Good morning. My name is Hans Peter Melnerud. I am the CEO of Solaris. Pleased to also welcome our CFO, Gunnar Manon, who is here with me today for this webcast presentation of Solaris Q3 2020 results. We are using Teams for this purpose and hope that we will deliver on your expectations.
There is a Q and A function that you can use to ask questions that we will respond to at the end of the presentation. Please observe that the presentation is being recorded. You will find a link to the recording on the investor part of our website. Without further ado, let us move on to the presentation. Despite short term impacts from the COVID-nineteen pandemic, Tifsolaris continued weathering the storm delivering Q3 on all customer commitments, maintaining stable revenue levels and net rigid burn churn, again providing the robustness of our now 20 year old business model of long term agreements with securing recurring revenue streams.
As our favorite mountain goes to Toppen, the location of the Solaris Norseman Xtreme triathlon finish line, our business is being built stone by stone. Our continued EBIT focus is continuing to pay off. We delivered a 49% increase from Q3 last year. This is an all time high Q3 EBIT since 2014 and our IPO. We signed several new agreements, including our first U.
K.-based deal for multi country payroll out outsourcing services to a leading FTSE 250 gaming and software company. Last but not least, our operating cash flow almost tripled in the quarter compared to last year. Thank you to the whole team, Solaris, for doing a tremendous job. Despite short term impacts from the COVID-nineteen pandemic, Team Solaris delivered revenue of €189,700,000 which is in line with the same quarter last year. EBIT continued on the journey towards our communicated 10% target to SEK 13,300,000 which is 7%.
This is an increase of 49 percent compared to Q3 last year. As mentioned earlier, this is the best Q3 ever since our IPO in 2014. Our FTEs continued to decrease, resulting from our efficiency improvement programs. It is stabilizing now and will be managed carefully to match our incoming deal flow and backlog over. Our business model with long term agreements and recurring revenue is increasingly in favor among investors.
We have offered software as a service business process as a service delivery models since we were founded 20 years ago. In a nature of searching IPOs, it is interesting to reflect over that we are delivering profits today, what other still must realize in order to justify their evaluations. Working from anywhere has become the new normal driving the need for fully digitized people processes, Delivering payroll and HR services on the basis of one common IT platform supported by local competent resources has been key to our success and 2019 year of uninterrupted growth. From the outset, our goal was to help customers reduce their direct process costs by 20% to 30% by outsourcing their payroll and HR processes to us, at the same time, enabling them to operate seamlessly across borders. With COVID-nineteen, everyone have been learning what working from home or anywhere means.
Reducing costs and focusing capital expenditures to projects with defined short term payback is a natural consequence of every company bracing themselves for the unknown of the pandemic. Add to this, the overall megatrend of increased focus on human capital management and corresponding growth in cloud based HR solutions. Team Solaris is extremely well positioned to support existing and new customers navigate and position themselves in this situation. Our innovative product and services portfolio cover the whole payroll and HR value chain. Our customer base of medium and large sized customers is diverse in all our market facing countries.
The number and value of customers impacted directly by COVID-nineteen in transportation and tourism is limited. Our largest market unit is Germany, delivering 62% of our revenue, slightly down from last quarter when it accounted for 64%. Germany and the U. K. Are our markets with the largest potential.
Poland and U. K. Are our fastest growing market units. Poland has doubled revenue since our acquisition in 2017 and is soon 100 employees strong. However, we shall not forget that our potential in the Nordic is still launched.
If we were to achieve the same penetration in Sweden, Denmark and Finland as we have in Norway, we could double our total revenue. During the quarter, we signed several new agreements. After struggling for quite a time, we are finally seeing that our acquisitions and efforts start to pay off with deciding of a breakthrough agreement for outsourced multicountry payroll services for a U. K.-based FTSE250 Gaming company. Our new gaming customer appreciated our capabilities of providing seamlessly integrated multi country payroll services to their new global HR solution.
We signed a deal in a record short 3 months from start to close. Yes, you heard it right, 3 months, one of the fastest that we have done ever. So congrats to the U. K. Team.
Our agreement with the Danske Bank for the provision of outsourced transactional HR services for their 2,200 Swedish employees positions us as the leading provider of digitized people solutions to the Nordic finance industry with 5 of the leading banks and 2 insurance companies under our belt. This is a segment that we will explore in our other geographies as well. We communicated a landmark win in the German municipality energy sector, signing a 5 year agreement with Stoltewacker Krefeld at GABH for the implementation and delivery of a SuccessFactors based HR solution for their approximately 3,000 employees. I will discuss the market opportunities that opened up with this deal later in my presentation. Adding to this, we signed a fast growing scheduled AVN IT company with 1200 employees as a multicountry customer.
