© 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 Q4 presentation of the Atea Group here in Oslo. And a special welcome to all our friends around the world that we haven't seen in a year. I hope to see you very, very soon. A very special quarter and a very special year is behind us. It's been a year that we couldn't have dreamt of when I was presenting the Q4 results of 2019. But it's been a really good year when we now look backwards on the results. And the main reason for this is the very unique culture and structure that Atea is built on and for over many, many years. I'm very proud of what we did in Q4, but also, of course, in the full 2020. The revenue came in at NOK 11.7 billion, a growth of almost 15%. EBIT at NOK 387 million a growth of almost 30%. And again, as we've guided on, we're hoping to grow revenue faster than the market, and the EBIT, 2 to 3x the revenue. This quarter certainly proves that, that is an equation we can achieve. Operating cash flow came in at NOK 1.6 billion and net cash position at the end of the year of more than NOK 1 billion. All in all, the best quarter in the history of the company. But as always, I'll leave it to Robert to give you all the good news.
Thank you, Steinar. I'd like to start by reviewing our income statement for Q4 with a focus on the key factors that drove our strong revenue and profit growth during the quarter. Atea's revenue in the fourth quarter was NOK 11.7 billion, up 14.4% from last year. About 77% of Atea's revenue is in foreign currencies. Therefore, the decline in the value of the Norwegian kroner during the last year had a positive impact of 6.6% on revenue growth. Atea's revenue grew across all business lines, with exceptionally high growth in sales of software, which increased by 28.2% from last year. Otherwise, sales of hardware increased by 8.5% from last year, and sales of services increased by 10.8%. Gross margin fell to 20% compared with 21% last year due to a shift in the revenue mix toward lower-margin software. Total operating expense grew by 4.5% from last year. Adjusting for currency movements, operating expenses were lower than last year as management reduced staff and maintained strict cost controls. At the end of 2020, Atea had 248 fewer full-time employees compared with the start of the year. During the course of 2020, Atea implemented cost-efficiency programs in areas of its business which were seen as having low growth potential or in areas which could be reorganized to operate more efficiently. Based on strong growth in revenue and tight control of operating expense, Atea's EBIT increased by 27.1% to NOK 387 million and Atea's net profit after tax increased by 30.6% to NOK 284 million. We'll now take a closer look at revenue and profit development across the countries in which we operate. Atea had higher revenue and EBIT in all countries during the fourth quarter. In Norway, EBIT grew by 6% from last year to NOK 117 million. In Sweden, EBIT grew by 2.3% to SEK 150 million. EBIT improvement in Norway and Sweden was based on higher sales of software and lower operating expenses compared with last year. In Denmark, the business recovery continued to gain momentum, with EBIT nearly doubling to DKK 32 million. Atea Denmark reported solid revenue growth across all lines of business, while operating costs fell from last year due to fewer employees. In Finland, EBIT grew by 33.7% to a record high EUR 3.5 million. The increased EBIT was driven by higher margin on product sales and relatively low growth in operating costs. In the Baltics, EBIT grew by 22.2% to a record-high EUR 2.2 million. EBIT was driven by rapid growth of sales of hardware and flat operating expenses compared with last year. Atea Group functions, which include shared services and group costs, reported strong efficiency gains in Q4 2020. EBIT was a net operating profit of NOK 4 million compared with a net operating cost of NOK 9 million last year. Most of the improved result came from the Atea Logistics center in Växjö, Sweden. In sum, Atea's EBIT improved by NOK 83 million in the fourth quarter, with all countries and group functions, contributing to higher profitability. Now for a word on our cash flow and balance sheet. Atea's cash flow from operations was NOK 1.6 billion in Q4. Cash flow was driven by strong cash earnings and a reduction in working capital during the quarter. For the full year 2020, cash flow from operations was NOK 1.4 billion. Cash flow from operations for the full year 2020 was negatively impacted by a reduction in the sale of receivables. As part of its overall financing structure, Atea's entered a securitization agreement on selected accounts receivable with its primary bank. Atea sold fewer accounts receivable into the securitization program in 2020 than it did in 2019 due to lower financing requirements during the year. Adjusted for the sale of receivables, cash flow from operations was a record-high NOK 2.3 billion in the full year 2020. Cash flow during 2020 was driven by solid earnings growth and lower working capital requirements compared with last year. Moving on to our cash balance. Atea had a positive cash position of NOK 1.1 billion at the end of Q4 as defined by Atea's loan covenants. This corresponds to a net debt EBITDA ratio of negative 0.7. 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 3.7 billion at the end of Q4. Atea's net debt balance was, therefore, NOK 4.8 billion less than the maximum allowed by its loan covenants at the end of Q4. The company has significant additional debt capacity before its debt covenants would be reached. I'll now hand the podium back over to Steinar to give an update on Atea's full year figures, outlook and priorities for 2021.
