Crayon Group Holding ASA

OSE:CRAYN

Earnings Call Transcript 2021-Q4

[Magnus Granerod, Manager of IR]

Hello. My name is Magnus Granerod, Investor Relations Manager at Crayon. And it's my pleasure to welcome you to this fourth quarter earnings presentation for Crayon Group Holding. Presenting the results today, we have our CEO, Melissa Mulholland; and CFO, Jon Birger Syvertsen. After the presentation, we will have a Q&A session where it will be possible to submit questions online.And with that, I'd like to hand over to our CEO, Melissa Mulholland, to take us through the business update.

[Melissa Ann Mulholland, CEO & Chief Services and Solutions Officer]

Thank you so much, Magnus, and thank you all for attending our Q4 earnings release. It's been a phenomenal quarter. For Q4, we had the strongest quarter in history with the highest results we've ever had to date. We've had strong growth in our Services gross profit, you can see here, with 45% year-on-year growth. Total across the business, we've had 43% gross profit growth and 64% adjusted EBITDA and improved margins across all of our business areas, which demonstrates our improved scale, our ability to also drive our key growth areas of the business and also integrate the acquisitions that we've had, which I will speak to later in the presentation.Also, I must just say it's been a fantastic year in this role and joining the company now that I've been here 1 year. Looking back at 2021, I must say thank you to our employees, our customers and our partners for the tenacity that we've had in the business. Joining as CEO, there have been really, I'd say, a couple of key areas that I focused on in the business. The first always is the people. I say we are a people-led business, and I mean it, because people are our greatest asset. It's important that we focus on the people and ensure that we have a great place to work and we continue to support in career development across the team.We also have a customer-first orientation to our business model that's been founded since the company started 20 years ago. And I'm proud that we continue to deliver that customer-first focus, and it shows in the business results that we have. But also, we have 95% customer retention, and our customers continuously come back and support us, and that is key to our strategy. We've delivered key areas such as ISO certification, which is important as we demonstrate the quality that we're able to provide to our customers and our partners. And also for the year -- second year in a row, we were named the leader in the Gartner Magic Quadrant for SAM Managed Services.To bolster on the growth that we have and the ambitions going into the business, we have accelerated our M&A activity. So we've invested NOK 2.5 billion in investments in 2021 across Sensa, Cloud Direct and Rhipe, 3 fantastic companies that really illustrate our scalability in the market but also the ability to augment capabilities. And then lastly, tying into our customer focus, increased value creation is essential, demonstrating profitability across all business areas and maximizing that customer value with our services offerings.Because we've had such a fantastic year on the people side, I must share just a little bit more detail around what we've achieved. Across our employees, we've had an all-time high around our employee survey, meaning that not only participation was at its highest but also the results speak for themselves. We've done initiatives around the world to support employee well-being. Through the pandemic, we've been able to support our employees with a number of activities but also keeping the culture workplace high. And of course, I'm also pleased to say that we've had 98% employee retention in the business. I think much of that is attributed to the great leaders that we have across the world but also to the commitment the employees have in the business.It's also my pleasure to share with you that around diversity, we have improved our diversity index from 79 points in 2020 to 98 points in the business. So the diversity index that I'm referring to here refers to our gender equality. So we have a participation in something called the SHE Index, which is a global index that EY and a company called SHE have put together. It's remarkable to see this improvement. But diversity is not just about gender equality, it's also about different cultures, experiences, backgrounds, ethnicities that we bring into the business. And this is going to continue to be a focus for us going into the year ahead around diversity, equity and inclusion.Coming into the role, leadership competency was essential. Increasing the talent profile across the management team that we have but also increasing the capability with new general managers in key markets around the world such as the U.S., U.K. and Finland.And then last but not least, we've had a record performance year in terms of new hires into the company with 855 new employees and, as I mentioned, continued employee retention at 98% in Q4. From a 2021 perspective, we are less than 10% in terms of total attrition in the business today.Now transitioning into Services and just the business model that Crayon has. We often call it The House of Crayon, and I'm going to talk through what this means. Agility, quality, pace and integrity are our core values as a company. They really represent the foundation for the company and how we think of it today. So they're the foundation of that house. Building on that foundation, we have our core platforms in IP, Cloud-iQ, Service-iQ and Crayon-iQ. So yes, a lot of iQs. We are really, I would say, advancing our platform capability because this is essential to being able to scale globally and establishing net new markets, giving customers the ability to access Services and also be able to deliver the procurement of licenses and their cloud spend.When we think about the house, you build up from there, the next level up. We have our Software & Cloud Economics, which is our core essential SAM business, which we call cost optimization. That has been crucial to the foundation, but also we've continued to extend into managed services