Addnode Group AB (publ)

Welcome to the AdNode Group Q3 presentation. During the questions and answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the CEO, Johan Andersen, and CFO, Christina McIntosh. Please go ahead.

Hello, everyone, and welcome to our report presentation for our third quarter 2024. I'm CEO of panel group Johan Andersson and with me I have our CFO Christina from Macintosh as well. So we'll be presenting and doing a Q&A after that as well. So looking at the agenda for today, we'll walk you through Q3 2024. We'll finish up with what we believe to be our investment case. Then we'll do a Q&A, and you will also find in the presentation an appendix with some further information around the AdNode group. So looking at Q3, we said it is a quarter with underlying organic growth and robust earnings improvement. The third quarter was strong. It had underlying organic growth. Current suggested organic growth net sales was 3%, and our gross profit increased by 9%. Although the economic situation was characterized by uncertainty, our strong position in segments with structural underlying growth has provided good prospects for upselling to existing customers. This was the first quarter that was significantly impacted by the transition to the new transaction model for symmetric sales of Autodesk software in division design management. Like for like, our estimate is that the group's currency-adjusted organic growth would have amounted to approximately 16%, assuming that all Autodesk sales had been under the old transaction model. Looking at our profit, EBITDA improved by 52% to 200 million, and earnings per share increased by 181% to CEC 073. The big change compared to Q3 last year is that division management has more than doubled its EBITDA due to organic growth and effective cost control. The product lifecycle management division delivered a stable performance in a challenging market. The process management division had organic growth and improved EBITDA margins. We have completed six acquisitions so far in 2024, and I continue to see many opportunities for further acquisitions. As part of our relationship-based process, we are working actively to fill our pipeline with attractive acquisition candidates. Rolling 12 months, our EBITDA is now about 800 million. Earnings per share is now up to 2.83 SEC, rolling 12 months, compared to 2.09 for 2023. Looking at Q3, I'm proud of our employees' ability to land new customers, conduct acquisitions, develop the business, and deliver robust earnings improvement in the current market. So with that and an introduction to Q3, I would like to hand over to our CFO, Kristina.

Thank you very much, Johan. I'm going to take you through a little bit about the breakdown of the net sales. We have two graphs looking at the net sales from two different perspectives. Starting from the graph to the left, we are presenting a breakdown of net sales by geography. We can see here that Sweden has now reclaimed the position as the largest geography at 27% of net sales. And our international expansion into the US market, which you may know that we acquired the Symmetry US and Team D3 in the sign division, that now amounts to approximately 24%. And the revenue from UK is then the third largest, which amounts to 21%. And we see Germany at 11. We also have about 17% coming from other countries outside these four identified. And going to the pie chart to the right, we can see that recurring revenue, which is a continue to form a stable part of our business. It's now up to 74%. And we can also see that the recurring revenue also consists of both third-party sales and also revenue from our own solutions. And service revenue, the second large portion, accounts for 23%. And that is a growth of 3% compared to last year's Q3. And the services consist of both services relating to our software offering and customer specific solutions. And then we have licenses at 2%. And we're talking about the license number going down in favor for recurring revenue going forward. And then I will hand over back to Johan to go through the division's details.

