INTERIM REPORT JANUARY-MARCH 2018
Acquisition takes Enea to new levels
First quarter 2018
- Revenue in the first quarter was SEK 170.3 (142.7) million, equivalent to a 19 percent increase.
- Operating profit excluding non-recurring costs for the first quarter increased to SEK 35.1 (27.4) million, corresponding to an operating margin excluding non-recurring costs of 20.6 (19.2) percent.
- Operating profit for the first quarter increased to SEK 27.0 (25.2) million, equivalent to an operating margin of 15.9 (17.7) percent.
- Earnings per share decreased to SEK 0.94 (1.27) for the first quarter.
- Cash flow from operating activities was SEK 8.0 (30.4) million for the quarter.
- Cash and cash equivalents and financial investments amounted to SEK 140.6 (285.1) million at the end of the quarter.
- Enea acquired the US based company Openwave Mobility in the quarter. The acquisition was partly financed by Enea issuing a SEK 500 million bond.
- Given its view of acquisition candidates and future prospects for the coming years, the Board will not be proposing any dividend for 2017.
January to March 2018
(first quarter previous year in brackets)
- Revenue, SEK 170.3 (142.7) million
- Revenue growth, 19 (17) %
- Revenue growth, currency adjusted, 21 (16) %
- Operating profit excluding non-recurring costs, SEK 35.1 (27.4) million
- Operating profit, SEK 27.0 (25.2) million
- Operating margin excluding non-recurring costs, 20.6 (19.2) %
- Operating margin, 15.9 (17.7) %
- Net profit after tax, SEK 18.2 (21.1) million
- Earnings per share, SEK 0.94 (1.27)
- Cash flow from operating activities, SEK 8.0 (30.4) million
- Cash and cash equivalents and financial investments, SEK 140.6 (285.1) million
Anders Lidbeck, President and CEO comments:
Enea growing stronger
The past quarter was not only one of our best ever, but also a milestone in Enea’s history, with the acquisition of Openwave Mobility. We completed this acquisition in March, which also meant that we consolidated its earnings from that month, and we can already see the first positive effects of the acquisition. We grew revenue by 19 percent in the quarter, year over year, and our profit excluding non-recurring costs was up by as much as 28 percent. Non-recurring costs for the quarter include SEK 8 million of transaction expenses, but even including them, operating profit was up by 7 percent year over year, which is very satisfactory.
The acquisition of Openwave Mobility grows the product group we designate as Network Solutions, making it our largest product area. It represents a total of 39 percent of revenue in the quarter, and accordingly, our highest-growth product area is also our largest. Our dependency on single Key Accounts also reduces through the acquisition, currently comprising 35 percent of revenue. Overall, these are two key strategic changes in our current transformation process. Other business segments also progressed well in the quarter, and I would like to highlight our Global Services business achieving double-digit year-over-year growth, which is a clear improvement on the corresponding period of the previous year.
The first quarter of the year is always eventful, and included our participation at the Mobile World Congress in Barcelona, which throws a spotlight on our industry. Enea participated as previously, with a larger presence than ever before. We demoed our complete uCPE solution (universal Customer Premises Equipment), which is based on Enea’s NFV access platform. We showcased everything from DPI-based probe solutions to traffic classification as a tool for dynamic service function chaining, and presented Enea’s accelerated Linux solutions, focusing on real-time characteristics and performance. We also announced the acquisition of Openwave Mobility at Mobile World Congress, offering us a unique opportunity to follow up with affected customers and partners on-site. Looking back at this year’s events in Barcelona, we held a large number of meetings with existing and potential customers and partners.