Thank you, Robert. So truly a very, very good quarter. But it was also a good year, as mentioned earlier, a revenue that almost reached NOK 40 billion. And as the guy who has been around this company for a while, that number is actually crazy. It was a growth of almost 8%. And I should mention that we leave 2020 with the biggest backlog ever as both sales were up, but also we had some delivery problems because of certain components to some of the products that we deliver is in short supply. EBIT, as Robert mentioned, NOK 854 million, up almost 15%. And again, about 2% -- 2x the growth in revenue. The operating cash flow in 2020 as a whole of NOK 1.4 billion, which gives us the opportunity to pay out a dividend of NOK 5 in 2 installments that I'll get back to in a second. If we look at 2020, more in a quarterly by quarterly view just because it's been such a special year, we started the year a little slow. And we also had a restructuring in Denmark in Q1 of NOK 71 million. So Q1 was a difficult quarter in many ways. But it was a needed quarter for us to kick start the rest of the company's history. Q2 was also special because COVID had hit us and there are some special cost-cutting in Q2 which will not occur in Q2 2021. Second half, though, Q3 and Q4 are very normal quarters. And we have no people on furlough as we leave 2020. Most of the cash programs from the vendors have also ended. So we feel Q4 was a very normal if you can use such a word in these times. But you have to remember these quarterly differences when you look at 2021 and analyze and compare. So let me spend 2 slides in trying to put this in a longer context and looking forward. But let me first look back 5 years because it is important when you judge and you look at and you analyze the company, to see that outside Denmark, the last 5 years, the average growth every year has been almost 9%. And you see that on this slide on the middle portion.The EBIT in the countries outside Denmark, on average, every year of almost 21%. So for the last 5 years, we have reached what we've said that revenue will grow faster than the market and EBIT will grow 2 to 3x the speed of the revenue. Of course, we have had, and we still have some issues in Denmark. We believe and we see in our business that we've turned a corner. But if you look at 2015, where Denmark had the same EBIT, actually a little higher if you would adjust for currency, but more or less the same EBIT as Norway. And in 2020, the difference is NOK 400 million. So clearly, the biggest challenge we have had in 2020 and will have in a couple of years to come, will be to bring Denmark up to the level of Norway. And I very often get asked, is that possible? Or where is our ambition? Of course, it's possible. And of course, it's our ambition to restore the dominance in Denmark as we had 5 years ago. So if you look at the next period, our ambition is to do the same thing outside Denmark that we have the last 5 years and to restore Denmark to the same level as Norway. And the areas that we will focus on specifically in 2021 and also, of course, in the years to come are grouped here in 4 different areas. I'm not going to go into each one of them in details, but just say that product sales is extremely important to us. We are an infrastructure company. You cannot deliver infrastructure without products. In many ways, it's not that important to us if this is hardware or software. Some of the hardware components or intelligence will be delivered as software going forward. And this trend has already started. But as IDC says, in the Nordics, in 2021, hardware will grow 15% and software, 8%. And we, of course, plan to take market share. On the services area and the sales of services, we divide this clearly into 2 areas. The consultancy and the hour-by-hour and project sales and the managed services. The managed services is a hybrid setup. It uses public cloud. It uses private cloud and it uses traditional concepts. For us, hybrid cloud grew or doubled in 2020. Hybrid cloud doubled. We are clearly taking market share in this area. On the consultant side, we're still building competencies and taking more and more on to be able to do analytics, security, blockchain and all these new technologies, AI, and of course, that is a task that takes time, and we are further ahead in certain countries than others. When it comes to the organization, we've clearly proven during 2020 that we are able to adapt to different environments. And adapt and transform is something we've had -- we'll have to do in the years to come, to be less people in certain areas and a lot more in other areas, to adapt to change in the market, but also how the delivery and the technology changes. The cash position will also again give us a very free possibility of acquisition, something that hasn't really been needed because we've had other things to focus on over the last 3 to 4 years, but we will be focusing on going forward, and there are opportunities, both inside and outside our geography. Denmark, as I've mentioned, is clearly where we need to be the most aggressive. We have adapted the organization. We have adapted the cost level. Now it's all about growth. And that is why 10% growth in Q4 and hopefully, the same in Q1, is so satisfying and so important to our success. I want to spend just 60 seconds on the dividend. In October, after -- on our Q3 presentation, we informed that the dividend in 2020 for -- based on 2019 would be NOK 5, paid out in November. A very special arrangement for that year for us since we normally have 2 installments. In 2021, based on the 2020 results and the new dividend policy, the Board will propose to the general assembly that we pay another NOK 5, which is about 93% of net cash -- net profit, sorry. And it will be paid again in 2 installments, so May and November. I hope you are satisfied with the year. I know one person certainly is, so here, I give you the Chairman, Mr. Ib Kunoe.
