Earnings Call: Q2 2021

Aug 13, 2021

Hello, everyone, and welcome to GoPro Group's First Half Results Presentation for 2021. My name is Mika Anirund. I am the Group's CEO of Go4. And with me, as always, I have here today Teppo Talavinko, my colleague and CFO of Gofer Group. Hi, good to be here today. I think at this point in the presentation, it's already good to say that we have had a very eventful and successful half year behind of us, as usually. So it's nice to be here today to present the results for the first half of this year. And Of course, we are looking forward to the second half and doing even better. We always start this presentation with telling shortly about what Gofor is about and what we do. So Gofer is a growing and profitable digital transformation consultancy. The Goferians are experts in digital transformation, in digital technology, in what digital means for businesses, organizations, for people's everyday lives. In essence, you could say that we are together with our customers shaping the very future of people's everyday lives and also businesses' everyday lives. Some selected examples of what we do together with our customers. The 3 first ones from the left hand side are examples of how we work together with our customers, in this case, in the Finnish public sector to develop new kinds of digital services for everybody, for all of us, for all of the people and all of the businesses living and working in Finland. For example, in the middle, building a smarter education sector. We are working with the big cities in Finland to develop new ways of communication between schools, teachers, families, students, parents of the students. On the right hand side, we have a couple of examples of what we think The future of digital will also include. It will be one part in our struggle to fight climate change. It will be one part of our struggle to ensure that our future way of life is sustainable in every way. So These kinds of things and projects together with our customers, we think are something for the future and that makes us very excited because what Gofer is about is to deliver positive societal impact with our work. And all of these examples we think are just that. I also mentioned that Go4 is growing and profitable, and we have a short history of what Go4 has been here. In 2017, GoPro went public. We were listed on the Helsinki First North market. And this year, we transferred to the main market. And I think we can safely say that Gopor has had a strong history of growth of profitable growth. And that's something that we are very proud of and that's something that has become the identity of Gophering as the identity of this company. And of course, most important thing here now today is that We can say that we have continued on this part and presenting the results for the first half of twenty twenty one. Is in line with our history and our heritage, if you will. So some highlights, some numbers from our first half on the following slides. We are very happy about the financial results of the first half of twenty twenty one. Exceptional growth, almost 40% growth compared to the year before, driven by 2 company acquisitions during the last year and of course, driven also by excellent organic growth. EBITA profitability grew driven by growth in net sales very nicely and also employee headcount grew. Course, we are in the consultancy business, so that basically is the scaling model of our business. EBITA percentage, not quite on the level that it was the year before. And that's, of course, something that we are we cannot be entirely happy with. But we'll look into The reasons behind that in this presentation later on and want to give some explanation on that matter too. Some other highlights for the first half. We continued with our mergers and acquisitions track. And in February, we announced the acquisition of a company, a great company called KEA. KEA is a consultancy company with exceptional expertise in human driven change, which we believe is something that fits excellently into GoForce overall offering in digital transformation consultancy. Digital transformation is not just about technology. It's not just about building the user centric new digital services. It's also about a larger transformation where organizations need to embrace digital on a much broader scale. And that's why I think we think that the expertise provided to the group by the acquisition of KEA is something that is going to be extremely valuable for Gopher and especially for Gopher's customers. As said, during the first half, we also transferred to the Helsinki main market from the 1st North list as was planned. And we also successfully completed a directed share issue of 1,000,000 shares, raising €19,000,000 in April this year. Something that is, of course, for the company a very important thing as such, building the balance sheet that we need for our growth strategy to the future where company acquisitions will play a part. But also from an ownership perspective, it was a very successful transaction where we managed to make go for A lot more international also in terms of ownership, which we believe is really important and will be in the long run beneficial for all owners of goal for. We also had some success on the customer front and here are a few selected Examples of customer deals that we did during the first half. A couple of big agreements with public sector customers of ours with Finnish Tax Administration and City of Espoo that continue our successful and long term partnership with these customers into the future. And we are now in terms of agreements also, apart from these 2, we are very well placed for the future to work long term and make successful results with our biggest customers in the Finnish public sector. So from these things over to Teppo and the numbers for the 1st year. Thanks, Mikael. So growing fast, net sales were up to 38% Year on year basis. And what are the key drivers behind that really strong growth? So if we draw a line from our strategy, its acquisitions have strengthened our offering And especially delightful, increased our presence in private sector. Going back to offering slide Mika just showed, a solid value chain from lead to create up to quality verification all steps needed and vital when building customers' digital transformation. And of course, our, let's say, base layer, A strong presence in public sector in Finland, our home market. And of course, not to forget organic growth. All