A strategic acquisition
The second part of the first quarter was an intensive phase, when we during two hectic months secured financing, signed the acquisition agreement, and then quickly completed the acquisition of Openwave Mobility. In the short perspective, we will see positive effects on revenue and earnings in 2018, as was already apparent in the first quarter. What we see now are results of a long term effort and part of Enea’s evolution and transformation. Our discussions with Openwave Mobility and its former owners, and our work on securing our financing, started a year ago. This is a major acquisition for us, which takes us in a direction consistent with the strategy we have set. I previously communicated our ambition to move higher up the software stack, migrating higher up the value chain, and getting closer to end-users—the operators that use Enea’s software in their networks. This strategic objective is intended to expand our current market position and to create potential for growth going forward. Historically, we held a stable but confined market position in embedded operating systems primarily in the telecom domain—a position we intend to retain and defend going forward. Meanwhile, we know that this is a segment that is levelling off, and as a company, our ambition is to grow significantly faster than the market segment where we have historically been present in, which requires us to expand into new segments. In a situation where operating systems and other low-level software is encountering a growing presence of open source, it will be easier for us to find growth with good margins higher up the software stack.
The acquisition of Openwave helps us accelerate the transformation process. We are acquiring a business that directly addresses our traditional end-users, and we evolve from delivering software as a component to now also delivering complete applications and solutions. Expanding into the traffic management segment is a natural evolutionary step beyond the positioning within traffic classification that we have previously secured through the acquisition of Qosmos—and simultaneously, fully in line with our current focus on NFV and virtualized network solutions. We remain true to our traditional market and end-users, and in parallel we build upon the portfolio and skills we already possess. We are simultaneously adding new segments in those areas where we see good growth opportunities and future software business with high profit margins.
In 2017, we grew revenue by 17 percent year over year. In parallel, the revenue from our largest account decreased almost 10 percent, and we expect this trend to continue and to increase or decrease depending on the customers success. As I stated previously, this negative trend is mainly a result of more widespread usage of open source, and in other words, we need to outgrow this reduction to keep growing Enea overall. A ruling was announced in the first quarter regarding the dispute that has been ongoing for several years. The ruling will now be implemented, but like the still remaining dispute around a unilateral price reduction implemented by the customer, the implementation will also involve some continued uncertainty. This is nothing new in any sense, and as we have previously communicated, we are hoping to resolve parts of it during the year.
We will be tirelessly continuing our efforts to build a larger and stronger company, delivering increasing value for customers, employees and shareholders. The transformation we are undergoing is positive for Enea, with less dependence on a single major product and a few Key Accounts. Acquisitions that strengthen our market positioning and long-term earnings capacity are an important part of this process, and despite our expectation of lower revenues from Key Accounts, our objective is to keep growing the company with good profitability and healthy cash flows.
Our objective for the full year 2018 is to achieve revenue growth, and improve operating profit compared to 2017.
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: Wednesday April 25 at 08:30 am CEST
Telephonenumber: SE: +46856642662 UK: +442030089802
The full report is published at www.enea.com
This information is information that Enea AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency
of the contact person set below, on April 25, 2018 at 7.20 CEST.
For more information visit www.enea.com or contact:
Anders Lidbeck, President & CEO
Julia Steffensen, Executive Assistant
Phone: +46 70 971 03 33
Enea develops the software foundation for the connected society. We supply NFVI software platforms, embedded DPI, real-time operating systems, video traffic management, cloud data management, and professional services. Solution vendors, Systems Integrators, and Service Providers use Enea to create new networking products and services faster, better and at a lower cost. More than 3 billion people around the globe already rely on Enea technologies in their daily lives. Enea is listed on Nasdaq Stockholm. For more information: www.enea.com
Enea®, Enea OSE®, Netbricks®, Polyhedra®, Enea® Element, Qosmos® and Qosmos ixEngine® are registered trademarks of Enea AB and its subsidiaries. Enea OSE®ck, Polyhedra® Lite, Enea® ElementCenter, Enea® On-device Management, Enea® NFV Core, and Enea® NFV Access are unregistered trademarks of Enea AB or its subsidiaries. Any other company, product or service names mentioned above are the registered or unregistered trademarks of their respective owner. All rights reserved. © Enea AB 2018.