B3 Consulting Group AB (publ)

Hi and welcome to today's broadcast where we are with B3 Consulting Group who presents their Q2 report for 2024. If you want to ask questions, use the form on the right of the broadcast. With that said, I will pass the word to Katarina Lundqvist who is the communications manager at B3 who will be moderating this conf call. Here you go Katarina.

Good morning and thank you for that! A warm welcome to a presentation of B3's second quarter of 2024. My name is Katarina Lundqvist and I work with communication and IT at B3. I will soon hand over to B3's new CEO Martin Stenström. who will present the quarter. And in this broadcast, you will also get to meet Jens Rutgersson, who is the CEO of our specialist company, B3 Networks, who will tell you about the development of that company. And as I said, we will have a little question time at the end of the broadcast, so feel free to ask questions either via the form or if you want to mail to ir at b3.se. And tomorrow, we will also publish a subtitled version of this presentation on our webpage. With that said, I will hand it over to you, Martin. Welcome.

Thank you so much, Katarina. My name is Martin Stenström, and as Katarina said, I am relatively new as CEO at B3. I have almost worked for three months. I think it's great that you come here and listen to our quarterly report, which is the first quarterly report that I can present. It has been a very intensive start on my job as new CEO. We have had an intensive period with increasing our operating rate and creating new revenues. And then we have also managed to do the largest pre-work in the history of B3, which we will talk more about later. But before we go into the agenda, I would like to tell you a little about our culture. This is what forms the B3 company and B3 employees. The culture of course consists mostly of our employees, but important components in it is also our vision that we will be the best consulting company for employees, customers and owners in that order. Because we strongly believe that if we manage to attract and retain the best employees, we will be able to deliver very good services to our customers, and the customers will then buy more, and then we will naturally increase our revenues and profitability, and then our owners will also be satisfied. Our values, energy, experience and quality are also important components that we use in everyday life to develop the company. And if you add our team B3 activities that we have in the picture, it is a strong cohesion factor and creates a lot of good feelings among our employees. And we have earlier, and even today, we will tell a little about saving costs, but when it comes to our cultural activities, we do not save, but we invest. But we move on. Then it is time to present one of our subsidiaries. As a tradition, we usually have a subsidiary to present at these meetings. And today it is BT Networks that we are going to talk about. And that will be done by Jens Rutgersson, CEO of BT Networks. And through that I hand over the word to Jens.

