All right. Welcome, everyone. Thanks for joining. We'll just wait another minute for everybody to. And just bear with us a little bit more. We'll mute it until they raise their hands.
Yes.
Okay. Good. Good morning, everyone. Thanks for joining. And in particular, maybe the last, the morning.
Good morning.
With me, I have Linda Höljö, CFO and VP Investor Relations. We'll go through the Q1 results of Proact. We'll stick to this agenda roughly. For those of you who are new to Proact, I'll give you a very brief introduction to the company and our view of the market. Obviously, we'll spend the majority here on the actual developments and the results of the first quarter. Most of you have seen a couple of times before, who's Proact? We're a European company since 1994, and we're serving 4,000 customers across our markets that you see mapped out here on the European map. It's primarily large enterprise customers and midsize enterprise customers. We're turning over about EUR 350 million on a yearly basis. We're just above 1,000 employees across these regions.
Obviously, Sweden is the biggest from a revenue perspective. Netherlands is biggest from a people perspective. Netherlands and U.K. are roughly the same from a revenue perspective. Germany is coming there in the fourth place. It is maybe shared with Finland. Looking here, we pride ourselves in being specialists, and it is a very important part of our business. These five red blobs here on the slide are depicting the value we deliver to our customers. Again, obviously, it is all about delivering IT infrastructure. That IT infrastructure needs to provide some value to our customers. To us, it is all about data. It is all about helping our customers get value and drive innovation and growth through better use and better management of their data and information.
We provide advice and strategy and consulting around the data. We also help our customers store the data. This is definitely a big part of our legacy. Connectivity, being able to connect to your data. More and more data is hosted in either customers' data centers, but it could be a Proact data center or a public cloud data center. Connectivity in order to access and shuffle data back and forth is important in a secure and low-latency way. Protection, making sure that the data is always available, not corrupted, not being accessed in a way you would not prefer. Protection is key. Ultimately, of course, getting value out of that data, which could be data analysis or production systems or artificial intelligence or whatever is relevant for our customers. What we actually deliver is in the four boxes below.
We deliver consulting services. It's one of our revenue streams. We deliver managed services, so hosting and operating IT infrastructure, either as a service or on behalf of our customers. Reselling of hardware and software and technical support. These are our four business lines or revenue streams, if you will, that we deliver to our customers. Some of you have seen this before. We are very well positioned, and we're operating in a market that has a positive outlook for us. Our customers, in terms of their IT agenda, is increasing in importance. We know that the vast majority of our customers are putting a lot of effort around their digital transformation journeys and really making use of IT as a business driver. The business value and innovation focus in terms of IT continues to increase.
The requirements of IT are more and more driven by business rather than just an operating function. The requirements and the expectations just continue to increase. A key trend that we've talked about a lot and that may or may not be a little bit too technical here is what we call multi-cloud, meaning that all our customers are moving to what we call multi-cloud technology, so very modern architectures, and they can be deployed in different ways. Some customers may use Office 365 or Microsoft 365 for their productivity and their emails, in a public cloud environment, but they may still host some of their mission-critical production systems in their own data center. They are using different clouds. All may still be using modern cloud technologies. This is a trend that's very important and is playing in our hands.
A couple of things around Corona, of course. For those of you who have seen the numbers, Corona definitely had some impact still on our business. We also see it has impact with our customers, of course. The need to support remote, remote work has been the biggest one. A lot of effort was put in 2020 to enable that. That, in turn, drove security needs. Now you have different behaviors of your employees within a customer or different ways to access your, the customer's customers. That opens up for new security needs and production needs within our customers. Obviously, new workloads for the IT departments of our customers have, frankly, enabled us to backfill and provide some new services to them.