In addition, we signed several new smaller agreements, including energy company Total E&P for the provision of outsourced transactional payroll and HR in Norway. We are experiencing an all time high interest in our outsourced multicountry payroll solutions as customers are exploring the alternatives to reduce costs and optimize their global HR processes. Our pipeline is filled with opportunities fitting well with our offerings. While sales cycles in the past frequently have been 6 to 18 months, we see signs of urgency combined with the benefit of digital sales meetings and virtual site visits, driving these down to more effective 6 to 9 months. Based on our historic win rate, we expect to close some of these opportunities by year end.
In managed services, we continue to see the impact of reduced travel expense processing some reduced headcount resulting from COVID-nineteen. The net effect of these reductions amount to approximately $3,000,000 to $4,000,000 for the quarter. We expect a partial return of this revenue when the situation normalizes. Much of managed services focus were on delivering on our business continuity plans. However, not losing focus on our margin improvement projects, significantly improving EBIT margins with almost 40% to SEK 14,800,000 for the quarter.
At the same time, we managed to keep churn minimal. The benefits of more than 90% of revenue being recurring shows in situations like this. In professional services, we see impacted companies adjusting their HR roadmaps from larger transformative projects to more tactical projects with shorter payback time. This view is supported by market analysts as Gartner. Professional services activity levels were stable with fair utilization of resources and revenue impacted by Q3 being the main vacation season with corresponding reduced available working days.
Supporting customers with business continuity services continue to be a growing service for us. Many of our initial agreements for such services have become permanent arrangement and resulted in new customer relationships as our agreement with Rheinmetall in Germany. As mentioned previously, both Poland and U. K. Showed significant growth.
EBIT levels were acceptable taking into consideration Q3 being a quarter with consultants taking their annual vacation and thus reducing the available working days. When comparing with last year's levels, we shall keep in mind that there were certain periodization issues between last year Q3 and Q4. Thus, we expect a significantly better Q4 this year compared to Q4 last year and in line with the overall development. The long term missing of our professional services customer relationships were confirmed over again with 83% of revenue coming from customers that were customers in Q3 last year. In professional services, we see that the application maintenance services that is helping customers maintain their own payroll and HR systems, mostly on long term or subscription basis, was reduced somewhat as a percentage of the total in Q3.
This revenue stream proves particularly important in times as this when test customers are looking to work with proven known suppliers for smaller projects with defined outcomes. So important to acknowledge when evaluating our professional services business is that contrary to many consulting businesses, around 60% of revenue is recurring. And as mentioned on the previous slide, this is a key contributor to that 83% of our Q3 revenue in this segment came from customers that were also customers in Q3 last year. So with this, I hand over to our CFO, Gunnar Manon, who will take you through the financial part of the presentation.
Thank you, Anders Petter, and thank you all for listening in to this webcast. As Hans Petter noted, revenue for the quarter was SEK 189,700,000, which was approximately in line with last year despite of some COVID-nineteen challenges. Marginally lower revenue as a result of lower volume hotel expense processing and change orders as well as some lower project activity within professional service in Germany was offset by higher lock value of our foreign currency denominated revenue. Managed services generated stable recurring revenue during the quarter with no churn but, as mentioned, with some lower COVID-nineteen related volumes such as travel expense processing. Adjusted EBIT was €13,300,000 compared to €8,900,000 last year, an increase of 49%.
And the margin increased by 2.3 percentage points to 7%. We have seen a gradual improvement in margin following implementation of the EBIT improvement program as seen from the quarterly development in the EBIT margin for the last 12 months and further improvements in EBIT margins is expected going forward. The underlying cost base has been reduced by approximately SEK42,000,000 year to date and adjusted for currency effects and differences in cost capitalized to customer projects. This is a reduction of approximately 9%. The positive EBIT effect on the cost reduction and efficiency initiatives will become more visible in the P and L with increased revenue and then larger new BPO projects are being implemented.
We continue to target an EBIT margin of 10%. As noted, there was a good improvement in adjusted EBIT and adjusted EBIT margin during the Q3. Through the EBIT Improvement program initiated in 2019, employee costs and other operating expenses have been significantly reduced when adjusted for currency effect and differences in costs capitalized compared to last year. This has also contributed to an increase of operating cash flow. However, as noted on the previous slide, the full effect of these cost reductions on the profit over the loss, including personal expenses, will materialize later.
Net financial income was negative €12,300,000 compared to negative €41,000,000 last year. This includes an unrealized currency loss of €5,200,000 on the €35,000,000 bond loan compared to a loss of €8,100,000 last year. This resulted in a net loss for the period of €1,800,000 compared to a loss of 6 point €6,000,000 last year. Moving on to the cash flow for the quarter. The operating cash flow was NOK 21,300,000 compared to NOK 8,800,000 in last year before a payment of deferred VAT of NOK 8,000,000 relating to the COVID-nineteen relief scheme as was noted in the 2nd quarter.
