Gofore Oyj

OMXH:GOFORE

Earnings Call Transcript 2022-Q2

[Mikael Nylund, executive]

Good afternoon everyone, and welcome to Gofore's Results Presentation, this time, Year 2022 and First Half. My name is Mikael Nylund. I'm the Group CEO of Gofore. And with me today, as always, is Teppo Talvinko, our Group CFO and my dear colleague. So today, we're going to take you shortly through some general introduction slides and then dive deep into H1 results and numbers. And to round off, we'll then look after that -- look at the market outlook as well as at Gofore, see the market outlook. And after that, we have possibility for you to ask questions.

So please also during the presentation, you can type in your questions on the streaming platform and Emmi here from our IR team will go through your questions. And we'll have them here on our pad and look at them at the end of the presentation.

To begin with, we want to acknowledge that this is the year that Gofore is celebrating its 20th anniversary. So we are extremely proud of course of the company that we have built in, in these 20 years impactful, growing, profitable as we have wanted the company to be. And even though we are 20 years old and I'm pretty adult, I think in years, we are still hungry for more.

Gofore is a growing and profitable digital transformation consultancy. This has been true for almost all of the 20 years that I mentioned 20 years anniversary. And this is certainly true also for the first half of this year, continuing the great growth and profit track record that we have shown, especially since after the COVID pandemic and going into our new strategy period starting with 2021.

This is an excellent continuation of that era that we've had. And as said, we'll look more closely on the numbers later in the presentation. But a small sneak preview for you to see here. And I guess you can understand why we are. We are extremely happy of course to be here today and present these numbers.

For us at Gofore, our aim is always to be growing and profitable. This is very much the subject of today and looking at the numbers that we have and we're going to dig deep into that. But there's a lot of other things that we also want to be more and more of. And it starts by constantly renewing. I think that's a very, very important theme for a time like this when we have a lot of uncertainty in the world. The ability to react to that, the ability to change direction when needed is extremely important. And I think we at Gofore have that and we want more of that and that's what we are working towards.

We continue on improving the positive impact we have through our work with our customers. And that is a theme that we are especially highlighting now during the second half of the year because of the 20th anniversary as we are celebrating, positive impact, responsibility and so forth. These are extremely important themes for us at Gofore for the whole team of Gofore.

International, we've seen growth in international business. We've seen growth, which is maybe even more important in our international team, international people outside of Finland so that's a good development also for the first half. And everything our success depends on offering exceptional customer and employee experience.

And I guess the numbers that we are presenting today shows that we have been also successful in that area. But growth and profitability, those are of course the things that we want to focus on today. And you've seen our track record from before already and now looking at our newest numbers and the last 12 months number that we have displayed also on this slide for the first half of the year. It shows that we are continuing the strong growth path and that is something that we are extremely happy about. It also shows that we have managed to do -- continue on a trend of profitability that is an upwards trend and of course that is equally important for us.

Okay. Let's look at the H1 numbers, then next dive into the highlights. First of all, we have of course net sales going up 40%. And especially important here is what we have now released today in the H1 report, the organic growth portion of that, accounting for well over half, accounting for 25% of the growth which is extremely, extremely important for us and shows the good work that the whole team is doing on a day-to-day basis.

And that is something that we have also a good trend on our Q1 organic growth improving from -- sorry, Q2 organic growth, improving from Q1 which in itself was excellent. Our profitability went up. And we can show a margin of 14.8% for the period which we are extremely happy about. We have done an excellent job in terms of retaining people, our good team members and also recruiting new ones. And then that means that we have a good number going up also in employee count.

Our strategy has been pretty much focused on especially building a good customer base in the private sector. And this is something that we have been very successful in. Again for first half, we have a very good growth number for the private sector customer segment, also for public sector our longtime strong base in with the public sector customers.

So for H1, I think these are the highlights that I want to pinpoint here and Teppo will later go into more detail with the numbers. And for Q2, especially highlighting what was important there, we had a lot of activity on the sales side and we did good. Gofore won quite a lot of new customer agreements, new customers and agreements with customers that we have been working for, with in the long run. And this means of course that we have a solid base for H2 and beyond, because these are long customer agreements that we have managed to win, especially in the public sector.

