Q Interim Report January - September 2015

Transcription

1 Q Interim Report January - September 2015 Atea returned to EBITDA growth in the third quarter of Sweden and the Baltics delivered excellent results, and Denmark and Norway had sequential improvement from the prior quarter. Steinar Sønsteby CEO of ATEA

2 Highlights Revenue of NOK 5,957 million, up 15.2% y-o-y EBITDA* of NOK 214 million, up 4.1% y-o-y EBITDA* margin of 3.6%, down from 4.0% last year Cash flow from operations of NOK -134 million, down from NOK -104 million last year Revenue 8,000 6,000 4,000 2, ,173 7,549 6,498 Key figures 6,842 5,957 EBITDA* Cash flow from operations 1, Q3 Q3 YTD YTD Full year Group revenue () 5,957 5,173 19,298 17,039 24,588 Gross margin (%) EBITDA () * EBITDA margin (%) * EBIT () Net profit () Earnings per share (NOK) Diluted earnings per share (NOK) Cash flow from operations () Free cash flow () ** Sep Sep Dec 2014 Net financial position () -1, Liquidity reserve () *** 758 1,298 1,628 Working capital () **** Working capital in relation to annualized revenue (%) Equity ratio (%) Number of shares 105,170, ,966, ,168,164 Diluted number of shares (YTD) 106,279, ,816, ,105,619 Number of full-time employees 6,765 6,158 6,504 * Before share-based compensation and expenses related to acquisitions ** Defined as cash flow from operations, less capital expenditures. Capital expenditures include assets acquired through cash purchases and through financial leasing agreements *** Limited by a bond covenant ratio of 2.5x EBITDA (net debt/last twelve months pro forma EBITDA) **** Non-interest-bearing current assets less non-interest-bearing current liabilities 2

3 Financial review Q Group Atea achieved rapid growth in revenue during the third quarter of 2015, with significantly improved sales across all three business areas. EBITDA* grew at a slower rate, due to higher operating expenses. Group revenue was up 15.2% (up 8.6% in constant currency) from NOK 5,173 million in Q to NOK 5,957 million in Q Hardware revenue was up 11.3%, software revenue was up 27.0% and services revenue was up 20.2%. Currency effects had a positive impact of 6.6% in Q On a pro forma basis**, revenue growth was 4.1% in constant currency. The increase in hardware revenue was driven by a broad range of products, including clients, datacenter and communication solutions. The increase in software revenue was driven by large license deals in Norway and Sweden. The increase in services revenue was based on growth in contracted services (service contracts with a term of 1+ years), which in Q3 constituted over 40% of total services revenue. EBITDA* in Q increased by 4.1% to NOK 214 million, from NOK 205 million in Q The improvement in profitability reflects revenue growth within all three business areas. The EBITDA* margin ended at 3.6%, down from 4.0% last year reflecting higher operating expenses. EBIT was down from NOK 117 million in Q to NOK 106 million in Q due to increased depreciation costs. Net financial items represented an expense of NOK 22 million, compared with an expense of NOK 16 million last year. Profit before tax was NOK 84 million, compared with NOK 101 million last year. Income tax expense was NOK 16 million, compared with NOK 13 million last year (see Note 5). Net profit after tax fell to NOK 69 million, compared with NOK 88 million last year. Hardware revenue and growth 5,000 4, % 4, % +11.3% +17.7% 3,500 3,000 2,500 4,468 2,000 3,908 3,695 3,283 3,568 1,500 3,031 3,817 3,430 1, Q4 Q1 Q2 Q3 Comparable Quarter Latest Quarter 2,000 Software revenue and growth +8.2% 1, % 1, % 1,400 1,200 1,000 1, % 800 1,729 1,553 1,638 1,497 1, Q4 Q1 Q2 Q3 Comparable Quarter Latest Quarter Services revenue and growth 1, % +14.8% 1, % +20.2% 1,200 1, ,381 1,444 1,254 1,307 1,403 1,222 1, , Q4 Q1 Q2 Q3 Comparable Quarter Latest Quarter * Before share-based compensation and expenses related to acquisitions ** Pro forma revenue growth includes revenue from companies acquired during 2014 and 2015 in both the current and prior full year 3

4 Norway * Atea Norway increased its revenue in Q3 2015, but had lower profitability due to a decline in gross margins and a higher cost level compared with last year. Revenue growth was driven by higher sales across all three business areas, as well as by the acquisition of two companies during Revenue in Q was NOK 1,689 million, up 11.5% compared with Q Hardware revenue was up 7.5%, software revenue was up 28.6%, and services revenue was up 14.8%. On a pro forma basis**, revenue was up 7.5% (adjusted for the acquisitions of Datatech in Q and Imento in Q4 2014). Hardware revenue growth was primarily driven by increased sales of PC equipment and other client devices. The increase in software revenue was driven by large deals within client related software. Growth in services revenue was driven by higher sales of contracted services, such as datacenter outsourcing agreements, as well as an increase in the number of consultants. Due to lower gross margin and higher operating expenses, EBITDA* was NOK 49 million in Q3 2015, down from NOK 57 million last year. EBITDA* margin ended at 2.9%, down from 3.8% last year EBITDA* Revenue 2,500 2,108 2,000 1,500 1,514 1,622 1,713 1,689 1, Total gross margin decreased to 25.0%, down from 26.2% in Q The product margin of 13.3% was down from 14.1% in Q3 2014, as a result of a change in the revenue mix towards more client business, which has lower margins. Services margin fell to 62.8% from 66.9% last year, due to increased expenses to subcontractors. Operating expenses grew by 9.6% to NOK 373 million. On a pro forma basis, operating expenses increased by 5.1%, with the remaining growth coming from acquisitions. Towards the end of Q2 actions were taken to reduce the cost base. These actions have included the elimination of 50 positions (3% of employees) and a reduction in marketing and overhead expenses. The impact of these actions on operating expenses was limited in Q3, and will not have full effect until the first quarter of * Before share-based compensation and expenses related to acquisitions ** Pro forma revenue growth includes revenue from companies acquired during 2014 and 2015 in both the current and prior full year 4

