Earnings Call: Q2 2021

Jul 15, 2021

Ladies and gentlemen, welcome to the Know It Audiocast Q2 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 Per Valentin, CEO and Marie Bjorklund, CFO. Please go ahead with your meeting. Hi, and welcome to this presentation of the Q2 2021 for Nowit. As you said, I'm Per Valentin, CEO of Novit. And with me today, I have Marie Bjorklund, our CFO. We can take next slide. For those who already know us, you also know that our vision is clear. We strive for sustainable Human society through digitalization and innovation. Next slide, please. We are, as a company, well For continued profitable growth, the strong underlying megatrends support the business, As you all probably know, we have a strong footprint in the Nordics with a diverse customer base. And Which is very important. We have a very attractive employer brand in the Nordic market. For example, connected to IT students In the Nordic, when Western survey was the most attractive consultancy. And As you also probably know, this quarter will be the last quarter in this current structure So with our 3 business areas, solutions, experience and insight. Following the acquisition of Cybercom, we will announce a new or we have announced a new 4th business area, connectivity from the 1st of Yulai, if you can take the next slide. And I'm really pleased To report a strong quarter with high activity in all aspects of our business, we report a net sales group By over 20% for Q2 connected to last year and an EBITDA margin of 9.5% percent and the EBITA margin was 9.9%. Also that's an improvement from last year. And all three business areas deliver improved sales and EBITDA results. And Particularly, we are pleased with the really good development in Insight with Strong improvement in margins and strong improvement in EBITDA. And that's really pleasing. Without good market and the right position in the market, we Already in the end of last year, talked about starting to ramp up the recruitment. And we have done that during first half of the year. And I'm really pleased that we, in this report, can Announce the net recruitment for the Q2. And of course, The M and A activity during the quarter was a lot about the acquisition of Cybercom, which is the Biggest acquisition in the history of Norwich since 1997. And we also announced new financial targets. We raised over SEK 500,000,000 in right issues to strengthen our financial position for continued growth. So there was a lot of things going on in the quarter. We can take the next slide, please. Well, the acquisition of Of CyberCom, it was announced during the quarter. The acquisition was consolidated from the 1st July after Q2. And after that date, we are now over 3,800 professionals in 6 countries. We are forming this or we have formed this new business area now with connectivity With focus on Industry Tech and Telco Sector, We will be more attractive in those customer segments. And we will also, together with CyberCom, further strengthen our focus on sustainability. The preparations have been diligent and the integration has kicked off with Promising results. Of course, we are in the start of a long journey in Getting now within Cybercom integrated, but it's a really good start so far. We can take the next slide, please. Our biggest business area, Solutions, which will be the biggest business area after the integration of CyberCom as well, increased net sales by 0.6% for the first half of the year and 8% for the second quarter compared with the same period last year. We particularly saw strong development in South of Sweden. We can take the next slide, please. Experience had a really strong performance, driven by continued demand for especially for e commerce, Digital Health and Care Solutions, overall sales increased by 48%, of course, connected To the acquisition of Karyuna, that integration Has been a success. We where we operate together, for example, in Oslo, in Stockholm and Gothenburg, we have seen additions of new and more complex client assignments and really promising results. So that's really I'm really happy with that integration actually. We can take the next slide, please. Now with Insight, our advisory, as You know, we had some problems connected to the advisory part In the beginning of the pandemic last year, and we are really pleased To see that the trend started late last year, it continued this 2nd quarter as well. Sales increased by 7% for the first half of the year. The action taken to strength and profitability in delivering is delivering significant results And the result improvement up from SEK 8,800,000 to SEK 18,700,000 is really promising. And of course, in particular, the offer in security has been positive driven by recent focus on So the team in Insight have really Done a good result, of course, connected with that the demand is coming back in that area. And if we go into Q2 in figures, I would like to hand over to Marie, Who will elaborate the financials in more detail. Over to you, Marie. Thank you. Next slide please. Talking about NOI Group as a whole, We delivered sales of a little more than SEK1 1,000,000,000 in the second quarter, which means an increase of almost 21% compared to the same quarter in 2020. Of course, sales were impacted positive by the acquisition of Kruna, The like for like figures show that sales also included a good organic growth coming from all three business areas. News from this quarter and on is that we will show the adjusted EBITA. And by adjusted, we mean the EBITA without one off costs Linked to acquisition and integration. These costs amount to SEK25.7 SEK1 1,000,000 in the second quarter and are of course coming from the acquisition of Cybercom. This means the adjusted EBITA increased to S98 million for the quarter, an increase of around 35%. Our adjusted EBITA margin was 9.5%, which is actually spot on 1 percentage point above last year. And like last quarter, I got some question concerning government support. And it is true that last The year's Q2 was affected with as much as SEK27 1,000,000, reducing the staff cost, SEK21 million coming from reduced social charges and SEK6 million in short term allowances. And I also want to mention that none of the figures I'm presenting now include Cybercom as we did not close the deal until the 1st July and will because of this consolidate from that date. Next slide, please. Looking at the business area split, we can see that Experian is increasing its share of sales from 23% to 31%. Of course, this is following the consolidation of Kruma's business, which was an acquisition made by Experience. Insight almost keeps its share of the total despite the consolidation of Kruna, which and this is because Incyte had a good increase in sales in 2021 and especially in the second quarter. Next slide please. This chart shows the geographic split of sales And we have the same effect as last slide, the Kruma effect. The acquisition of Kruma increased our operations In both Sweden, Norway and Denmark and the Swedish part of the business accounted for 52% of sales versus 55 last year. Next slide, please. This is our split of