Trends are roughly the same or very much the same, some acceleration or different needs driven by the pandemic. Overall, we believe in growth in our market, across our different revenue streams. That, of course, then takes us to the result in the quarter. It is a bit of a mixed quarter for us. There are things in here that we are very happy about, and there are things in the quarter that we are less happy with. Revenue is up, which is good, and a growth of 6%. We also had a significant growth in the sales or bookings of our managed cloud services. You remember we measured that as total contract value, the value of the contracts we signed during the quarter. Typically, the average length of a contract is three years, but some are longer, some are shorter.
In the quarter, we signed up new contracts to a value of SEK 78 million, which is significantly up from last quarter of SEK 51 million. Systems revenue is very strong, driven by Nordics. We also see in some of our markets, in particular in business unit West, a decline in systems in the quarter. You may have seen that our board is recommending for the upcoming AGM that we provide a dividend of SEK 4.50. There is also a proposal for a stock split of 3-1. Each share would give three new ones. Last but definitely not least, a very, very exciting acquisition. We squeezed it in here on this slide knowing it was done on April 12, which is obviously not in Q1 but in Q2.
The vast majority of the work behind the acquisition was, of course, done in Q1. We put it in here as it's fresh and new. On the flip side, a decline in EBITDA margin, a couple of things behind that. Some challenges in West where the systems business did not all reach up to our expectations, and that's a significant driver here. And some pressure on service revenue and service margins, partly and, and largely, I should say, both of these effects driven by COVID. We do not see these as long-term effects, quite the opposite. In Q1, we had multiple countries in our markets that had significant lockdowns and more severe lockdowns and restrictions than before throughout the pandemic. The U.S. was one of those regions that had pretty tough restrictions during the first quarter.
A little bit of negative development in our EBITDA and services, largely driven by COVID. Before I continue, let me just explain a couple of things that you may have seen in the report. We're reporting in a different business unit structure starting this year. We're also reporting a little bit of higher granularity in terms of our services business so that you guys can all understand how the services business is developing. The three different revenue streams on the services: consulting, support, and management with regards to revenue. Good. Let me just talk a little bit more about the acquisition. It's not a huge one from a size perspective, but strategically very, very interesting and exciting too. It's a Swedish company. The name is Conoa. They're a very IT infrastructure near, way.
They're helping large enterprise customers to develop the platforms for application development. This is all about what we would call, as non-techies, modern or cloud-native development platforms. They're using very front-leading, leading-edge technologies to enable these development platforms, with a lot of open source and partners that most of us haven't necessarily heard of and technologies that we necessarily haven't heard of, like Kubernetes and container technologies that are all very relevant and at the forefront when it comes to application development. Very strong in the enterprise segment, so a good fit with our customer base, and particularly in Sweden, which means we can go hand in hand to either our joint customer or our prospective customers with a more complete proposition. Very complementary in terms of the portfolio and competencies and skills.
We have a lot of expertise in the underlying technical infrastructure with regards to storage and servers and networking. We obviously have the operational capabilities of running the platforms and the infrastructure, whereas Conoa then has the skills and the expertise of designing this for application development purposes. A very complementary and a good fit from a value proposition perspective. This will enable us to go into the customers with a broader offering, and that's just one of the obvious and short-term synergies that is easy to realize. It also enables us to package this combined offering to more of a package set of services, and in particular then managed cloud services.
They have a better EBITDA margin than we do, so there will be obviously a revenue contribution but also a margin contribution from the company. Their yearly run rate is roughly SEK 8 million and an EBITDA margin of above 12%. As you know already, we acquired them at a 10.5 EBITDA multiple, which was a purchase price of SEK 105 million on a cash-free, debt-free basis. That means that our strategy, which we have been clear on that we accelerate our strategy with acquisition, is continuing in a good way. Through acquisition, we believe we can broaden our portfolio. We can increase our skills. We can broaden our customer base and ultimately improve the mix of services versus products or systems and thereby also improve our margins.
