Good morning. My name is Hans-Petter Mellerud. I am the CEO of Zalaris. Please do also welcome our CFO, Gunnar Manum, who is here with me today for this webcast presentation of Zalaris Q4 and full year 2020 results. We are using Teams for this purpose and hope that we will deliver on your expectations. There is a Q&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's move on to the presentation. Despite the short-term impacts from the COVID-19 pandemic, Team Zalaris continued weathering the storm, delivering Q4 on all customer commitments, maintaining stable revenue levels and negligible churn, still with a majority of our employees working from home.
Again, proving the robustness of our now 20-year-old business model of long-term agreements with recurring revenue streams, we delivered our 20th year of consecutive growth. Our continued EBIT focus is continuing to pay off. We delivered a 218% increase from Q4 last year. This is an all-time high absolute quarterly EBIT to date for the company.
We signed several new agreements, including a landmark deal with Finnish Forest industry company, Metsä, to provide payroll for their 10,000 employees in 28 countries based on our PeopleHub solution. Last but not least, our operative cash flow continued being strong, ending the year with a significant increase in our cash balance. As a result of this strong position, the board will propose a dividend of 1 NOK per share for 2020. Thank you to the whole Team Zalaris for doing an absolute fantastic job.
Taking a closer look at the figures quarter by quarter, Zalaris delivered revenue of NOK 204 million in Q4. This is a slight decline compared to the absolute figures in the same quarter last year, mainly attributed to short-term effects from reduced processing volumes coming out as a result of COVID and somewhat reduced change order related revenue in Managed Services in the quarter. We will get back to this later when looking at these segments.
EBIT continued on the journey towards our communicated 10% target to NOK 15.9 million or 7.8% of revenue, an increase of 208%, as mentioned, compared to Q4 last year. As mentioned earlier, this is the best quarter in absolute terms ever. Our FTEs were at the same level as last quarter and about 40 less than Q4 last year. Our number of employees are stabilizing now.
We continue managing our resource situation carefully to match our incoming deal flow and backlog of work. Our business model with long-term agreements and recurring revenue is one of the favorites among investors. We have offered Software as a Service and business process as a service delivery model since we were founded 20 years ago. We are still amazed of the valuations achieved by aspiring companies targeting the same business model.
We are delivering profitable and cash flow positive to date, what others are still dreaming of. Add to that being in a market with super growth potential, as I will get back to towards the end of my presentation. 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, the Zalaris PeopleHub, supported by local competent resources, has been key to our success and 20 year of uninterrupted growth. From the outset, our goal was to have customers reduce their direct process cost 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-19, large companies across the globe are reprioritizing their investments towards solutions that enable unified access to payroll and HR data for analytical purposes, digitization of workflows, reduction of cost, and securing business continuity or business critical payroll. Add to this, the overall mega trend of increased focus on human capital management and corresponding growth in cloud-based HR solutions.
Team Zalaris 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. I will talk you through our portfolio of services towards the end of the presentation. Our customer base of medium and large size customers is diverse in all our market facing countries. The number and value of customers impacted directly by COVID-19 in transportation and tourism is limited.
Our largest market unit is Germany, delivering 64% of our revenue. 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 now 100 employees strong. However, we shall not forget that our potential in the Nordic is still large.
If we were to achieve the same penetration in Sweden, Denmark and Finland as we have in Norway, we could double our total revenue. As reported in our Q3 presentation, we saw in H2 last year a very positive development of our pipeline of multi-country payroll and multi-process HR outsourcing deals. Thus, it was with great joy after lots of hard work that we could communicate our agreement with Finnish Forest company Metsä to provide multi-country payroll services to their 10,000 employees in 28 countries.
Our winning solution was based on our PeopleHub platform, supporting one common user interface and platform across all countries, fully integrated with Metsä's global Workday based HR solution. With this solution, we are now playing on our differentiators of one common IT solution supported by local competence in the countries that customers' employees are located.
In the past, we have been limited by being present in every country ourself. In the PeopleHub concept, we integrate local payroll partners, in this case BDO, in our delivery concept, and are thus able to deliver on all our values in small employee countries without being physically present ourself.
Thus, we can scale our platform and resources profitably without taking the investment of establishing own operations in countries with small customer employee populations. In addition to Metsä, we have also seen a number of other positive closings.
