Good morning, everyone. My name is Rik Engberg, and I'm an Equity Research Analyst here at Erik Penser Bank with focus on the tech sector. With me, I have Mr. Henrik Ekelund, CEO of BTS Group, to present the second quarter. Henrik, the scene is yours.
Thank you very much. It's a pleasure for me to present today, dear shareholders, another record quarter, the second quarter of 2021, and it's especially satisfying given the big challenges we had in 2020 with the pandemic that was very tough for our industry. We're coming back so much stronger, even much stronger than 2019. Let me tell you a little bit about the quarter.
First of all, Strategy Made Personal. That is what BTS does. We help the world's biggest companies on all continents to make change happen and to make strategy personal for their people. That is what we do. We are almost at 1,000 employees in 30+ offices around the world. Short about BTS. Now coming to the record quarter of Q2, it's the best Q2 ever. Even better than the record Q2 we had in 2019. As you remember, Q2 2020 was very difficult for us, given the pandemic.
We can now conclude after the first and second quarter that our strategy to tackle the pandemic works. We took a big bet in 2020 with a long-term investment strategy, keeping all our people on board and increasing investment in technology and marketing and t hat strategy is paying off. It's very satisfying to see. The underlying operational growth is 16% in the first half. Let me make clear, this is not compared to 2020. We make all our real comparison to 2019. Why do we do that?
Well, because comparing to 2020, it would give a lot of wonderful percentages that don't say much. It's like an ice cream salesman who compares with the most rainy summer ever. No. We compare with 2019. That is more fair and better internally and externally and w e delivered an underlying operational growth of 16% compared to 2019, our top year ever. The profit compared to 2019 is up 21% in the first half. Now, we've had some currency headwind because the rate of the dollar and the rate of many other currencies are lower compared to the krona the first half of this year compared to the first half of 2019.
Without those currency effects, the operating profit would have grown more than 30% during the first half, which we are happy with indeed. The margin climbed 2% units compared to 2019. The reason for that margin climb is really we've been able to use our resources more efficiently. We've worked a lot on optimizing pricing, and we've reduced a number of external costs so t hat's really why we've not only grown but also improved profit. Talking a little bit about digital. In 2020, we decided, despite the very difficult times, to increase investment in digital and in marketing and w e are continuing that in 2021.
The first interesting point here is that the market for our services is really strong. What we see is that the pandemic has been a catalyst to really drive change in companies. They're changing strategies. They're implementing technology. They're changing organizational structure. All of that change drives demand for our services. Second of all, to really help our big companies, the biggest companies of the world, we need scale. For that, our digital investments are critical and have been very important for us. We see that in this positive market, we are a more attractive partner than before the pandemic. First of all, we've invested and we've been fast in digital and virtual compared to competition.
Second of all, we kept all our people. Everyone stayed at BTS, whereas many competitors did cost-cutting. We have all our talent intact, plus a number of new people we've hired. Finally, we continue to invest in product development. This advantage really plays for us in the current market. Here you can see profit before tax per quarter. Q1, Q2, and you can see the enormous drop that we took in Q1 and Q2 of 2020. We did not cut down. Instead, we invested more. As you can see by the big jump in the bars of profit for Q1 and Q2, that strategy is paying off. It was the best strategy long-term for our shareholders.
Looking a bit at the numbers. As you can see, profit is growing 12% currency adjusted. Why did I say 16%? Because n ormally we have expenses for travel and hotels that we invoice to our customers. That's typically 5% of revenue. In a virtual digital environment, those costs go away. This is why there's another 4% real growth in the first half in the operational underlying business. Looking at the different regions during the first half, you can see that North America is really the growth engine. That market has taken off, and we've succeeded very well as a company there. Growth is slower in Europe and other markets. Please remember, this is growth compared to the top year of 2019. You can see that all of the units are pushing margins up in a very, very nice way.
Looking at Q2, there's 11% growth. There's 5% impact of the expense side, so 16% is the underlying growth effect. Now y ou see that EBITDA is growing slower in Q2 than in the first half. You're asking yourself the question, are we dropping? No, we are not. We had the same 16% growth in both quarters. We had the same margin improvement in both quarters but w e have more currency headwind compared to 2019 in the second quarter plus it's a bigger quarter, the percentages do not become the same in terms of profit improvements so i t's the same positive development in both quarters.
Looking at the units, you can see that we're happy to see that Europe and other markets is doing better from a growth point in Q2 than in Q1 so t hat's a positive sign. Again, the margins are climbing very nicely in these units. Talking a little bit about what we offer. Here we have the seven main practices of BTS. There's a number of things that we offer. In the beginning, the first 15 years of the company, we only had the top center one, Strategy Alignment and Business Acumen b ecause we've broadened our services, we can now help our customers more, and we can create more growth opportunities for BTS.
This portfolio is really powerful. This way, by combining these services, we meet and fulfill what customers really need. We can really help them solve their challenges and their problems and w e can work all the way. We work with the biggest companies of the world, working from the C-suite and all the way to all employees, which is a big advantage to be able to serve the whole organization, helping them to drive change.