these factors were leading us to a solid Strong growth in our home market, both public and private sectors. We want to be more transparent, and that's why we publish our sales and NOL and FTE figures on a monthly basis, as you probably have noticed. So here, you can see a clear increase in graph caused by Gentinel, that took place in last year September and Care now, as Mikael mentioned, in March. There is a certain pattern with certain seasonalities like summer holidays. So We know that there is a slump. But in September, we are in a full speed. Gopher has been a profitable, fast growing company, now 16 years in a row. We continued on that path. Growth rate was excellent. Adjusted EBITDA increased 23% year on year basis. Growth drivers, as stated in our strategy, were successful acquisitions, KI in March Positive trend in hourly prices, successful sales pipeline, Very solid offering from end to end and, of course, public sector success. Scalability in OpEx decreasing down to 10.5%, a couple of points lower than last year. And last but not the least, very tight focus on utilization. And that's our key operative KPI. Okay. A few words about our quarterly development. So years are not brothers to each other. And Looking back Q1 2020, so that was COVID free. And since then, we have been leaving, I'd say pandemic here. Q3 'twenty one, so the question, As always in consultancy business is how fast customers ramp up projects after holiday season. So we have a quite good feeling that it will start quite smoothly. Let's take a closer look at the net sales distribution. So some Key findings to bring up. 2nd from the left, by sector, increase in private sector sales In terms of euros and tariff sales, we went from last year 27% up to 36% this year. At the same time, we were successful in public sector. So very good development and well in line with our strategy. Our private sector clients are mostly big players in their markets, in their industries. And Digitalization and managing that change is a key topic there, too. The subcontracting in the right, the share was 19%, a small increase from last year, 17%. But as stated before, it's an ecosystem thing for us. Our Capability network, it widens our capabilities and now how. It's a booster and it gives us more flexibility in our operations. About the financial guidance. So we keep our guidance intact. So we are saying that net sales will increase compared to 2020. Adjusted EBITDA will increase year on year basis. So maybe you can understand why we are so happy and even proud about the results for the first half. It's been a good an eventful first half, as said. I'm going to now take a quick look into what GoForce Growth strategies and what kind of results we feel that we have achieved during the first half. And then we're going to take a little bit of a deep dive into the Drivers behind the growth and behind the profitability numbers, we want to show what kind of things we have seen during first half of the year and a little bit what to expect for the future. We have earlier said that GoForce Growth Strategy is about 3 avenues of growth. It's about growth in Finland, it's about international growth And it's about a disciplined mergers and acquisitions process and strategy, something that we have been working on since 2017 and have been learning along the road. And we feel that we have really improved in that area, and that's a big and important part also of the growth strategy. So looking at what we have achieved in these growth avenues. First of all, growth in Finland. Teppo mentioned that the biggest driver behind the net sales growth and the biggest Figure there is our growth in private sector customers, over 90% growth year on year. A huge success, of course. And what we have done there is that we have been successful in providing our customers with the strategic partnership with the long term partnership in digital transformations that we have also earlier learned to do with the public sector customers. The needs for the customers in the different sectors are, Of course, a bit different and there are differences. But the idea of providing those customers with a comprehensive offering in digital transformation, not just technical know how, not just helping them with strategy and so forth. All of this is something that is key to becoming a long term partner with these customers. In the private sector, most of our customers and the big customers are the big companies and leading players in their industries. A lot of that is in the export industry in Finland, which, of course, now is in the phase of the pandemic where they are investing quite a lot and their order books are nicely filling. That also means that Digitalization is quite a top priority for many of these companies and that's why they also have need for services like what Gofer can provide them with. So that's a very good the success we have had during the first half, of course, driven also by company acquisitions as part of the strategy. We have acquired companies have strong foothold in the private sector company. We have acquired, above all, companies that complement the offering of Go 4 and make it the comprehensive offering in digital transformation that we are targeting. So very good. On the other hand, public sector customers, we have had good success there. We have been able to win a lot of tenders that are about our long term customers and have been able to secure our future with these customers for the coming years. We are now in a good position in that sense for the future. And also we feel that for the biggest challenges in the public sector, not least the social and health care reform coming up there, We are very well placed to help our customers in tackling those challenges. So we are very confident about The future also there and we are very satisfied with the results from also from the first half. 2nd Avenue, the international growth, around 10% growth year on year, Not quite what we, of course, would expect in the long run. And a lot of that is about the pandemic hitting our ability to sell internationally and also, of course, in many countries, the pandemic hitting the customer segments that we have much harder than here in Finland. So it's been a bigger hit for the international clients, at least for the clients that Gofer has. But that doesn't mean that the future is impacted in the same way we are very confident about the future there also. What has happened there is that One part of our