Thank you, Kristina. Before we do that, looking at that note, what do we do? Everything we do is about digitalization for a better society. This is why we exist and what we want to achieve in everything we do. We believe digitalization is the only way to provide decision basis for our future. We are confident in the capacity of humanity to do good and make sustainable decisions if the tools are right. I would like to introduce you to three examples of how we are working with our customers to develop digital solutions for efficient resource use and a more sustainable society. So looking at the slide, the first example to the left is how Symmetry has helped its customer Sasaki with the rehabilitation of university lakes in Louisiana, USA. The second example in the middle is about how Technia has supported its customer Glaston to improve its efficiency and to become more sustainable as a glass manufacturer. The third example shows how Sukigo has enabled the city of Stockholm to ensure compliance with EU requirements on sustainable waste management and traceability of hazardous waste. You can read more about this in the appendix, but you will also find it on our website and you will find our interim reports. So please take the opportunity to read up and see more what we are doing and helping our customers with. So looking at the three divisions, we are organizing three divisions, design management, product lifecycle management, and process management. Looking at the financial, you can see that if you look at gross profit in the middle, you will see that design management is roughly 53% of our businesses, and PLM and process management is roughly 25% each of our business looking at the gross profit level. So if you look specifically at Q3 and design management, net sales increased by 5%, and adjusted for currency effect, organic growth was 7%. We are aware that last year's comparative figures were impacted by weak sales in the U.S., but still we believe it's a strong performance by the divisions. This was the first quarter that was significantly impacted by the transition from a VAR model to an agent model for symmetry sales of Autodesk software. I will come back later on the impact on that. EBITDA increased to 118 million, and the EBITDA margin also increased to 10.6%. And gross profit increased with 15%. And as we were able to hold on to the cost level, that had a good impact on the EBITDA level. So organic growth and effective cost control meant that the divisions evidently more than doubled. Looking at the market, Symmetry experienced stable demand and strong sales during the quarter. In both Europe and the US, the product mix had a higher share of three-year autodesk agreements compared with the year-early period. Sales in the UK were strong to both the construction and the manufacturing industries, and Team D3 in the US have contributed good to the earnings in the quarter. The new transaction model that have been discussed the last year, it was implemented in US in June 10 and in Europe September 16. Commission-based net sales under new agent model were limited in Europe during the third quarter, but had a more significant impact in the US where the agent model, as I said, was introduced in June 2024. Our estimate is that the division's net sales would have increased by approximately 25% if the previous war model had still applied in the first quarter. Saying like for like, the growth would have been 25%. And if we adjusted for currency effects, it would have been 27%. We believe and experience that the transition to the new transaction model has highlighted the value of Symmetry Services and own complementary product as a competitive advantage when customers select their Autodesk partner. So all in all, a strong quarter from design management. Looking at PLM, product lifecycle management, net sales decreased by 3%. And organic growth was minus 5% if we had just for currency. But we were able to have a good cost control. So EBITDA was 639 million and EBITDA margin was still 8.3%. Looking at the market, we can see that demand for PLM systems and related services was stable in the Nordic countries where customer segments are more diversified, spanning from manufacturing, defense, life sciences. to be compared with the rest of Europe where automotive is stronger. Sales were a little bit weaker in the UK and Germany, mainly due to a decline in license sales to the automotive industry. The trend that we can see of customers increasingly preferring to rent licenses on a fixed-term basis rather than purchasing licenses with perpetual right of use continued as before, meaning that customers are going more from the old license model to a rental model, so that also has a smoothing effect on the growth in that sense. The economic situation in interest rates have affected customers' decision-making processes concerning new and larger systems, leading to postponements rather than losing other markets. So we believe it's more of a postponement of investments. However, if you look at the division's good and well-established relationship with its customer base, there are frequently opportunities for recurring sales and expansion of current assignments. So if you look at process management, the net sales increase of 3% and 2% if we adjust for currency. We have a small operation in Norway as well in this business, even though the main business is in Sweden. We're able to increase EBITDA to 58 million and also the EBITDA margin to 20.1%. The division's good and well-established relationship with a large public sector customer base has made it possible for us to do recurring sales and expansion of current assignments, even though it has been a little bit tougher market with less tenders than last year, preferably to state agencies. But looking at municipalities, we can see that we have won several tenders during quarter. And we still believe that the divisions business are well positioned in public sector, only to attract individual solutions, in-depth experience and good references. So a good quarter process delivering growth and increased profitability and taking some good business in the markets. So with that introduction to what we have achieved in our pre-divisions, I would like to hand over to our CFO.

