net financial position was MNOK 49.3, up from MNOK -884.1 at the end of Q3 2012. Cash reserves, including unutilized credit facilities, as of 31 December 2012, were MNOK 1,833.6.

  
Outlook

IDC's forecast for 2013 for Atea's addressable market in the Nordics (Atea's Blue Box) is growth of 1.9%. The consulting and services market is expected to grow by 3.2%, the software market is expected to grow by 4.8% and the hardware market is expected to decline by 0.4%

IDC believes that the hardware market in 2013 will be driven by declines in the client and server/storage markets, whereas network and other hardware areas will grow. The client market is currently undergoing a mobility shift where the immobile desktop PC's are declining, portable PC's are stagnating and smartphones and tablets are soaring. Growth in the product market will be driven by gradually increasing deployment of Windows 8 projects among others.

There is a strong trend in the services market towards outsourcing of internal IT functions to external partners, and outsourcing of 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. Atea is well positioned to grow further within this area.

The uncertainty in the outlook primarily relates to macroeconomic developments. A macroeconomic downturn or increased uncertainties may result in hesitancy to commit to larger 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 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 is expected to win further market shares and improve the 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 in the 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 6,300 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 approximately NOK 21 billion in 2012 and is listed on Oslo Stock Exchange.
www.atea.com

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