Welcome to the Addnode Q3 2021 report. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I'm pleased to present CEO Johan Andersson. Please begin your meeting.
Thank you, and welcome all to the presentation of Addnode Group's Q3 report. I'm the CEO of Addnode Group, Johan Andersson, and with me, I have our CFO, Lotta Jarleryd, as well. With that, let's move on to the slide with the agenda. The next slide, please. The agenda for today probably give you a short introduction to Addnode Group, walk you through our divisions, Design Management, Product Lifecycle Management, and Process Management. Also, our cash flow and financial position, a little bit on acquisitions, our sustainability focus areas, summarize our investment case and the changes in the shareholders, and then we'll end up with a Q&A. Let's move to the next slide, please. Most of you on the call have a good knowledge of Addnode Group, but just to give you a brief overview.
We provide digital solutions for a sustainable future. We are organized in three divisions: Design Management, Product Lifecycle Management, and Process Management. We are 1,900 employees. We have a net sales of about SEK 3.9 billion and EBITDA margin of almost 11%, and a business model with two-thirds recurring revenues from software and SaaS solutions. Most of our customers are in Northern Europe, but we have activities and offices in almost 18 countries, I still believe, and still counting. With that introduction, let's move on to the Q3 report. That's the main theme for today's presentation. Let's move to the next slide. The third quarter is in many ways a very good quarter and a record quarter for a third quarter. As I said previously, we said we hope that we will continue that going forward.
We execute a strategy to acquire and develop cutting-edge companies that provide digital solutions for a sustainable society. Net sales in Q3 increased by 15%. 7 % was currency-adjusted organic growth. All three divisions showed organic growth, with the PLM and Process Management divisions serving as the locomotives with 10% each in currency-adjusted organic growth. Organic growth during the third quarter was an effect of both a pent-up investment need and an underlying good demand among our customers for digital solutions, providing efficiency and more sustainable solutions. The Process Management division once again confirmed that its offering is strongly positioned in the Swedish public sector and reached a milestone with an EBITDA margin about 20%.
EBITDA in the third quarter increased by 29% to SEK 108 million, and the EBITDA margin strengthened to 11.7% from 10.4%. The earnings improvements in the third quarter can be credited to good organic growth, acquisitions, and cost control. In the third quarter, Addnode Group company TECHNIA acquired the Polish company BudSoft, obtaining a further expansion of our geographic presence. With that as an introduction on the group level, let's move on to the next slide, please. Continued growth in recurring revenue. We continued to grow our recurring revenue in the third quarter, as well as services as the customer activities increased. The share of recurring revenue was 69% in the third quarter.
As you can see on the graph to the left side, we are back on our want-to-grow path trend after a more modest 2020. Next slide, please. Addnode Group is organized in three divisions, and we will walk you through the Q3 result for each division. Next slide, please. In Design Management, net sales increased during the third quarter to SEK 409 million, a growth of 9%. Organic growth, currency-adjusted, was 4%. The demand for division's digital solutions and services for design and BIM systems show continued favorable development in the Nordic countries. In the U.K., the division saw a greater willingness to invest among customers. There was a favorable demand for own digital solutions for facility management, both in the Nordic countries and in the British market.
EBITDA increased to SEK 44 million, an EBITDA margin of 10.8%. Operations in our British Autodesk partner Excitech, who we acquired in 2020, are now integrated in Symetri. During the third quarter last year, there were some personnel reduction in personnel costs due to furlough, et cetera, and voluntary separation, but those are heavily reduced in this third quarter. So a good, solid, robust quarter from Design Management. Next slide, please. Product Lifecycle Management. We can see that the restructuring measures are supporting another strong quarter. Net sales increased to SEK 293 million, a growth of 30%, organic growth 9%, and looking at currency adjusted it was 10%. We can see that in the Nordic countries and Benelux, demand remained favorable for the divisions PLM systems and related services.