In November, we prolonged our agreement with leading electronics retailer Elkjøp for another five-year term. We sold multi-country payroll to U.K. headquartered company Gamesys. Recently, we also announced new agreements with Lindorff, Alenta, and Entra for outsourced HR cloud and payroll services. Let's look at our segments.
In Managed Services, we continue to see the impact of reduced travel expense processing and some reduced headcount resulting from COVID-19. The net effect of these reductions amount to approximately NOK 3 million to NOK 4 million for the quarter, as we've also talked about in previous reports. We expect a partial return of this revenue when the situation normalizes.
Despite the reduced revenue, we continued seeing the effect from our cost optimization and automation programs that helped increase EBIT margins to an all-time high of NOK 15.6 million, up from NOK 14.9 million in the same quarter last year. Professional Services continued developing positively. In particular, supported by U.K. and Poland, driven by both high focus on project work as well as positive development in application maintenance services or AMS services for short.
EBIT levels improved significantly from the same quarter last year to NOK 8.2 million for the quarter, supported by higher revenue in Poland and lower costs in Germany. The long-termism of our Professional Services customer relationships was confirmed over again with 85% of revenue coming from customers that were customers in Q4 last year.
In Professional Services, we see that application maintenance services helping customers maintain their payroll and HR systems, mostly on long-term or subscription basis, was reduced somewhat as percentage of the total in Q4 to 54%. As the absolute value of these services are relatively stable, the percent share is mainly affected by overall positive revenue development.
The AMS revenue stream proves particularly important in times as these, when customers are looking to work with proven and known suppliers for smaller projects with defined outcomes.
Developing AMS services as a group-wide offering is a key focus area for our Professional Services business unit. Important to acknowledge when evaluating our Professional Services business is that contrary to many consulting businesses, around 55%-60% of revenue is recurring.
As mentioned on the previous slide, this is a key contributor to that 85% of our Q4 revenue in this segment came from customers that were also customers last year. With this, I hand over to our CFO, Gunnar, who will take you through the financial part of the presentation.
Thank you, Hans and thank you all for listening in to this webcast. Revenue for the quarter was NOK 204 million, which was marginally over the last year, despite some COVID-19 challenges, as noted in the previous quarters. Some lower revenue as a result of lower volume of travel expense processing and change orders was partly offset by increased sale of Professional Services in Poland, as well as a higher NOK value of our foreign currency denominated revenue.
Managed Services generated stable recurring revenue during the quarter with minimal churn, but as mentioned, with some lower COVID-19 related volume such as travel expense processing. Adjusted EBIT was NOK 15.9 million compared to NOK 5 million last year, an increase of 218% and an all-time high adjusted EBIT for a single quarter for the company. The adjusted EBIT margin increased by 5.4 percentage point to 7.8%.
We have seen a gradual improvement in margins during the last quarters following the execution of the EBIT Improvement Program, and as seen from both the quarterly figures in the adjusted EBIT margin on the graph on the left and the adjusted EBIT margin for the last 12 months on the right. The underlying cost base has been reduced by approximately NOK 50 million for the full year when adjusted for currency effects and differences in costs capitalized to customer projects.
This is a reduction of approximately 8%. We continue to target an EBIT margin of 10%. As noted, the adjusted EBIT and adjusted EBIT margin for the quarter was significantly higher than last year. For the full year, the adjusted EBIT was NOK 55.3 million, compared to NOK 30.1 million last year. Employee costs and other operating expenses have been significantly reduced for the full year.
As noted on the previous slide, when adjusting for currency effects and differences in costs capitalized compared to last year. This should become more visible in the P&L when new major BPO projects are being implemented and existing internal resources are capitalized as part of these projects. The reduction in the cost base has also contributed to an increased operating cash flow.
Net financial income for the quarter was NOK 13.7 million, compared to NOK -2.4 million last year. This includes an unrealized currency gain of NOK 18.9 million on the EUR 35 million bond loan and other foreign currency denominated items. This resulted in a net profit for the quarter of NOK 17.6 million, compared to a loss of NOK 3.3 million last year. Moving on to the cash flow.
