B3 Consulting Group AB (publ)

Good morning and welcome to a presentation of B3's first quarter 2024. As many of you have asked for, we will switch and now speak Scandinavian languages instead. But later today, we will publish a subtitled version of this presentation on our website. So please check in there. And with that said, we'll move on to Swedish. A warm welcome to B3's presentation of the first quarter of 2024. My name is Katarina Lundqvist and I work with IR here at BT, and I will soon be sending over to Sverre Jägeri, who is the CEO and CEO. And we just want to inform you that you are very welcome to ask questions to us. We will have a little question time at the end of the program. You can either click on this little envelope symbol that is in the broadcast, or you can email to ir1bt.se. And we also have Martin Stenström here, our acting CEO, so it's good to ask questions to him as well. So we'll take that at the end. Med det sagt så lämnar jag över till dig, Sverre.

Tack ska du ha, Kattis. Just one more sentence in English then. When we open up for Q&A, you are warmly welcome to ask questions also in English. And if we receive any questions in English, we will then respond in English. But otherwise, we will stick to the Scandinavian language. I'm turning from your Swedish, Kattis, to my own Norwegian language. When Kati says that I'm the CEO and CEO, that's completely true. But I'll meet Martin later. Tomorrow, he'll be the CEO and CEO. My last day at work. I'm delivering that day. Martin is sitting over there with a big smile on his face. Before we start the quarter for real, I just want to make a cultural slide. We believe that the path to a better future goes through a strong culture. And there is nothing in today's medicine that makes me believe that our culture is not strong. It is strong, and we work every day to try to strengthen it. When we talk about cost activity and other types of things later in this presentation, it's not about our cultural initiatives. We're going to spend money there, we're going to meet there, we're going to gather there, and we're going to be seen there. That is incredibly important. And also a message I gave to 300 employees who clicked on it earlier today to hear how things are going with B3 right now. Before I click on the highlights for this quarter, you should say hello to Jonas from Rebel & Bird. Those of you who are in Nestor, you know that we are not one company. We are 25 give or take companies, and one of these companies is Rebel & Bird. They are good, they grow, they make money, and they live the culture which B3 is so proud of. So we're going to spin for four minutes with Jonas. Let's go, Jonas.

Yes, now we are going to meet one of B3's specialist companies, Rebel and Bird, which has had a fantastic development during 2023 and even now is doing very well in a tough market. And with us here we have Jonas Elqvist who will tell us a little more about Rebel and Bird. Tell us a little about yourself, Jonas.

My name is Jonas Elqvist and I work as the CEO of Rebel and Bird. I have been in the consulting industry for 25 years now, the last 13 within B3. During this time I have run several companies, but I would say that it is with Rebel and Bird that I was finally able to build the company that I myself have dreamed of being employed in. I have even tattooed Rebel and Bird in my neck.

Can you tell us a little more about Rebel and Bird?

Rebel & Bird started in Stockholm in 2012. Bete joined as a shareholder in 2017 and in that context I joined as the CEO. Today we have digital strategists, UX designers, developers, architects, project managers and testers. I usually describe us as a digital office specialized in building a little more advanced web services and these services are often business-critical, technically complicated and have high requirements at the customer meeting. We are currently about 40 employees and we have one office in Örebro and one here in Stockholm.

It's exciting to hear who you are and what you do on the days. Can you tell us a little about what you do?

Yes, customers, an example of what we are working with today is Filmstaden. We have worked with Filmstaden today for more than 10 years. This has been and has always been a very successful collaboration slash partnership. It has also resulted in gold in the Swedish design award and a first place on the IDG's list of Sweden's best subcontractors. Prim is an example of another customer that we have worked with for many years. Parks and Resorts is another example that we have worked with for almost five years. We have been involved in developing web and app platforms and this collaboration has also resulted in the Swedish design price.

It's going very well for you at Rebel and Bird as well. You are one of the companies that will be assigned to one of BT's Magnificent Sevens 2023. Can you tell us a little bit about the success and what makes you so successful in this market?

