Crayon Group Holding ASA

OSE:CRAYN

Earnings Call Transcript 2023-Q2

[Operator]

Good morning and welcome to Crayon's Second Quarter Result Presentation. My name is Kjell Arne Hansen. I'm the Head of Investor Relations for the company. With me today presenting the 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 via the platform.And with that, I hand it over to Melissa.

[Melissa Mulholland, executive]

Crayon delivered over NOK 1.5 billion in gross profit in Q2, up 23% year on year, demonstrating strong growth momentum in the market driven by demand for Software & Cloud. Savings on Software & Cloud spend continues to resonate in this macroeconomic environment where CIOs are faced with cost pressures and expectations to deliver maximum return on investment, which Crayon is well positioned to provide to customers through our Cloud Economics and FinOps offering. We delivered solid gross profit growth driven by strong performance in the Nordics at 16%, Europe growing at 50%, and the U.S. at 31%. The U.S. growth performance reflects the investments made over the last year, and we are now seeing this materialize in strong gross profit performance.Adjusted EBITDA increased by 2% to NOK 351 million. This is driven by continued investment in personnel costs to fuel the growth potential of the company as well as the inflationary environment and price pressures that continue to persist on the consulting business. We have also been very clear that we have a high focus on improving the delivery growth across 3 core priorities: first, helping customers navigate the complexities of the right Software & Cloud licensing for their needs; second, optimizing their spend base across their IT environment to help the most economic value and return on investment out of their digital spend; third, margin improvement with creation of operational efficiencies to support continued growth.We delivered solid gross profit performance across all market clusters. Building on what was just mentioned on the macroenvironment, let's look at the markets in further detail. In the U.S., we have prioritized rebuilding the business with a focus on new leadership and a clear go-to-market in terms of our ideal customer profile, which ranges from 500 employees to 10,000, spanning approximately 24,000 customers that we could penetrate. This is where we believe we have a significant opportunity to gain market share. In the Nordics, we continue to deliver diversification of our vendor portfolio, driving continued strong GP performance at 16% year on year.Europe has delivered consistent growth of 50% over the last 2 quarters and is now further realizing the scalability of our business model, based on the increased focus of winning market share on Software & Cloud [Technical Difficulty] global slowdown and inflationary pressures. The Channel and Consulting businesses are the 2 areas where we see weakness in the region. Starting with Channel, we have seen a decline in the Channel business in India due to the focus on improving payment terms and decision timelines from our customers and our partners.Regarding rhipe, it is important to state that rhipe's Channel business continues to grow. Australia represents 55% of the Channel GP in APAC. And MEA continues to be in line with historical performance. For services, rhipe made an acquisition of a service company that delivers Azure Migration, [ Dynamics ], and security capability. These entities had a slow performance in Q2, and we are actively working on a plan to integrate their capability into Crayon.To deliver on our ambition and accelerate continued growth, we are focused on 3 growth drivers: the first is capturing on market demand as we continue to scale up; second, we will drive scale through our Software & Cloud licensing business; and lastly, we will continue to expand service upsell with our customers. From a geographic lens, in the Nordics, we will deliver continued profitability with vendor diversification, expanding our reach with cloud services, specifically in advanced areas such as AI and security. In Europe, we will continue to execute on the foundation built across Software & Cloud licensing, and we'll provide more details later in the presentation.In APAC and MEA, we will deliver synergies through the service entities acquired through the rhipe acquisition through a defined offshore and onshore model to increase margins and utilization, leveraging the deep technical capability. Additionally, we will build on the ISV channel success in the Nordics, replicating this experience across India, MEA, and APAC given the strong channel base that we have in the region.For the U.S., we will continue to execute with a clear focus on our customer base, our winning value proposition which is Cloud Economics and a SAM first approach. Our H1 performance further demonstrates the robust demand we continue to see in the market, with 27% GP growth year to date and 23% on EBITDA. This is based on continued market performance in the Nordics and Europe and improvement in the U.S. given prioritized efforts in hiring. We have hired 660 new people year to date, and it is important in Crayon to build the capability to meet the demand we see from customers on complex areas such as data and AI.Our H1 results that I showed on the previous slide clearly demonstrate a solid performance so far in 2023 with a 27% gross profit growth. To reflect the strong market demand and growth momentum for Software & Cloud and associated services, the company is increasing its outlook for gross profit growth from 20% to 25%. Crayon's profitability for the first half of 2023 was also solid