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Good morning. Welcome to the Atea Group Q2 presentation. Before we dive into the topics, I want to say to all our friends around the world that we hope that you are healthy and stay safe. And we are really looking forward to see you in person. Again, it's been too much of video conference for once. A week ago, we sent a positive profit warning. And in it, we had a statement that said Atea is in a very strong position. This is not only because of the market share of more than 20% in the Nordic and Baltic; it's not only because of the depth and width of our knowledge base; it's not only because of the geographic position of being in the Nordics and Baltics; and it's not only because of the customer base, which is primarily public. It's not even because only the very strong vendor relationships that we have and have had for tens of years; not even only because of the very strong financial position the company is in. But maybe even more, it is because of the strong company culture, a culture that gives us the ability to act decisive when needed. This certainly was a strange quarter, but a good quarter. And stay tuned for more reasons in the second part of my presentation for why I believe we are in a very good place at a time. So to the numbers. It's a record-breaking quarter, the best Q2 we've ever had. The revenue came in at NOK 10.6 billion and the EBIT at NOK 220 million, up more than 50%. The cash flow from operations came in on the north side of NOK 1 billion, which gave us a financial position of NOK 459 million. Again, a very strong quarter. But I'll leave you to Robert, as usual, to give you all the good news.
Thank you, Steinar. I'd like to start by reviewing our income statement for Q2 with a focus on the key factors that have driven our exceptionally high profit growth this quarter. Atea's revenue in Q2 was NOK 10.6 billion, up 11.7% from last year. Atea earns about 75% to 80% of its revenue in foreign currencies, so the decline in the value of the Norwegian krone during the past year positively impacted revenue growth by 9.7%. Atea had very strong growth in software sales during the quarter. Total software revenue increased by 20.7% from last year. Atea continued to grow its business within traditional software licensing, and in addition, reported 50% revenue growth and sales of cloud solutions. With the shift in the revenue mix towards software revenue, Atea's gross margin fell to 19.5% compared to 20.1% last year. However, total gross profit still grew to NOK 2.1 billion, up 8.5% from last year. Atea Logistics, the company's distribution center serving the entire Nordic region, contributed significantly to the improvement in gross profit. Last year, Atea opened a new state-of-the-art distribution center in Växjö, Sweden with increased warehousing capacity and automation. Atea's gross profit from its distribution center increased by NOK 20 million from last year without higher cost of operations. Total operating expense grew by 4.9% from last year. Adjusting for currency movements, operating expenses were lower than last year. Atea had on average about 250 full-time equivalent employees on furlough programs during Q2 and operated with about 3% fewer full-time employees compared with last year. Atea also had lower travel and marketing expenses compared with last year as customer and internal meetings took place through digital communications at significantly lower cost. With solid growth in revenue, increased profit from its logistics center, fewer employees and tight control of operating expenses, Atea's EBIT increased by 51.4% to NOK 220 million. We'll now take a closer look at revenue and profit development across the countries in which we operate. Atea had record high EBIT in Norway, Finland and the Baltics for the second quarter and greatly improved results in Denmark. In Norway, EBIT grew by 13.2% from last year to NOK 80 million. EBIT growth was driven by increased sales of software and consulting services and lower operating costs compared with last year. In Sweden, EBIT fell by 13.8% to SEK 112 million. The EBIT decline was due to lower demand for consultants and increased depreciation costs on facility right-of-use assets. In Finland, EBIT grew by 40.3% to EUR 1.8 million. EBIT growth was driven primarily by higher sales of services, which were up 15.3% from last year. In the Baltics, EBIT grew by 64.3% to EUR 1.1 million. EBIT growth was driven by higher sales of managed cloud solutions and lower operating expenses compared with last year. Atea Group Functions, which includes shared services and group costs, reported a very strong improvement in profitability in Q2 2020. EBIT grew to an operating profit of NOK 7 million, up from an operating cost of NOK 24 million last year. Most of this improvement came from Atea Logistics, but Atea also had significantly improved productivity from its other shared functions, including group IT, service desk and its nearshoring operations in Riga. In total, Atea's business outside of Denmark reported an EBIT