and build into new areas around security, modern workplace but also cloud consulting. Our Licensing business continues to remain important and integral to that process, and I'll share a customer story around that momentarily.And then at the top of the house, you have data and AI. Now a customer could come to us at any point and need support. Think of it as a general contractor. When you have a contractor come in to renovate your home or build a net new area, they often start with an assessment. What's that assessment? What do you need? What do you need support with? Do you need new plumbing? Do you need a new roof? Do you need new -- to break down new walls, to create new rooms?Think of Crayon as really that -- it's a key customer advisor that's there to support with the needs that a customer has. And that's so critical to the foundation that we have as a business but also to the growth that we have. So we're able to support in a whole variety of different ways, and this is something that we celebrate in the company and is crucial to our strategy.Taking a deeper look at it, when we think about Services, I mentioned this at the beginning, but it is all about really building upon and increasing that customer value for our customers and our partners. Our vision of the company is the power of technology to drive the greater good. This is really, I think, built across 3 key areas. The first is around optimizing tech ROI, which is really all about cost savings. So how do we help a customer/partner be able to maximize their licensing and also their cloud consumption in their business model today?The second area is about accelerating cloud adoption. So the cloud growth has continued to build over the years by no surprise, but there's a multitude of layers to this. Everything from helping a customer design their strategy -- their cloud strategy to migrating into the cloud, to optimizing that cloud spend and operations and, last but not least, security. Security is a business area that we're really going to be focused on going into this year ahead as it really ties into all aspects of the business that we have today.And then last but not least, we have the data-driven enterprise. So this is really focused around data and machine learning where we go into. It's a highly customized solutions that touch into the enterprise space. In totality, this represents 50% of our gross profit and will continue to be a key driver for growth in the year ahead.To make this come to life a little bit further, I'm pleased to share with you a customer story of a customer called Ocwen, who has been a longtime customer with us. We've done a number of initiatives with them, but they actually came to us quite recently in this last quarter with needing additional support as they were built in the U.S. but many of their people and business actually sits in India. And they were struggling with how best to optimize or set that up. And because of our, say, long-term engagement with them, we were able to actually migrate their licensing business, support them in India but also in the Philippines and the U.S.So it really demonstrates the scalability of having local presence in these markets around the world. We're able to support them on rightsizing their engagements on their licensing business, but then we've taken it to the next step, so how will we continue to support them over the 3 years ahead. So this is one of the largest agreements that we've had in the business in India, and it demonstrates the focus and customer focus that we have today. Just for context, Ocwen is a company size of 8,000 employees, so they're definitely on the enterprise side of our segment and they're a financial corporation that is global in nature.So now transitioning into the M&A side of the business. As I mentioned at the beginning, this year, we really focused on accelerating our growth and trajectory through acquisitions. We've brought in 3 incredible companies into the portfolio of Crayon. They're broken down into 2 primary categories. The first is really around market scalability.Rhipe, who is a global, I'd say, leader in the APAC market as a channel partner, based in Australia, 600-plus employees, has really demonstrated that scale and integration into the company. They're a fantastic company with great people and have really focused on operational skills, tooling and a market presence that we are able to capture immediately from a synergistic perspective, and you'll see that in our financial results.Sensa is a company based out of Iceland with 120 employees. They deliver professional services. But also right when we integrated them in, I'm pleased to share that we were able to take advantage of the combined synergies and launch a global managed service on cloud backup. Backing up data is really essential in today's market, and we're going to continue to expand our cloud managed services footprint with them. They also bring with them a whole, I'd say, background around infrastructure and hosting and networking skills, which are a premium in the market today.And then last but not least, on the Services side, we have Cloud Direct. Cloud Direct has delivered over 200 cloud migrations. They really, I would say, encapsulate what it needs to be a managed service provider. They have cloud management capability, and they've also delivered innovation on their IP and their platform. They have a business in the U.K. as well as South Africa in fully delivering support on top of their managed services capabilities. So Sensa and Cloud Direct really, I'd say, builds and augments service skills that tie in, and all 3 have been phenomenal into our performance in 2021.Taking a deeper look at Rhipe, there are really 3 key highlights I want to share. One is the geographical reach in a high-growth market. According to Gartner, we expect 10% to 15% growth in APAC, and you can see the locations that Rhipe is in today. They -- combined, we will be the third largest in the region of Asia Pacific, and we will be the #1 channel partner in APAC; also to be mentioned, the largest in Australia. This gives us a great opportunity to capture market share and continue