And now over to Teppo to look more closely into the numbers.

[Teppo Talvinko, executive]

Thank you, Mika. So let's go a bit deeper in the key drivers that we had during the first half of the year, so strong growth, strong organic growth in net sales. That was actually dominant in all areas and that can be seen in H1 year-on-year development. So you can see Finland international sales public and private sectors all were developing extremely good.

If you look at the key drivers, our market, digital transformation services, that was solid and we did it well. M&As that we have carried on like Devecto acquisition during the year, they were further strengthening our end-to-end offering that is from lead to create further on to verify down to Devecto IoT doings.

If we take a look at the value chain to our customer, that is actually giving us a really good basis for cross-selling and thus it's supporting organic growth really well. Just an example how Devecto IoT capabilities and verify quality assurance can be joined together, working together to create value added to our customers, to create cross-selling opportunities. We were able to respond to solid demand and won opportunities by actually being really successful in our recruitments and that is something during this, let's say, when the market is quite hot. At the same time, the attrition rate went down. And that's actually telling about our strong employer brand and strong community that we have.

Okay. Few takeaways from net sales distribution. So our strategy is to strengthen the position also in private sector. So we have a really solid base, good position in public sector. But we also want to be a #1 player in private sector. And you can see actually, during the couple of years, we have been able to increase the share of private customers and now it's up to 40%, really good development and once again, according to our strategy. Qentinel, CCEA and the latest Devecto acquisition, all are improving the position and presence among especially industrial customers.

If we go further on, you can see that the top 5 pictures there. And actually the share of top 5 customers has decreased. And it's -- eventually it's a good thing because we have more big customers. We have a better grip. We have broader shoulders. And through our end-to-end offering that is giving us a really solid base for cross-selling within our capabilities. And we can utilize better our offering to help our customers.

Okay. Excellent, solid development in adjusted EBITDA, which is actually a key profitability indicator for us. So we talk about the sales development. And we talk about the growth drivers there. And of course that's reflecting to increased profitability too. There has been quite a lot discussion about the salary inflation and that's a big topic in our industry. So if we actually look back to our price development and compare that to salary increases, so we can see that good development in prices has actually compensated pretty much the salary, increased salary inflation.

Going further, we know that the billing rate is our key operational KPI, that we follow up that KPI on a daily basis. And it actually was improving. And it tells us that amid strong organic growth recruitments, we have been quite successful in managing our billing rate. And that's not an easy task at all. And I would say that it's pretty much our digital platform. It's about lean self-driven organization and agile modus operandi that we have in place. We saw that key success factors behind this really positive trend.

Okay. Year-on-year basis, sick leave levels. Yes, they were a bit higher than last year and that somewhat affected negatively to our profitability levels. But the outcome here is that share of the salaries decreased slightly in terms of relative to net sales. All in all, a really good development showing that we were able to implement the strategy. And we were quite successful in daily operations.

Next, quarterly performance. It shows that there is a solid development in organic growth and profitability. Let's take a look at the last 3 quarters, decent figures, rapid growth, strong profitability. People are often asking that, hey, what next? How is Q3 looking? So in our business, there is a certain seasonality, January, summer holidays in July-August, they are kind of a breaking points. And the question is that how fast we are back from holidays, how fast our customers are starting their businesses after holiday season. That remains to be seen.

Taking a look at the financing and the position that we have in the balance sheet, so what we actually want to do, we want to continue our M&A path. And we are constantly looking for good targets in the second half and also further on. What we are looking for is, of course, strategic fit, a cultural fit, how well the targets are supporting our offering, how well they are improving our positioning among customers and of course, our robust financial position, positive cash flow, very strong balance sheet, negative debt position. All these factors are giving us a really solid basis for future -- further acquisitions, if possible.

And then, of course, about our long-term targets, I would say that they have remained the same. So what we are aiming over the cycle on a longer term is 20-plus percent annual growth in net sales, half coming from M&As, half coming from organic growth.

Taking a look at the first half, I would say that we managed quite well. And of course, we want to keep the profitability level on a decent level. So over the cycle plus 15% adjusted EBITDA and being a good company also for the shareholders. So we want to deliver at least 40% of annual net profit to our owners as a dividend. Mika?