international growth strategy is our ambition to use the learnings, use the Expertise and know how that we have gathered here in Finland together with the public sector in digitalizing society Use that to our advantage also outside of Finland. And we are Really confident that this expertise is something that is needed in Europe as a whole. And that's something that we have now gotten some evidence of. Over the summer, we have had success in a few framework agreement tendering for OECD in Paris and the European Patent Office in Munich and Den Haag, where we are now placed as a player in those framework agreements. And that's, of course, a big step for a Finnish company like Gofor. So we are very hopeful for the future in that sense also. The 3rd avenue, TCFLINT mergers and acquisitions strategy, acquiring companies, basically making add on acquisitions to that develop our offering. And also in the future, we are targeting develop our geographical relocations. We have over the Last year, we have done 2 company acquisitions we acquired, Keltinel Finland, which will become go forward, very fast in the near future, and we have acquired KEA, as said. But for the future, I think the important things are that we have, again, developed our ability to take over these companies to be successful in providing these companies with a good home, a good growth platform, a good culture for the people from these acquired companies. So that's something that's really important for the future. And of course, you also need the means to by the company. So we are also very well placed here now with the raising of NOK 19,000,000 in the directed share issue that we did in April. So a good situation there in many ways. Of course, the market is quite heated right now in that area and company acquisitions are challenging in that sense, but we are still very well placed in doing that also. And what we have said earlier is that geographic wise, we are targeting and looking at the mostly at the markets Finland and the Germany, German speaking Europe. So expect things to happen in those geographies. Then I want to give you a look a little bit, Let's say behind the scenes and the drivers for why our numbers for the first half were what they were, both Positive drivers and then challenges that we also have had. First of all, the positive thing that has impacted First half, but of course, is also a very important thing for the future. And that's positive development in customer prices. We have said in Results presentations and other investor presentations earlier that the pandemic presented us with a Big challenge in customer prices when the pandemic hit. It's now very I'm very happy to see that that challenge doesn't seem to have become a permanent problem for us and probably for the industry as a whole, but at least for Gopher. So we have seen a positive trend in customer prices during the first half of this year, which is really important. And that positive trend has accelerated towards the end of the first half. So very good for the future also. We are, of course, doing what we can do to keep this trend going, very important. The other, which Tepp also referenced earlier here today, is In terms of operative effectiveness and our day to day work, the most important KPI, our billing rate or the real utilization as we call it. Real utilization for us is a number that mirrors both our day to day operations, how effective they are, And it mirrors also the effectiveness of us as a whole, as an organization, how much what the distribution between People doing customer work, customer facing work and people not doing customer facing work is so. So these numbers we have here or Let's not call them numbers. These bars that schematically represent the billing rate during the first half include both of these things. Please don't take a measuring tape and try to compare those bars to each other. I can tell you that The difference between the high points and the low points here as a real utilization number is around 2.5 percentage points. So that's the difference there. And that's a big difference when we measure profitability. So we did have a dip in billing rate, which was evident in March, and it was The bottom or the below point was in April. And much of this had to do with a big customer of ours their agreement period coming to an end and a new agreement period starting. It doesn't mean that we Lost customers or lost customers customer work, it means that we had a point in time where we needed to do a lot of changes and we didn't manage those changes as well as we would have liked or as well as we should have. This customer, which is the Care Center in Finland, is one of our biggest customers. And Even though we have like a negative information here on this slide, that customer relationship is now secured for the coming years in terms of agreements and that's really important for us. So that's a positive thing in the end and positive thing as a whole. But this is something that we needed to show you in order for you to understand also that this is something that impacts our profitability. The third thing going on is that For us and the industry as a whole, not just in Finland, it seems to be a very global phenomenon, is that People working in the tech industry, especially which who, of course, have a lot of choice in terms of employment are thinking about their future. We have both a kind of Pushed back need to change between jobs because the early pandemic era was a time where people didn't change jobs. So that's kind of pushed back and we now see it. But there's also something bigger going on in the market and that's something that we also see. And the negative thing about that is that We are experiencing higher employer turnover than we are used to and that higher than we would like to see. And this is something that is, of course, a challenge for us. We need to, as always, invest time and effort into providing our people with the best employer experience in the industry. And that's something that we for sure are doing. But it's not just about doing more and being better at what happened before. It's about adjusting to the new situation brought on by the pandemic and it's about increasing Freelance work, it's about more remote work and so forth. And these are, of course, things that Nobody is totally prepared for and something that everybody in the industry need to tackle and go for also. And we hope we are going to be successful in that during the