KISTA, Sweden, July 19, 2017 /PRNewswire/ -- Second quarter 2017
First six months of the year
April to June 2017
(second quarter previous year in brackets)
Anders Lidbeck, President and CEO comments:
Interesting times
It is a new Enea that has now put its first half-year behind it. The acquisition of Qosmos last December has complemented the other parts of our business really well, in both hard and soft factors. It is already contributing positively to our business top and bottom line, but has also advanced our market positioning significantly in our focused segments of NFV and cyber security. The acquisition has also strengthened our management and engineering capabilities.
In overall terms, our second quarter revenue grew by 20 percent year over year. Meanwhile, we are still facing challenges in business on Key Accounts. Even if, due to the settlement of a previous delivery and the acquisition of Qosmos, we did increase income in the quarter by 22 percent year over year. But the long-term trend remains downward, which is, and will remain, our primary challenge. We need to offset the decline in our current business with major customers, with growth in new segments.
Continued trends
The second quarter continued the trends we witnessed in the first. Unfortunately, our US service sales continued to make negative progress, with year over year revenues down by more than 20 percent for the third quarter running. The major services deals we projected to close during the first half of 2017 has not materialized as expected. It is likely that this trend will continue for the rest of the year, even if the year over year numbers are expected to stabilize by the end of the year. Services sales in Europe made positive progress in the first half-year 2017, as in 2016. We expect this positive trend to also continue in the coming quarters. With the exception of Key Accounts and network intelligence, our global software operations continued to progress slowly in the second quarter 2017 in year over year terms. During the quarter we have executed changes in our sales and marketing organization, to reduce costs and accelerate sales.
To spur sales and address new market conditions, we are continuing to develop our product portfolio. In the NFV segment, we announced two new products in the quarter: Enea NFV Core—an NFV platform that builds on our work in the OPNFV project, and Enea NFV Access, a platform optimized for usage cases closest to the subscriber in the network, usually known as customer premises equipment (CPE). We're now working actively to bring these products to market, and are in promising dialogue with potential customers and partners. We were also able to publicly announce a project that we have ongoing with China Mobile, the world's largest mobile operator in many respects. Even if the financial value of this project is limited, we attach great strategic significance to this type of project, and the recognition that partnering with China Mobile brings. We'll keep developing our positioning in the segments where we perceive demand and where the world of tomorrow is being built.
Satisfactory margins
We have now experienced five years of profit and margin growth, but the coming period will mainly be about realigning our business. During this shift, our focus will be more on establishing a market position than on margin expansion. During this transformation process, it will be a challenge to retain the margins generated previously.
It should again be noted that the companies acquired in 2016 returned margins well below the 20 percent-plus that Enea has delivered in recent years. Meanwhile, we are retaining our ambition to return to a 20 percent operating margin as early as by year-end 2017. That is why it is very satisfying that we achieved an operating margin of 20.9 percent before non-recurring costs during the second quarter.
We will create future margin expansion mainly by focusing on fewer segments and by cutting unprofitable areas that lack clear potential, while continuously reviewing our cost base. During the quarter we decided to put two of our older products in maintenance mode and scale down related resources, while simultaneously focusing nearly all new development on cyber security, and first and foremost, on NFV. Even if our investment in NFV is unprofitable at present, we have also decided to focus here, because these are segments developing rapidly on a global basis, and for the past few years, we have created a unique market positioning here. As a result of these changes, our cost base will reduce by some SEK 20 million for the full year 2018. This program will start to be visible already in the second half-year 2017. The changes were complete during the second quarter, and restructuring costs of SEK 4.7 million were charged to second-quarter profit.
The significant dispute with a major customer regarding the interpretation of contract terms generated high legal costs in the quarter, which reduced Q2 profit by SEK 3.7 million. We expect legal costs to remain at these levels in the second quarter.
Against this background, our operating margin including non-recurring costs for the second quarter, of just over 15 percent, and our operating profit of 22.5 million, is very satisfactory, even if it was down by SEK 6.3 million year over year. Excluding non-recurring costs totaling SEK 8.5 million, operating profit in the second quarter was better than the corresponding period of the previous year.
Future prospects
We are continuing to build a larger and stronger company with increased values for our customers, employees and shareholders. The transformation process currently underway is fundamentally positive for Enea, and reduces dependence on a single product and a limited number of major customers. Acquisitions that strengthen our market position and long-term earnings ability are a key part of this process, and despite our expectation of reduced income from our largest customers, our objective remains to expand with good profitability and sound cash flow. However, we cannot rule out the risk that increasing non-recurring costs associated with this process may be charged to profit for 2017.
Our objective for the full year 2017 is to achieve double-digit revenue growth, and improved operating profit compared to 2016 before non-recurring costs. We expect the improvement of operating profit to occur in the second half-year 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 July 19 at 08:30 am CEST.
Link: https://www.financialhearings.com/event/9845
Phone number: SE: +46856642694 UK: +44-2030089810
The full report is published at www.enea.com/investors
This information is information that Enea AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Swedish Securities Markets Act. The information was submitted for publication, through the agency of the contact person set below, on July 19, 2017 at 7.20 CEST.
For more information visit www.enea.com/investors or contact:
Anders Lidbeck
President & CEO
E-mail: anders.lidbeck@enea.com
Julia Steffensen
Executive Assistant
Phone: +46-70-971-03-33
E-mail: julia.steffensen@enea.com
This information was brought to you by Cision http://news.cision.com
http://news.cision.com/enea-ab/r/interim-report-april---june-2017,c2313479
The following files are available for download:
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Enea report Q2 2017 eng |