and the over-profitability in NOK in the outlook we gave at the beginning of the year remains largely unchanged, but delivered through a higher growth and thereby lowering margin. As a result, outlook for adjusted EBITDA margin changes from 20% to 21% to 19% to 20%. Net working capital improvement remains a priority and focus, but it is impacted by the outstanding receivable in the Philippines. To reflect the progress year to date, the company changes its outlook from negative 50% to negative 5% to negative 10%.One of our core priorities is to replicate the business size and market share we have in the Nordics to Europe. I am pleased to share that our efforts are now reflective in the results we are seeing. We are now operating in 18 countries with over 700 employees, delivering 45% gross profit growth and 16% in adjusted EBITDA. This is approaching the equivalent size of the Nordics from an operational performance. This is a result of focusing deeply on our Software & Cloud expertise through our service-led approach and helping customers save on licensing and cloud spend.Building on our business model further. We continue to see cloud spend driving increased importance for our customers, but it is also an entry point in gaining market share. In looking at the top challenges companies face today, managing cloud spend is the #1 concern, as 82% of companies reported being top of mind. Maximizing the total share of wallet is critical for CIOs as well as CFOs. And budgets and technologies rapidly develop as the cost of modernizing workloads, innovating to digitally transform the IT environments comes at a cost. These macro trends correspond to the continuous growth we have shown in our Software & Cloud Economics practice, with 25% GP growth in Q2. This is the cornerstone of the business and will continue to be the go-to-market for accessing customers and providing value-added services.I'm also pleased to share the recognition we have received in Q2. To start, we were awarded the 2023 Diversity and Inclusion Employer of the Year, aligning to our people-first focus and ESG prioritization. We have also improved on the PwC Climate Index, further demonstrating our continued commitment to sustainability. Additionally, we were awarded Partner of the Year awards across 6 categories from Country of the Year awards in Serbia, Lithuania, Saudi Arabia to the SMB Partner of the Year award in France, as well as the Corporate SMC partner of the Year award in India. And last but not least, the Modern Work Partner of the Year across all of Western Europe. We are proud of these awards and the broad range of recognition that we have received across the business from Microsoft.Now let's take a look at 2 customer use cases. First, let me start with a U.K.-based company called Finova, which is 1 of the largest cloud-based mortgage and savings provider with over 300 employees supporting over 60 lenders, 3,000 mortgage brokers, and 200 financial institutions. Finova was an exciting licensing customer of Crayon but needed additional help with modernizing its application and managing existing customers. Challenged with their previous provider, they came to Crayon based on the trust gained as our existing customer.Our Crayon U.K. team reached out to me for support on how we could help Finova with this work. Knowing the Azure infrastructure capability of a company in New Zealand, I recommended that we gain this trust through the rhipe acquisition of a company called Parallo. Parallo has deep Azure Migration capability and expertise as well as managed services and that they would be in a position to engage and help Finova with this problem. Together, the U.K. team and the Parallo team worked to deliver a full solution, starting with an assessment on the application modernization efforts. They migrated from IaaS to PaaS and created a full automated deployment leveraging Infrastructure-as-a-Code and DevOps. We have a roadmap to help deliver faster release time and optimize on cost. This customer is a great example of how we will create synergies leveraging the skills acquired through the rhipe acquisition in APAC to deliver scalable managed services across the world. And increased margin in APAC while building up the credibility that we can deliver in critical markets like the U.K.Since 2015, we have been building our data and AI capability and are providing our services to customers around the world. One recent example is a company called Verbund AG. Verbund is Austria's leading electricity company and 1 of the largest producers of electricity from hydropower in Europe. They [ inquired ] about a cloud-native solution to modernize the management of wind and solar energy facilities. This was an interesting opportunity for us. As they engaged us to build a modern multimode data processing platform on Azure that includes monitoring capability, data import, and UI with a set of APIs to help abstract the complexities of underlying systems to surface information to their employees. The outcome is a set of reports and operational data of wind and solar energy, with significant improvement in data quality and integration into their management systems. We are experiencing a high demand of data platform needs with our enterprise customers given just the massive amounts of data in the ecosystem, as well as modernization needs, and the speed of information required efficiently to run businesses. And we continue to see this as a growing area of our business.This concludes the portion of my presentation. And with that, we're going to transition to the financial review. So I will hand it over to Jon Birger.

