Okay, hey and welcome everyone to Proact Q2 report. I am Magnus Lönn. I'm a CEO and President of Proact. For you who doesn't know me, I have been in the company for five years, four years. Before I became President, I was nominated first for March this year. Before that, I was running as a Deputy Group CEO. I've been running our Nordic and Baltic business. I am here today to give you an introduction of our Q2 results together with Noora, our CFO. We will do as usual that I will give you a short introduction for you that are new to our company, what we're doing and how we are generating our money. For you that know our company well, I hope that this will also be a good reminder of how we act as a company.
Noora will guide us through the financial details for the quarter. At the end, we will sum up with the questions and comments if you have. For the purpose of order, just raise your hand. We will let you in with the questions. Good. I'm glad to kick off here. We at Proact, we are extremely good in taking care of our customers' data and work with data in all the forms that are available when it comes to IT and technology. This is our core focus. We have been doing this for over 30 years. If you think about this, today, data is the sort of key for every company. It doesn't really matter what industry that you are in or what company that you're running. At the end of the day, you need to have an IT infrastructure.
You generate a lot of data, both as an individual but also as a company. This is what we have been working with for 30 years. We are really expert in this field. Of course, we have sort of expanded around that. Our core business is related to data. We are today having a turnover of roughly SEK 5 billion. As you can see to the right here, we have been on a growth journey, both from a sort of profit perspective but also on the revenue the last couple of years. This is a good trajectory that we are on. We are 1,200 experts and dedicated employees that are working with this.
As you can see on the colorful map here, our geographical presence is within Northern Europe, which in the red, I would say in the Nordic & Baltics, we have sort of our main footprint where we started 30 years ago. We have expanded out of that. We are having a revenue split of around half of our revenue coming from our services. Half of that is coming from our system sales. That is the sort of a key thing. We can flip to the next slide, Christopher. From an operational perspective, we have divided our company into four clear profit and loss units. We have the first one, Nordic & Baltics. This is around half our company. This is by far the biggest business unit that we have. Following that, we have UK
Then we have two others, West, which consists of Netherlands and Belgium, and Central, which consists of Germany and Czech Republic. In our business units, we are also having our factories where we are creating and generating the services that we provide our customers. I will talk more about what type of services further on. We have four different delivery hubs, which are collaborating. We have our own SOC that is up and running 24/7. This is how we have operated and divided our company. If you take the next slide here, Christopher. Proact, as a company, has four distinct and clear revenue streams. I will walk them through and give you a little bit more highlights around them so you get a better understanding of what we are doing.
Starting from the left with our system sales, this is the core of Proact, the foundation that was founded 30 years ago and that we are still doing and are very, very good at. This means that we are providing our customers with system advice, recommendation of how they should build their modern data infrastructure. In reality, this means that we are working with the best brands in the world. We are targeting large and enterprise customers in this segment. We are helping them sizing and delivering the system to them that they need in order to run their company. What we are doing at Proact is actually we're working with the things that you don't see, but you will for sure notice if the IT system is not up and running. This is what Proact is doing on a core basis.
Our system business, here we are doing quite large deals. I used to say that our system business is actually a recurring business. With that, I mean that it is very seldom that a customer leaves us. We have very high customer satisfaction. The systems that we are providing our customers are part of the core IT infrastructure. If you think about that, it's very seldom you do a heart transplantation and exchange your system which we are providing them. It's more likely that a customer also expands their current system environment. After some years, they also do a tech refresh. From that perspective, I see our system business is very sort of recurring. I also want to reiterate that given the system business, the deals that we are doing can be quite large.
That means that sometimes it could be hard to evaluate us from quarter to quarter since it depends on if we get the system deal at the end of the quarter or in the beginning of the quarter. When you're looking at us and evaluating us as a company, I would recommend that you look into our system business long term. Very tightly connected with our system sales is our support service. That means that on the system that we are selling to our customers, we are providing also our technical staff that will help our customers to replace and repair if something gets broken. This is a super good example of good recurring revenue. The contract is often very long. It's three to five years normally. That means that over the time, we have a really tight and close collaboration with our customers.
Our system and our support business is really tied together. At the same time, as I mentioned earlier, we have four different hubs where we are delivering services. The services that we are delivering are actually sort of the same as we are selling to the system. That means that we can provide our customers with sort of modern, highly infrastructure as a service, meaning that our customers, they don't need to have their own staff. They don't need to have their own competence. We can provide them the same thing as a service. Also, given what's happening around the world with all the uncertainty and things like that, we see a lot of customers that are appreciating working with a European service provider because there is a little bit too much uncertainty happening now when it comes to cloud and American companies.