Thank you, Johan. And I'm going to start taking you through the cash flow and I'm going to do it this way that I'm going to do it by line items and start with first Q3 and then I'm going to go to year to date September. So if we start with the cash flow from operating activities, I would also like to, those of you that have followed us for some time and read the report thoroughly, you can see that Q3 is normally the weakest quarter during the year. And you can also see here that we have a negative cash flow from operation activities, but however, better than last year of 6 million SEK. And the improvement comes from the operating profit of 67 million and offset by the changes in working capital by 56. If we look at the same line going to the year to date September, you can see that we have a very good cash flow from operating activities of 426. That is an increase of 169 compared to the year before. And the main changes comes from the operating profit. That was 145 increase from the year before. And offset by changes of working capital, also positive by 74. So strong cash flow from operation year to date September. Going down, The table, we are looking at the cash flow from investing activities, and that amounts to 167 miners. And apart from the acquisitions that we have made in the quarter, we have talked about the Edoceo and Prime Aerostructure. We also had considerations to sellers for acquisitions made previous years in that line. Moving on to the year-to-date cash flow from investment activities, minus 373. That includes all the acquisitions that we have made so far to this quarter. And we had acquisitions in the previous quarters as well. Also investment in own products and solutions. Also included there, and we believe that that's important for ADNO to continue growing and make our products valuable for the future. And we also had investments in tangible assets and other shares in that number. Looking at the financing activities, you can see a small number, 25 million, which is relating to leasing mainly. So that was cash flow. And then we're going to look at the balance sheet. And I would just like to highlight a few areas in the consolidated balance sheet. And please notice that this is the operational balance sheet and not the balance sheet you can read from the report. And we continue to operate supported by resilient balance sheet, which is important foundation for a continuous growth. And the changes in the balance sheet is mainly related to the acquisitions we've done so far. And we also have a translation difference in goodwill that you can see on the first line there. Our business model allows us to operate with a negative networking capital. And we do so as well in the Q3 of minus 478 million SEK. The item provision taxes and other debt includes future earners for companies acquired. And we have 485 million SEK, which is the majority over 85% relating to the U.S. acquisitions. You can also see that net debt now is 1.1 billion SEK. And it was impacted by the acquisitions and the dividend payment and net repayment of loans offsets by strong cash flow from operations. Also going down a little bit further down, we have a total facility of 2.6 billion and of that about 1.1 billion is still unutilized as of September 30. Right. And then finally, we're going to look at some of the numbers for the five years perspective. And you can see that the net sale has a solid increase from 2020 of 3.8 billion now to the rolling 12 months of 8.4 in this report. And EBITDA also has grown from 0.4 billion SEK 2020 to 0.8 billion SEK now in 2024. Also, sound return on equity. You can see from just over 11% to over 17% now in this quarter. And a solid increase of EPS from 122 to 283. And you can see also that the growth is supported by a strong balance sheet with a leverage of currently 1.1. Also, business model with prepayments provide a good level of cash flow per share. And then I would like to hand over back to Johan.

Thank you, Kristina. Before we go into Q&A, I would like to take the opportunity to tell a little bit more about Avego. We are all about digitalization for a better society. We would like to help our customers doing better with the digital tools that we provide. Thanks to good cash generation and strong financial position, with low debt, we can continue to execute our acquisition strategy with a healthy risk appetite. Looking at the economic climate, it's uncertain, and customers remain cautious of major investment in new products. However, our strong position in segments with structural underlying growth provides good prospects for upselling to existing customers and expanding assignments. With a diversified business in terms of geography and customers, a continued focus on improvements and a business model with a high share of recurring revenue, I believe we have good prospects for continued profitable and sustainable growth. So with that, we would like to open up for Q&A.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Eric Larson from SEB. Please go ahead.

Thank you, operator. Good morning to you. I have a few questions. I'll take them one by one. So first off, You mentioned that you think Symmetry's competitive advantage will become more apparent here after the transaction model change. And I guess it's still very early days, but have you seen any early signs of this in the US so far?