Operations in the U.K. and Germany, and we can see that customers' willingness to invest is rising again. The acquisition of the Polish company BudSoft in September has increased the division's simulation expertise and expanded geographic presence. EBITDA increased to SEK 28 million, and the EBITDA margin strengthened to 9.6% from 6.6%. Then last year we had restructuring costs of SEK 28 million and SEK 8 million out of those in the third quarter for adapting organization, and we can see the good effects of that improving the margin this year. A very good quarter from PLM with strong organic growth and increase in EBITDA margin as well. Going to the next division, next slide, please. Process management. Process management on a very good path delivered its, I think, best quarter ever.
Net sales increased to SEK 230 million, a growth of 30%. Organic growth was 10%. Very good addition of the acquisitions that have been done from this quarter, or previous quarters, and a good organic growth and cost control made it a very good quarter. We can see that demand for division solution for document and case management, citizen services, and municipal engineering information system, and other services remained favorable during the quarter. We believe that the division's businesses are well-positioned for public sector tenders owing to attractive digital solutions, solid experience, and good references. The acquisition of S-GROUP Solutions and Input previously have added complementary digital solutions and a high share of recurring revenue. EBITDA increased to SEK 49 million, and the EBITDA margin strengthened to 21% this quarter.
A very good quarter and have sold for an EBITDA margin above 20%. With that, I would like to hand over to our CFO, Lotta Jarleryd, who will guide us through the cash flow, balance sheet, and financial position.
Thank you, Johan. Next slide, please. I would like to start with an overview of the consolidated operating cash flow for the third quarter 2021. The operating cash flow in the third quarter was SEK -21 million. The third quarter is normally a weaker quarter in terms of operating cash flow. Operations are slightly slower during the summer months, and the annual prepayments for next year's software maintenance and support have not yet been invoiced and received. The somewhat improved operating cash flow compared to the same quarter previous year was attributable to the positive earnings development and a slightly higher contribution from the change in working capital. With regard to cash flow from investing activities of SEK 62 million, the amount includes consideration for the acquisition of BudSoft in September, as well as payments related to acquisitions made previous year.
Cash flow from financing activities primarily related to the repayment from the credit facility amounting to about SEK 100 million. Next page, please. I would like to carry on with a few comments on the consolidated balance sheet. We continue to operate supported by a resilient balance sheet. Even though we have financed a major part of the four acquisitions this year by available cash funds, our cash position remained healthy at SEK 281 million by the end of the third quarter. As we communicated in June this year, we have entered into a new multi-currency credit facility agreement of SEK 1.6 billion with Nordea and SEB. The credit facility can be used for acquisitions and general corporate purposes. It replaced the previous acquisition credit facility in Nordea of SEK 1.1 billion in total.
This expansion of the credit facility of SEK 500 million strengthened our capacity to acquire and develop our business even further. Of the total credit facility, SEK 663 million was utilized as per 30 September, entailing an available remaining credit scope of SEK 937 million. Please note that the utilized portion of the net new credit facility has been classified under non-current liabilities. The previous credit facility was classified under current liabilities as its maturity date was 30 June 2021. Following the acquisitions made in 2021, net debt increased to SEK 484 million by the end of the quarter. The equity ratio increased somewhat to 43%, and return on shareholders' equity was 12%.
Other larger changes in the balance sheet items from December 31, 2020 mainly refer to the acquisitions made this year in the second and third quarters. Back to you, Johan.
Thank you, Lotta. Looking at acquisitions, this year so far we have done four acquisitions and adding around SEK 220 million in net sales. In the third quarter, as we previously presented, TECHNIA acquired the Polish company BudSoft, continuing a further expansion of geographic presence. Our good, as Lotta described, our good cash flow and strong balance sheet give us the opportunity to continue executing our acquisition strategy. As previously stated, we are always looking for new acquisitions, discussing, and when we do them is just a matter of timing. This is good inflow of ideas, and we are looking actively. Let's move to the next slide, please. 2020 acquisitions. Just a summary what we did in 2020. We carried out four acquisitions, adding a pro forma base of SEK 600 million in that phase.
