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Good morning or good afternoon all, and welcome to the Knowit Interim Report for January to June 2022. My name is Adam, and I'll be your operator today. [Operator Instructions] I will now hand it over to Per Wallentin to begin. So, Per, Please go ahead, when you are ready.
Hello. My name is Per Wallentin, and I'm the CEO of the company. And with me here also I have Marie Bjorklund, our CFO, who will take us through the numbers later. Next slide, please. First, I would like to take you through some of the operational highlights during the second quarter. We continue to see good demand for our services, which in turn have resulted in a solid growth and improved results for the quarter. I'm pleased that we delivered net sales of more than SEK 1.6 billion, corresponding to an increase of around 7%, when we compare Knowit today to Knowit lastly acquired companies one year ago. We delivered an adjusted EBITDA of SEK 140.5 million and a margin of 8.5%. And the margin is impacted by increased costs for meetings and travels in the quarter. And we also see an impact from the salary revision for 2022 coming now in Q2. We are pleased to note that the recruitment trends have been positive for the second quarter. And all in all, all 4 business areas performed well. We see a particularly strong demand in experience and connectivity with good growth and strong margins. Next slide, please. Our sustainability goals are important tool -- are an important tool to steer our everyday work to ensure that we always strive to participate in the transition to a sustainable and digital society. And we have, as you know, since a couple of quarters ago, the sustainability goals in combination with the financial goals. One example for this quarter is the development of tilnull.no that's in English [ 20.no ] that's a web portal that gathers and visualize data about Norway's green gas emissions in an easy and accessible way, in order for Norway to reach its ambitious target of cutting the country's greenhouse gas emissions in half by 2030 and down to 0 by 2050. And efficient and clear information about complex topics is a necessity. And through this project we contribute to 2 of the sustainable development tools, quality education, as well as climate action. We can take the next slide, please. And if we go into the business areas more in detail, we start with our biggest business area, Knowit Solutions. Reported net sales of SEK 933 million for the quarter, corresponding to 9.4% growth included acquired entities. The EBITDA margin was 9.6%, and that was impacted by needs for physical meetings and travels for the quarter. And we are also pleased to announce the acquisition of the Danish IT consultancy in Miracle with 130 employees that will strengthen our position in Denmark significantly. We also have several new important frame agreements during the quarter, both in Norway and Sweden, for example, [indiscernible] 1177 in Sweden, that's our Swedish health care portal. We can take the next slide, please. Experience reported sales of SEK 400 million in the quarter, an increase of around 12%, including acquired entities. The margin was stable 9.7%, and there was a particularly strong development in Norway and Sweden. If we go into our newest business area, I think I said the next slide, the slide connectivity. Our newest business area connectivity reported [ SEK 206 million ] in the quarter, growing with almost 15% in existing business. Connectivity strengthened our R&D intense industries such as tech, telco and automotive. We continue to see good recruitment, especially in Poland, with competence deliveries into the Swedish market, which have a positive impact on margins as well. The acquisition of Swedspot has had a positive impact to new clients and projects and a really positive energy into the business unit, especially connected to automotive. We can take the next slide, please. Our business area Insight management consultancy reported net sales of around SEK 171 million for the third quarter, unchanged for the year before. There was a solid performance in Sweden and Norway driven by margin improvements and overall performance. Solid margin development, EBITDA margin was increasing to 14%. We have the acquisition of Marketing Clinic with around 60 employees in Finland, strengthened our position in Finland and strengthened our position as a management consultancy working with top line as well. And the growth, of course, were impacted -- our completed growth were impacted by continued high activity in the employee market. And we also have a little bit different business model in Insight, which is less influenced by subcontracting business deals. We can take the next slide, please, I'll go over to Q2 in figures, until then I hand over to you, Marie.
