Earnings Call: Q3 2021

Oct 22, 2021

Hello, and welcome to the Nowid AudioCast with Teleconference Q3 2021. 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 Pierre Valentin, CEO and Marie Bjartlone, CFO. Please go ahead. Thank you, and nice to at least soon hear you all. And for those So who already know us, you know that our vision at Novoitte is clear. We strive for sustainable and human society through digitalization and innovation. And that was the first slide that comes right now. And the next slide, please. This is our Q1 in the new structure, including the CyberCom business. It's been a quarter with quite a lot of activity, integration work, new opportunities. And we can also see that the level in General is picking us after the pandemic. And against that background, I'm proud That we have delivered a net sales of almost SEK1.2 billion and a stable EBITDA of SEK105 SEK 1,000,000. We saw a high activity across the group with a strong demand and positive Net recruitment for the quarter, which is very satisfying. And during the quarter, we also continued our growth By adding our management consultancy part with a part from CapaSense, Strengthening our business area in Insight, mainly in Sweden and Finland. And we do that Also in Incyte in addition to the organic growth that we have in general and in Incyte. Next slide, please. Of course, the quarter has Being characterized by an intense integration work connected to Cybercom and Know It. And I'm actually really strengthened this quarter in my belief that There is a really good, excellent strategic fit combining Know It and CyberCom. I think that we see Promising results connected to that already. Of course, there are some overlaps in our offers. The business areas are Adjusting different parts of our clients' organization. The big new thing is that our new connectivity area is strengthening And we are together able to take on more large and more complex assignments. We are, of course, only in an early phase of exploring the new opportunities that we have Together connected to new customers and new more complex assignments, but we already See that we have signed and started new projects together, Know It and CyberCom, already this quarter, and that's very promising. If we go into the recruitment and the net recruitment, Those of you that have followed us know that we have had a In the net recruitment during the pandemics, which is very natural, we started to That activity in both Novit and CyberCom just before the merger. And I think that It's very promising to see that, that rise in activity that we conducted in Q2 give result now in Q3 with a net recruitment of almost 60 people. Of course, we also see that there is an increased personnel turnover in the industry overall, especially if you compare it to last Q3 or the situation in the pandemic, that's completely natural. And I think that, That situation will continue in Q4 and Q1. It's, Of course, something that we have to work with, but it's also opening up new possibilities connected to that there are more people out on the market to attract and talk to recruit. So all in all, I'm very happy with that net recruitment. And You who have followed us for some time know that Q3 is Probably the most important quarter connected to net recruitment. It's always a little bit Slower in both Q2 and Q4. Often, it's So a little bit higher in Q1. So really glad that The combination of post pandemic and the combination of the integration work It's not affecting the net recruitment. So we can take the next slide, please. And if we go into our solutions area, Our biggest business area, we are reporting almost SEK 700,000,000 for the quarter. And we are continue to grow with an Especially strong development in Norway and Sweden, our largest markets. The business area is, of Of course, growing significantly with plus 500 people through the acquisition of Cybercom, which has broadened our offering, especially in Finland, where we were less than 100 People in the area before are now we are a lot more. And during the quarter, we also opened up An office a start up in Helsingborg in South of Sweden to meet the Increasing demand in that region, which is really satisfying. And I also have to mention that Solutions connected to connectivity is the part of Know It, which has the Heaviest workload connected to the integration of Cybercom, of course, with those 500 people. Can I take the next slide, Experience? Experience reported sales of SEK 271,000,000 in the quarter. Around 30 people have been added from Cybercom, mainly up in Sundsvall. The integration of Karyuna that we acquired in November 2020 have worked out well. We have Seeing clear synergy gains, increased sales and we feel that the integration is now Over and we're going to the next phase connected to net recruitment. And we also see that in experience that they have A very strong net recruitment for the quarter. We can take the next slide, please. And our new business area, Connectivity, reported SEK186 1,000,000 in the quarter. And This area that strengthened our offers connected to R and D Heavy Industries like Tech, Telco and Automotive It's a very interesting strategic fit with the rest of Novoitte. I feel that A lot of the new business models and a lot of the new interesting assignments connected to develop new things in the society More and more comes from the R and D part of those industries. So it's really satisfying that we have that on board to take Bigger role connected to the digitalization in the society. So in connectivity, of course, there's been a lot of activities connected to integration of now with CyberCom, which It's, of course, affecting the result a bit. We see a positive sale with new assignments, Both existing old Cybercom clients, but also which is very Satisfying new assignments together, KnowIt and CyberCom connected to new business opportunities. We can take the next slide, please. And our management consultancy, Insight, our Smallest business area and those who have followed us know that we had some struggle or the most struggle With the results in insights during the pandemic, we have now a couple of quarters talked about a recovery From that situation, and I'm really pleased to see that the Q3 is in line with that recovery, and we are really With the result in Insight, we report on net sales of SEK86 1,000,000 for the quarter. We see that we have an increased profitability. We also have around 50 consultants Coming in from Cybercom, completing mainly completing our offers within sustainability and security. And I also have to mention the