Let's move to the next slide, long-term sustainability focus. At Addnode Group, we have five focus areas in our sustainability efforts. The most interesting is digital solutions. We provide digital solutions that make it possible for our customers to design energy-efficient buildings, electric vehicles, infrastructure, and citizen communication. The biggest impact for us is actually the digital solutions that we provide to our customers so they can be more sustainable. Of course, we care for our people on the planet. We would like to be a good citizen, and we try every day. It's also important how we work with our partners and suppliers because it's a major part of our ecosystems and what we provide. We need to have a long-term financial strength, so we can be sustainable in everything we do.
In order to make it happen, we need a good management and governance. That's what we're trying to focus on every day and do a little bit better. With that as a backdrop, let's move to the next slide. Addnode Group as an investment. Just to summarize, basically our strategy and what we are trying to achieve is that we are a growth company. We do this both through acquisitions and organic growth, and we have shown the last 10 years that we can double the business every fifth year. Sometimes we do even more, and one year probably less, and that's depending on timing. On average, we try to double the business every fifth year. We provide digital solutions, and our growth is supported by global trends.
We have an attractive business model with a high share of recurring revenue, sticky customer relationship, asset-light model with strong cash flow generation. We are diversified, meaning that we are not dependent on one industry, one customer, or one geography. Let's move to the next slide, shareholders. As we are aware of through public register, we can see that ODIN Fonder has sold some shares, and that has been picked up by Lannebo Fonder. That's the movement in our top 10 shareholders this quarter. With that, we would like to open up for questions, and both Lotta and I are available. Please feel free to ask any question.
Thank you. Our first question comes from the line of Daniel Thorsson from ABG. Please go ahead. Your line is open.
Yes, thank you very much both. I start off with a question on Process Management. For how long time do you think we will see the double-digit organic growth in Process? We have seen it for two quarters now in a row organically. Is it due to the market or market share gains mainly explaining the strong organic growth you show? Which subsidiaries are doing it the best currently within your franchise?
Thank you, Daniel. I think the answer lies in your question. It is both. There is an underlying good market for digitalization of the public sector that we can help them with being more efficient, and then we can also see that we are gaining market shares in that market. We are predominantly doing that in case flow management systems for state agencies and also for local municipalities with the need of handling their technical infrastructure, both in regards with how they themselves take care of what they're responsible for, but also what I would like to call the permit side, meaning that you as a local citizens apply for a building approval or something like that. The local municipalities who give that permit, they need a system for that. It's both, actually, I believe.
We are at a good market, and we are gaining market shares. That was the first question. Then was question, how long can this continue? Because I think in this question lies that historically that has not been the sort of where we have excelled, but we have shown now in two quarters that we are able to do that. I will not promise that we will continue to grow with 10% organic growth. If we are able to sort of long-term grow this business with 5%, then we have done it well. There is a good momentum right now. I don't think that will sort of last forever. It's more go trending down to hopefully around 5%.
Okay, excellent. Follow up on that on the margin in PM, first time in excess of 20%, I guess it's at least the all-time high margin.
Yeah.
Is that explained much, much by the strong organic growth?
Yeah.
If we expect the organic growth to come down to the 3%-5% level, as you say, should we expect the margin to come down, or will you be able to maintain 20%, do you think?
I think you could probably expect that the margin will not increase because this is where we have a quarter where we have done very good in organic growth. We have good support of the acquisition, and the management team has been very good on taking care of the cost, meaning that we have a very low cost base as well with regards to a little bit with regards to the COVID situation.
Mm.
I think you should see this as a very good quarter, but it will probably sort of come down a little bit, according to your reasoning.
Yeah. Okay, that makes sense. A couple of questions on acquisitions. I mean, when I look at the total sales growth year to date for the nine months, it's only 2.7%.