[Jon Syvertsen, executive]

Thank you, all, for attending today, and I look forward to taking all of you through the financial section of this Q2 earnings presentation. As a reminder, all numbers are Norwegian kroners 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 32% over the past 3 years, driven both by strong organic growth and accretive acquisitions, leaving us with the last 12-month gross profit of NOK 5.1 billion. The growth is driven both by strong market fundamentals as public and private sector continue to invest into digital platforms to drive efficiencies and address new opportunities 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 continued EBITDA growth. On the right-hand side, we see how EBITDA has grown with 38% annually over the same 3 years, leading to the last 12-month EBITDA of NOK 907 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 Q2 2023, we continued our international expansion journey and on the last 12-month basis, 57% of the gross profit is coming from international markets. All up across the international segments, we are seeing 26% growth, while the Nordics delivered a solid 16% gross profit. Still, even at 57%, we are a long way away from realizing the potential in the international markets. The market potential for our services outside the Nordics is orders of magnitude larger than the market potential in the Nordics, and we will continue to invest in driving growth outside the Nordics.More importantly, as we scale up the international business, it has become a major driver of profitability. As recently as 2019, the international business was practically breakeven while today the international business contributes with NOK 367 million EBITDA on an LTM basis. We're also seeing some effects of the accounting policy changes in the end of 2022 as more vendor funding is recognized as HQ, we are seeing less negative impact of the HQ costs at the expense of somewhat lower margins in the regions.As a reminder, the EBITDA margin of 30% plus that we see in the Nordics is what we see as representative for the potential of our business model when operating at scale. Although some of the international markets start operating at similar margins, as a whole, we are still only at 13% EBITDA margin for international business, which clearly indicates the potential for profitability improvements as we continue to scale our international footprint.Now looking at the breakdown of the gross profit and adjusted EBITDA in Q2 by market clusters. It's encouraging to see the performance in the Nordics, which despite being our most mature markets, we continue to see strong growth and continue to see growth opportunities. The 16% growth we're seeing is driven in particular with by strong growth in Norway. Europe delivered a very strong quarter with 50% gross profit growth. The growth rate in reported terms is supported by weakening NOK year over year, but even in constant currency terms, we're seeing 30% growth. In particular Netherlands, Switzerland, and CEE contributed with strong growth, with more than 50% growth year over year in Switzerland as an example. APAC and Middle East saw a modest 5% year-over-year growth. As highlighted by Melissa, this is driven by slow growth both on the Channel side and on Consulting in the quarter. We're also seeing the growth in the U.S. resuming with 31% reported growth and 15% constant currency growth in the Q2, clearly demonstrating the turnaround in the U.S. We're also seeing continued strong growth momentum across the different business areas.Software & Cloud Direct delivered a strong 30% gross profit growth in Q2 with strong performance globally, clearly demonstrating the resiliency both of the market demand and the attractiveness of Crayon's cost-focused business model also in more challenging economic environments. Software & Cloud Channel delivered 10% gross profit growth with a slowdown in the year-over-year growth rate driven by Indian parts of APAC. We are, however, seeing this as a one-off effect as we're seeing the growth rate already being well back on track for Q3. Software and cloud economics delivered strong growth of 29%, demonstrating the relevance of the cost optimization service. While Consulting delivered 29% growth, also demonstrating the continued strong market demand.When looking at the EBITDA by business area, EBITDA margins across Software & Cloud continue to demonstrate the scalability of the Software & Cloud business model, both on Direct and Channel. While the service margins are affected by continued investments in new capabilities across the market we are currently operating, with approximately 120 net new headcount onboarded in the last quarter alone across Software & Cloud Economics and Consulting. In particular, we're seeing this effect in Consulting where we are investing in capabilities on data and AI globally, at the same time, as we see a time lag in realizing price increases reflecting the inflation on the cost side. We're actively working to address this, and we're clearly expecting this to result in EBITDA margins improving going forward across the service business.When looking at the evolution of the EBITDA margins over time, it's also helpful to look across the longer time horizon. And since 2020, Crayon has delivered a doubling of EBITDA through a combination of organic and inorganic growth and operational leverage, in particular, growth and operational improvements in markets outside the Nordics where we continue to operate on a subscale manner.Software & Cloud has continued to be the major driver of our EBITDA throughout this period, driven both by the strong growth and the scale benefits. When we look at the service margins, it's important to reflect on the fact that this is a people-driven business, and we have recruited significantly in order to drive growth. It's also important to reflect on the fact that this is a variable cost base. We continue to see strong demand. We continue to be confident in our ability to ramp up the resources into productivity and profitability. Should for any reason, the demand environment change, we are, of course, in a position to adjust the cost base in order to bring margins back to the relevant levels we've seen historically. The margin, in particular evident on the Software & Cloud Economics and Consulting side, are also impacted by inflation. We continue to see inflationary pressure on the cost side and there is a clear lead time in transitioning this into price increases on the service side which limits the short-term profit improvements. We do continue to see margin potential, both by centralizing overhead costs and targeted M&A activity to help scale up the service business. In short, we are confident on our ability to resume attractive margins also on the Consulting side going forward.Now looking at the working capital performance. 