Knowit AB (publ)

Thank you and welcome to Nodes Report for the fourth quarter and full year 24. My name is Parvalentin and with me is also our CFO, Marie Björklund. Next slide, please. First, I would like to take you through some operational highlights during the fourth quarter. In our largest business area solutions, we have a continued positive trend in utilization and improved margins for the third quarter in a row. We have a stable delivery in connectivity. Largest challenges still in our digital agency experience and also to some extent in our management consultancy insight. We work with further cost reductions and organizational work in this quarter as well in these units. We outperform our peers in Finland and we now see some early signs actually in improvement in Sweden. The Norwegian market remains rather stable and in Denmark, the market is still uncertain as it is in Sweden. Work to balance cost optimization and increase sales activities remains a priority throughout the whole group. And as you probably have seen, the board of directors proposed a dividend of 2.3 sector shares for 2024. We can take the next slide, please. And we'll now take a look at our business areas more in detail, starting with solutions. Our largest business area with more than 50% of our revenue. We reported a net sales of 915 million sector for the fourth quarter. The margin increased slightly to .3% and we are happy to see that utilization continues to improve. But the geographical differences remains and Norway is the more stable market. We perform well in Finland relative to our peers and now see some early signs of improvement in Sweden. We can take the next slide, please. Our digital agency experience have a net sales of 290 million SEC and an EBITDA margin of 2.8%. And here we still have a really weak market and work with downsizing and cost reductions. And of course, this impacts our profitability and margin fell compared to last year. But we maintain a very strong focus on sales activities and our position as the leading digital agency in the Nordics remains. And when the market turns and it will, we are ready to take off in experience as well. We can take the next slide, please. Business area connectivity reported sales of around 212 million SEC for the fourth quarter. EBITDA margin somewhat below last year at 10.7%. Our ability to adapt quickly to changes in client demands have been a strength during this recession. We have a near shore offer in Poland. It's attractive and support our overall performance. Our investment in sales capacity has had the side effects and have helped us with some new clients and broadened our client portfolio during the quarter. We can take the next slide, please. Going to our business area insight, reported net sales of around 233 million SEC for the fourth quarter. EBITDA margin fell to 5.3%. We continue to work on balancing good demands in some areas such as defense and cybersecurity. And we need to continue our cost control and optimization in the organizations in others. The challenges in Finland in insight remains with lower performance than expected. And we have a high focus on transforming the business areas towards a more AI-based delivery in all areas. And we really see some good signs of performance connected to AI and business consultancy or management consultancy. Next slide, please. And now I would like to turn to Marie and go through our financials in more detail. Next slide, please, Marie.

Well, thank you, Per. So back to the group as a whole, we delivered sales of approximately 1.6 billion SEC, a decrease of 10%. And there is a negative calendar effect of the quarter of six hours and also small negative currency effect. Also notice that we are at the end of the quarter, more than 400 employees less than the previous year, which amounts to around 10% less. So we have an organic decrease in sales that was expected. The adjusted EBITDA amounted to 107 million SEC for the quarter, a decrease compared to the same quarter last year. This leads to an adjusted EBITDA margin of .5% in the quarter. Last year, it was 8.1%. So here we also have a decrease. And yes, there is the calendar and currency effect. And we see that the market is still challenging and competition is tough, but we do see some early signs of improvement, as Per mentioned. Next slide, please. So let's have a look at four year figures since we are at the end of the last quarter. We delivered sales of approximately 6.4 billion SEC, a decrease of .6% following the decline in market demand and our actions to reduce capacity. The adjusted EBITDA amounted to 395 million SEC for the full year. A decrease compared to last year. And the adjustment that we are making is of a provision of 28 million SEC related to the decision of the Swedish Agency for Economic and Region Growth on repaying of support for short time work that we received in the connection to the COVID-19 pandemic. And all in all, we have an adjusted EBITDA margin of 6.2%. Last year, it was 7%. Solutions is, as we mentioned, on a good journey with improved utilization for several quarters. And main challenges are within experienced business area and also insight. And they are more vulnerable to the macro environment. We worked hard during the year on our hourly rates and managed to raise prices towards clients, but not to the full extent to compensate for salary increases. And despite this, I want to emphasize that our main challenge and also opportunity for growth and improved margins is our utilization. We have a good potential to increase this in the year to come. And we have the right competences and have done a hard focused work on our cost structure and are ready to continue our journey towards the 12% that are in our financial targets. The proposed dividend for the year is, as mentioned, 2.30 SEC per share, which is in the higher range of our policy of distributing 40% to 60% of net profits to our shareholders. 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 395 million and revenues of 6.4 billion SEC. We can take the next slide, please. This is an overview of our net debt development. We have 500 million SEC in youth credit facility. And now it has a total credit facility granted of 1.050 billion SEC. Future considerations amounts to 26. And other liabilities, mainly leasing debts, amount to 496 million SEC. This totals a net debt of 624 million and divided with our EBITDA of 541 on a rolling 12-month basis, we are at a leverage of 1.2. And this means that we have a stable balance sheet and a good financial position. Also, it means that we are well within our financial target, which is set not to exceed two. Next slide, please. We have a solid platform and a strong position as a digitalization partner in the Nordic region. And the share from public sector, as you can see, has decreased compared to last year, following significantly softer demand in some areas compared to a year ago. And the demand within defense continue to be strong, also in the public sector. We have a strong and solid position in the industry sector, partly thanks to good development in the defense sector, allowing us to grow despite challenging market conditions. And we see that the retail sector improve, and this is coming from several customers increasing demand, which is potentially a sign of general improvements in the economy. The negative development in the telecom sector primarily relates to one significant client reducing its demand. And to sum up, clients remain focused on business critical projects, also in an economic downturn. And with that, I hand over to you, Pär, to say some final words. Next slide, please.