You know, we did the PeopleWare acquisition, which added about EUR 28 million about a year and a half ago. The Cetus acquisition about six months ago, which added about GBP 13 million. Now here in Stockholm, the Conoa acquisition charged about SEK 80 million to our revenue. We are happy that this strategy is still panning out and working for us. That is not the only thing. We have a couple of other positive developments in the quarter. The first one here, there is a Swedish research institute called Radar. They ask customers about their preferred and the vendors that they are most satisfied with. We were very happy to see that we were a top provider in a couple of categories and a winning provider in one of the categories. Great development in terms of a customer satisfaction perspective.
Number two here, LogicMonitor is a market-leading provider of tools for monitoring IT infrastructure. Our partnership with them will enable us both to improve quality of our own services but also new products and new services to our customers. It is an exciting partnership for us. We've updated some of our portfolio, in particular disaster recovery this quarter, and also qualified for a frame agreement that spans across Europe in terms of research and education community. A good door opener to get into a set of customers across our region. Some good positive development also outside of the pure financial dimension, which is a great segue over to you, Linda. Thank you. The financial development then.
First, just as Jonas said, we've updated how we do the interim reporting with our new business unit structure, which looks like this. We have Nordic and Baltics, with the countries listed here: U.K., West, and Central. In bold, you can see that each of the business units now has a hub country, which is the largest country of the business unit region, so Sweden, U.K., Netherlands, and Germany. In addition to that, we previously reported services revenues of which cloud services or managed services. From now on, we're splitting up the full services revenue, also in the tables and also purposes units. So the support services, the cloud or managed services, and the consulting services. It's fair to say, I think you all noticed that both support and cloud are typically contracted recurring revenues.
If we would look at our recurring revenue trend, we would base that off of the support business and the cloud business. Exactly. Whereas consulting is more of a project, project-related. Exactly. Highlights Q1, as we've talked about a little bit already, good growth revenues of 6%, where systems grew more, 12%, whereas services declined a little bit by 2%. Adjusted EBITDA, declining a little bit, 2%, with a declining margin then to 4.7%. Profit before tax, declining, slightly more by 8% down to a PT margin of 3.5%. We will walk through the details as usual with, starting with the revenues. Of the 6% growth in the quarter, we look at the growth organically, which has been adjusted for both acquisitions and currency effects. We actually, or we grew 6% organically, so good organic growth as well.
And on top of that, we had acquisitions, which in this quarter was Cetus Solutions that we acquired in the U.K. late last year, contributed by + 4%. Then we had adverse currency effects, contributing by - 4%, which is why we have the same organic growth as total growth. On a rolling 12-month basis, we have a total growth of 10%, fairly evenly split between services and systems. If you look at the right-hand side, you can see, as usual, the revenues rolling 12 months, the dark blue is the systems business, which is where we have the bigger volatility on a quarter-by-quarter basis. We look at the services decline, 2%. That's primarily driven by adverse currency effects. Organically, services business is unchanged.
Drilling down into that, now that we're reporting in more detail, we see support services growing by 3%, whereas consulting services had the largest decline. This is related to that in certain countries where we have significant consulting businesses, systems revenues also led to lower demand for consulting integration and installation services. Cloud revenue declined 4%. That primarily is a currency effect. It was 1% organic growth. Of course, here is where we aim to grow. If you look at the right-hand graph, you can see that the growth organic or the total growth has been limited.
We see that as a result of that, we have closed quite little new contracts early 2020 or the first three quarters of 2020, where we saw a lot of uncertainty around COVID-19 and customer hesitance to go into these types of longer-term contracts. We see the effects of that now. We are still confident in the longer-term outlook of the market and of our operating in here. Systems growth, 12% growth, of which 10% organically. Here, it is U.K. and Nordics, both that are showing the test is very, very significant decline. The new cloud contracts, we closed SEK 78 million of those in the quarter. It is a significant uptake compared to first quarter last year. We go further down in the income statement to the profitability.
