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Thank you for patience, ladies and gentlemen The Knowit Interim Report Q1 2023, we will begin shortly. [Operator Instructions] thank you for your patience.Ladies and gentlemen, welcome to the Knowit Interim Report First Quarter 2023. My name is Glenn, and I will be the [ coordinator ] for today's call. [Operator Instructions] I'll now hand you over to your host, Per Wallentin, CEO of Knowit. Per.
All right. Thank you all. And sorry for the delay, I think that there were some technical problems at the call side. So -- but let's continue to next slide, please. The presentation today will be me and Marie. And well, let's go to the next slide again, please. First, I would like to take you through some operational highlights during the first quarter. We report good growth and profitability despite as we see it a more uncertain market, and we think that's a sign of strength. We -- although we experienced shattered market picture with some inconsistencies among our clients, some increased investments in digitalization projects and some are in some sort of a wait-and-see mode and take longer time to come to decisions. As in Q4 2022, we have a really high sales focus. This does not mean that we stop recruitment activities. But we, of course, focus a little bit more on sales right now. Both business areas, connectivity and experience are performing really well. Despite the more challenging market that we have compared to last year. And our biggest business area, solutions are impacted by challenges, especially longer lead times and getting no consultants out in projects. And as last quarter, we still have a relatively large share of subconsultants due to frame agreements mainly in Norway. We can take the next slide, please. I have told you quite a few times about our sustainability goals. So, you know them quite well. The -- maybe the most important and challenging one of those are that we will be by 2030. 80% of our net sales shall contribute to at least one of the UN Sustainable Development Goals, where we can make the largest difference. And then, of course, we are aiming to be climate positive and also have an inclusive workplace. One example of a project is a company called DeLaval. You probably know of them working in the agricultural industry. And together with them, we have worked with them for quite a few years together with them, we are creating a solution connected to Internet of Things connected to the cloud, where we connect the cows to information about how they eat how they sleep, et cetera, et cetera, to hopefully get the cows feeling better but also producing more milk. We can take the next slide and go into our biggest business area solutions, reporting net sales of SEK 1.1 billion for the quarter. That's 3% growth, including acquired entities. EBITDA margin, 10.5%. That's a decrease following longer sales cycles and a little bit more uncertain market and among some clients, but we have a really positive development in Finland compared to last year, both revenue growth and improved margins. So, we are proud about that. Although we see some challenges in growth in Sweden and the margins in Norway are impacted by challenging in utilizing nor consultants, maybe a little bit connected to a strong recruitment period that we had in the end of last year and a consistent but not growing public sector business. We can go into our digital agency experience reporting sales of SEK 447 million Yes, sorry. Next slide, please. SEK 447 million for the quarter, increasing around 8%, including acquired entities. The EBITDA margin was strong at 13.4% and I think it's a really strong performance in light of the current market situation with intensive sales efforts that we have had for quite a while now in experience and that pays off. Over time, we have also worked quite a lot. We're shifting to larger assignments. That is something that has come during the last year, one step at a time. And I think that is a really good strength in a little bit weaker markets. And we are really happy to see a really good development, both in Norway and Denmark during the quarter. We can take the next slide, please. Now with connectivity, a lot about industrial customers and embedded solutions, reporting sales of SEK 304 million during the quarter, a growth with 17% in existing business, really good. Margin was 11.4% and an increased EBITDA in absolute numbers compared to last year. And we see high demand for our competence, both in Poland and Sweden. Connectivity is only in Poland and Sweden, contributing to the overall result. We have been successful in negotiating the existing assignments, increasing prices. We see a good inflow connected to new clients, all that despite a more challenging market. So, the quarter is strong. And I think that it shows that we are able to be agile and adapt to the market quick. We can take the next slide, please. Our management consultancy insight site, which, as you know, now 2023 is quite a lot bigger than it was a couple of years ago due to a really good organic growth and a couple of acquisitions. We are reporting sales around SEK 247 million for this quarter, growing by 6%, including acquired entities. We see a really good demand for cybersecurity and legal competence. Clients are investing in implementation projects, finance projects, et cetera. We see a little bit more challenging and slower pace connected to some of the strategic projects. And also, as you know, we did an acquisition in inside in Finland after summer last year, and we see a good recovery in the Finnish market and the stable development for the quarter. And with that, we can take the next slide, please. We will go into the figures a little bit more in detail. And with that, I hand over to you, Marie.
