Crayon Group Holding ASA

OSE:CRAYN

Earnings Call Transcript 2023-Q1

[Kjell Hansen, executive]

Good morning, and welcome to Crayon's Q1 2023 Results Presentation. My name is Kjell Hansen, and I'm the Head of Investor Relations. With me today presenting the key developments and financial results for the quarter, we have our CEO, Melissa Mulholland; and our CFO, Jon Birger Syvertsen.

As usual, after the presentation, there will be a Q&A session. For those of you who are following the live event, you can submit your questions to the other platform. A recording of the webcast will be available on our IR pages after the live event has ended.

And with that, I hand it over to Melissa.

[Melissa Mulholland, executive]

Crayon delivered over NOK 1.2 billion in gross profit in Q1, up 31% year-on-year, demonstrating our robust business model backed by customer demand for software and cloud. The global IT market remains strong despite the global macroeconomic challenges we have seen over the last year. We delivered solid gross profit growth, driven by strong performance in the Nordics at 26% growth and Europe growing at 53%. Norway delivered an all-time best growing gross profit 40%, while EBITDA grew 65%. Adjusted EBITDA increased 50% to NOK 185 million, reflecting a margin of 14.7%, an improvement of 1.9 basis points compared to Q1 last year. This is in line with the plan we set in the beginning of 2023 to ensure stringent cost control to drive profitable growth and margin expansion. In addition, cost efficiencies alone expected to drive 0.5 points of margin improvement. We have also been very clear that we have a high focus on improving cash collections and cash flow performance. During the last 6 months, we have implemented several actions to ensure that this is the highest priority and focus throughout the organization. To continue delivering growth, we are focused on 3 priorities. First, helping customers navigate the complexity of the right software and cloud licensing for their needs. Second, optimizing the spend basis across their IT environment to enable the most economic value and return on investment out of their digital spend. Third, margin improvement with creating operational efficiencies to support continued growth. We delivered solid gross profit growth across all market clusters and business areas, building upon was just mentioned in the Nordics with record-setting performance. Let's look at the other markets in further detail. In Europe, growth in Software & Cloud Direct was particularly strong, growing 57% year-on-year. We see that our efforts to expand services is demonstrating results with Software & Cloud Economics and Consulting, growing 70% and 44%, respectively. We saw strong growth in Austria and Switzerland, which is a result of our cross-border efforts to leverage resources and skills to drive efficiencies and scale. This performance reflects our continued focus on driving growth in high prioritized markets. In India, APAC and MEA, Software & Cloud continued to deliver a solid performance. We also see that the Service business continued to expand, which is supported by strong growth in India with acceleration in AWS and Microsoft Cloud. Lastly, the U.S. continues to deliver growth, which aligns to our strategic focus, and we see clear benefits of the investments we have done over the last period to support future growth. Clients are facing a challenging economic environment, having to weigh inflation concerns, increased cost pressures and uncertain demand outlook against developing and modernizing their IT ecosystem to support and deliver business value. According to Gartner, it has indicated that despite the volatile labor market and economic uncertainty, organizations are moving forward with their digital technology initiatives. In the 2023, Gartner Board of Directors survey on business strategy in an uncertain world. 60% of nonexecutive Board of Directors said implementing digital initiatives is among their top 5 business priorities, 89% of Board members no longer see digital as a separate strategy as it is implicit in all business growth strategies. Digital transformation is accelerating, and the complexity is also increasing. Cloud migration continues as many clients, including public sector, are shifting to the cloud. Migration and modernization of IT has been a driver for our growth across the Nordics and Central Eastern Europe this past quarter. The hyperscalers reported increased cloud migration as well as large enterprise business, modernize their networks to gain increased business efficiencies. Once migrated, there's still an aspect of cloud management and spend optimization that occurs as cloud workloads are consumption-based and yield increased costs for businesses. With the launch of our cybersecurity practice in 2022, we continue to see security as a high priority for clients. From digitizing workloads to increase data consumption, the need for secured environments continues to be a top agenda item. Demand for data and AI is unprecedented. Clients want to understand how they can utilize this technology to support and improve their business. With the immersion of ChatGPT, OpenAI, it minimizes barriers to entry for clients than in years past. With our customer-centric model embedded in the Crayon culture and go-to-market, we are uniquely positioned to assist these clients in achieving the highest possible ROI. And looking at it from a macroeconomic perspective, we continue to see demand for IT