Like you said, it's early and we can see all the signs. But what we basically mean is that looking at some of our competitors, we have invested in own software that complements the Autodesk software and enriches the investment that the customers are making and also supported by a strong service offering that makes the software even easier to use. And if you haven't invested in that, with the new agent model, the price is fixed. So you can't really be the one who are being competitive with the price. You need to be competitive with the services and the software that you provide in a higher degree. So we have seen signs of that, but it's early to just say that we still believe it's going to more increase as we go forward, that competitive advantage. And also matter of size, as we are one of the biggest partners in the world, It means that we are able to invest and we are here for the long run. So we think those are things that's going to work for us going forward.

All right. Thank you for that. And then you made an estimate on the underlying organic growth and design, which is much appreciated. Can you just share how you went about doing this? I understand you have limited transparency in general from Autodesk here and

how certain are you that you're in the you know at the ballpark correct level yeah i i will take that question and what we've done we have access to when we import the customer orders into out the desk system we have access to the Autodesk system and we have pulled all the information from there. And then we have adjusted that for contracts that are not falling through in this quarter, but rather in the future quarters. So it's an estimate. We have done all the checks and backtracking that we can, and we feel quite confident that this is the number.

Okay, sounds good. Then I have another question for design. I note that your OPEX level is down by about 20 million or so from Q2. And I was just curious, is this only attributable to vacation effects or maybe a bit stronger? I'm just curious if we can extrapolate anything onto Q4 here or rather look back at Q2 maybe as a reference.

Yeah, we can see that we have, of course, the consulting effect when we have a vacation. So that is definitely an impact. And we're not providing any further information in that respect for Q4. We hope you appreciate that.

Yeah, it's fair enough. And just the final for me, I just want to hear if there are any changes in terms of the M&A outlook. You've been fairly active this year, but you haven't made any larger acquisitions. So I'm just wondering if you think the weak macro here in the last few months affects things in any way?

I think like we stated in the interim report, we have a lot of conversations ongoing and we believe that we have a good pie. But we also have, like I said, a process where we discuss a lot with, and it's related to more of a relation-based process. It means that we have a lot of discussions ongoing. And these are bilateral processes, and we can't really control when we are able to sort of finalize the deals. So I can't make any promises for here. I can say that we have a good pipe, and when we can execute that, That's the big question mark. But I truly believe that we have a good pipe for acquisitions going forward. Will it happen end of this year? Will it happen next year that we're able to execute some of them? But still, I think we have a fairly good pipe for the business plan that we would like to execute over the coming years.

Okay, thank you for the color. I'll go back in the queue.

Thank you.

The next question comes from Frederick Nilsson from Red Eye. Please go ahead.

Thank you. Good morning. Good morning. I want to talk with design management. You mentioned that SVG and Tribia had a somewhat weaker quarter compared to last year. Is that driven by a weaker market primarily, or is there anything else going on?

I think it's a little bit weaker than last year, but it's not sort of a big one. And it's a little bit on the market side with regards to our facility management system, we can see that we have a lot of public customers there. And like we described in the process division, we can see that the tenders are a little bit less this year, but we can see that those are coming back. And then we, to make it simple, It makes us, we need to keep the personnel and the staff during that period because we see that things are coming back. And that means that we will have a little bit of a hit on the profit side this quarter, but it's sort of a short-term effect, so to speak. and of course we have a little bit weaker on doing a construction because we have a soft solution there for construction as well we don't see the high growth in the nordic construction market but we're still able to do a sound profit out of that there's more of a i would describe as a short-term effect okay i see and over to symmetry and the u.s market

As far as I understand, the share of three-year licenses were quite high in this quarter as well, despite US now moving on to the new transaction model. I mean, why is that, do you think?

I think you have to separate that looking at this has been done in section. Like US started selling from the new model in Q3, and we see the result of that here in the Q3. Europe started selling now end of this quarter, and you will see the effect of that in Q2. So we have the effect of the free ideas that were sold from US, we'll have in our P&L now in Q3. And we also can see the effect of that in Europe. So it's more of a delayed effect from that. So there are no sort of big changes in the U.S. with regards to the portion of Ferdinand. The big effect with Fiat is you can see it rather in Europe. And that's probably a little bit of a push because this is sort of the last chance for our customers to sign up according to the old model. And there are people out there who values security, knowing what you get. And the good thing for us, if the customers are willing in this time of market and are willing to invest in a free contract for the software, one way of putting it is that it also shows that this is an important software for the business. And so I think there are two sides to looking at that.

