Hello, and welcome to the report presentation for Addnode Group in Q3 2020. It will be me presenting, CEO of Addnode Group, Johan Andersson, and Lotta Jarleryd. Thank you for taking the time to meet with us. Before we start off, if we could move to the slide, we provide digital solutions. Give you just a short introduction to Addnode Group for those of you who are new to us. We are a group of companies providing digital solutions. We are organizing companies in three divisions. The three divisions are Design Management, Product Lifecycle Management, and Process Management. In Design Management, we provide digital solutions for design, BIM, and product data, predominantly for the needs of engineers and architects. We also have software for project collaboration, property management, and facility management.
In the division of Product Lifecycle Management, we also provide solutions for anyone doing products, from simulation to design and product data. You will find the customers in both discrete manufacturing and life science, automotive, and also the transportation sector. The brand there is TECHNIA. In Design Management you will find Symetri, Service Works, and Tribia. Our third division is Process Management, predominantly working with the public sector in Sweden with document and case management systems, e-archive, information management, and also the dialogue between the local municipalities, state agencies, and the people who actually live in the country. As you can see on the right-hand side, there are several more companies there, basically one product, one company.
From the group, we support the companies and make sure that we utilize the strengths of the group and share knowledge with regard to people, business models, organizations, technology, and go-to-market strategies. If we move to the next slide. Strategy for profitable growth. Based on this strategy, we have been able to grow from 2009 to SEK 1 billion to what we are trailing now at almost close to SEK 4 billion. It has been done both through organic growth and also through acquisitions. We have found a way to double our business every fifth year. That's the DNA of the company and the group, and we would like to continue to be a growth company. Of course, we have to relate to the COVID-19 right now, but hopefully we will overcome that as well. If we go to the next slide.
It says International Group, means that we started out in Sweden in 2003. We have rolled out into Northern Europe, and in 2013, the U.K. became a home market for us. In 2015, Germany became a home market, and we also did our largest acquisition in 2020 here in January when we acquired Excitech. You will find us in Northern Europe, with offices in the U.S. as well, and in Australia and Canada, but predominantly in Northern Europe. The biggest markets are Sweden, the U.K., and Germany. With that as an introduction to Addnode Group, I would like to move on to the Q3 report 2020, and the next slide with the agenda. The agenda for today: we will briefly go through Q3, talk a little bit about the acquisitions that we have done in Q3, our group performance, and dive into the three divisions, and end up with our financial position.
Moving on to the next slide, Q3 2020. With regards to the market conditions, we're never proud, but we are confident with the report that we have published today. I believe it's strong earnings in a prevailing market. Net sales increased by 3%, - 7% on the organic growth, and we'll come back to the reasons for that. Our recurring revenue was up to 69% of net sales, compared to 65% last year. We have been very focused on cost restraint and furloughs to handle the downturn, basically in the Design Management and PLM business, executing cost-cutting programs in PLM, we'll come back to that as well. All of this has resulted in a better EBITDA margin than last year, and we had actually improved the profit even though the net sales has gone down. We made an acquisition in the beginning of the quarter, Netpublicator.
If we move to the next slide, acquisitions. I think we went through that in the last presentation, but in the beginning of Q3, we made an acquisition of Netpublicator. It's a company that provides SaaS services for digital distribution of documents, a register of elected officials, digital signings, and video meetings. Focuses on political assembly processes in the local municipalities. Services are used by 100 municipalities in a region in Sweden and by some 60 companies, making sure that they can provide their basic functions, even in a COVID-19 environment when you are not able to physically meet. It has performed well and contributed according to the plan in Q3. In 2020, we have completed three acquisitions. Excitech in the beginning of the year, with the largest Autodesk value-added reseller in the U.K. market. We also acquired Unizite at the beginning of the year.
It's a BIM field tool adding value to our SaaS solutions to the construction market. We also acquired Netpublicator at the beginning of Q3. During the initial phase of the corona crisis, we have focused on increasing our pipelines of acquisition candidates. We have now switched over to more active acquisition processes as more basic with regard to our Addnode Group acts with regard to acquisitions. With that, I would like to hand over to our CFO, Lotta Jarleryd.