[Mikael Nylund, executive]

As said, long-term targets remain unchanged. So does the strategy we have to reach those long-term targets, we have referenced that a couple of times in this presentation already. In short, the growth strategy is based on 3 avenues of growth. We have growth in Finland. We are growing our share of the public sector digital transformation market all the time and are aiming to become the #1 partner for Finnish public sector digital transformation.

We are working towards becoming a Tier 1 private sector customer provider for digital transformation. We've done an extremely good job there over the couple of -- over the last 2 years. The second avenue is international growth. This is the area which was most severely hit by the COVID pandemic. And we needed to take some -- a little bit more cautious approach on the international growth, but we are still working on that.

And during H1, of course, international business grew a little bit faster and business in Finland, which is, of course, something to be happy about. We are working on the international growth, both while delivering from Finland, from our teams here in Finland and also expanding on our presence in Germany and the German market. And of course, we have some delivery centers then situated in various places in Europe.

Third Avenue disciplined M&A, which in itself supports then the other parts of the strategy, something that we will continue, as Teppo said. Also for the future, we've seen quite, let's say speedy times in the M&A market here lately. But we have a strong position balance sheet wise and we have a good track record of M&A, so we can continue on that avenue as well. And I think we see from H1 also that the achievements that we have and the support that we have been very successful in implementing this strategy.

Okay. Let's then go on to market outlook and how we see the market as of now. And of course, there is a lot of talk about different aspects of uncertainty, and that's something that's also reflected in our report here. But to begin with, we can say that the big picture here is that digitalization continues, that supports the customer demand for services of like new-generation digital consultancy providers like Gofore and this is the big picture. We have a solid base of customer demand and that's something that we see continuing into the future.

Public sector side, no big changes foreseen there. There's, a lot of going on in the Finnish public sector, the structural reforms and there's continuing programs and projects, digitalizing the public sector services and that's something that we believe will continue well into the future.

Private sector side, the same, the COVID pandemic shows that digitalization is very high on the agenda of almost any company. And we're focusing on especially industrial companies, intelligent and digital products and services. We feel that there is a solid demand also there over the cycle to build new products, to develop new products, and that's where Gofore comes in and wants to help our customers.

International markets pretty much developing the same as markets in Finland. We've seen some interesting projects and tenderings in the international and European, where Gofore has been successful. And especially, we've now seen during H1 that our business in Germany has picked up. And we have had good possibility to meet the customers and start new projects, so very happy about that development.

The fight for talent, that's not going anywhere. That's something that we'll continue to do in the future as well. And of course, that is something that also shows that there is a risk for some wage inflation, of course, accentuated by the overall economic inflation there. So that's always interesting. Our numbers from H1 show that we have been extremely strong in the talent market and that's, of course, something that we look to continue for the second half of the year.

As a new part in our report, we brought to you a short-term risk presentation here for the environment that we work in. And these are things that we have often times discussed with various investors. And we wanted to show our view on these 6 risks here, starting with the Russian invasion on Ukraine, the war in Ukraine. As we have said earlier, the direct implications for Gofore's business are very small. We don't have operations in Ukraine, Russia, Belorussia. We have -- we don't have customers there. The impact that it has had on our customers is already visible. And there is some impact there.

But the bigger impact, if there will be anything, is more of the indirect one via the macroeconomic and geopolitical perspectives. COVID-19, not to be forgotten about, we believe that increased level of some sick leaves will be, I think, also for the second half, how increased remains to be seen. The important thing, of course, is that serious illnesses resulting from COVID-19 is not that commonplace anymore. So it's mostly about sick leaves. But that's something that might have a substantial impact on figures for the second half remains to be seen.

Talent acquisition, salary inflation, already touched about on that on the previous slide. There are no indications that, let's say, war for talent is going anywhere. We are still in a very competitive environment there and that's something that is also reflected on salaries, salary inflation.

Teppo showed the figures for -- on one hand, the customer price development and on the other hand, on the salary development that we've had year-on-year for H1. That is -- those are good figures for us. Those balance each other out and that is, of course, a good situation, but something that we need to be aware very also for the future.