Thank you, Marie. Well, to summarize, we see a continued positive trend in our largest business area solutions, with both utilization and margin improved. The market recovery is still at a low pace, but we now see the first signs of improvement in Sweden. That's really good. We maintain our focus on sales and cost control. We are very proud of our strong position as a Nordic partner in the digital transition. We are in good shape for growth when the market improves. With that, we are now open for questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press sta and one on their 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 sta and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press sta and one at this time. The first question is, the question comes from Jesper Stugemo from Handelsbanken. Please go ahead.

Hello, Per-Marie and Annika. Thank you for taking my questions. So the first one is around the improvements in utilization that you've seen. As I understand it, it's mostly in the solution business area. But what parts in Sweden do you see a better outcome? For example, is it in the Stockholm region or northern parts, southern parts? If you could elaborate a little bit on that.

Well, looking at Q4, we see some signs of more demand connected to retail and some smaller customers. Long-term, if we look at the market possibilities in Sweden, I think that we already see some market trends connected to that. There will be bigger or larger budgets for the public sector for 2025. And we see some signs of demand connected to retail picking up a little bit as well. So it's really small signs, but there are signs.

All right. And the demand picking up in retail here, the experience FDs are down some 14% here. Do you expect that you will do more cuts here? Has it bottomed out yet?

I think that our focus now is we did have cost cuts and we are less people in Q4 as well, as you can see in the report. So we have had a big work with that in Q4, but our view on this is that we are in some sort of a bottom in experience as well right now, yes.

Yeah, all right. Great. And the quite well development in Finland here, is this more related to the employees that you have on sort of temporary leave, improving the utilization, or is it actually underlying business for now that is improving here?

Finland to start with as a market, it's a very tough market right now. As you know, they have had big struggles connected to the economics for quite a while. So the market is quite low, but we are performing really well in solutions due to that we are on the right customers and have really good relations. We are doing things well and I would like to say that we are overperforming the market in solutions. In the other business areas in experience and insight, it is a tough market and we are suffering from that. As you know, we are not in Finland connected to connectivity.

And Jesper, I wanted to add to your first question there in what regions in solutions in Sweden that we can see improvements in, and that is both in the south of Sweden and also in Stockholm, but the market is still challenging, but we do see improvements in the utilization, both in Stockholm and in the south.

Yeah, all right. Okay, great. And the industry growth we saw here, the percent of share of revenue coming up to 19%, showing roughly 15% growth year over year, despite connectivity being down. So could you just elaborate a little bit on where this growth is coming from? Is it more defense related or?

Yes, one of it is the defense industry actually, and that is gonna continue to grow and it is growing in Q4 as well.

Yeah.

Yeah.

And could you just remind me how big defense is for you?

