CAG Group AB (publ)

Welcome to today's broadcast. You are with us at CAG, where we have the CEO Åsa Landén Eriksson and Johan Sundmuss, who is the CEO of CAG Datastöd, who will present the final communication for 2024. If you have any questions, use the form to the right and we will take it up during the question time. And with that, I say the words to you. Welcome.

Thank you so much, Martin and Finnmeier, and welcome everyone who listens. It's great that you have chosen to listen to us today. As I said, I have a special guest here, our very best supplier within CIG Group, our own subsidiary company CIG Data Support, which runs our IT operations and security services and so on. But I will of course talk about our final communication for 2024 and I just want to make a brief overview for those of you who may be listening for the first time. You probably know that we are primarily an IT consultant group with a lot of business knowledge. We have 10 subsidiaries and about 450 employees. We are also certified according to ISO 27001, which is a security certification and we also have the honor of being an appreciated employer for our consultants. So it's short about us, and if you look at the development we've had over the last few years, roughly since we were noted in 2018, we've had a nice growth and a stable and good margin, but you can see that we had a decline in 2024, and I'll get back to that in a moment. I would like to start with a little overview of our segment, because that is a reason why we have delivered a very stable and good result in a market that has been a little weaker, is because we have a very good segment division at CG. where our defense segment is about a third of our income, and it is growing, you could say. Even banking and finance, which is much of the focus for CG Data Support, is a good segment. And you can also see in this picture what we have talked about in the quarterly report for a while now, and also now at Q4, that the public sector has been a relatively weaker buyer in the past few years. We used to be at 50% around the public sector and now we are at 44%. What is good is that the defense sector has grown, even if it has unfortunate causes. And I would also like to point out that we have recurring revenues at CAG, and that is about a fifth of our sales. A large part comes from data support, but also where it is on contract revenues on a three-year scale. But we also have a whole lot of other system development requirements in the company. And we have a fantastic customer base that we have close relations with, so it is also a great strength we have. Med det sagt tänkte jag prata lite siffror för fjärde kvartalet. Det var ju inte jätteroligt på intäktsraden, då det var en väldigt utmanande kalender. Det var en arbetsdag färre i Q4, men det var också tre klämdagar som gjorde att folk tog väldigt mycket semester. Eftersom en hel del av vår verksamhet är timbaserad, eller uppdragsbaserad, på det sättet så drabbar det våra intäkter. About half of it was under-consult revenue and half of it was our own business, roughly calculated. Our under-consult business has a lot of tasks out in the country that are on big contracts that have been a bit of a pressure. But despite that, we have delivered a margin that is close to the previous year's strong 10.3%. It was 9.4% in the quarter. and have also made a pleasant profit per share. If you look at the whole year, it is actually the case that our own business has been completely stable in principle and has not changed in terms of revenue, while we have lost some under-consult revenue even throughout the year. But still, we think of ourselves as a nice margin of 8.6%, and it is actually the third best margin in CAG's noted history. So we have seen a good result for the market. We also have a very stable delivery on the profit side and a very stable position financially with a lot of low reward, good cash flow. bra soliditet och vi ser positivt på framtiden så att vår styrelse har beslutat att föreslå en utdelning som ökar med 20 öre per aktie till 4,10 då. Så att det kan ni som är aktieägare se fram emot här i maj då. If we leave the numbers and talk about what has happened during the quarter, we have clearly started a new initiative within AI, where we are already doing a lot of things, from using AI in system development to offering AI variants, to our e-commerce customers and in many other processes with our customers. So we have started an initiative that will combine business development and business process analysis. Together with generative AI solutions, there can be other forms of automation as well, but the point is to look at large business processes with large volumes and we focus on core processes within banks and finance that we know very well. For example, anti-money laundering processes where there is a lot of data and many analyses and decision points that need to be made. It will be very exciting to see how it develops in the future. A little more boring news is that it has been a difficult market for technical test system development, where we have a small part that works within the industry segment. We have decided on a reorganization and we are just about to end trade negotiations in this area, where we will reduce the capacity, which will give a one-off cost in Q1 of 2-3 million, we estimate, but on the other hand, it will be a margin strengthening from Q2. En del av den här omorganisationen innebär att vi flyttar resurser till andra bolag. Vi kommer att se en ganska liten påverkan på intäkter och antal anställda från och med andra halvåret. Det är lite framtidsinriktat och lite kostnadseffektivitet som har hänt under kvartalet. Det som är väldigt trevligt är att vi fortsätter att ta mycket nya avtal och nya kunder, bland annat ramavtal med regeringskansliet och med Region Stockholm. Lite spännande uppdrag på utbetalningsmyndigheten och på Infront där det är ett handelssystem. Vi pratar inte så mycket om vår säkerhetssida, vad vi har för uppdrag där, men det är ett stadigt flöde av pentest- och DORA-uppdrag här inom den sektorn också. Och som vanligt har vi också tagit många bra extensions and tasks on our faithful returning customers, which we have a lot of, as you saw in the first picture. The Defence Force, FNV, Hägg, Lund, Saab, the banks, always new tasks where we have good trust between us. That's what we're here for, to help our customers to do good things. And with that said, I'm going to leave the screen to the CEO of C&G Datastöd, Johan Sundmo. Welcome, Johan.