Okay, thanks. So over to PLM, the decline in licenses compared to the same quarter last year is quite brutal, yet you managed to retain a quite solid margin. Could you elaborate a bit on that?

I think it's due to good cost efficiency. Last year, we saw that the market was slowing down. And I think we said that we were, to be honest, we had we had too many people in the organization with regards to what we were able to sell to our customers. We did the restructuring program last year and the management team has been really good at executing that. So that means that we now are entering sort of this slower phase with regards to sales with a better cost control and efficiency. And we can see that that enable us to still provide a healthy profit in the business.

Okay, great. And regarding the recurring revenue in PLM, the growth is quite strong. I mean, should we assume that the churn within automotive is flat, basically, or do you see an increase there?

We haven't seen any insurance yet on the business. What we can see is that it's tougher to sell new products, new sales, new life. Normally, when you start off with these big projects, when you are basically helping our customers to build a digital twin of their production and R&D, then you usually have a license sales in the beginning. As we are not, like I said, those type of projects have been postponed. And we also have the movement from going from license to more recurring revenue with regards to rather renting it. So those two effects are having, like I said, a brutal effect on licenses, both less project, but also a transition from license to rental. Okay. But we haven't seen any turn on recurring revenue from automotive. So they have not been sort of... canceling any of their recurring revenue. They can't cancel during the contract period, but when they renew normally yearly, they can choose how many seats they would like to renew. But we haven't seen any big churn in that.

Interesting. Last question from me. What can you do to increase the exposure beyond automotive in the UK and Germany? You mentioned life science, defense, for example, as relatively solid sectors in the Nordics.

We can do a lot, and we're doing that. The team is doing a really well job. There are some unfortunate macro things. It's a disturbing world. People tend to invest a lot more in defense materials. And the same type of system being used for R&D and automotive with regards to digital tools are also being used by the defense industry. So we are expanding that business to our customers here in the Nordic. I think we mentioned that in the interim report as well. We are doing more with the life science, more of the, I would say, the medical equipment part of life science because they have the same issues with traceability and efficient design processes and etc and we are helping that with the same type of digital tools and then even though the evs are also an expansion for our so there are several opportunities to do that okay that's all for me thank you very much thank you

The next question comes from Daniel Thorsen from ABG Sundal Collier. Please go ahead.

Yes, hi, thank you very much. I have a question on design management. I guess the 27% adjusted organic growth that you mentioned in design is a result of the transaction model changes due to both a final reselling boost and also more three-year licences. So I'm a bit more interested in the underlying demand profile on a like-for-like basis. And also some comments on how you expect Q4 to play out in terms of sales and gross profit growth year over year would be helpful.

Like you said, there are several factors driving the like-for-like organic growth of 25% in the design division, because I believe that was your question. And we can see that, yes, we don't have 25% underlying organic growth. So that means that we have a push from the three-year deals. And then, like you said, we also believe that there is a push right now from customers wanting to make sure that they lock in the old transaction model before we go over to that. So we definitely have that. Is it half and half? To be honest, we can't really measure and separate that. But we would like to, like I said, point out that we don't have a vast expectancy of the market to grow by 25%. If you look at some market sort of estimates going forward, they are probably looking at, is this a market in this type of world that's probably growing by like 5% to 10% organic growth over here? That's probably more of an expectation. And with regards to Q4, Unfortunately, we don't give any prognosis, but we can't see any changes compared to what we have seen in Q3 with regards to what we're seeing. The tough one, if you look at underlying growth and reported growth in net sales, is two different things in Q4, because what we will see for is that net sales will go down as we will have the full impact of the new transaction model from Europe as well in Q4. So Q1 next year, we'll have that. So if you look at net sales, it will go down, but it doesn't mean that we have underlying organic growth. That's the reason why we ask you to look at gross profit. So the first one you gave me a favor on, and the second one, I'm not able to give you a distinct answer on.

