Hello, everyone, welcome to the Knowit Year End Report 2022 call. My name is Daisy, and I'll be your moderator today. If you would like to ask a question, please press star followed by one on your telephone keypad if you have joined on the conference call. If you have joined on the webcast, please use the written Q&A box. I would now like to hand the call over to your host, Per Wallentin, the CEO of Knowit, to begin. Per, please go ahead.
Hi, everybody. My name is Per. With me here today, I also have Marie Björklund, our CFO. We can take the next slide, please. The slide with Q4 in brief, slide number three. First, I would like to take you through some operational highlights during the fourth quarter. We continue to see good demand for our services. There is an uncertain macroeconomic development, although we see some longer lead times among some of our clients. To mitigate this, we have increased our focus on sales activities even more. With that said, this doesn't mean that we have stopped recruitment activities. The need for competence remains high. Our business area Connectivity continues to perform well, with increased revenue and margins.
We have an increased share of subconsultants primarily within our business area Solutions in Norway. This has an negative impact of the margin. This is due to some new and quite large framework agreement that we have signed in Norway, where we are working together with partners in order to have enough capacity. We can take the next slide, please. The full year 2022 has been strong, and we expect high demand in all regions. We have experienced high demand in all regions. We see that Nordic companies and the public sector have had a strong pace in their digitalization agenda. We have recruited almost 250 employees, net recruited almost 250 employees.
Of course, all year long, the focus on finding talent have been high. Our employer brand is still very important, and it is strong. We have, as you know, been working actively with acquisitions and integrated seven new companies into the group. We have a strong track record when it comes to acquisitions, and it's important and a continuous important part of our growth strategy. You know that our uncertainty connected to the macro development has increased gradually, but I think that we are working with that and handling that well. Thanks to stable profitability, a good and stable cash flow, the board is able to propose an increased dividend for 2022 of SEK 7.5 per share.
We can take the next slide, please, go into our sustainability agenda. Of course, our sustainability goals are important to measure the transition that we strive for towards a sustainable and a digital society. Our somehow new sustainability goals in combination with our financial goals will ensure that we continue to steer towards long-term profitability and also sustainable growth. One example of this for the fourth quarter is the digitalization of one of Statkraft's hydropower plants in southern Sweden. We have helped Statkraft to reduce time and resources in monitoring and take care of this hydro plant, and making the control process more or less completely automated and remote.
We can take the next slide and dig down into our business areas, and we start with our biggest business area Solutions. The area reports a net sales of SEK 1.11 billion for the quarter, corresponding to 12% growth, including acquired entities. The EBITDA margin was 9.9%, mainly impacted by increased share of subconsultants, as I mentioned before, due to some large framework agreement in Norway. We also experienced somewhat longer lead times into new assignments and projects. We see particularly strong performance in Norway and Sweden. We have reduced focus on recruitment in Denmark and Finland, while the recruitment and the need for recruitment remains high in Sweden and Norway.
Can take the next slide, please. Our digital agency and probably the biggest digital agency in the Nordic region, Knowit Experience, reported sales of SEK 432 million in the quarter. That's an increase of around 12%, including acquired entities. EBITDA margin was 11.2%. This fall and Q4, Knowit Experience have broadened its offerings by including services from Poland as well, making us more relevant for larger de-deliveries. This have been very appreciated by our clients. As you probably know, this is due to the 300 people we have in Poland mainly connected to Connectivity since before. We experience somewhat longer lead times to get consultants into new projects.
Of course, following a period of quite heavy recruitment. Also in Knowit Experience, we shift focus from recruitment to sales in the quarter, and this have had a really positive impact of our growth. We can take the next slide, please. Our newest business area, Connectivity, reported sales of SEK 287.5 million for the quarter, growing with almost 20% in existing business. Margin improved to 12.1%. This is a very strong result. We see high demand for our competence in both Poland and Sweden, and this is of course contributing to the overall result. Also here we experience somewhat longer lead times among some clients. Overall, there is a continued good demand.
Our management consultants in Knowit Insight, which have grown quite a lot the last years.
Next slide, please.
Yeah, sorry. Next slide, please. Knowit Insight reported a sales of around SEK 254 million for the third quarter, growing by 8% including acquired entities. There is a positive demand situation in Sweden and Norway. Demand for cybersecurity competence remains high. We see a good recovery in Finland contributing to the result improvement compared to Q3. Still in Finland, more improvement needs to be expected in 2023. With that, I will handle over to you, Marie, to elaborate the financials more in detail.