We look at the adjusted EBITDA. We can see that it is declining by 2%, with the margin going down. The key reasons for that is the declining gross margins, primarily in services. We have some mixed shifts. We also see some increased complexity in certain managed services contracts where customers are working from home and then having unexpected issues and more complex support requests. Biggest impact here is in the U.S., which is then hit also by the declining systems, which is the reason why we've now launched or we've initiated an action program to secure that our costs are aligned with our revenue outlook here. SG&A costs continue to remain low, reducing by 4% for comparable units. The cost-saving program we initiated late Q1, early Q2 last year.
We continue to see the effect of that as well as continued limited travel and sales-related costs. In total, that is impacting them positively. Then we have the EPS that is declining. EBIT is flat, but we do have a higher negative financial net in the quarter compared to the last quarter, primarily due to us having some positive effect in the financial net last year. On a rolling 12-month basis, which is what we show on the right-hand side, you can see that it is a little bit of decline from Q4 last year, but still on high levels. Okay. Our new business units. First, Nordics and Baltics, as we have mentioned, good revenue growth, 14%, where it is strong systems revenues. You can see on the right-hand side here with the slide that it was a fairly weak Q1 last year.
Okay, Q1 this year, some differences in different countries here as well. We see some hit harder by COVID-19 restrictions than others. Sweden in particular was the main growth driver. EBITDA margin increasing, compared to last year. And that's primarily as a result of the increased revenues, that then contributed more than the corresponding cost increases. Next business unit is U.K. Here is where we have the acquisition of Cetus, contributing. The total revenue growth was 34%. Now that's including adverse effects but also including Cetus. If we exclude Cetus and the effects, the organic growth was 19%. Total growth, very strong growth in systems, both in the U.K. and with Cetus. We can see that the acquisition of Cetus in total contributed by SEK 33 million on top line.
The EBITDA margin decreased a little bit, but in total, the EBITDA increased quite significantly in absolute terms. That is, of course, to a large extent driven by the increase in revenues. We had slightly lower gross margins here as well. We did have some pressure here as well as in the West, which is the next business unit we come to. Here we can see that revenues decreased quite dramatically. Huge decline in systems revenues, 56%, where we did see severe lockdowns, very hesitant customers. That severely impacted growth. We also saw that effect in services, but as we have significantly more contracted services here or revenues, the impact is, of course, smaller. However, the decline in both these have an impact on the EBITDA margin directly.
Of course, reducing revenues by 56% in systems takes away a significant part of the gross profit to cover our SG&A. That combined then with lower gross margins also in services led to a loss in the quarter. Of course, this is not something we're happy about at all. We started as soon as we, well, early in the quarter, initiated an action program to ensure we can turn this trend around. Our last business unit, Central, so German and Czech. This is now our smallest business unit. Here, a little bit of revenue decline as well, also a little bit of COVID impact, of course, primarily in systems. Services was unchanged. Here we do see an increase in the EBITDA margin.
As you may recall, those of you who have followed us for some time, in 2019, we had quite significant challenges. At that time, the West was Netherlands and Germany and Belgium together. We have not shared the details on this level before, but you can see here that we actually had significant losses in Germany at the time where this is the view central. We can see that the actions that we initiated at that time continued to impact. It is still successful. We have a reduction in SG&A as well, and that together has led to an increase in EBITDA margin compared to last year. That was the income statement. Quickly, cash flow and balance sheet. Current operations before changing working capital, positive cash flow as expected.
For those of you who follow us, you have seen quite large swings in our working capital, primarily when we have these larger system deals and the accounts receivables versus accounts payables, there can impact quite a lot. We ended last year with very strong cash flow, and now they have the opposite effect of slight or negative working capital. The total cash flow from operations was negative by SEK 56 million. A little bit of investments in fixed assets, primarily within our MCS business. Cash flow from financial activities in the quarter, -SEK 30 million. That is primarily leasing liabilities that with the new accounting rules these days, end up in the financial activities. In total, change in liquid funds of - SEK 96 million. Still, however, strong cash position of SEK 393 million at the end of the quarter.