No problem. And will you give this adjusted organic growth figure also in Q4 in the sign, you think? Or will you talk about organic growth in gross profit instead? Or when will you change that type of communication?

We'll see. We'll definitely give you at least the same information that we gave you in Q3.

Yeah, okay, clear enough. And then follow up a question on team D3 here in Q3. EBITDA, that was up year over year. Is it because they did close to zero last year or is it because you have been able to improve their margins closer to the design management segment margins or are you still halfway up to that level or where are you in that earnings growth?

I think, like I said, last year, Q3 was Team D3's first quarter as part of Adnall Group. And they were very close to a zero in profit there because, like we said, that was their first quarter management heavily engaged in the transaction, basically selling the company to us rather than doing the selling. And we said that they will catch up on that. And now they have done that. So it means that they are back on the level where they expected. They are doing better than when they sort of became part of Symmetry a year ago, but there are still more to do with regards to margin-wise going forward.

Okay, so still some room to improve that margin.

Yes.

Good. And then a question on process management. You mentioned here in the call that there are less tenders during the last year, while I guess there are quite a lot of suppliers struggling a bit on the consulting side. Is that causing some price pressure on new tenders that could cause closer to 0% organic growth or even negative organic growth for the segment in 2025?

We haven't seen that so far. But of course, normally what happens is that Consultancy companies who struggle, they tend to do, in better times, they tend to go to the public sector. And in tough times, they see that there are still tenders in the public sector and then try to move on to that. Then you have to recognize that looking at our businesses, it's a software business where we are selling products to our customers. And our consultancy is more delivering and maintaining of that. So that means that we will not have the same effect. Of course, we will have sort of an overall effect from the IT market. We are not free from that. But I think more important for us for the next year is probably what will the KPIs be for the maintenance agreements.

Yeah. Okay, I see. That's clear. And then the final question on PLM here. Does the strong margin in PLM here in Q3, despite the negative organic growth, mean that 2025 or perhaps 2026 could result in a margin above the historical levels of 10% if this level of cost is sufficient to capture growth. That would be a margin level which you have not exceeded since 2014.

I think we're in a much better position right now with regards to cost efficiency. But if we are going to improve the margin, we need growth. So, and then we come to the question of, will there be growth in 2025? We'll see about that in the market because we, like you said, we are, we have a strong position in Germany and UK with regards to the automotive industry. And there are some, it's tough to make a judgment on that, how the market will be. What we're doing is that making sure that we can earn money in all markets. So we don't have to hire one to one, so to speak.

I see, I see. And this cost level is enough. If you see growth in 25, the cost level in PLM is pretty much okay.

It's okay for some growth, but if we want to grow like organic growth, we want to go for 10% organic growth in the business. Of course, there will be some hiring.

Yeah, that's clear. Thank you very much.

Thank you.

The next question comes from Daniel Gerberg from Handelsbanken. Please go ahead.

Thank you, operator, and good morning. Yeah, most questions asked just recent. I was wondering a little bit on the underlying growth again then in design. You mentioned that you had some 27% growth FX adjusted while I guess less than 25, 24 FX included. But can you just explain why it's so much higher than the gross profit growth of 15%?

Sorry Daniel, can you please repeat the question?

Yeah, we saw a 50% gross profit growth, I believe, in design. And you mentioned that the underlying growth in the top line was 27% FX adjusted. So I guess, or 27 you said, and I guess FX adjusted a bit less. So the question is why they deviate so much 15 versus, yeah. the other number.

15 versus 27.

You mentioned 27, but that is adjusted for FX. 50% is included FX, but still it's a quite big difference. And you mentioned before that you calculated 27% from directly from, you had more knowledge on that, but again, the deviation is on the gross profit gross versus the The expected 27% would be interesting. If you understand my question.