as businesses are looking to maximize ROI on their digital spend, modernizing their IT estate and finding solutions for saving time and innovating for the future. In the Nordics, the economy is stable with clear need for digitization. While the Nordics was a front runner in the migration to the cloud, there are many businesses that still require modernization, especially in the government public sector. With a high concentration on technology, it is also a competitive market for technical talent. In Europe, we are seeing high demand for cloud services focused on transformation. This is exemplified in the Ukraine, where despite the government focus to digitize and have high technical certifications, the fourth largest in the world for the Ukraine all up, many companies are reluctant towards the cloud and now are forced to transition in this war environment. In the U.S., there's a challenging economic environment with inflationary pressures and recessionary concerns. Cost-saving initiatives, security and automation are key concerns for CIOs. The tech layoffs did create a wealth of talent pool, yet the labor costs are still high. In APAC and MEA, we see a demand for multi-cloud solutions across the board. According to a recent Deloitte study, roughly 84% of enterprises in India prefer hybrid or multi-cloud environments, creating a competitive scenario with the hyperscalers as public cloud spending is expected to continue with Gartner forecasting 27% of spend in 2023. Now shifting to the U.S. The U.S. is a market that we've clearly stated as a key priority as it represents the largest market opportunity for us. We established an entity in 2015 with the acquisition of Anglepoint and was able to expand into the market with software asset management. Like the entry into many new markets, establishing partnerships with key vendors is critical for us to gain access to new customer leads as well as through our global relationship ease the time to profitability. In 2019, we broke even and continue to focus on driving GP growth while maintaining profitability. In 2021, with the economic uncertainty and fluctuations in the labor market, we experienced higher turnover and instability in our organization. Despite these challenges, we continue to grow. But it was critical, and we needed to reinvest back in our employees. And I'm proud to share that 18 months later, we have 91% employee satisfaction with a Great Place to Work certification. Over the last year, we have increased the capability of our team through training, development and our centralized hiring approach. Looking forward, we will continue to invest in scaling up the sales organization to span the U.S. coast to coast. We will focus on mid-market customers, 10,000 employees and below for Crayon U.S. and above 10,000 employees for Anglepoint, delivering cost optimization, offerings and services to our customers. Additionally, we have expanded in North America with Canada as a new entity with the prioritization towards software asset management through Anglepoint. As part of our long-term strategy, it is crucial we deliver on our customer-centric business model. To do so, we must demonstrate the skills and capability to deliver multi-cloud solutions with the hyperscalers. I am pleased to share that we have expanded our relationship with AWS with the renewal of a 4-year agreement. This agreement expands our existing AWS premier tier services partnership to accelerate cloud adoption and migration for our customers. It was built on a multiyear journey of demonstrating technical competency to deliver solutions, along with a commitment to expand with a dedicated team of 500 specialists worldwide. We will affirm our commitment to our multi-cloud strategy with this expanded agreement. In 2017, we established a data and AI practice in Oslo and expanded to Austria in 2019, and now have teams based across the world in APAC and the Middle East. The team is comprised of 140 resources and has a track record of delivering over 100 solutions in production and over 300 projects delivered to date. We are vendor agnostic, and it is critical we have the highest degree of certification and skills possible. Our differentiation in our model is proximity to the customer. We ensure our experts are engaging directly with the customers to help them with their challenges. In 2019, we were recognized as AI Partner of the Year by Microsoft, which further accelerated our time to market and expansion efforts worldwide. We specialize in 3 areas of our data and AI practice: decision intelligence, computer vision and language technologies. Decision Intelligence is where we create end-to-end AI solutions using structured data with expertise in predictive maintenance, supply chain optimization, production process optimization and customer insights. With computer vision, we create end-to-end solutions using image and video data that specializes in image recognition, human recognition, privacy protection and scene analysis as well as document analysis. With language technologies, we create solutions using text and speech data. With language technologies, we can build solutions for documenting, processing workflows, customer service support, think a bot as well as cognitive search. This service area is where we are applying OpenAI, ChatGPT to expedite the time to create a solution and add incremental value to the model. We are one of the global OpenAI partners for Microsoft as it is seen as a fast-growing business for us.

