Atea ASA

Welcome to the Q3 presentation of the Atea numbers here in a little bit cold and grey Oslo. I would say almost like our peers in Europe's numbers over the last couple of quarters. For that reason, I've really been looking forward to this day to hopefully give our shareholders some comfort in the progress that we make. When that is said, the market is absolutely unpredictable and you need to maneuver that in a good way. So let's take a short look at the main numbers. The revenue came in at $8 billion, up 3.1% from last year. The EBIT at $307 million, up 3% from last year. And net profit up almost 6% from last year. With a good cash flow, we have a healthy balance sheet. But, as normally, I'll leave it to Robert to give you the rest of the good news.

Thank you, Snyder. Attea returned to sales and profit growth in the third quarter of 2024, driven by new customer agreements and improved market conditions across most product categories. Total gross sales in Q3 was 11.3 billion Norwegian krona, up 5.4% from last year. Group revenue, according to IFRS, was 8.0 billion Norwegian krona, up 3.1% from last year. Hardware revenue grew by 3.3%. Attea had high growth in sales of PCs, servers, and storage, but this was offset by lower sales of networking and AV equipment compared with the strong comparable period last year. Software revenue increased by 12.3% from last year with strong demand for productivity applications, public cloud, and data center solutions. Services revenue grew by 1.4% from last year, as growth in managed services was offset by lower demand for consulting services. Gross profit increased by 3.3% to 2.4 billion Norwegian kroner. With higher revenues across all lines of business, EBIT grew by 3.0% to 307 million Norwegian kroner. And net profit after tax increased by 5.7% to 192 million Norwegian kroner. We'll now take a closer look at revenue and profit development across the countries in which we operate. ITS EBIT growth in the third quarter was driven by its performance in Norway and the Baltics. In Norway, EBIT increased by 28.5% to 114 million Norwegian krona. EBIT growth was based on higher sales within software and services, as well as improved gross margins and tight control of operating expenses. In the Baltics, EBIT grew by 7.5%, driven by improved hardware margins and higher sales of managed cloud services. In Sweden and in Denmark, EBIT trends were sequentially better than last quarter, but these countries have not yet returned to profit growth. In Sweden, EBIT was 130 million Swedish krona down from 153 million Swedish krona last year. The decline was based on lower sales of services. In Denmark, EBIT was 12 million Danish krona down slightly from last year. Sales of PCs, servers, and storage grew based on new frame agreements, but this was offset by lower revenue from networking equipment, software, and services. Lastly, Attea Finland had lower revenue and profit in a recessionary economic environment. EBIT was 1.8 million euro, down from 2.9 million euro last year. On the positive side, Attea Finland won a very large frame agreement to the public procurement agency TIERRA during Q3. Attea Finland expects to return to growth during the coming quarters with a new agreement and with an improving economic outlook. Now a word on our cash flow and balance sheet. Attea's cash flow from operations was an inflow of 112 million Norwegian krona in the third quarter of 2024, which was 413 million krona better than last year. The improvement in cash flow was primarily due to a smaller increase in working capital items during Q3 2024 compared to last year. As you can see from this chart, Attea's cash flow from operations is highly seasonal. with strong cash inflows in the fourth quarter as ATEA's sales to the public sector increase and its working capital balances fall. ATEA expects a strong cash flow from operations in the fourth quarter of 2024 with seasonal working capital reductions in line with prior years. At the end of Q3 2024, ATEA had a net debt of 108 million Norwegian krona as defined by ATEA's loan covenants. This corresponds to a net debt EBITDA ratio of 0.1. Attea's net debt balance at the end of Q3 2024 was 4.7 billion Norwegian krona less than the maximum allowed by its loan covenants. Attea has a strong balance sheet and significant additional debt capacity before its loan covenants would be reached. Based on Attea's strong balance sheet and cash flow generation, The board has resolved to initiate a share repurchase program. The share repurchase program will be for a maximum of 650,000 shares and for a maximum consideration of 120 million Norwegian krona. The program will start today and continue until the next AGM on April 29th, 2025, or until the maximum number of shares has been repurchased. Shares repurchased under the program will be used to fulfill the company's obligations under share-based compensation agreements. The share buyback is supplemental to the shareholder dividend and will not impact Attea's dividend policy, which is to pay an annual dividend of 70% to 100% of net profit after tax. That concludes the presentation of the third quarter financials. I'll now have the podium back over to Steinar to discuss recent trends and the outlook for Attea's business.