Dear colleagues, dear fellow shareholders and all who are watching this online, as you know, it's a tradition that I, at the presentation of Q4 and the full year, show up and give you some comments on the major events of last year. When I addressed you exactly a year ago, I was full of bounce and ready to attack 2020 with formidable results. A month later, COVID hit and we were fully occupied making plans for what we should do. If the revenue fell 30%, 20% or only 10%, it's always important to have plans when you try to foresee what you're up against. But when you engage the problem and the battle starts, you have to play the situation with what you have got. We went into unknown territory where nobody had been before. Stay home, work-from-home, communicate with your surroundings, online or go back to work, at least some of you in some of the 7 countries we work in. All in all, something of a chaotic situation to start with. We had to take decision on whether to take local support packages or not, be in one or the other government arrangement of course, different in each of the 7 countries where we operate and so on and so on. It was quite a situation for us. To our delight, we managed to keep up the business, grow revenue and make our targets. Actually, 2020 ended as the best year in our history as you have heard from Steinar. A very important thing was that the Danish company made the plan progress and finished the year and Q4 better than planned with a growth of 9% in revenue and an EBIT growth of 91%. On top of that, the Danish company had a very strong backlog going out of 2020 and into 2021, with more than 200% higher than last year. So things are clearly moving in the right direction in Denmark. We are now 2 years into our new strategy, and we are mentally checking if we are on the right track. Our old strategy was simpler and easier to handle in some areas. We could even earn more with the old strategy in the short run, but the strategy was not made for the future. We want to have the right strategy in order to be able to serve our customers' needs better. In Atea, we are working with the big enterprise companies in the public sector as well as in the private sector. And our organization and our deliveries should always take the point of the need of our customers. IT and infrastructure has become a central part of their business. It has become complex and demanding, so we must support them even better. In the short run, it will make things a little complex for us, but we are sure we have made the right choice. All we must do: be focused on the future demands of our customers if we want to stay on the top and keep our position as the clear market leader in the infrastructure business in the Nordic. At the general assembly in April 2020, everything was still very uncertain. And we decided to postpone the decision of how much dividend we could or were allowed to pay out. The general assembly gave the Board the right to decide how much we should pay out in November. The Board decided under the circumstances to pay NOK 5 per share and change our dividend policy so that we, under the new policy, will and can pay between 70% and 100% of net profit. That also means that the Board will recommend to the general assembly in April that we again pay NOK 5 per share in the usual 2 installments. So all in all, we are ready to attack 2021 and although we are still in COVID mode, we have learned to cope with the situation, and we are sure that we are the place to be for our employees, for our customers and for our shareholders. Finally, I want to thank all our 7,500 managers and employees for a fantastic job done under very difficult circumstances. You deserve our gratitude. So keep up the good spirit and your dedicated work and stay safe and healthy. All shareholders can be very satisfied with your achievements. You can be proud of yourself and your colleagues. We'll then meet again on April 29, 08:00 for the Q1 presentation and the general assembly. Thank you.
Thank you, Ib, for generous words and good information. So this concludes the presentation. And we will take questions both online and from too guests in the audience if there are any. So I think we'll go to the online question first.
Yes. Thank you, Steinar and Robert, for that presentation. Our first question comes from Christopher Wang Bjørnsen at DNB markets. He's got 3 questions actually. Software grew 12% in constant currency during 2020. Should we expect this to decelerate a bit in 2021?
We -- first of all, IDC says that the growth will be -- or be a little lower in 2021. We believe that we will be close to the same growth because there is still some consolidation. But the consolidation is coming to its end. There is clear market leaders, 2 of them in this region. So it'll be tough to get to the same growth, but that's the target we have.
Second question. Denmark seems to be back to normal now with some massive contracts already been announced so far. Looking ahead into 2021, what should we expect and profitability in all quarters of the year for Denmark?
Our internal target is that we have lost money for the last time in any quarter in Denmark. It'll be tough in the 2 first quarters. And -- but we believe, if you look at '20 -- or comparison between 2020 and 2021, that we'll have extreme improvement in first half of 2021. But we don't plan to lose money anymore, no.
Good. Third question is the cash flow seems to be very strong. So Denmark is fixed. Does this mean that you now have more time and capital resources to pursue significant mergers and acquisitions in 2021 and potentially also outside of our current geographies?
We certainly have the time, and we certainly have the means. So we will be more aggressively looking. Then we'll see how far we'll get during 2021.