last part of the year. It also means, of course, Depo talked about that, is that looking at Distribution of net sales, we are expecting in the long run the subcontracting part of it going up and that's not a bad thing at all. It's a good thing for us. It means that we are well placed in the ecosystem as the kind of platform player there and providing our partners with opportunities to work with the customers in their challenges. So those are the things that we want to Show you like what is going on, let's say, behind the scenes and very important things for us looking at First half also looking to the future. As you know, Gofor's long term targets are to continue our rapid growth and do it with Excellent and, let's say, better than industry profitability. And that's for sure what we want to continue doing. We have said that our growth targets is in the long term on a more than 20% annual growth. We feel that is still a good target for us, about half of it in the long term coming from company acquisitions and the other half coming from organic growth. Organic growth For the first half of the year was almost at the level referenced by the long term targets. The employee turnover is something that is going to impact that area. So we don't have that number in this material, but let's say that it's very close to the target set here. Profitability wise, we are still very committed and very ambitious on building a company that is like structured to deliver this kind of profitability. And we are very Sure, that Gofor is a company that can do that. So that's what we look to do in the future. We need to get closer to that during the second half. We need to work on things to come closer to the 15% in the longer and what we just showed about the things going on behind the scenes that's the things that have been impacting it for this first half of the year. Lastly, just want to remind you of what Cophor is about. Our aim is to always be growing and profitable, which, of course, this results presentation is very much about, But it's not just that. We want to be constantly renewing. I think we have been very successful in that. We have constantly been building the a comprehensive digital transformation consultancy offering that we have talked today about today also very much. We want to be impactful and responsible, very important for us. And I said in the beginning, one trend for the future is that Digital solutions, digital technology is going to be one of the key things to prevent climate change and the climate crisis. And that's something that we, of course, want to be part of. That's very important for us as a company and as people. We want to be more and more international. We have taken some steps towards that. And lastly, but certainly not least, We want to offer exceptional customer and employee experience. And looking at the situation in the markets right now, And I'm again referencing the post pandemic or the changes in the employer market. It's very important for us to be able to offer that exceptional employee experience to people so that they choose, of course, go for over the employer next door. So there's Cohort's first half and now we are ready to take some questions. So thank you, Mikael. Thank you, Teppo, for the presentations. And good afternoon also to webcast listeners from on my behalf. My name is Nina Pavan, and I'm from GoFource Investor Relations. The first set of questions come from Jerkira Salakili from Evoli. So the increase in personnel turnover, how has that affected new recruitments? If we look at a little bit longer perspective and include last year also, I think what we've seen is that The beginning of the pandemic meant that recruiting also was a lot harder. People were reluctant to change jobs, Reluctant to take the shoulder that not wanting to jump into something uncertain, let's say, let's put it that way. That has during the second half of last year and this First half of this year, that has not been so much of an issue. We have had during the first half Success in recruiting, we could always do better there, but we have continued recruiting people and we have the bigger part of the net add of people is the employer turnover part. So recruiting has been successful during the first half. It can always be better, but it's that's not the biggest problem. Secondly, are you seeing increases in average hourly prices across the board? Or is this a result Or for instance, the share of revenue of private and public customers? It's a bit of both. The positive trend for Gofor has been across the board. But Because of private customer prices actually going down last year, and again, we are talking about the pandemic and the shock effect there, the rise in private sector customer prices has been faster than on the public sector, which, of course, the dynamic is also different. Public sector prices don't change that quickly. It's usually in the situations where there is a big tender out. The next set of question comes from Jonik Kvaerikris from Inderes. Going back to the employee turnover, It seems it has impacted more in July. How much was it affecting your Q2 figures? And what is the current salary inflation rate in your view? We don't have actual numbers for salary inflation. But of course, employee turnover and salary inflation are kind of The same coin, different sides. And we have a higher risk of bigger salary inflation now that the employer market is what it is. So Jannie's question was actually how has it impacted Q2? Q2. Yes. Well, it has been something that has accelerated towards the summer, let's put it that way. So yes, Q2 has been impacted by employer turnover. So secondly, looking at subcontracting revenue, it's clearly higher than the amount of sub Contractors you used in H1. So then you are using higher billing rates, profile subcontractors compared to own employees. Is this conclusion correct? I am guessing that Jonny is referencing our monthly business reports and the numbers that we give in terms of subcontractors and go for crew as we call the go for employers in terms of full time equivalents. And those numbers are not exactly comparable because subcontractors don't work for GoForce. So how we calculate the full time equivalents for subcontractors is for billable hours. So That's a difference there. So that's, of course, something also that's going to make comparing these numbers, They are not comparable, let's put it that way. So about the international business, can you elaborate