We see that we have had some an issue with the sound here. For those that have not been hearing us, we will actually then revert back to our first slide and start over again. Again, welcome to everyone. We at Team Zalaris continued our positive development in Q3 with new wins and expansion of agreements with existing customers. We see a trend shift and strong sales in Germany and the U.K. as the Zalaris brand is increasingly being recognized. Year-to-date sales resulted in contracted annual recurring revenue, increasing with another NOK 9 million to an all-time high of NOK 81 million. As we will see later, the positive development in sales is expected to continue. Even though the situation related to COVID-19 is normalizing in many countries, Team Zalaris is still operating in a flexible mode of working from our offices and home.
This seeks to address concerns from our employees about health issues. Employee engagement is at an all-time high, significantly up since last year in all markets and business units. In August, we had the pleasure of welcoming the ba.se. GmbH team in Germany, and for the first time, two months of ba.se. financials are also included in our reported results. Taking a closer look at the figures quarter by quarter. Revenue for the quarter ended at NOK 195 million, up 3% from the same period last year. EBIT continued to improve to 7.2%. This is the highest reported Q3 EBIT since 2016. As we in August got 80 new colleagues in Germany from ba.se., our full-time equivalents moved correspondingly up to 773 FTEs at the end of the quarter.
Let's take another look and repeat what Zalaris is about. Our business model with long-term agreements and recurring revenue is in these times one of the favorites among investors. We have offered software as a service, business process as a service, and outsourcing delivery models since we were founded 21 years ago. More than 90% of our revenue in managed services and around 55% of our revenue in professional is recurring. Delivering payroll and HR services based on one common IT platform, the Zalaris PeopleHub, supported by local competent resources, has been key to our success and 20 years of uninterrupted growth. Our approximately 880 employees deliver services from 13 countries, including France, with a population of more than 66 million, and frequently including multi-country deals which we set up now in Q3.
In addition, we can deliver to 150 countries through partners with our PeopleHub concept. Our short-term aim is to deliver services with own solutions and service centers for all EU and European Economic Area countries. From the outset, our goal was to help customers reduce their direct process cost by 20%-30% by outsourcing their payroll and HR processes to us, at the same time enabling them to operate seamlessly across borders. Triggered by COVID-19, large companies across the globe are reprioritizing their investments from solutions that enable unified access to payroll and HR data for analytical purposes, digitalization of workflows, reduction of cost, and securing business continuity of business-critical payroll. Working from anywhere has become the new normal, driving the need for fully digitized people processes.
Even though we see many are delaying large new investments, projects to support working from anywhere and secure business continuity are being prioritized. Team Zalaris is extremely well-positioned to support existing and new customers navigate and position themselves in this situation. Our innovative products and services portfolio cover the whole, product spectrum and value chain. Our largest market unit is Germany, delivering 35% of our revenue. Germany and the U.K. are our markets with the largest potential. In addition to being a 7x size market compared to our home market, the Nordics, a higher number of sweet spot customers with more than 1,000 employees are located here. As just mentioned, we established presence in France during the quarter. As also said, France is very frequently included in multi-country deals. Poland and U.K. are our fastest-growing market units.
Poland has doubled revenue since our acquisition in 2017 and is now 100+ employees strong. Poland is particularly excelling in the professional services and application maintenance segment. UK is rapidly turning into a more managed services-oriented organization from experiencing strong interest in its cloud and outsourcing offerings. However, as you see from our figures, the Nordics is still the front runner delivering continuous solid results and recurring revenue growth. This is the slide that reminds me of what fantastic company we have built. We have a diverse portfolio of customers in most industry segments. Some of the leading brands in the regions where we operate with a fantastic upside in supporting them in continuing to digitize their people processes, simplify work life, and achieve more. Let's look at our segments.
We experience a trend shift and strong sales in Germany and the U.K. as the Zalaris brand is increasingly being recognized. In the quarter, managed services revenue increased to NOK 132.5 million. The higher revenue is mainly due to the inclusion of ba.se., partly offset by headwind from currency movements. Revenue is approximately in line with last year when adjusted for these factors. Our efforts in streamlining sales and cooperating across regions continue to deliver results, bringing managed services EBIT to NOK 16.4 million or 12.3% of revenue. The margins we achieved in the Nordics are higher than those achieved in other regions due to a more mature delivery model. We will apply our model and experience in right-shoring and automation in the Nordics to our new contracts in Germany and U.K.
The positive margin development is expected to continue as new agreements go live. We estimate that our group organization and PeopleHub platform has capacity to support a business at least double our current size without incurring much additional cost. A key to positive margin development is thus to utilize this capacity by growing revenue from existing solutions and services. Approximately NOK 120 million of additional business delivered with target margin is needed to reach our goal as expressed in our Q2-communicated roadmap to 10% EBIT. With the go-live of our recently announced contracts that currently are in the project implementation phase, we are well on our way to reach this target. In the previous quarters, we have continuously reported a strong pipeline.