Thank you, Johan. Please turn to the next page. I would like to start with an overview of the consolidated performance. In the third quarter, which was the second quarter in a row dominated by the COVID-19 pandemic and its effects, we saw an increase in net revenue of 3%, SEK 806 million compared to SEK 779 million quarter-on-quarter. The acquired growth mainly pertained to Excitech in the U.K., which was acquired earlier this year. The currency-adjusted organic growth was -7%. Design Management and PLM divisions faced negative growth also in this quarter, deriving from lower new sales of third-party licenses and services. The market conditions were especially challenging in Germany and in the U.K. The demand for Process Management solutions, however, remained stable during the quarter, and the division reported an organic growth of 1%.
We are now trailing at a yearly rate of SEK 3.8 billion in net revenue. Despite the negative organic growth, we reported increased EBITDA and a strength in EBITDA margin. Considerable cost savings deriving from government-backed initiatives, the restructuring program in the PLM division, and other general cost savings in all three divisions contributed to improved earnings. EBITDA for the third quarter was SEK 84 million, which was an 18% increase from the previous year. The EBITDA margin strengthened to 10.4%. In the PLM division, work continued with measures aimed at adapting the organization and cost structure to lower sales volumes. The costs for the restructuring program are expected to amount to about SEK 30 million instead of SEK 35 million, which was previously communicated. Annual savings are estimated to be about SEK 50 million-60 million.
SEK 20 million was recognized in the second quarter and SEK 8 million in the third quarter for the restructuring. EBITDA adjusted for restructuring costs in the PLM division of SEK 8 million was consequently affecting the EBITDA to SEK 92 million and the adjusted EBITDA margin of 11.4%. During the quarter, personnel costs were reduced by SEK 10 million through government support measures in several of the countries where we operate. In the third quarter, government-backed initiatives mainly related to short-term furloughs. About 380 employees, corresponding to about 90 FTEs, were affected by furlough in the third quarter. The corresponding amount in the second quarter was SEK 29 million, when also reduced social security costs were attributable. We are now trailing at a yearly rate of SEK 348 million in EBITDA and an EBITDA margin of 9.1%. Next page, please.
With regard to the net revenue distribution, recurring revenue constituted 69% of total revenue in the third quarter. The base of recurring revenue has continuously grown over the years. A stable base of recurring revenue gives downside protection in times of lower demand. We have so far been able to keep the renewal rate on a stable level despite challenging market conditions. I hand it over back to Johan.
Thank you, Lotta. Let's go to the next slide, division Design Management, and dive a little bit into the three divisions. If you look first at the division, Design Management, it did a really strong job this quarter. Design Management has operations in the Nordic countries and the U.K., and they improved their EBITDA margin despite negative organic growth and increased EBITDA by 40% compared to last year. Recurring revenue showed continued stability in a challenging market. Net sales increased by 25% during the third quarter to SEK 375 million. Organic growth was -6%, currency -adjusted. Looking at the different offerings, our own software for facilities management and the SaaS solution for construction infrastructure projects have had a stable demand and continued profit compared to last year.
While, as Lotta mentioned before, the new sales of third-party software and services related to our Autodesk offering are down in net new sales compared to last year, the recurring revenue is fairly stable. This all resulted in an EBITDA increase to SEK 42 million compared to SEK 30 million last year, and the EBITDA margin was strengthened to 11.2% compared to 10% last year. Excitech, which was acquired in January 2020, made a positive contribution to earnings. Short-term employee furloughs and voluntary salary cuts had a positive impact in the third quarter. Together with the cost-cutting measures, this contributed to the earnings improvement. Basically, the management in this division has done a really good job at taking care of the business in a tough environment and making sure that we are having a stable foundation and being able to improve profit, even though net sales are going down.
A really good quarter for the division Design Management. If we move on to the PLM, the next slide is Product Lifecycle Management. If we look at the demand side first, the PLM division had stable demand in Nordic countries and is doing good business. Demand has continued to be weak in the U.K., Germany, and U.S., sort of follows the COVID-19 situation. Organic growth adjusted for currency was negative -13% compared to last year. Here we can see the effect on the net result with regards to new sales of projects and licenses. The recurring revenues are stable, and we can see a good renewal rate on that. We have been very much focused on a cost-cutting program, and also furloughs have countered the effect of lower net sales.