Okay, then I'll move my chair in here. Yes, hello everyone. Johan Sundmo is, as I said, the CEO of C&G Datastöd. We... is one of ten subsidiaries and works a little differently than others in that we have service-based deliveries, not as much time-based consulting. And it's about management and use support with a focus on banks, finance and law firms as our largest areas. We also have a certain specific drive of financial systems and a slightly larger company where the capital administrations publish their portfolio systems, SWIFT systems and similar systems to us for Vi har mångårig kompetens och kunskap om drift och med väldigt höga krav. Så en, vad heter det, konklusion är väl att många firmer lägger ut hela sin IT-avdelning till oss för outsourcing och vi tar hela greppet, så att säga, om små och medelstora bolag framför allt. So here you can see some examples of customers. We have a group of AP-fonds, we have some life and pension companies, a whole lot of law firms and a whole lot of investment companies and private equity companies. And then we also have a large number of fund companies and capital administrators. That is the core of our customer base, so to speak.

Maybe there are some customers listening here.

Yes, that could be so, and we hope that you are satisfied. So, a few numbers. We started in 1994, so the company was 30 years old last year, and comes from the banking world, so... Thereof, our orientation, one might say, was 170 last year and has, yes, running good profitability. In a business comparison, we should see that we have very good profitability. And as I said, a lot of the income is service-based with monthly income. And we also have part-time consulting, but mostly with change projects and such work. But most of it goes to services that are agreed upon. So, yes, many customers are Very, what is it called? Long-term. Yes, long-term and have been customers, some from the 90s actually, so we have good customer satisfaction. We work very much with Microsoft's platforms and a very large majority of customers are Microsoft-based, especially on 365-platformen och Azure. Så att det är ett nära samarbete med Microsoft och även vår kompetensutveckling sker väldigt mycket inom Microsoft-plattformarna. Och som Åsa sa, vi är också ISO 27001-certifierade sedan fem år tillbaka, vilket uppskattas också av de typer av kunder vi har, för att det är mer och mer fokus på de frågorna. So what do we de facto do then? Use support, client management, that is to say PC, Macs, phones, pads and such bits, also local networks at the customer's office, we take care of. Later on, there has been a lot about Microsoft's AI tool called Co-Pilot, which Det är väldigt mycket intresse kring hur nyttjar vi det på bästa sätt? Lite kopplat också till vårt andra AI-initiativ koncernmässigt. And cloud management. We see that cloud suppliers, in our case mostly Microsoft, get better and more services in the cloud. And it is also something we have certified how we work with such things. Vi har också en del säkerhetstjänster. Även det förstår väl alla att det är ett stort fokus på marknaden. Så vi har en säkerhetsövervakningsfunktion kallad SOC som ska vara snabb och jobba 7-24 kring att upptäcka anomalier i miljöerna. And we also have various other services around security that grow in the number of customers and in the number of services around these things. And Dora Regulverket, which then came for the financial industry here now in January, We have pushed some of these services that we need to work even more and that more customers need to have them. So it is positive for us and positive for customers to increase their security. A more classic part is server drift in our data halls. We have three data centers here in Stockholm. Also, a large part of our business is somewhat decreasing, but still a fairly large part. Application drift, that is, we run a little more complex applications where night jobs go, the flow of files goes, and we have surveillance and scheduling tools and other things. which is also an important part where we have long and deep competence on how this works and how the customer's business needs are. And then we also work with digital business development projects with customers. It can be automations, integrations, even some BI projects and such bits. These are the core services we have. And the last picture from us. Yes, how wonderful.

Thank you, Johan. I'm just going to make some personal comments on that. I was thinking about what you were talking about, You are very customer-friendly, and maybe many who are listening can be our customers. It's a fantastic advantage you have, I think, with many who deliver IT services in general. Sometimes you don't get anything wrong in the Philippines, you get a call from the Philippines and then you have to talk to someone who can't speak Swedish or who doesn't have a clue about the company you work for. You are very well in and know the customers.

Yes, we have to say that it can sound flippant, but we mean seriously with that. And have a very long history in that it should be satisfied customers, that's the only thing we... That's the core idea.