I try to see it from three perspectives. One, our owners. Two, the employees. And three, our customers. For our owners, a stable, good economic result over time and healthy growth is important. Proof of this can be found in our estimates. We have, and have had for a long time now, a very good result and a very good growth despite a tough market. For the employees, a good, healthy and fun workplace is important evidence, because I think this can be found in our culture, the staff position and the employee survey. Today we have a very low staff position, we have good results in the survey and we have many returnees, which is quite unusual. For our customers, good delivery in time is important. That we are proactive, professional, create added value through what we do. I think the proof is that we have long-term partnerships. We have worked with most of our customers for five to ten years and all of our customers today are very pleased. Yes, three key numbers that I try to follow when I run my business to ensure that it goes well. It is the number of employees, the hourly rate and the degree of debiting.

Finally, do you have anything exciting to tell more about, maybe something that you are working on right now?

I am eager to expand our geographical assets and I think this is a good way for Ebblenbörd to grow and it is something that is also in our pipeline now. I then look a little more at opportunities around Gothenburg and in Skåne. And we strive to become the best in the world at what we do, that is to say to build business-critical web solutions for customers where the digital customer meeting is crucial. We have reached a market position that is very strong today and by growing more and continuing to do what we are doing today, we will get there.

Hello everyone, you have received greetings from Jonas from I hope you got a little taste of what we are doing. We have previously represented companies in the health sector. We have previously represented companies in the financial sector. We have presented our Malmö gang, and we will try to show at least one company every time we meet, so that you gradually become a little more familiar with the diversity that our company represents. I have three messages for you today when we go through the first quarter. The market is still black. Our market is bad, and I cannot promise that it has changed just now. The second message is that our Q1 figures are weak. We will not try to explain those figures. They are bad, and the management must acknowledge that, and the data company managers must understand and acknowledge that. First, if we are honest about the fact that our numbers are weak, then we can get the right attitude with regard to doing what needs to be done to get it better. And my third message is that we have implemented and are implementing a number of measures. Most of you have heard of them before. Of course, something new will come all the time. And the measures are there to strengthen this weak market. then we will get better education than others. That is our job, that is what we are doing. Black market, bad numbers, a number of measures that are being taken to get stronger out of this. One of our markets that is not bad is the Polish market. So what we know today, based on the numbers we follow in the Polish market, is that the market in Poland has shrunk. It has been a demanding market, even if you have not seen it in our Polish numbers, it has been a demanding market for a few years, also in Poland, and now it has shrunk. So we expect, we have good Polish numbers today, so in Q1, and we expect strong Polish numbers in the next two-three quarters. We mean that we have as much visibility as in Poland right now. It is important that the jewel we have in Poland delivers well, and that the views down there are positive. Our numbers show a negative growth of 13% and an EBITDA margin of 5%. And that is of course far below our goals. And we have reached the best first quarter of history last year. So the comparison is also relatively sharp. We want to get up to weaker quarters later. And our actions will change and gradually give better results. Our cost cut program, I will say a few words about it later, it is according to the plan, it is going well, and our ambition is to continue to strengthen this market. If you look at our numbers, they are presented here. I have already commented on them, and they are of course utilization rate, or what we call in Scandinavian factoring or debiting rate, that drives this. Here you can see the overview that we show every quarter. What is it that drives what is a negative growth in this quarter? And that is two things. We have fewer consultants now. They are, to a certain extent, long-term, free consultants who are now being taken out to protect our margins. So we have a temporary drop in the number of employees. It continues into the month of April, but we have no indication that it will continue to drop after that. So we think it will flatten out, but right now, fewer consultants, This also happened in April. After that, we waited