Thank you, Per. We can take the next slide. Looking at the whole group, we delivered sales of almost SEK 2 billion compared to SEK 1.7 billion reported for the same quarter in 2022, and this contributes to a growth of 16% and 6% when comparing it now and including the acquired units a year ago. Adjusted for FX, this growth was 5.4%. Adjusted EBITDA, adjusted for acquisition and integration costs amounted to SEK 198 million for the quarter. This is an increase compared to the same quarter last year when we made SEK 194 million. Our adjusted EBITA margin was 10.1% in the quarter. And last year, it was 11.5%. So, we have a decrease. And why is this? And this margin decrease is due to an increased market uncertainty, implying longer sales cycles and with that comes from challenges in utilizing consultants in specific the younger ones. And as Per said, we do have a full focus on sales as we go forward. Next slide, please. Looking at the revenue and EBITDA development. We're happy to present another quarter with good growth and a stable profitability. And this is during a period of large external uncertainty regarding future macro development. Our adjusted EBITDA for the last 12 months is at EUR 613 million, and revenues amount to a little more than SEK 7 billion and an EBITA margin of 8.6%. Next slide, please. And this slide shows that we continue to have a solid financial position and a strong balance sheet. Our net debt at the end of the quarter amounted to a little more than SEK 1 billion, an increase following intense acquisition activities in the past year and also following an increase of other liabilities linked to leases of new premises in a number of places. And this corresponds to a net debt-to-EBITDA ratio of around 1.4, which is well within our financial target of 2... [Technical Difficulty][Operator Instructions] There seems to be an audio problem will the conference will resume shortly.
Thank you. I think that [indiscernible] needs some consultancy help from Knowit probably. We will take action to that after this call. Well, now we have the last slide to summarize next slide. Well, we see a high demand for our services across the Nordic region, but some clients take longer time to decide. That, of course, impacts the utilization rate. But with that said, we have been really good in increasing prices since last year and are proud of that. And we think that the price increase will remain. We experienced connected to. [indiscernible] We see more difficulties to utilize [indiscernible] consultants, and we have stronger focus on sales activities but still continue to recruit where we are able to do that. We also see that the market outlook for the coming year is uncertain and market visibility is quite low. We are strongly positioned to continue delivering good and profitable growth even in such a market, and that is reflected for among others, that we have around 40% public sector that will be really stable in this market. We also see a lot of new possibilities connected to new technology development, the coming years and the big mega trends connected to electrification, AI, sustainability, et cetera. And with that said, I will now open for questions.
Thank you. [Operator Instructions] We have our first question comes from Daniel Thorsson from ABG.
Yes. [ Are,] my first question is on the strategy on net recruitment ahead given the lower utilization of junior consultants and your strong recruitment last year. Do you plan to have a lower net recruitment in the coming quarters than previous?
We will see. We had a lower pace in net equipment in Q1. I think that, that will be the case 2023 as well, focusing a little bit more on utilize our existing staff. But in some areas, we also see a really strong demand still, and it might change quite quickly in this market, we will see and then we'll be able to change in addition to that. So, the big broad answer is, I agree, it will probably be a slower net recruitment, but we will adapt. Yes, I see. And then the second question is prices in relation to salaries in the last couple of quarters, I guess, that you have had a positive yield effect here in the market, at least with prices increasing more than salaries, while looking ahead there, it's reasonable to think that prices are not increasing at the same pace given the lower demand and salaries, they will come up quite a bit here from April and onwards. How do you think that's going to play out in the coming quarters? Should we expect a negative yield effect on your reporting number…
But I suppose so, but you always have that we had that in Q2 2022 as well. It's -- the prices are coming in Q1 and the salaries are coming in Q2. So, we will see that this year, we saw that last year as well. So that's right.