5 Sweden * Atea Sweden had rapid growth in revenue during the third quarter of 2015, driven by higher product sales. Operating expenses grew at a much slower rate than revenue, resulting in a large increase in EBITDA* margin from 2.6% last year to 3.5% this year. Revenue in Q was SEK 2,224 million, up 12.8% compared with last year. Hardware revenue was up 14.8%, software revenue was up 23.9%, while services revenue was down 1.3%. On a pro forma basis**, revenue growth was the same as actual growth, as there were no acquisitions in 2014 and SEK in million EBITDA* The growth in hardware revenue was spread across all major product categories, including client, datacenter, communication and collaboration products. The increase in software revenue was driven by large software license agreements to public sector customers. Services revenue decreased, mainly due to lower revenue from subcontracted services. SEK in million Revenue 3,500 3,000 2,500 2,000 1,972 2,874 2,498 3,010 2,224 1,500 1, Total gross margin fell to 22.5% for Q from 23.4% in Q3 2014, due to lower software margin and a higher proportion of product sales within the revenue mix. Product margin decreased to 14.0% from 14.4% in Q3 2014, due to a lower margin on large software deals. Services margin grew to 60.2% from 57.6% last year due to a lower percentage of revenue from subcontractors. Operating costs scaled relative to the strong revenue growth and increased by 2.9% to SEK 422 million. The average number of full time employees increased by 117 (+6.5%) in Q3 2015, but personnel expenses grew only 1.5%, as Q was affected by large bonus accruals. EBITDA* in Q increased to SEK 78 million, up from SEK 51 million in Q3 2014, reflecting strong growth in product revenue. The EBITDA* margin increased to 3.5%, up from 2.6% last year. * Before share-based compensation and expenses related to acquisitions ** Pro forma revenue growth includes revenue from companies acquired during 2014 and 2015 in both the current and prior full year 5

6 Denmark Atea Denmark increased its gross profit during the third quarter of However, EBITDA* fell from the prior year due to an increase in operating expenses as the organization planned for a higher activity level than it achieved in Q3. Business activity in Denmark was negatively afftected by allegations of bribery toward a large public customer. The bribery investigation is described in Note 8, and its financial impact is discussed in the Business Outlook section of this report. Revenue in Q was DKK 1,258 million, down 1.9% compared with last year. Hardware revenue was down 7.6%, software revenue was up 2.1%, and services revenue was up 13.3%. On a pro forma basis**, revenue was down 10.4% (adjusted for the acquisition of Axcess in Q4 2014). The decrease in hardware revenue was affected by fewer high-volume low-margin agreements within the client business. The increase in software revenue was driven by license agreements to large public sector customers. The increase in services revenue was based on the acquisition of Axcess in Q and on growth in contracted services. EBITDA* in Q decreased to DKK 60 million, down from DKK 77 million in Q3 2014, reflecting lower revenue and the increase in the cost base. The EBITDA* margin ended at 4.8%, down from 6.0% last year. DKK in million EBITDA* DKK in million Revenue 2,000 1,800 1,600 1,400 1,200 1, ,783 1,557 1,508 1,283 1,258 Total gross margin increased to 25.7% for Q3 2015, up from 22.4% in Q Product margin was 10.7%, up from 9.4% in Q as the proportion of revenue from higher value added products grew. Services margin grew to 68.2%, up from 66.7% last year based on lower subcontractor expenses. Operating expenses grew significantly during the quarter, as the organization had planned for higher growth than it achieved in Q Operating expenses grew by 25.5% to DKK 263 million. On a pro forma basis, operating expenses increased by 5.2%, with the remaining growth coming from acquisitions. During Q3, actions were taken to lower the cost base, including the reduction of staff. The staff reductions had limited impact on operating expenses during Q3, and will have full effect on cost levels from Q * Before share-based compensation and expenses related to acquisitions ** Pro forma revenue growth includes revenue from companies acquired in 2014 and 2015 in both the current and prior full year 6