Thank you, Robert. We understand that there is a lot of things going on, both in the market, but also in our industry. And for people outside the industry, we also understand it's difficult to follow and judge all these changes. So let me try to bring you some comfort, as said in the beginning of the presentation. Let's start with the revenue over the last two to three years. You've seen most of this slide before. What happened from Q2 2022 until Q2 2023, those five quarters, was very abnormal. For a company with more than 50 billion Norwegian kroners in revenue, to grow more than 20% in a quarter is absolutely not to be expected. The situation that happened in those five quarters was that we got everything that was in our backlog from our vendors over a very short period. As you might remember, before this period, supply chain problems was an issue for not only our industry, but many industries. When we compare ourselves in the next four quarters or five quarters to that abnormal situation, it should be so that we don't grow compared to those numbers. And that is exactly what you see on this slide. This is also what we said after Q3 presentation in 2023 and have repeatedly said over the coming quarters. Our judgment going into this year was that first half, comparing to first half 2023, would be difficult. But that second half, we would return to growth. And so with the numbers that Robert have just taken you through, we're very happy to prove that our prediction was true. We are now starting to build backlog again. preparing for a more normal situation. If we try to split the elephant in smaller pieces, this is a look at the Q3 numbers for the hardware revenue split in four categories. So as you can see, the PC and server and storage business grew double digit. which means printers and a lot of different things, IoT devices and so on, grew approximately 5%, a little bit more than 5%. While networking and AV, as Robert informed about earlier, had a double-digit decline. What happened with networking specifically over the period of 2022 and 2023 was that some customers, specifically defense, police, and health, so very critical customers when it comes to operating infrastructure, actually bought to their own inventory. And we are about now to come to an end of deploying that equipment. For that reason, we see growth in networking in the quarters to come. And to give you a little bit of a feel for how big a piece of our revenue these different elements of our hardware revenue has, I can say that PC in the normal quarter is about 35% of hardware. Remember, hardware is about 50% of our total revenue, so half of the total revenue. Service and storage is only 10% of our hardware revenue, while networking is as much as 30%. And that's why it's so crucial for us to get networking back. Other is, of course, the rest of approximately 25% of the hardware revenue. As we have said in a long time, on-prem server and storage is a small part of our revenue. And that's why public cloud is actually an add-on or a growth factor and not a factor to exchange other revenue for cloud. And looking at software, As you can see, the abnormal revenue in second half of 2022 and first half of 2023 also implied into the software revenue. It's important to understand why software the last many years, four or five years, have grown faster than hardware and services. There are two main reasons. One, for most companies, including Atea, cloud is recognized in the P&L as software. Of course, cloud is hardware and software packaged to a cloud solution. But for most companies, it's seen as software. that brings up the software revenue secondly a lot of companies and for us this applies for instance with cisco have split the revenue from one part number which have fallen into the p l as hardware to two part numbers software and hardware and for this reason even showing growth on hardware is actually a good thing and that the software grows faster is a part of the changes in the industry. Software will keep on growing, and I'll come back to some interesting characters for that business later. If you look at the services business, the services that we perform is mostly connected to our revenue on hardware and software. We're not a consulting company. where we're working completely free from the revenue of products. Therefore, our services revenue, not 100%, but have the same character as our product business and more similar to the hardware than the software. And what you often see, which you also can see on this slide, where the green is the services revenue that has grown through this whole period with one small deviation in Q2, are following the trend of the product revenue. but will be lagging about a quarter or two. So when hardware and software goes down, services will normally go down a quarter or two later, and the same thing when it goes back to growth. We've been very happy with the services development over a long period. And as you know, investing in both managed services and consulting or skills is important to our business model. When it comes to the headcount, we reached a top in Q1 2023, again in line with the massive increase of revenue in that period. Going out of Q3, we were approximately 200 people less. And during 2024, we have brought down the number of people with approximately 100. which is a balancing act because there are areas that we invest in and hire, and there are other areas that we make things more efficient or need less people. That is a part of life. In Q4, we'll take a one-time recharging of $40 million. for mostly decreasing number of people in Sweden. And we'll get back to during the Q&A, I think, more on how this works out. But 40 million extra in Q4, which you can see as bringing 40 million of costs from 2025 into a one-time charge in 2024. With that we expect to be approximately 100 people less than we were in September when we enter 2025. So. In summary, so far in 2024. Our revenue is in line with last year. Exactly what we have expected. The EBIT is 34 million behind last year, and the cash flow has developed in a positive way. Our prediction for this year is the same as it was in February when we announced the Q4 2023 numbers. We will have growth both on revenue and EBIT when we end this year. So with that, I'll open the Q&A. And I'm happy to have Silje with me today. That is the CFO in the Norwegian organization. So Silje, is there any question for Robert or me?