Atea Q4 2013 financial results

Highlights Q4 2013

• Revenue of NOK 6,845.6 million, up 8.3% y-o-y
• EBITDA of NOK 360.6 million (before restructuring cost of NOK 76.5 million), up 3.4% y-o-y
• EBITDA margin of 5.3%, down from 5.5% y-o-y
• Operational cash flow of NOK 1,073.4 million
• Acquisition of CRC SIA in Latvia
• Board proposes dividend of NOK 6.00

Market update
Atea is still experiencing a hesitancy to invest and prolonged sales processes with the customers. This has particularly been the case in the hardware segment, where demand for servers and PCs has declined. This decrease has however been somewhat compensated for by an increasing demand within the smartphone, tablet and network markets.

According to IDC's latest forecast from January 2014, Atea's target market (the Blue Box) grew 1.6% in the Nordics in Q4 2013. The hardware market decreased 0.7%, software grew 4.6% and services grew 3.3%.

Compared with IDC's figures Atea increased revenue 2.0% in constant currency in the Nordics in Q4 2013.

Financial review full year 2013

Group
Revenue was up 5.6% from NOK 20,930.3 million in 2012 to NOK 22,095.8 million in 2013. Hardware revenue was up 2.2%, services revenue was up 9.1% and software revenue was up 11.1%. Organic growth in constant currency was 1.0%.

EBITDA for the full year ended at NOK 800.3 million, down from NOK 824.1 million in 2012. The EBITDA margin ended at 3.6%, down from 3.9% in 2012. The main reason for the decline in EBITDA is lower hardware margin as a consequence of challenging market conditions.

On 23 October 2013 Atea launched a programme to enhance operational efficiency and improve profitability going forward. The programme will reduce personnel and other operating costs by NOK 200 million per year from the run-rate in September 2013. This reduction in costs will mainly come from a reduction in the number of full-time employees by approximately 350. The programme has been implemented according to plan, and severance payments of NOK 76.5 million have been charged in Q4 2013. The programme will have full effect from Q1 2014.

Additionally, Atea announced that it will focus on taking full advantage of the shared services operations in Riga, Latvia. Atea has already nearshored parts of its back office administration, and in 2014 more back office processes will, in a controlled manner, be transferred to the shared services centre in Riga. The aim is to enhance quality, strengthen the competitive edge and lower the yearly cost level by approximately NOK 100 million.

The nearshoring programme will have a limited negative impact on operational costs in 2014, and will start to have a positive effect in 2015. Full annual effect will be from 2016.

Cash flow from operations for the full year 2013 was NOK 910.6 million which is up from NOK 812.4 million in 2012, reflecting further strong achievements within working capital optimization through 2013. As a result of the continued strong cash flow in 2013, the Group ended the year with a net debt of NOK 419.1 million. In light of the solid financial position the Board of Directors proposes to the General Assembly to pay NOK 6.00 per share in ordinary dividend for 2013, up from NOK 5.50 in 2012. This represents a dividend yield of 10.0% based on the share price at 31 December 2013. The Board of Directors proposes to the Annual General Assembly that the dividend will be paid out in two instalments of NOK 3.00 in May 2014 and NOK 3.00 in November 2014.

Financial review Q4 2013

Group
Group revenue was up 8.3% (up 2.0% in constant currency) from NOK 6,320.9 million in Q4 2012 to NOK 6,845.6 million in Q4 2013. Hardware revenue was up 9.2%, software revenue was up 3.4% and services revenue was up 11.4%. The currency effect for Q4 2013 was positive by 6.3%. Organic revenue was up 0.9% in constant currency. Despite challenging market conditions Atea achieved organic revenue growth and gained market share in both the hardware and the services segments. Software revenue is more dependent upon specific cases and therefore fluctuates from quarter to quarter.

EBITDA in Q4 2013 increased to NOK 360.6 million, up from NOK 348.7 million in Q4 2012, reflecting revenue growth combined with high focus on operational costs.

Norway
Revenue in Q4 2013 was NOK 2,080.7 million, up 8.3% compared with Q4 2012. Hardware revenue was up 14.1%, software revenue was up 1.1%, while services revenue was down 1.0%.

Organic revenue increased by 6.8%. Organic hardware revenue increased by 11.9%. The increase in the hardware revenue was driven by strong revenue growth in the communication and client businesses. Organic software revenue increased by 1.1%. The moderate growth in software revenue is seasonal. Organic services revenue was down 1.9%. This reflects fewer large rollouts and fewer working days over Christmas and New Year.