I would say that our managed cloud service is a very good add-on in our portfolio. Secondly, and I will not for sure say that it's the least, but it's really our consultancy service. Here we have super skilled talents and consultants that are working very closely with our customers, providing knowledge and technology of how to design a modern infrastructure. All of these four different revenue streams are really tied together. They are also collaborating, meaning that it's very often that we have a customer that maybe they start with a system deal and then they expand to a managed cloud service or a consulting service. We can move to the next slide, if you... As I mentioned also in the beginning, I would say that Proact is probably in a better position today compared to 30 years ago when the company was founded.
What is really, really key here is the data. If you think about that, we as individuals are generating more and more data. Our society is sort of built upon IT and infrastructure. Every company also is using the data to do business. We want to do more analysis. We want to do more sort of refining of our customer data to understand more. This is exactly what Proact is working with, providing the storage and the IT infrastructure that enables our customers to do their business. Secondly, and this is also something I want to highlight and something that we discuss a lot with our customers, is security. As you all now know, cybersecurity is a real threat that is happening more and more and more. This is becoming more and more complicated. The best way to protect yourself around cybersecurity is to protect your data.
The most basic fundamental that you can do, which more and more customers actually are realizing, is that you're taking a backup of your data and storing that in a safe place. If you take a backup of your data, then you also need storage. This is exactly what Proact is working upon. We are helping a lot of our customers also to make sure to size their IT infrastructure and also design it so that when it happens, then you also can have a quick restoration of your data. That, I would say, is very key. The third trend that is also driving our growth is AI. If you think about this, in order to get value out of AI, you need to train your model. In order to do that, you need a lot of data.
This is the key where Proact has been working with for 30 years. We are extremely good in how to structure and build environments so that you can actually add on an AI capability and work on the data that you have. This is an increasing demand that we are seeing from our customers. I would say that the underlying trend in the business where we are positioning is very, very strong. The market is for sure there. On top of that, I also would like to just emphasize this, that in today's uncertainty, especially when Trump and the U.S. and the sort of uncertainty, we have also a lot of dialogues with our customers around cloud strategy and what is the best and things like that. Many companies are also rethinking about how is our long-term strategy. Is it cloud that is our first?
Is it really a smart thing to put all our critical business data in an American cloud provider? Should we rethink this? This is the sort of day-to-day dialogues that we have with our customers. Here, I think we as Proact have a good add-on as being a trusted local European partner. Next slide, please. This is my favorite slide. I will not go into the detail of it. Every company, as I said in the beginning, they are in a need for sort of data and modern IT infrastructure. If you look into the blue colors here, it doesn't really matter if you store your data on-prem as an infrastructure because then we can help you. If you sort of have a private cloud that is sort of a purpose-built cloud that you only can access, we can also help you around that.
If you're working with some of the public cloud providers like Azure or Google or things like that, we at Proact are super good on storage and data. It doesn't really matter for us where the data is allocated. We can help our customers around that. As I mentioned earlier, on top of that, if you want to work with AI, the first thing you need to do is secure your data. Hence, AI infrastructure, that is a sort of a very good add-on on what we are doing at Proact. If you want to use modern software development with cloud-native and containers, that is exactly where we have a lot of competence. For example, in our consultancy company, BlakYaks, that we acquired during the last quarter. On top of that, as I said, everything is actually related to data protection, backup & recovery, security operations, and everything.
It all starts with data. We, as a company, have the possibility to provide this both as a service or if you want to buy it as a system. We could have done nothing around this if we wouldn't have extremely skilled staff that are really knowledgeable around this. This is what we are doing. This is how Proact earns money. With this, I think it's a short recap and quick repetition of how we at Proact are earning our money and what our core business and infrastructure is. With that, I would take the next slide, Christopher, and then talk and walk more into the Q2 highlights here. All in all, as you can see, we released our report 40 minutes ago. We made a revenue of SEK 1.2 billion and an EBITDA result of SEK 76 million. That resonates in an EBITDA margin of 6.5%.
Noora will walk through some of the details, but I just want to highlight part of it here. As I mentioned in Q1, we have actually done exactly what I said. We have had churn, and we have some performance issues, mainly related to Central and West. Hence, we have during the quarter initiated a group-wide action program that we are executing as we speak. This program is really focusing on addressing some of the underlying things. We are looking into skills review, we refocus our sales effort, and foremost, we are actually looking into building a more efficient organization. This is exactly what I indicated in Q1 and what we now are doing in Q2. I also really would like to stress that in the Nordic region, for example, and in combination with UK, we see a strong result. We continue to grow in that area.