It was just with great pleasure that we could continue our signing streak from earlier in the year in Q3 for our PeopleHub platform-based solutions. In the quarter, we signed new long-term customer agreements with about NOK 9 million contract value, that is annual contract value, and ARR when fully implemented. In Germany, our managed services team signed new outsourcing agreements with the automated supplier, Viessmann, and the not-for-profit organization, BMW Foundation. We are progressing well with the implementation of a highly automated solution for Telefónica, scheduled to go live in Q1. In the U.K., we signed a five-year agreement to deliver a comprehensive SaaS payroll and workforce management solution to Sony Interactive Entertainment Europe. The people behind the Sony PlayStation that I trust you know well.
In the Nordics, our position as a leading vendor to the finance and insurance sector was further strengthened through our expanded relationship with existing customer, Santander, to a Nordic solution. In Sweden, we completed our implementation project and a successful go-live with superb customer feedback. Our agreement with Nordea to provide a new pension payment solution is another new product addressing the needs of the sector and another example of growing our services with existing customers. Let us take a closer look at professional services, our consulting practice. Adjusted for currency movements, professional services revenue were in line with the levels last year, with revenue of NOK 62.9 million. Add to this deferred project revenue from supporting managed services implementation projects of approximately NOK 8 million for the quarter, and you find an organization that currently is running at full capacity.
We have a short-term negative EBIT impact of higher than normal use of external consultants in combination with cost for trainee program, building new consulting capacity in Germany. We are almost back to a normalized resource situation in Q4, with a full normalization expected in Q1. Do also keep in mind that the deferred project revenue comes with no margins shown in professional services. That is also a contributor to the lower margin. Gunnar will talk more about this in his section. In Germany, our professional services unit successfully completed projects for Stadtwerke Krefeld and BITZER. We have been selected to support the Doctors Without Borders with a new SuccessFactors-based HR solution. We are very proud of supporting them. Our team continued its positive development, winning additional work for its application maintenance services and a number of new projects.
The team also is increasingly supporting the Nordics with implementation and development capacity. In professional services, we see the application maintenance services, AMS, helping customers maintain their payroll and HR systems mostly on long-term or subscription basis, continuing at more than 80% of the total revenue in Q3. Developing AMS services as a group-wide offering is a key focus area for our professional services business unit. As mentioned previously, we are well underway using our largest professional services practice as the core of this offering. We have moved some of our Nordic customers successfully, resulting in improved access to capacity, faster turnaround of change orders, and more satisfied customers. Important to acknowledge when evaluating our professional services business is that contrary to managed consulting businesses, around 50%-60% of revenue is recurring.
As mentioned on the previous slide, this is a key contributor to that 84% of our Q3 revenue in this segment come from customers that were also customers in Q3 last year. With this, I hand over to our CFO, Gunnar, who will take you through the financial part of the presentation.
Taking a closer look at the figures quarter by quarter. Consolidated revenue for the quarter increased by NOK 5.7 million compared to last year from NOK 189.7 million to NOK 195.4 million, which is an increase of 3%. As already mentioned, the increase in revenue is due to a positive revenue growth within professional services in Germany and Poland and the inclusion of ba.se., partly offset by negative currency movements. In local currency, the professional services revenue in Germany grew by 14% and the revenue in Poland grew by 8% year-over-year. The amount of revenue related to ba.se. for the quarter was NOK 8.9 million. Revenue in the Nordic region was approximately in line with last year when adjusted for currency movements.
EBIT ended at NOK 14.1 million, up by 6% compared to last year, and I will comment on this in more detail later on. We have signed a significant number of new BPO contracts during the year, which will result in increased revenue going forward. Last quarter, we started visualizing the future revenue effect of these contracts. During the third quarter, we added another NOK 9 million in expected annual recurring revenue, an increase of 13% from the previous quarter. An amount of additional ARR signed year to date is now 81 million. This amounts to 50% of the total revenue for managed services in 2020. These contracts are generally five-year terms, which gives a total contract value of approximately or more than NOK 400 million.
In addition to these comes change orders relating to new contracts, which normally represents approximately 10% of the recurring revenue. The ARR for the third quarter of NOK 510 million as seen in the top graph is the annualized recurring revenue from customers at the end of the quarter. The new signings and the non-renewals are those which are still to take effect. When these are fully implemented, the ARR is expected to increase to NOK 565 million, an increase of NOK 55 million or 11%. The timing of this increase is visualized in the bottom graph and the quarters represent the expected go-live dates for the new BPO contracts. All the new functions now being implemented has a negative impact on the revenue short term. A significant revenue generating capacity, i.e.
