© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hi, and welcome to the presentation of Atea's Q1 numbers here in Oslo. This has been a quarter with a lot of extremely good achievements, a lot of extremely interesting customer cases and support from our partners. But it's also a quarter, where we are not 100% satisfied with the results, especially in Norway and Denmark. Of course, Robert will get back to this and I'll comment later, but I want to make one very positive comment. As a lot of you are following especially for the development in Denmark, this has been a quarter with a lot of good success and signs for private large companies and wins in Denmark, which we have waited for a little bit. Our market position is clearly demonstrated in this quarter, I think more than in a lot of the other quarters that we have given results for where revenue also have been strong, this is a real demonstration of position. NOK 9.1 billion in revenue and we are especially happy with the development of the services business, which grew almost 10%, which is difficult when it relies on people. But it's also the build-up of people over the last 9 months that have played us a little bit of a trick. As we have said many times that getting people is difficult, it has proven to be less difficult over last 6 months and so it might have happened a little bit too quick. And so EBIT is not good enough. We are confident though that we are investing in the right areas and that we are on the right way and we are also confident that we will see this already proven for even better development on EBIT already in Q2. But I'll leave it to Robert to give you more of the details and then I'll be back a little later.
Thank you, Steinar. As Steinar mentioned, Atea had high revenue growth in the first quarter, the lower EBIT as the company increased its staffing levels from last year. The increase in staffing was primarily within services, an area of strategic growth importance for Atea, while services revenue increased during Q1 2019, billing rates on new consultants have not yet reached full maturity. This is expected to improve in the coming quarters. We'll now take a closer look at revenue and profit development across the countries in which we operate. Starting with Norway, where Atea reported strong growth in revenue but with lower profit than last year due to increased headcount. Total revenue in Norway was NOK 2.4 billion, an increase of 28.5% from last year. Product sales were up by 33.7% with many large hardware and software deliveries to the public sector at a relatively low margin. Services revenue increased by 11.7%, driven by an increased number of project consultants and new growth areas such as data analytics. Gross profit was up by 8.0%, as higher sales of products and services were partly offset by lower product margins. Operating expenses were up by 9.6%, primarily due to the recruitment of new employees within the services business area. With revenue growth offset by lower gross margins and higher operating expenses, EBIT was NOK 38 million compared to NOK 43 million last year. We'll now move on to Sweden, where our business continued to capture market share and improve profit. Total revenue in Sweden grew by 11.5% to SEK 3.8 billion. Product sales grew by 10.7% from last year, driven by a high order volume on recently renewed frame agreements to the public sector. Services revenue grew by 15.8%, as the company has employed additional consultants to meet growing market demand for services. Gross profit was up by 9.0%. This growth in revenue was partly offset by lower gross margins on recently renewed frame agreements and more third-party services in the revenue mix. Operating costs were up by 8.4% based on an increase in the consulting staff compared with last year. With strong sales across all lines of business, Sweden's EBIT grew by 12.6% to SEK 112 million. In Denmark. Atea had lower revenue and EBIT compared with last year. The decline in EBIT was softer than in previous quarters as demand from the private sector began to improve. Total revenue fell by 7.8% in the first quarter to DKK 1.4 billion. The decline in revenue was primarily due to fewer large product deliveries to the public sector compared with last year. Product revenue was down by 10.6% with lower revenue to the public sector partly offset by higher sales to the private sector. Product gross margin improved based on the shift in the sales mix toward smaller orders to the private sector. Services revenue grew by 3.3% based on increased demand for data center services from the private sector. Gross profit fell by 4.5% due to lower product sales and higher cost on services. Total operating expenses were below last year as the number of employees continue to fall based on a highly restrictive staffing policy implemented in the second half of last year. Due to lower revenue, EBIT was a loss of DKK 20 million compared to a loss of DKK 12 million from last year. The decline in EBIT was much softer than in previous quarters due to improved product margins and stable operating expenses. In Finland. Atea reported strong revenue growth in the first quarter. EBIT was slightly higher than last year with revenue growth offset by higher personnel costs. Total revenue in Finland grew by 10.9% to EUR 101 million, driven by higher sales of products. Product sales were up by 12.6%, this demand from the public sector continued to grow. Services revenue declined by 8.7% from last year as last year's revenue was positively impacted by a large consulting project to a public customer. Based on higher overall revenue, gross profit was up by 12.0% compared with last year. Operating expenses were up by 13.1% from last year, driven by an increase in the number of consultants. The consultant hires are part of a long-term growth strategy to expand within services. The increased