for a certain expansion, and we believe that we will be able to pick up a little bit at the end of the year when it comes to the number of employees. That remains to be seen. And then there is utilization, as I have said, that we in this quarter will show exactly to the market. We want to be the first IT consultant company, I think, in Sweden, that shows utilization rate. And we start by showing bad numbers. Martin is sitting there and will come in a bit later. But those are the honest numbers. You see that the utilization rate for us, that is, the degree of debiting, there is a definition on this slide here. It drops from 7.8% to 78.4%. That's almost 10% points, so 9.4% point drop. That's a lot. And that's what drives our numbers in the wrong direction. One thing you should note here on this slide, and that is bullet number two on the right side, is that this degree of debiting is higher in March than in January and February. And I have nothing to do with seasonality, for this definition of the degree of debuting. It takes away holidays and long-term sickness and that kind of thing. So it is a fact that March is better than January and February. And you remember that we told you after Q2 that June was weaker than the Q2 quarter as such, that is, weaker than April and May. Then we informed them that they had to expect that the utilization rate has dropped to a lower level, and that it will continue to be at a low level for a period. And now we say that 40 times, we see a pickup on the utilization rate. It is too early to say if this is a current trend, and if it will be strengthened, but the fact is that March is better than February. We are curious about that, and you should be curious about that as well. There is a certain hope that it will not turn out to be a single standing month, but that we are moving in the right direction from now on. No promises given. But that is a bit of hope I have, and that is also a belief I have in and of itself. I have to be able to say that. We are not a company in one market, we have many companies in many markets. You know that we are following up on a company level, And when someone asks us how the market is going, we say that we can't answer that. You heard Jonas from Rebel & Bird here in Stav. He's probably up in the right quadrant here somewhere. He's doing well, and other companies are doing well. And the big thing up in the right corner there, you know, is the Poles. It almost has to be. And they also show the numbers explicitly here. You also see a subtitle on this slide here, that we are about three companies less today than we were a few months ago. This means now that when we meet a tougher market, we do some consolidation activities. We have put down grid, you know, we talked about that last quarter. And then we also do some company collaborations, because the companies become too small and too weak. And we see that it is consequential. and create more scalability and efficiency by taking some. But remember that this is a people's business, so you have to go slowly and carefully when you do this type of action. This is not a simple exercise. This is about people, and we have to understand that, and we have to reflect on that. But I think you should expect that in a couple of years, even if we make new start-ups, even if we eventually make smaller and smaller situations, we will inevitably be more companies than we are today. So a certain co-operation of individual units, I think, will be on the agenda every quarter going forward. But slowly and calmly, and where it is natural, and where people are willing to agree to it, is our thought process. Here are the numbers, including the Polish ones. What you see on the Polish numbers is that they have a stable growth, a weak decline in volume in local currency. That's what it means now. In Swedish kroner, it's growing a little bit. So they have had a very strong growth. for many years now, flattening out, up under 13-14% EBIT. Very good. And what I'm sure of is that this volume flattening, most likely now, will be resolved by a continued growth in our Polish company. We are very pleased with that. It is our largest data company. is among those that are doing the best, and our expectations for that are north of that in Poland. Well done, and now with the help of the market. Our cost program at the main office follows the plan. Here you see the pink line, 9, 13, 17. You see that we follow the plan. We are spot on in this quarter. There is always something that goes a little better, and then there is something that goes a little worse. That's how life is. But we are spot on. What might be most interesting is to see what happens in the next three quarters. If you look at this, you see that the figures go from 17 million to 24 million, to 31 million and to 38 million. That's 7 million in the quarters. And that will happen. It will. You can estimate what margin improvement this will give. Everything else is the same. We have also said now, and say now in the quarter, that what we should now pay attention to are the costs in our data