Knowit AB (publ)

Thank you. And with me today, I also have Marie Björklund that we'll talk a little bit later. First, I would like to take you through some operational highlights during the third quarter. In our largest business area solutions, we are happy to deliver a continuous positive trend in utilization. And in addition to that, the EBITDA margin improved for the second quarter in a row. This is mainly a result of our cost reductions and organizational changes. The market is still uncertain with long sales cycles. After summer, the market had a slow start with projects starting up later than normal, particularly in experience and insights. In Norway, we have continued to develop our strong partnership with several customers, creating a very stable foundation during the quarter. In Sweden, we still meet the largest challenges, although we see some improvements in certain segments. Finland and Denmark are developing strong in some areas, but we still need to work more to reach a stable ground in others. We can take the next slide, please. And take a look at our business areas in more detail, starting with solutions, our largest business area, reporting net sales of 750 million SEK for the quarter. The EBITDA margin increased to 8.1%. And as I said, we are happy to see that utilization are slowly improving. uh the geographical differences remains in finland we outperform the market we still have challenges in sweden and denmark and in norway we have a continuous strong client relationships and a really good platform to work with and our efforts to optimize the organization and reduce costs pays off, but it's yet too soon to say that we see a broad market recovery. Next slide, please. Going over to our digital agency experience reported net sales of 235 million SEK in the quarter. The business area had a very tough quarter with negative results due to slow start after summer. of course affecting the utilization a lot. Sweden and Denmark are the most difficult markets where we continue to take action to improve profitability. We have a strong inflow of requests from clients, but the competition remains fierce and clients take time to decide upon new investments. We can take the next slide, please. Business area connectivity reported sales of around 190 million SEK for the third quarter. EBITDA margins slided below last year at 11.3%. Our ability to adapt quickly to market changes have been a strength during this recession. And we also have long projects in connectivity, making it easier to handle a start after the summer. We are in a competitive market, but we still continue to recruit at a controlled pace. We have a solid position in the industry segment, a key to be able to continue to deliver strong results despite the current market weakness. We continue to maintain a strong focus on sales. We have increased sales capacity and ensured utilization rates at a good level. Moving over to our management consultancy, Knowit Insight, reporting sales of around 160 million SEK for the third quarter. The business area reported a loss in line with the same quarter last year. Just like experience, the start after summer was very slow, with projects being delayed into the end of the quarter, and this, of course, has impacted both utilization and margins. Our position in cybersecurity and legal remains strong, and we have had a net recruitment in the quarter. We work hard to develop and strengthen our offerings with defense, launching highly appreciated training programs for employees to prepare for possible assignments in the industry, the quarters to come. And with that, next slide. And with that, I hand over to you, Marie, going through some financials.

Thank you, Per. We can take the next slide. So back to the group as a whole, we delivered sales of approximately 1.3 billion SEK a decrease of 14%. There is a popular calendar effect for the quarter of around eight hours, but due to the timing of these extra hours during vacation, there is no effect on the revenue or EBITDA. We are around 10% less employees, of course, affecting revenue, but besides that, the revenue from subconsultants is less than Q3 23. The adjusted EBITDA amounted to 57.9 million SEK for the quarter, a decrease compared to the same quarter last year. This leads to an adjusted EBITDA margin of 4.4% in the quarter. Last year, it was 4.9%, so it's slightly down. We do have some layoffs this quarter, as well as restructuring costs, but far less than both Q2 this year and Q3-23. and we now consider it at a level where we see it as a normal course of business. We also managed to keep savings on a good level, but we are now meeting comparable figures on Q3-23, which also included savings. Cost awareness is still high up on the agenda for the quarters to come. We see that the market is still challenging, even though we see signs of improvement. especially in solutions and connectivity. Competition is tough. Prices are under pressure, but still above the level of last year. Salary revisions have been kept at our expected and desired level. Next slide, please. This slide shows the development over time and also on a rolling 12-month basis. Our adjusted EBITDA for the latest 12 months is at $436 million and revenues at $6.6 billion SEC at an EBITDA margin of 6.6%. We note that the adjusted EBITDA margin improved compared to Q1 this year and are in line with Q2. In other words, we do have a trend of stabilizing results. Next slide, please. This is an overview of our net debt development. We have 600 million SEC in used credit facility, and we have a total credit facility granted of 1 billion 50 SEC. Future considerations amount to 26, and other liabilities, mainly leasing debts, amount to 524 million SEC affected by amortization. This totals a net debt of 792 million SEK, and divided with our EBITDA of 582 on a rolling 12-month basis, we are at a leverage of 1.4. We have a stable balance sheet and a good financial position. Also, this means that we are well within our financial target, which is set not to exceed 2. Next slide, please. We have a solid platform and a strong position as a digitalization partner in the Nordic region. The share from the public sector has decreased compared to last year, following a significantly softer demand in some areas compared to a year ago. The demand within defense continues to be strong. We have a strong and solid position in the industry sector, allowing us to grow despite challenging market conditions and our retail share has gone up also, and we see an increased demand from certain customers. Clients remain focused on business-critical projects also in an economic downturn. And with that, I leave it back to you, Per. Next slide, please.