services staff is expected to result in higher revenue in the coming quarters as new service contracts are implemented and billing rates improve. With rapid growth in product revenue partly offset by higher personnel costs, EBIT was EUR 1.2 million slightly above last year. Finally. Atea Baltics reported strong revenue and EBIT growth in the first quarter. Total revenue in the Baltics grew by 19.6% to EUR 31.3 million. Product sales grew by 21.8% from last year, driven by large deliveries to major public sector customers. Services revenue was up by 14.1%, based on strong demand for data center outsourcing services and software development. Gross profit increased by 11.4%, driven primarily by higher services revenue. Total operating expenses fell by 0.9% from last year, due to fewer full-time employees and a large legal expense of EUR 0.3 million, which took place in the first quarter of last year. With strong revenue growth across all lines of business and lower operating expenses compared to last year, EBIT increased to EUR 900,000 compared with about EUR 100,000 last year. Finally, a word on our balance sheet and cash flow. Atea had a net debt of NOK 620 million at the end of Q1 2019 as defined by Atea's loan covenants. This corresponds to a net debt-EBITDA ratio of 0.56x. This is well below the company's loan covenants of 2.50x. Cash flow from operations was an outflow of NOK 481 million in Q1 2019 compared with an outflow of NOK 842 million last year. Atea's operating cash flow is highly seasonal with high cash flow in Q4, when working capital requirements fall and negative cash flow in the first half of the year, when working capital requirements increase. In order to offset seasonal working capital movements and stabilize net debt throughout the year, Atea has entered a securitization agreement on selected accounts receivable with its primary bank in December 2018. Atea now expects to maintain a net debt-EBITDA ratio of 1.0x or less for the remainder of the year with a low point at year-end. This concludes our summary of the first quarter financial results. Now for an update on Atea's business strategy and outlook, I'll hand the podium back over to Steinar.
Thank you, Robert. On the Q4 presentation, I gave you a sneak peek on the 2021 plan. It's a strategy for lifting value, not only for our customers and our partners but of course, also for Atea. We are early in development, doesn't mean we started a couple of months ago, but we're still early in the development on some of these areas. But we've gotten extremely good feedback both from employees, customers and maybe especially our partners, who need partners that take the steps in that transformation. The strategy consists through three dimensions: starting on the bottom; hybrid platforms, as I have said many times and as more and more of our partners also communicate, the world will become hybrid, or for many it is already hybrid. It's a world of many compute platforms, it's a complex backbone to something that for the user will become easier and more transparent, it's a hybrid world. For many this is just a promise today and the work is all in front of us. Security will become a hugely demanding factor in such a platform and that is also the fastest-growing part for our consultancy business; secondly, the digital workplace and I'll come back to that later or in later presentations but it's all about the user interface or the users world, which, of course, have become digital. But -- from analog processes made digital instead of complete world drawn up as digital. And then lastly, information management and this is probably where most of the noise or discussions are going on. We're all talking about digitalization and in Norway, we actually got a Minister in the government that has this bold responsibility solely for the next 4 years. It is also the area, where data and data protection and data privacy will be discussed in many years to come. Probably one of the most ethical, difficult questions that our time has to deal with. AI is a huge part of this and who's going to train those machines to take decisions on our behalf? Are they going to be open? Are they going to be non-judgeable for the future or are we going to know who trained them? This is the area where we bought Sherpa in September in Norway, last year. And I'm so happy to see the development, I actually had a review with them just 3 days ago -- or 2 days ago, and they're doing really, really well and it has proven to be easier for us to recruit people in this area not only in Norway because of the environment that the great people from Sherpa is creating around information management. In the market Atea has 3 roles. So there are 3 areas of products or technology or solutions that we had 3 roles in the market. We're investing in all 3 of them. This is not a case of moving from one to another or from left to right or whatever. We have 3 roles and we see that we will have that for many, many years. Of course, the first one being a reseller is where we come from, it's where the company was started more than 50 years ago. For us going forward, we have one set of competitors in this area that we don't have in the other, this is all about efficiency automation. This is making customer's journey from looking at something to getting it easier and more efficient, faster and more reliable. This is where we are -- have invested in a new central warehouse in southern Sweden, which I think I've communicated earlier, will open in Q3. And so I'm so happy that if carriers allow me, I'll be there on Monday to actually start the opening more than a quarter earlier than what we have earlier predicted. So we're so much looking forward to taking the benefits of the new central warehouse, it's one big but it's only one step on the way to making Atea a superior reseller in Europe. The second area is all about