The company made the repayment of interest bearing debt in the German subsidiary of NOK 16,500,000 during the quarter And the cash balance ended at NOK 116,300,000 at 30 September, an increase of 51,500,000 from the same date last year. Moving on to the balance sheet. The net interest bearing debt was €280,700,000 marginally higher than last quarter due to the euro NOK appreciation. As communicated in the 2nd quarter, based on the current financial performance and position of Solaris, the Board will propose a dividend of minimum NOK0.5 per share for 2020. And that concludes the financial section, and I hand over to Hans
So over our 20 years in business, we have developed HR technology solutions as part of our managed services outsourcing and SaaS offerings. These solutions have primarily been bundled with our services. An exception is our efile personal archive solution where we lately have seen an increasing interest from the market. With a rapidly developing market for HR tech supported by customers' demand for cloud based solutions, we are continuously looking at how we can scale our business and leverage the investments that we have done to our advantage. We have just started a process to productize our offering of HR tech with the goal to faster scale our revenue stream with a structured product based approach for our solutions for digital forex and workflows, our integrated workforce management solution, including time and absence and workforce planning, our web proven travel expense solution driving efficiency for both users and the travel expense processing shared service center, our innovative visualization of payslips and last but not least, the above mentioned e file helping customers safely store and access employee documents in compliance with GDPR requirements via their cloud HR solutions.
Our target market for our suite of solutions will initially focus on in 180 countries. Nearly 80% of multinational companies use SAP. While SAP's foundation is an ERP system, it is also a global leader in human capital management. As you know, we have discussed this numerous times before. And we see that one of the key reasons for SAP's success is their extremely high market reach through its more than 21,000 partners.
So with SAP's payroll solution having more than 10,000 installations worldwide in 99 countries. The platform also pays more than 100,000,000 people and produced thousands of critical employee reports and statements each month. So to add to this, SAP's cloud based HR solution SuccessFactors, Employer Central, which we also deliver, recently reported their 4 thousandth installation. Our product portfolio is perfectly targeted at existing SAP payroll customers on their journey to the cloud, leveraging investments in their existing configurations of time, travel and payroll through providing a unified layer of user friendly applications, accessing these mission critical functions integrated into their new global HR solutions. We will develop a new channel strategy with a goal to leverage the SAP distribution channels as well as the established partner network.
And you will hear more of this as we proceed. Then let us take a look at the significance our 2 recent deals and the corresponding markings that they address. When we made the decision in 2017 to acquire Sumarum and Rock, we saw an opportunity to convert existing market presence and customer relationships to recurring revenue streams in the new markets, Germany, Poland, UK and Ireland. Together, this increased our accessible market with almost 7x to the Nordic market. As you know, we have spent much time on integration and struggling delivering on our own expectations.
Over the last 6 months, we have seen a significant change. Our common energy is tuned to this strategy in all markets as everyone sees the benefit of having long term relationships with customers, securing a stable work environment and secure jobs. Including in our efforts is revisiting how we can improve sales efficiency across the group. This has resulted in setting up a central C level sales function reporting to me responsible for supporting and driving sales of our managed service offering in all our markets. We have also adjusted organizations on country level, including strengthening our sales capacity.
So it is just with great draw that as we previously mentioned, could sign our 1st breakthrough multi country deal based on our platform with the previously mentioned U. K.-based FoodC250 Gaming and Software Company in the last quarter. And also as previously mentioned, our pipeline is very promising and we expect to see other examples of our efforts succeeding soon. So stay tuned. Our agreement with the German municipality of Krieperts, altogether with SAP, is another example visualizing the type of market segments opening up for us.
We will be implementing and supporting a new SuccessFactors HR solution for the municipality's utility at delivering water and energy services with approximately 3,000 employees. Contract term is 5 years. Germany's municipality sector employs more than 2.5 1,000,000 employees of which more than 850 are employed in similar company entities as the Strathwackenkreifelk. There are 400 registered other StadtWache in Germany. With Krefeldt being first out, this is a great opportunity for us to achieve a good market share in this segment that we estimate having an annual potential value of around NOK 1,500,000,000.
So coming at my last slide, let's sum up. We continue our daily work on being a better version of ourselves represented by our hashtag, besting myself. We will continue driving margin improvements through our ongoing project for operational efficiency, including maximizing the use of our near offshore and automation capabilities. We will continue work scaling own salaries payroll software as a service and outsourcing models successfully into Central Europe as well as U. K.