The M&A market, there were signs of some kind of overheating and valuations were going up. And in some situations, sellers were asking for valuations that we did not feel were a fit for our business. But I think there's a better direction in M&A market also right now. Good companies, of course, will always be valued highly. So there are no good companies that will be out there for, let's say, sale price. So we need to be prepared to pay what it needs for good companies.

We are -- as we have already indicated, earlier for a while now we are active in Finnish market for M&A, but also in the German market. And the recent events that they didn't make the German market approaches any easier. But we are still working on expanding in Germany also via company acquisitions.

Customer market-wise, we feel that the public sector market has been seen earlier also, for example, with the COVID pandemic, is very defensive in this way and shock reactions don't have an immediate effect on public sector business. Private sector, on the other hand, tends to be a little more cyclical and there's a higher risk there.

I want to say, however, that we have not yet seen almost any activity from our private sector customers. No unusual activity that would indicate that there will be budget cuts or postponements or cancellations of projects. So the situation, looking back and what we have talked with our customers, is not at all bad.

We are, however, prepared that the situation might change and want to be very aware there. Some customer highlights here. We won a big tender for the Ministry of Agriculture and Forestry. The tender was carried out by the National Land Survey in Finland. So it goes to show that Gofore still and even more so than in the past is competitive with the big public sector bids. And this is something that is really, really important for us going further.

Some other ones from the public sector, city of Helsinki, Ministry of Foreign Affairs, Digital and Population Data Services Agency, the Tax Administration University of Helsinki and CSC, big projects that we are very happy that we could be successful in these competitions. We had sales-wise and our sales team was extremely busy before the summer. So I'm happy that they still in the busy season could be as successful as we have been. So a very solid base is to build on now for H2 and further into the future.

Private sector side, an example from the private sector side about collaboration with Ponsse, the forestry machine manufacturer, building intelligent machines for forest harvesting and this is a very good example of how our customer relationships developed in part. Thanks to adding Devecto Services and Expertise to what Gofore previously had. So we are getting closer and closer to the products to the product development part of our customers, which we feel is a good position for us building a strategic relationship with these customers.

And lastly, about the German market. We are seeing good signs there. We have been able to meet our customers. We have been able to work with the customers towards new business. And that has resulted in a few, I think, a good few new projects and new customers that we are extremely happy about. And we see also the future in the German market now is rather positive, even though, of course, there are, especially big risk for the German market to go into -- a not so positive direction, but that remains to be seen.

As things stand now we have a good situation there. And in terms of people and our talent side, we have very positive signals from there. We have very positive numbers from there. The number of people has, of course, gone up, both thanks to improved retention of people, very good results in recruitment and to an extent also from company acquisitions when Devecto joined us in January, so all these figures point to the right direction.

And maybe especially a thing to be especially happy about is the retention of people and how we've managed to react to the situation that arose from the COVID pandemic. And the hybrid work, the remote work situation, which, of course, was difficult in terms of community building and via that to retain people. And we have good numbers with 6% in attrition for the first half now compared to previous year 9%. So a good direction, good trend for that.

Okay. I think we are ready to go for the questions.

[Mikael Nylund, executive]

We have a few questions here. So if you will help me out here, Teppo, try to answer these questions. Let's start from the top here.

Modern MSP is asking that how do you see your business from managed continuous services point of view? Is this business growing faster than regular professional services consulting?

This is something that we, quite often, I think, discussed with investors and others alike. And I think the big picture here is that we have seen a very strong transformation into an agile way of working together with our customers, an agile way of delivering results for our customer. And that is very different from what we can compare with, say, 5, 10 years ago, how work was carried out in IT projects with the customers where the waterfall model was more predominant and the project phase was very clearly defined for these developments.

And then there was the go-live date. And after that, you saw more like continuous services, managed services phase until you then phased out the system that was taken into use. In the agile world, that's not exactly how things work. You try to get out results as soon as possible and you try to have phase afterwards that will focus on continuous development.

So there's really not that kind of a difference in contract-wise from -- between the project phase and the managed services phase. And this is especially true for the services that Gofore delivers because we are so strongly into the agile way of working and that is how we deliver the services for our customers. So we don't really, in that sense, see the difference here. We work with all of our customers on a long-term basis. And we work with all of our customers with an idea of continuous development of their services.