Lotta mentioned the financial effects. We can see now that we are able to bring down costs and also adapt organizations to the current demand. We can also see some effects of it already sort of kicking in. We are following the plan that we have previously communicated that we will be able to generate cost savings in the range of SEK 50 million-SEK 60 million, and we will see the full effect beginning next year. We communicated that we will have cost for SEK 35 million in order to make this happen, and it seems that we will end up closer to SEK 30 million. We also communicated that we will take SEK 15 million in this quarter, and it's SEK 8 million. That should be viewed as we should not have to take as much cost as we previously communicated.
Those of you who are able to do your math and reading a little bit further back in there can see that we will probably take at least SEK 2 million in the next quarter as well. That will be within the range of the SEK 30 million that we have communicated as a new sort of estimation of what it would cost to generate the SEK 50 million–SEK 60 million. Putting that aside, the quarter is quite okay now because we've been able to have a good run rate and deliver a profit of SEK 17 million on the EBITDA level. If we add back the SEK 8 million in restructuring cost, it's SEK 25 million. Compare that to last year's; we are still having a better year with regards to the profit side, even though we are down SEK 30 million in net sales.
The management here as well, and the team has done a really good job of handling the effects of the COVID-19 situation and putting us in a good situation for when this will turn around because there will be better conditions, and we just want to make sure that we are ready for that. If we go to the next slide, the next division, Process Management. Software for the public sector in Sweden had a good quarter as well. Net sales increased by 2% to SEK 677 million. Organic growth was 1%. The difference there is the acquisition of Netpublicator that we discussed earlier. EBITDA improved to SEK 33 million compared to SEK 25 million.
It is a 32% increase, and it has to do with good, stable demand and better efficiency in our operations compared to last year, the utilization of our staff, and also the cost restraint with regard to the situation we are in right now. Also, the newly acquired Netpublicator performed well and made a positive earnings contribution. A good quarter for Process as well. With that, I would like to go on to the next slide, and Lotta will walk you through the cash flow.
Thank you, Johan. Please turn to the next slide. Those of you who have followed Addnode Group for a while, you know that we usually start the year with a strong first quarter in terms of cash generation from operating activities. This is attributable to our business model with a large share of advanced payments for maintenance contracts at the beginning of the year. This year, we also had a strong second quarter in terms of cash flow. Active work on bringing customer payments together with temporarily improved terms of payment from certain vendors and customers had a positive effect on operating cash flow. In the third quarter, cash flow from operations was negative SEK 66 million, mainly due to more tied -up working capital. The temporarily improved terms from vendors reverted to ordinary terms in August.
Altogether, this means that for the nine-month period ending September 30th, we had an operating cash flow of SEK 398 million, i.e., considerably stronger than the previous year. With regard to cash flow from investing activities, it contains the consideration for the first 50.1% of the shares in Netpublicator. With reference to the accumulated cash flow from financing activities, please also note that no dividend for 2019 was paid to the shareholders as decided by the AGM in May 2020. Previous year, the dividend amounted to SEK 84 million. Please turn to the next page. Financial position. We are operating in these uncertain times supported by a strong balance sheet. We have a solid financial position, and available cash amounted to SEK 563 million on September 30th.
In addition to that, we have another SEK 278 million in a revolving credit facility for acquisition purposes and an unutilized overdraft facility of SEK 100 million. We have worked hard with our cash collection and have not suffered any significant credit losses during this period. The equity ratio was 41%, and net debt amounted to SEK 271 million. Other larger changes in the balance sheet items mainly refer to the acquisitions of Excitech and Netpublicator. Next page, please, and back to you, Johan.
Thank you, Lotta. Basically, to sum it up in Q3 2020, I believe it to be a strong quarter when considering the market conditions that we are in. We were able to increase net sales with the help of our acquisitions. With regards to organic growth, it was - 7% adjustable currency effects. We were able to increase our recurring revenue and the percentage of that. We have been focused on cost restraints, making sure that we are keeping our people safe and our organization in order, and executing the necessary cost-cutting programs to make sure that we are in a good position as a company. We have acquired Netpublicator. All in all, a very focused quarter and making sure that we are doing the business that we can, selling what we can to our customers, and making sure that we are adapting to the current market conditions.