Yes. For now, we don't really see an issue with prices that is not in concern.
No. But as I said, the last Q4 report, we think that the price increases will equal the salary increases in 2023 as well. So, we will be able to hold the higher salaries with higher prices. And actually, the negotiation on the labor market in Sweden at least, was quite reasonable. So, I'm quite happy with that.
But the point that you're making, Daniel the increases in salary is coming in the second quarter. Remember?
Yes, too. And then another question on the internal issues with acquisitions you made last year causing some losses in Q3 and Q4. Is that in a better shape now? Do you see profitability in, if I remember correctly, Marie...
We are performing at as I talked about in insight in Finland. I don't -- as I see it in Finland, and that was marketing clinic, they are now integrated in our Insight business. We see a good pace there in Finland. I think that there are still things to be done, and we are not completely happy with the margin, but it's far better than last quarter. So, it's really on the right way. I still think that we have some work to do connected to marketing clinic in Denmark. But as I see it is on the right way as well.
Yes, I guess it's in a -- and I totally agree that the trend is going upwards, but they haven't reached their full potential, yes.
Okay. Sounds good. And on the margin decline here, it has been declining for 4 quarters now in a row. And when I look ahead here, you will have a calendar effect that is a headwind, price salaries we have talked about, et cetera, but they're coming from really low levels as well. Do you think we should expect the margin to stabilize in the coming quarters or to slightly increase? Or how do you look at the rest of 2023 as a whole to give an indication of...
I don't think that I will speculate too much about the margins. I think that we have seen a decrease in utilization rates for a while. I think that, as we said in the report as well, we have an underlying stable market, but the lead times are longer, and there are somewhat some inconsistencies in different customers. And I think that, that will probably be the case during 2023. I don't think that the market will slow down even further, no.
Okay. That's helpful. And then very last question. How do you -- and this is obviously a question for the Board, mainly. But how do you look at share buybacks? I mean the share has been relatively weak versus competition in the last year or so. The valuation is around where you have acquired companies, et cetera, with much lower risk in your own stock, obviously. Do you have any discussions on that or any view on share buybacks?
No, we haven't had that. And if that comes, it comes, but there are no such plans for right now.
Thank you, Daniel. [Operator Instructions] We have other questions from Daniel Djurberg from Handelsbanken.
Thank you, operator. I would pronounce it Joburg, but that it's okay. I have a question or a couple, if I may. Starting off with the demand that you saw a little bit of drop in some areas. And can you talk us through a little bit if it was weaker in the end of the quarter and also Q2 has started off here in April, especially, obviously, in those areas like inside where you have perhaps the being quite early in the business cycle downturn, that would be helpful.
Yes. I don't see any big changes during the quarter. If you look at -- we're going to take you through this a little bit chattered situation, we see, for example, in Norway, the public sector, the market is stable, but we see that the projects are not growing even if the prices are increasing. So that means all in all, the same that we have maybe a little bit less people into some assignments connected to that. That's all right. We see that they try to mitigate the inflation by not increasing costs connected to public sector, but the demand is still there. The projects are still there, and that will eventually pick up whenever the interest rates stabilize, I suppose. If we look at retail, we have decreased, as you see in the pie-chart connected industries, decreased a little bit. And -- but there is still a demand, but it is a little bit weaker in that area as well. But then as you can see in some other areas connected to public sector and especially connected to the defense industry that mainly is part of the public sector at least in Sweden, we are actually increasing quite a lot.
Perfect. And if I may...
Maybe some... Maybe something connected to inside as well. There is a shuttle situation even there because we see an increase connected to security and lower consultancy and the decrease connected to strategic consultation.
Perfect. And this comment you do that it's a little bit less demand for junior consultants, -- it makes it a little bit tricky to use this demographic play or to secure the high margin from using lower price consultants. How much of a hurdle would you say this is? Or can you give another type of knowledge ladder or a value ladder that you can get around this issue? Is it -- was it fully impacting Q1? Or will it be -- or how material is it...