Okay. Joni Gronqvist from Inderes asked regarding your strategy update later this year. Can you already now give some kind of teaser? What kind of topics you are especially reviewing?

Okay. I can understand that Joni is extremely interested in that subject. We will not go into the context of that yet because we are very much still working on those subjects. But what we can say is that our idea about strategy and strategy cycles is that biannually, we want to first look at the long term. We want to look at the 5 to 10-year term. What will the world where go forward will in 5 to 10 years. What will it look like? And how has it changed from our last 2 years ago done analysis of that. And from that, we find the things that are relevant for us and which we choose to react to in some way.

And those are the things also that then later this year, we are now targeting December for this year to come out with the update to the strategy. Maybe we can also say to Joni that probably there will not be a huge change in strategy as we see the current strategy is working out quite well. So maybe it's more of like an update kind of review of the strategy.

[ Harris Vante Pofou ], AWS asks, does your IFRS numbers include cloud capacity resale figures or only margin you are making from the cloud capacity reserve?

[Teppo Talvinko, executive]

Yes. We include only the margins. So it's a kind of a commission like sales and that's why we record only the margin.

[Mikael Nylund, executive]

And that's something that we report as a separate number, mainly because the number is very small and not very material in the whole big picture.

Joni from Inderes asks your attrition level was very low in H1, especially comparing to the rest of the sector. That we are very happy about, yes. What are the key factors to this in your view? How sustainable are these low levels in your view?

There's, of course, 2 sides to this always. There's the market and there's how we as a company are doing. And I think we have taken very good steps forward as a company. The world changed quite a lot with the COVID pandemic with remote work being so prevalent and changing the way people's everyday life at work are carried out.

Community -- the feeling of community and building of communities has been, of course, different in many ways, much harder than previously when we had a lot more chances to meet at the office. So these are things that we have reacted to. We have changed the way our leadership system works. We have worked to provide people with new kinds of themes and so forth and adapt our earlier community-building efforts to the new world.

So we have done a lot of work there. And I feel we have also progressed. The other part is, of course, the market. And that, as I said, has been extremely competitive for a while now. If we now see a potential economic downturn that is something that also might change the market for talent.

We have now seen, let's say, startups and growth companies operating on venture capital, reacting to the situation. And we have seen even layoffs and changes in the talent market on that side. And that's probably -- that might, let's say, not probably, let's say, it might help our situation with a more, let's say, down-to-earth business model being a consultancy to attract the talent.

And Joni continues; regarding July figures, was there less vacation in July compared to last year? And was the personnel development or seasonality effect that levers are leaving, but new personnel are recruited to start in August. To start with the latter part of the question, yes, we have a negative effect if you look only at July figures which, is explained by us not recruiting people to start in the middle of the Finnish holiday season in July. That's something that we do consciously.

We don't want to do that. We recruit people in August, September and so forth, but not in July. So if we look at July and August combination, as things stand now we are on a good net positive side. So even if July can look like on first look a little bit negative, it's not a big problem and that's something that you should look at in isolation.

And then the vacation, it varies from year-to-year, but not that much. Vacations are, of course, first vacations basically starting in June with midsummer [ Johan ] and then continue in July and August. So there's a little variance between the years, but it's not huge and doesn't really explain differences in, for example net sales figures, if that's what maybe Joni was looking at.

Panu asks there is a huge risk in burnouts of this kind of strong profitable and growing ICT companies? What kind of extra investments you have planned for preventing these risks to realize as sick leaves had already increased? Well, yes, of course, usually, you can look at sick leaves due to COVID and other infections and like these, let's say, normal diseases in a different category than sick leaves related to mental health. And if sick leaves increase for COVID reasons, that usually doesn't necessarily mean that there is other kinds of problems.

But of course, for workers like we at Gofore have the mental side of the picture is extremely important. That's something that we have over the years taken notice of invested in and provide our people with the support that they need psychologist and so forth that we are available via the health care system that we use.

So of course, something that we feel is extremely important. I'm not sure if as such, the company's growth and profitability is something that is something that is reflected on higher amounts of sick leaves. Actually, I might argue the other way around. So I'm not sure that I agree there.