7 Finland Atea Finland reported a decline in revenue and EBITDA* during the third quarter of The decline was caused by weak market conditions and lower sales volumes to some key customers. During Q3, Atea signed key frame agreements with the Finnish Defence Forces and the central purchasing unit for Finnish municipalities (Kuntien Tiera). There were no deliveries on these key contracts in the third quarter of Revenue in Q was EUR 34.0 million, down 11.6% compared with last year. Hardware revenue was down 6.4%, software revenue was down 31.3%, while services revenue was down 0.7%. Financial performace was the same on an actual and pro forma basis** as there were no acquistions in 2014 and The Baltics Atea Baltics achieved strong growth in revenue and EBITDA* during the third quarter of Growth was driven by higher sales within all three business areas, but especially strong growth within services. Revenue in Q was EUR 28.8 million, up 37.2% compared with last year. Hardware revenue was up 8.0%, software revenue was up 3.2%, while services revenue was up 160.4%. On a pro forma basis**, revenue growth was 26.0% (adjusted for the acquisition of Baltneta in Q2 2015). The increase in hardware and software revenue was driven by a general improvement in market conditions, which led to a multitude of small orders. The strong growth in services revenue was primarily driven by a couple of large projects for public customers closed in Q3. EUR in million Total gross margin was 20.4%, up from 19.8% last year, driven by improved hardware margin. EBITDA* in Q decreased to EUR 0.3 million, down from EUR 0.6 million last year, reflecting lower revenue. The EBITDA* margin ended at 0.9%, down from 1.5% last year. EUR in million Revenue EBITDA* EUR in million Total gross margin increased to 22.4% for Q3 2015, up from 20.2% last year, due to an increased product margin and a higher proportion of services in the revenue mix. The services margin decreased significantly from 52.2% last year to 36.8% this year, as a result of a high proportion of subcontracted revenue in the large projects to public customers. EBITDA* in Q increased to EUR 1.8 million, up 110.0% from EUR 0.9 million in Q3 2014, reflecting strong revenue growth and the acquisition of Baltneta in Q The EBITDA* margin increased to 6.4%, up from 4.2% last year. EUR in million Revenue EBITDA* * Before share-based compensation and expenses related to acquisitions ** Pro forma revenue growth includes revenue from companies acquired in 2014 and 2015 in both the current and prior full year 7

8 Balance sheet and cash flow As of 30 September 2015, Atea had total assets of NOK 10,987 million. Current assets such as cash, receivables and inventory represented NOK 5,606 million of this total. Non-current assets represented NOK 5,381 of this total, and primarily consisted of goodwill (NOK 3,768 million), deferred tax assets (NOK 547 million), and property, plant and equipment (NOK 700 million). Additional information on the deferred tax assets can be found in Note 5 to the financial statements. Atea had total liabilities of NOK 7,804 million as of 30 September 2015, of which NOK 6,341 million were current liabilities. Shareholders equity was NOK 3,184 million, corresponding to an equity ratio of 29.0%. This is down from a 33.2% equity ratio on 30 September 2014, due to payment of dividends. Cash flow from operations was NOK -134 million in Q3 2015, compared with NOK -104 million in Q Cash flow from operations YTD 2015 was NOK -172 million, compared with NOK 171 million YTD Atea s operating cash flow is highly seasonal, with strong performance in the fourth quarter of the year. Cash flow from operations is also heavily impacted by working capital levels at the end of each quarter. During 2014, Atea benefited from an extension in payment terms from key vendors, which had a positive one-time effect on cash flow from operations. Atea expects free cash flow for the full year 2015 to be in line with its overall profitability. Cash flow from investments was NOK -44 million in Q3 2015, compared with NOK -80 million in the corresponding quarter last year. Cash flow from investments included capital expenditures of NOK 46 million, compared with NOK 49 million in the corresponding quarter last year, related to facilities, internal systems and the development of Atea s hosting centers. Cash flow from financing was NOK 20 million in Q The Group drew NOK 17 million on its credit facilities. Additionally the Group repurchased shares for NOK 3 million during the quarter. As of 12 October the Atea share trades ex the second semi-annual dividend for 2015 of NOK 3.25 per share, which will be paid out on 23 October, At quarter end, the Group had a cash balance of NOK 168 million. At the end of Q3 2015, the Group s net financial position was NOK -1,704 million compared with NOK -756 million at the end of Q3 2014, due to dividend payments and acquisition activities. The Group s bond covenants require that the Group maintains a maximum net interest bearing debt of 2.5x pro forma EBITDA over the last twelve months. The Group is currently well within this limit, and maintains liquidity reserves, including unutilized credit facilities, of NOK 758 million at 30 September Shares Atea ASA had 7,251 shareholders on 30 September 2015 compared with 7,221 shareholders on 30 September The 10 largest shareholders as of 30 September 2015 were: Main Shareholders * Shares % Systemintegration APS ** 25,889, % State Street Bank & Trust Co. *** 8,844, % Folketrygdfondet 6,785, % RBC Investor Services Trust *** 5,083, % J.P. Morgan Chase Bank N.A. London *** 3,495, % J.P. Morgan Chase Bank N.A. London *** 3,131, % JP Morgan Chase Bank, NA *** 3,090, % Skandinaviske Enskilda Banken AB *** 2,725, % Odin Norge 2,425, % VPF Nordea Kapital *** 2,274, % Other 41,426, % Total number of shares 105,170, % * Source: Verdipapirsentralen ** Includes shares held by Ib Kunøe *** Includes client nominee accounts As of 30 September 2015, Chairman Ib Kunøe and close associates controlled a total of 24.9% of the shares, including the shares held by Systemintegration ApS. 8

