Investor NewsOrigo hf. results for the first six months of 2018August 22, 2018

Origo hf. posts EBITDA of ISK 235 million in the second quarter of 2018, up 11% between years

Today Origo presents its results for the second quarter and first six months of 2018.

Highlights:

  • Goods and services sold totalled ISK 3,731 million in the second quarter (up 3.4% from Q2 2017) and ISK 7,512 million in the first six months of the year (down 1.2% from 1H 2017) [Q2 2017: ISK 3,608 million, 1H 2017: ISK 7,605 million]
  • Gross profit was ISK 1,010 million (27.1%) in the second quarter and ISK 1,917 million (25.5%) in the first half of the year [Q2 2017: ISK 904 million (25.0%), 1H 2017: ISK 1,880 million (24.7%)]
  • EBITDA totalled ISK 235 million (6.3%) in the second quarter and ISK 336 million (4.5%) in the first six months of the year [Q2 2017: ISK 211 million (5.9%), 1H 2017: ISK 453 million (6.0%)
  • Net profit of ISK 15 million in the second quarter, and a net loss of ISK 11 million in the first six months of the year [Q2 2017: ISK 166 million, 1H 2017: ISK 237 million]
  • Net profit without IFRS was ISK 27 million in the second quarter, and ISK 12 million without IFRS in the first six months of the year
  • The equity ratio was 39.8% at the close of the first half, down from 41.6% at year-end 2017
  • Employees exercised stock options worth ISK 112 million in the first quarter, with the purchase price due in April
  • Agreement was reached to enter into exclusive discussions with HPE Growth Capital regarding the sale of a one-third stake in Tempo ehf.

Finnur Oddsson, CEO:

"The performance of Origo and its subsidiaries was much better in the second quarter than the first, and somewhat better than in the same period last year. Revenues have begun to rise again after a decline in the first quarter and our gross profit has improved.  The operations of the Group and all of its major business units have strengthened over the course of the year, in line with our projections and efforts to improve efficiency.

We see a positive trend in the Group's operations and in various projects that have been conducted in recent months and weeks.  Most noteworthy, perhaps, is a positive development in our efforts to sell a stake in Tempo. Last week, an agreement was signed for due diligence and Head of Terms regarding the sale of an approximately one-third stake in Tempo to HPE Growth Capital, a global investment firm that specialises in investments in fast growing IT companies. The sale is expected to be completed in about 6-7 weeks and will proceed on the assumption that Tempo has a total worth of USD 62.5 million. HPE is also expected to contribute significant funds to Tempo for development and growth. 

This agreement is subject to all the usual conditions, including due diligence, but is nevertheless an important validation of our belief that it is  possible to build valuable, international IT companies in Iceland, which create significant value for the Icelandic economy and numerous interesting  jobs. This could be the right time to pause and reflect on the importance of the conditions for these type of businesses remaining favourable in Iceland, including with respect to wage trends and the upcoming collective bargaining negotiations. 

The agreement with HPE would not be possible without the tireless efforts of the staff of Tempo and Origo. Over the past 10 years, Tempo has transformed from an idea on a piece of paper to a company that employs 100 people with operations both in Europe and North-America, generates revenue of more than USD 20 million, services around 12,000 customers in 120 countries and boasts outstanding revenue growth. Tempo performed well in the quarter, with all key metrics trending upwards. Revenue was up 28% in the quarter, totalling USD 5 million. Revenue over the last 12 months has thus increased by 30%, currently standing at USD 20.7 million. Subscription revenue continues to rise at a rapid pace, exceeding 40% of overall income for the first time this quarter. Trial subscriptions increased in the quarter and there has been good sales growth through resellers, who now total 140 worldwide. The solution offering continues to strengthen, with several new services slated to be launched in the next few months, further adding to Tempo's revenue streams.

It is particularly encouraging to see that experienced global investors have a similar view of the opportunities inherent in Tempo's operations. We look forward to supporting the company towards further growth, most likely in collaboration with HPE Growth Capital, and thus creating added value for Origo shareholders. We believe that shareholders will benefit greatly from Origo's continued ownership of the majority of Tempo, which we expect to contribute significant value over the coming years.

There are also positive developments in other areas of Origo's operations. Business Solutions posted significant revenue growth in the quarter, as the target market has been widened with new solutions such as Dynamics NAV and Timian, a number of new implementations of the Kjarni human resource and payroll system have been successful, and SAP S4/HANA has proven popular with businesses in Iceland. The same is true of Software Solutions; demand is strong for consultancy and digital service development, including both ready-made solutions such as Caren and CCQ and custom solutions for clients. 

The revenue of Operation and Infrastructure fell somewhat short of expectations, owing on one hand to a general decline in sales of equipment for centralised infrastructure and on the other hand to a temporary decline in service contracts with large clients. However, the good news is that its performance did improve over the period.

After a slow beginning to the year, sales of end-user equipment, personal computers and audio and visual solutions recovered sharply in the quarter. Sales of end-user solutions are increasingly being conducted through our online store, benefitting both Origo as well as our customers.

On the whole we are pleased with our second quarter results. The third quarter is also off to a promising start, the sales pipeline is good and generally there is a lot of interest in the solutions we are offering. However, we remain concerned about the upcoming extensive collective bargaining negotiations; it is important for the parties concerned to come to agreement on a mutually beneficial solution that does not endanger economic stability."

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