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 improvements, and we have put significant efforts into this during the last year.Before diving into the Q2 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, which is important as it ensures that we can continue to drive growth while continuing to drive positive cash flow from the business in order to reinvest in further growth opportunities organically and inorganically.Starting with the working capital in Q2 2023, we have accounts receivables of NOK 9.3 billion, while accounts payables to vendors amount to NOK 9.5 billion. This results in a trade working capital of minus NOK 173 million, which is a decrease of NOK 200 million compared to June 30, 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 41 million. This has increased year-over-year by NOK 469 million, predominantly driven by VAT accruals. This results in a working capital of minus NOK 132 million on June 30, which is a reduction of NOK 148 million year-over-year. The achievement is even more significant in light of the headwind caused by the outstanding receivables from the public sectors in the Philippines of $45 million, which was not a factor in Q2 2022. Adjusting for this, we would see a working capital position of negative NOK 580 million, which is a substantial improvement of NOK 300 million year-over-year. It is thus very encouraging to see that the underlying working capital performance has improved significantly compared to last year. To be clear, we continue to see significant opportunities for improving this working capital position back to historic levels through strengthening the credit and collection processes, and we will continue to drive those efforts with a clear target of improving the working capital position in 2023 further.When it comes to cash flow, we're seeing a cash flow from operations in Q2 of NOK 158 million. This is lower than in Q2 2022, driven by the strong working capital position in Q1 relative to Q2 this year. Looking across H1 in order to normalize for this, we're seeing a cash flow of NOK 227 million, which is an improvement of NOK 106 million compared to last year. However, in order to look across the cycles, it is helpful to look at the development of the liquidity over the past 12 months. The waterfall below illustrates how the net cash position and liquidity has improved significantly.In Q2 2022, we had NOK 1.2 billion in cash. During the last 12 months, we had an adjusted EBITDA of NOK 772 million, while the change in net working capital had a negative effect of NOK 175 million, CapEx had a negative effect of NOK 156 million, while increased utilization of credit facilities increased cash with NOK 690 million. Tax and interest amounted to NOK 335 million, while bond repayments and lease payments under IFRS 16 amounted to NOK 352 million. Finally, currency translation and other effects amounted to NOK 252 million negative, leading to a net cash position on June 30 of NOK 1.4 billion. Furthermore, the liquidity reserve of the business has also improved significantly, with both financing capacity on RCF and uncommitted overdraft facility in place.We have already covered the items down to EBITDA and the operating performance underlying this. Depreciation and amortization is in line with the plan, with depreciation and amortization increasing slightly year over year but stable compared to Q1. Interest expenses increased year-over-year as a consequence of increases in the underlying interest rates. While other financial income and expenses is a negative contribution of NOK 57 million, which is driven by currency effects on our balance sheet items denominated in other currencies than the functional reporting currencies of our operating subsidiaries.As in previous quarters, it is important to note that this is offset by a positive effect on comprehensive income in Q2, this amounted to NOK 122 million. Altogether, this results in a pretax income of NOK 92 million, an improvement of NOK 55 million year-over-year. Income tax expenses increased year-over-year as a consequence of the increased profitability, leading to a net profit of NOK 68 million in the quarter. Also important to ensure transparency on is the adjustments to EBITDA. In Q2, these fall in 3 categories: share-based compensation relates to accruals for options and bonus shares and associated taxes under the various share-based compensation programs at Crayon.Fair value adjustments to earnout reflects the overperformance of historic acquisitions relative to the historic expectations and the resulting impact on expected future earnouts. Business development expenses predominantly relate to accruals for expected investments in transitioning to direct operations in markets in the Middle East where we are currently operating through partners. When it comes to the balance sheet, we have already discussed the net working capital. Intangible assets increased year-over-year, driven by currency impact on the goodwill, in particular, for the goodwill from the rhipe acquisition, while other intangible assets decreased as the assets are amortized. Tangible asset increases primarily as a consequence of long-term leases of new office premises in Oslo and in Australia entered into in Q4 last year.On the liability side, we have NOK 1.8 billion bond loan from the rhipe acquisition, maturing in July 2025, combined with an RCF with similar maturity, representing the interest-bearing debt. During Q2, we have also piloted a supplier financing mechanism, which is seen as other interest-bearing debts. The relevance of this is primarily to gain operational experience with this type of model and assess the relevance of this going forward as it would potentially allow for a significant improvement of the net working capital position if scaled up more broadly. Looking at the net interest-bearing debt to adjusted EBITDA, we are now at a leverage ratio of 2, 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 improvement, 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 appropriate.With that, I'll turn it back to Melissa for wrapping up this Q2 presentation.