As you can see, and as I mentioned in the beginning, Nordic & Baltics, that is more than half our company. Even if you now have some performance issues that are being addressed, we have more than half our company that is growing. During the quarter, I'm also super glad that we launched a new service related to AI. We added AI capability to our Proact hybrid cloud. That means that our customers can directly access advanced AI workloads in our hybrid cloud environment. This means that our customers, they don't need to invest millions in setting up their own AI infrastructure. Instead, they can buy this directly from us as a service. This is also super dedicated to customers working in a regulated environment, meaning that we are providing this in a sovereign cloud, meaning that our customers know where the data is. It's not outside the EU.
This is also an increasing demand that we see from our customers that we can help and provide them. Also, worth mentioning during the quarter was that we were named Enterprise Partner of the Year by NetApp. This is for sure a true testament to our skills and experts that we have in the company. The other two bullets here, I really would like to stress them because they, even if they maybe are more into sort of administrative, that we are sort of getting a decision from our annual general meeting to initiate a share buyback program. We also canceled some shares. This is a true tool that is really explaining the sort of strength positioning that we have. We are doing a buyback program. We are working and having dividends as a company.
As we did in Q2, we are also investing and buying and acquiring companies like BlakYaks, for example. All in all, with this, we sort of have a super strong position that we are sort of leveraging and working. All in all, I would say that we are focusing on what is working very well and working with enhancing that. In parallel, we have initiated sort of strong actions to work with the areas that we see that we can improve. I think all in all, Q2, given where we are, I think it's a solid result. With this, I think, Noora, I hand it over to you to walk you through some of the financial details from our business units. Then we wrap up with some questions and summary at the end.
Thank you, Magnus. Okay. Turning to the next slide. Revenue in the second quarter reached, as Magnus said, SEK 1.17 billion, a decrease of 7.9%, driven by good performance in the Nordic & Baltics and UK, offset by lower performance in business units West and Central. The decline in Central was driven by significantly lower system sales compared to an exceptionally strong comparison period. Organically, revenue declined with 7.2%. System sales amounted to SEK 641 million, corresponding to a decrease of 10.7% for the same dynamics as total revenue. Services revenue amounted to SEK 530 million, a decrease of 4.3%. Overall, the service business developed weak this quarter. On the next slide, annualized recurring revenue amounted to SEK 1.7 billion in the second quarter, a decrease of 2.8% compared to Q2 2024.
New cloud service agreements amounted to SEK 141 million in the second quarter compared to SEK 133 million last year. Despite new contract signings, total cloud service revenue decreased by 5% to SEK 272 million, primarily due to contract terminations and customer churn in West and Central regions. Nordic & Baltics and the UK showed positive development but were unable to fully compensate for the decline. Next page, please. Adjusted EBITDA amounted to SEK 76 million, mainly due to lower revenue in the services business and reduced gross margin. Business unit Nordic & Baltics stands out this quarter with an EBITDA increase of SEK 9.4 million. Central saw a decline of SEK 21 million following an exceptionally strong comparison period. West also decreased by SEK 9.8 million, while UK remained largely flat.
We have taken strong measures to reverse the negative trend, as Magnus was mentioning, both through initiatives to increase revenue and through group-wide actions to strengthen profitability, particularly focusing on West and Central, where the challenges are the greatest. Further, the cash flow and net cash position. Our net cash position at the end of the second quarter amounted to SEK 100 million compared to SEK 330 million at year end. Total cash flow the first six months was SEK 222 million, with an operating cash flow of SEK 182 million. The year-on-year decline in operating cash flow was mainly due to lower operating profit. Cash flow from investing activities amounted to -SEK 241 million, largely driven by the acquisition of BlakYaks in March, along with continued investments in both tangible and intangible assets.
Cash flow from financing activities totaled -SEK 163 million, including a dividend payment of SEK 64 million, lease amortizations of SEK 72 million, and as Magnus also mentioned, repurchase of owned shares amounting to SEK 32 million. Despite these cash outflows, we remain financially strong and continue to invest in strategic growth initiatives while maintaining capital discipline. Now some details for our business units, starting with Nordic and Baltics. Revenue in the Nordic & Baltics grew by 3.6% to SEK 672 million in the quarter, mainly driven by strong performance in cloud and support services. This was partly offset by a decline in consulting services. Systems revenue increased by 2.9% to SEK 453 million, supported by several large deals. Service revenue grew by 5% to SEK 219 million, with cloud services as the main driver.