I think if I understand it correctly, that we are only providing the information on the net sales, what that would have been if we had the old transaction model. So that is the 27%.

Yes, but I guess you have said before that it should be more or less equal, no big changes on the gross profit level, the changes. So the question is why the gross profit growth of 15% is so much lower than the 27. Again, FX should be adjusted for here in the 27.

But that has to do with the mix of the different... Because if you look at the gross profit, we need to adjust the gross profit as well. If you look at the margin, that's probably not your question. Okay.

I think it was, but we can take it offline later.

There are different mixes in that. So we have to do the calculation of that as well. And we chose one matrix to present that to you. So I think that's part of the question. Yeah.

And again, obviously you mentioned that you had good support in the design with the three year agreements and advanced buying. and it's hard to say exactly how much comes from each. But if you look at the funnel of the pipeline, can you say anything quantified on that? Is it still supportive for, you know, 10 percent net sales or net profit growth ambition that you do have? Or is it like empty at the back of this advanced buying the three-year agreements, i.e., hitting hard on Q4 and early 2025 growth?

No, I don't think we're empty with regards to Q4 and going forward. There are still deals out there to be made with regards to new sales. So we have not sort of emptied the things to make the Q3.

So is it possible to give any quantified numbers on how much larger this or how much of the revenue in design that came from free year and the advanced buying just to help us out a little bit on how to think on the growth prospect for Q4 and first of the 25.

We haven't given any numbers out on that but I think one of the previous questions I tried to help out with that Ronan said if you look at the We don't believe that we have the underlying organic growth. If we look at gross profit on 15%, that's probably boosted by the three-year deals. So if you look at what the sort of market estimations on this, if you look at some market things, they are telling us that this type of market should be able to grow five to 10% over the coming years. So that probably gives you some guidance on what can be expected. I'm not saying that we are in that process. I'm saying that the guys who are trying to estimate the markets seem to tend to look at organic growth, probably around five to 10% on that. And we are now at 15%. And I don't think that we will be able to deliver a organic growth of 15%. And historically, we haven't done that. So that's clearly, we have an effect of three years and a boast of people trying to lock in.

Yeah, it's supportive. Thank you. That's all I had, actually. Thank you.

The next question comes from Mikael Leysin from Carnegie Investment Bank. Please go ahead.

Yes, hello. A couple of questions from me as well. I was wondering if you saw any disruptions, timing of revenue recognition, price adjustments that are temporary, or differences in the payment from customers or from Autodesk that you saw in Q3 that was temporary or unusual and how we think about this going into Q4 when we also have Europe for the design segment that is.

If you're starting with regards to payment, basically if you look all across the group, we can't see any sort of big changes with regards to delays or anything like that. It's more like business to business if you look at the group level. And with regards to do changes with the new transaction model, we can see that it seems to be going fairly well or smooth. I don't know the exact word. We were able to do the transition with regards to systems, how to make that happen. probably a bit better than expected. And then we have the thing that we're moving from one model to a new model, but we don't have any sort of one-time effects here. I can't really see it. I'm looking at it to see if I'm missing something here.

You will see, yeah, no, that's right. And you will see that the effect is that you will have a decrease in the balance sheet in total as we're now getting the net commission instead of the gross. So that will be going forward, obvious going forward.

Okay. What is the main reason for the week or for the negative working capital figure in this quarter?

It's mainly relating to the working capital that you see and the majority part of that is coming from design division. And you can see also that in the past, when there were prepaid three-year contracts, when we received the payment in advance, the payments back to Autodesk and such are coming from the two and the three years rolling in. two, three years. So that's the smaller part.

And just to add that, that's sort of the change compared to last year. If you look at an overall picture for Adenald Group over the year, you will find that Q3 is the weakest with regards to cash flow. And that has to do that we do get a lot of prepayments from our customers in the first quarter, with things also being the maintenance agreements in the process division and also in the PLM division. And those are sort of things that we're going to live through. So that means that Q3 doesn't have the payments for the maintenance premium because it has already been paid in Q1. So that means that Q3 with our business model and looking at the payment pattern from customers, it should be the weakest over the year.