With our practice, we have created industry-focused solutions across manufacturing, safety management and agriculture from ensuring that there's a visual quality check in the manufacturing process to alleviate downstream issues for the customer also helps mitigate costs. Additionally, we support the platform advisory and delivery around customers' data environment. Data sets are complex and vast. There is a high demand for this in our practice today. Lastly, we provide services among many sectors within data and AI that are required throughout the life cycle of a model from producing and starting a model to bug fixes, technical product updates, operations and change management. Now to share an example of our data and AI capability, let's look at a recent customer win. We engaged [ Ganari ], a company focused on pioneering technology to unlock the full potential of seeds that is used in grain production. Their focus is to optimize efficiency in the use of land, water and fertilizer to help ensure that the abundance of plant life through seed production is sustained. To help with this effort, they were looking to support in managing the governance of their machine learning models, finding diverse tools to optimize costs, improve reliability and maintenance. Our team engaged through a thorough process where we listen to the customers' needs and built a scalable unified data platform to help manage data governance in a more efficient way, built an ML Ops platform to optimize costs and improve reliability. The result was an overall better performance with up to 10x faster response time, cost savings with a unified tooling stack and scalability with the reliant solution. Expanding further, this is another great example of how we are integrating ESG into our business. It is important in Crayon that we do not only treat ESG as a must-do, but actually integrate it into our culture and our go-to-market. As an outcome of this, we created an innovation fund in 2021 as an internal initiative to inspire our employees to find creative ESG-related projects to impact society. Since launching this fund, we have delivered over our first project in collaboration with Fauna & Flora, an AI for good with Microsoft. Fauna & Flora is an international conservation charity and nongovernment organization dedicated to protecting the diversity of life on Earth. They seek support from us on tracking changes with the Mu Cang Chai forest, which is a fragile state due to its home and due to the last population of western black gibbons in Vietnam. They wanted to measure the habitat changes and forest degradation created from cardamom cultivation. Crayon developed an AI computer vision model that use remote sensing and machine learning to detect illegal cultivation through satellite imagery. In doing so, this will aim to prevent the cultivation from occurring and sustain the wildlife and rare black gibbon population. This is a great example of applying our vision statement around technology for the greater good in aiding deforestation and helping to preserve wildlife through an ESG focus on the planet. Lastly, our final customer story for this quarter is centered around how we support customers around the complexities of digitization, cloud and cost. STADA is a global manufacturer of high-quality pharmaceuticals, operating in 120 countries. The vast scale of the company requires a heavy reliance on infrastructure to run its day-to-day operations. And as a result, had 40 local on-prem data centers across 13,000 users. Given the complexity of managing the distributed data centers, along with the high energy costs and skill needs, STADA looked to Crayon for assistance with consolidating this and trim more agile infrastructure with cost efficiencies. We help STADA develop a cloud strategy based on cost optimization, standardization and innovation, a unified approach for management, governance and compliance for all distributed data centers. Crayon acted as a consultant during the process between AWS and Azure, and the customer then chose which solution was right for them. As an outcome, we helped STADA save EUR 3.3 million and in addition to our cloud economic service, saved 43% of their cloud revenue, resulting in an additional EUR 1 million. This is a great example of how we help customers solve complexities through cloud workloads and as a result, find cost synergies that they can apply to the business. Now with that, I'll transition it over to JB for the financials.