which was NOK 50 million or 27% higher than last year. I've separated out Atea Denmark as our business in Denmark has been in a difficult turnaround situation for the last couple of years and faces different business challenges and profit trends for that reason. In Denmark, Atea had strong profit improvement in its first full quarter under new management. Atea's EBIT improved from an operating loss of DKK 30 million last year to a loss of DKK 8 million in Q2 2020. Q2 is seasonally the most difficult quarter in Denmark, and Atea's EBIT this year is the best performance in a second quarter since 2014. EBIT improved based on a very close focus on cost reduction. Total headcount was 135 full-time employees lower than last year, a reduction of 9.3%. A majority of employees in Denmark also accepted voluntary salary reductions, which lasted through the second quarter. Finally, all travel, marketing and facility costs were significantly below last year's level. Based on record performance in Norway, Finland and the Baltics, greater efficiency and profitability in shared services and a major cost reduction in Denmark, EBIT increased by NOK 75 million from last year. Before we leave the business unit P&L, I wanted to compare Atea's performance across countries in Q2 2020 with its longer-term trend. Outside of Denmark, Atea has had very strong EBIT growth in all markets over the last several years, with EBIT growing at an average of 21.8% since 2015. Nearly all of this revenue and profit growth has been organic. Atea's poor performance in Q2 2020 outside of Denmark represents a return to the EBIT growth, which we've seen for the last several years, but which began to slow in 2019. In Denmark, Atea's performance in Q2 2020 represents a major turnaround from the downward trend, which the business has faced for several years. The EBIT improvement was accomplished through cost reduction. However, our focus continues to be how we can again leverage our market leadership position in Denmark to win new business and return to growth, particularly within services where Atea has lost business during the last few years. Atea Denmark has made significant progress in winning new services contracts during the last few months, which will contribute to revenue during the remainder of the year. Finally, a word on our cash flow and balance sheet. Atea's operating cash flow before changes in working capital was an inflow of NOK 326 million compared with an inflow of NOK 267 million last year. The increase was driven by higher operating profit compared with last year. Working capital movements, excluding the sale of receivables, had a positive impact of NOK 1.2 billion in Q2 2020 compared with a negative impact of NOK 457 million last year. Much of the improvement in working capital was driven by longer payment terms from Atea's vendors. Many IT vendors have extended payment terms to Atea and other large resellers to provide short-term support during the COVID-19 pandemic. These payment terms were extended without cost, but are scheduled to return to normal during the second half of 2020. As payment terms normalize, this will have a negative impact on cash flow from operations during Q3 and Q4. Adjusted for working capital movements, but before the sale of receivables, Atea's cash flow from operations was an inflow of NOK 1.5 billion compared with an outflow of NOK 190 million last year. Atea has entered a securitization agreement on selected accounts receivables with its primary bank as part of its overall financing structure. The securitization agreement allows Atea to accelerate its cash conversion by selling accounts receivables throughout the year. This form of financing is highly flexible and low-cost for Atea due to the credit quality of its customer base. At the end of Q2, Atea sold a lower volume of accounts receivables to finance its operations than it had at the start of the quarter. This reduction in the volume of sold receivables during the quarter increased the working capital balance and lowered Atea's reported cash flow from operations by NOK 519 million. After the impact of the volume of sold receivables, cash flow from operations in Q2 2020 was an inflow of NOK 1.0 billion. This compares to an inflow of NOK 873 million last year. Moving on to our debt balance. Atea had a positive cash position of NOK 459 million at the end of Q2 as defined by Atea's loan covenants. This corresponds to a net debt EBITDA ratio of negative 0.3. Atea's loan covenants require the company to maintain a net debt EBITDA balance of less than 2.5, which would mean that the maximum net debt balance allowed by Atea's loan covenants was NOK 3.4 billion at the end of Q2. Atea's net debt balance was therefore NOK 3.9 billion less than the maximum of balance allowed by its loan covenants at the end of Q2. The company has significant additional debt capacity before its debt covenants would be reached. That concludes the presentation of the second quarter financial results. Now for an update on Atea's business development, I hand the podium back over to Steinar.