If we go to the next slide, which is the balance sheet, this is what it looked like. Equity ratio at 21%, cash position, as I said, SEK 393 million. The net debt is SEK 68 million. If we exclude leasing liabilities, we would have a net cash position, or we have a net cash position of SEK 177 million. We still have unutilized overdrafts of SEK 158 million, as well as an unutilized part of our three-year rolling credit facility of SEK 134 million. Still strong balance sheet, strong cash position. I think that was no, that was not my last. This is my last slide. We have communicated financial targets for those of you who are new, the ones on the left-hand side here. If we compare the outcome now, the last 12 months rolling towards the target, sales growth was 10%. In line with the target.
EBITDA margin, last quarter we were at 6, now we're at 5.9%, rolling 12. This is where we still have a gap. This, of course, 8% is a longer-term goal that we're working towards. Net debt over EBITDA, we were at 0.32. That's still significantly better than target. We have the room to take on more debt if required. Return on capital employed, it continues to be below target, of course, with the EBITDA margin impacting, but also as we acquire companies and we dive our 16, we see a dividend on this metric here. The dividend, the proposed one of SEK 4.5 per share, is right in the lower target to distribute between 25% and 35% of net profits.
Okay. Good. Thank you, Linda. I'll just summarize a little bit, and that will open up for questions.
I think to start with, and I mentioned it already, our view of the long-term market is, it's no difference. We think we have a very good position, and we think the market is growing and that we still have growth ahead of us. It was a bit of a challenging quarter and maybe a little bit more mixed quarter than previously during the pandemic. Like you've seen here now, there are some business units like U.K. and Nordics and Baltics that have did pretty well and others like West that did not do pretty well or as well. Definitely impacted by COVID to a large degree with tough lockdowns, slowing down decision-makings. We haven't seen lost deals, but we've seen delayed deals in the quarter. It's most visible in West, but we've seen it in other countries as well.
That's obviously a significant impact in combination then with slow contracts or TCV development during last year, which is now impacting the growth of revenues for MCS. Those of you who have tracked us for a while know that it takes us about six months from the day of closing a cloud service contract to onboarding and start invoicing a customer. With slow developments during last year, we now see then the revenues not developing as quickly as they otherwise should have this year. We're also seeing some mixed shift in MCS, but that's more according to plan. Again, we don't see this being a long-term challenge for us, but driven by COVID. You remember we had good TCVs, a good inflow of cloud contracts in Q4 and also strong here in Q1.
We believe this is something we'll get behind us relatively quickly. Net growth in general is positive, and the acquisition in Sweden we're very excited about. That's how I would summarize the quarter. With that, I see at least there are some hands being raised. Unless you can just help us, let people in in the appropriate way.
Yes. I'm opening up for Simon wherever he went.
Yes. Thank you. Hi, Jonas and Linda. This is Simon Granath at ABG. Thank you for the presentation. I have a couple of questions, but I'll keep them as short as I can and let others ask questions as well. Initially, why is system sales in West performing below your expectations? Are you seeing price pressure from competitors? Are your sellers not performing, or is there anything else?
Could you give us some more color to that?
Yeah. I think that there's two pieces. One we mentioned already. There, there's definitely delays in decision-making. Deals being pushed forward because of uncertainty. There's another aspect, which is, we flushed out quite a bit of system deals in Q4. Coming into the year with this lower pipeline than otherwise, it takes a while to build up that sales pipeline. There's another piece that is important. The Dutch market is slightly different for us. We're more targeting the, we have a high degree of mid-size customers than enterprise customers. Mid-size customers, we find a little bit more, say, hesitant in terms of COVID and also more, more open, I'd say, to cloud services. There's a shift to cloud services in Netherlands in the customer base we're addressing there.
