Good afternoon all, and welcome to the Knowit Interim report for January to June 2022. My name is Adam, and I'll be your operator today. If you'd like to ask a question during the Q&A portion of today's call, you may do so by pressing Star followed by one on your telephone keypad if you've joined us via the phone. If you've joined us via the webcast, please use the questions function provided. I will now hand you over to Per Wallentin to begin. Per, please go ahead when you are ready.
Hello, my name is Per Wallentin, and I'm the CEO of the company. With me here also, I have Marie Björklund, our CFO, who will take us through the numbers later. Next slide, please. First, I would like to take you through some of the operational highlights during the second quarter. We continue to see good demand for our services, which in turn have resulted in a solid growth and improved results for the quarter. I'm pleased that we delivered net sales of more than SEK 1.6 billion, corresponding to an increase of around 7% when we compare Knowit today to Knowit plus the acquired companies one year ago. We deliver an adjusted EBITDA of SEK 140.5 million and a margin of with 8.5%.
The margin is impacted by increased costs for meetings and travels in the quarter. We also see an impact from the salary revision for 2022 coming now in Q2. We are pleased to note that the recruitment trend have been positive for the second quarter. All in all four business areas perform well. We see a particularly strong demand in experience and connectivity with good growth and strong margins. Next slide, please. Our sustainability goals are an important tool to steer our everyday work to ensure that we always strive to participate in the transition to a sustainable and digital society.
We have, as you know, since a couple of quarters ago, the sustainability goals in combination with the financial goals. One example for this quarter is the development of tilnull.no. That's in English, To Zero dot no. That's a web portal that gathers and visualize data about Norway's greenhouse gas emissions in an easy and accessible way, in order for Norway to reach its ambitious targets of cutting the country's greenhouse gas emissions in half by 2030 and down to zero by 2050. An efficient and clear information about complex topics is a necessity. Through this project, we contribute to two of the sustainable development goals, quality education as well as climate action. We can take the next slide, please.
If we go into the business areas more in detail, we start with our biggest business area, Knowit Solutions. Reported net sales of SEK 933 million for the quarter, corresponding to 9.4% growth, included acquired entities. The EBITDA margin was 9.6%, and that was impacted by needs for physical meetings and travels for the quarter. We are also pleased to announce the acquisition of the Danish IT consultancy Miracle with 130 employees. That will strengthen our position in Denmark significantly. We also have several new important frame agreements during the quarter, both in Norway and Sweden. For example, Inera 1177 in Sweden, that's our Swedish healthcare portal. We can take the next slide, please.
Experience reported sales of SEK 400 million in the quarter, an increase around 12%, including acquired entities. The margin was stable 9.7%, and there was a particularly strong development in Norway and Sweden. If we go into our newest business area, I think I said the next slide. The slide, Connectivity. Our newest business area, Connectivity, reported SEK 206 million in the quarter, growing with almost 15% in existing business. Connectivity strengthen our R&D intense industries such as tech, telco, and automotive. We continue to see good recruitment, especially in Poland, with competence deliveries into the Swedish market, which have a positive impact on margins as well.
The acquisition of Swedspot has had positive impact through new clients and projects, a really positive energy into the business unit, especially connected to automotive. We can take the next slide, please. Our business area Insight management consultancy reported net sales of around SEK 171 million for the third quarter, unchanged for the year before. There was a solid performance in Sweden and Norway, driven by margin improvements and overall performance. Solid margin development. EBITDA margin was increasing to 14%. We have the acquisition of Marketing Clinic with around 60 employees in Finland, strengthen our position in Finland and strengthen our position as a management consultancy working with top line as well.
Our complete growth, of course, was impacted by continued high activity in the employment market. We also have a little bit different business model in Insight, which is less influenced by subcontracting business deals. We can take the next slide, please, and go over to Q2 figures, and then I hand over to you, Marie.
Thank you, Per. Next slide, please. If we're looking at Knowit, the whole group, we delivered sales of approximately SEK 1.6 billion compared to around SEK 1 billion reported for the same quarter in 2021. Sales increase was impacted by acquisitions, mainly Cybercom, of course, which wasn't consolidated until July first last year. Other acquisitions affecting the sales are Strømlin and 1508, acquired beginning of 2022, and Capacent, which we closed in the third quarter of 2021. If we take away the acquisitions, we can see that we continue to have a good growth in our existing business, which we are, of course, very pleased with. We have a growth compared to last year, including the acquisitions of 7%.