Adjusted EBITDA increased by 16.3% to SEK 67 million, corresponding to a margin of 10%, clearly above the group's financial target of 8%. The improvement was mainly due to the growth in the services business and continued good cost control. Note that adjusted EBITDA excludes non-recurring costs of SEK 4.4 million related to the ongoing action program. All in all, Nordic & Baltics continue to deliver solid and consistent performance. Further to business unit UK on the next slide. In the UK, revenue increased by 18.7% to SEK 212 million, supported by strong development in both system and service sales, including positive contributions from BlakYaks. System revenue grew by 20.8% to SEK 101 million, while service revenue was up 16.8% to SEK 110 million. Consulting services increased by over 150%, mainly driven by BlakYaks. Cloud services also showed solid growth of 5.7%.
Adjusted EBITDA came in at SEK 12 million, corresponding to a margin of 5.8%. BlakYaks contributed SEK 10 million to EBITDA with an exceptionally strong margin of over 40%. Note that adjusted EBITDA excludes non-recurring costs of SEK 0.8 million. Business unit West on this next slide. Revenue in West decreased by 14.4% to SEK 176 million, reflecting lower activity in both the system and services business. System revenue declined slightly by 2.3%, while services revenue fell by almost 18%. The decline in consulting services was notable, down 37% due to resourcing challenges. Adjusted EBITDA was negative at SEK 2.8 million, corresponding to a negative margin of 1.6%. Although cost savings were implemented, they did not fully offset the drop in revenue. We have initiated targeted actions to reverse the negative trend at a cost of SEK 4 million, which are excluded from adjusted EBITDA.
Lastly, business unit Central on this next slide. Revenue in Central declined by 45.2% to SEK 146 million, compared to a very strong performance in the same quarter last year, driven by a few large system deals. Hence, system revenues fell by 65.7% and service revenue declined by 18.1%. Adjusted EBITDA amounted to SEK 3.4 million with a negative margin of 2.4%. The decline is mainly due to the significant drop in revenue and cost base not fully aligned with current market conditions. Several improvement measures are in progress, aiming to stabilize performance going forward. Adjusted EBITDA excludes non-recurring costs of SEK 11.5 million related to the action program. On the next slide, our financial targets. As mentioned, we had an organic decline this quarter, albeit compared to a strong quarter last year. Measured as the last 12 months, growth is now at -1.6%.
Hence, we still have a way to go to reaching our target of 5% organic growth and an additional 5% growth via acquisitions. Adjusted EBITDA margin last 12 months was 6.6%. As already mentioned, we have taken action to move back towards the long-term target of 8%. As I also previously mentioned, we are in a net cash position, meaning that our leverage is well below the set level of two times EBITDA. Return on capital employed is at 13.2% for the last 12 months, where the decline is mainly attributed to the lower result. This concludes the financial overview of the second quarter. Back to you, Magnus, for some final comments.
Super, and thanks, Noora, for guiding us through the financial details. I just want to reiterate here that we have a clear strategy here. As I said in Q1, we are really focusing on what is working. We are actively and quickly where we need to improve. This is exactly what we have done during the quarter. I see that we, as a company, have a super strong position in the market. I would say that it's actually strengthening, given the sort of demands and the trends that are now. I think we have a very good position, especially when we are a local European trusted partner. As you can see here also, our sort of guiding star here is in the Nordics, where we continue to grow and show the way. I think this is a combination of that.
We have a strong customer base and a really strong focus on profitability and trying to do as efficiently as possible. During the quarter, we have actually implemented actions that also will, over time, improve our other business units. As you saw here in the UK, we are seeing really strong performance. I am especially glad that BlakYaks has gotten such a good start within our group. We continue to focus on business values and execution. Over time, you will see the long-term growth, and I think we, as a company, have a really strong position together with a committed team. I'm really, really looking forward to talk more around that in coming quarters in reports. For now, let's open up with some questions. Daniel, it's glad that you are first out here, leading the way.
Yes, thank you very much, Magnus and Noora. I have a question on the cost reductions here in Central and West. Can you say how many people it will roughly expose?
We are doing quite substantial adjustments to the organization, and over time, we will see the impact of that. However, at the same time that we're doing adjustments, we also maybe need to reset and hire people. All in all, I would say that we have not communicated exact numbers except from the, as you can see in the financial reporting, the sort of impact that we are taking for doing the adjustments.