That is also the reason why the PeopleWare position was so important to us, to be able to pick up those customers with their cloud-based offerings through the PeopleWare portfolio. The decline we saw this quarter was definitely much more significant than just being explained by any shift in the market towards cloud services. It is primarily driven by the slow decision-making and lower sales in the individual quarter.
Okay. Thank you. Oh, sorry if you were not finished.
No, I was just saying in a minute it was significant. You saw a 50% decline. The vast majority of that is driven by the COVID impact, and therefore we believe there are short-term impacts. Mm-hmm.
Thank you.
As a follow-up question to that, you mentioned that some of the mid-size customers in this region are a bit more hesitant in terms of decision-making due to COVID. How has that delta changed over the past quarters? I mean, COVID has been around for some quarters now. How has that changed?
It has. I think there are a couple of details that are playing in here. Some is that it is a new calendar, new projects, new budgets. There is a little bit of a restart in how companies are planning that may have some effect.
It's more that we've seen more severe lockdowns end of last year and going into this year than ever before during the pandemic, in particular in countries like Netherlands, Denmark, Norway, for some example, even Germany to some degree, more severe lockdowns and restrictions than earlier during 2020.
Thank you. Also, another question, then I'll get back into the queue. What actions are you taking in West? And when do you expect these to yield full effect? As Linda showed earlier, for business units, some units, it took you about two quarters to turn these losses around. How should we think here?
No, I think we're positive about the systems business. Like I said, there's not lost deals, but delayed deals. That, I think, should be a short-term turnaround for us.
We've worked and already fixed a lot of things around consulting and make sure that we are planning the way we allow, assign our resources to the right projects. So consulting business is already recovering. Then, we have onboarding on new contracts ongoing that will help on the revenue side and significant cost initiative already executed and will continue to execute. It is a range of revenue-driving activities on both MCS and systems and PS consulting, as well as cost initiatives, all of which are already implemented or being implemented as we speak.
Thank you.
Thank you, Simon.
Next will be Fredrik Nilsson.
Thank you, Fredrik Nilsson from Redeye here. I want to continue on business unit West, considering that you seem to believe that the main reason for the decline is the COVID. Why is it necessary with a restructuring?
I don't think there's a restructuring, but we're adjusting costs to the level we're seeing. Obviously, like I said, TCV has been a little bit lower during last year than we expected. There is no significant restructuring, but always managing costs and then focus on driving revenue both in systems, but also in services, MCS and PS. I wouldn't claim it as a big restructuring, but always good to keep costs low. That is a key initiative here.
Okay. I see. The organic growth in cloud revenues was 1%, which is lower than what we're used to. Are there any specific reasons behind that except for the slightly lower contract values during last year?
No, not really. We have, there's two things that drive decline in revenue, churn, so people leaving us completely, and renewal.
We have had a customer over the length of the contract, and we are renewing the contract. The renewal may increase revenue. It may decrease revenue. It may also increase or decrease margins. Those both are roughly at the same levels we have seen over many quarters. There is no significant trend change in churn or renewal impact. Obviously, just like with systems, you may have some volatility, meaning if a significant customer is changing their commitment to some level, it may or may not have impact when that kicks in in a particular quarter. In general, if we look past over Q1 and also the previous quarters, renewal rates and churn rates remain low. Churn rates remain low. Renewal rates remain high, I should say. The impact of renewals and churn remains low.
Okay.
I really like that you now disclosed the service revenue mix and the support revenue held up well in the first quarter. Was the situation similar during 2020 as well?
Support has been a little bit more, I can't remember exactly the numbers now, for support, but it's a part of the business that's more flattish in our expectations, than MCS or cloud services, which we expect to grow faster. As you know, it's tightly connected to systems, and systems business has been really good here lately. Support whatever then follows. The unit is, we believe systems business on average over time is growing by low single digits, and support business should then follow at that rough same level. You are absolutely right. It's increasing better this quarter than just low single digits.
Okay. That's all from me.
Thanks.