Thank you, Marie. Well, to summarize, we see a positive trend in our largest business area solutions with both utilization and margin improving. Competition is high in all areas. Our top priority continuously is to remain a high focus on sales and client relations. Sweden and Denmark are the most challenging markets and require further cost control and efficiency. And we are proud to have a strong position as a Nordic partner in the digital transition. We are in good shape for further growth when the market improves. And with that, I open up for questions.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star, then two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. The first question is from Jasper Statumer, Handelsbanken. Please go ahead.

Yes, good morning. A few questions from me, if I may. I was thinking around the stabilized trend and slightly improving utilization trend here in solution. I read into this that this is an improvement from Q2, so sequentially, or do you also see this as a year-over-year improvement in the utilization rate here?

Hello, Jesper. Well, the answer to your question there is that we started to see the improvement in the second quarter in solutions. It has continued in the third quarter. And when we compare it to the same quarter last year, we also have an improvement for solutions. So there is a positive trend there.

All right. Thank you. And on the slightly weaker segments, experience and insight, what kind of tools do you think you have to further reduce internal costs? Or is it more about additional layoffs to secure margins and match the supply with demand? And if so, is it more in Sweden and Denmark? Or what's the mix here between the regions?

I think that the weak market that we have in Sweden is of course challenging, especially for experience. We see that at our competitors as well. So I think that we have done quite a lot of things. We now have a really high focus on sales and sales activities and trying to close deals. We continuously... increase the efficiency index in experience for example just after summer we um consolidated a couple of companies subsidiaries within uh know with experience in sweden so so we are on on that task as we speak yeah and i can just agree with that and say that we've done a lot of things and experience also in second quarter and i don't think that we have quite seen the effects of that yet

So there is a full focus on sales and also, of course, cost savings.

All right, great. Thank you. And on the new framework agreement you announced here a few weeks back in Norway, the framework agreement. around 3.5 billion NOK over four years. Do you have an estimate here how much this could contribute for you? I think it's additional two to six partners included here. And yeah, do you expect an uptake from this already here in Q4?

Well, it's not really said how much we will benefit from that, but it was 3.5, as you said, and it's over four years. And A good guess could be that something around 20 to 25 of that would be beneficial for us. But we're not really certain of that figure yet. But that would be a good estimate.

All right. Thank you. And looking at the calendar effects here for Q4, it looks to be a slight headwind around eight hours less. Do you have any estimates how much this could impact the results for Q4?

Yeah, you're right. And actually, we don't really know how that will affect. It's always very uncertain how December is affecting. And especially now when there's an economic downturn, We've seen that there's a slower start after summer. It might be if this continues that there's a slower end of the quarter. So I don't actually have an amount to give there. But yes, it's true. In total, we have, it's not as much as eight, but a little less than that, a headwind.

Okay, okay, perfect. Thank you for that, Per-Emery. I jump back in line here. Thank you.

The next question is from Daniel Sorson, ABG. Please go ahead.

Yes, thank you very much. I have a question on the net recruitment here on group level. When in time do you think we may be back on positive net recruitment? Again, what's kind of your internal plans here on timing?

I think that our focus right now is to optimize the margin and have a strong focus on that. When time comes, we know that the market has changed a little bit and then we will start to net recruit. So I don't have any estimates connected to that.

It doesn't sound like very near term at least.

no uh we haven't said anything about the next recruitment we do see a possibility to recruit uh especially in connectivity and any solutions obviously since the utilization is going up but i would like to say that if you look back on on recessions over time the last 20 years or so it's almost always been a quite

When the recovery comes, it's usually quite fast, but it needs to come.

I see. And then if I heard correctly here, you said that you were in positive net recruitment in Insight in Q3. And if that was right, is that a sign that the segment ended on a higher note and that the outlook for Q4 and 25 looks somewhat more optimistic? Is that right to think about it?

Well, I would say that I don't think that we have any chance of having a more positive net recruitment inside in 25 than the other business areas. On the contrary, I would like to highlight solutions and connectivity due to their margins and the trend that we see right now. But it is true that connectivity is the... the business area recruiting most in the third quarter, and that is mainly within cybersecurity.

Insight, right?

Yeah, insight. Sorry, yes. Insight, inside the security, and where we can see that we can use consultants.

Okay, that's good. And then just thinking about the potential margin here in 2025, I mean, given that the market is tough, price pressure likely to continue for a while, that should limit the margin. But you also see utilization rates already now bottoming out or stabilizing in the solutions. How should we think about the reasonable margin assumption in 2025? Not a specific number, but the trend should be upwards, but not as good as in 2022, 2023, obviously. How should we think about that potential?