[Jon Syvertsen, executive]

Thank you. I look forward to taking all of you through the financial sections of this Q1 earnings presentation. As a reminder, all numbers are Norwegian kroner unless otherwise stated. Now moving back to the underlying business performance in the quarter. We are continuing our growth journey with an annual gross profit growth rate of 35% over the past 3 years, driven both by strong organic growth and accretive acquisitions. The growth opportunity is with and by Crayon's unique business model, leveraging both service capabilities and transactional capabilities across all major vendors. This growth opportunity is clearly an attractive opportunity for Crayon as we are driving profitable growth, leading to continuous EBITDA improvements. On the right-hand side, we see how EBITDA has tripled over the same 3 years, leading to a last 12-month EBITDA of NOK 901 million. Crayon has been and continues to be on a journey, going from a Nordic company to an international company. And by now, we have come a long way on this journey. The light gray bars represents our international business. In Q1 2023, we continued our international expansion journey. And on the last 12-month basis, 56% of the gross profit is coming from international markets. All up across international segments, we're seeing 31% growth while the Nordic delivered a standout quarter with 26% gross profit growth, leading to a total of 56% of the gross profit in line with what we saw for the full year 2022. More importantly, as we scale up the international business, it has become a major driver of profitability for the business with 47% of the adjusted EBITDA. As recently as 2019, the international business was practically breakeven. Now breaking down the performance by the specific market clusters. In Q1 2023, we saw a historically strong performance in the Nordics. This was driven, first and foremost, by Norway where we saw more than 40% growth year-over-year. We also saw Software & Cloud Direct being the key driver of gross profit growth in the Nordics. In Europe, I'm happy to report that multiple of our core large opportunity European markets, such as Switzerland, Germany and France, drove significant gross profit growth. And we're also driving significant growth in Eastern Europe, with Poland as the largest country in the region, delivering 200% growth year-over-year. Also here, Software & Cloud Direct and Channel remains the primary driver of the growth. In APAC and Middle East, the clear standout is India, which delivered 73% year-over-year growth. We saw growth across all of our business areas, also here with Direct and Channel driving most of the growth. In the U.S., as Melissa highlighted, we're starting to see the growth investments materialize. We continue to build the organization and invest in growth acceleration, leading to a negative year-over-year development on the adjusted EBITDA in Q1 in isolation. Now moving to the outlook of the performance by the business areas. We're seeing strong growth in Software & Cloud. But also across Software & Cloud Channel and Software & Cloud Economics, we're seeing strong growth. In particular, Software & Cloud economics is interesting to see the strong growth rates as they correspond well to the expected behavior of the segments in a period with more macroeconomic uncertainty. Also in Consulting, we're continuing to drive strong growth with 25% growth year-over-year. In total, we delivered 31% growth for the quarter. In constant currency terms, this is 23% as the Norwegian kroner has depreciated significantly against multiple of the operating currencies globally. From an EBITDA margin perspective, we're seeing continued strong margins from the Software & Cloud Direct and Software & Cloud Channel segments, clearly demonstrating the scalability of this business model. Software & Cloud Economics continued to drive solid margins. While on the Consulting side, we're seeing a 5% EBITDA margin, which is clearly affected by continued investments in scaling out the organization globally with 200 new headcount added in the last quarter alone. From an LTM basis, we're seeing a continued strong margin in the Nordics, north of 30%, clearly representing the margin potential for a business operating at scale. In APAC and Middle East, we're seeing a stable margin development. And here, it is important to note that the Q4 margins were significantly negatively impacted by onetime costs of NOK 40 million. In Europe, in Q1, we're seeing the scale benefits materializing, while in the U.S., we continue to invest in driving growth. For Crayon, generating a strong cash flow from our underlying business is obviously a key financial objective. And for a high turnover business like Crayon, working capital is a critical part of our cash flow results. As a management team and as a business, we invest significant time and efforts into driving working capital, and we have put significant efforts into this during the last year and during Q1. Before diving into the Q1 working capital, it is important to keep in mind that our business is seasonal. And as a consequence, we're seeing significant variability in working capital between the quarters. However, independently of the seasonality, Crayon has a consistent track record of a strong working capital position and a negative working capital, which is important as it ensures we can continue to drive growth while supporting a cash flow from the business in order to continue to reinvest in growth opportunities. And again, here, I would like to remind everyone and stress that a negative working capital in this setting is a positive because it implies that working capital is a source of funds and not a use of funds. Starting with the working capital in Q1. We have accounts receivables of NOK 6.6 billion, while account payables to vendors amounts to NOK 7.3 billion. This results in a trade working capital of minus NOK 645 million, which is a decrease of NOK 567 million compared to March 2022. Furthermore, we have other working capital, which includes things such as payable public duties, taxes, accruals and other short-term receivables and payables totaling positive NOK 427 million. This has increased year-over-year, NOK 118 million, which is an improvement of NOK 216 million year-over-year. This achievement is even more significant in light of the headwind caused by the outstanding receivables from the public sector customers in the Philippines of $45 million, which was not a factor in Q1 2022. And it is very encouraging to see that the underlying working capital performance has improved significantly compared to the previous quarters. To be clear, we continue to see significant opportunities for improving this working capital position back to historic levels through strengthening credit and collection processes, and we'll continue to drive those efforts aiming at improving the working capital position in 2023. When it comes to cash flow, we're seeing a cash flow from operations in Q1 of NOK 69 million, which is a significant improvement compared to Q1 2022, reflecting the improved working capital position in Q1 2023 versus Q4 2022. However, in order to look across the cycles, it is helpful to look at the development of the liquidity and the cash over the past 12 months.