The operating cash flow for the fourth quarter was NOK 14.1 million, the cash balance at the 31st of December was NOK 124.8 million, up from NOK 116.3 million at the end of the third quarter. The cash balance has increased by NOK 42.3 million during 2020, after the repayment of interest-bearing debt of NOK 17.5 million. Moving on to the balance sheet.
The net interest bearing debt was NOK 252.3 million at 31 December, a reduction of NOK 28.4 million from the end of the third quarter due to an increase in the cash and a stronger NOK with the EUR, which impacts the NOK value of the EUR 35 million bond loan. The board will propose a dividend of NOK 1 per share for 2020. That concludes the financial section, and I hand over to Hans-Petter to present the outlook for Zalaris.
Thank you again, Gunnar. In this section, I want to take you through some slides summing up the sentiment of the market and our corresponding key offerings. As previously mentioned, we see a strong interest in our payroll and HR business process outsourcing services. This has resulted in a significantly strengthened pipeline in H2 and a number of newly signed agreements.
This sentiment is also confirmed by industry analysts as Everest Group, who in their 2020 key issue survey that was recently published, report that 57% of senior stakeholders and key buyers in large European companies expect the use of HR business process outsourcing to increase in the time to come.
Triangulating this with the results of a recent NelsonHall industry analyst report expecting the market for multi-country payroll to grow with 10.7% to 2023 to a market size of around $6 billion.
NelsonHall supports our previous statement that growth is driven by international expansion requiring a global footprint for payroll and has also a demand for consolidation of suppliers and increased visibility of the global workforce supported by advanced analytics. This is promising for us, having had the vision of Zalaris supporting international businesses delivering multi-country payroll in a combination with multi-process HR outsourcing since our inception 20 years ago.
This is bread and butter for us and have been further strengthened through our PeopleHub concept. With our technology and services, we can cater to most midsize and large customers' payroll and HR needs as complete solutions for managing master data, workforce planning, including time and attendance, travel and expenses, and payroll. Our solutions also cover all integrations to local authorities and stakeholders for reporting and absence processing.
Most BPO agreements, which represents the majority of our revenue, are delivered on a combination of a complete package consisting of all necessary technology licenses and services, typically priced and sold on a transaction basis as per active employee or travel expenses processed per month. In some cases, we do also deliver services on the basis of systems infrastructure provided by our customers.
Even though this typically offer customers increased service levels, contracted business continuity at a reduced cost, it limit our value creation potential as we cannot explore the full capabilities of automation and digital processes as when we deliver services on the basis of our own platform. Our own platform allows us to invest and deliver in continuous improved processes and share the cost across all our customers.
Working to upsell to our platform to these customers is just a natural direction of travel in order to provide more value. Some customers that are not ready to outsource their shared services choose our platform as a backbone on which they can build and operate their own efficient shared services. This is typically priced on the basis of the number of users and functionality a customer consumes on a monthly basis.
Our unique PeopleHub concept, which is the core of our recent offerings to Metsä, allows global companies to provide their employees with one common user interface for all transactional HR as payroll. The solution also offers global time and attendance and travel expenses in the same interface. External solutions for workforce planning is easily integrated through standard integrations and APIs. Employees and managers access our solution through user-friendly apps.
PeopleHub integrates with the customer's global HR solution via one common set of interfaces and has functionality for maintaining local payroll data not being maintained in the global solution via digital workflows.
The solution thus supports one common structure of all data to be processed. For large companies and complex employee populations, we use our proven SAP payroll for processing, operated in our own service centers in the countries where we are present and by partners in our infrastructure in countries where we do not have critical mass to be present.
For smaller employee population countries, we run payroll in local partners' payroll systems, fully integrated with PeopleHub. All master data is continuously validated to support early detection of exceptions with innovative technologies supported by AI and machine learning. Our constant focus is to automate as much as possible.
Thus, we can offer the capability to analyze and report on data across the whole global universe of relevant data and monitor the status of payroll runs and performance on service level agreements through one common customer cockpit. PeopleHub is a key element of realizing our growth ambitions, as it allows us to scale into new geos without the costly process of establishing own presence in every new country.
Thus, we can stay true to our core idea of providing services on the basis of one common infrastructure supported by local competent resources. Looking forward, our clear ambition is to deliver our 21st year of consecutive growth. Our pipeline of opportunities is healthy, and we experience that our brand is known in the geos where we are present.