acquisition of Capa Sense That will strengthen our offer in Sweden and Finland, and that will, of course, be consolidated in first in Q4. So that was a little bit about our business areas. And now we're going to the figures a little bit more in detail. And for that, I will hand over to Marie, our CFO. We can take the next slide, please. Thank you, Thar. Talking about Novick Group as a whole, we delivered sales of approximately SEK1.2 billion compared to DKK660 1,000,000 reported for the same quarter in 2020. And of course, I'm stating the obvious here. The sales increase was impacted by the acquisition of CyberCom, but I want to highlight that we also see growth in existing businesses, And our adjusted EBITA increased to SEK105.4 million for the quarter, which also means an increase of 80%. The adjustments we're making to the EBITA since the Q2 is related to acquisition and integration costs and amounts to SEK11 1,000,000 in the Q3. As I get a lot of questions this year about the allowances from the government, I want to add that we received SEK7 1,000,000 last year in the Q3 and this year nothing. All in all, our adjusted EBITDA margin was 8.8%, which is flat from last year. Next slide please. Looking at the EBITA development, we're proud Present yet another quarter with good development and I remind you this is during an intense time of integration work on CyberCom. And as I mentioned before, the adjusted EBITDA amounted to SEK105,300,000 in the 3rd quarter. And including this quarter, our adjusted EBITDA for the latest 12 months is at SEK450 SEK10 1,000,000 as you can see in this slide. Next slide please. Cash flow from operation was improved to SEK66 point SEK5 1,000,000 mainly due to a stronger result and lower working capital investments. Cash flow from investing and financing activities was impacted by the financing of the acquisition of CyberCom And this is mainly due to the payment of the cash part of the consideration and also by us taking up a loan to finance the acquisition. This resulted in a negative cash flow of $308,000,000 for the quarter. In total, we have a net debt amounting to around SEK160 1,000,000 end of September. Our net debt to EBITDA ratio, which we are following, is around 0.4 And this is well within our financial targets. To sum up the quarter, we have a solid financial And a very strong balance sheet, enabling us to take care of the possibilities that lie ahead of us. And with that, I hand over to you again, Thad. Next slide, please. Thank you, Marie. And to summarize, before we have our Questions. We are, of course, delighted to present another solid quarter with High activities in all areas. During the intense work that we are having the group connected to The integration, we have been able to focus on the business as well, both connected to net recruitment and connected to New projects and new customers. And we see that the Looking ahead, we see a good sign of stable demand in the market. And I think that When we come out of the integration together with Cybercom, we will be very well positioned For continued profitable growth, both organically and by acquisitions. And I See a lot of opportunities in both organic growth and acquisitions coming the next years. So with that, I think it's time to hand over for questions. And I suppose that We do like we have done before that if there is some questions live on the webcast, you are We have an audio question from the line of Daniel Sorson from ABG. Please go ahead. Yes. Hi, Pat and Marie. I start off with a question on net recruitment during Q3. What's the trend during Q3? Did September started on Or ended on a strong note? Or how was it during Q3? And what's your expectations going into Q4 and 2022? Do you foresee An increased turnover from the strong market we currently are in? And have you also seen some effects from CyberCom people leaving after the acquisition? Or is that yet The trend is more connected So the structure in Q3 where we have July August, which is mainly holiday months, So a lot of the recruitment or the start up connected because you have to be reminded that the recruitment Were conducted in Q2. A lot of the activities connected to those 60 people were Conducted in before summer. Otherwise, it wouldn't be possible to get the meaning Q3. So and then they mainly start up After summer end of August and beginning of September. So that's the rationality connected to that, Those 60 people, we see that already in Q3 that we have higher First, I'll turn over then that what was the case last year. And as I mentioned, both Actually, in Q1 the Q1 report and Q2 report, we foresaw that this would happen in the market when the market Comes back from the pandemics because people have got stuck not changing jobs now for almost 1.5 year or Sometimes even longer. So the market within the whole market, we will have a Higher personal turnover. And I think that, that will continue in Q4 and Q1, and maybe it will Slow down a little bit in Q2. But as we are on top of a lot of recruitment activities Right. Now I think that we will be able to handle that. But you will also have to be reminded that there is Always a slower phase of recruitment in Q4 than in Q3, connected To the season variation. So I hope that is an answer of your question. Absolutely, absolutely. That's good. And then a question to CyberCom then. How many people have left Cybercom since your acquisition before summer. I guess in the figure that you showed us the plus 57 net recruitment that is not including The loss of the Cybercom people, I guess? Yes, including that. Okay. So that's a net. It's also included the ones that you have lost from Cyprus? Yes. Okay. Excellent. So I feel that The people at Cybercom are working really hard to get Good integration. They are happy to be on board, and we have a really good situation Connected to the cultural discussions and getting together. So I'm actually less worried about that Today, that's what I was when we met connected to the Q2 figures because now we are In the middle of that integration, and we are working strongly together. Okay. Interesting. That sounds very promising then. Final two questions from me then. The margin in the experience was quite weak in Q3. You absolutely elaborated on that And explain that. Should we expect the margin to be under pressure in Q4 as well due to the same reasons? Or should we expect a quick recovery to normal levels? I think that we will continue to have a high The pace of net recruitment in Q4 as well, but it was really Strong focus on Metro equipment in Q3. So I we will see, but I think that The