to drive growth, integrating in, for example, entities that they've also acquired, a company called Parallo as well as emt, who are delivering services that enable us to tie that into our channel growth.I touched on this, but people, they're a fantastic team. It's been a true pleasure getting to know the leadership but also the people on the ground who are delivering each and every day. We see synergies with the combined organizations, and we'll continue to integrate them in, but really fantastic to see that the integration process has gone so well. We're sharing best practices as well as Rhipe is also helping us globally around business processes and, I would say, operational scale. Excited to see the continued momentum that we're going to have with Rhipe going into the business.Now transitioning into Q4, I'm going to quickly go through the business areas, starting with really our customer focus. So we have 2 distinct areas of our business model today. We sell into direct, so direct to customers, called Software & Cloud Direct; as well as our channel business indirect through partners. On the direct side, we've had 22% gross profit growth and 56% adjusted EBITDA margin. The margin is up 9 percentage points, which showcases the importance on the direct side of our business, which is crucial to our long-term success.We've had strong growth momentum across a number of markets, but I want to call out specifically growth in Germany, APAC as well as the U.S. We've seen increased revenue performance in MEA, France and Finland and have had some notable wins, including one of the global companies, the largest leading French IT consulting company that we've landed with the largest enterprise agreement in Crayon history. So really, I'd say, astonishing growth that we've had in this business for Q4.Transitioning into the channel side, 99% gross profit growth, which includes Rhipe. So those numbers may seem high, but that, of course, demonstrates the continued growth with Rhipe and also the applicability in our channel business. When you take out Rhipe from the business, the organic growth is 15% in terms of gross profit, which is very much in line with the growth that we see in this business quarter-after-quarter, with 53% adjusted EBITDA margin. This demonstrates the profitability and scale that we have as well as strong performance in the Nordics, U.S. And our largest channel market outside of APAC with Rhipe is India, which continues to deliver fantastic EBITDA margin in the business.Now transitioning into the Services area of our business areas, we have 2 areas that we report on. The first is our Software & Cloud Economic services. You could see here 25% gross profit growth and 22% adjusted EBITDA margin. We've had some significant wins this quarter, one with a global aerospace company, who came to us to realize significant cost savings. This is an area of growth that we see in markets like Norway, Germany and Denmark. And our customers continue to come to us for delivering cost savings which really speaks to this area. And this will be continued to be a focus for us going into 2022.On the Consulting side, quarter-after-quarter, we've continued to see increases around gross profit growth. So this quarter for Q4, 59% GP growth, 18% adjusted EBITDA margin, and we continue to see margin improvements in this area. What I'd also like to call out is growth beyond Microsoft. So yes, we continue to scale up on the Azure business but also notable business across Google Cloud as well as AWS.Now transitioning into a very important, I'd say, initiative and topic for us. ESG is a focus across the company. It really ties into our vision statement around driving technology for the greater good. We've done a number of initiatives in 2021 to really scale up around our environment, social and governance side of ESG. To quickly give you some highlights around that and focused areas, there are really 4 key aspects that we are reporting on today.The first is diversity, equality and inclusion. As I shared with you, we are increasing our diversity, equality in the business with over 30% improvement there. But it doesn't stop there. We are doing a number of initiatives across our employees but also recruitment of talent in this space.On the social side, we've had over 20% of our global team volunteering on our ESG strategy, and we're continuously establishing their community focus as that's really important to our business that we have, and I'll share some highlights around that momentarily.And then because we have a very large data science team and the work we're doing with customers, it's essential that we also take a lead on responsible AI. So you can see we lead with ethical and sustainable AI solutions, which will be a focus for us.But it doesn't stop there. We also believe that we have an opportunity to develop products to reduce our carbon footprint, not just internally our own consumption with our Green IT such as through our buildings and initiatives, but also around the solutions we can take to market to support our customers with reducing their CO2 footprint. More to come, but we will be establishing a committee in our Board that's going to be focused on this because we really believe it's a key priority for us and an opportunity going into this year ahead.To showcase something that I think is really unique and something I really value in the company is our employee-led community service. Every single month, I'm astonished by the work that our employees do to support our communities, whether it's our customers or locally in and around. So you can see a number of initiatives. Everything from food drives to helping people with COVID, to helping children that may be displaced.In particular, I want to call out the Singapore President actually awarded Crayon for the national recognition for our focus around disability and inclusive employment practices. This ties into DE&I and also ESG, but I'm proud of what the employees have achieved and also the work that they do each and every day to support the communities.So with that, I'm going to transition to Jon Birger to take us through the financial review.