companies. Because with 13% negative growth in this quarter, you get cost creep situations on overhead in our data companies. So we should not cut costs on consultants as such. That is not current. But we are starting to get some cost challenges on some of our daughters who are getting higher annual costs relative to the business they now have, and we have to fight that. And that will take a couple of quarters to get a proper order. We'll talk a little more about that in our written quarterly report, so if you want to take a look at that, you can do that. But be prepared. Two things. One, a short cost program. That's fine. We have a plan. Two, we are now paying attention to cost creep in our data company's authority, and we have to take care of that, and we are working on that together with the data companies. Some of them don't have to do anything, or maybe just change a little. Others have to put in a lot of effort. There are a lot of positive things happening in the quarter. We are marking ourselves in Boomer in Tech. We have presented a new start-up. We have good proposals for the option program that 50 leaders have signed on, including the entire board. We have a new contract that we can hunt on. And we are running our leadership development program. There is a new session in the afternoon where 75 leaders meet to further develop our leadership culture. The leadership development program has three goals. I like to call it three, some of you have understood that. One goal with the leadership development program is to establish a more precise language in B3. That sounds not so difficult or important, but it is. It is difficult and important. We still see that an imprecise language creates misunderstandings, ineffectiveness and poorly carried out activities. It is not unique for us, I think it applies to most organizations. We work with our language, which is pretty cool. The other goal with the leadership development program is that the small family, i.e. the small companies, and the big family, the corporations, that we have high and combined goals. It's not just going to be high goals, but they're going to be shared and we're going to own them. And the third is that we're going to have fun together and we're going to have fun at work. Vi skal like å kom på jobben på mandag morgen og smile når mandag morgen kommer. Aller helst, Martin, elsker mandag morgen. We like Monday mornings i dette. Så det er mye som skjer, og mye av det representerer investeringer, for vi driver ikke bare med kostnadskult, men vi bruker også penger på å investere i framtiden. En av de investeringsområder vi har, det er... AI area. I have said that we will use 100,000 hours a year to control AI in a good way. It is not costs that are drawn from our money, but it is customer-financed activities, it is self-financed activities, and then there are some costs that we also use in the company. We now have, I would say, almost in all 25 data companies, our own plans for how we are going to develop our AI competence. And again, we have three goals with this. We are going to be relevant, we are going to be competent, and we are going to be deliverable. It is not that we have thrown ourselves on an AI wave and think that this is hallelujah and that it will be so damn good, but we must be relevant, competent and deliverable, and it is clear that many of our consultants have opportunities within the AI area to work with and put conditions in place so that our customers can make changes in AI. Establish databases, good architecture, ensure that the data is there, management consulting, which we are doing. So there are a number of consulting areas where we are relevant, and then of course there are areas where AI also represents a trick. We have to understand that. Code generation in certain sectors becomes more effective. It also represents a downside. But our assessment today is that the sum of downsides and upsides, at least, is not negative, but it will change over time. And what that means over time, we'll have to look at it a little bit at the same time. But we're running on AI and Kristian Everitsen and our team are working on it, and a lot of work and a lot of cool stuff happening around this area. Summary before we go to Q&A session, Kattis. There were some questions before we went on air, and there will probably be more. Then we will share Martin and I with you and tell you about what is happening. It is that we, we, summary, we, we will be strengthened by this weak market. That's our goal. Have we reached a bond today? It's hard to say. Maybe. But we plan to have several tough quarters ahead of us. We will be strengthened by this market. Our priorities, you can see on the bottom of the bulletin here, on bullet number 4, is to create revenue. Salg, salg, salg, står akkurat her. Det er åpenbart at vi gjør jobben vår på kostnadsområdene, og driver med marginbeskyttelse i et marked som er krevende, og vi fortsätter å investere i framtiden i dette. We will get Altair stronger in the other end, er det siste budskapet vårt. Kattis, now it's time for questions.