Thank you, Martin. It was fun to be with and present B3 Networks, one of our specialist companies at B3. We are a company that consists of 30 consultants based in Stockholm, Gothenburg and Malmö. The management of the company consists of myself and Åsa Havander, who is the consultant manager. Vi är specialister på nätverksteknik och säkerhet. Det är alltså vi som ser till att den grundläggande och också viktiga infrastrukturen finns på plats så att våra IT-system kan kommunicera med varandra och att användarna har konnektivitet var de än befinner sig på ett säkert sätt. Vi är inte en systemintegratör utan vi har ett kompetenserbjudande helt enkelt. Vi har valt att satsa på det som kunden efterfrågar i form av kompetens. So, our services consist of consulting deliveries, usually in a slightly longer period of time. We can also help with team deliveries or functional deliveries. We have an example of that in the presentation as well. We have a small operation offer where we can help to run a single function, for example a fire wall or something like that. Our staff consists of young and senior talents. It is a very good demographic. We can offer what customers ask for. Some of our senior consultants have been with us for a very long time and have been in the industry for a very long time. Some of them have been in the industry for plus 20 years. So we have a long experience from these techniques and these solutions that we help customers with. Våra kompetenser kretsar mycket kring leverantörerna Cisco, Fortinet, Aruba, Palo Alto och några fler plattformar. Vi har en väldigt bredd men som sagt så försöker vi ligga där kunderna efterfrågar och har de kompetenser som de behöver. Vi har ett väldigt bra samarbete med de andra bolagen i B3-koncernen som jobbar med infrastruktur. Det är viktigt för oss att vi har ett bra utbyte och vi hjälps åt. I flera leveranser jobbar vi också ihop. Infrastruktur hänger ihop. Det här med cloud berör även oss där vi jobbar. Vi har andra specialistbolag i koncernen som fokuserar på närliggande tjänster. Of course, we also have important partnerships with our distributors and manufacturers such as Cisco and Fortinet, for example, so that we have the security and the help we can get when we need it. Our customers are a good mix. We work in several different industries. Usually there are slightly larger customers, usually customers who have their own IT department. who need support and help in either the daily operations or in a larger project. Our tasks with these customers usually last quite a long time, at least half a year, but usually longer than that. Some important key customers we have are Telenor, a customer who has been with us for many years, where we have a team delivery. We have Skatteverket as an example of a public customer. And then we have Scandic, Hotellkedjan Scandic, där vi har jobbat under en period hos dem också. Viktiga och roliga kunder att jobba tillsammans med. Vi kan ta nästa bild. If we look at our development in recent years and look forward, we can see that we have had a very positive growth. If we go back to 2020, we have had a growth of 172% since then, which is nice of course. And we have had that with a sustained profitability. The background to that is that we have a high demand, which means that we have a very high degree of placement on our consultants. And we have had that over time. We have not had any real dip at all, not even during the pandemic years here, or during the dip in the conjuncture that we have had lately, but we have had very good placement and have been able to increase with employees on the job. Vi kan också se en positiv trend i priser. Vi har haft en uppgång på 22% sedan 2020. Den trenden ser ut att hålla i sig tillsammans med efterfrågan under 2024. Så det är trevligt. There are also some external factors that explain this beneficial growth, and that is that there is a fundamental need out there for this type of competencies, and there is a lack of competence on the market. There are not enough technicians and consultants who have this sought-after knowledge, which is positive. Den som kan attrahera, behålla och utveckla talangerna blir en vinnare helt enkelt. Vi har varit väldigt framgångsrika i att rekrytera och tillsätta i uppdrag. Också en förklaring till den här höga beläggningsgraden som vi har. We also work hard to make the staff happy, of course. We do this by being a part of the company building. We work very hard with the culture. We have a lot of fun when we both work and interact after work. It has always been something that has penetrated our business. What we see in the future is that we have a positive market development. We are growing together with the demanded need. And we also see that we have the opportunity to grow in other places in Sweden. We have had a very strong expansion in Malmö recently, which we have the intention of continuing to grow in that region. And there may be some more places here in Sweden as well. If we look at our neighboring countries, we actually have the same conditions there as in Sweden, that is, there is a high demand and there are a limited number of consultants with the competencies, which gives a favorable position to be able to expand to the Nordic market. And that's something we're actively working with now, to see if we can start the business in a neighboring country. And when it happens, we'll see, it can happen later this year or under 2025. Det kommer ske när förutsättningarna är rätt helt enkelt. Så det var presentationen av BT Networks. Tack så mycket Martin. Jag lämnar över ordet till dig igen.