consultancy, it's about integrating the technology with the user's needs, it's to creating the value. This is where we compete with consultancy houses or companies. And we come from the technology side, so we will never be a business consultant but we will be hopefully the best to integrate the technology we know so well from the reseller arena. This is where we've seen difficultly in hiring people, but it seems that Atea and the brand and the position and the projects that we are getting under the great partners that we work with are giving us a little bit easier ride than what we had earlier predicted in the hiring process. And then thirdly, it's all about delivering whatever the customer needs as a service instead of on-premise. Of course, this is where the hybrid thought or vision is the most visible in our roles. And it's so interesting to see how everything I've gone from the public cloud is the destination for everybody to everybody now communicating a hybrid message. Cisco is doing so, HPE or Enterprise is doing so, IBM is doing so, and I have people in the U.S. right now and they sent me a lot of message last night, how Dell, in their Dell Partner world in Las Vegas just now together with Microsoft and VMware, is launching their hybrid message. The world will truly be a hybrid place. In this development as we've said many times, we believe that we are extremely well positioned for several reasons. Here are 4 of them: The market leadership, the market position that we have. Even though we didn't scale in Q1, don't miss this, we are scalable. And that is the demand both from customers and partners going forward, either you grow or you go, that's just how it is. We also have the local presence that no other competitor had in the Nordic and Baltic region, and this is important for several reasons, one of them being the fact that we're consisting of SMB companies, they are around in the geography. But maybe even more important, we are geography of countries or society of public entities, municipalities and so on, which really are around in the geography, so the local presence are important for several reasons. We are having a competitive advantage in this area. The system integrator, which we like to say the technology integrator role is easy for us to take, not as easy for others. We worked with technology for years and years and not only processes; and then wait, the shared services, the fourth area, where we can scale on common shared services much more than the people we compete with. Remember, our competitors are local companies, it's not the big international IT companies, they are our partners, they are our friends. We scale locally, for them, with them, in competition with people who had 2 or 3 offices in 1 country or maybe a little bit more in 2 or 3 countries. And so this is where the central warehouse will play a huge role in months and years to come. So to summarize the quarter, a very strong revenue. Actually it's the second-biggest revenue quarter, we've ever had and remember Q4 are way biggest for us every year, and so having that in Q1 is pretty amazing. We're not all the way satisfied with EBIT but we're not at all worried, we are underway. We're a little behind on our plan to reach the 2017 numbers in Denmark but not that far, so don't get scared. A very strong cash position and new facilities that have taken a lot of the historical difficulties out of that equation. And a depth level, which we are very confident of, and gives us all the possibilities for further expansion going forward. So that concludes the Q1 presentation. And we are confident, and as 1 guy have said before me, we will be back. But before we close the whole session, we will have live questions, and so Robert will join me on stage as we take questions from the audience. So we have to use the mic here for the round of the world, so [ Christen ] will give you that.
This is Martin Stenshall from Danske. First a question relating to the performance in Denmark. You mentioned that there is some movement from private clients, which is encouraging but would you be able to put any comments on the, let's say, revenue mix, private/public in Denmark and how that has developed, let's say, over the past year? And any of the, let's say, evidence that suggest that the private business is actually picking up?
Sure, first of all the mix in Denmark was a little surprising to us, when we went into this quarter. We thought enterprise would be -- sorry, enterprise being large private, would have been a little lower and public a little higher. There were a couple of huge software deals, huge meaning NOK 100 million and NOK 150 million for the quarter that didn't happen, which would be public and then we had a better-than-expected win rate on the enterprise side. So actually we were very close to delivering a very promising quarter in Denmark in Q1, but it didn't as it -- as happens sometimes when you're not in the flow, it didn't happen all the way in this quarter but the mix tilted more towards private in this quarter than we have seen for, I think, more than a year and we have won contracts in the -- on the private side both winning back 2 or 3 customers that I can't mention by name because we haven't cleared that with them but also -- which is more general, winning the customer back but also winning, I think, 7 or 8 managed-service contracts with private companies in Denmark, where we're going to deliver Infrastructure-as-a-Service, so promising sign on the private side, a little disappointing that we didn't do as well on the public side. I should also say that we just did a customer satisfaction survey, which, again, I won't go out publicly, we need to inform the employees before we do that, we just did it just before the Easter, where the results really jumped in our favor. So promising signs and didn't deliver all the way in this quarter.