[Melissa Mulholland, executive]

Thank you. To conclude, Europe has delivered a very strong start of the year, which is on point with the plans we have made, delivering 51% growth in gross profit for the first half of the year and an adjusted EBITDA margin of 22%. Growth was strong in both Software & Cloud and Services, both delivering over 60% growth in gross profit for H1. As mentioned in the earlier slide, this clearly demonstrates that the foundation of our business model is both scalable and repeatable in the different markets. Second, we continue to be deeply focused on our service capabilities based on strong customer demand. Third, we will focus on continued margin improvement as we drive scale in the business.In the Service business, we have continued to invest. Rising inflation is impacting short-term margin improvement as it takes some time before we can adjust the cost base accordingly, and it reflects price increases to customers. We remain committed on cash collections by incorporating this in our financial processes and country leadership compensation as a critical KPI that is measured and monitored.To further cement these focus areas, I have asked Jon Birger to take the lead as Chief Strategy Officer to lead our strategic planning efforts, including the execution of our priorities, focused on improving the profitability of our business, which will include M&A and the legal function across Crayon. With his knowledge of the business and experience, this will accelerate our ability to capture market opportunity both through organic and inorganic growth. To help strengthen the financial processes on cash collections and cost management, I am bringing Brede Huser as Chief Financial Officer to strengthen the leadership capacity in the company. Brede brings in a set of experience from the international aviation industry with a track record on developing large organizations and delivering profitability at scale. I am excited to continue to work with Jon Birger and welcome Brede to the organization at Crayon.Thanks for the time, and now we will transition to Q&A.

[Jon Syvertsen, executive]

Thank you. We have a number of questions today and we'll work through them over time. The first question from Markus Heiberg at SEB. How should we think about growth in APAC for H2? Do you see it pick up quarter over quarter or year over year? And yes, we do. I think that we definitely do. And to Melissa's earlier point as well, in particular on the Channel side, we're seeing -- see this [ from later questions ] as well. We are seeing this resuming quarter-over-quarter, and we're confident on having that back on track for Q3 and beyond.Then we have a number of questions on the -- then we have a number of questions on the Consulting margin. And let's start with a question from [indiscernible]. You say you expect a decline in Consulting margin to be temporary. How long do you expect this to last? And we are definitely working through the issues. Melissa, do you want to add any colors on the actions or activities we're taking?

[Melissa Mulholland, executive]

This is clearly a top priority across the company as we still believe that services is bringing value-added capability to our customers. We are seeing high demand for these types of services in the market, and it's our ability to transfer these pricing increases to the customers. This is specifically, I see a question around here around the Nordics, and this is where we are seeing weakness in terms of being able to transition the inflation that we're seeing in the Nordics to the customers, specifically on the public sector side. From a timing perspective, it's always hard to say, but certainly, this is something that we do expect to see a turnaround in the near future.

[Jon Syvertsen, executive]