EBITDA in Q4 2013 increased to NOK 117.8 million, up from NOK 105.6 million in Q4 2012. Product margin ended at 12.3%, down from 13.7% in Q4 2012, influenced by a few high-volume deals with low margins. The total gross margin ended at 23.8%, down from 26.0% in Q4 2012. An organic decrease in operational costs of 5.8% reflects a decrease in the average workforce of 33 employees as well as a one- off reduction in pension costs of NOK 28.9 million as a consequence of a change in pension scheme from defined-benefit plan to defined-contribution plan (see note 6). The EBITDA margin ended at 5.7% versus 5.5% last year.

Full-year revenue in 2013 ended at NOK 6,569.5 million, up 3.4% y-o-y. Hardware revenue was up 0.5%, software revenue was up 12.0% and services revenue was up 5.4%. Organic revenue grew 1.5%. The organic revenue development reflects challenging market conditions in the hardware market.

Full-year EBITDA ended at NOK 248.6 million, down 9.7%. The EBITDA margin ended at 3.8% in 2013, down from 4.3% in 2012. The main reason for the decline in EBITDA is lower revenue growth and decreasing product margins.

In order to enhance operational efficiency and to improve profitability going forward, actions have been taken to reduce the current cost base. In Q4 2013 the number of full-time employees was reduced by 124, and severance payments of NOK 35.0 million have been charged. These actions will have an annual effect of NOK 75 million from Q1 2014.

Sweden
Revenue in Q4 2013 ended at NOK 2,447.7 million, up 20.4% (up 11.4% in constant currency) compared with last year. Hardware revenue was up 12.2%, software revenue was up 7.3%, while services revenue was up 15.9% in constant currency.

Organic revenue in constant currency increased by 9.8%. Organic hardware revenue increased by 11.2%. The growth in the hardware revenue reflects higher client sales to both the public and the private sector. Organic software revenue increased by 6.8%. Atea has a strong position within licence sales and is winning many new contracts. Organic growth in services revenue of 10.9% was driven by particularly strong revenue from contracted services.

EBITDA in Q4 2013 ended at NOK 92.5 million, up from NOK 86.6 million in Q4 2012. Product margin ended at 11.5%, down from 12.9% in Q4 2012 as a consequence of overall price pressure in the market combined with a higher proportion of low margin client sales. The services margin ended at 56.9% compared with 58.1% in Q4 2012. The decrease in the services margin is a result of use of sub-contractors on a number of specific projects. The total gross margin ended at 20.8% for Q4 2013, down from 21.8% in Q4 2012. The EBITDA margin ended at 3.8% versus 4.3% last year.

Full-year revenue in 2013 ended at NOK 7,952.1 million, up 19.8% (up 14.1% in constant currency) y-o- y. Hardware revenue was up 10.2%, software revenue was up 24.2% and services revenue was up 11.9% in constant currency. Organic revenue in constant currency increased by 12.6%. Double-digit organic growth was driven by higher hardware sales to both the public and the private sector, strong position within licence sales and particularly strong revenue from contracted services.

Full-year EBITDA increased to NOK 216.1 million, up from NOK 201.0 million in 2012, due to the growth in revenue. The EBITDA margin ended at 2.7% in 2013, down from 3.0% in 2012, mainly reflecting lower gross margins due to price pressure in the market.

In order to enhance operational efficiency and to improve profitability going forward, actions have been taken to reduce the current cost base. In Q4 2013 the number of full-time employees was reduced by 65, and severance payments of NOK 20.5 million have been charged. These actions will have an annual effect of NOK 46 million from Q1 2014.

Denmark
Revenue in Q4 2013 ended at NOK 1,752.9 million, up 0.6% (down 8.7% in constant currency) compared with last year. Hardware revenue was down 9.9%, software revenue was down 14.3% while services revenue was down 0.8% in constant currency. Organic revenue in constant currency decreased by 8.7%. The decline in revenue reflects tough market conditions combined with fewer high-volume deals.

EBITDA in Q4 2013 increased to NOK 136.6 million, up from NOK 124.5 million in Q4 2012. Despite tough market conditions the product margin increased to 10.2% from 9.3% in Q4 2012, as a consequence of the fewer high-volume deals with low margin. The total gross margin increased to 21.9% for Q4 2013, up from 20.1% in Q4 2012. The higher gross margin compensated for the lower revenue, and gross profit increased by NOK 33.1 million. Total EBITDA margin increased to 7.8% compared with 7.1% last year.

Full-year revenue in 2013 was NOK 5,608.7 million, down 2.1% (down 6.1% in constant currency) y-o-y. Hardware revenue was down 8.2%, software revenue was down 5.0% and services revenue was down 1.2% in constant currency. Organic revenue in constant currency decreased by 6.3%. The organic revenue development reflects tough market conditions in the hardware market, which have had a spillover effect on services.