Ireland and build on existing and new partnerships and produce productize our own solutions with a goal of delivering our 20th year of uninterrupted growth. We will deliver on an expected increased demand as a result of COVID-nineteen for solutions that support reducing operating costs and allow flexibility to work from anywhere. This is back to the outsourcing basic value proposition on which we have built the majority of our managed services business and where we have seen strong signs in Q3 with pipelines rapidly filling up with good deals fitting our solutions portfolio. We also expect acquisition opportunities to surface and intend to be an active player in this market. This key to meet this is key to meet our growth aspirations.
We have learned a lot from our previous acquisitions. And as also mentioned in our Q2 presentation, ready for new projects. And last but not least, based on our experience of handling COVID-nineteen, being a more agile, team oriented and demanding organization, setting clear targets and following up on results. So thank you. And with this, we open up for questions.
And then we start off with a question immediately. Last week, SAP came with a profit warning relating to future growth. What is the relevance of this for Salaris?
Yes, I think it's we I saw this. I think it's important to see that even SAP is our one of our largest suppliers. Our business is very different from SAP, who base their business primarily from selling licenses solutions. We have communicated also in our report that we see a slowdown in large transformation projects and in directional more tactical projects seeking to reduce costs and having a shorter term payback. And as we have also communicated, we have been able to take advantage of this in the market, providing business continuity services.
And we now see that our pipeline has never seen this high growth as we currently see in the moment. So we see the current situation as a really good situation where we expect to grow going forward.
And another question. Could you please give us some flavor on the underlying revenue development? What would the revenue growth rate have been without COVID-nineteen effects?
Yes. I think that is, of course, it's a difficult question. I think we see this 2 elements of it. As we haven't communicated also in the presentation, we estimate the direct COVID-nineteen impact of being SEK3000000 to SEK4000000 for the quarter in lost revenue. And we should also comment that this revenue that is lost where we still carry the majority of the costs if we were to have that revenue.
So it would have other high incremental margin impact. Having seen that, with the slowdown in decision making, we have seen numerous larger professional services projects implementing new solutions for customer slip. We have been on down selected as the provider, and the customer has postponed the project because of COVID-nineteen and their focus on other more pressing topics. So that has definitely had a revenue impact, but it is difficult for us at the moment to comment on that. But also to repeat myself from the last question, even though it's we see a short term slightly negative impact, we see that COVID-nineteen has also given us a lot of positive values as a business.
We have come together for once much better as a team. So we have this internal motivation part, but we also see that customers are really appreciating the fact that we are able to deliver business continuity in the services that we deliver to them. And thirdly, as again reported, we see that there is a search of companies looking to reduce costs and to use the solutions that we have to digitize their people process. So in the medium term, we think that the COVID-nineteen will strengthen our growth.
Has the COVID-nineteen made the implementation of the efficiency programs easier or more difficult?
I think COVID-nineteen has made it somewhat easier because it all became clear for us also as a management team that we had to act. And I also mentioned this in my previous replies that what it has learned us all is how agile and action oriented that we can be if we need to. And you could say that, well, why don't you do that in your if you don't have a pandemic? And that's, of course, something that we can ask ourselves and something that we shall learn from also moving forward. But the fact is that we have really excelled as a team.
Everyone in team Solaris has stood up for what was needed from them and that has led to us delivering on plants much faster. It has led to all parts of the organizations vacuuming their areas of responsibility for improvements and we have been able to realize some short term gains. But more important than that, also identifying future gains that is on our road map to be realized.
And one final question. You mentioned M and A. What types of which geographies and what type of businesses would you acquire if you were to acquire? And what size?
Yes, I think yes, we have lots of lessons Yes, we have
lots of lessons learned
now from our previous acquisitions. I think, 1st of all, in terms of size, last time, the 2 businesses that we bought totally added almost doubled our revenue. So it was quite sizable and labor. I think short, medium term, we will look for somewhat smaller companies that would be smaller, more one location type of companies that would be easier to integrate into our organization. And having said integration, we will also have a more flexible and reflective approach to integration in our next attempt.
But the overall focus of our acquisition when looking at and evaluating acquisition targets is the level of recurrence in their revenue streams and the fit with our core business being payroll and transactional HR processing. So that is the key segment that we are looking for, companies delivering services that are as close as possible to what we have as our core business. Ideally, in some of our target geographies being new geographies that is in other key European countries as France, Spain, Benelux, but we are also open up for acquisitions that will increase our volume in existing geographies. Also, as we communicated in our last quarterly presentation, we had significant organizational capacity in our existing geographies to handle additional volume and thus adding volume to these businesses will have a significant contribution to our margin. Okay.
So with that, I think we say thank you and wish you back to our Q4 in February. And in the meantime, we hope that you will all stay really safe. Thank you.