Thank you, Jens. It's always fun to hear about your company. It also strikes me when I see the numbers here that there is a certain connection with when you and Åsa stepped into the organization. That was probably when the growth started, right? Yes, now you have mutated, but at least that was the case. And I am completely sure that we will have a reason to come back to Networx in a year or so and see how it has developed, because I think you are only at the beginning of a very positive journey. Yes, now we are going to talk about the report itself. I will summarize the report before I even start talking about it by saying the three most important things that I see in this. Number one is that it was a bad quarter, a poor result. We know much better than this and we are on our way there, it will get better. 2. Very positive that our debuting rate is increasing month by month. And 3. We can already say that Q4 will be a very good quarter for us. So there we have taken the whole report, but I'm going to go through it in a little more detail, of course. And as you can see here, we have an income of 266 million, which is an 11% decrease compared to Q2 last year. The profit also goes down to 15 million and 5.6%, which is also a decrease. And we have reduced the number of employees, which also naturally affects the revenues. But the positive thing is that we now have an upward trend in the behavior rate. And we have increased 4.3 percent from Q1 and we have had this trend positive from February. And those of you who are listening to Sverre, who drove last quarter, said that we had had an upward trend, that March was better than February, and now we can show the same. We will talk more about that later. Våra kostbesparingsprogram går som planerat både på det centrala och det som vi gör på overheadkostnaden på våra dotterbolag. Vi ska också titta på det mer sen. Våra förvärv av Webstep och upp till 90% i Polen kommer att ge oss avsevärda intäktsökningar och vinstökningar i Q4. Then we have also placed this obligation on the market for 200 million. It was overdrafted and it insures our financial position in a very positive way. And then we have devoted ourselves very much to focusing on sales and increasing our revenues. This image, which is the same figure but a little more detailed, we have actually covered, I think. You can note that the fact that we have reduced the number of consultants means that we get fewer revenues, but now we believe that we have reached the bottom and we hope for an improvement over the next six months. And here too, I think we can point out that the level of activity has increased. Our cost savings program is working as planned and we see a very strong Q4 ahead of us. In these quarterly reports, we usually also show how Poland would go for Poland and how it would affect the concerns if they were consolidated. Now it is a much more relevant topic than ever since it will happen soon. And here you can see that Poland also makes this quarter a very strong quarter with 16% growth and almost 15% We see that by consolidating the pole, we will strengthen our numbers and consumption. This will be a great advantage for us. We will talk more about the pole a little later. This picture shows how our revenues have changed from the previous Q2, i.e. 2023, to 2024, and what has affected it. And the biggest part that affects is that we have fewer consultants. That makes the most difference. And that is due to the fact that we have eliminated unskilled consultants, but also that we have been more careful with recruiting in a slower market. And then we have also had the effect that we have a lower degree of debt, but we can then rejoice that now we have the gap towards last year to decrease in this quarter. So we see a trend up and going here, which we will benefit from in the future. In my opinion, the most important picture is the debiting rate. I mentioned it a little earlier. It has gone up 4.3 percent during this quarter compared to last quarter. And we have a positive trend since February. In June we had 83.7, which is probably a pretty good figure for a June month. We are not satisfied with the level we are at now, we have more to give and we will of course in Q3, which can be a challenging quarter in terms of the rate of return for a consulting company, we may have some challenges, but we will get through it. We have the largest sales core ever and we do a lot of activities around increasing the rate of return and selling more. Then, when we look at these companies that we are now going to include in the group, Webstep and B3 Poland, they actually have higher debiting rates than B3 on average, so they will affect this positively. Yes, this is also a picture we have shown a few times, the bubble picture we usually call it. It shows our different subsidiaries, how they do it. This shows the first half of the year and here we have two companies that deliver very strongly, both growth and profitability. You may have already heard, you can guess which one it is. The big ring is probably Polen and the smaller ring is Networks. But we also have a lot of companies that are in the middle. They have normal challenges in a slower market. And that will solve itself as the market goes. Then we have some companies, and some companies even outside the graph here, that have a little more problems. There we have developed, together with the company management, a recovery program that will significantly increase their profitability during the rest of the year. And then it will of course positively affect the concern.

Okay.