[Jon Birger Syvertsen, Chief Financial Officer]

Welcome, everyone. As the CFO of Crayon Group, I look forward to taking all of you through the financial section today. As a reminder, all numbers are Norwegian kroner unless otherwise stated.I'm proud to present our Q4 results as this represents another record financial quarter. But more importantly, it also caps out a very strong 2021, where Crayon has transformed significantly and is now a NOK 30 billion turnover company with a clear global scale. As a reflection on how far we've gotten since our IPO in 2017, the Q4 revenue in 2021 is larger than our entire 2017 revenue.We have delivered a gross profit of NOK 951 million for the quarter in isolation, representing 43% growth year-over-year. But looking at the full year, we have delivered a gross profit of more than NOK 3 billion. However, as the Rhipe acquisition closed in November, it is also extremely interesting to look at the full year 2021 pro forma gross profit as this represents the 2021 performance for the business, which is now fully owned by the Crayon shareholder. Here, we delivered NOK 3.5 billion in gross profit, which is a 49% increase from the NOK 2.3 billion the business delivered in 2020.Similarly, when it comes to adjusted EBITDA, we have delivered NOK 225 million in EBITDA, while for the full year 2021, we have delivered an adjusted EBITDA of NOK 655 million, representing a 21.5% EBITDA margin, which is an improvement of 4 percentage points year-over-year. And just as important is the fact that we have a pro forma EBITDA of NOK 766 million for the full year 2021, which is an 85% growth from the NOK 413 million we delivered in 2020.Looking at the financials for the quarter. It is extremely encouraging to see that the growth strategy is clearly playing out as intended with strong growth across all business areas and market clusters. And as we round off 2021, we're also including our outlook for 2022, which sees 35% to 40% gross profit growth and 22% to 23% EBITDA margin, clearly demonstrating how we will continue to drive profitable growth across the business.As highlighted in my introduction, Crayon has been on a continuous growth journey for the past 4 years with an annual gross profit growth of 26%. Equally important is that as we have grown and scaled the business in the local markets we operate, we're starting to see the scale effects and the benefits from previous investments in resources across our portfolio of international markets. And as we're benefiting from the scaling up of the business in the international markets, we see a continuous improvements of our EBITDA margin, which now stands at 21.5%. Now the combination of growth and margin improvements imply that our adjusted EBITDA grows at an even higher pace with a 50% annual growth rate over the past 4 years.Now this is all history. The important point here is that this strong growth and continuous margin improvement has been driven by a very clear strategy and go-to-market model based on the combination of Software & Cloud and Services. And this model remains just as relevant in the current market environment as it was 4 years ago, which gives us a very solid confidence in our opportunity to continue to drive strong growth going forward.Crayon has, for the past year, been on a journey from a Nordic company to an international company. And Crayon has come a long way on this journey. The light gray bars represents our international business. And as recently as 2018, Crayon had NOK 558 million in gross profit from the international segment, representing 38% of the total gross profits of the company. By 2021, this gross profit has tripled over the course of 3 years, driven by strong organic growth across the portfolio and recently also our acquisitions.Despite the strong growth rates also in the Nordics, our international markets now amount to 51% of the gross profit in the company. And here, it's important to note that if Rhipe had been fully consolidated into our last 12-month numbers, we would be looking at around 55% of our gross profit in our international segments, further demonstrating the pivot to a global company.Still, even at 55%, we are a long way away from realizing the potential in the international markets. The market potentials for our services and products outside the Nordics is order of magnitude larger than the market potential in the Nordics, and we will continue to invest in driving growth outside the Nordics.As to profitability, the international markets collectively now delivered NOK 270 million in EBITDA, which is a significant improvement of NOK 284 million over the same 3-year time period. As recently as year-end 2018, we had a negative EBITDA margin in our international markets in aggregate, while today, we are at 17% positive margin. Again, we have been able to achieve this improvement while we also improved the profitability in the Nordics, delivering a continued strong EBITDA margin of 35% in the