9 Business overview Background Atea is the leading provider of IT infrastructure and related services to organizations within the Nordic and Baltic regions. The company is the largest player by far in its local markets, with approximately 17% market share in Roughly half of Atea s sales are to the public sector, with the remainder of sales to private companies. The market for IT infrastructure in the Nordic and Baltic regions has grown steadily during the last several years, despite challenging conditions in the global economy. According to estimates from IDC* 7, the market for IT infrastructure and related services has grown at an average rate of 3% per year from Atea s competence and leading market position in IT infrastructure has enabled the company to grow at a rate significantly higher than that of the market. Since 2007, the company has averaged an organic revenue growth rate of 4-5% per year. In addition to organic growth, Atea has successfully pursued an M&A strategy to strengthen and consolidate its market position. Atea s current organization structure is the result of the merger of the leading IT infrastructure companies in Denmark, Norway, Sweden, Finland and the Baltics in 2006 and Since 2007, Atea has acquired more than 50 companies, at valuation multiples significantly below the Group. Atea s market share in the Nordic and Baltic regions far exceeds that of other IT infrastructure providers. Today, the company has offices in 90 cities in the Nordic and Baltic region, with over 6,700 employees. This scale provides Atea with critical competitive advantages in purchasing, local market presence, breadth and depth of product offering, system integration competence, and efficient shared service and logistics functions. To address the needs of the Nordic and Baltic markets, Atea works closely with leading international IT companies, such as Microsoft, Cisco, HP, IBM, Apple, Lenovo, VMWare, Citrix, Symantec and EMC. These companies view the Nordic region as a critical market for the early adoption of new technologies, and work closely with Atea to penetrate these markets. In recent years, Atea s cooperation with its technology partners has intensified. This enables Atea to stay at the forefront of the latest IT trends, and to offer its customers new and innovative IT solutions. IT market trends The market for information technology is in the midst of revolutionary change, which is transforming society and the workplace. Across private enterprise and throughout the public sector, organizations are increasingly relying on new and innovative IT solutions to improve productivity and living standards. While the specific applications for information technology are unique for each organization, the changing demands on internal IT departments follow several common themes. Organizations require their IT infrastructure to efficiently and securely capture, process and store ever larger amounts of data from diverse sources. This information must be available wherever it may be required in a secure manner, within or outside the workplace. Finally, IT systems must allow individuals to communicate, collaborate and be productive across a broad range of technology platforms. As a result of these trends, the number of unique devices for capturing or receiving data is rapidly increasing, and the amount of data which is transferred between them and the data center is growing exponentially. At the same time, the risk of security breaches becomes ever greater. All of this creates a level of complexity which IT departments struggle to support. This presents a significant opportunity for Atea, as a system integrator with expertise across multiple platforms. Through its breadth of competency and depth of system integration expertise, Atea supports IT departments in adapting to the growing complexity of today s IT infrastructure and security. Atea helps its customers to design, implement and support IT solutions tailored for their organization. Based on its competitive advantages and leading market position in the Nordic and Baltic regions, Atea is well-positioned to maintain a long-term growth rate faster than the IT infrastructure market. At the same time, Management aims to improve Atea s long-term operating margins through revenue growth and a strong focus on cost containment. * International IT research company, International Data Corporation 9

10 Business overview (cont d) Business outlook Q (cont d) Group: While Atea s competitive position is very favorable, the Group s financial performance in any period is impacted by the overall growth in the IT infrastructure in the local markets and by Atea s ability to execute its business strategy and manage costs on a country and local level. On a country level, the Group had exceptionally strong performance in Sweden and the Baltics and operational issues in its other business units during the third quarter of Actions have been taken to address the challenges currently facing the Norwegian, Danish and Finnish businesses. On the basis of these actions these businesses are expected to show improved financial performance in The Outlook by country is as follows: Sweden: Sweden is Atea s largest market, representing 37% of Group revenue in the year-to-date It is also the business unit which currently has the strongest organic improvement in financial performance. The Swedish business has historically been skewed toward the public sector (66% of Swedish revenue last year). During 2015, growth in Sweden has been particularly robust among private sector customers, especially within the largest cities. Growth in the Swedish business has come from a broad range of product categories, with the highest growth rates coming from datacenter and communication solutions. In addition, there has been high growth in contracted services (service contracts with a term of 1+ years). Atea expects continued solid financial performance from its Swedish business in the fourth quarter of 2015, although at lower revenue growth rates than in recent quarters. Denmark: Denmark is Atea s second largest market, representing 26% of Group revenue in the year-todate The Danish business has the most developed operations within datacenter services across Atea. Since the acquisition of Axcess in December 2014, the company has also enhanced its leadership position within communications and network security. Atea Denmark has seen operating expenses increase significantly during This growth was mostly driven by the acquisition of Axcess (190 employees). In addition, the company has spent on increased staffing, post-merger integration activities, and retention programs to Atea Denmark employees during the last year. During the second quarter of 2015, Atea Denmark saw revenue growth slowing down, and flatten on a pro-forma basis (adjusted for the Axcess acquisition). Much of this slowdown was attributable to a bribery investigation involving former Atea employees which was announced in June Sales to public customers continued to be affected by the investigation during the third quarter. The bribery investigation is described in Note 8. Atea continues to win new business in Denmark, as evidenced by the announcement on July 8 that SKI (Statens og Kommunernes Indkøbs Service A/S), the leading Danish public sector procurement agency, had awarded Atea a frame agreement worth DKK 500 million over 3 years. Atea was allowed to win the agreement only after SKI had reviewed the case and determined that there was no reason to withhold Atea from conducting business with the public sector. By the end of the quarter, Atea Denmark saw improved sales to public customers, although total volumes were still below historic levels. During Q3, Atea Denmark implemented actions to lower its cost base, including the reduction of staff. These actions are expected to reduce operating expenses by DKK 12 million on a quarterly basis from the start of Atea expects its business performance in Denmark to improve as the cost reduction measures take effect, and as its business stabilizes following the bribery investigation. 10