Consultants are being utilized on these projects. We do generate revenue from this, but the revenue is deferred. For the last four months, we have deferred revenue of NOK 36 million compared to NOK 8 million last year, an increase of NOK 27 million. The increase in deferred revenue year to date is NOK 20 million compared to last year. This revenue will be recognized on the contract period from the start of the regular service delivery, but distorts the real revenue growth in the company. Coming back to the EBIT. The EBIT of NOK 14.1 million for the quarter was NOK 0.8 million higher than last year. The EBIT margin was also marginally higher than last year. The EBIT margin within managed services non-Europe increased through improved customer margin, which is generally the result of operational improvements in our service delivery. The inclusion of ba.se. also contributed.
This was partly offset by lower margin in Germany. The professional service capacity in Germany should be normalized by the end of the year, and this, combined with an increase in the managed services activity in Germany, as noted by Hans-Petter, should improve the EBIT margin in Germany. A key to further positive margin development is to utilize our capacity and fixed cost base for growing the revenue from existing solutions and services. Approximately NOK 120 million of the additional revenue delivered with our target contribution margin is needed to reach our EBIT target of 10%. This was previously noted by Hans-Petter. With the expected annual recurring revenue from the signed contracts as shown in the previous slides and additional contracts in the pipeline, we are well on our way to reach this revenue target.
Looking at some of the other P&L items. Personnel costs for the quarter year-on-year is approximately 7% lower when adjusted for higher calculated employee options expenses and the inclusion of ba.se. The decrease is mainly due to additional personnel costs being capitalized on the customer contracts. The increase in other operating expenses of NOK 10 million is mainly due to the increased use of external consultants in Germany and Poland and the inclusion of ba.se. Net profit for the period was NOK 0.7 million compared to a loss of NOK 1.8 million last year. Moving on to the cash flow. During the quarter, the company had a positive cash flow from operating operations of NOK 30.4 million, which was in line with last year. The cash balance at the end of the quarter was NOK 169 million.
After the payment of the acquisition of ba.se. of NOK 42.5 million, which is the net of cash acquired and all the CapEx and lease payments. The net interest bearing debt at 30 September was NOK 191.8 million, which corresponds to the ratio of net interest bearing debt over adjusted EBITDA of 1.9. Then I give it to Hans-Petter to take the markets and outlook.
Thank you, Gunnar. Let's take a look at markets and outlook. The market for both managed services and professional services are growing at healthy rates. As we have based our growth ambitions mainly on growing our managed services recurring revenue, I will focus on the development of the two key addressable markets for this business unit today. The market for multi-country payroll and the multi-process HR outsourcing market. With multi-country payroll, we refer to customers that outsource the responsibility for two or more countries, and with multi-process, customers that outsource two or more HR processes. Payroll and one other process, for example, travel expense or time and attendance, being two of the most common ones. Zalaris is a key player in both markets.
Many of our large customers are a combination of multi-process and multi-country, as our goal from inception has been to deliver a complete solution for transactional HR services, including payroll, time and attendance, and travel expense processing in one common solution for our customers. Our PeopleHub solution is the core of our offerings addressing these markets. We offer multi-process primarily in the countries where we have own coverage and where all services will be delivered in PeopleHub. Multi-country payroll is frequently also associated with global payroll, covering all countries where a customer has an employee footprint. In the Metsä case that we sold in the beginning of the year, we will deliver payroll in 28 countries.
The largest countries we handle in our PeopleHub, the small employee number footprint countries, typically with less than 100 employees, are handled via in-country partners via system solution integrated to our PeopleHub for a seamless user experience. With partners, we can currently cover more than 150 countries. With our own solutions, we can deliver to all Western European countries, but are currently focusing on countries where we have our own service center capacity, as the Nordics, Baltics, Poland, Germany, U.K., Ireland, France, and India. As the Asian Pacific market, or APAC, is quite buoyant, we are also currently in a number of requests for tender processes with APAC footprint. Through 2021, we have seen a dramatic shift in demand. In the Nordics, we attribute this to a more structured and focused sales effort.
As we are fairly well known in this, our home markets, particularly among the large potential customers, it is rare that we are not invited to tender if a customer has decided to outsource or procure a new SaaS-based solution for payroll and HR. However, this has not been the case in the U.K. and Germany. This market combined is about, as I mentioned before, 7 x larger than the Nordic market, and with a much higher density of customers fitting our segmentation criteria. As an example, there are more than 3,200 SAP payroll installations in Germany alone, more than 10 x that of the Nordic in total. This size is easily EUR 1 million ACV.