sales on industry field. We continue to have a diversified client base with 38% of sales from the public sector, which has been stable during the year. We have clients in a number of different sectors with retail on top accounting for 20% of sales, which is more than last year when we had 15. The explanation of the change is also Kruna, As you know, an acquisition with an experience. And this is the business area focusing a lot on web, ecom, design and marketing, Where there is a high demand from retailers, Banking and Finance reduced its share for the same reason, krona. Next slide, please. Cash flow from operations is, as you can see, SEK 74.5 million, which is very low compared to last year's SEK240 And this is because last year was affected of some one off effects Connected to personnel debt, for example, less vacation was taken, which meant a high debt And change in accounts receivable due to improved routines and high focus on collecting. The cash flow from financing activities was SEK323 1,000,000, mainly impacted by payment of our dividend of SEK152 1,000,000 And also, of course, the rights issue of SEK 500,000,000 made in June. On June 30, we had a very good net cash position of around SEK560 1,000,000, which means that the ratio of net debt to EBITDA was negative of SEK1.3 billion, and it's based on our R12 EBITDA of SEK424 1,000,000. The acquisition of Cybercom Completed at the 1st July will of course have an impact on our net debt, but that will not be until the Q3. This means that we have a healthy financial position with an equity asset ratio end of June of 57.5%. And this again makes us well positioned to capture growth opportunities in the market. Next slide, please. All in all, we're very The last 12 months is at SEK368 1,000,000. And with that From me, I hand over to Per for some final words on the quarter. Thank you, Barry. And we can take the next slide directly. To summarize, We are very happy with the first half of the year. Looking ahead, we are very well positioned For continued profitable growth, both connected to the acquisition of CyberCom, Our financial situation, our ability to attract people and, of Of course, the really strong underlying market. And we look forward to an exciting new chapter in Norwich history. So now I am and Marie are open for questions. Thank If you do have a question for the speakers, please press 1 on your telephone keypad. Once again, it is 1 on your telephone keypad And the first question comes from the line of Daniel Thorson from ABG. Please go ahead. Your line is now open. Yes. Hi, thank you very much. First one, you have decreased number of employees year over year in both Solutions and Insight, and Experience growth is Obviously, mainly a result of Creona. How is net recruiting developing? And what should we expect going into the second half of the year? Because I guess that we will likely see some initial employee turnover from CyberCom. Is it possible to offset that effect by organic net recruitment? Well, we will see. We will try to do it. But as you summarized, there will Probably a slight increase connected to the acquisition of Cybercom. We will also see an Increased employee turnover in the whole market post COVID. We think that the Employee turnover will increase in the market this autumn. That, Of course, it might be a problem, but it might also be a possibility to connect it so that we have a strong employee brand. So our aim is to be able to net recruit Both connected to CyberCom and both connected to a higher employee turnover. Okay. And we also saw in Q2, as you saw, that we are coming back Connected to net recruitment. We started that journey last quarter last year. And of course, It's a long journey to get back to net recruitment because you have to start and get back to recruitment activities. But we have done that, and that's really promising. Okay. A question on the Know It Academy program starting after summer. You say that you have around 30 talents Joining the company in August, September. Am I totally in Stockholm? Only Stockholm. Yes. Okay. Only Stockholm because that was like 100 people a couple of years It has been like 30, 40 people in Stockholm before that as well. But we Of course, the big quarter for Natural Coatings always, as has always been, Q3, Connected to seasonal variations. And last year, as you know, we stopped that All those recruitment activities, and we are full ahead doing all those things this year. So that's really promising. Okay. Okay. I see. I go ahead with another one. Then you mentioned cybersecurity as a hot area where you recruit experts and launch a new Program, are you also looking to acquire companies within this area? Or do you consider purchase prices to be too high? We look Broadly connected acquisitions, so we'll look into that as well. But at the start, we have been able to net To recruit people in that area, and we also have a really strong academy converting people into really strong cyber Security consultants, so that's promising because that's much more cheap or low cost Then for example, acquisitions. And then we also have quite a few people coming in from CyberCom into that area CyberCom is really strong in that area as well. So we will really strengthen our position in the cybersecurity area together with CyberCom. And the main focus will during the autumn and next year, of course, be continued net recruitment, but we will see. Yes. Okay. That's good. A final one on margin potential in Insight. I mean, given the nature of Insight's business with management I guess we are still a bit off the margins. It should be able to reach close to maybe 20%. Do you also see inside as the largest margin potential For the group margin? That's right. I mean, we are really happy to announce that we are Back on track connected to EBITDA results compared to how it was in Insight last year and then the end of 2019. But if you look further back, you saw that the margins in Insight back 2018 and so on was, of course, stronger than they are today. So the potential, as you mentioned, is really good. Do you see similar potential in I mean, not similar in absolute terms, obviously, but do you see margin expansion potential in Experience and Solutions as well? Or are you happy with those margins? Yes, we see a potential. And as you know, we also Change our margin targets from 10% to 12% overall in the group. But as I mentioned, when we change those targets, the target is connected to margin is A long term target, which will be quite hard to acquire, but we will try and we will take one step at a time. But I think that there are potential in all 3 or now 4 business areas. But the biggest potential is, of course, in Insight. Exactly. Okay. That's good. Will we see the 4th business area as of Q3? Yes. Okay, great. That's all for me. Thank you. And as we have no more questions registered, I'll now hand back to our speakers. All right. If we don't have any more questions, we would like to say thank you From me and Marie and the team at Know It and hope for a really good summer rotation. So thank you and have a good summer. Bye. Thank you very much.