11 Business overview (cont d) Business outlook Q (cont d) Norway: Norway represented 26% of Group revenue in the year-to-date The Norwegian economy is heavily exposed to the oil and gas industries, and the decline in oil and gas prices has had some impact on the market for IT infrastructure within Norway. In addition to weaker market performance, Atea has seen its growth premium relative to the market fall during the last few years. At the same time, the company has seen costs increase over the last year. In April 2015, the Country Manager of Atea Norway was replaced. Atea Group CEO Steinar Sønsteby has temporarily taken the role of Country Manager of Atea Norway, a position he previously held during a period of rapid growth. A recruitment process is underway with the intention of announcing a new Country Manager in late Since April, Atea Norway has restructured parts of its organization, in order to sharpen focus on major growth opportunities in the Oslo area and within the SMB segment. At the same time, the company has eliminated 50 positions (3% of employees) and temporarily stopped all hirings. Furthermore, Atea Norway has cut spending on overhead items, including marketing events and promotional activity. The cost reduction initiatives will have a gradual effect on operating expenses during the fourth quarter of 2015, and will have full effect during the first quarter of In 2016, the cost reduction initiatives are expected to reduce operating expenses by approximately NOK 20 million per quarter compared to Q Atea expects its business performance in Norway to improve in 2016 with a lower cost base and the organizational changes. Finland: Finland represented 7% of Group revenue year-todate The Finnish economy has suffered from an economic downturn during the last few years, which has had a negative impact on demand for IT infrastructure. During Q3 Atea has signed key frame agreements with the Finnish Defence Forces and the central purchasing unit for Finnish municipalities (Kuntien Tiera). Deliveries on these frame agreements will start in Q4 but volumes are not expected to be significant before the first quarter of Demand for IT infrastructure in Finland is expected to be slow in the fourth quarter of On this basis, Atea Finland expects revenue to be in line with last year. Baltics: The Baltic region represented 3% of Group revenue year-to-date 2015 and has experienced strong organic revenue growth during the first three quarters of Revenue growth year-to-date was driven by a multitude of smaller orders, offsetting a decrease in large public sector projects funded by EU. Public sector demand has temporarily been impacted by fewer EU funded projects, as one 5-year funding program from the EU has been recently completed, and another has just commenced. The first large projects on the new EU funding program are expected to start in late Atea has invested in its Baltic organization as a result of demand growth, hiring 29 new services employees (representing 7% of services employees) since the end of In addition, Atea acquired Baltneta in April Baltneta is a leading provider of IT outsourcing and cloud services in the Baltic markets. Atea has had exceptionally strong revenue growth in the Baltic region since the fourth quarter of Atea expects growth in product revenue to slow in the fourth quarter of 2015 based on strong comparable performance in the prior year. Services revenue is expected to continue to grow in the fourth quarter of 2015, following the acquisition of Baltneta and other investments in the services organization. 11

12 Condensed financial information for the 9 months ended 30 September 2015 Consolidated income * statement Q3 Q3 YTD YTD Full year Note Revenue 2, 6 5,957 5,173 19,298 17,039 24,588 Cost of goods sold 4,495 3,901 14,759 13,011 18,872 Personnel costs* 1, ,325 2,903 3,965 Other operating costs* EBITDA (adjusted)* Share based compensation Expenses/income related to acquisitions EBITDA Depreciation and amortization Amortization related to acquisitions Operating profit/loss (EBIT) Net financial items Profit/loss before tax Tax Profit/loss for the period Earnings per share - earnings per share diluted earnings per share Consolidated statement of comprehensive income Q3 Q3 YTD YTD Full year Profit/loss for the period Currency translation differences Forward contracts - cash flow hedging Income tax OCI relating to items that may be reclassified to profit or loss Items that may be reclassified subsequently to profit or loss Other comprehensive income Total comprehensive income for the period * Before share-based compensation and expenses related to acquisitions 12