Nordics over the last 12 months.The EBITDA margin well above 30% that we see in the Nordics is what we see as representative for our business model when operating at scale. Although some of our international markets start to operate at similar margins, as a whole, we are still only at 17% EBITDA margin for our international business, which clearly indicates the potential for profitability improvements as we continue to scale our international footprint.This chart clearly demonstrates the journey we have been on in the individual international markets. And in Q4 2021, we see a very strong EBITDA margin improvement, in particular, in APAC and Middle East and Europe as we demonstrate the scalability of the international market position, both through the continued organic growth but also, as in the case of APAC, inorganic growth driving scale and synergies. This is, of course, extremely encouraging to see as it is the result of strong efforts by our 3,000 employees put in across our markets continuing to drive and grow the business despite all the challenges imposed by the pandemic. And it's a strong testament to the strength of the local organizations we have built across the different markets.As we round out the year, it's also helpful to reflect on how the international growth is shaping Crayon overall. And looking at the pro forma 2021 numbers, we see that the Nordics represent NOK 1.5 billion in gross profit and have delivered 27% growth during the year, with more than half of that growth being driven by organic performance in the underlying markets.Nordics delivered -- sorry, Europe delivered NOK 637 million, representing 29% growth; while APAC and the Middle East delivered more than NOK 900 million in gross profit, clearly helped and shaped by the acquisition of Rhipe, but also driven by strong underlying performance across our markets in the Middle East, in India and in the rest of APAC. U.S. delivered NOK 417 million in gross profit, representing 31% growth -- gross profit growth. And looking at the potential of our markets, this is clearly where we have a terrific and exciting opportunity ahead of us in continuing to drive growth.Looking at the EBITDA composition, we clearly see the Nordics contributed with NOK 554 million, a 35% EBITDA margin. But the EBITDA contribution both from Europe and now following the Rhipe acquisition from APAC and the Middle East are very sizable and important to our overall EBITDA. Whereas U.S., we're happy to report that we continue to be in positive EBITDA margin territory. But this is also where we expect going forward to continue to see low EBITDA margins as we invest in driving organic growth and scale in the U.S. Looking at the composition of Q4, we see a similar perspective with NOK 92 million in gross profit and NOK 22 million in EBITDA contributed by Rhipe.Moving to the next page, looking at the breakdown of our Q4 gross profit by business area. We see Software & Cloud Direct contributing with 22% growth for a total of NOK 325 million, where Software & Cloud Channel now contributes with NOK 178 million with strong growth rates as the majority of the Rhipe business fits into this segment as it is a strong business model overlap with our existing channel business.I'm also extremely encouraged to see the strong growth on Services, both Software & Cloud Economics, but more importantly, also in Consulting, which clearly helps cement our value proposition of working with the customers through Services and then transitioning into Software & Cloud Economics and -- sorry, software and cloud transactional engagements.Looking at the EBITDA margins. I think the EBITDA margin on Software & Cloud Direct and Channel clearly represents the strong scalability of the business model, and we continue to see margin improvements in the quarter as we demonstrate that scalability. The Consulting and the Services business areas represents the margin of around 20%, represents the more people-centric business model. But also here, we see some solid margin improvements of 4 percentage points year-over-year.Now 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 it is very positive to see that these efforts across the organization is paying off.Before diving into the Q4 working capital, it is important to keep in mind that our business is seasonal. And as a consequence, the relevant comparison for working capital is always year-over-year. However, independently of the seasonality, Crayon has a consistent track record of negative working capital, which is attractive as it implies working capital as a source of funds, not a use of funds.Starting with the working capital in Q4, we have accounts receivables of NOK 4.5 billion, while accounts payables to vendors amounts to NOK 4.8 billion. This results in a trade working capital of minus NOK 318 million, which is a reduction and thus an improvement of NOK 160 million compared to December 31, 2020. The improvement is driven by the combination of a