With that, I would like to open up for Q&A and questions to Lotta and myself. Thank you.
Thank you. If you would like to ask a question, please press zero-one on your telephone keypad. If you wish to withdraw a question, you may do so by pressing zero, two to cancel. That is zero-one if you would like to ask a question. Our first question is from Daniel Thorsson from ABG.
Yes. Hi, Johan and Lotta. Daniel here from ABG. I start off with a question on PLM. Extremely strong results, SEK 17 million, although including SEK 8 million in costs. Can you please elaborate a bit more than you have done on the difference from Q2, as you posted a negative EBITDA in that quarter? How much did government support contribute to PLM, for example, and what are the other cost initiatives you have done?
You're completely right that it's a strong quarter from where PLM is coming from. What has happened is that the management team has been really good at adapting the organization, meaning that both from a cost restraint perspective, sort of focusing on where we are. We have less traveling cost as well, helping us with regards to that because it's a sales company, and we've been able to transform our business and actions to a digital world, meaning that we are doing more of webinars, we are meeting our customers online, and we are able to keep up the business that way. That means that the run rate on operating costs is down. The cost program that has been effective has sort of taken effect as well.
You can also, like you said, add up the help from furloughs , etc. We are not talking about how it's divided between the divisions, but if you look at what we have done, you can see that most of the things that we have displayed on a group level are related to PLM. That helps you with regards to that as well. You have three things. Management has been really good at making sure that we are adapting the organizations to current conditions with regard to cost and also how we sell to our customers. We can see that the cost-cutting program, so to speak, has been successful and a little bit earlier than we believe it would kick in. Then we have the help of the furloughs in regards to the result.
Okay. Excellent. A second one, which is more general. The common theme of today's presentation and report is really that recurring revenue are stable, and you deliver sales at lower costs because you can't really travel and meet your customers, and that leads to lower new sales. When could we expect the lower new sales to have an effect on the P&L going forward? Would that be seen in the next quarter, or will it take another two to three quarters before we see the negative sales effect from that?
I think, hopefully, you can see the net sales effect, you know that if you look at Q4 and Q1 going forward, that has not been affected by the coronavirus, as those were normal quarters looking forward. I think if you look at, for just obvious reasons, we will see an effect in Q4 and Q1 as well. That's not a prognosis; that's just a reality where we are with regards to that. You will probably see an effect as well in the divisions that we're talking about, design and PLM. It doesn't have to be a negative effect. What we are hoping is that the new sales of licenses and projects could add rather than reduce.
I understand your question, will it have an effect like normally if you had more of a license model and then you're selling a subscription as a percentage of that, then you will have the mathematical effect of that. That's not really the business model. We are hoping that it will not have that negative effect, rather than that we will be able to increase. On the same fact, you will have a year-on-year quarterly effect as we are facing Q4 and Q1, which did not have any COVID-19 in it, so to speak.
Yeah.
It was very round also, but I know hopefully—
Exactly. I think it makes sense. It was just about that you have a perfect situation right now, that you have lots of recurring revenue. You have a super low cost for the sales force, which is obviously driving low new sales. If we then look one -two quarters ahead, you will still have low new sales that could affect sales negatively, but you will probably ramp up the sales force cost in terms of traveling, et cetera, if the world opens up.
Yeah.
And that's going to affect-
That makes sense.
EBITDA negatively.
Yeah.
So far, we have only seen the positive effects from that.
Yeah.
Is that the correct way of thinking of it? Yeah.
That's the correct way of thinking, and then we'll see how it will pan out. The scenario is very much real. I can see your scenario, where you're going after.
Okay. Excellent. A question on PLM and adapting the organization to lower sales volumes. You target SEK 50 million-SEK 60 million in cost savings. If I'm right on assumptions, that's around 10% of OpEx in PLM. Should we expect the market to be some 10% lower than we saw, for example, in 2019 to match that? Is that your base case?