Well, it's, of course, very difficult to say. We're not sure when the market will turn, but for solution, definitely we see the positive trend. But then experience, we have the trend in the other direction. So it's difficult to say, but of course, we're hoping to have a better margin than this year. That much I can say.

And let's come back to that when we see a stabilization in experience as well, because that will, of course, be quite important to reach.

Yeah, I see. And then on the further potential cost reductions, are you planning to close any offices or to exit any local markets or anything like that?

No.

No.

No. I think that we are doing quite a lot connected to consolidation of subsidiaries, changing business models in some areas, and of course reduce capacity in other areas. So we do and have done really big changes in some areas, but the markets that we are at are... really good to be part of even the smaller markets in Sweden.

Yeah, I see. And then a final question on hourly prices here. On a group level, could you kind of estimate what the hourly price change year over year was here in Q3? I guess it was slightly negative, but do you have any better feeling for that?

The price development is actually slightly positive. We see the price pressure, but we are able to have increased prices when you compare it to the same quarter last year.

Okay. That's fair. Thank you very much.

The next question is from Raymond K. Nordea. Please go ahead.

Hi there, Marie. Can you hear me?

Yes. Hi. Hi.

Hi, good morning. Two questions for me. First one, a peer reporting earlier this week said they saw no improvement in the public sector. But you're saying you're seeing early signs of recovery in solutions. Curious, could you provide some more color into what you think that is and what you're seeing differently from your peer maybe here?

Well, on the industry share, we see that the public sector has gone down. I would say that the fact that the solution has a positive trend in utilization is not due to the market, it's due to our measures, the sales focus, the cost savings and the efficiency. I would say it's more that than the public sector increasing their demand in total.

Very clear. Then on connectivity, demand there is holding up relatively well. Do you see the underlying market sort of turning tougher ahead or anything due to its sort of cyclical nature, I'm thinking? Or how should we think about that?

We have already seen a little bit tougher market in connectivity as well. I think that we've been good in handling that, getting into new areas, for example, product a little bit less in telco and increasing in the industry segment. So we foresee a tough market connected to connectivity as well for a while, but I think that we take some measures to handle that.

Okay, excellent. Thank you very much. All from me.

Thank you.

As a reminder, if you wish to register for questions, please press star and one on your telephone. At the moment, there are no questions from the phone.

All right. We have a couple of questions from the webcast, first coming from Eina Romsås at Ergade OS. How is monthly utilization relative to last year for the months in the quarter? Is it a slow start from back to work leading to the subdued top line this quarter? Yes.

Well, it's a slow start back to work after summer, as we talked about.

Second question from Ulf Husse at HCAP OS. What is the status and expectations on increased public budgets for spending on consultants in Sweden? How is Stockholm evolving in the quarter?

Well, as we talked about now for I think it's more than two years that we had lower budgets in public sector 23 and even lower 24 than 22. We expect increased budgets due to that the inflation is down for 25. And that's what we see, especially in talking about Sweden now. But we don't know how that will affect our business in detail yet. It's not presented. I mean, we have a budget as a total in Sweden, but we don't know where those money are going. You could expect that some of them are going to the defense industry and civil defense, et cetera, and that's good because we are part of that. So I think that it will increase significantly. in 2025. I also think that when they get new money, it's not going to be a really first of January start in 2025. We have a slow start in the first quarters, but we have a good platform to continuously do really good things at our customers in the public sector in Sweden as well. I think that we are performing really well or overperforming at public sector, for example, in Norway. So even if there is slow budgets there as well, we have been able to take so many new frame agreements. So that's not a problem in Norway.

And concerning the question you had about Stockholm, I mean, we disclosed that we are having challenges mainly in Sweden. And that involves Stockholm as well. So the competition is fierce in Stockholm. So there is a challenge.

And Stockholm is a lot about the public sector as well.

Yes, great. And one more question from Tor Egil at Greta Invest OS. How large is the revenue from defense And can you give any color on how you are, sorry about the hesitation, I'm translating from Norwegian, how you are focusing on that sector?

Well, it's less than 5%, so it's not that big, but it's increasing, and as I totally agree about, we are actually investing money now in, and I've done that for a while, to move people from other sectors into the defense industry. And it takes some time because there's a lot of regulations in that industry. So technical competence from somewhere else and then add on industry competence in the defense industry. And we also see that we are growing both... connected to public sector and defense and some private sector customers, mainly in Sweden. We also have one or two of those agreements in Norway as well, but mainly in Sweden. So from a quite small level, we will continue to grow in that area. And I think that we have a really good platform to do that.

Great. There are no further questions from the webcast.

All right. Thank you for listening in and have a good, continuous, good Friday. Thank you.