Thank you, Per. Next slide, please. If we're looking at Knowit, the whole group, we delivered sales of approximately SEK 1.6 billion compared to around SEK 1 billion reported for the same quarter in 2021. Sales increase was impacted by acquisitions, mainly Cybercom, of course, which wasn't consolidated until July 1 last year. Other acquisitions affecting the sales are Stromlin and 1508 acquired beginning of 2022, and Capacent, which we closed in the third quarter of '21. But if we take away the acquisitions, we can see that we continue to have a good growth in our existing business, which we are, of course, very pleased with. We have a growth compared to last year, including the acquisitions of 7%. And if we clear that from currency effect, we have a growth of a little more than 5%. Our adjusted EBITDA was right above SEK 140 million, which is an increase by a little more than 40% compared to last year. The adjustment for acquisition and integration costs amounted to SEK 4 million in the quarter and was concerning the acquisition of Swedspot, but also cost for Marketing Clinic and Miracle. The 2 acquisitions closed on July 1, and because of that, not consolidated until the third quarter. Our adjusted EBITDA margin was 8.5%, somewhat lower than in the second quarter of 2021. An explanation of this is the increase of cost for travel and physical meetings as well as salary inflation. And I am pleased that we are taking these costs, which are an investment in our organization and people and most of all, give us the possibility to grow in the years to come. Next slide, please. This slide shows our adjusted EBITDA development in which you can see how much the result has grown over the years, and we're ending the quarter with a rolling 12 months of SEK 621 million. We're especially pleased with this development since we've had an intense period with integration work. Next slide, please. We continue to have a solid financial position and a strong balance sheet. Cash flow from operations increased to SEK 130 million with a positive change in working capital, mainly due to increase in other short-term liabilities such as vacation debt. Cash flow from investing activities was affected by acquisitions, additional purchase prices and also the divestment of our minority interest in stack. The divestments gives a capital gain that is reported as a financial income in our P&L as well as, of course, affecting our cash flow and net debt. Cash flow from finance activities was affected by dividends and loans taken. Concerning our net debt, all in all, at the end of the second quarter, it amounts to SEK 475 million, which is an increase compared to previous quarter following the intense acquisition activities in the past year. Leasing debt also increased because of newly signed rental contracts. This corresponds to a net debt-to-EBITDA ratio of around 0.6, which is well within our financial targets. During the quarter, we have extended our revolving credit facility with Nordea, and we have now access to a little more than SEK 1 billion. The increased facility is a support for us in future acquisitions as well as other investment activities. And with that, I hand over to you, Per, to say some final words before we take on questions. Next slide, please.
Yes. Thank you, Marie. Some summary and outlook. And to summarize, we are delighted to present another solid quarter with high activity in all areas. We see a very high demand for our services across the Nordic region and Poland. However, as you have seen in the report, we are challenged by the hot employee market, meaning that even though we have a really good recruitment and recruitment activities, and we are successful with that, we lose some employees, mainly to customers, and that might be okay in the long run. But all in all, we have a positive net recruitment in the quarter, which is something that we strive for as you know. We continue to drive the consolidation in the Nordic market through 3 new acquisitions in the quarter. Looking ahead, we see good signs of continued good demand in the market. And we think that we are very well positioned for continued profitable growth and look forward for exciting opportunities ahead. And with that, we are now open for questions.
[Operator Instructions] The first question today comes from Daniel Djurberg from Handelsbanken.
My first question would be on the recruitment. You said that you see a net positive net recruitment in the quarter. But I was just wondering, since you have done a couple of acquisitions here, Miracle and Marketing Clinics and Swedspot, for example, these 3, I think, adds some 230 employees. But is it so that you don't calculate all of them because they come in like June or because otherwise, the net -- the gross number of expansion number employees, I think, is 62 or something. So that would suggest a net decline, otherwise or some 170 employees organically. What do I...
Maybe you could get us through that, Marie, but that's right. Some of them are coming in after the quarter.
Yes, exactly. Some of the -- as we were closing the deal of Marketing Clinic and Miracle 1 of July, so they're not coming in on the third quarter. And the net recruitment that we're talking about that we have a positive trend that is -- and then we cleared it from growth of acquisitions. So the trend that we can see is organically.
Yes. Since we spot only added some the [ 4 ] I guess. So you have that.
Yes. That's right.
Exactly.
Okay. Can you say anything else on the NPE turnover trends since we -- you have very good traction in the market and also we see some uncertainty in the market, I guess, that could lower the attrition rate on? Or what should we expect going into the second half?