All right. Fine. Another question here. So I'll just read out that. Steinar, you have been out in the industry press and stated that you see now the reason why traditional IT services and consulting companies should take most of the business on consultancy and advisory side. With this as a backdrop, what kind of split in product sales and consultancy do you envision would Atea have in the longer term?
So I think the person refers to an interview I did in a European computer press a week ago, I think, or maybe it was 2, where I said that one of the biggest opportunities for traditional resellers who are still very much focused on products is to develop services and specifically consultancy services and that there shouldn't be a reason for big traditional resellers to not capture that market and give it away to smaller consultancy firms. And I truly believe that. And in Atea, we have developed maybe the biggest consultancy organization in the Nordics over the last 10 years. It is a little complex. And it's a little bit tough to have several go-to-market model and revenue streams in the same house. But I believe it's the way to go to satisfy the customers. So certainly, I believe that we will further that development. I think some smaller consultant house will meet challenges from companies like Atea around in Europe. So far, our revenue comes from 50% hardware, 25% software and 25% services, approximately. And we believe that the demand for hardware will be strong going forward. And so it's going to be a challenge to outgrow the growth in hardware so that the mix will change. But as said, software will develop a little faster than the hardware, probably if you look at the next 3 years. And services is growing faster on the back of software than it is on hardware. So that gives the direction of higher software and higher services part of the business than what we have today.
Very good. I can see by the questions there's more interest in hardware here. So from Petter Kongslie at Sparebank 1, he's got 2 questions here. Can you comment on what type of M&A targets you might be looking at? Is the first question. And the second question is, what are driving that 15% hardware growth in 2021 that IDC is talking about?
Okay. So let me try to explain what IDC are thinking about first. So what I think is interesting is that both what we see and what top management with our biggest vendors, I was on a call with top management in Dell and with HP and Cisco just over the last couple of weeks. And they are supporting what IDC is saying and what we're seeing. And it's really the following 3 things: first, companies in general, have a technology debt going into 2020, meaning they've not fully utilized in their organization, the technology and the knowledge, which is available to them. So there is a debt. There is a lag. That lag has increased during 2020 because all of us have focused on coping with COVID. Yes, there has been some major investments, but they've been very short focus, short-term focused and on very specific areas like home schooling, home work. So the debt have increased and that debt will be driven down over the next couple of years, and that is what drives the hardware growth and the infrastructure growth, I should say, in general. So what we see right now is the backlog we have and the discussions we have with customers and the renewal of all the frame agreements that we have informed about over the last month is people are going back to looking at what I would say, more traditional purchasing to strengthen and to secure their infrastructure. And not only portable PCs to send their people to the home office. So there's a lag, and there is a catch up effect. And they're not the same, but they will work in the same direction. This is what IDC says. This is what the people in the industry says, and it's what we believe that we're seeing when we look at the backlog, the pipe and the discussions we have. When it comes to the acquisition, we know that when we go out and say, we have the means and the time that we will get questions about what type of companies. We respect that, and we'll get back to the answer.
Right. A further follow-up question, of course, to dig a little deeper into that. First to comment. Obviously, it's not just Ib that's very happy today with the results. But a further detailed question on M&A, with regards to your comment on products, actually. Is there some specific M&A that you're looking for? Or just generally looking?
Well, again, we're not going to go into the specifics, but we are an infrastructure company. And that's where we want to strengthen the capabilities. So as we've said over a couple of years, consultancy companies with up to 100 people that have knowledge in analytics, AI, security and hybrid cloud is where we're looking. And then we'll see if there's anything interesting outside our geography.
And just a follow-up question in relation to acquisition of consultancy companies. Do -- are you concerned at any potential loss of the talent in those companies that could be acquired with the tools of new people?
That is the concern. That is absolutely the concern when you buy a company where the sole value is with the people. So when we do these acquisitions, we've been successful historically because we take certain measures to keep the people, but we will lose some people. I mean, we have between 5% and 12% turnover of our own people in a normal year. So it would be strange if we had a lower turnover with the companies that we bought and didn't know as well in the beginning. So there will be some people that choose to go somewhere else. And that's why it's so important to immediately when you acquire that type of people, that you start recruiting. So that you can have that transfer of knowledge while the people are still working with us. But in general, we use a lot of tools to get as many people as possible and stay and if the gut feeling doesn't tell us, and the due diligence we do doesn't tell us that, that is achievable with a certain target, we will walk away.
Thank you. So in the interests of time, we're going to stop the questions. And certainly, if anybody has some more questions, send them over, and Steinar and Robert will get back to you very shortly. Thank you very much, Steinar, Robert.
Thank you, and have a safe quarter.