Okay. So you had some changes in the prepayments driven by this transaction model change or

No, but yes and no. And the reason why it doesn't have to do with the change in the transaction model. It has to do with the change with the three-year contracts that were announced a year ago. Because historically, the customers have paid three years in advance for the three-year contracts. When they sign the contract, they pay three years upfront. A year ago, that changed so that they signed up contractually for free years, but they pay installments year on year, every year, free installments during that contract repair. That change started a year ago, and we can see the effect of that now. So it's a change from Autodesk. business, but it's not related to the transaction model. It's related to the change of the payments and pre-agents that were announced a year ago. And now we can see the effect of that. So that is, if you would call a one-time effect, that that's true. And then we'll going forward as we roll that on, if it will take two years or three years, then we will be back on the sort of a level because we, it's like when you start selling a SaaS model rather than a license model, then you have a U-turn in the cash flow from that part. In that sense, we have a one-off effect.

Okay, yeah. Complex stuff. The next one is on this multi-year contract mix that most of us have asked about.

Yeah.

Is it possible to give any indication about the magnitude of this in any way?

We haven't given any exact figures because that's more for competition reasons with regards to our customers. Not customers, our competitors of our format. But like I said early on, we can see that we have a impact from that we are selling more three-year deals as impact so we want to sort of put out there we don't have an organic growth of 15 it's probably if the guests like indicate and we're probably on a one single digit organic growth rather than the uh two digit organic growth that we are in this quarter if we are trying to guess but these are guesstimates from us in the organizations it's quite complex to derive the exact figure on that, if we try to separate that. But we have organic growth, but it's boosted by the three-year deals that we're selling more. We do believe that we are in a process that we're moving to a bigger mix of three-year deals as a total. So we expect that to continue as we move forward. So... It's a change in the pattern, but we also expect that we can carry that on going forward.

Okay. But if you listen to Autodesk, they suggest that the share of annual contracts or multi-contracts will decline, if I understand them correctly. And they will focus on that in emerging markets where you have uncertain payment terms and strength in the distribution partners. But do you say that you can maintain this level?

We believe so. And by the end of the day, the customers probably have some saying in that as well.

Yeah, for sure. All right. The final one is on Europe. You mentioned in the report that you are dependent on the automotive industry. Could you provide some more insights into how much of sales and gross profits for the PLM segment that comes from the automotive sector?

We don't have an example, but if you look at the figures presented today and you're an analyst, you can see that 14% of our business is related to Germany. And if you are active in Germany, you are in one way or another dependent on the automotive industry. So that gives you a figure on how much of our businesses are dependent on Germany and indirectly of the automotive industry.

Yeah, okay. And is there anything that we should... remember here going into Q4 for the PLM segment in terms of contract renewals, timing of those and the current market condition. I'm thinking about retention and loyalty, especially maybe in the automotive industry.

Like I said, I think I answered a question earlier on cash flow saying that most of the renewals of the maintenance agreement or part of that is being done in Q1. Looking at Q4, historically, we have been more dependent on license sales. Because it tends to be the big customers within our industries that tend to buy new licenses rather in Q4 than the rest of the year. And that goes back to, we will be dependent. on automotive industries still investing in their R&D in Q4 compared to last year so we got probably more to look at that if we are able to generate new sales from the R&D departments at our customers historically so it's not so much of a renewal it's more of an opportunity are we able to generate uh new sales predominantly on existing customers in q4 okay got it and i guess i mean the r d side is probably the last thing that they cut back on yes yeah that's our experience as well that goes back to one of the questions we're on regarding to churn that early on we don't see any big churns from that because like i said By the end of the day, the smart management, they know that they're going to live on new products when things turn around. So you don't want to cut off your R&D department. And we are predominantly at the R&D department rather than the production supporting them.

Yes. Thank you so much. Thank you.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you for taking the time to listen to our report presentation and all the questions that we hopefully were able to answer to some satisfaction. Thank you. Thank you.