Would you be able to put in the comments or views on when you expect that sort of 12 months rolling EBIT to bottom out in Denmark? Should we expect that?
Now.
Okay. So any comments then on, let's say, EBIT in Denmark for '19 compared to '18, '17? Do you have any comments on what you expect?
Well, I should be careful here, we have communicated earlier that we expect '19 to look very much like '17. We're about $10 million behind that right now, when I look at what we have delivered and what we have forecast forward.
Okay. And then onto AppXite, I just noticed that there weren't any slide on AppXite this time but I can see that the number of SIAs on AppXite is down to 39 this quarter, that's actually down from 48, are you back, this is obviously some scale down on the employee side related to AppXite?
Well, the story about AppXite and I think I commented on this and -- sorry, if remember wrongly, on the last quarterly presentation. So what we did about 1.5 years ago, is that we thought we had something that the world was ready for and it was a little early. Okay so what we did is -- but it's still a tool that everybody needs, they can get this one or they can get a competitor. We need it, so the ramp-up of use of AppXite solution in -- within Atea is coming right now. So we were actually a year early with to adoption where customers would start using this kind of a tool and again, just for the people who haven't heard it, AppXite is a company that we 100% owns that develop a solution, where you can build -- you can buy and bill anything consumption-wise. So meaning, paying for the actual use and not for buying the service or the product. And so we still believe that AppXite will be successful but we scale down the international sales and marketing arm of it and that's what you see, so what we're doing right now is keeping the developers, keeping on the development work and focusing on getting Atea to be the best showcase that AppXite can have, also because Atea needs it but AppXite needs that too.
And then onto services obviously, you're ramping up investments in the -- let's say, services segment. And will you be able to say anything about the billing rate, I think you touched upon it, Robert, and the utilization development for your consultants?
Well, first of all, this is actually city by city and country by country, so I don't have the number for you for the whole group. So it varies from country to country. And where we've had the most inflow, we have the most people, who have lower invoicing rate, so over the last 6 months maybe we've taken in too many people too fast to be able to keep a high invoicing rate but at the same time, there is a fight for talent out there, so saying no is difficult. So we think that we'll get that back in higher invoicing rate and then higher EBIT going forward. But it's so different from area to area. The measurement that we have but, let's say, I can give you, for instance, Sherpa has 89% invoicing rate. And then you take an average region in Atea have around 75%. But then again, Sherpa is 100% consultancy that the Atea person also joins into some sales work and so on and so on. So it differs a lot but when that is said, there is a -- there are under -- there are people who are not invoicing as much as they should, so there is a positive potential there.
And then obviously, there's a strategy to go within services. Could you please say anything about, let's say, how you see the split in the way you report now hardware -- software services, let's say, by the end of this year and then 3 years forward. I mean, would the split differ materially from what we see now? Since you're investing so heavily in services and then I guess, the key component in my question is should we actually see the margin expand on back of having as a more services in the mix?
If you go back 4, maybe 5 years, we thought that by now, this plate would look different than what it does. So 4 or 5 years ago, we didn't believe that hardware and software, especially hardware wouldn't grow as fast that it has the last 4 years. And I think that has surprised a lot of us, at least you. And so it hasn't really moved that much, the mix for last 3 years or 10 years ago, hardware was 80% of what we did but the last 3 years it hasn't moved that much. So because of the really strong market that we didn't see 5 years ago, we don't see that it will change much in the short term so 1 to 2 years. But what we will start seeing is that hardware and software is delivered in a different way and if that is service, then yes, the mix will start to change. But that is just basically how you invoice if you invoice it once or if you invoice it every month over 3 years. But if you look at services as more like consultancy and that type of services right now, the product is growing so fast it's hard to keep up with the services because it's a people industry, you have to get the people there. So -- but when that is said, everything we do, we do to increase the margin and we haven't changed our ambition or where we want to go with the EBIT margin.