Yes, I think I feel that. I also often say myself, when it comes to security services and so on, that it is actually a great advantage in that work that you both know the customer's business and network and operation. So that you can put incidents and alarms in a context where you understand if it is really serious or not. Martin, I think we are... No, I have one picture left here. I want to end with a little outlook for this year. We see a good demand within the defence sector, both the authorities and the industry. and also in banking and finance, and the general market for IT development, system development and so on, I think we all will continue to improve over the year. A small note to those of you who count carefully is that Q1 and Q2 have one less working day than Last year, now, while Q3 and Q4 have the same, so it means that the whole year we have two working days less. So for us as employers, it's fantastic. But there are also a lot of holidays there over Christmas, so we have to work hard here to keep our turnover at the top. Of course, we're going to do everything we can for it, with a lot of high sales pressure and... Maybe I should also point out that we saw that the placement in Q4 was as high as the year before, while the whole year was a little lower, so it goes up. And we see that it is of course still a very fast development within AI. Within the entire CEAGS panoply of services, things happen that we are on. Positivt är också att prisutvecklingen och löneutvecklingen är tillbaka på normal nivå. Vi tror också att förvärvsaktiviteten kommer att öka generellt under året. Det var min sista bild. Med det, Martin, kan vi öppna för frågor.

Ja, tack Åsa och Johan för den presentationen och precis, vi har fått in en hel del frågor. Vi tar första frågan som lyder så här. Ni är positiva till marknaden och tagit nya kundkontrakt som ni nämnde. Tror ni på återgång till positiv organisk tillväxt och högre marginaler för 2025?

Yes, I have to say that the challenge is a bit of a calendar thing, but I think that we feel more wind in the sails and more activity, so it is absolutely our ambition to have organic growth, in this case.

Would you say that there are some limitations for growth if we look at the security sector, due to these difficulties to get enough security-cleared consultants?

Ja, det är ju en sektor där det finns en kompetensbrist. Så är det ju, och behoven ökar hela tiden. Unfortunately, there won't be any explosive growth there, but there will continue to be a demand for all thinkable services, both the service-based services that we have within SEGI Data Support and also the work we do within information security and other IT security and pen testing and other tasks.

And you highlight your strong position within the defense sector there. How do you see the risks associated with this sector and possible changes in the defense budget here?

Yes, I was about to say that unfortunately we cannot see that the defence budgets will decrease in the near future. There is both an environment that is really worrying, It is also a sub-investment in the sector that has been going on for many years. Both the authorities and the order books in the industry, for example Saab, Hägglund and other companies, are overfilled. So I see that risk as very small, from a 5-10 year perspective.

And the EBITDA margin fell from 9.2% to 8.6% in 2024. What specific measures are you planning to take to improve profitability in the future?

What you just said was not the EBITDA margin, but the EBITDA margin.

Yes, of course, sorry.

Yes, exactly. The EBITDA margin went from 10.3% to 9.4%. What measures are we taking to get back? But it is of course a function of the market becoming better so that the supply can continue to strengthen. It has already strengthened in Q4 and the prices have continued to rise steadily. in a slow pace during the year, despite a price increase throughout the year, as I said. But what we are doing is, of course, that we have now adjusted the costs in this part of the test, which will be marginally strengthening from and with Q2. Vi har också, som jag skriver i vd-ordet i rapporten, anpassat kostnaderna inom vår e-handelsverksamhet så att vi ser lite bättre resultat där. Vi kommer fortsätta att jobba med, det är ju ett ganska gnetigt bransch, konsultbranschen, så att det ligger, ska jag säga, absolut på lite housekeeping men också på intäktssidan att jobba rejält energiskt med försäljning och se till att vi har en utveckling på topline.

Tack för det svaret och ursäkta fel uttalning. Systemutvecklingsaffären har ju återgått till normal beläggningsnivå, men underkonsultsverksamheten har minskat. Hur ser ni på den här balansen mellan egna konsulter och underkonsulter framöver?

Well, I can say that part of our under-consult business is related to the defense segment. So it's getting tougher and it will continue to get tougher. Because we need specialist skills for all of our delivery. But if you look at our big... We have a lot of deliveries to the traffic department, the transport board, the country meter and other types of public customers in the country. So you can probably see that there will still be some pressure on it. It will probably not grow, we think so. Vi har ju varit uppe på 20% av intäkterna i underkonsultintäkter och nu är det väl kanske 17 om jag kommer ihåg rätt här. Det är nog en fair guess att det kommer ligga lite mer stabilt. Jag tycker det är en bra mix mellan egen och underkonsultaffär.

The e-commerce business had a fairly weak quarter, one must say. What is the long-term strategy to turn this trend and strengthen the profitability of the business sector?