Next slide, please.
Yes.
Thank you, Per. Next slide, please. Thank you, Per. Taking a look at Knowit, the whole group, we can see that we delivered sales of almost SEK 2 billion compared to SEK 1.6 billion reported for the same quarter in 2021. This means a growth of 25% and close to 12% when comparing Knowit now and including the acquired units a year ago. Adjusted for FX, this growth was 8%. EBITA, adjusted for acquisition and integration costs, amounted to SEK 179 million for the quarter, more or less in line with the fourth quarter last year. Our adjusted EBITA margin was 9.1% in the quarter, and last year it was 11.5%. We do have a decrease. One explanation to this is an increased share of subconsultants in some larger projects.
This is mainly in the business area of Solutions, who has taken on these large projects, which is an opportunity for us. Because of the volume and need of some specific competence, we need to use subconsultants. Unfortunately, this is a disadvantage on the margin, but it also means a higher flexibility meeting variation in demand. Apart from this, we have costs for moving to new premises in several cities and an increase of costs for travel and physical meetings. The market is still good. However, we can notice a somewhat delay in getting new younger employees into assignments in some areas. Next slide, please. Summing up the year 2022, we delivered sales of approximately 6.8 billion SEK compared to 4.8 billion SEK in 2021.
The increase is coming from a good organic growth in all four business areas and also from our acquisitions. It sums up to a growth of 28% and close to 9% when comparing Knowit now and including the acquired units a year ago. Adjusted for FX, this growth was 8.5%. EBITA, adjusted for acquisition and integration costs amounted to SEK 609 million, an increase of 25%. During the year, we made a number of acquisitions, starting with 1508 and Strømlin. Swedspot, Miracle, Marketing Clinic, and Ascend and Ionic. All performing very well, except for Miracle and Marketing Clinic, who had challenges during the fall, and we have taken actions to see improved results in 2023. Our Adjusted EBITA margin was 8.9% in 2022.
For similar reasons as for the quarter, the margin has been challenged by cost for travels and conferences, a high growth with use of subconsultants, and a strong net recruitment. All in all, we still perform very strongly in the year. Next slide, please. Looking at the revenue and EBITA development, we're proud to present yet another quarter with good growth and stable profitability during a period of large external uncertainty regarding future macro development. Our Adjusted EBITA for the latest 12 months is at SEK 608 million, and revenue SEK 6.8 billion, as I mentioned, and an EBITA margin of 8.9%. Next slide, please. We continue to look at our Net Debt development and can see that we still have a solid financial position and a strong balance sheet.
Our net debt at the end of the quarter amounted to approximately 1 billion SEK, an increase compared to previous quarter, following intense acquisition activities in the past year. Also following an increase of other liabilities linked to leases on new premises, we have moved into new offices in Oslo, Stockholm, and Helsinki this past year. This corresponds to a Net Debt/EBITDA ratio of around 1.5, which is leveraged well within our financial targets. In the second quarter, we extended our revolving credit facility with Nordea. We now have access to a little more than 1 billion SEK, of which we used around 700 million SEK at year-end. We have a good headroom.
Next slide, please.
Next slide, please. Knowit is well-positioned to manage a possible downturn well. Our largest segment being the public sector that tend to be stable even in worse financial times, and nearly 40% of revenues come from this segment. We also see the projects that are business critical to the digital transition remain, and the fact that development resources are scarce speaks in favor of consultancies like Knowit. Another trend is projects that support the transition to a sustainable society, an important and prioritized area for Knowit. With that, I leave it to you, Per Wallentin, to say some final words. Next slide, please.
Thank you, Marie. summary. I think we present a stable quarter with high activities in all areas. We see a high demand for our services across around the Nordic region. Of course, there are some variances depending on geography and segments. We have increased our use of subconsultants in a couple of large projects that creates flexibility and of course, an ability for us to take on those projects. This has an impact in our margin. The uncertain macro environment imply that lead times get somewhat longer. That means that the time it takes to get the consultant out into an assignment, but still there are assignments and the assignments are in place and we get those new projects.