What we are saying is that we will reduce SEK 50 million -SEK 60 million compared to the run rate in Q1 2020. We were not on the brakes in Q1 2020. We were on the gas pedal, meaning that we were ramping up the price. We are not planning that we will see a lower net market next year compared to this. Of course, the market's going down there. Next year, we are hoping that the market will not be lower than it is today.
Okay.
At the same time, we have to realize that the cost-cutting program, SEK 50 million and SEK 60 million, will not add SEK 50 million and SEK 60 million to the bottom line.
Exactly.
That's compared to coming back to a more normal margin in the business.
Yeah. Okay. That's very clear. In Design Management, I expected Excitech to deliver around SEK 150 million in sales in Q3 compared to your comments in the Q2 report. If I calculate it now, it looks to be around SEK 105 million. Any comments on their performance in the quarter and what we should expect going forward?
No, I think they are having the same as our Symetri business there. We started out saying that when we acquired them, they had net sales of around SEK 600 million. If you divide that by four, you will get SEK 150 million by quarter. At the same time, we are also saying that the decrease in the net sales in this division is related to our Autodesk business, and that's both Symetri and Excitech. This means that they also are seeing the same pattern there with regards to new sales going down.
Okay, slightly lower than we all expected in January, for example.
Yes.
Yeah.
They are taking their part of the division's decrease in that sale.
Okay, excellent. My final one is obviously on Process Management. You commented a bit; for how long is the strong margin sustainable? Do you see any signs of price pressure, increased competition, or lower demand in the public sector here?
No, we don't see any price pressure there. We are helped a little bit with regards to the program in Sweden with regards to social costs and salaries.
Okay.
You have a few million dollar there, an effect on that. That's not sustainable. At the same time, we can see that we have been able to move the margins up with regard to our own utilization of the team. That, I believe, is sustainable. We are hoping that we will be able to maintain the margins that we are operating around now in the process business.
Okay. Around 15% shouldn't be unrealistic to expect going forward?
No, we think we can do that.
Yes. Excellent. That was all from me for now.
Thank you.
Thank you.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad. Our next question is from Fredrik Nilsson from Redeye. Please go ahead.
Hi. Fredrik Nilsson from Redeye here. One question regarding the margin in Design Management. How much is driven by sales mix, temporary cost cuts, and long-term cost cuts, respectively? Could you give us some rough numbers?
I think, if you look at design, most of it is related to cost restraints during this quarter. Cost restraints and furloughs of the employees. We have not, like in PLM, been driving a big cost reduction program. If you look forward to the design, we can see that there will be less furloughs in that division going forward than compared to the rest of the divisions. Here's probably the debate on all the companies with regards to the way we act, how much is sustainable with regards to what we are doing, because what we can see at the same time here is that we are able to do business more remotely in a digital world. That means that some of our costs that we have had earlier on with regards to traveling to and from our customers will probably not be at the same level.
We have all the debates about where we will work from. Will we work from home? Will we work from the office? It's a little bit too early to say how much will continue to be sustainable. On the other side, we are not driving a big cost reduction program. Most of the reduction in costs here right now is related to furloughs and general cost restraints with regards to the situation we are in with COVID-19 right now.
Okay. That's a good answer. One more question. The cost -saving program in PLM—how come it was that much cheaper and faster than you thought initially?
The reason why you make an assumption, and we try to do our best calculation of how it will pan out and how much it will cost. When things get moving and things get done with the adoption of that, it may end up that some of the people are, because basically what we're talking about is people in the organization. Some of them might be leaving on by their own, so it will not be a cost for us. Also, we can find situations and teams that make it less costly. I think it's a combination of that. We are thinking about it costing us rather SEK 30 than SEK 35 million, and with regards to, if you compare those two numbers, I don't think we're that far away.
I'm actually glad that it's not costing us as much as we expected to generate the cost efficiency because we have not changed the goal with it. We are not saying that that will be less. We are saying that it will cost us less than we expected to generate change in the organization and the cost savings. I'm actually happy about it.
Okay, thanks. That's all for me. Thanks.
Thank you.
We currently have no further audio questions, so I will hand it right back to the speakers.
Okay. Thank you for taking the time and listening to us presenting our report for the third quarter. I know it's a busy morning with all the reports. If there are no more further questions, we would like to say thank you.
Thank you very much.