Yes, we have previously talked about our central cost savings program and that is the one we see the graph on here. It delivers spot on, i.e. exactly according to plan. And you can then note that we will save 7 million in Q3 and another 7 million in Q4, which will of course to make use of our bottom line. Then we have also in Q1, we have mentioned earlier, launched a cost program for our subsidiaries. Because when we saw that several of our subsidiaries dropped revenues, we want to avoid cost creep, that is, their share of overhead costs increased in proportion and therefore we were forced to do a program for that. That program goes according to plan, but we will first see the full effect of it in Q1 2025. Other important events in Q2. We have established a new subsidiary, B3 Elevate, which focuses on Microsoft Dynamics solutions. We were involved in a study among students, where we came second place in most attractive employers, which is very positive. We are attractive to that employer market. We have talked about our obligation earlier. But it was of course a very important thing that it was overwritten and strengthened our financial position. I think it's very positive. And then we have done several interesting business on the business side. And what I can mention here is that we have a branch agreement with MSB that will help us in the future. We have received a large team delivery to the Labour Association and we have taken an important contract with Sundsvall kommun, among other things. Then we have AI. AI we talked about a lot last time. It is worth mentioning that too. We are making huge progress. Vi har kompetensutvecklat oss jättemycket och vi har också både tagit AI-affärer och vi har många prospekt på AI-affärer. Detta är ju ett väldigt intressant område givetvis. Det är väldigt många frågetecken runt hur man ska använda AI och än så länge så är de mesta affärsmöjligheterna av den arten. Alltså mer reda ut, vad kan man göra, testa och så vidare. Men det kommer ju att leda till större affärer efterhand. Så jag tycker vi ligger bra till inom AI-racet. Yes, but then we will change focus and talk a little about our acquisitions, which we have done. You have probably already heard about Webstep. This is our biggest venture in B3's history. It's a lot of fun. It provides us with a lot of good things. We get 80 new employees, we get two new offices and we get many new customers. And we also support many other customers that we already have. Kulturen är nästan skrämmande lik. Det känns nästan som vi är tvillingsjälar. Det kommer att säkra att vi gör en väldigt bra och smidig integration, det är jag säker på. Och nu när vi gjort den här konsolideringen så kommer vi då vara över 800 anställda i Sverige och finnas på 11 orter, vilket naturligtvis också stärker oss. Jättepositivt. But, as you have probably already identified, Webstep Swedish companies have had profitability problems for a few years. Of course, we are aware of this and we are completely convinced that we will be able to solve it. Webstep has had about the same challenges as B3 has had on a declining market with investment. But if you look at the current situation, then the rate of debiting is actually better than the rate of debiting in a better average. Consult costs are low, marginally high, I should say. What separates us from the overhead costs, where Webstep has significantly higher overhead costs. We will now look at this together with the management of Webstep, of course, to see what we can do, what synergies we can come up with, with the goal that we will go up to a normal profitability standard under Q1 2025. And the process for that is that we will now make decisions about what to do under Q3, we will implement them under Q4 and then we will get the effect under 2025. We believe that this will go really well. Yes, the next acquisition, which is part of the acquisition, is B3 Polen. I have had the pleasure, before I became CEO, I had worked at B3 for six years, so I was involved when they stepped in here at the Stockholm office, Rafal and Martin, and pitched to start B3 Polen. I can only say what a success this is, what entrepreneurs, they are incredibly talented. De har gått från 0 till 200 anställda på sex år och gjort det med bra siffror hela tiden. De har väldigt många fina kunder både i Polen och internationellt som vi kan fortsätta jobba med. De har ju gjort ett väldigt bra jobb helt enkelt. Nu är det väldigt glädjande då att vi har kommit fram till den lösningen att Rafal kommer att kvarstå som ägare med 10% och har också tecknat ett femårskontrakt med oss att han ska vara kvar i fem år, minst, hoppas vi. Och det säkrar ju kontinuitet och fortsatt tillväxt. Martin will then take a break and then we will hopefully find a solution for him to work with some international business. So this is very positive. And just to highlight it further, here are the figures on Betapol. They have had an almost unbroken growth in profitability. And they have managed to do that by having a very effective business model. And then they also have a very effective organization that can handle both ups and downs. So there is a reason to believe that we will be able to continue with this in the same direction as now. And what happens now is that B3 will then buy 40% of the shares and then get 90%, which means that we will then pay the corresponding approximately SEK 72 million. Then we will consolidate B3. August 19th, which will mean that in our figures it will have full effect in Q4. And they have a very cost-effective business model to work with, which means that they have better profitability than average in Poland. Which means that they will naturally be able to compete and grow further. We see Poland as a platform for start-ups and small and small acquisitions. This is just the beginning of a fantastic journey. In summary, I said before I started presenting three things, and that is still what I want you to remember. Q1 was a weak quarter, and we are absolutely not satisfied with that, and it will get better. The dividend grade is on its way up, and we expect it to continue. And we can already see, thanks to our acquisitions and our increased depreciation rate, that Q4 will create growth and increased profitability. So we have great prospects for the future. Then we add a fourth. That is that we also do our cost savings program. We have talked about it so much with those who deliver as planned, which will help us a lot in the last stages, of course. So the summary of the summary is that it will be tough now, but we will come out stronger in the second half. So now it's questions, I think.

Yes, and we have received several questions. Thank you very much for that. We will try to cover as many of them as possible now, but if you have more questions or think that you lack answers, it is great to continue to email us at ir1bt.se. Yes, but Martin, the first question was about Webstep. How do you expect the acquisition of Webstep to affect the revenue and EBIT in Q3 and beyond?

Ja, vi vet ju att Webstep har en viss omsättning redan idag så vi kan ju räkna med att den kommer att påverka oss väldigt positivt från och med att vi konsulterar, vilket nu. Vi tror ju då att vi kommer att få först den största effekten i Q4. Sedan, som jag sa tidigare, så kommer vi våra lönsamhetsåtgärder på Webstep först på effekt 2025.

And Poland, we have also talked a bit about how the market looks in Poland. Is it still very strong?

Poland has had a little faster recovery than Sweden. They have already seen in the beginning of Q1 that the market took off again and it continues now. So there they have a positive trend.

And Generative AI is a focus area for B3. How do you see, or how does B3 plan to handle challenges and risks associated with being a leading actor within Generative AI?

It is a complex area with many different opinions. It's just to see what the discussions between the EU and the USA are about. We believe that the way to address this is to get knowledge, to learn what can be done and what cannot be done. And we as a consulting company believe that we can deliver services, both to help those who are doubtful, to overcome those doubts, or perhaps realize that they should not do certain things, and help those who want to implement it. So we see that we can handle both parts. And for our part, we make sure that we do the right things and use AI in the right way.

And you told me that B3 has received new frame rates with MSB, a large business for the Labour Association and Sundsvalls kommun. How does this affect our forecast for revenue and growth for the coming quarter? Is there any special impact?

