Proact IT Group: Fiscal 3Q12 Financial Results

The Proact IT Group published its interim fiscal year financial results for 3Q12 end September 2012.

Nine months in brief

• Income increased by 12% to SEK 1,721 (1,533) million.
• EBITDA increased by 26% to SEK 105.7 (83.9) million.
• Profit before tax increased by 50% to SEK 43.8 (29.2) million.
• Profit after tax increased by 46% to SEK 31.1 (21.3) million
• Profit per share increased by 60% to SEK 2.88 (1.80).
• Return on equity over the last 12 months amounted to 18.5 (23.4)%.

Third quarter in brief

• Income fell by 7% to SEK 487 (527) million.
• EBITDA increased by 5% to SEK 37.3 (35.4) million.
• Profit before tax increased by 1% to SEK 15.9 (15.8) million.
• Profit after tax fell by 13% to SEK 10.9 (12.5) million
• Earnings per share amounted to SEK 1.16 (1.16).

Proact is generating better earnings than in the same period last year thanks to an increase in sales and margins within its service operations. EBITDA amounted to SEK 37.3 million, which is a 5% increase on the same period last year. Profit before tax amounted to SEK 15.9 million, which is equivalent to a margin before tax of 3.3%.

Acquisitions are starting to have the intended effect. Service sales have increased by 5%, and new contracts relating to cloud services worth SEK 38 million have been entered into. Income from cloud services is distributed over the term of each contract – a period of three to five years – unlike traditional system sales, where the income is posted to income during the period. System sales have been adversely impacted during the third quarter, mainly in Denmark and Finland. This is due mainly to the fact that many customers have had a longer decision-making process for major investments in new storage systems: this is a tendency which we also saw during the second quarter.

Proact has been investing in its service operations for a long time now with a view to increasing the proportion of contracted services and thereby to creating a stable, long-term income base. This income will also help the company to achieve its long-term profitability target. Support services have constituted a significant element of contracted income ever since Proact was formed. Proact has invested in cloud services over the past few years in order to meet the demands of customers. These cloud services are being supplied by Proact Managed Cloud Services (MCS) to all markets in which Proact is active. The investment in cloud services has affected profits by around SEK 15 million over the first nine months of the year, and the investment is now starting to have the intended effect on revenues.

Analysis company Gartner is still of the opinion that digital information volumes are growing by more than 50% per annum, which is creating greater complexity at the data centres. Although some companies are holding off on decisions to invest, the need for new investments will increase over time. For Proact, the important thing is to express clearly the savings that its customers can achieve with their respective investments in all situations. The investments that create specific streamlining benefits will be given priority, thus allowing Proact to benefit.

Financial overview

• Over the nine months of 2012, Proact’s revenues amounted to SEK 1,721 (1,533) million, representing an increase of 12%; or 12% adjusted for currency effects. Organic growth amounted to 0%, or 0% adjusted for currency effects.
• Service sales have increased by 16%, and new contracts relating to cloud services worth SEK 88 million have been entered into. Income from cloud services is distributed over the term of each contract –  period of three to five years – unlike traditional system sales, where the income is posted to income during the period.
• As Proact is steering sales towards cloud services, system sales have weakened over the period.

Future contracted cash flows from Proact Finance amount to SEK 96 (82) million, representing an increase of 17% compared with the corresponding period in the previous year.

Over the third quarter, revenues amounted to SEK 487 (527) million, representing a decrease of 7%; or a decrease of 3% adjusted for currency effects. Revenues in West and North have been adversely affected over the quarter due to weak development in Denmark and Finland.

Of total revenues over the first nine months of the year, system sales amounted to SEK 1,149 (1,040) million, representing an increase of 10% compared with the same period last year. Revenues for service operations amounted to SEK 569 (490) million, representing an in-crease of 16%.

System sales over the third quarter amounted to SEK 297 (346) million, a reduction of 14% compared with the same period last year. The weak development in Denmark and Finland is due mainly to system sales.

Revenues for service operations amounted to SEK 190 (180) million, representing an in-crease of 5%.

Agreements worth SEK 38 million relating to cloud services and with terms of three to five years have been entered into over the quarter.

Major deals in the third quarter:
A number of major deals have been entered into over the past quarter with organisations such as GN Resound, the municipality of Hedenstad and Dansk Arkitektur Center in Denmark; Aditro Oy and the University of Oulu in Finland; Estonian Public Broadcasting in Estonia; Telefonica Group in Spain; Aker, Ar-rive, RWE Dea, Creuna, ConocoPhilips and Statoil in Norway; Com Hem, Evry, Telia and Grafia in Sweden; law firm DWF in the United Kingdom; and NDC Mediagroep in the Netherlands.

Important events in the third quarter Proact enters into agreement regarding virtualised infrastructure and cloud services for Grafia.

Grafia is one of Sweden’s leading companies in the field of model and product photography, supplying photos to companies such as Kappahl, Brothers, Lindex and MQ. In order to meet Grafia’s demands and requirements in terms of flexibility and performance, Grafia has entered into an agreement with Proact relating to investment in a new, virtualised storage infrastructure. This agreement also involves Proact standing responsible for the backup of business critical applications. Backups will be made to the Proact data centre on the basis of the company’s ‘Backup-as-a-service’ cloud service; giving Grafia greater redundancy and reliability in case information needs to be restored.

Innovation award for Proact
Proact won the NetApp Service Provider Inovation Award over the quarter thanks to its position as a storage supplier and provider of cloud services cloud services based on NetApp technology, among other things, Proact is demonstrating in an innovative fashion just how NetApp technology can be used for the rapid launch of new services. It has launched a number of cloud services over the year in the field of stor-age and archiving.

Law firm DWF switches to Proact cloud services
to support rapid growth
As the company has expanded, so its need for a reliable, cost-effective storage and backup environment has increased. DWF has entered into an agreement with Proact relating to the supply of a new storage solution which will be provided in the form of a cloud service, based on the SaaS cloud service. DWF has also achieved flexibility thanks to this investment in the cloud service, as its storage capacity is called off as the company grows and its need for storage changes. It is estimated that DWF will achieve savings of SEK 5 million over the agreement period.

NDC Mediagroep chooses
Proact’s Hybrid model for flexibility
Proact has revived the infrastructure of NDC Mediagroep in order to increase uptime and enhance reliability and performance. Among other things, this agreement includes a new infrastructure for primary storage and the backup of business-critical applications. Backups will be made to the Proact data centre on the basis of the company’s ‘Backup-as-a-service’ cloud service; giving NDC Mediagroep redundancy and reliability in case information needs to be restored. NDC Mediagroep is meeting the demands and requirements of the company in terms of IT services thanks to this new infrastructure and cloud service. This agreement also includes implementation of the new infrastructure and Proact Premium Support.

Proact MCS wins award
thanks to Probox advanced cloud services
NetApp has named Proact NetApp Solution Partner of the Year over the quarter thanks to its commitment to customers, and also because the company offers expertise and an ability to remain at the cutting edge of development. One example of this is the launch of the Probox cloud service, a secure, scalable file sharing service for companies and authorities.

The parent company in brief
The parent company’s revenues for the first nine months of the year amounted to SEK 46.4 (43.9) million and to SEK 14.6 (15.3) million for the third quarter. The profit before tax for the nine-month period amounted to SEK 28.0 (-2.6) million, and to SEK 7.3 (1.9) million for the third quarter.

The parent company’s liabilities in a joint group currency account amounted to SEK 191.4 (111.1) million as at 30 September.

At the end of the period, the number of persons employed by the parent company totaled 12 (9).

The parent company’s operations have remained unchanged over the period.