So next question, can you elaborate on your outlook for price increases in the future? How easily can you increase prices in the large public contracts? Well, if we focus on the public contracts, those are of long-term contracts from anything from 4 years to 7 years. And of course, to start with the unit prices are fixed there basically. But the standard system of contracts in the public sector are that we have a clause for how the prices will change over time. And depending on indices, depending on how the cost structure also develops. So there's a link there.

There is there -- it's mostly about customer price increases coming later than the salary changes. So it's -- that they might go out of sync in a way. But they have the clauses in the contracts for the price increases. And of course, that's something that in a situation like this, with a lot of inflation in the economy, that's important for us.

Jaakko from -- Jaakko Tyrvainen from SEB asks, first of all, you mentioned the increased level of uncertainty. What are the signals you have noted to make such comment? Well, it's -- I guess, we follow the same media. We have indications of potential economic downturn resulting mostly from the uncertainties in the world and geopolitical factors that are then reflected on inflation and such.

So there's -- as I said in the presentation, we don't have the individual customer's reactions to their situation, saying to us that there will be budget cuts. That's something that we consider a risk that there might be in the future. But while we lift up the uncertainties is the overall situation in the economy and not something that is specific to our business.

And secondly, Jaakko asks, given the current elevated inflation, have you recognized increased pressure in terms of salary hike expectations? I'll answer that by saying that we actually have a salary development system in place at Gofore, which is tied to profitability and growth of Gofore. So everybody is -- or not the whole group, but that's the direction we are working towards. So everybody is dependent for the salary rises is dependent on how Gofore is doing.

And this means that, of course, we want to look at salaries from like a customer price-first perspective. That is something that we, as a company and together with all of the Goforeans, want to see a good development in customer prices because that will automatically result in higher salaries, something that we view as a positive thing when these 2 are balanced together.

There are some indications of inflation. However, like working in the -- with another logic and that's something that we need to be worried about. And the worst outcome is, of course, that it will mean higher attrition if these people can find higher salaries at some other place. And that's the risk we as a consultancy company need to take.

And Jaakko's third question, your H2 '21 and especially Q4 were strong. Do you see room to improve the employee utilization rates when looking towards the second half? And are you aiming to keep the organic growth on as high as in H1?

That is extremely dependent now on the market. As things look now, yes, we are looking to keep that trend going that we have now and the good numbers. And if we look at only utilization rates, Jaakko is right. Q4 last year was extremely high utilization rate.

And compared to that, we still have room to improve if we can reach the numbers from Q4. So yes, there is room to improve if the market remains as good as it was also at the end of the year.

Daniel Lepisto from Danske asks, you noted that the demand and business climate in Germany was positive during the first half. How is your current capacity looking there in terms of customer demand? And are you sensing similar general uncertainty there than in your customer segments here in Finland?

I'm going to be honest here and say that Germany being a much bigger market and us being such a small player in that market, we don't have the same amount of information about the market that we have in Finland and that's something that we need to be honest about. So what we say about the German market is restricted to how we see demand from our own point of view. And that has been good. It's not necessarily an indication of what the market in general is looking like, it's mostly an indication of how we, in terms of sales are doing, which has been very good. And we are happy about the results.

Daniel asks also, you discussed that you are continuously looking for potential M&A targets. Can you discuss any clear gaps in your current capabilities and offering where you would see customer demand that you are currently unable to serve properly?

Well, yes, we are, of course, whenever we identify these gaps, we want to approach them from like several directions, developing our own capabilities, developing our own delivery capabilities for them. And then, the second one is, of course, the M&A track. I think one area where we see demand changing quite quickly and for obvious reasons, is cybersecurity and on that side, we have been working on developing our own capability, our own team of experts there.

And I've seen very good results there also. So let's see, hopefully, of course, we are hoping that we can meet the demand of our customers by organically developing our capability to deliver there.

[ Anders ] asks, the margin increase in H2 came from improved utilization, which offset that salaries plus 5.6% increased more than price increases, plus 4.2%. Before I continue with the discussion or the question any further, I need to point out that salary increases are not directly comparable to customer price increases. Around 60% of net sales is salary-related costs. The other part is other costs. So there's -- you need to take that into account. These numbers, 5.6% and 4.2% in balance are like a positive balance for Gofore when you look at it from this perspective.