They are not that big, so you can say that they individually affect a lot, but they are significant. The frame rate can be seen how much it is. We know that the team delivery is a number of consultants, but it is not 100 consultants, so it is not that effect.

And Jens, we have to thank you for your presentation as well. And a question for your area then. How do you see that the demand will be forward-looking, connected to networks and security, connected now to an increasingly digitalized world?

It is clear that we are following the digitalization wave. When companies make acquisitions, make acquisitions, change hardware, our competencies are needed. We should have exactly the same development as the rest of the infrastructure when it changes, that we follow that train. It looks hopeful, I think. Safe networks will always be needed in the future.

We have talked a lot about the cost savings program, Hedgehog. Can you explain what that means now and what measures have been taken?

Hedgehog was launched as a term for the central part, when we were to reduce our costs on the motor company. And we have done that by, for example, moving some costs out to subsidiaries. So there is a part that we have just moved on. But there are also a lot of downsides. Above all, we can say that we start with the board of directors. It is greatly reduced. So we as the board of directors, me and Kattis, a few more, we have to work a little more. But it's going well. So it's a lot of heavier personnel developments that we have made that saves a lot of money. Vi har också tittat över alla andra möjliga kostnader, men det är väldigt mycket overhead-personal som är de stora utgifterna.

Then we have several questions. You have talked about the debiting grade and that it is on its way up. What was the debiting grade in June?

Yes, it was 83.7. I remember that because it was on a slide. And it was the best in this half year. Exactly.

Then we have also received several questions related to Q4, where you say that you expected a strong Q4. Is it due to the consolidation effects or is it also that you see the market Or what is it that you think is relevant?

Yes, it is a strong Q4. That I dare to say that now, it is due to the consolidation effects. We can quite easily calculate that it will have an effect. Then we have a better dividend rate, it will also affect. So it is not that we have calculated a strongly increased market share, but I think we will see that in the future. I believe, now we are on believe, we do not know. I believe that the market will take It will improve strongly during Q4, but the fate will come first in 2025. But it's not a promise, it's a belief.

And now B3 has decreased a little in the number of employees. Are you counting on it to continue or drop out, or is it expected to decrease further during the second half of the year?

During the second half of the year we will start to increase again, I'm sure of that.

And a question related to the moving margin. When do you expect us to see a clear positive trend on the moving margin due to the current cost saving program?

Yes, the cost saving program, as we said earlier, will give full effect during the year. We have 7 million in Q3, 7 million in Q4. And then we have what we do at the doctor's office, which will first show full effect in Q1 2025. But I think we can see this effect in Q4 quite simply. But the biggest effect in Q1 2025 has never been implemented.

How do you determine the ability to increase the recruiting speed if the market starts to grow again?

I think we have quite good opportunities for that. We have all the subsidiaries that are good at recruiting, we have seen that in previous surveys. Since then, we have also established a TA function that only works with recruiting. I think we have strong opportunities to hang on to an up-and-coming trend. And we are a very popular employer. We see the students voting for us. We see our employer MPS. People like to work for us better. We will benefit from that when we start recruiting again. So I think we have a strong opportunity to grow.

And another question related to the degree of debiting. What do you think is an achievable degree of debiting in a normal macro picture?

Yes, we have touched on it so far, so we will touch on it again. But if you look at the presentation, you saw what it was for Q1 2023. It was probably a very good, it was a very high degree of debiting. Then you can draw a conclusion about where we can end up in between.

One last question. Do you plan to do more acquisitions in the future?

Yes, we would love to do more acquisitions. Now we have filled up and picked up what we have in our mouths right now. But we are looking, at least half-actively, for smaller acquisitions, which we call bolt-on. For example, if Networks found a company in a geography that works with about the same thing and could buy it and get more support. We look at that, we have some dialogues going on, but nothing is concrete now. So that's my answer to that, but maybe a little less than Webstep and Polar's channel.

That's great. With that, I think we're going to be through most of the questions. And if you miss answers or have other questions, as I said, you are very welcome to email idaratbt.se. And with that, it's time to wrap up the broadcast. We have to thank Martin and Jens for your presentations. And a big thank you to all of you who have listened in today. Then I leave the word to you again, Martin, can you wrap it up?

Yes. Jättekul att få vara här och presentera kvartalet. Som sagt var, lite tuffa siffror, men vi kommer att bli bättre. Och tackar er som har lyssnat och önskar er en härlig sommar.

Tack för idag.