The waterfall below illustrates how the net cash position and liquidity position has improved significantly. In Q1 2022, we had NOK 785 million in cash. During the last 12 months, we had an adjusted EBITDA of NOK 819 million, while the change in net working capital had a positive impact of NOK 88 million as seen from the cash flow statement. Capex had a negative effect of NOK 152 million, while increased RCF utilization increased cash with NOK 750 million. Tax and interest amounted to NOK 300 million, while bond repayment and lease payments under IFRS 16 amounted to NOK 352 million. Finally, currency translation and other effects amounted to NOK 225 million negative, leading to a net cash position end of quarter of NOK 1.4 billion. Furthermore, the liquidity reserve of the business has also improved significantly as the cash position has improved with both additional financing capacity on the RCF and a committed overdraft facility in place. This leads to a net debt-to-EBITDA ratio of 2x, clearly demonstrating the financial solidity of the business. When it comes to the P&L, we have already covered the items down to EBITDA and the operating performance underlying us. Depreciation and amortization is in line with plan, with depreciation and amortization increasing year-over-year but stable compared to Q4 2022. Interest expenses increased year-over-year as a consequence of the underlying interest rates somewhat offset by the reduction in debt as we repaid the NOK 300 million bond loan in November, but interest expenses are at the same level as they were in Q4 2022. Other financial income and expenses is a negative contribution of NOK 153 million, which is driven by currency effects on our balance sheet items denominated in other currencies and the functional reporting currency of our operating subsidiaries. It is important to note that this is offset by a positive effect of NOK 197 million in comprehensive income from currency translation of the subsidiaries to the reporting currency being NOK, whereas this is booked against the equity. When it comes to the balance sheet, we have already discussed the net working capital. Intangible assets increases year-over-year, primarily driven by the currency impact on the goodwill, in particular for the goodwill from the rhipe acquisition. Tangible assets increases primarily as a consequence of the long-term leases of our new premises in Oslo and Australia. On the liability side, we have a NOK 1.8 billion bond loan from the rhipe acquisition maturing in July 2025 combined with an RCF with a similar maturity, representing the interest-bearing debt. Lease liabilities reflects long-term office leases in the different locations we operate. Looking at the net interest-bearing debt to adjusted EBITDA, we are now at a leverage ratio of 2.2 in what is seasonally one of the weaker points to measure this, which clearly demonstrates that Crayon still has a strong balance sheet to continue to drive our M&A strategy. Furthermore, as we continue to drive growth, margin improvements and working capital optimization, this will further support the deleveraging, both through cash generation and through reducing the leverage ratio as adjusted EBITDA continues to grow, providing Crayon with flexibility when it comes to executing on M&A or returning cash to shareholders as appropriately. Our Q1 results, as we have presented here today, clearly demonstrate we are on track to deliver on the guidance we've put forth for 2023 and beyond. Over the last 12 months, we have delivered 38% gross profit growth and organic gross profit growth of 32%. With 23% constant currency and gross profit growth in Q1 2023, we are well on track towards our target of around 20% of gross profit growth in 2023 and beyond. For EBITDA margins, we have delivered 19% EBITDA margin over the last 12 months while continuing to invest in driving business growth. We remain committed to our EBITDA guidance for the full year of 20% to 21% as we continue to focus on margin opportunity improvements across the business, in particular by aligning resources with near-term margin opportunities across the different business areas. On the net working capital side, we're also on track to meet our year-end target of between negative 5% and 15% of the full year gross profit as we continue to drive working capital improvements and collection on the outstanding public sector receivables in the Philippines. On the CapEx side, we are also in line with our 2023 CapEx targets of approximately NOK 125 million with a CapEx of NOK 34 million in Q1. The NOK 152 million on an LTM basis is driven in particular by high CapEx in Q4 2022 related to new premises in Oslo and Australia. With that, I transition back to Melissa for wrapping it up before we move on to Q&A.