As it appears as COVID-19 is easing, we're seeing customers increasingly being able to focus their efforts to improving their business again, not only keeping their head above the water. In Managed Services, we focus our effort on creating net promoting customers, as we know this is key to increased share of wallet, with new solutions and services as well as winning new customers.
Key focus is, as previously mentioned, utilizing our capabilities within multi-country payroll and multi-process HR outsourcing. We are structuring our Professional Services as a global business unit with a goal to further hone our strategy, supporting customers on their cloud journeys and to build on our solid partnership with SAP, who is driving cloud solutions big time.
At the same time, we are developing our Application Maintenance Services as a group-wide offering to support customers maintaining their SAP in-house solutions and drive adoption and value realization of their cloud solution investments effectively. We operate in market where we experience strong investor interest and an increasing level of M&A activity driven by consolidation and globalization ambitions. We are active in this market and see this as an opportune way to strengthen our growth.
Arriving at my last slide, let's sum up. We continue our daily work on being a better version of ourselves compared to what we were yesterday, represented by our hashtag #BestingOurselves, or also internally used Besting Mindset. We will continue our focus on creating satisfied customers at every customer touch point and journey. We also believe that happy employees is key to happy customers.
We will continue driving margin improvement through improving operational efficiency, including maximizing the use of our near offshore and automation. Our goal is to continue our growth streak and deliver our 21st year of continuous growth.
As just mentioned on my previous slide, we expect acquisition opportunities to surface and intend to be an active player in the market. This is key to meet our growth aspirations. We have learned a lot from our previous acquisitions and are ready for new projects. With this, we open up for questions.
We start with a question here then. It goes: We have seen negative revenue growth for the last two quarters for 2020. You expect growth in 2021, but from when does that materialize? Through the full year or skewed towards the back end of the year?
Yeah. As we have also in this presentation and recently, we announced a number of new also contracts and deals. The revenue effect of this, we expect to see from the end of Q1.
The next one, could you please describe the development of the pipeline of new customers and how it has developed through 2020, and where it is now compared to a year ago?
Yeah. I can't go into the very details of that. I'm sure that you understand. As also mentioned in my presentation, we saw a new deal flow is slowing up as COVID started. In Q1 and Q2 last year, we saw an experience that most customers, all their focus was on keeping their head above the water, tackling COVID-19, and basically also so were we.
From H2, from mid-end of Q3 and now Q4, we see a significant uptick in incoming requests and interest from our customer base, and this has strengthened our pipeline significantly.
With the continued lower leverage and increased cash balance, do you plan to refinance the bond with cheaper debt at any time soon? I think I can answer that, and that is that for the time being, we have no such plans.
The current bond loan expires in 2023, and there is not a lot to be saved from making that change at the moment, but this is obviously something that we will continuously evaluate. The next question, is it likely that you will execute on M&A in 2021, and if so, what is the targeted company size, and how do you plan to fund the future acquisitions?
Likely, I think if likely means more than 50%, I would say yes, it is likely. Two, how we will fund it. What's the profile of the companies? I think the target companies that we actively look for are mainly moderate size add-on acquisitions that will either strengthen our volume and increase our volume of existing services in geos where we are already present, or help us expand into new target geographies, which is primarily the European countries.
We are also looking at the larger potential acquisitions, and in terms of financing this, that will be dependent on the type of deal and the type of agreement made with sellers, and we need to come back to that in every single case.
Yeah. And for the funding, I think that it all depends on the size. We will be able to make some small requisitions based on the current cash base and the current cash generation of Zalaris and the target, but this is something that we would have to come back to.
In general, we experience quite a positive investor interest and also interest from institutions that would like to support us with capital to grow. We don't see that as a limiter at the moment. It's rather to find the right companies that fit into our strategy that we feel comfortable with and at the right price. That's the real challenge, not financing it at the moment.
Yeah. I think that concludes the Q&A session.
So, fine. For those of you that want to hang on a little, we had a fantastic kickoff a couple of weeks ago, and as a part of the kickoff, we had also an internal kickoff summing up 2020 film made. For those that want to listen in, we just let that play for, it takes about five minutes. With that, yes, we wish you a great day.