13 Consolidated statement of financial position Note 30 Sep Sep Dec 2014 ASSETS Property, plant and equipment Deferred tax assets Goodwill 3,768 3,045 3,588 Other intangible assets Shares in associated companies 8-9 Other long-term receivables Non-current assets 5,381 4,403 5,125 Inventories Trade receivables 3,866 3,176 5,496 Other receivables Other financial assets Cash and cash equivalents Current assets 5,606 4,861 7,498 Total assets 10,987 9,263 12,624 EQUITY AND LIABILITIES Share capital and premium 3 1,179 1,130 1,140 Other unrecognised reserves 1, ,079 Retained earnings 781 1,110 1,330 Equity 3,184 3,072 3,549 Interest-bearing long-term liabilities 1,177 1,015 1,121 Other long-term liabilities Deferred tax liabilities Non-current liabilities 1,462 1,218 1,371 Trade payables 3,025 2,712 4,681 Interest-bearing current liabilities VAT, taxes and government fees Provisions Dividend payable Other current liabilities 1,579 1,327 1,838 Other financial liabilities Current liabilities 6,341 4,973 7,704 Total liabilities 7,804 6,191 9,074 Total equity and liabilities 10,987 9,263 12,624 13

14 Consolidated statement of changes in equity 30 Sep Sep 2014 Equity at start of period 3,549 3,533 Currency translation differences Forward contracts - cash flow hedging Other comprehensive income Profit/loss for the period Total recognised income/expense for the year Employee share-option schemes Dividends Changes related to own shares Issue of share capital Non-controlling interests from acquisitions -4 - Equity at end of period 3,184 3,072 Consolidated statement of cash flow 9 Q3 Q3 YTD YTD Profit/loss before taxes Taxes paid Depreciation & amortisation Share based compensation Cash earnings Change account receivables ,768 1,417 Change inventory Change trade payables -1, , Other changes in work. cap./accr. items Cash flow from operations* Capital expenditures Purch./sale of subs./assoc./investm Cash flow from investments Payment of dividends Other equity transactions Change in debt Cash flow from financing Net cash flow Cash start of period Currency effects on cash Cash end of period * Cash flow from operations includes net interest expenses. In Atea financial reports for Q1, Q2 and Q3 last year, net interest expenses were included in cash flow from financing. Net interest expenses totalled NOK 27.1 million in Q1 and Q2 2015, and NOK 15.3 million in Q In Q1 and Q net interest expenses totalled NOK 32.3 million and in Q NOK 10.3 million. Either treatment of net interest expenses in the cash flow statement is permitted under IFRS 14

15 NOTES NOTE 1 General information and accounting policies The condensed third quarter interim financial statements for the nine months ending 30 September 2015 were approved for publication by the Board of Directors on October 20, These Group financial statements have not been subject to audit or review. Atea ASA is a public limited company incorporated and domiciled in Norway whose shares are listed on the Oslo Stock Exchange. Atea (the Group) consists of Atea ASA (the Company) and its subsidiaries. Atea is the leading provider of IT infrastructure and related services to organizations within the Nordic and Baltic region. The financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS), IAS 34 Interim Financial Reporting. The condensed interim financial statements do not include all information and disclosures required in the annual financial statement, and should be read in accordance with the Group s Annual Report for 2014, which has been prepared according to IFRS as adopted by EU. The accounting policies applied by the Group in these interim financial statements are the same as those applied by the Group in its consolidated financial statements for the year ended 31 December There are no changes in accounting policy effective from 1 January 2015 that have impact on the Group accounts. See Note 7 regarding possible effects of new proposed leasing standard. In the interim financial statements for 2015, judgements, estimates and assumptions have been applied that may affect the use of accounting principles, book values of assets and liabilities, revenues and expenses. Actual values may differ from these estimates. The major assumptions applied in the interim financial statements for 2015 and the major sources of uncertainty in the statements are similar to those found in the annual accounts for See Note 8 regarding possible bribery case in Atea Denmark. The Board confirms that these interim financial statements have been prepared on a going concern basis. As a result of rounding differences numbers or percentages may not add up to the total. The carrying amounts of Financial assets and Financial liabilities recognized in the Consolidated statement of financial position approximate their fair values, according to Management s assessment. NOTE 2 Operating segment information Atea is located in 90 cities in Norway, Sweden, Denmark, Finland, and the Baltic countries of Lithuania, Latvia and Estonia, with approximately 6,700 employees. For management and reporting purposes, the Group is organized within these geographical areas. The performance of these geographical areas are evaluated on a regular basis by Atea s Senior Management Group. In addition to the geographical areas, the Group operates Shared Services functions (Atea Logistics and Atea Global Services) and central administration. These costs are reported separately as Group Shared Service and Group cost. Transfer prices between operating segments are on arm s length basis in a manner similar to transactions with third parties. 15