I think that we already are quite a lot more resilient to that than a couple of years ago because we have been working a lot with increasing the size of projects and customer relationship. And we also say that, for example, in experience. And with bigger projects, we also see that it's easier to utilize younger consultants into parts of those projects. But of course, in some parts, we do still have more time and material, and that's the case where it's harder to utilize younger consultants. So, it's not that it's harder everywhere. It's just in some places and what we'll be doing to mitigate that, of course, to try to move those consultants into all of those a little bit bigger and really good customer relationships that we have with bigger customers and bigger projects, but it's been a challenge. But that's what we're going to do and going to continue to do that strategic work that we have been doing for quite a while now.
Perfect. And if I may, last question here on -- you mentioned obviously Sweden, the salary increases that is manageable and so forth, a, can you comment a little bit more on what you see in other markets such as Norway Finland and the mix between cost inflation and price hikes that you can do for...
The situation is pretty much the same. It's a little bit different, both salary increases and inflation, as you know, in especially -- not that much in Finland, Denmark and Norway, but especially in Poland, where both salaries and inflation is increasing a little bit more. But in the Nordic countries, it's pretty much the same.
Perfect. And my last question, sorry for that. Would you say that Q1 did follow your own expectation in the market development or certain big surprises that you could share with us on the upward downside...
Yes. No, I was actually quite happy with the outcome of the quarter. We increased profit. We grew quite substantially. We see that the demand is there. Of course, it's a little bit more challenging connected to longer lead times. I think that we will -- but we did start to see that even in Q4, and now it's showing in Q1. I think that we will have to live in this market for a while now. So -- and I think that we adapt quite quickly to that. So, I'm quite happy about that. And what we haven't talked about is that I'm also happy about that there is some mega trends that are probably compared to what we talked about in Q4, moving even faster connected to sustainability connected to electrification and connected to AI. And that is something that we see will pick up more and more over the years to come.
Perfect. And good luck in Q2 here, and yes.
Thank you... Do we have any more questions or otherwise, we have from Yes, we have from...
From the... The webcast. So, the first question is from [ Tom Greenside Securities ]. Can you give some more detail in regard to the utilization rate and the effect in Q1 '23 versus Q1 '22 and Q4 '22, I suppose, for Marie...
Yes. Well, we don't give out the details on the utilization rate. What I can say that we had a very strong quarter, very strong first quarter in 2022, if you numbers. So, the utilization, it was good. And then we could see that we had a big decline in the last quarter of '22. And then this quarter, we can see that the market is not as hot as it was last year. So, it's decreasing in the first quarter of 2023.
Great. And we also have a question from [indiscernible]. Do you plan to do more M&A? And how do you see seller expectations regarding prices versus 12 months ago?
Yes. M&A activities have -- we did have a lot of M&A activities last year and the year before that. So, I think it's good for us internally to take it a little bit slower now in Q1 and Q2. What will happen after that? I don't know. It depends on the market development. We have a stable balance sheet. We have been able to -- now we have only been talking to marketing clinical miracle, which did have some problems last year, and we are now fixing them, but we have also quite a few extremely good and overperforming profitable acquisitions last year. And they seem to like to be a part of Knowit. So, I think that the agenda connected to -- or the strategic connected to acquisitions will eventually be [indiscernible] I will tell you when it happens. Connected to salaries, I think that I shortly answered that before, we see that the salary increases will equal the price increases compared to last year. So, I'm quite happy about that. The outcome connected to salary increases in our industry between last year and this year.
Great. We also have a question from Raymond at Nordea. Financial costs ended up at SEK 25 million. Most of this, about SEK 16 million was interest expenses. But was there anything unusual here in the rest, about SEK 9 million that should not be extrapolated?
No, we had interest costs, and we also had like a recalculation of earnouts, and we do that normally every quarter. So, nothing really abnormal.
Great. No more question here. Alright no more questions on the webcast. And then I suppose that was all for today. Thank you for listening in, and have a really good day. Thanks.
Thank you.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.