[Melissa Mulholland, executive]

Thank you. We will continue to deliver growth and profitability in 2023 with a focus on 3 main priorities. First, capitalizing on the resilient market demand by optimizing a customer's IT environment to enable the most economic value and return on investment out of their digital spend. Second, we continue our customer-centric approach by helping customers navigate the complexity of rightsizing software and cloud licensing for their needs. Our performance is a clear result of executing on our strategy. Customer centricity is the core business model and go-to-market of Crayon. We will continue to execute on what we do best while expanding our services portfolio into new regions. Third, we will deliver shareholder value by focusing on margin improvement by creating operational efficiencies to support continued growth. Thank you for joining our Q1 earnings presentation today. We will now transition to Q&A.

[Jon Syvertsen, executive]

Thank you. And to start off with the questions, I think we have a question from Martin Jungfleisch from BNP. Have you seen any pull-forward demand in Q1 due to upcoming price increases at Microsoft in Europe? And then a similar question from Oliver Pisani from Carnegie relating to the Nordics.

[Melissa Mulholland, executive]

Great question. No, we do not see pull-forward in Q1 as a reflect of our results as of right now. Yes, when Microsoft does meet pricing changes, we naturally ensure that that's part of our overall business, and we carry that forward. But in this case, we are not seeing a pull-forward at this stage.

[Jon Syvertsen, executive]

Thank you. Then we have another important question from Kristian Spetalen at Arctic. Could you please provide a firmer outlook of the U.S. in terms of timing of reaccelerating growth? And will this come at the expense of short-term EBITDA in 2023?

[Melissa Mulholland, executive]

Thank you. I will get to the U.S. question, but I realize that some of you may not have heard the answer to my first question, so I'll repeat that answer and then I'll get to the U.S. So the question around pull-forward for Q1 with respect to Microsoft price increases due to FX, the answer is no. We do not have a pull-forward effect for the business all up. There always will be a carryforward for any price changes to the end customer as that's built in our inherent business model. In regards to the U.S., we are continuing to prioritize gross profit growth given our scale position in the U.S. market. This will require continued investment in personnel costs as we have stated previously. We are looking towards the second half of the year to see accelerated growth in the U.S. market.