Well, I think Q1 is a great example of that. I mean, services revenue growth of 9.4% is excellent. Our product revenue grew by 9.6%, so we don't see a big shift in the mix now with something like Q1, simply because the product revenue grew so quickly.
[ Erik ] from [ SAV ], just -- Martin covered a lot of the questions here, but just a quick one on the slight disappointment on public in Denmark. Was that kind of the same case as in Norway in Q4 that was a contract that kind of rolled over into Q2 or was that a contract you guys lost?
It was not -- there were 2. One we lost and 1 that didn't happen that hopefully will happen in this quarter. So it wasn't revenue we had that we weren't able to deliver like we had in Norway, if you look at the Norwegian numbers, they grew revenue by 28%, they actually really didn't. Because there was some Q4 revenue slipping over there but no, it wasn't exactly the same thing. But 1 is gone and 1 is still there, so to speak.
Regarding the new warehouse, should we expect any cost efficiencies when that is fully up and running?
Absolutely.
Can you please quantify it?
Yes, we have -- let's say, we have reasoned around it a couple of times earlier. And so there is a saving, so there is a pure saving in efficiency. The warehouse is as automated as it is possible to do today with the mix of products that we have. So I mean, we do everything from products that you have to have trucks to transport to small parts. So it's -- the bigger ones are difficult to automate, they are often there to be worked on for some -- one way or another but we'll get to as high automation as it's possible in a warehouse with our mix. So the savings we've said will hit with the revenue target that we have about $100 million a year for the whole group, then hopefully we will achieve better margins on the products that we take through the warehouse because we can utilize the warehouse a little better, we can buy in the different way, more bulk and stuff like that. So it gives us some possibilities also that is not pure savings but to play the market a little better than what we've been able to because right now, we're actually in 2 places in mixture, which is not efficient and we moved last -- or 2 weeks ago, we move that one of the warehouses into the new one. So we're already operating from the new one. But it hasn't been very efficient lately, as we've been growing and it hasn't given us the possibility or the flexibility of playing the market.
Okay. And then just following up on Denmark. Would you say that the OpEx space is optimized now for, let's say, what you expect out of the Danish operation this year or next year? Or should we expect some cost optimization in terms of, let's say, FTEs, I guess, it's fairly flat year-over-year.
Well, actually to be a little detailed on this because it's interesting sometimes when you run a big company, you try to predict the next 3 months, 6 months and it has been difficult. I mean, I've been very transparent on that on a personal level to judge what would be the right things to do in Denmark over the last 2 years or maybe even 3 years. So what happened last year if you go into the details, you'll see that during late 70 -- late '17 beginning of '18, we took the workforce down, so it was slowly going down over year because we weren't sure about what would happen. And then when we came out of Q1 '18, we thought we predicted that the case would be over in June. But we knew when the date was, so we had a date. And we had a very well predicted and it also fitted well with the conviction that came what would happen. And we thought that would be it, we were done with the self-cleaning, we were -- everything was okay. And then the process -- so we had too many people going into Q3 '18. Because we thought Q3 '18 where we would really give gas in Denmark because things were behind us. Well, that didn't happen, Q3 was very difficult in especially public sector in Denmark and the start of Q4 was difficult and you all know this when you look at it. So we started taking down the number of people again. So right now, we're at the same level we were a year ago but it's actually gone up and down. Are we at the max or have we maximized or have we gotten to exactly where we want to be? Right now, yes. From what we see in pipe, in forecast, in orders, in contracts, we think that we are at the level we should be at or meaning we shouldn't go lower. If that doesn't over the next week to month prove to be right then of course, we have to do something to justify that but it's also an investment in how quickly you can come back to the force, where -- that we have in the other countries. When we predict '19 very close to '17, a little behind right now. That is not where we want to be, '17 is not the level that we're going to be on in Denmark, I mean, this is a momentum, it's just this year. And so we don't want to take it too far down because it's costly and it's costly to get it back, so -- but that is the judgment that we have to do every month and we try to do that, we missed that a year ago because of what happened after the conviction. We think we're at the right level. I'm sorry for the long answer but this is important for you to understand, it's not that we can't do more but we think we're hurting more than what we're getting from that.Okay. To all the people out there that are not being able to send us questions. We are working on doing something with that, so hopefully maybe next time or the time after, we will give the opportunity for people out all around the world to also join in on the questioning. If there's no more questions I thank you for coming and for watching and listening and we'll see you in 3 months, thank you.