a bit On the German IT Services, MA market, amount of potential target companies and valuation? That's a huge question, of course. The German market is over 10 times the size of the Finnish market. So that, of course, gives The picture the amount of companies means that it's huge. And for us who are coming like from outside of the market. That's, of course, a challenge for us to learn that market, understand that market, understand The types of players there and that's something that we have been working on and has been taken a lot of time of course. But maybe the answer to the question is that it's over 10 times bigger than the Finnish market. And then lastly, how is your order book looking for H2? And do you see a need for continuous recruiting? We feel that customer demand is on a good level at this point. We feel that If we're not going to see any huge changes in the pandemic situation that will actually impact the business of our customers or the willingness to invest in the future of the business of our customers, then the situation is rather good. The second part of the question, are we going to continue recruiting? Certainly, yes. We want to grow organically. Growing organically to some extent always means that we need to recruit. So yes, We are going to continue recruiting. The next set of question comes from Panu Leidy Mackie from Danske. What was your organic growth in Q2? And how do you It's expected to develop in H2. We don't have the organic growth numbers In this presentation, I'm hoping we can give the exact organic growth numbers for the whole year in our next results presentation at the beginning of next year. As I said, the organic growth number is a little bit below the 10% like baseline we have set for ourselves. Not that much has been impacted by the difficulties in the employer market. So that's something that is going to impact organic growth, of course. We are on track to continue on our target number of 10% organic growth for the second half. So of course, we are hoping that we can overcome these challenges and really achieve that 10%. Do you see similar contract changes going forward like the one with GEHA In H1. Not during H2. So you see the long term target, 15% EBITA margin as achievable in 2021? Difficult question, of course. Not something that we want to estimate as such today. As said, we are always building go for as a company and in terms of structure, in terms of customer facing versus non customer facing people to achieve that target. Looking at the whole year of 2021, we'll see. But we have opened up on the numbers behind the profitability here today. And I hope Panu can look at those numbers, and I'm sure he'll see the big picture there. The next set of questions comes from Jacob Turovaian from SEB. Regarding your growth in the private sector, how large share of the growth is coming from the acquired companies? And in which client vertical as you see you are seeing the strongest demand? Yes. We have both components there, of Of course, acquisitions and then, of course, organically also growing on a private sector. So there is both components in place. And then lastly, also in terms of your service What are the digital solutions that experienced the strongest demand with the private sector? We have Seeing good demand, let's say, across the board. We have seen good demand in quality assurance, which of course is something that GoPro is really a number one player in test automation and intelligent quality assurance here in the Finnish market. And that's something that's in high demand. We have seen demand in developing these digital services in software development experts. And we have seen Demand also in advisory kind of roles, a lot of which is about working in the agile way and helping our customers also become more and more agile. It's about all of these. But I think that the big thing to realize and understand about what we are trying to do is provide all of these services from one single point. And that's our idea of being the long term strategic partner and being able to provide the customers with an integrated set of services across the board. And that's something that will set us apart from the competition. Okay. And then the last question from Joni Knoeg is from Inderes about the Strassen Healthcare reform In Finland, could you elaborate a bit on that news? What kind of boost could this give to the IT services market in general? And how big and on which time frame? Yes. The social and healthcare reform was decided in June. And This time around, it was really successful in going into the implementation phase and these new organizations That will be all over Finland started their work in from beginning of July or a little bit later. And this is something that will be a long term project, of course. It's going to Building these organizations will be a 2 year, let's say, a 2 year period, but doing that is not like the end result of what we are trying to do in Finnish society. Doing building these organizations is just what we need to do in order for them to be better at developing a digital health care and social and health care system for Finns. And that's something that, of course, is never going to be complete. So having these kind of organizations instead of smaller cities, smaller counties being responsible for social and health care services will allow them to invest into building these digital services. And that is the key for the future. And that's something that is let's say, that's a long term project, if you can even call it a project. It's going to take a long time, and that's going to have a huge impact also, of course, on the demand of IT Services know how. Okay. So then the last question To conclude our Q and A session today, a question from Jarko Turveinen from SEB, a bit more of a generic question. Have you Estimate or quantified how large share of your revenue is coming from projects that are driven by ACG factors or more specifically, clean Transformation. We have not it's not an easy question and not easy to calculate. That's something that we want to do And that's something that we hope that we can come out with in the future. I sincerely hope so. But right now, It's really difficult to give an answer to that. So sorry, can't answer it right now. There being no further questions in the queue, I think this concludes our Q and A session today. Thank you for everybody for the good questions. Thank you, Nina, for the presentation. So have a good day.