All right. Thank you, Fredrik.
We are letting in Dale Robertson.
Thank you. It's Dale Robertson from Chelverton Asset Management. Apologies, but I'm going back to business West as well. Achieve, you know, to a group level margins? Is the first part of the question. Secondly, you had some issues in business just in the disclosure. Were those issues, I can't remember exactly, were those issues Germany related or were they Netherlands related? And are these issues potentially still the same ones that you're dealing with now?
I'll start with the latter question, Dale. Yeah, we had challenges in both Germany and Netherlands back in 2019, not related to what we're seeing now.
Okay.
2019 was before the acquisition of PeopleWare, and we had, I think, simplistically, a little bit of poor sales tiering.
Again, poor system sales at the time, which impacted both systems revenue and consulting revenue, that would turn around relatively quickly at the time, as we mentioned here already. Not the same issues. These are more COVID related. With regards to margins, there is no reason West should not be at our group average levels at an EBITDA level. We do see that the PeopleWare, and this is all no secret, so to speak, you guys have seen this already, they will be running at slightly lower gross margin or gross margin profit levels for MCS services because of the product categories for the characteristics of the services of PeopleWare. So a little bit lower margins on the PeopleWare service, but on the flip side, a little bit lower SG&A.
The bottom line, no reason they shouldn't be at group levels.
Okay. Thanks. The next question was on services margin. You mentioned the increasing complexity of delivering services, because of, you know, the customer request, and you referred to something called ServiceNow, I think, which is about automating your delivery of services. Could you talk a little bit more about that, please, and maybe quantify what it could mean for margin? Because obviously we're looking at the long-term margin target of 8, and obviously there's a considerable gap there. I presume services is part of closing that gap.
Yeah. In the quarter, volume is partly putting pressure on the service margins, as we mentioned already. There are some specifics, and it also relates to business unit West, and we touched on it already.
The services, the MCS services in West are slightly different than most other of our markets. One component of that is that we do a high degree of customer service and end-user service in business unit West. We have seen an increase of complexity and the errands or increasing complexity of solving errands when both our staff and the customer's staff is working from home. Cost of solving or cost of delivering our services is increasing due to the pandemic because of that reason, because of remote working on both ends. Again, that, that we believe is a short-term issue that will be resolved as our own staff is coming back into the office as well as our customer's staff.
Okay.
Longer term, we are committed to the 8% target.
There are a number of things that we need to do in order to get there. Operational efficiency, we've talked about a few times, is a key thing. We know that we can be better internally in streamlining our processes and, more importantly, automating our processes. The ServiceNow project is a key part of that automation. Also, the LogicMonitor that we mentioned here in the beginning is another part of streamlining those processes. To shift the revenue mix to more and more cloud services is the second part of reaching that target. Scale and continue growth both organically and through acquisitions is an important lever for us in order to reach it.
We still believe in it, but it is a long-term journey for us, which requires all of those three pieces to come into place.
Thank you. Maybe there is less on working or cash flow. You know, you highlighted the volatility in working capital. It was obviously positive at the end of last year, negative at the start of this year. I expect a similar pattern over the coming quarters, or how does that kind of smooth out over this year?
Yes, I would say, yeah, we have had significant large deals. The timing, how it hits the end of the quarter, will impact. Over time, we are running basically at a negative working capital. Over time, we do not expect a significant negative effect on cash flow from working capital.
In individual quarters, it will continue to fluctuate like this as long as we have a significant systems business.
Sure. Okay. Thanks. Thanks for your answers.
Thank you, Dale.
Thank you. We're handing over to Simon Granath again.
Thank you, operator. You had some larger deals in the U.K., as you mentioned in the report. How is systems sales developing excluding these? Are there any chances that some of these larger deals could have been recognized in Q4 and Q1? You mentioned earlier that you saw a similar occurrence regarding the pipeline in West, etc. Any color on this?