If we clear that from currency effect, we have a growth of a little more than 5%. Our adjusted EBITA was right above SEK 140 million, which is an increase by a little more than 40% compared to last year. The adjustment for acquisition and integration costs amounted to SEK 4 million in the quarter and was concerning the acquisition of Swedspot, but also costs for Marketing Clinic and Miracle. The two acquisitions closed on July first, and because of that, not consolidated until the third quarter. Our adjusted EBITA margin was 8.5%, somewhat lower than in the second quarter of 2021. An explanation of this is the increase of cost for travel and physical meetings as well as salary inflation.
I am pleased that we're taking these costs, which are an investment in our organization and people, and most of all give us the possibility to grow in the years to come. Next slide, please. This slide shows our adjusted EBITA development in which you can see how much the result has grown over the years, and we're ending the quarter with a rolling twelve months of SEK 621 million. We're especially pleased with this development since we've had an intense period with integration work. Next slide, please. We continue to have a solid financial position and a strong balance sheet. Cash flow from operations increased to SEK 130 million with a positive change in working capital, mainly due to increase in other short-term liabilities, such as vacation debt.
Cash flow from investing activities was affected by acquisitions, additional purchase prices, and also the divestment of our minority interest in Stacc. The divestment gives a capital gain that is reported as a financial income in our P&L, as well as, of course, affecting our cash flow and net debt. Cash flow from finance activities was affected by dividends and loans taken. Concerning our net debt, all in all, at the end of the second quarter, it amounts to SEK 475 million, which is an increase compared to previous quarter following the intense acquisition activities in the past year. Leasing debt also increased because of newly signed rental contracts. This corresponds to a net debt to EBITDA ratio of around 0.6, which is well within our financial targets.
During the quarter, we have extended our revolving credit facility with Nordea, and we have now access to a little more than SEK 1 billion. The increased facility is a support for us in future acquisitions as well as other investment activities. With that, I hand over to you, Per, to say some final words before we take on questions. Next slide, please.
Yeah. Thank you, Marie. Some summary and outlook here. To summarize, we are delighted to present another solid quarter with high activity in all areas. We see a very high demand for our services across the Nordic region and Poland. However, as you have seen in the report, we are challenged by the hot employee market, meaning that even though we have a really good recruitment and recruitment activities, and we are successful with that, we lose some employees, mainly to customers, and that might be okay in the long run. But all in all, we have a positive net recruitment in the quarter, which is something that we strive for, as you know. We continue to drive the consolidation in the Nordic market through three new acquisitions in the quarter.
Looking ahead, we see good signs of continued good demand in the market, and we think that we are very well-positioned for continued profitable growth and look forward for exciting opportunities ahead. With that, we are now open for questions.
As a reminder, if you'd like to ask a question today, please press Star followed by one on your telephone keypad if you've joined us by the phone. If you've joined us via the webcast, please use the Q&A tab at the top of the screen. That's Star one on your phone or the Q&A tab at the top of the screen for the webcast. The first question today comes from Daniel Djurberg from Handelsbanken. Daniel, please go ahead. Your line is open.
Thank you very much, operator, and good morning, Per and Marie, and thank you for taking my question. My first question would be on the recruitment. You say that you see a positive net recruitment in the quarter. I was just wondering, since you have done a couple of acquisitions here, Miracle and Marketing Clinic since we'd spoke, for example, these three, I think, add some 230 employees. Is it so that you don't calculate all of them because they can come in in, like, June or because otherwise it's the gross number of expansion number employees, I think is 62 or something. That would suggest a net decline otherwise of some 170 employees organically. What do I miss here?
Maybe you could get us through that, Marie, but that's right. Some of them are coming in after the quarter.
Okay. That would explain.
Yeah. Exactly.
Perfect.
Some of the, I mean, we're closing the deal of Marketing Clinic and Miracle, July 1st, so they're not coming in.
Okay.
until the third quarter.
Perfect.
The net recruitment that we're talking about that we have a positive trend, that is, and then we cleared it from growth of acquisitions.
Yeah
... the trend that we can see is organically.
Yeah. Since Swedspot only added some SEK 40, I guess. You have that.
Yes. That's right.
Exactly.
Perfect. Okay. Can you say anything else on the employee turnover trends you have very good, you know, traction in the market, and also we see some uncertainty in the market, I guess, that could lower the attrition rate some or what should we expect going into the second half?