16 NOTE 2 Operating segment information (cont d) Operating segment information NOK * Revenue Q3 Q3 % YTD YTD % Full year change change 2014 Norway 1,689 1, % 5,024 4, % 6,806 Sweden 2,171 1, % 7,268 6, % 8,893 Denmark 1,553 1, % 5,106 4, % 6,504 Finland % 1,331 1, % 1,707 The Baltics % % 792 Group Shared Services 1,243 1, % 3,186 3, % 4,267 Eliminations* -1,279-1,166-3,291-3,239-4,381 Atea Group 5,957 5, % 19,298 17, % 24,588 EBITDA** Q3 Q3 % YTD YTD % Full year change change 2014 Norway % % 276 Sweden % % 261 Denmark % % 366 Finland % % 26 The Baltics % % 36 Group Shared Services % % 39 Group cost % -45 EBITDA** % % 958 EBITDA** margin (%) 3.6% 4.0% 3.0% 3.3% 3.9% EBIT Q3 Q3 % YTD YTD % Full year change change 2014 Norway % % 204 Sweden % % 190 Denmark % % 193 Finland -1 2 n.a % 15 The Baltics % % 7 Group Shared Services % % 29 Group cost n.a n.a. -54 Operating profit/loss (EBIT) % % 584 Net financial items % % -73 Profit/loss before tax % % 511 Quarterly revenue and gross margin Q3 Q3 % YTD YTD % Full year change change 2014 Product revenue 4,644 4, % 15,275 13, % 19,576 Services revenue 1,313 1, % 4,023 3, % 5,012 Total revenue 5,957 5, % 19,298 17, % 24,588 Gross contribution 1,462 1, % 4,539 4, % 5,717 Product margin 13.4% 13.4% 12.5% 12.4% 12.4% Services margin 64.1% 66.5% 65.2% 66.1% 65.5% Gross margin 24.5% 24.6% 23.5% 23.6% 23.3% Quarterly revenue and gross margin Q3 Q2 Q1 Q4 Q3 Q Product revenue 4,644 5,439 5,191 6,105 4,081 4,759 Services revenue 1,313 1,403 1,307 1,444 1,092 1,222 Total revenue 5,957 6,842 6,498 7,549 5,173 5,981 Gross contribution 1,462 1,539 1,538 1,689 1,273 1,378 Product margin 13.4% 11.6% 12.7% 12.5% 13.4% 12.0% Services margin 64.1% 64.6% 67.2% 64.0% 66.5% 66.1% Gross margin 24.5% 22.5% 23.7% 22.4% 24.6% 23.0% * Most of Atea s internal sales are related to Group Shared Services, which consists of Atea Logistics and Atea Global Services **All EBITDA figures are before share-based compensation and expenses related to acquisitions 16

17 NOTE 2 Operating segment information (cont d) Operating segment information local currency 11 Revenue Q3 Q3 % YTD YTD % Full year Local currency in million change change 2014 Norway NOK 1,689 1, % 5,024 4, % 6,806 Sweden SEK 2,224 1, % 7,732 6, % 9,681 Denmark DKK 1,258 1, % 4,323 4, % 5,803 Finland EUR % % 204 The Baltics EUR % % 95 Group Shared Services NOK 1,243 1, % 3,186 3, % 4,267 Eliminations* NOK -1,279-1,166 n.a. -3,291-3,239 n.a. -4,381 Atea Group NOK 5,957 5, % 19,298 17, % 24,588 EBITDA** Q3 Q3 % YTD YTD % Full year Local currency in million change change 2014 Norway NOK % % 276 Sweden SEK % % 284 Denmark DKK % % 327 Finland EUR % % 3 The Baltics EUR % % 4 Group Shared Services NOK % % 39 Group cost NOK n.a n.a. -45 EBITDA** NOK % % 958 EBITDA** margin (%) 3.6% 4.0% 3.0% 3.3% 3.9% EBIT Q3 Q3 % YTD YTD % Full year Local currency in million change change 2014 Norway NOK % % 204 Sweden SEK % % 207 Denmark DKK % % 172 Finland EUR 0 0 n.a % 2 The Baltics EUR % % 1 Group Shared Services NOK % % 29 Group cost NOK n.a n.a. -54 Operating profit/loss (EBIT) NOK % % 584 Net financial items NOK % % -73 Profit/loss before tax NOK % % 511 NOTE 3 Share capital and premium Number of shares Issued Whole figures Treasury shares Whole figures Share capital Issued NOK in million Treasury shares NOK in million Share premium NOK in million Total paidin equity NOK in million At 1 January ,168,164-73,601 1, ,140 Issue of Share capital*** 1,002, Sales of Treasury shares **** - 73, Purchase of Treasury shares ***** , At 30 September ,170, ,000 1, ,179 * Most of Atea s internal sales are related to Group Shared Services, which consists of Atea Logistics and Atea Global Services **All EBITDA figures are before share-based compensation and expenses related to acquisitions *** Issue of Share capital is related to Share options for the Management and selected employees **** Sales price for the Treasury shares was NOK 3 million (with remaining NOK 2 million affecting Other unrecognized reserves) and related to exercise of options ***** The cost price for the shares was NOK 47 million (with remaining NOK 40 million affecting Other unrecognized reserves) and related to share buyback program announced in June