Yeah.
Even if you end Q4 with a strong organic growth and complete an acquisition or two in Q4, the full year will still likely be quite significantly below your implicit target of growing 15% a year or doubling sales every fifth year, as you said.
Yeah.
How do you see that situation? What should we expect in terms of organic growth and acquisition contribution going into 2022 to capture some of the lost growth this year?
No, I think you're correct that we would like to double the business every fifth year. We are still going for that. That has not changed anything with regards to that. At the same time, we are very long-term in everything we do. If we don't make 15% this year, then we have to make it up for the next year, so to speak. That's more important to do the right kind of actions with regards to both organic growth and acquisitions. I don't feel any stress about that. We haven't sort of lost the eye on the prize. With regards to our margins, we have a very good margin year this year.
We can continue to have good margins going forward, but I wouldn't say sort of the incremental improvement happening the next year on the margin side. Probably, but we can continue to grow the business without no doubt.
Yeah.
If that makes sense.
Yeah, absolutely. It makes sense. I just think that if we end up this year growing like 5-6% in absolute terms, you implicitly need to do some 25% next year. You have become a much larger company versus three to four years back.
Yeah.
I mean, that puts some pressure on acquisition.
Yeah. We have an official.
You need to make more and more acquisitions.
Yeah. We have an official target of 10%, and then I would like to do more, and that's on me.
Yeah.
I think look at the 10%, that is the official target.
Yeah. You think that there are targets out there for you to be comfortable that you will be able to double the business in the next five years, at least?
Yes.
Excellent. My really final question, in terms of geographies, you have entered both Ireland and Poland in 2021 as new countries, but very small acquisitions.
Yeah.
Is that a reason that you're exploring those markets, starting off with a small acquisition, and then we should expect a larger one coming in Poland or Ireland? Or should we see it in any other way here?
No, I think, we should view it as both. What do I mean by that? The reason why we entered Poland, it was because they had a very good team of simulation experts that could add to our capabilities with working with the Dassault platform. That was basically the reason for doing that acquisition.
Mm.
The reason for doing the acquisition of PROCAD in the Irish market was that we would like to broaden our offering and geographic reach for our Symetri business within design. We have a meaning that we have a very good sort of side effect of entering new geographies. With that, we have boots on the ground. I don't know if it's correct to say boots on the ground anymore, but we have people in new geographies who over time will know how we as a group act and what type of acquisitions we would like to do, and we expect to get some very good feedback from them. That is basically what generated that we today have 28% of our net sales in the U.K. market.
Because in 2013, we did a very small acquisition of a company who had net sales of SEK 30 million. Now we have 28% of our net sales in the U.K. market. With that as a background, it's actually both. As of now, those two acquisitions were driven by expanding the operations of TECHNIA Symetri rather than having a very targeted approach to the geographies. A very long answer, but trying to explain our strategy here.
Yeah, that makes sense. If I just can end up with the last one. We saw a strong Dassault Systèmes report, just a couple of days ago here. Do you think that is a clear sign that we have seen improvements in the market for PLM? Both that you see it and Dassault Systèmes see it, or is just Q3 exceptionally strong, or how should we see that trend?
No, I think we can see that there are demand from our customers, and I think it's both a pent-up demand from manufacturing customers who had a slower 2020, and they still want to invest in electric vehicles and et cetera. We also see that there is an underlying trend in digitalization. I think those both sort of act together means that we can see there's a market out there. Is it a long trend, and how should we view it? Let's discuss that after the Q4 report.
Excellent. Thank you very much.
Thank you.
Thank you. As we have no more questions registered, I hand back to our speakers.
Okay. If there are no more questions, and like an auctioneer, I say one, two, three. No more question? Thank you. I would like to thank you for taking the time to listen in to this presentation, and thank you.
This now concludes our conference. Thank you all for attending. You may now disconnect your lines.