Okay. Regarding any top line effects here, it looks like you are, by intention, churning out some parts of your revenues and business. We saw a - 7% organic growth here in Q2. Is it fair to see a further deceleration of that growth rate in the coming quarters, given the reduction in number of employees? Can you maintain roughly the current sales level, you think?
I think if you're looking into specific, maybe Central and West, I think you should expect that we will have an improvement, but it will be weak. The impact and effect of what we are now executing, that will take some further quarters to see full effect of that. In the other business units, Nordic & Baltics and UK, we are sort of investing and accelerating. We sort of compensate on that.
Okay. I see. That's clear. A question on the German business here. Is that up for sale from your end? Can you really recover that business into a stronger margin by shrinking the business from here?
For the time being, we have fully focused, and we know exactly what we are about to do and execute it. Selling is not on top of our agenda for the time being.
Okay.
I think what we see short term is that the actions that we're doing, that is what we will continue focusing upon.
I see. Okay, that's clear. On BlakYaks, you mentioned some numbers here in Q2 look very strong, both on sales and margins, obviously. Do you see any early signs of cross-selling between the groups, or is that too early?
Absolutely. That's a good point that you raised, Daniel. Exactly. During the quarter here, I think we have seen several cases coming in, going on both directions. This is exactly what we have planned and what we want to enhance and focus on. Instead of putting a lot of focus on creating integration activities, we have spent that time and focus on sales integration, meaning that we should open up our books and provide and give our customers more access to new technology and new offerings from our side. Maybe that is a contrast compared to the way that we have done it in Germany, where we maybe focus more on integration and things like that. Roughly, we are turning that around. Marie and the team in Germany are working really hard on that. I think over time, we will see improvements also in Germany.
Okay, that's clear. Another question on M&A here. In the Nordics specifically, now you are growing in a quite challenging market, at least from my view here, with both hardware resellers and IT services companies declining currently, in general, I would say. Does that increase your appetite to capture any opportunities in the market from not stressed sellers, but maybe a bit more willing sellers in a tough market?
Yeah, I mean, absolutely. I think I said that also in Q1. When it comes to M&A, we are for sure looking into that actively. We are sort of quite picky on which target that we are seeing. Foremost, Nordic & Baltics and the UK, since we sort of feel that we have this sort of momentum in the business, that is a very high likelihood that that will be the next place of our M&A. In Central and West, long term, I see that we will also get back to an acquisition base there. We have some more work to do and also to prove that our profit will be going in the right direction first. You need to have a sort of a proper home before you look into acquisitions. Otherwise, you create more problems for yourself.
Yeah, that makes sense. In terms of targets, are you still looking for service-related businesses more than hardware resellers?
For me, I think it's important that we look into companies that can complement and strengthen our existing business. Per se, that doesn't mean that it only needs to be service companies. If we find a good target that we see fits us and strengthens us, then for sure that will be on top of our agenda.
Yeah, I see. The final question here on the financial targets. As you showed in the presentation, you are a bit below both top line growth, margins, and return on capital at the moment. You are addressing this with actions. How do you prioritize coming back to the targets? I mean, for me, it looks like you are prioritizing return on capital and margins before growth, given the cost reductions you do. How do you think about them? When is it reasonable to get back meeting these targets, all three? How many years out is it reasonable to expect?
First, let's talk about the priorities. Here and now, I prioritize profit because if you have profits, then you also can invest to accelerate top line growth. We have some homework to do, especially in business Central and West. At the same time, as you have seen in the Nordic & Baltics, we are way beyond our targets when it comes to margin there. I think the answer to your question is maybe that we will do a little bit different depending on what business unit that we are talking about. Secondly, I just want to stress that as it is of today, Nordic & Baltics, that is more than half of the company. Even if you have four business units, they are not equally strong when it comes to impact and so forth.
That's clear. The last part, when in time or how many years do you think it could take to meet all the three targets?
I would say that let us come back to that during the fall. I think here and now, the focus for us is to sort of execute and do what we said that we are going to do. Going forward, I will be more than happy to discuss this with you in coming quarters here.
Thank you very much. That's all from me.
Good. Do we have any other questions on the call here? Good. If then, I will wish you all a super pleasant and have a really, really nice summer. Me, Noora, and the full team are really looking forward to talk to you more again in our upcoming Q3. That probably will be here quicker than we think, given the summer and everything. Once again, thank you for listening in. Looking forward to talk more shortly. Bye-bye.