18 NOTE 4 Business combinations Acquisitions in 2015 Atea has acquired one company during the nine months of The financial performance from the acquisition date to the end of the quarter for the acquired company is considered to be immaterial from a Group perspective. UAB Baltnetos Komunikacijos (Baltneta): Atea acquired Baltneta in April Cloud is a strategic business area for Atea, and the acquisition of Baltneta enables Atea to offer its customers state-of-the-art cloud and IT outsourcing services from the Baltic region. Allocation of purchase price Due to the high knowledge and low capital requirements for operating an IT sales and consulting organization, acquisitions within this sector will typically result in a goodwill balance. This goodwill balance represents the surplus of the purchase price compared with the accounting value of the net fixed and intangible assets of the acquired company. The fair values have been determined on provisional basis because new information may occur. Breakdown of the acquired net assets and goodwill in 2015 is as follows: Baltneta UAB Acquisition date 8 Apr 2015 Country Lithuania Voting rights/ownership interest 100% Acquisition cost: Consideration 1) 69 Adjustment of cost price 4 Liabilities assumed 2 Total acquisition cost 75 Net assets acquired at carrying value of equity (see table below) 30 Identification of excess value: Contracts and customer relationships 19 Deferred tax -3 Net excess value 16 Fair value of net assets acquired, excluding goodwill 46 Controlling ownership interests 46 Goodwill 29 1) Consideration that is dependent on future results is recognised as an obligation based on the fair value at the time of acqusition. 18

19 NOTE 4 Business combinations (cont d) Assets and liabilities related to the acquisitions in 2015 are as follows: Baltneta UAB Deferred tax assets 0 Goodwill 14 Computer software and rights 0 Property, plant and equipment 34 Other long-term receivables 0 Inventories 1 Trade receivables 8 Other receivables 0 Cash and cash equvalents 6 Total asset 65 Non-current liabilities -24 Current liabilities -9 Short-term Int.b. loans -2 Total liabilities -35 Net assets acquired 30 Net cash payments in connection with the acquisitions are as follows: Baltneta UAB Considerations and costs in cash and cash equivalents 69 Cash and cash equivalents in acquired companies -6 Net cash payments for the acquisitions 63 If all acquired entities had been consolidated from 1 January 2014, the consolidated pro forma income statements for 2015 would show revenue and profit as follows: YTD YTD Operating revenue 19,315 17,732 Operating profit/loss (EBIT) NOTE 5 Taxes Income tax expense is recognized based on management s estimate of its weighted average tax rate for the full year, less the value of additional tax loss carryforwards or other deferred tax items which are recognized on the balance sheet during the period. The estimated tax rate used during the nine months of 2015 is 18%. As of the year end 2014, the tax value of the tax loss carried forward within the Group was NOK 671 million, of which NOK 518 million was recognized as Deferred Tax Assets on the balance sheet. The remaining value of NOK 153 million was not recognized on the balance sheet. At the end of each year, Management reassesses the value of tax loss carried forward which will be recognized on the balance sheet. This assessment is made based on financial estimates of tax payments for the next five years. This annual assessment may have a material effect on reported Deferred Tax Assets and Deferred tax expense in the fourth quarter and full year accounts. 19

20 NOTE 6 Seasonality of operations Atea s revenue and cash flow are affected by the seasonality of demand for IT infrastructure investments. Demand for IT infrastructure among Atea s customers peaks in the fourth quarter of the year, leading to higher revenue and cash flow for Atea in the fourth quarter. This demand seasonality is based on the procurement cycles of large organizations in the Nordic and Baltic regions, and is particularly strong within the public sector. NOTE 7 Commitments With reference to Note 24 Commitments in the Annual report for 2014, Atea ASA has issued guarantees in favour of financial institutions as security for the lending facilities provided to Atea ASA and subsidiaries. Part of these commitments concern sublease facilities. At the end of Q3 2015, the Group had sublease commitments of NOK 373 million to financial institutions which are not reported on-balance sheet. Existing IFRS does not include specific guidance on the accounting for sublease commitments. Under a new proposed leasing standard, the sublease commitments referred to above would be reflected as both an asset and liability on the balance sheet. IASB currently plans to approve the new leasing standard before the end of 2015, with implementation most likely from NOTE 8 Risks and uncertainties As described in the Financial Summary and Business Outlook sections of this report, Atea s subsidiary in Denmark is being impacted by a possible bribery case which was announced in June This had a negative consequence for both revenue and cost in Atea Denmark in Q One current employee of Atea Denmark has been charged in this case. The possible bribery case also involves a competitor of Atea Denmark. Charges have been placed against three current executives of the competing company. These executives all held leading positions within Atea Denmark prior to establishing their own company. Since the charges were announced, Atea management has cooperated fully with Danish law enforcement in the investigation. Atea has given transparent reports on the case to clients, suppliers, shareholders and governmental agencies. Atea has also intensified corporate communication activities on the basis of being a transparent company and with the purpose of protecting the Atea brand and company reputation. Atea has updated its internal Code of Conduct. All employees are obliged to take an examination on this code and agree to comply with it. Atea is also sharpening its control routines on expenses and on client events. Finally, Atea has established a Compliance organization reporting to the Board of Directors, and enhanced its whistleblower scheme for employees to report violations of the Code of Conduct or relevant law. These reports can be given on an anonymous basis. The current impact of the bribery case on financial performance in Atea Denmark is discussed in the Business Outlook section of this report. The longer term impact of the case in Denmark is uncertain. Other risk factors are described in the Board of Directors statement of the 2014 Annual Report. NOTE 9 Events after the balance sheet date There were no significant events after the balance sheet date which could affect the evaluation of the reported accounts. 20