normalized level of experience is not the level that we have had in Q3, to be clear. True, true. Okay. Okay, that's good. And then the really final question on M and A, M and A opportunities ahead. Should we expect the strategy to yield large acquisitions like every second or third year or more of a constant flow of 2 to 3 acquisitions a year. And what's the management's capabilities to conduct an M and A at a higher pace? I think that we'll start with the last question first. The capabilities is much higher now, and I think that it We'll be higher after the integration of CyberCom. We of course, right now, we are heavily loaded with work connect To that integration, but after that, we have learned a lot and we will be able to have more people in place In those roles connected, for example, to acquisitions and handling them Into the Novi system. So I think that we are building now we are building up capacity to take on assignments. I wouldn't like to answer that question because we need to look at acquisitions from Two ways, both connected to what we think is the strategic fit to in to know it, that we have the right people, the right culture, of course, And that they bring something to the table connected to competence and or new market areas. And then we have the opportunistic side connected to the opportunities out in the market. And I would like to be able to take on both large and a little bit smaller acquisitions depending on the possibilities that The core in the market. So I personally don't know. We will see. Excellent. That's fine. Thank you very much. Our next question comes from the line of Erik Landau from Handelsbanken. Please go ahead. Yes. Good morning or good lunch or whatever you say. So I was wondering, I read through your report and you said that the market is expected to grow by 6% or 5.8% in 2022. First of all, how much is kind of the given that you have a large personnel turnover within the industry, How much is recruitment and how much is price of that, would you say? I don't know. I think that we will have an inflation in the market connected To salaries and prices, maybe half. We will see. But that's a market, yes, not a note, yes. Yes. And also related to that, given that you are around 4,000 employees now and then you have See something recruitment in this quarter, it means that if you will grow by the market Next year, it will mean around 50 people every quarter. Now you had 50, 70 this quarter, but this Still an important quarter in terms of recruitment. What is kind of your goal within your In terms of growing organically next year, is it possible to recruit 50 people every quarter To grow by around 5%, then you have some inflation as well of 3%, so meaning like 8%. Or what would you discuss in terms of organic growth for Yes. I won't disclose that today. We will, Of course, I have a strong focus on being able to work with our organic growth, but I don't predict The level. Lastly from my side, I mean, I think this report was Very impressive in terms of how quickly you integrated Cybercom and also got, yes, positive results from it. And also In addition to that, combining it with good recruitment as well and also the market situation looks really good for you, What would you say is kind of the biggest issue or main risk from your side as you would say right now? I think that the main focus for us to really do well Is to complete the integration of CyberCon in a good way. I think We are still in the middle of that integration and that's the main focus that we have the quarters to come. Okay. Thank you so much and have a good Friday. Thank you. Thank you. And as there are no further audio questions, I'll hand it back to the speakers. And we do actually have a Few questions from the webcast, but they cover mainly the same subject as in the audio cast. So one is from like a webcast Yuri, Marius from Norway, but it's also more on the comments on the M and A. Would you like to say something else Alberto, our plans forward? Yes. I think that I may So that's connected to the last question with Daniel. But to be clear, we Try to grow both organically and by acquisitions the years To come, but we will be very clear in being able to do that sustainable so that we take on the right acquisitions And take one step at a time. But there are possibilities connected to that, that we now have a financial Which is really good. We have the clear support from new and strong owners. We have a platform culturally and structurally within NOVID that makes it possible to take on acquisitions. And there is also consolidation going on in the business. And It's not only consolidation connected to that. It's something That's a trend. It's also connected to the customer structures because many of those assignments that we take on now are actually much It's larger than what they were just 2, 3, 4 years ago. So we will need to Continue to grow to serve our customers in the best way for the future. So that's important to say as well. So I think that there are quite a lot of factors that Drives towards the same conclusion that we will take on acquisitions in the years to come. Thank you. And then Ramin from SCB also had I think you have elaborated on that as well, Connected to like the wage inflation that we see in the market and our ability to push that further on to customers and maybe Can you say something about billing ratios? Yes. If we start with billing ratios, I think that Everyone can understand that they are back post pandemic now. It was a tough situation, for example, last year In Sightland, we see that it's back on track. If we look at The wage inflation and the price inflation, I think that we will have both because there is a lack of Highly skilled people in the business. I also think that we have good discussions with our employees connected to that. I mean, it's really important that they get well paid and that they get a payment connected to What's fair in the business? And we see that our customers are really Of course, they want to have the right price, but they are also very eager to get the right people and the right project. It's possible for us to take discussion connected to prices with the customers. And I think that the years to come, we will have to handle both year after year. And that was actually the last question from the webcast as well. All right. Then we close down this call and say thanks to all of you that listened and Participate it and have a good Friday. Thank you. Bye. Thank you. Bye. This concludes our conference call. Thank you all for attending. You may now disconnect your lines.