Let's hear it. Let's welcome Martin Stenström.

Come on, Martin. A new boss.

Thank you very much. Thank you to all of you who have sent in questions. If there are more questions, it would be great to mail them during the day. Now you talked a little bit about culture in Sweden, and it was a question related to culture. What is the assessment of the culture, how is the motivation affected by the cost performance program?

I think you, Martin, are closer than me to follow up on that answer.

Yes. When it comes to culture, as Sverre said earlier, we haven't thought of any way of helping our activities that affect culture. Of course, a cost-saving program can affect the mood in another way, but we absolutely don't want to reduce our cultural commitment. This is very important, and we should stick to it.

And regarding the cost savings program, do you expect that to result in some big one-off costs?

No, we don't expect that. It's maybe a couple of million kroner in this quarter. It says a bit in the annual report, so if you want to read it, you can see that we might say that it's a couple of million kroner. And it can be thought that it will be a couple of million kroner in a couple of following quarters as well. That can be thought of. But what is one-off and what is business as usual, you can guess, right? So we don't try to exaggerate the one-off concepts, but it has been a bit. And there was a couple of million kronor now in the Q1, and it will come a little bit further forward, but it will typically be more in that direction.

And we have previously communicated that we will consolidate Poland. And then there was a question related to that. Given the current low share price, is your assessment that you will have financial muscles to consolidate in Poland without emitting new shares?

The agreement we have with the Poles is that we will initially pay 50% with cash and 50% with shares. And the transaction is planned to take place in a year's time. It is possible that we will do what we call a temporary resolution of this. I will go down to Poland and talk to the two leaders about a week's time. Then we'll see what comes out of it. But what you have to put to the ground is that about half of it will be cash, and the other half will be in shares, possibly for 12 years. No, sorry, in a year. But we also have a dialogue with the two owners about the possibility that they may not sell all the shares. and that they maintain a share price for a few years to come. That can be an option, and that can be fine, and then I would in a way call it a potential expansion, or a potential cash out payment will be something less than planned. That you keep some more shares in the Polish data industry. That is something that is on the table, and is a dialogue. So I will not be so worried about the question again, But I agree, a bit of a challenge on a low tax rate level can come. And then we have to take it as it comes and live with the contract we have with these two.

And BT presents a weak quarter. How is the spread? Is it weak in all industries, areas, or do you also see areas that are growing?

Yes. Vi kan inte riktigt se att det finns specifika branscher som går bättre eller sämre, utan det är mer vilka områden vi håller på med. Till exempel så har vi ju sett att systemutvecklingskonsulter i Stockholm senaste året har varit väldigt svårt att sälja, antagligen bara med, beroende på en väldigt stor överetablering av tillgängliga konsulter. Och åt andra hållet så har vi ju lyckats sälja mycket bättre våra mer projektledade managementkonsulter i affärsrådet Digital Management. but it is quite a lot of industry-independence.

And given the fall of 2023 and also the storking of 2023-2024, it may feel a bit challenging to achieve the highest goal and an average EBIT margin of 10% during the period 2023-2025, which BTU has communicated earlier. Do you have any plans to adjust or refinance the goals in the future?

The answer to that is actually no. First of all, we can't change the long-term financial goals every quarter. That's not up to date. We do that once a year. So once a year we'll talk about it, and that normally happens at the end of July. So we'll do that in the fall, right? Otherwise, I understand the question. If you look at the period 2021 to 2023, we're fine in terms of this type of thing. If we look at 2022 to 2024, It's not that far away, but a little further down. A three-year period now can be demanding. Mathematics is not that difficult to find out that it can be demanding. But I'm not worried about our goal of 10% over time. It can of course depend on whether you have started or stopped this period. a period where you are a little under, then it would be a period where you will be over in this. So we do not end on that. And you see, and do not see, that with our cost reduction program, which we call the hedge log, which will result in 3-4% improvement of the cost percentage to the companies, then it is clear that we will have 12% margin in 2022. And that doesn't represent any growth. That was with 10% short-term cost. We're going to have six, give or take, over the next couple of years. It's not that difficult, mathematically, to think that when the market comes back, we can make better numbers. We've done that in history. So I understand the question. Right now, it can be seen It's a bit demanding to get there in the exact same period you asked about. But over the long run, yes. That's our job to live on. We can do it.

And a question that ties in a bit to that. BTU has now had a lower salary level than many competitors. And what do you think is a reasonable salary level and margin for BT in time? Should BT be in a higher position or at the same level as the competitors?