We also have a question from Markus Heiberg. Considering softer utilization in Consulting, what makes you confident in reaching your margin outlook for 2023? And I think it's a good question and there's 2 clear parts of that question. The first is, of course, delivering on our margin outlook for 2023 is about much more than Consulting. That's also basically that it's continuing to deliver on the cornerstones of the business from a profitability perspective, which is Software & Cloud, Direct & Channel where we see a continued very strong growth momentum, where we see continued health in margins. And, of course, we do have a track, and we do have a clear plan for improving margins also in that segment for 2023, and that's basically what gives us the confidence along with a very solid growth outlook.Then there is a question, what's the plan regarding the India's channel decline? Do you still see opportunity in the India market? And the answer is clearly yes. We're seeing this as a one-off in Q2. We're not seeing this as a persistent effect in the Indian market and clearly that's where the confidence on Q3 and beyond is coming from on this market and we're clearly seeing the growth. We're now well into Q3, and we're clearly seeing the growth back on track in India.Then there's a question from [ Philip Helmlot ]. HQ has NOK 203 million in gross profit and plus NOK 55 million in EBITDA. What is happening here? And as a reminder, following the transition from reporting as a principal to reporting as an agent, there's certain investment programs and incentives from vendors, which historically has been booked as a reduction of costs in the operating segments that is now booked as a gross profit at HQ. This, of course, reduces the negative, and in some quarters, it's a positive EBITDA impact of HQ. And there's correspondingly somewhat lower margin in the operating segments.Then there's a question for you, Melissa, basically, on APAC and Middle East. Can you please help us understand if it is Crayon or rhipe which is seeing poor performance in APAC and Middle East in the quarter? And I think, to start, we're now almost 2 years into the integration of the organization. As such, it's operating as a combined entity. And in our performance discussions internally, there's no distinction between Crayon and rhipe. But beyond that, looking at the legacy of the business, where are we seeing the biggest deltas?

[Melissa Mulholland, executive]

Just to confirm, we see the Channel business, which is predominantly rhipe and APAC, continue to be strong. Australia and New Zealand has had consistent growth in lines with what we've seen historically, which gives us confidence around our channel business that we've acquired through the rhipe acquisition. On the Crayon side, we do see weakness in MEA as I stated earlier, and this is something that, as Jon Birger mentioned, we are seeing a pickup as we look into Q3 and the remainder of the year. So this is, I would say, very much an outlier in respect to the Middle East and India. But in terms of the APAC, rhipe aspect of it, we still see the business to be strong and continuing momentum.

[Jon Syvertsen, executive]

Then there is an important question from Christoffer Bjornsen. How much of the 25% year-over-year growth guidance for 2023 is coming from FX? And to be clear, the guidance we've put out is basically based on -- we've put out the guidance when we reported Q4 earlier in the year in February. And basically, exchange rates are constant more or less across the different major currencies that the business consists of. So the increase from 20% to 25% is driven by stronger underlying growth across the business.Then there is another question, which I'm sure there's multiple [indiscernible]. When should investors expect collection from the Philippines PS-DBM, and what steps are needed in the internal processes of PS-DBM before they can release payments? And basically, we are working through with PS-DBM on reconciling the invoices to make sure they are in a position to pay out the original amount. And then there is a further process involving PS-DBM and other government agencies in securing the additional NOK 7 million that is still going through the steps of approvals in the bureaucracy in order to be able to pay. So in terms of timing, we are, of course, accelerating this and putting maximum attention on this across the region. We would be hopeful to having a favorable update during Q3, but we're definitely expecting this to be an item to be concluded during 2023.Then we have a question from [indiscernible]. Could you elaborate on the outlook implying that the lower growth and margin trend should reverse in H2? And I think to start off, I think Melissa's slide demonstrating the full H1 is helpful and we're seeing a continued strong growth momentum across regions negatively impacted by basically some specific headwinds in Q2, which we are looking to -- and on the channel side, we're well on track and we're confident that this is really a separate one-off in Q2. On the Consulting we are working through this, and we do expect to see improvements and that's basically what the guidance reflects. And that's also why we have updated the guidance for 2023 in order to ensure that this reflects the numbers we have a confidence in delivering on.Then there's a question from Oliver Pisani. Any particular geographical areas that are problematic for cash collection? Of course, in terms of payment cycles and payment behaviors, APAC and Middle East in general is the region where we're seeing the longest payment cycles and the most efforts needed to deliver on the payment cycles. I think if you contrast the situation now with the situation 2 years ago, I think what's also contributing negatively is in some of the markets where historically we've seen very solid performance across Europe, there's ever so slightly more delays and, of course, it only takes a day of delay across the portfolio to have an impact on the working capital position all up.Any other questions we should make sure to cover? I think we're basically through the questions at this point in time. I don't see any other questions. Melissa, anything you would like to add at this point?

[Melissa Mulholland, executive]

We remain confident on our outlook given the strong trajectory we have in the business. We are growth orientated, and we've made investments to I think build up that capability for the future demand that we are seeing. So with that, I think we can conclude the call. And thanks everybody for joining today.

[Jon Syvertsen, executive]

Thank you.