Atea ASA

Hi and welcome to the Q1 2024 presentation of the Altea results here from rainy Oslo. Revenue came in at $7.6 billion. Gross profit at $2.6 billion. and EBIT at the record high $256 billion, which gives us a net profit of $192 billion. A very, very good quarter overall. You'll hear us talk about tough comparisons in this presentation. It's not because the market a year ago was bouncing and now is very low. But we'll get back to that. So that is the cliffhanger. Over to you, Robert.

Thank you, Sander. Attea reported higher operating profit in the first quarter, driven by growth in its software and services business and by improved gross margins in all business lines. Total revenue was 7.6 billion Norwegian krona, down 12.5% from an exceptionally strong quarter last year, when Attea's revenue grew by 26%. The revenue decline was driven by lower hardware shipments, which fell by 19.5% from last year. In Q1 last year, Attea had an unusually high level of hardware deliveries. This was driven by a couple of factors. On the supply side, global constraints in hardware manufacturing were easing, and Attea was able to ship a large number of customer orders which had been held up in backlog. This was the primary impact that we had on sales last quarter. On the demand side, customers were investing large sums to upgrade their workplace IT environments as the employees returned to on-premise work following the COVID pandemic. These short-term tailwinds have faded since the second half of 2023, and hardware volumes have returned to a more normal level of demand. As a result, we're seeing lower hardware revenue compared with the exceptionally high hardware sales deliveries last year. Otherwise, software revenue grew by 8.4% from last year, with higher demand from the public sector. Service revenue grew by 3.7%, driven by strong sales of managed service agreements. Gross margin increased to 33.6%, up from 28.9% last year. Based on higher hardware margins, an increased percentage of software and services in the revenue mix. With higher gross margin and low growth in operating expenses, Attea's EBIT grew by 2.2% to NOK256 million. Net profit after tax increased by 9.6% to NOK192 million. If we look beyond the year-over-year comparison, Attea's longer-term growth trend remains favorable. Over the two-year period from Q1 2022 to Q1 2024, Attea's revenue grew at a compound annual growth rate of 4.9%. During this two-year period, hardware revenue grew by 1.4% per year, software revenue by 22.2% per year, and services revenue grew by 11.3% per year. EBIT over this two-year period grew at a compound annual growth rate of 18.3%, and net profit grew at a compound annual growth rate of 21.1%. Attea's business remains on a good track, but shipments and deliveries are simply returning to the long-term trend line after a period of abnormally high shipments last year. We'll now take a closer look at revenue and profit development across the countries in which we operate. Attea faced the same overall business trend in all countries, with slower hardware shipments offset by improved gross margins. The impact on Attea's revenue was less severe in Norway, Sweden, and the Baltics. Despite a slower hardware business, Attea managed to increase its operating profit from last year in all of these countries based on higher margins and cost control. The revenue impact was more severe in Denmark and Finland, and these countries saw a decline in EBIT from last year. In Denmark, revenue fell by 32.5% as two major public sector frame agreements were inactive due to ongoing tender processes. Both frame agreements were awarded to ATEA during Q1. With sales returning and resuming on these new frame agreements, ATEA Denmark expects to return to revenue growth from next quarter. In Finland, revenue fell by 15.1% from last year. Last year, Attea had very high shipments to the public sector due to a large reorganization within healthcare. In sum, EBIT for the Attea Group grew by 2.2% in Q1 2024, as lower profits in Denmark and Finland were offset by higher profits in the rest of the business. Now a word on our cash flow and balance sheet. Attea's cash flow from operations was an outflow of 903 million Norwegian krona in the first quarter of 2024. As you can see on this chart, Attea's cash outflow in Q1 2024 is in line with normal seasonal trends where operating cash flow is typically negative in the first quarter due to higher working capital requirements. This negative trend was stronger than usual last quarter due to the timing of the Easter public holidays right at quarter end. This resulted in some delays of cash collection into April. In contrast, Attea had abnormally high cash flow in Q1 last year relative to the seasonal trend as Attea's working capital balances fell from their temporary elevated levels at the end of 2022. At the end of Q1 2024, Attea had a net debt of 117 million Norwegian krona, as defined by Attea's loan covenants. This corresponds to a net debt EBITDA ratio of 0.1. Attea's net debt balance at the end of Q1 2024 was 4.8 billion Norwegian krona, less than the maximum allowed by its loan covenants. The company has a strong balance sheet and significant additional debt capacity before its loan covenants would be reached. That concludes the presentation of the results. I'll now hand the podium back over to Steinar to discuss the outlook for Atea's business for the remainder of 2024.