Thank you, Robert. Since corona definitely has not left us yet, I should add, we are still in special alert. I will repeat some of the messages that I gave on the quarterly presentation after Q1. We have set up our project, so to speak, in 4 roles: sales, cost control, balance sheet and employee safety, of course. I will not go through all of these but rather comment on a couple of issues. First, sales. It has been said the last week that this quarter probably is heavily influenced by the corona situation. And yes, of course, in the later part of March and beginning of April, we saw a surge for remote work equipment. But when we look at the final mix now that the quarter is behind us, it looks the following: on hardware, 60% of the revenue was clients; server and storage, 15%; networking, 15%; and collaboration, approximately 10%. You know what, that is exactly how it looked in Q2 2018. So you could conclude that at least the mix haven't changed because of the terrible situation we've been in. It hasn't changed because people want to work more at home, and it hasn't changed because people buy more public cloud. We sell the same mix. Yes, hardware is growing slower than software. More of the intelligence are put in software. It's a trend, but it doesn't kill the hardware and it doesn't change the mix. Secondly, I want to briefly touch on the cost control and the balance sheet. We're really, really thankful for all the help that we got from our vendors through this quarter. We have not experienced any delay or real problem on the supply chain. Of course, there will always be problems with the supply chain, which is global, but not something that are specific to the corona situation. And we feel very privileged to be prioritized in that way from all around the world, but also on the payment terms. On the cost control, we are dynamically looking at how we have to change the cost. And this is something that we will be looking at in months and quarters to come. We did not pay out our dividend in May. This doesn't mean that we've changed our dividend policy. And the Board will certainly look at how much that should be paid in November, when we close Q3. And lastly, employees working from home. We have started bringing people back. And after the summer, we hope to bring most people back to the office. On the contrary to some other people that I see and read about, we believe that Atea works best when we work together. And we work better together when we are physically close, if not all the time, at least some of the time. This is especially important in innovation, which is important for us, have been and will be increasingly more important. And lastly, I just want to give you the information that we left Q2 this year with a higher backlog than what we did last year. Now as I mentioned at the beginning, I will give you some exciting news. IT will be consumed and paid for in different ways going forward, and Atea has invested heavily in this over the last 3 to 5 years. We've probably been early -- or we know we've been early. We wanted to be early because we wanted to be ready. So let me give you some examples on this. First, about a week ago, we signed an agreement with Norsk Helsenett, or Norwegian Health Network, that has 7,000 customers in Norway in the health industry. These are, as example, dentists, nursing homes, general practitioners, drugstores, even prison health services, and of course, all the hospitals, to mention some. This deal is a 4-year contract where we operate, meaning run, but also install the solution to as many as possible of these 7,000. And together with Norsk Helsenett, we're in the same boat here. The more that we get to hook on to the network, which is a secure health net, the more money we get and the more money Norsk Helsenett gets. I call this digitalization on steroids. It certainly has changed during corona times. Another example, I gave you a sneak peek into this in our Q4 presentation, Food Trust. It has never been more important to know what you eat, the quality of the food, how it's being produced and that, that production is done in a sustainable way. This is going to be demanded, and we have taken the technology from IBM that are built on blockchain to create a network which is transparent and secure. And we have signed an agreement a couple of months ago with the Norwegian Seafood Association to provide this to their members. And the Norwegian Seafood Association have said that they will open up also for nonmembers of the organization. The most important thing with this, in this context that I'm presenting to you right now, is not the technology, but the way the members is going to pay for the use of the network. So there is a small onetime fee to be added to the network. There is a small yearly fee to stay on the network. But the most exciting thing is that the payment is really -- that they pay 100 -- between NOK 150 and NOK 200 per tonne of fish traced through the solution. Now I didn't say we're going to be paid in salmon. We're going to be paid on how much kilo of salmon or other fish has gone through. Just to put this in context, Norway exported 2.7 billion tonnes of fish last year, out of which 1.3 billion was farmed. The solution works for both. You do the math. We are working with this solution also -- in the Nordic also for other food and beverage industries, and we'll get back to an update for you later when there are more news to give. And then to AppXite. I have been very optimistic on AppXite. It has been a difficult role to get to where we are today, but I want to update you briefly on where we are. June was the first month in the history of the company, 100% daughter -- own daughter company of Atea, June was the first month where the company went breakeven. Secondly, Atea is going to cross into more than NOK 500 million invoiced -- of revenue invoiced through the AppXite platform in 2020. It's no longer a pilot. It's no longer an internal IT system. In fact, the most exciting news I have to give to you today is that AppXite and Lenovo yesterday signed a strategic 3-year deal, where Lenovo is going to use the AppXite platform for their 60,000 partners and distributors worldwide. Of course, this is a breakthrough news for AppXite, and it proves not only that we have been thinking right that this will be important going forward, but also that the quality of the product and the organization is at a worldwide level. Lastly, I want to mention that the Atea financial services arm that we started several years ago have never done better. Actually, they -- or we, together, financed approximately 10% of the revenue that we did in Q2. This gives stickiness and profitability, and hats off to all the people that have been working on this. So a very good quarter, much less influenced by corona than you would think. We are really excited about what we have accomplished in this quarter. Many exciting business development projects and initiatives are starting to take traction. Robert mentioned logistics and the new warehouse and I mentioned some sales activities and investments that we've done in business development. So I believe, certainly, that Atea is in a strong position. So in summary, NOK 10.6 billion in revenue, NOK 220 million in EBIT, NOK 151 million in net profit. That leaves us with a net financial position of NOK 459 million. Thank you. That concludes the Q2 presentation, and we'll go live for a Q&A.