[Jon Syvertsen, executive]

Thank you. Then we have a question from Oliver Pisani at Carnegie. Does AWS have any other partnership agreement with such a big scope? Does this new agreement differ in geographic scope from the old one?

[Melissa Mulholland, executive]

The AWS agreement is applicable to other large global partners that have built a relationship with AWS, so that is not specific to -- it is an elite group because we have built the capability, but it is something that we've worked hard to do over the years. So this is a renewal of the agreement that we made several years ago. This is a 4-year agreement, and it is global in nature. And as a consequence, we will continue to invest, especially on the consulting side to ensure that we can deliver globally across the world with AWS.

[Jon Syvertsen, executive]

And then we have a good follow-up question to this. How does your AWS announced partnership influence your partnership with Microsoft?

[Melissa Mulholland, executive]

Microsoft globally is aware and familiar with these types of multi-cloud engagements as like our competitors also have multi-cloud businesses, even Microsoft has developed partnerships with its competitors. So this is something, I think, that's not net new. Of course, they want to make sure that we continue to accelerate the growth on Microsoft, which we will continue to do. The reality is, is that we have a customer first-centric business model, and we need to be in a position where we support our customers on what they need. The vendor does not dictate that, the customer does. And we're there to position and guide them through that. So it is essential that we continue to have multi-cloud capability, and I'm proud of the fact that we've continued to do so with AWS.

[Jon Syvertsen, executive]

Thank you. Then we have a few more business-related questions before we move on to more financial specific questions. We have a question from [ Frederick Naz ]. You have delivered 300-plus projects on AI. Can you specify how the pipeline project demand has developed year-over-year and quarter-over-quarter? And in general, what financial opportunities does AI provide for Crayon?

[Melissa Mulholland, executive]

Thank you for the question. As we have established a business that is well positioned for significant growth with market demand for AI solutions, this is something that we've built over many years. We have a diverse skill set now across Microsoft, Google Cloud as well as AWS, which positions us well to continue to deliver innovative solutions for our customers. The pipeline has increased substantially based on our global position, specifically on OpenAI as we are a prioritized partner with Microsoft, and we believe that the ChatGPT opportunity will continue to accelerate. We will continue to execute on these opportunities as we provide advanced solutions and services to our customers.

[Jon Syvertsen, executive]

Then finally, a question from Kristian Spetalen of Carnegie (sic) [ Arctic ], which is also mirrored by Markus Heiberg at SEB and Christoffer Bjørnsen at DNB. Can you provide some color on the performance in APAC in Q1? Growth tapered off quite a lot and margin was down year-over-year. How should we think for the remainder of 2023?

[Melissa Mulholland, executive]

APAC and MEA is a diverse set of geographies. It spends Australia and New Zealand to Southeast Asia, India, the Middle East as well as Africa. Overall, we are seeing demand to continue to be strong but are seeing slower decision-making time, specifically on larger deals and around Software & Cloud. This is due to the macroeconomic effect, which is starting to impact this part of the world. As historically, it's been isolated from the other impacts that we've seen in Europe, such as the energy price surge as well as inflation and recession concerns in the U.S. Now we are starting to see that inflationary impact and slowdown in decision-making hit this part of the region. However, I will comment the fact that we still see growth potential in this part of the world. India is delivering strong growth, which is attributed to the high demand for cloud, and this is going to be a continued growth area for the region in general.