Yes, I think that you're right in that -- as you know, we don't disclose that in detail. But if you look at the trend and especially the trends in the market, we saw, as you know, a very strong decline in employee turnover from 2019 to '20 and '21 due to the pandemic. And now we see an increase after the pandemic, and that's fully natural and we already talked about that 1.5 or 2 years ago that, that would come. That's something that we see now. And I agree with you that I think that, that will continue during the autumn, and we will see if it continue to Q1 next year or is it end already in Q4. I don't know, but it will -- the market will settle down quite a lot 2023, I think. But with that said, we see that trend in Knowit as well, but it wasn't as significant as I thought it would be, and especially with our big acquisition of Cybercom. I personally thought it would be even higher in the Knowit context. So I'm actually quite pleased with the figures even if they, of course, are higher than the last year.
I guess because of the great management. And another question here on the visibility into the product starch, project continuation after the summer in terms of visibility, do you see any changes or any things coming up later in terms of project cancellation on back of the [Technical difficulty]?
Nothing yet. I mean if we are facing a tougher situation in the development around us, we might see that first in inside, but we haven't seen it. So that's how it is.
Perfect. And I only ask a little bit on -- if you look at your EBITDA margins, the level in Sweden was very nice at 12.7%, that's lower in Norway, perhaps a little bit more on Easter or something. But also, what do you say about the potential to lift the margins in Finland and Denmark, and now you get better critical mass perhaps? And can you do some -- is it utilization? Or is it something more structural in the market from pricing or something else that lies behind the differences in the margins?
I think it's important to talk about margins in long-term and short-term trends. The short-term trend for the quarter is obvious that we needed to invest in travel and in activities together with all our employees, and that's positive and important, as I see it. Long-term, there is a lot of small things that we can work with internally -- to work with the long-term margin goals that we have. And one of them is, as you mentioned, to be big enough in a country, because to be really small in a country, it always has a problem, because you are not well known, for example, to the employee markets, it costs quite a lot of money to recruit, it costs a lot of money to do quite a lot of different things. When you have the size of at least 200 to 400 people in one country, that might be easier. We already see that we take out some efficiency gains with the scale that we have managed to get up to over 4,000 people now, so we can work with that. But then, of course, the obvious thing is to continue to work with higher price per connected to salary. And that's something that I think is very important for us to continue to work with, because the incline is quite big. I think that they have been good in working with the price components so far this year, but probably we will have to continue to work with that for a while a couple of quarters coming.
Yes. Okay. Then my very last question, if I may, would be, Marie, you mentioned that you see M&A perhaps ahead, but also you mentioned other investment activities. I was thinking if you are thinking of something special plans that we should be aware of.
No, it's nothing in specific.
No, I think...
Yes, sorry.
You can take it, Marie, sorry.
Yes. No, it's more that we do have some other smaller activities. Nothing specific in mind. It could be like investment in fixed assets, which we don't have large such, but more of those types of things. I don't have any -- and more like investing in our organization in terms of just the ongoing business. So nothing specific in mind.
And would like here in Q3, and great continuation of the summer.
The next question comes from Daniel Thorsson of ABG.
A few questions for me. The first one is on the margin. So given that the market is still pretty strong, the margin declined somewhat. And it basically shows that it is quite difficult to be sustainably above the 10% margin threshold here. What's the margin development in the quarter according to your -- or in line with your expectations? And is it still equally reasonable to reach the 12% margin target in the coming years? Or has that changed anything given the salary inflation we see now?
It was pretty much in line with expectations. Of course, it's impossible to have detailed expectations just more connected to the trend. And we expect that -- we saw that coming and increase the focus on travel and meetings within the organization. And I think that for right and that's good. So yes.
Yes. But to add to that, I mean, we're coming into like a post-pandemic way of looking at travels and physical meetings, conferences and so on. So we'll see how much goes back to the way it was before the pandemic could be that we have a slight change there. We need to...
Yes. I agree, Marie. Even if it's higher this quarter and maybe the summer quarters now. I think that overall, we will see lower costs for travels and meetings. If we look at 2022, 2023 and forward compared to '18, '19 per employee, I think that we will lower that cost. But I think that we will lower the cost of premises as well. So I think that the post-pandemic structure and ability to work with margins is actually better long-term.