Yes, we have some questions from the web. The first one is from Christoffer Bjørnsen. CapEx was down. Was this due COVID-19 delays? And should we expect it to come up again in the coming quarters?
So the cost in Q2 was down both because of corona, where we used some of the government programs, approximately NOK 30 million.
CapEx specifically last year, which is a comparable quarter that Christoffer is referring to, was at a high level because we were doing investments in the new logistics center in Växjö. So everything needs to be seen relative to the corresponding quarter last year. But it was a slower quarter when it came to that kind of investment for us. It will -- we continue our guidance of approximately 1% of total revenue, but we've been on the lower side of that.
Next question. Can you give some commentary on your dividend? While the company coped well in COVID-19 during Q2, will Atea's usage of the government support initiatives restrict Atea from paying a dividend?
The only -- well, first of all, we did the alert to this by skipping the dividend payment in May because we didn't know what the rules would be. The only place where this is an issue -- or could be an issue today is Sweden. And so we are working with that. But the -- we'll take all the factors into the equation, and we'll -- and the Board will take a decision in October of what to or if to pay. But we expect to pay dividend in November.
Okay. Next question from Christoffer. Can you please give an update on what you see for the near term? Are you afraid that peak demand in Q2 comes at the expense of the second half of the year?
We're not going to give a specific guidance for Q3, but I can comment briefly on the content of the question. As I've said and tried to explain, Q2 wasn't as much a peak from a corona situation as we -- during the quarter we thought. On the contrary, when we look into the system and see all the project that we track, it was actually pretty similar to what we thought, if you exclude the 2, 3 weeks just between Q1 and Q2. So we do not expect that we have seen a peak. On the contrary, we see a kickoff of digitalization on steroids in many other places than just home offices, government services and so on and so on. We feel very comfortable about Q3.
I'll just add. I think what Christoffer is concerned about in that question is has revenue been accelerated in Q2 at the expense of Q3, that people have been placing more volumes now at the expensive future quarters. The most factual answer we can give on that is the fact that our backlog entering Q3 is higher than it was last year. So we have a strong backlog going into the second half of the year, and that would indicate that this has not happened.
Yes. And again, we feel very comfortable about Q3.
Okay. Another question from Christoffer. How unique is the partnership of AppXite with Lenovo?
We cannot comment further on the partnership. Lenovo will come up with statements in the coming days and weeks. But it's unique in the fact that it's the only agreement they will have with a platform like AppXite.
Okay. Next question is from Henriette Trondsen from Arctic. She is asking, the margin in the Baltics was especially strong. Is this due to underlying improvements or also driven by some temporary effects?
The Baltics is voluntary and -- or have gone up and down in many years, and we are depending on the government and EU funding, as we've stated many times. And so if we have a geography that has been more influenced by corona, it would be the Baltics. But the Baltics have been stable on a higher margin than all the other geographies for many years. So we don't expect them to fall flat, but it was a little bit positively influenced in Q2.
Then I'll just add to that. What we've seen in the Baltics is that more and more and more of the mix is coming from managed cloud solutions, which has a higher operating margin than the product resale business in the Baltics. And so as that mix has happened, that's been also driving up our operating margins. At the same time, we brought down cost. We had headcount reduction from last year on the product resale side. So it's that shift in the mix which is leading to a very significant growth in the operating margin.
The data center in Vilnius was actually doubled in capacity during first half of this year. So we see, as Robert said, these services to grow and being utilized by the whole group. It's the highest-level data center that we have. So that's a trend you will see. But again, there were some special one-offs in Q2 also.
Second question from Henrietta. You state higher backlog -- order backlog for delivery in Q3 in your Q2 report. Can you give further color on what's behind this and in which countries and what segments?