[Jon Syvertsen, executive]

Thank you. Then I have a few questions around the outstanding public sector -- outstanding receivables of $45 million with the public sector in the Philippines, and I'm happy to update on that. We continue the process with the Central Audit Commission of ensuring that all questions raised in the process is answered to satisfaction. They are currently reviewing, and we are awaiting their final report, which will lead to the payment of this receivable by the public sector procurement body. And we continue to expect that to take place during Q2. We will, of course, update the market once this is completed as this is an item where investors are taking a significant interest. I also -- related to this, I have a question on whether we have stopped supplying the Philippine government with software or whether this receivable balance will keep growing. To be clear, this is a specific contract. This was a 3-year agreement on Microsoft licenses, which was for the first 2 years of the contract where we received on-time payments, whereas the last payment under this contract has been held up in this process. We have not renewed this contract specifically, so we do not see any concern on that. We also have other business with other parts of the Philippines government at a smaller scale, but still that continues and that's where the outstanding receivables are continuously serviced in line with any other business we do globally. Then I have a question from Martin Jungfleisch at BNP. Can you remind us on the ForEx benefits on EBITDA? You said the constant currency growth was 23% in Q1, but what was the rough benefit on EBITDA? So on EBITDA, there, the constant currency number is, for all practical purposes, similar to the reported number. And the reason is when you look at the breakdown of EBITDA in the quarter, you see the majority of the EBITDA, given that this is a smaller quarter, is generated in the Nordics, offset by headquarter cost, which is also predominantly centered in the Nordics, which means that the constant currency EBITDA is practically similar to the reported EBITDA. Then another question on wage inflation in 2023. Has this increase been fully reflected in Q1? Or will there be an incremental headwind in Q2? How successful are you in passing on higher cost and raising prices? I think, fundamentally, across the majority of the market, the payment -- the salary adjustments are during Q1. So as such, this has been completed. Of course, there is inflationary pressure across the economy. On the other hand, in many sectors, we're also seeing that flattening out high demand for certain categories of technical talent has been a feature of the business for the past few years. And in some categories, we're actually seeing it easier to recruit and drive growth and moderate salary increases than what it's been historically. And in general, we are in a position to pass this on to the customer as all competitors are facing the same inflationary pressures. Then for the final few minutes to take the critical questions. Can you comment a bit on the exit growth rate in Q1? Some of your more hardware exposed peers have reported a deceleration towards the end of the quarter. Fundamentally, we are -- we saw sort of continued strong demand in Q1, and we continue to operate in that environment. And we have not seen any drastic changes to the demand environment during Q1 or during the year for that matter, so that's not a view that we would share. Then I have a question on the net working capital from Oliver Pisani at Carnegie. It seems like the net working capital improvement is driven by higher accounts payables than lower receivables. Could you provide more color on what's driving this? So for Crayon, net working capital is driving -- net working capital performance is indeed sort of about collection from the customers. That's the variable we have. The accounts payables is a function of the business we do, and the payment terms with vendors is a constant. So our ability to influence net working capital is indeed driving collections with the customer, which would result in lower receivables relative to payables. So from that perspective, that's indeed the dynamic, which is driving the improvement. And that's basically how improving working capital should manifest itself in the balance sheet. Then we have one more question, basically, on our M&A strategy going forward, which I think is a good question. Regarding acquisitions, how is pipeline evolving? Why not reduce gross position of debt by reducing our gross cash position in order to reduce interest costs? And fundamentally, we continue. I mean, the clear capital allocation strategy by the Board has been -- driven by the Board and executed by management is to find and execute on attractive accretive M&A opportunities with strong synergies. We continue to look for those, and we continue to have a pipeline of acquisitions. But like we have demonstrated in the past, we also have a high bar for ensuring that the acquisitions we actually act on have a pricing and a value creation profile, which gives us strong confidence in being able to execute on value creation from those acquisitions. And should we not find those acquisitions, then definitely, our gross debt will be reduced as we generate cash flow from the business. And should we, at any point in time, get to the position where there's significant cash on the balance sheet and no strong acquisition pipeline or opportunities for that, of course, there will be a discussion and an evaluation around returning cash to shareholders.

I think that's what we have. I think we're at time there. Thank you all for the questions. If you have any further questions, by all means, feel free to reach out to investor relations at crayon.com, [e-mail]. Thank you for the attention, and look forward to talking to you again in August around Q2. Thank you.