Okay. Can you say something. Yes, I see. Okay. That makes sense. Can you say something on the second half of this year. I guess the second half of last year was kind of a pandemic environment with pretty low costs and pretty good margins. Should we expect to see a similar development in the second half of this year with increasing costs and some pressure on the margin?
I think that we will have some meetings and travel in Q3. I think that, that will decline in Q4. Q4 is also a quarter where we usually don't have that much meetings. I think that we will probably see -- there has been a discussion internally at least in Knowit, and I know that is the same in other companies that it's better to take those meetings there on the summer half of the year due to the risk for pandemic outbreaks in the winter. So we will probably see a little bit of a shift seasonally well. But with that said, lower costs in total per year.
Yes, I agree with you, Per. And it's not really -- I think that's not only for us, I think it's more general also for all companies like us that we might see a little shift there.
Just again we will see, we will see.
Yes. That's fair enough. And my second question is related to Insight. It was a pretty good margin here with 14% margin after a couple of tough years. We have been around 16%, 17% margin. Where are we in the trend here? Is it an increasing trend? Or is it peaking out here, because of the weaker economy ahead? Or what do you see in Insight really, because that's a good indicator of the whole economy and environment?
Until now, the trend is increasing at least.
Yes, we've had a strong demand in Insight and the type of signals that you're looking for has not been there in this quarter.
Yes, I see. And then give -- a question on demand. Given the market environment, tech companies reducing staff, et cetera, do you see any early signs in any of your end markets with customers being somewhat more hesitant on starting larger digitalization projects?
No. Of course, we are very aware of looking to those signs, but we don't see that. And with that said, there is quite small amount of people coming out to the market from those particular companies that you are talking about. So that's only -- we have a lack of around 70,000 people in Sweden right now. So far, that's not going to be a problem. I'm not sure if that ever will be a problem during this cycle.
Yes, I see. My last question is on M&A. Here you have really stepped up the pace on M&A. How should we think about management capability of completing more M&A ahead, but also your willingness of doing it and especially what you're looking at?
It's the same answer as before. Or if we start with the ability, I think that 3 in one quarter is about maximum what we can cope with practically, that's how -- so -- but I'm very pleased with that we were able to do that and happy that we have a really strong organization being able to take the new acquisitions in a good way. And that's mainly due to that we have a good structure in our support functions, but also that we are a decentralized organization that you very strongly can take on the relationship with the new entities from business area. So with that said, the -- we look into potential -- we have a strong M&A pipe. We think that with this market, which is a little bit more uncertain, it might be good opportunities. But of course, they have to be right in price, they have to be right in focus. And we always are very agile in how we look into the possibilities ahead. So for example, of course, when we decide for new opportunities after summer, we will look at the situation and the situation in the market in August and September. So we will see that will not see any promises, just that we will do a good work and continue to have a good focus on potential M&As.
The next question is from Valter Lindhagen from Pareto Securities.
I have a question related to the margin development here going forward. So as you mentioned, the margin in Q2 was negatively affected by salary hikes, as you have flagged for in previous quarters. But when you talked about this in previous quarters, you sounded quite confident that you will be able to compensate with price increases. Is this still -- do you still have this view if you look at, I mean, the entire year, maybe 2022?
Yes. I think what we said and as you mentioned, we talked about that delay already in Q1. But what we said that the salary increase and the price increase will probably even out during the year, and that remains.
All right. Perfect. Then I have a question on the acquisition of Miracle. So I just looked at the data in your press release there regarding Miracle's sales and the number of employees. And it seems like they have quite much higher sales per employee compared to Knowit, just to get an understanding here, could you give some insight into why this -- why the others revenue profile?
It's mainly due to that they have some license deals with the public sector in Denmark. We have that in different parts of Knowit as well in some subsidiaries, but they have that, and that's why the figures looks a little bit different.
As we have no further questions, I'll hand back to the management team for any closing remarks.
Do we have any questions from mail on the web link.
Nothing on the mail, no.
All right. Then we would like to thank you for participating, and wish you all a really good summer. Thank you.
Thank you. Have a nice summer.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.