But the question continues, how will you offset higher employee costs in H2 when you have less room to improve utilization year-on-year? Yes. So there are, of course, no magic tricks. In the short run, it's about exactly these things that we discussed. It's the price versus salary and it's the utilization rate. In the short run, there are no other like solutions to this problem. So these are the things that we work with.

These are the things that we need to be successful in order for our margins to stay on a good level. H2 compared to last year, it's true we don't have that much of an upside in terms of utilization rates, but there's always some.

And Jaakko Tyrvainen asks, again, a multipart question. First of all, you mentioned the Finnish parliamentary elections in '23 and the possible impacts to the public sector demand. Are you internally preparing for a slower demand in spring '23? And what are the lessons learned from the previous election year in 2019?

Yes, that's the dynamic of the public sector market. Every government will have its own program. That program will be reflected on investments. And we are expecting a slower time with regards to how many tenders there will be out there and the activity in terms of winning new tenders.

However, that it's especially important for us now that we have had such good success just before summer, winning these big tenders, winning -- building like a good platform for us going into H2 and also the year '23. So what remains there is that we need to work together with our customers, show them that we are useful to them and have a positive customer demand via already won contract. So this is something that we are expecting to happen and that's as I said, why we are so happy about the good success that we've had before summer.

And Jaakko's second question is your prices were up more than 4%. What is the outlook for the second half? And are you seeing the competitors also being active in their pricing?

Well, I guess there are. Again, a few dynamics there that are in work in the market. First of all, if we have a slowdown in the economy, if you have an economic downturn and we will see less customer demand in certain customer segments, that will, of course, increase price pressure on -- because then there will be supply that will be directed at other customer segments.

So that's something that will result in price pressure on the market. On the other hand, inflation, of course, is driving prices up. It's a difficult situation for our customers. No question about that. Their prices, their cost structure is under pressure via inflation. So we need to, of course, take that into account. But I think everybody understands when the economy is in inflation, prices tend to go up also for our services.

And one more question from [ Stephen ]. How do you build themes around your customers or around your businesses? So how we organize is primarily around the customers. And that's, of course, quite a dynamic way of organizing. So people are changing themes and changing customers. That's quite usual. But that is the primary way of organizing and I think in our business.

And the way or this area of expertise and the self-organizing nature of how we do work, that means that this is a -- this is the correct solution, let's put it that way. We are also organized around businesses, basically capabilities and expertise. So that's like a secondary dimension for organization.

And then, there's a new question from [ Ian ], why German, the most challenging market in Europe, slow growth, why not South America, North America or Asia? This might be true. I will not comment on the premise of the question as such. Germany is a close market to Finland. Germany is a much larger market than Finland and Germany, let's say, on an average without like trying to point fingers at the Germans, but on the average, I think we agree with the Germans also that they are a few years behind in terms of digitalization.

And that's why we feel that a Finnish company like Gofore and Finnish expertise is something that has a lot of positive things to teach the German market and the German organization, both in terms of public sector where there might be an even bigger gap between Finland and Germany and the private sector organizations.

Okay. We have one more question. I think we will take this one and then we will be done. We have one question from [ Frans Michal Ruste ] that in Q2, the other operating expenses grew 47%. I think this is for you, Teppo. I'm going to start over. So in Q2, the other operating expenses grew 47% compared to the last year. Do you expect the share of other operating expenses to be structurally higher compared to 2020 and 2021 due to the ending of some COVID-related savings?

[Teppo Talvinko, executive]

Actually it's something that is fluctuating throughout the time. And yes, there is I would say negative trend, if you compare year-on-year basis, operating expenses to the last year. I'm not so worried about the situation, the overall situation. So I don't expect that will be any big issue for us. Of course, we are closely following up the situation. We want to do right measures to keep the OpEx levels in a sustainable level.

[Mikael Nylund, executive]

Great. Thank you so much, everyone, for the questions. Very good discussion and let's continue the discussion with the full year report in the beginning of next year. Thank you.

[Teppo Talvinko, executive]

Thank you.