Connected to that, we have a strong focus on sales activities. There is still a large need to continue recruitment activities. I would describe it a little bit more as a change in mindset than actually a reallocation of resources. We have invested heavily in growth the past years, as you know. This has created a really good and stable platform to take the next steps in our development and maybe in the consolidation of the business. One important thing is that we have a really strong hold in the public sector. That's a stable part of Knowit in a possible economic downturn.
As I said before, the board proposes an increased dividend to 7.5 SEK per share. I see it as a sign of strength, reflecting our expectations for the future. We are entering 2023 with a strong foundation for the growth. Yet we, of course, see some uncertainty regarding the macroeconomic development. Well, with that, we are now open for questions.
Thank you very much. As a reminder, if anyone would like to register a question, please press star followed by one on your telephone keypad if you have joined on the conference call. If you have joined on the webcast, please use the written Q&A box. If you would like to withdraw your question, please press star followed by two, and when preparing to ask your question, please ensure you are unmuted locally. Our first question today comes from Daniel Djurberg from Handelsbanken. Daniel, please go ahead. Your line is open.
Good morning, Per and Marie. I would like to start off, with the demand situation, still strong, overall. Also, if you can comment a bit on the employee turnover, on aggregate. I guess it's a little bit more of a variation today, but, would you consider it year-over-year to be stable, or is it going down? That's my first question.
Demand, the demand situation is, of course, it's much more uncertain today than it was one year ago. As we said, we see some parts of our business, like in Norway, the public sector, the defense industry, bank and finance, et cetera, et cetera, there is quite a lot of parts of our deliveries that are the same demand actually. There are some parts with more lead times, and we don't know exactly what that will lead to in the future. We will see, but we are coping with it now. It seems that there is a long list of things to be done at many customers connected to digitalization for the future. The next question connected to employee turnover, it is down.
It's, as most of you know, it was very low during the pandemic. It went up for us and in the business right after that. Now we see that it's going down and it was higher H1 than H2 definitely.
Yeah. Would you compare it, as, do you expect this to continue to go down? Is it, you know, on a good level now because you need some turnover as well to keep, to take in younger employees, et cetera, or?
Yeah, of course.
Is it getting too low?
I think that it will continue down a little bit more 2023, but maybe not that much more down, but it will continue down a little bit in the business. I think so.
Perfect. Thank you. May I also ask you on the Norway and especially the use of subcontractors to these larger projects where you need both competence and more resources. Is this in the beginning? Do you expect this to ramp up to that we will see even more pressure on the margin from this, or will it be the opposite that you have will level off and then, coming down as % on the total sales in Norway?
We will see. It to start with, these projects or framework agreement are one-offs. It's not a new strategy, and it's not that we're gonna increase that part of our business very much for the future. That's important to say. Of course, there have been some of the big consultancy buyers that's been out asking for new framework agreement in 2022, for example, the tax authorities. Their way of asking imply that no one could answer that themselves. You need to build a consortium of a couple of or quite a few companies.
As we are such a big player in Norway today, much bigger than five years ago when this was the case the last time, we were asked to take lead on those framework agreement. We take lead and do it together with a lot of other consultancy companies. Of course, then we need to do it together with them.
Perfect. May I ask you a last question before I back to the queue? That would be on Finland and Denmark. Obviously, you are more subscale there than elsewhere, but you have more body. My question is, you've done a couple of acquisitions that has been troublesome that you're working on to fix. Has this changed your appetite for, you know, to grow, to get more body in Finland and Denmark? On the opposite, that you now understand that you need to even buy more to get this full-fledged similar to Norway and Sweden?
Well, this year we did seven acquisitions. We have had, as you mentioned, some problems with two of those seven. The other ones are performing really well. I think that we have come quite far, especially in the Marketing Clinic with taking care of the problems that we have had in that company. I'm actually quite confident that we are able to take on somehow some problems as well. It hasn't changed our appetite for acquisitions. That's decided by other things.
Perfect. Thank you so much, and good luck in Q1. I will get you back into the queue. Thanks.
Thanks.
Thank you. As a reminder, if you would like to ask a question on the telephone line, please press star followed by one on your telephone keypad, or if you'd like to ask a question on the webcast, please use the written Q&A box. Our next question comes from Daniel Thorsson from ABG. Daniel, your line is open. Please go ahead.