The more we integrate these practice areas, we combine assessment, coaching, innovation, leadership, strategy in our offering, the more competitive we are, and that helps us win in the marketplace and has helped us to grow during this quarter. This is a slide I've been showing for, I think, five years. Why do people hold on to the BTS stock? It's gone up a lot. It's, I think today, 20x higher than when we went to the stock market 20 years ago. That's a nice number, 20x in 20 years.
Of course, we've delivered 15% growth in revenue and a faster profit improvement all those years. This is why the stock has climbed. Really the reason why we see that people hold on to the stock is there are three reasons. First of all, we have the best offerings in the market. It's a large market. We still have 1% market share, and it's very fragmented and it's growing so t hat is very attractive. Secondly, this long track record of growing 15% per year for 20 years, approximately, and profit faster, and stable, with the exception of 2020 and w e believe investors see us very, very attractive.
Thirdly, our financial targets is really we want to increase margin further to 15%, and we want to grow a bit faster, and we have a plan for that. Those are the reasons we believe that people hold on to our stock. As we said, this is a slide we had during all of 2020, when our revenues fell and our profit fell, but we kept investing, we kept having our cost base. When our investors were asking you, "Why don't you cut cost? Why don't you maximize profit?" We clearly said our idea is not to maximize profit. We believe the best interest for the shareholders really is the long-term strategy, investing in the future and coming out stronger. We had this goal already from March of 2020 to come out stronger in a number of way.
First of all, during the pandemic, to keep our customers, to grow them, and to find new customers. We have that today. Second of all, a stronger organization by keeping the talent we had, by adding new talent that became available, and investing in our organization. We have that also c reate the situation where we really can increase the revenue by combining virtual, digital, and live in a very powerful hybrid offering.
We have achieved all of those three, and this really has taken us to a new potential in terms of revenue growth and in terms of profit growth. You can see that in what we are delivering in Q1 and in Q2. We have then raised the outlook. I just want to mention that many customers are saying in the future they want a combination of face-to-face, virtual, and digital, and that makes our hybrid strategy very powerful. We are actually seeing some early face-to-face deliveries being booked. However, every customer who does that, they require all consultants who come proof of vaccination, so that's quite interesting.
We see that the digital solutions are also increasing. That is a trend in the marketplace. Coming to the outlook. We're saying significantly better than in 2020. That is not really an achievement. It's the ice cream sales guy. It's a sunny summer compared to a rainy summer. That's not an achievement. 2019, if we compare to 2019, we will be better. Whereas after the previous quarter, we said we will be in line with 2019. That's an upgrade of the outlook, and we're very happy to be able to present that to our shareholders. This is a slide of the major shareholders, and with that, I conclude my presentation and possibly, Rikard, you might have some difficult questions for me.
Yes, I think I have. Henrik, my first question is the increased focus on digital and virtual delivery the main reason for the marginal improvement? Are you able to get a better margin on those deliveries than you had when you had physical deliveries?
On the digital solution, absolutely. On the virtual, it's about equivalent to physical b ecause it's a new delivery model, we have the chance to optimize it so w e are working to actually get the margin higher on virtual than on physical.
Okay, good. My next question is, you touched upon it briefly, the different geographical regions.
You said that the U.S. is the strongest. Do you think that Europe and the other regions will be able to catch up to U.S. this year? Will they be even stronger next year?
The market and our positioning in North America is very strong. I think that will continue during this year. Yes, we are working, trying to get an even stronger growth in Europe and most of the world. We are happy to see that they grew stronger in Q2 than in Q1.
Okay, good. Can you please comment on the recruitment situation? Are you still able to find new recruits to the firm, or could this be a problem for further growth?
Far it has not really been a problem. We hire a lot of people at a younger age, and then we grow them quickly as talent. To find the younger talent has not been a problem because a lot of people did not find jobs during the pandemic or took jobs they didn't like. The younger talent, not a problem. On the senior side, the market is quite competitive, but we've been able to hire there as well.
Okay, good. Can you please discuss a bit about what industries are driving growth right now?
That's a very good question, Rikard. One of the main strategies in 2020 was to really refocus to industries that were strong. Those have really helped us. The whole tech sector has been strong for us. The pharma sector has been strong for us. Consumer products, financial services have been strong for us. Now we see that some other sectors are coming back. For example, energy is coming back. There are still some sectors that are not buying at all and we hope that they will come back as the pandemic eases, and those industries perform better.
Okay, good. My next question, if you compare to 2019 and the growth you're seeing, is it a case of you gaining market share, or is it a very strong underlying market for your services?
Both. It's a wonderful combination of both. You can't be in a better situation than you have a positive market that is giving you some tailwind to your boat. At the same time, you sail faster than your competitors because we have a better offering, and we have better people.
Okay.
It's a combination of both.
Good, thanks. I will now hand over to telephone conference.