It has taken time after our acquisition of Sumarum and ROC with rebranding to Zalaris to be known as a player in the market, and to train our business developers in selling the Zalaris core PeopleHub offering. We now experience a significant spike in incoming requests resulting in signed deals and projects in contracting phase, where the customer is continuing the process with Zalaris as the exclusive partner. Of course, we do not win everything we bid for. At the moment it feels, as we are growing from a relatively small base in these regions, that we almost see an exponential growth potential. Winning key deals with branded customers as Telefónica and Sony acting as net promoter has been key. However, we also hear from prospective customers that our digital marketing presence and inclusion in industry advisors market guides are helping us get onto the playing field.
Of course, it helps with a super user-friendly intuitive user interface and a robust solution enabling one common system across all locations where a customer operate. The IT guys love that for all the benefits related to integration and security. If you look to the performance year to date, we see that our budget for the year, which was to sell EUR 8.5 million of recurring revenue or annualized contract revenue, where it has been almost met by Q4. With 94% of this already being reached.
If you see that, how this ACV is comparing to the base in the relevant countries, we see significant growth rates just by Q3 in countries like Germany and in U.K., Ireland, while we are still in the Nordics growing at 15% of our managed services by the end of Q3. Knowing that we still have a number of deals in our pipeline in exclusive negotiations, we are confident that we will way over-deliver on our ambitions for sales in 2021, and expect this to continue into 2022. With this, let's just sum up. With our roadmap to margins on track, we turn our attention to realizing the full growth potential of our organization.
We continue our daily work on being a better version of ourselves compared to what we were yesterday, represented by our hashtag #BestingOurselves. We will continue our focus on creating satisfied customers at every customer touchpoint and journey. We also believe that the happy employees is key to having happy customers, maintaining low churn. We will continue realizing our roadmap to 10% EBIT, adding more revenue with higher incremental margin utilizing our fixed cost base and execute on further operational improvements. We will maintain growth momentum of selling new managed services solution into Q4 and 2022, with a goal of realizing 10% overall organic growth from 2022 through growing managed services with 15% and professional services with 5%. We are exploring a number of acquisition opportunities.
This is key to meet expected demand of our customers for multi-country solutions and will enable us to fully utilize our capital structure and organizational potential. With that, thank you. We open up for questions. Gunnar, do we have any questions?
Yes, we do. First of all, what is the reason for the headcount churn in Germany? How expensive is it on a relative basis to replace those consultants with new hires?
The main reason is Germany, as well as many of the other countries where we operate, is very competitive at the moment for the resources that we have. There is a strong demand, which of course also benefits us. I think one of the effects that we have seen also through COVID and working from home is that we have lost some of the, say, culture connections with employees, and this has resulted in some churn. However, we have built, as we mentioned, well, recruited and built new resources. I can't go into exactly the cost of that. It is a significant cost to build and recruit new resources. At the moment, the situation has stabilized.
We are coming out of Q4 with more resources than what we have lost and are really back on track. Add to this, we have a extremely good development in employee satisfaction and engagement in Germany as well as in other countries. We see that as very promising also for the future.
Could you please provide us with a definition of the word significant with regards to your pipeline? Several potential significant new contracts. What is a typical deal size of the contracts in the pipeline?
Yeah, of course, significant is a subjective word, meaning different things to different people. For us, if you look at the typical deal sizes that we have, a typical, I would say Zalaris deal would be on the low end about NOK 3 million Norwegian kroner deal annual contract value. A large deal can typically be up to 20-30 million annual contract value. When we pass 10 million annualized contract value, that is when we would consider that a significant deal that would really contribute to our revenue growth.
Another question. Referring to the trend shift in Germany and the U.K., when do you think we can see concrete results of that?
As mentioned in our presentation, we experienced this strong trend shift where that also is represented by the very strong growth in managed services in these countries. Also as mentioned, we have a very strong pipeline. We are selected as the preferred negotiation partner in a number of deals and hope to close those now in Q4.
A new question. How has your M&A work developed since the Q2 report?
The M&A work is developing well. We are constantly on the lookout and in dialogue with acquisition candidates. We are working with advisors in various countries, as well as on a global level. We expect to continue on our M&A growth journey soon.
Really as a sort of follow on to that. Another question. Given your strong cash position and positive outlook, do you have any plans of calling the bond or changing the capital structure mix? I can maybe answer that.
Yes.
You know, given the M&A activities, it is difficult to exactly be precise on the timing of processes like that. We do not intend to reduce the current level of debt as those funds would then be needed. Still it could be that we would want to refinance the bond loan to get a better structure and basically better conditions. For the time being, there are no concrete plans as of today.
Okay. Thank you.
I think that concludes the Q&A session.
Okay. Thank you everyone for turning up. Please do not hesitate to contact us on ir@zalaris.com if you have any questions, and we will do our utmost to support you. Thanks again. Bye-bye.