In all countries, the backlog was higher than last year. And backlog comes from 2 things: either because the customer have prioritized delivery in a certain time frame, or because we get the order so late in a month or a quarter that we are not able to deliver it. And in this backlog that we have now, we certainly have both of them, but particularly, the fact that June and second part of June was so strong in order intake, which we have no chance to deliver. So that was mostly contributed to the fact that the order -- or the order intake was higher in the later part of Q2 than what we expected and what we've seen before.
Okay. Third question. We understand there has been intermittent supply chain challenges due to COVID-19 during Q2. Can you give further color on this and if this has been a risk into Q3?
We've seen very few, as I commented on. We have seen very few problems with the supply chain that have been contributed directly to COVID. There were some, especially in the beginning of the quarter, because of transportation around the world, less flights going so more difficult to get fast deliveries from, for instance, China. But it hasn't influenced the quarter very much. There is a problem in the industry, which is -- has been called the Intel problem. So there is one type of chip that is an old chip that goes into mainly cheaper PCs. That still is not resolved. It probably will be a problem as long as that chip lives. But that has nothing to do with corona. It's been with us for probably 2 years now. And as the new chips take over more and more of the products, it will be less and less of a problem.
Next question. The software revenue were especially strong. Is the market in the Nordics strong? Or have you been taking market shares? Has the strong growth continued in Q3?
The software business is not one type of business. Microsoft is dominating for us and for everybody who works in the IT infrastructure market on software. And the market has been very competitive, and so it's becoming more and more consolidated around 2 or 3 players in most geographies around the world. And that's certainly true in the Nordics. But there is also a technology reason for this. Most of the companies that had one product number for a hardware and software product have now split this into hardware and software, which gives less hardware and more software. And secondly, more and more companies are developing their IP in the software rather than the hardware just because it's easier to upgrade software through the network than running out changing boxes in many, many places. So there are several reasons why hardware and software have a different development now than what it had 5 years ago. Are we taking market share? It's difficult for us to say so soon after a quarter is closed, but it certainly is our ambition.
Denmark is gradually improving. You have initiated a cost program here with the new Managing Director to improve revenue and cost base. Can you comment on new initiatives moving forward?
We've been very dynamic on the cost in Denmark in the first half. It started out with change of several people in the management, including top management. And we had to let some colleagues go in the first week of February, I think it was. And we've had some other smaller layoffs during Q2. We will keep on balancing cost with revenue because it is our ambition to also grow ourselves out of it, but we'll be very, very dynamic on the cost going forward depending on how the revenue develops. But right now, we're on plan that was made during January with the new management. And Kathrine has done a terrific job. I'm very happy with where we are right now.
Okay. Here, we have a question from Martin Stenshall at Danske Bank. Could you please tell us a bit more about the contract with the Norwegian Seafood? Is there any contracted volumes? What would the revenue and gross profit be in 2020 and 2021?
Well, Martin, I'll certainly talk to you one-on-one on this. It's a little complicated. But there is no contracted volume, but there is a common interest, and we already have 3 customers up and running using the network. The payment term that will be more and more used not only for these type of solutions but in general, which is consumption or subscription-based, will have less of a guarantee but a higher upside. So we are very excited about what this can lead to. But we can't give any details as this is all depending on how many of the fishers and the farmers we can get to trace their fish and how big a portion of their fish are being traced through the network. But I can say that the buyers of fish, and I'm not talking about the eaters of fish, but the buyers that sell it in a certain market, for instance, in the U.S., which most of these that we have on the network already export their fish to North America, they are being demanded traceable, secure information about how the fish -- the quality of the fish, the transportation of the fish but also the production and how sustainable that is. So we are optimistic that the uptake on the network will be large. And again, I gave the number or kroner per kilo. I gave how many kilos -- or tonnes, sorry, that are traced -- or potentially traceable. So again, Martin is better on Excel than I am, so I think he can do the math.
Okay. The last question is from Emil Johannessen at Kepler Cheuvreux. What is the cost savings potential from the new central warehouse in Växjö?
We have said from the beginning of that project that we're looking at NOK 100 million a year. We had approximately NOK 20 to NOK 24 million in Q2, so we're getting there. I'm not saying we're getting that every quarter going forward, but we certainly have come to a level where we are raising efficiency. And really what happened was that we both brought down cost and brought up volume. So it looks very promising. And again, thank you to everybody in Växjö and other places that worked -- have worked on this project. So that concludes the questions. So I'll just say a very, very good summer to everybody. And if there is anything, please contact Robert or me. Thank you.