Yes, that's fine, isn't it? What we saw in Q4 was that single competitors, Novit as an example, had better salaries than in Q4. Now they haven't reached Q1 yet, but I guess they are a little better than we are in Q1. And we have seen a couple of competitors who have been out in the metal market already, so we became better than us in Q1. So it's like a face-to-fact. Right now, we are weaker than many of our competitors in magic. If you look at 2022 and 2023, you will see that we were better than our competitors. And that is largely all competitors. largely all competitors. The point is that if you believe that we are making the right decisions and that we will be strengthened in the other end, then you believe that we, relative to the market and competitors, will do well. So we are not depressed because we have two quarters where we are doing worse than some of our competitors. We just say that the market challenges we have right now are a little different, and that is on good and bad. In 2022, it was not very good, and far into 2023, we got more out of it than many others. Now we are a little harder on the opposite end, so we have to work to reduce this volatility and deliver better, stable results over time. So I think that if you take a little perspective on this, you will see that B3 in the last two or three years has strengthened relative to the competitors, even though the last two quarters did not show. So we are working on it.

And we have at previous quarterly presentations also talked a bit about BT's start-up. How are the investments on start-up going now? Are there any new ones on the way or what is the status?

Yes, start-ups, we think it is important and we will continue with that. And we have a number that we have just started with and some more in the pipeline. Given the low demand, we will probably be a little more careful about starting. Maybe the timing is not the best, but we will make an initiative. We will start some and we will definitely start several in the long run.

And regarding the financial situation, given the increased debt combined with this market,

Are you safe and confident with the current financial situation? Yes. I don't know if that's the right thing to do. We pay for our loans in everyday life. But we are comfortable. And we also have a strong income. So if opportunities arise in a market, I am very impressed that Eiernord is participating in this. And you have seen a small stock market that has come from Valerinvest, the largest owner in B3. Now it is the family's investment company, so I know what I'm talking about. So we are participating in B3, and we have very strong owners with good financial capacity. So we are comfortable with our financial position, of course. Should we make more money? It's not good to not make a lot of money. So that's what we're concerned about. But the financial situation is good. We have a strong income. If we need money for something, we're lucky to get it.

And when it comes to recruiting on a tougher market, how do you see it now? Is it still recruiting or is it...

Yes, absolutely. Now it is actually a golden age for recruitment. The market is slow, there is a lot of talent out there and we can recruit. Then it is so that when the market is as it is, we look to recruit much more carefully, more carefully and a lot in the setting that we look for tasks first and then recruit later. But absolutely, a lot of focus on recruitment and I think we will see even more in the future.

Good, then there was probably one last question given this tough market. What do you actually think in the future? Will it be even worse than it is now, or will it be better?

We ask questions about whether the bond has been reached or not. We don't have a quick answer to that. I don't think anyone really has that. We don't have that crystal ball. All analysts who follow the Nordic IT consultant market They have seen that in 2000 it was a hell. And in 2008, it was very difficult. And in 2011, there was the Mavro crisis. And then there have been local crises in local countries. Sweden and Norway have had their things. The market will always come back. With the trend being on our side. And AI does not take the death on this industry. That's for sure. So it's for sure that it's big. You always have a break. Then we should be in a good position. That's important. When? We are long-term investors. We are in it for the long run. If you are long-term, don't worry. Go and buy shares. The stock exchange rate is going down today. I'm not saying that anymore. Now I'm going to go and do the job for you. I'm just a board member. It's happening right now. Now I wish you... Welcome aboard, Martin. It's really cool to get to know you even better, and we'll get to work with you in the future as well. So, all the best to Martin. Now it's him who's going to deliver, who's going to take over now, when the good times are coming. Is that okay, Kattis? Are you with me? Thank you for the engagement. Thank you for the questions. Thank you for joining us. Stay tuned. I hope we'll be back with good news afterwards. That's what we're going to do.

Thank you, everyone.