Thank you very much. First one on salary inflation and price increases. Based on your employee base, what you have today, your project portfolio that you have insights into, on an overall group level, how would you expect salary inflation and price increases to develop in 2023? Which one is likely to increase more than the other? I guess the price increases outgrow salary inflation in 2022 in the market as a whole, could this potentially revert in 2023?
The fair answer is that I don't know, of course, but I can speculate, maybe not connected to Knowit in special, but more to the industry. I think that we see a salary inflation, +5% in the business. You have to bear in mind, with the price, inflation is that some of the price increases, we did those in H2 2022, so they will affect 2023 figures as a total as well. Then we have some index regulations to. As you know, we have 40% public sector. I think that we will be able to have some price increases 2023 as well. It will be much harder.
I would hope for and think that it might be possible to get them even out. It's not gonna be much on the positive side connected to the ratio price and salaries. It was much more positive 2022 and 2021, of course. I have some hopes for some price increases for 2023 as well.
Yeah, I see. Okay. That's a perfect answer. That was exactly as I thought as well as we saw price increases already coming in H2 2022 here. Secondly, related to that, you target the 12% EBITDA margin, 2022 as a whole was a step back, you have elaborated-
Yeah.
On the regions. I'm just interested in what are the main initiatives to drive the margin upwards towards the 12% target, and also when in time is it reasonable to come closer to that?
Maybe you should take that one, Marie. We are working, of course, thoroughly with it.
Hi, Daniel. We said that the target of 12%, it was over time. It's not gonna happen in one year. We are of course working with these all the points that we mentioned that are taking our margin down today. Of course, we're working with to take action to make sure that the margin goes up. I mean, we will probably see conference costs to be higher than during the pandemic, probably they will not be as high as this year as 2022 because we had a high need for meeting.
We will also, as Per mentioned, these subconsultants, probably we will not take on as large projects using subconsultants in the future. We will grow, and we will take on new assignments, but with them, we will also increase the margin. As you know, 2023 is a year of uncertainty, macroeconomic uncertainty. Could be that this is not the year that we will reach the 12, but we are definitely on our way there. Our target of the 12% stays over time.
Also with our growth now, we have been able to take out some scalability gains from that. We already see that. That's not shown in the figures, but because we had quite a lot of one-off costs for 2022 as well. Of course, we work quite hard to be more efficient as we grow. We work very much with our mix, young consultants with our mix in increasing prices over time, going from low price Time and Materials contract to more projects, et cetera, et cetera. There is a long list of things that we are working quite thoroughly with.
Yeah. One thing that we mentioned is that we also had high costs for moving to new premises. Both costs were moving, but in some cases we had double cost for rent. This we will of course not have in the future once we have already moved.
Okay, perfect. That's understandable. Not to repeat ourselves too much here, but just to understand the margin development in 2023. We have a slowing market on the margin here, or the delta in terms of demand. We have a pretty negative calendar effect in 2023. We have salaries increasing more than prices in 2023. Can you say something about what we should expect margin wise in 2023? We have obviously all the positive drivers that you mentioned here with scale and moving offices, et cetera. I mean, should we expect to see an increasing margin for you in 2023 over 2022, even though the market as a whole will have difficulties to increase it? Is that fair to assume?
I think that you have mentioned almost all of the most important drivers for margin development in different directions. I hand that calculation over to you.
Yeah.
Thank you very much, Per.
Yeah.
Okay, thanks. My final question is actually on Knowit Insight that surprised positively in Q4, both on the growth and also on the margin side. I mean, does it say something on the cycle that we are not seeing a you know, dramatically slowing cycle here, or should we not extrapolate it too much?
Yeah, I think it does. I think that we, I think it's quite clear in the report that we haven't seen that big changes in the demand overall. Of course it's important to have a look at Insight. Yeah. There is a lot of interesting projects and some of this it are of course driven by security needs and some of it is driven by needs for digitalization and increased efficiency. Because you have to bear in mind that the increase of inflation implies that many of our customers needs to be even more efficient and lower their prices. The only way to do that efficiently today is by digitalization.
I think as long as they have possibilities to do that, the customers, they will continue to do that. They see a possibility connected to digitalization.
Perfect. Thank you very much.
Thank you. We have a follow-up question from Daniel Djurberg . Daniel, please go ahead. Your line is open.