I think that you're right in that, as you know, we don't disclose that in detail. If you look at the trend, and especially the trends in the market, we saw, as you know, a very strong decline in employee turnover from 2019 to 2020 and 2021 due to the pandemic. Now we see an increase after the pandemic, and that's fully natural. We already talked about that one and a half or two years ago that it would come. That's something that we see now. I agree with you that I think that will continue during the autumn and we will see if it continues to Q1 next year or if it ends already in Q4. I don't know.
It will, the market will settle down quite a lot, 2023, I think.
Yeah
with that said, we see that trend in Knowit as well, but it wasn't as significant as I thought it would be. Especially with our big acquisition of Cybercom, I personally thought it would be even higher in the Knowit context. I'm actually quite pleased with the figures, even if they of course are higher than the last.
I think it's because of the great management. That's it. Yeah. Another question here on the visibility into the product starts and product continuation after the summer in terms of visibility. Do you see any changes or any things coming up later in terms of product cancellation?
No
On the back of the macroeconomic uncertainty?
Nothing. Nothing yet. I mean, if we are facing a tougher situation in the development around us, we might see that first in Insight, but we haven't seen it. That's how it is.
Perfect. May I only ask a little bit on if you look at your EBITDA margins, the level in Sweden was very nice at 12.7%. A tad slower in Norway, perhaps a little bit more Easter or something. Also what you say about the potential to lift the margin some in Finland and Denmark, now you get better critical mass perhaps on the. Is it utilization or is it something more structural in the market from pricing or something else that lies behind the differences in the margins?
I think it's important to talk about margins in long-term and short-term trends. The short-term trend for the quarter is obvious that we needed to invest in travel and in activities together with all our employees. That's positive and important as I see it. Long term, there is a lot of small things that we can work with internally to work with the long-term margin goals that we have. One of them is, as you mentioned, to be big enough in a country, because to be really small in a country, it's always a hassle, a problem because you are not well-known, for example, to the employee markets. It costs quite a lot of money to recruit.
It costs a lot of money to do quite a lot of different things. When you have the size of at least 200 to 400 people in one country, that might be easier. We already see that we take out some efficiency gains with the scale that we have managed to get up to over 4,000 people now, so we can work with that. Of course, the obvious thing is to continue to work with the higher prices, price per consultant connected to salary. That's something that I think is very important for us to continue to work with because the inflation is quite big.
I think that we have been good in working with the price component so far this year, but probably we will have to continue to work with that for a while, a couple of quarters coming.
Yeah. Okay. My very last question, if I may, would be, Marie, you mentioned that you see M&A perhaps ahead, but also you mentioned other investment activities. I was thinking if you are thinking of something special plans there that we should be aware of.
No, I think.
No, it's nothing specific. It's just. Yeah, sorry.
You can take it, Marie. Sorry.
Yeah. No, it's more that we do have some other smaller activities. Nothing is specific in mind. Could be like investment in fixed assets, which we don't have large such, but more those type of things. More like investing in our organization in terms of just the ongoing business. Nothing is specific in mind.
That's great. Thank you and good luck here in Q3 and have a great continuation of the summer.
Thank you.
Thank you.
The next question comes from Daniel Thorsson of ABG. Daniel, your line is open. Please go ahead.
Yes, thank you very much. A few questions for me. The first one is on the margin. Given that the market is still pretty strong, the margin declined somewhat, and it basically shows that it is quite difficult to be sustainably above the 10% margin threshold here. Was the margin development in the quarter according to your or in line with your expectations? Is it still equally reasonable to reach the 12% margin target in the coming years? Has that changed anything given the salary inflation we see now?
It was pretty much in line with expectations. Of course, it's impossible to have detailed expectations, just more connected to the trend. We expected, we saw that coming and increased the focus on travel and the meetings within the organization. I think that's all right and that's good. Yeah.
Yeah. To add to that, I mean, it's, we're coming into like a post-pandemic way of looking at the travels and physical meetings, conferences and so on. We'll see how much goes back to the way it was before the pandemic. Could be that we have a slight change there.
Yeah.
Find out.
I agree, Marie. Even if it's higher this quarter and maybe if the summer quarters now, I think that overall we will see lower costs for travels and meetings. If we look at 2022, 2023 and forward compared to 2018-2019 per employee, I think that we will lower that cost, but I think that we will lower the cost of premises as well. I think that the post-pandemic structure and ability to work with margins is actually better.