No, I think we've seen, historically, and Simon, you and those of you who followed us for a while know that the large system deals are coming somewhat arbitrarily and can impact the quarter positively or negatively depending on which side of the quarter they land. We expect that to happen over, you know, over some rolling period. You will always have large deals, and I think that volatility will remain. In general, we mentioned a couple of times, definitely a little bit more difficult to close the deals lately since roughly November, December timeframe when lockdowns were tightened and through the majority of Q1 here. Again, more driven by the uncertainty around COVID than anything else as far as we see now. I'm not sure that answered your question, Simon, though.
Mm-hmm. I think it did. I think it did.
Maybe.
Very good. Thanks. Historically, there's been about a two-month lag, I believe, from cloud orders being recognized to revenue. Is this dynamic similar now? Has this changed over the past year or so?
I think what we said is six months from signing a cloud contract and we report it as TCV, and until then they are onboarded and we deliver service and invoice. The average is typically six months. It varies a lot. Some are significantly shorter, some are longer, but it's a good rule of thumb to assume that it's six months from signing a contract until we start invoicing on that same contract.
Apologies. I was referring to two quarters, not two months.
Oh, okay. Sorry. Yeah. Thank you. And then we're aligned.
Perfect.
As a final question, you said that you also saw some minor price pressure on some minor pressure rather on gross margins in the U.K. What did that relate to?
I think here also we see not the, it's not really a general market pressure. It's rather the mix of the different deals that we have been closing and have been expecting to close that put some pressure on the margins, both in customer support and MCS. Which meant that the margins were going down in the quarter. It will vary. Not really a trend rather than the deals that we got in this quarter compared to the ones we had that quarter were slightly lower margin deals.
Okay.
Thank you, Simon.
Thank you so much.
Thank you.
Next question will come from Wilhelm Gruberg.
Yes. Hello everyone. I have a question regarding the acquisition of Cetus in U.K. This is the third quarter, the first quarter you have it consolidated for the full quarter. Can you tell us a little bit about the development in that company since you acquired it? Is it according to plan, better or worse? Also, if you can comment on the M&A pipeline going forward, what are you looking for and what should we expect going forward there? Thank you.
Yeah. Cetus acquisition is going well. We're happy about that. They're delivering a little bit ahead of our expectations, which is great. More importantly, I think the integration and the collaboration with our Proact team and the Cetus team is going really well.
We've established a new organizational structure in the U.K. where the Cetus team is now plugged in in a good way, and that seems to be working fine. Sales is well aligned, and we're able to actually get some synergies out of the sales already in this quarter, this first quarter, where we get better deals and better margins out of deals by going together than we would have done individually. I think overall, Cetus has been only positive in this first quarter. On the M&A, it continues to be a priority for us. We do want to do a couple. Let's say order of magnitude, two to three per year. The target size for us remains to be in the few hundred million SEK per year in terms of yearly revenue run rates.
That will be the sweet spot for us. PeopleWare was right up there. Cetus also, whereas Conoa is maybe on the smaller end, but then Conoa is strategically, super interesting. That is from a size perspective we are looking for. Germany is still a super interesting market. Netherlands, in the near future, will be, or West, I should say, Netherlands and Belgium. An interesting region for us to continue to grow. If Cetus continues to be integrated at the pace we are currently seeing, the U.K. can open up for another opportunity here in the near future as well as Nordic. Probably in that order, I would say.
You never know, and you will know that it's arbitrary to some degree or stochastic when we find a target where all stars are aligning in terms of fit, price tag, willingness to sell, those kinds of things. Pipeline-wise, we're working in all the regions and constantly build and review pipelines or targets.
Okay. Thank you very much.
Thank you.
I don't see any more people who would like to raise quest
ions. All right. Thank you very much for joining. We're always available if there are any other questions. You can always reach us at our email addresses or phone numbers, so don't hesitate. For now, thanks for joining, and have a good Thursday. Thanks very much.
Thank you.