Thank you so much, operator. Just a few follow-up if I may. Coming back to Knowit Insight and the digital management consultancy. You mentioned the very high demand in cybersecurity that we obviously understand. Can you mention a bit how large part of the Knowit Insight today, is it like 1/3 that you would label as cybersecurity or, roughly is like 200 employees or just to get?
A little bit less than one.
Yeah.
I don't have the exact figures, but you are pretty much, I think it's a little bit less.
Yeah. Is it working that you can, you know, educate employees internally to...
Yeah.
You know? Yeah.
Yeah. That part is growing, and it's growing faster than most parts in Knowit. We have done that by organic growth, actually recruiting talents and young talents outside the cybersecurity area, and introduce them to that area because this is an area where it's very hard to recruit highly skilled people from the beginning.
Yeah.
We need to do that. It's also part of course, I would love to make some acquisitions in this area, but it's quite hard to do that. The prices are very high and, well, we are really good ourselves. That's how it is.
Perfect. Another question, if I might ask, Marie, you mentioned that there was a little bit of a delay in getting younger consultants out on projects. You, for example, recruited heavily in August and so forth.
Yeah.
Is this of any particular reason? Is it like that the customer is getting more picky, or is it something else that create this?
Just that maybe longer than before, and maybe they have to check internally before starting projects. It's more like that than that we are not selected as a supplier. It's more of an internal, like they need to consider, a bit longer than before.
Perfect.
Nothing dramatic, but still, even if it takes like a week or two weeks longer, it affects us, of course.
Yeah. Finally, if I may, on the order backlog, you mentioned several times longer lead times, however, you're coming from a very strong situation in the market, obviously for a couple of years, creating a good order backlog, I guess. How worrisome should this be? Can we be going from, you know, an overheated market to hopefully this Swedish labor market, or is it that wishful thinking on the
On the backlog side and also the demand.
Of course, we don't know that, but that, for sure the market will not be overheated as it's been for quite a few years now. If it's gonna be normal or a little bit below normal, I don't know what. It's hard to say what normal is because we have had so many years with really good demand. I think it's important to imply that there is overall in the world and in the Nordics, a lack of resources that's quite big in this area, lack of highly skilled people. It's still there. Maybe it's a little bit less than before, but you still have that situation.
I mean, we see high demand in the future as well. Of course, if we have a, if there's a decline in demand of certain customers and they are not in need of our consultants, it's always a small lead time before we get them out to another customer. Even if the total demand is high, could still affect us short term, at least.
Yeah, of course. Thanks.
Thank you. We have a follow-up question from Daniel Thorsson. Daniel, please go ahead. Your line is open.
Yeah, just to follow up here on the exact organic net recruitment in terms of the number of employees in Q4. Is that around 35 people? If I take the 95 increase and I deduct 60 people from Ascend.
It's a little more. Yeah, it's a little more than that. It's, I would say it's a little less than 50 people.
Okay. Perfect. Thanks.
All right.
We have questions here.
We have some questions from the dashboard as well, or do we have any more questions from the audience?
We don't have any more questions on the telephone line, so I'll hand over for the webcast question.
Webcast question.
Yeah. The first two questions come from Even Naume at Mustad Industrier. Could you try to quantify the margin impact of fewer working days in 2023 compared to 2022?
Well, as you mentioned already, earlier during this call, there is a number of hours less in 2023 than 2022. Most of it is coming, it's affecting the second half of the year. We don't give any numbers, so we don't actually quantify this externally. I'm sorry, I cannot answer that. It's true that it's the number of hours are less.
Yeah. The second question from Even is, what is the duration of the frame agreement with subconsultants in Norway, and when will they roll off?
They are between five and seven years. I hope that within five years or seven years, we will be able to take them on the next time as well. To be able to be in the lead of those projects or in those customer relationships is the best thing for us. We would like that to continue. Of course, this is a little bit special situation just connected to Norway. We don't see that way of buying consultants in many other parts of the Nordics. I don't think that part will increase. It will rather decrease as a part of Knowit's total result.
I hope that they will still be there for a long time.
Great. We have a question from Lars wondering how much of growth comes from price increase Q4, in Q4? How easy is it to raise prices? I think maybe we touched upon this, but if you.
I don't think that we have any exact figures, connected to the growth connected to price increases.
Yeah. We don't disclose that externally.
No. Sorry.
All right. That's everything from the dashboard.
All right. We would like to say thank you, everyone, for listening. Thank you.
Thank you very much.
See you.