If you would like to ask a question via the phone lines, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. The first question comes from the line of Daniel Thorsson from ABG. Please go ahead. Your line is open.
Yes, thank you very much. Hi, Henrik, and hi, Rikard. My first question is on the 17% EBITDA margin in Q2. That's an extremely high margin, which I guess is a result of sales coming back and digital and virtual deliveries are made at close to zero cost except salaries. How should we think about that margin in two years from now and the mix between virtual and physical delivery? Will that be more of a 50-50 split, do you think?
It's very hard to tell how that will evolve. Will customers continue to do only virtual? Will they go back to face-to-face? We believe it'll be a combination. For some programs, people will take advantage of the fact that virtual delivery saves costs, saves time, and so on. In other situations, it's actually worth the investment of getting together. Honestly, I think all of us feel that only sitting in front of the Zoom screen, it can be a little bit boring, and it can create us as socially awkward animals. A little bit of both. Taking advantage of those virtual and also doing face-to-face then w e believe that digital learning will become a component in both of the programs to really create more learning and more retention of learning. It's a combination. What will it be? We don't know.
Perhaps 50-50, perhaps 30-70, perhaps 70-30. We have a margin goal of 15% EBITDA. If you looked at our track record before the pandemic, we took that 10.5%, 11.2%, 12.3%, 13%. It was climbing up. 2020 came, we invested, and margin was very low. Again, in 2021, we're back. We are firm on getting to this margin goal no matter what the split is. We can see we can do that because we can do our work more effectively. We can optimize our pricing in a way that customers appreciate, but it's better for us. We can use our resources better. Companies can always improve so t here will be a mix. We don't know exactly how much and how it will be allocated, but we will get to 15% over time for the full year.
Okay. That's fair enough. I guess that ultimately, the increased share of physical delivery will likely reduce the margin slightly from what we see today.
I'm not so sure. We will see. In our planning, because remember, we had 100% physical delivery, and we were climbing towards 15% so t hat's not going to stop us.
Okay. Second question is on the upgrade of the full year guidance. Your first half year 2021 EBITDA is 21% above the first half of 2019, now you guide for a better EBITDA in 2021 versus 2019. How conservative is that for the rest of the year? Should we assume second half of this year to be more in line with 2019, given that you do not say significantly better as you have done before?
That's a good question. That's a very relevant question. We don't see any signs in the market of any slowdown right now. However, we have a very proud record of almost always meeting our outlook. We really want to make sure that we at least meet our outlook. We have now said that we expect results to be better than 2019 despite delivering 21% better in the first half so w e think that's the most relevant upgrade to do currently.
Okay. It sounds like it's likely to see an upgrade of that guidance to significantly better if we see another strong Q3.
I would love to upgrade again. I would love to deliver that to the shareholders, but that's nothing we say anything about right now. What we say now is better than 2019.
That's great. My last question is related to Rikard's question on recruiting but more on employee turnover. I guess that it was close to zero in 2020 due to the difficult market to find jobs. Have you seen an increase in newer employee turnover in 2021, the unlikely employee turnover as the markets have started to take off?
Yeah. Very good question. We've been watching that a lot, and obviously, in 2020, we had very low employee turnover. In 2021, it's going up. A number of reasons. There was a pent-up demand or pent-up need to exit, but people didn't do that in 2020 because they didn't find jobs. We also find that some people actually had some life-altering experiences, and they thought, "Wait, I want to do something different with my life." It seems like the pandemic made people think differently.
In the market in general, employee turnover is going up. Our turnover in 2021 has been roughly at the normal level, so in the normal years, and I think we're doing better than the market for a number of reasons. The fact that we kept everyone in 2020 and put our people first and their safety first and their incomes first, ahead of the shareholders actually, in 2020, really, a lot of our people appreciated that BTS is a place that care about its people and that you can feel safe and your income is safe. That has helped us, and also, we continue to invest in our people and be a great place to work at. We are seeing an increase, but not more than normal, which is different and better than many other companies. It pays off long term to really care about your people.
Okay. That's good to hear. That was all from me. Thank you very much.
Thank you. We have no questions from the phone lines, so I will pass back for any closing comments.
Henrik, thank you that you took your time to come here to Erik Penser Bank, and do you have any closing remarks for this presentation?
Thank you, Rikard. I'm very proud to present this result. Obviously, in 2020, we took our strategy, which was very long-term oriented. Of course, it was risky but we did what we believed in. We took a hit on our short-term numbers, but we continued to stay on course with our strategy, and I'm very happy for our customers, for our employees, and for our shareholders that it's showing that this strategy is really paying off long term. I'm really proud for this.
I'm happy to note today that people who became shareholders at the IPO almost exactly 20 years ago now have 20x their money plus the dividends they've received in the long term. We will, at BTS, continue with our long-term investment and our work to improve margins and efficiency to try to make really BTS the growth story continue as we move forward and continue to deliver a good development for all the stakeholders in BTS, of course, including our shareholders. Thank you very much.