Interim Report, July – September 2013
The operating margin and earnings per share continued to improve, while Enea’s sales for the third quarter were lower than in the third quarter last year. The profitability target of a 20 percent operating margin was reached for the second consecutive quarter.
Net sales for the third quarter amounted to SEK 97.1 (107.3) million. Software related income increased slightly while service sales declined, which in all is equivalent to a decline of 9.5 percent over the quarter. Net sales fell by 12.5 percent for the first nine months of the year.
The operating profit for the third quarter amounted to SEK 21.0 (18.0) million, which is equivalent to an operating margin of 21.6 (16.8) percent. For the first nine months of the year, operating profit amounted to SEK 57.0 (52.1) million, corresponding to an operating margin of 18.9 (15.1) percent.
Earnings per share increased to SEK 0.92 (0.77) for the third quarter and SEK 2.66 (2.31) for the first nine months of the year.
Cash flow from operations amounted to SEK 38.3 (26.6) million for the third quarter and SEK 81.0 (60.0) million for the first nine months of the year. Cash and cash equivalents amounted to SEK 156.4 (134.6) million at the end of the third quarter.
July to September 2013
(third quarter previous year in brackets)
- Net sales, SEK 97.1 (107.3) million
- Growth, -9.5 (6.1)%
- Growth, currency adjusted, -8.4 (5.8)%
- Operating profit, SEK 21.0 (18.0) million
- Operating margin, 21.6 (16.8)%
- Net profit before tax, SEK 19.9 (19.5) million
- Net profit after tax, SEK 15.1 (12.9) million
- Net profit, divested business, SEK – (-) million
- Earnings per share, SEK 0.92 (0.77)1
- Cash flow from operations, SEK 38.3 (26.6) million
- Cash and cash equivalents, SEK 156.4 (134.6) million
January to September 2013
(January to September previous year in brackets)
- Net sales, SEK 302.1 (345.3) million
- Growth, -12.5 (7.2)%
- Growth, currency adjusted, -10.6 (5.2)%
- Operating profit, SEK 57.0 (52.1) million
- Operating margin, 18.9 (15.1)%
- Net profit before tax, SEK 58.5 (56.3) million
- Net profit after tax, SEK 43.8 (39.0) million
- Net profit, divested business, SEK – (61.7) million
- Earnings per share, SEK 2.66 (2.31)1
- Cash flow from operations, SEK 81.0 (60.0) million
- Cash and cash equivalents, SEK 156.4 (134.6) million
1) Earnings per share is calculated based on profit after tax for the remaining business.
Anders Lidbeck, President and CEO comments:
“We have improved our operating margin in every quarter of 2013. We achieved an operating margin of 21.6 percent over the third quarter, which is also better than our long-term profitability target of 20 percent. This is the second consecutive quarter in which we have exceeded our target. Enea has shown that it is possible to create high profit margins despite a weak market. This is due to organizational and structural changes implemented over the last 24 months. We now have an efficient organization with a lot of flexibility, and we focus on areas offering high profitability. This has allowed us to maintain a high level of investment in research and development.
The market in which we operate continues to be very exciting. We are seeing a massive increase in numbers of connected devices and data traffic on mobile networks, but there is great price pressure. Manufacturers of telecom equipment is challenged with operators wanting to increase capacity while they at the same time has difficulties charging for their services. For Enea the result is fewer new customer projects which is balanced by an increase in installations of network equipment. In all, this resulted in an increase in software related income over the third quarter compared with the period last year. Service income decreased with app. 30 percent over the third quarter. Enea has seen declining service revenues during a number of quarters, especially on the American market where general reduction in government funding have had an impact on Enea’s customers’ projects. One third of the service revenue is dependent on defense projects financed within the scope of the American state budget. We are also seeing challenges in terms of software sales on the American market, albeit to a lesser extent than we are seeing in respect of services.
The high level of profitability does not mean that Enea is failing to make important investments. We are constantly investing in both the marketing organization and product development. For instance, Enea continuously reinvests about one-third of its software revenue in product development, and this has resulted in a number of new product releases during the year. OSE is currently our most popular product, and having a strong product offering is a very important element of our strategy. Alongside OSE, Linux is our biggest product development investment. However, it will take some time for our Linux sales to reach a level which will make it one of our bigger products in net sales terms, and ongoing investments will be required to achieve this. However, our focus on Linux has already had a beneficial effect on sales of Enea’s other products and services.
Within our service organization, we have concluded a number of contracts which will be very profitable for us in the long term. A leading American defense company has re-selected Enea as preferred supplier following a major review of all service suppliers. We were selected as one of more than 30 suppliers following an evaluation and negotiation process lasting six months. With this new frame agreement, Enea can continue to do service business worth an estimated SEK 125 million over three years. Securing a frame agreement and confirming the customer’s willingness to invest is extremely important to us. We competed with many larger companies and we managed to be selected without having to compromise in any significant area. Another important transaction concluded in the service sector involved a leading American medtech company, which granted us an extended agreement for the rest of the year in a deal worth SEK 6.9 million. And at the end of the second quarter, a frame agreement was entered into with a leading American manufacturer of secure electronic payment solutions. This customer is expected to develop into one of our three biggest customers in the service sector over the next few years. However, these new deals will not balance out the decline we experienced with government-funded projects in 2013 because of the startup time that will be required for these new projects.
We are continuing to adopt a long-term approach to our biggest customers and our most important partners in order to extend their use of Enea’s products and services. Continuing good relations with these players are the most important factor in securing our future business. With Enea Linux, we have created opportunities for new discussions on how the communication systems of the future can be constructed.
We will be continuing our attempts to improve growth and profitability. Achieving a 20 percent margin during a couple of quarters is good, but the long-term objective is to be able to deliver a 20 percent operating margin annually. Enea is prepared to face a market which remains weak, but we are investing and planning for growth.
We are standing by our outlook for 2013. Even if demand remains weak for the rest of the year, it is our opinion that we will improve both our operating margin and earnings per share over the whole year compared with last year.”
Press and analyst meeting
Press and financial analysts are invited to a press and analyst meeting where Anders Lidbeck, President and CEO, will present and comment on the report.
Time: Thursday October 24 at 10:00 am CET.
Link: Financial Hearings
Phone number: SE: +46 8 519 993 68 or UK: +44 207 660 20 81
The full report is published at www.enea.com/investors
This information is such that Enea AB (publ) is to publish in accordance with the Swedish Securities Markets Act and/or the Financial Instruments Trading Act. The information was submitted for publication on October 24, 2013 at 7.30 CET.