EBITDA for the year increased to NOK 291.1 million, up from NOK 282.1 million in 2012. The EBITDA margin increased to 5.2% in 2013, up from 4.9% in 2012. Revenue decline was compensated for by improved or maintained margins within all three segments and high focus on operational costs.

In order to enhance operational efficiency and to improve profitability going forward, actions have been taken to reduce the current cost base. In Q4 2013 the number of employees was reduced by 114, and severance payments of NOK 12.0 million have been charged. These actions will have an annual effect of NOK 77 million from Q1 2014.

Finland
Revenue in Q4 2013 ended at NOK 370.0 million, down 12.9% (down 22.1% in constant currency) compared with last year. Hardware revenue was down 20.4%, software revenue was down 30.8%, while services revenue was up 5.2% in constant currency. Organic revenue in constant currency decreased by 22.1%.

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

EBITDA in Q4 2013 ended at NOK -2.4 million, compared with NOK 17.8 million in Q4 2012, reflecting the decline in product revenue and lower gross margin.

Full-year revenue in 2013 was NOK 1,396.0 million, down 13.2% (down 16.8% in constant currency) y-o-y. EBITDA for the year ended at NOK 7.7 million, down from NOK 23.6 million last year, mainly reflecting the reduction in revenue.

In order to enhance operational efficiency and to improve profitability going forward, actions have been taken to reduce the current cost base. These actions are estimated to have an annual effect of NOK 17 million. In Q4 2013 a severance payment of NOK 5 million has been charged.

The Baltics
Revenue in Q4 2013 was NOK 213.1 million, up 7.6% (down 2.3% in constant currency) compared with last year. Organic revenue in constant currency decreased by 7.7%. Organic revenue in Q4 2013 has been affected by lower public spending in Latvia due to the Euro adoption from January 2014, and a few postponed public projects in Lithuania.

EBITDA in Q4 2013 ended at NOK 15.0 million, compared with NOK 15.4 million in Q4 2012, reflecting lower than expected revenue growth. Total gross margin increased to 23.6%, up from 22.9% last year. The lower product margin was compensated for by a higher services margin combined with a higher share of services revenue.

On 18 December 2013 Atea Baltic UAB entered into an agreement to acquire CRC SIA, a print/copy company operating in Latvia with 31 employees and expected revenue of NOK 16.1 million and EBITDA of NOK 1.3 million in 2013. The agreed enterprise value was NOK 5.1 million.

Full-year revenue in 2013 was NOK 678.1 million, up 4.6% (up 0.1% in constant currency) y-o-y. Organic revenue in constant currency decreased by 9.1%. EBITDA for the year increased to NOK 40.0 million, up from NOK 37.8 million last year. The EBITDA margin increased to 5.9% up from 5.8% for 2012, reflecting a higher share of services revenue.

Equity and cash flow
Shareholders' equity at 31 December 2013 was NOK 3,532.8 million corresponding to an equity ratio of 31.6%, down from 38.9% compared with 31 December 2012, due to extraordinary payment of dividends of NOK 412.4 million in November 2013.

The Group generated an operational cash flow of NOK 1,073.4 million in Q4 2013, compared with NOK 1,130.2 million in the corresponding quarter last year. Full- year operational cash flow increased to NOK 910.6 million, up from NOK 812.4 million - an improvement of NOK 98.2 million compared with last year. This reflects further strong achievements within working capital optimization through 2013.

The working capital in relation to annualized Q4 2013 revenue was -1.3%, down from -0.2% at 31 December 2012.

Capital expenditures in Q4 2013 amounted to NOK 101.4 million compared with NOK 90.7 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 Q4 2013, the Group's net financial position was NOK -419.1 million, up from NOK -957.6 million at the end of Q3 2013.

Liquidity reserves, including unutilized credit facilities and limited by a gearing ratio of 2.5x (financial covenant from loan agreements linked to "net interest bearing debt/EBITDA"), at 31 December 2013, were NOK 1,325.7 million. Please see note 8 for further information.

Outlook
IDC's latest forecast for 2014 for Atea's target market in the Nordics (the Blue Box) shows growth of 3.9%. The services market is expected to grow by 5.3% and the software market by 4.0%. The largest change in market conditions is expected to be in the hardware market which will improve from -1.6% growth in 2013 to 3.1% in 2014.

IDC believes that in 2014 the hardware market will be driven by a continued decline in the PC market and server/storage markets but at a considerably lower rate than during 2013, whereas networks, smartphones and tablets will continue to grow significantly. 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.

The outsourcing of internal IT functions to external partners represents a strong trend in the services market. This is particularly the case within outsourcing of PC and mobile device 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, availability and the derived need for extra security. 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 programmes. 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 3.5% towards 2017. Atea is well positioned to take advantage of the opportunities ahead.

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 the revenue. The long-term target for the EBITDA margin is 6%.

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 84 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

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