Thank you, Robert. So let's look at this in a bigger picture. On this slide, you see the growth figures over the last many quarters. In the last four years, it's been difficult to predict and follow the revenue of Atea. Four years ago, the pandemic hit and we had the race to the home office. Even though we were pretty well equipped in the Nordics and Baltics, we still saw a raise in revenue to support that new infrastructure. And then about a year and a half later, we saw the raise back to the office. And the office had been neglected for a couple of years and needed an upgrade, especially on video and networking in general. At the same time, the supply chain constraint had occurred and we couldn't really deliver what we sold in most of 2021 and beginning of 2022. And then the supply chain issue started to ease and you saw the four or five quarters in the later part of 2022 and beginning of 2023, where we had revenue growth on hardware of almost 30% in some of these quarters. The underlying market through all of this have been pretty stable, actually. but the revenue in our books have looked differently. We are now, and we have said this for the last 12 months, we are entering a more predictable period where growth are supported by digitalization, by security, and by AI, and will return to high single digits for the next many quarters. We still, though, have Q2, where last year we had a high growth. And so our prediction is that you'll see more of the same but less of an impact, meaning we think that we will grow EBIT also this quarter, as we have for so many quarters behind us, with a more or less flat revenue. Let's look at some of these drivers that supports my prediction. My prediction being revenue growing high single digits in the years to come, but a little slower in Q2. We have one of the two biggest contracts in Denmark that we ever have. One, the 5003, which we've started delivering on full throttle in April. which is server and storage. And then the second one, the biggest one, the 50-40, which is PCs, which we will start delivering full throttle on during this quarter. Both these contracts are expected to last for four years and support the underlying positive development we've seen in Denmark for the last three to four years. And then something that I think is in the mind of all of us. We've entered a different period in Europe, maybe even the world. And defense will be high on the agenda for all countries, for all politicians. And specifically in our region of the world, where we are closer to the first war in Europe since the Second World War, this is an even bigger concern. Sweden and Finland has entered NATO. And even more so, all the countries in the Nordics and Baltics are in NATO. And we will see a Nordic-Baltic alliance within the NATO alliance. You've also read and heard, if you are living in this part of the world, about the increased defence budgets in all of these countries and how important IT will be in the build-up or rebuild of the defence sector in this part. We are a big supplier to the defence and we are expecting a growing demand from this part of the market. We had expected that to be higher in 2023 than it actually ended up being. Maybe we just had too high expectations to our politicians. And then IT security. IT security alongside AI, maybe because of AI, is predicted to be the fastest growing part of our revenue in the years to come. And there are many reasons for this. The unstable situation and the war and the situation between the US and China and many other unstable and parts of the world where things have become more complex are, of course, highly part of this. But also the NIST 2 directive in EU, which demands certain investments and training in IT security for most European companies and most of our customers will also be supporting the growth of that revenue. We also spoken about the Windows 10 end of life. It's actually interesting to see how many people have missed that trend when we look back and how many are now starting to understand that they actually have to have a major shift in their infrastructure to be able to upgrade to Windows 11, which has a totally different IT security platform within it. So several of these trends will support each other. And we believe there will be a massive investment in PCs as pretty modern PCs cannot run Windows 11. And I have to say, I was supposed to be upgraded to Windows 11 last week, but my PC couldn't support it. So I'm still on Windows 10. And then, of course, it's difficult not to speak about AI. AI is something that will fundamentally change how we do everything going forward. If you question that, I'd like to have that discussion. The big question, though, is how fast. And as everything with technology, it takes a little longer than what we think. But the fact that AI, the next five to 10 years, will be driving massive investments in infrastructure is a fact. It'll drive massive investments in power or electricity and facilities. This will be the guaranteed driver for our business in many years to come. Some will choose to do this in the cloud. Some will choose to do this on-prem. Most will probably choose to do this as a hybrid solution. And we are so much looking forward to supporting that development. So if you look at our revenue over the last four years, as discussed in this part of my presentation, This is a four rolling quarter presentation, so you have to look at it that way. But you see a development where in the last part of 2021 and beginning of 2022, it looks like the market was slowing. It wasn't. we built massive backlog. Actually in that part of the history, we built backlog in the size of about three to three and a half billion Norwegian kroners. And most of it, of course, being hardware. And then around the later part of 2022 or beginning of 2023, we saw the supply chain problems ease And it looks like we were jumping like a kangaroo here in the revenue. But actually, we just started delivering what we had sold in the two years before. Now we're entering a more predictable and better for us period because it's easier to drive a company and improvements when things are predictable. We'll keep on growing the EBIT. And we're looking forward to presenting to you in the quarters to come. We will now go to Q&A.