It's not big enough to have a own pie chart in the presentation still, but it's quite small, but it's growing in percentage quite a lot.

Yeah, and this affects both the public sector and also industry, as you mentioned.

Yeah, all right, great. And then just one last one from me. Is it assumed to a fair that Q1 2025 could sort of have a similar slow start as we saw in Q4 that people are coming back from vacations and yeah, projects are starting up a bit slower than anticipated maybe or? Yeah.

Not to do any predictions at all, but I think as long as it is a tougher, market, I think that you always have these slow starts after holidays. So that's the case in, it's been that for one and a half year now. And I think that that is one part of a recession that you have that situation after holidays, both after summer and the winter holidays.

I agree, it's fair to assume that it will continue also this quarter.

Yeah, all right. Thank you guys. That's all for me. Thank you. Thank

you. The next question comes from Daniel Torfson from ABG. Please go ahead.

Yes, thank you very much. A question on the early positive signs. What are these signs really? More customers coming to you or existing customers doing more or what are these signs really?

One thing is in our order book that we see some early signs of that one growing a little bit. We see some more demand in some sectors in Sweden. So that is the early signs and connected to know it. And then if we talk about signs connected to the market, as I mentioned, it's about possible budgets for public sector and demand in, for example, retail.

Yeah, and it's a pipeline that you're talking about also, a pair that we can see. And then that of course remains to be converted to actual agreements and that might take a couple of months. So that is why we're saying that early signs.

Okay, I see that makes sense. And then secondly, cutting costs on employees to improve utilization and margins, that makes sense, but it obviously affects sales as well. So what are your organic growth kind of predictions or expectations for 2025? Should one expect positive or negative growth for the full year?

Well, no predictions from us, sorry. But we have had one and a half year of recession and cost cuts and as you know, we are more than 10% less people right now. I predict that our focus from now on and furthermore will not be reduction in staff. It will be to focus on margin as a first step and then of course as the next step to grow.

Yeah, okay. And then on net recruitment, is Q3 25 a fair assumption to see positive net recruitment next time?

Well, Q3 is almost always, if you look at 20 years, it's almost always a positive net recruitment in Q3, so that's a fair assumption, yes.

Yeah, good. And then the last question related to AI here, have you seen any projects being canceled due to competition from AI solutions like easier programming or building a webpage or so which may be done cheaper internally with the help of AI?

No, rather the opposite actually. We have a really cool project that we showed in our office last or yesterday, connected to Domstolsverket where we helped them with AI and virtual reality to train judges. There are so many new possibilities connected to AI, things that were not possible to digitalize before that were out of scope that now are in scope and that's really, it's amazing. It's just the start of that. But with that said, I think that we will also see a more efficient delivery connected to digitalization. So the cost for digital projects will go down a bit and that will also increase the demand. So you see that, for example, connected to more low-end programming, but that's not the problem. We have had that development for many years in the digital sector. So it's nothing new. So it will be more efficient, but it will open up new possibilities.

Yeah, I see. Then just the final one on hourly prices. On the group level for you and your mix, do you expect prices to be up in 25 versus 24? On an aggregated level? Yeah. Yes. We will be very

hard focused on raising prices and that is the expectation. Also have indexed agreements that we increased just now beginning of the year.

Yeah, and as you know, 40% is public sector and those frame agreements are index regulated.

Excellent, thank you.

As a reminder, if you wish to register for a question, please press SA and 1 on your telephone or write your question on the respective field in the webcast page.

All right, I don't think that we have any questions on the webcast.

No.

Well, if there's no more questions, thank you for listening in and of course, reach out to me or Marie if you have further questions later on. Now we have a question.

Yes, it's from Rafael Moro at Anderalgestion. What salary inflation do you expect for 25? Could you please update us on the, oh, and two questions. The second question is could you please update us on the board of director evolution?

I don't think that there is any new information on the board of director evolution so you will have to wait and see that. The salary inflation, it's a discussion now in Sweden between maybe two and a half, often 4.2%. I expect that we will be in line with the market and I don't know, three, 4%, something like that, but not more.

Yeah, and I guess that's relevant for the whole group. It's somewhere around there for the other countries as well.

So that was probably the last question. Thank you for that one and have a really good day. Thank you very much.

Thank you so much.