In e-commerce, yes, but I think it was actually nice to see a competition report here yesterday, where it was well-reported. Of course, better results. I think that the market, for the first time, will go up. The demand has turned a little bit, e-commerce. We work a lot with business-to-business, so I think that the general conjecture improvement will help us. We also work very hard with new sales. Sverige och Norge. Där har Norge egentligen alltid varit ett loop, men det har varit ett ganska trögt år i Norge som har gått. Jag tror att det också kommer vända. En bra sak vi har är att vi har ett ganska stort fokus, inte bara på B2B, utan också på det som kallas för Product Information Management och ett tydligt erbjudande som Pimcore's leading partner in the Nordic countries, where we have a very good softwares partner. We will continue to be very good in that segment with Pim, and we can also do a lot in e-commerce in general. We will keep up with that focus. B2B, a lot of Pim, and Sweden and Norway.

Thank you for that answer Åsa. And you recently launched CAG AI Consulting with a focus on banking and finance. What specific business opportunities do you see in AI and how much do you think the percentage of income is expected to contribute in the long term?

I can start right away. I think it's very difficult to talk about this, but if you look at what we're going to develop now, it's a sector, banks and finance, where there are a lot of big flows and business processes, where both assessment issues come in, there are a lot of different source systems that need to be added, for example, when you look at anti-money laundering or anti-fraud. These are processes where there is also a lack of competence, but it is an area that is growing in importance where you need to recruit and where this type of automation solutions can really help höja kvaliteten och förbättra utflödet av effekter, så att säga, i de här processerna. Jag tror att det finns stora möjligheter, och såklart inte bara inom antipenningtvätt, utan det finns ju många processer i kundtjänst och också annan back-office på bankerna, där man kan göra mycket, tror jag, med de här kombinationerna.

Interesting, and as you talked about earlier, AI is really in the lead now as well. You have won several framework agreements, including a 10-year agreement with Region Stockholm. How do these agreements affect your growth strategy, as well as your income forecast in the future?

Ja, vi är ju jättestolta och glada över att vi har tilldelats ramavtal med regeringskansliet definitivt. Det är liksom ett kvalitetsmarkör. Sen är vi alltid lite, vi är två som blir godkända på det där avtalet och vad det blir för volymer, det brukar man liksom få vänta och se. Jag skulle vara väldigt försiktig med att säga att det här skulle påverka vår omsättning i någon significant degree, because we have so many businesses that are at the bottom of the business. It is not something that leads to any revaluation of our views on the market in a stock market perspective. And the region Stockholm also has this, it was a very special layout on this frame agreement. But what I mentioned earlier, it's like us and a lot of other suppliers, so Det är jättebra att vi har fått det. Men jag tror inte som sagt att man behöver skriva om prognoserna för de här avtalen, tyvärr då.

Jag förstår. Och bara en kort uppföljningsfråga där. Är just det tioårig perioder för ett avtal, är det ganska standard? Eller hur ser det där ut?

No, the Board of Regents is much more standard. It's two years in contract period with two years extension option. It's much more standard, I would say. It is an ongoing process for the authorities and regions to act under public regulation. I think there is a tendency to act in the long run, because it is a bit difficult to set these requirements, to run the processes and sometimes to sue suppliers. It takes a lot of time and effort from the authorities. Yes, it is more standard with 2 plus 2, but we may see that it is extended towards how it was before. That's how it can be.

I understand. And then we take a final question here. The acquisition agenda is fixed, but it also applies to the importance of strategic and cultural adaptation. Can you give an example of what type of company you are actively looking for and what criteria are decisive in just acquisition?

Absolutely. I think that our last major acquisition, which is now a while back in time, SEA Gas Intel, is a very good example of that. A company with 70% of the revenue in the defense sector, but also a lot of customers in infrastructure and all kinds of socially critical activities. Very deep competence in systems life cycle management, systems engineering, demand management, configuration management. So engineering-heavy, very solid, well-managed, quite large. You have about 80 employees, as it is now, and we felt them well, I would say, before we bought them. our values matched and so on. It is really a type of example of a company that we think is really in our sweet spot and we will continue to look into defense and security, social security and also banks and finance and infrastructure primarily, I would say. But as I said, it is also very important that we feel that it is companies that want to come to CAG and that Vi tror att vi kan ha ett lyckligt äktenskapligt liv med, om ni förstår vad jag menar. Det är så vi utvärderar förvärv. Lönsamhet, tillväxt och kunskapsnivå, men också värderingar och inställning till livet.

Tack för det svaret. Och vi har även fått in från investerare som tackar er båda för en fin presentation. Och jag får bara hålla med och tacka för presentationen och svar på alla våra frågor. Och även de som har följt dagens sändning. Så får jag tacka och önska er lycka till nu framöver.

Tack alla för att ni lyssnade och tack Martin också.

Ja, tack så mycket.

Ha det bra.