Okay.
Long term.
Yeah, I see. Okay, that makes sense. Can you say something on the second half of this year? I guess the second half of last year was kind of a pandemic environment with pretty low costs and pretty good margins.
True.
Should we expect to see a similar development in the second half of this year with increasing costs and some pressure on the margin?
I think that we will have some meetings and travel in Q3. I think that will decline in Q4. Q4 is also a quarter where we usually don't have that much meetings. I think that we will probably see. There's been a discussion internally, at least in Knowit, and I know that it's the same in other companies, that it's better to take those meetings on the summer half of the year due to the risk for pandemic outbreaks in the winter. We will probably see a little bit of a shift seasonally as well. With that said, lower costs in total per year.
Okay.
I agree with you, Per. It's not really. I mean, that's not only for us. I think it's more general also for all companies like us that we might see a little shift there.
Okay. Excellent.
That, that's just a guess. We will see. We will see.
Yeah. Yeah, that's fair enough. My second question is related to Insight. It was a pretty good margin here with 14% margin after a couple of tough years. We have been around 16%, 17% margin. Where are we in the trend here? Is it an increasing trend, or is it peaking out here because of the weaker economy ahead? Or what do you see in Insight really? Because that's a good indicator of the whole economy and the environment.
Until now the trend is increasing at least.
Yeah.
Yeah. We've had a strong demand in Insight. The type of signals that you're looking for has not been there in this quarter.
Okay.
We'll find out.
Excellent. I see. Then a question on demand. Given the market environment, tech companies reducing staff, et cetera, do you see any early signs in any of your end markets with customers being somewhat more hesitant on starting larger digitalization projects?
No. Of course we are very aware of looking to those signs, but we don't see that. With that said, there is quite small amount of people coming out to the market from those tech companies that you are talking about. That's only. We have a lack of around 70,000 people in Sweden right now. So far, it's not gonna be a problem. I'm not sure if that ever will be a problem during this cycle.
Yeah. I see. My last question is on M&A here. You have really stepped up the pace on M&A. How should we think about management capability of completing more M&A ahead, but also your willingness of doing it, and especially what you're looking at?
It's the same answer as before. If we start with the ability, I think that three in one quarter is about maximum what we can cope with practically.
Mm.
That's our aim.
Mm.
I'm very pleased with that we were able to do that and happy that we have a really strong organization being able to take on the new acquisitions in a good way. That's mainly due to that we have a good structure in our support functions, but also that we are a decentralized organization that very strongly can take on the relationship with the new entities from business area. With that said, we have a strong M&A pipeline. We think that with this market, which is a little bit more uncertain, it might be good opportunities.
Of course they have to be right in price, they have to be right in focus, and we always are very agile in how we look into the possibilities ahead. For example, of course, when we decide for new opportunities after summer, we will look at the situation in the market in August and September. We will see. There will not be any promises, just that we will do a good work and continue to have a good focus on potential M&As.
Excellent. That's it for me. Thanks.
The next question is from Walter Lindhagen from Pareto Securities. Walter, please go ahead. Your line is open.
Thank you, and good morning, Per and Marie. I have a question related to the margin development here going forward. As you mentioned, the margin in Q2 was negatively affected by salary hikes, as you have flagged for in previous quarters. When you talked about this in previous quarters, you sounded quite confident that you will be able to compensate with price increases. Do you still have this view if you look at, I mean, the entire year, maybe 2022? Yeah, I think what we said, and as you mentioned, we talked about that delay already in Q1.
What we said that the salary increase and the price increase will probably even out during the year, and that remains.
All right. Perfect. I have a question on the acquisition of Miracle. I just looked at the data in your press release there, regarding Miracle's sales and the number of employees. It seems like they have quite much higher sales per employee compared to Knowit. Just to get an understanding here, could you give some insight into why they have this revenue profile?
It's mainly due to that they have some license deals with the public sector in Denmark. We have that in different parts of Knowit as well in some subsidiaries, but they have that, and that's why the figures looks a little bit different.
All right. Perfect. That was all for me. Thanks.
As we have no further questions, I'll hand back to the management team for any closing remarks.
Do we have any questions from mail or on the web, Kiki?
Nothing on the mail, no.
All right. We would like to thank you for participating, and wish you all a really good summer. Thank you.
Thank you. Have a nice summer.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.