continued focus on credit and collection processes globally and also expanded use of accounts receivables factoring in the Nordics, which is the funding opportunity available to the company which we so far made very limited use of.Furthermore, we have other working capital, which includes things such as payable public duties, taxes and other short-term receivables and payables totaling minus NOK 395 million, resulting in a net negative working capital of NOK 713 million on December 31, which is an increase of NOK 266 million year-over-year. We see this as a very strong result as we are continuing to retain the working capital improvements over the past 2 years and continue to drive business growth and negative working capital.Cash flow from operations in Q4 was NOK 388 million, and this follows the same seasonal pattern as the net working capital on the previous change as the changes in working capital is the major driver for the variability of the cash flow between quarters. As we illustrated on the previous page, Q4 '21 working capital was very strong compared to Q4 '21 -- Q3 '21 working capital was very strong compared to Q3 '21 (sic) [ Q3 '20 ] which lead to a lower cash flow in Q4 as the difference in working capital between Q3 and Q4 was smaller than in 2020.However, in order to look across the cycles, it's 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 position has improved significantly. In Q4 2021, we had NOK 1.4 billion in cash. During the last 12 months, we had unadjusted EBITDA of NOK 501 million, while the change in net working capital had a negative impact of NOK 449 million, as seen from the cash flow statement.CapEx had a negative effect of NOK 83 million, while acquisitions net amounted to NOK 2.5 billion, and tax and interest amounts to NOK 114 million, while new equity in total has increased cash with NOK 686 million, and the new bond loan contributed NOK 1.8 billion in cash. Finally, currency translation and other effects amounted to NOK 131 million negative, leading to a net cash position on December 31 of NOK 1.2 billion.In addition, the business has an RCF available, which has increased by NOK 650 million during the year to NOK 1 billion total, which leads to a total liquidity reserve of NOK 2 billion on December 31, an increase of NOK 410 million from the NOK 1.6 billion in liquidity reserve end of 2020.Looking at the overall P&L statements, we have already covered the items down to EBITDA and the operating performance underlying this. Depreciation and amortization is in line with plan, with depreciation and amortization increasing year-over-year due to the amortization of the intangible assets identified in the Rhipe and Sensa acquisition and depreciation of the investments into IP and ERP systems in previous periods.Interest expenses increased year-over-year as a consequence of the NOK 1.8 billion bond, where we have paid full interest during the quarter. Other financial income and expenses, a positive contribution of NOK 123 million, which is driven by currency appreciation on our balances denominated in other currencies than Norwegian kroner. Altogether, this results in a pretax result of NOK 218 million in the quarter, an improvement of NOK 102 million year-over-year.Income tax expenses are lower than in Q4 2020, driven by tax loss carryforwards from the acquisitions and in other markets, leading to a net profit of NOK 214 million for the quarter. For 2021 in total, we're seeing a net profit after tax of NOK 254 million, which represents a doubling from 2020. This is important as it demonstrates that the business model translates growth in EBITDA to growth in net profit, with 2021 earnings per share now at NOK 2.58, a 74% increase from the NOK 1.48 we delivered in 2020.When it comes to the balance sheet, we have already discussed the net working capital. Intangible assets increased year-over-year, driven by the Sensa and Rhipe acquisitions, leading in particular to increases on contracts and goodwill. On the liability side, the NOK 1.8 billion bond loan is now included as a bond loan following the close of the Rhipe transaction and the listing of the bond, while the NOK 300 million bond maturing in November 2022 is now seen as a current liability as it has less than 12 months to maturity.Elsewhere on the liability side, public duties increases from a combination of underlying business growth and a reclassification of the VAT liabilities, leading to a like-for-like increase in public duties and other current receivables of NOK 186 million, as we're booking this gross in Q4 2021 as opposed to net historical.Looking at the net interest-bearing debt. We are now, following the completion of the Rhipe acquisition, at the level of NOK 1.2 billion. This implies a leverage of 1.9x or 1.6x when comparing to the pro forma adjusted EBITDA for the full year 2021, demonstrating that Crayon still has a strong balance sheet to continue to drive our M&A strategy.Furthermore, as we continue to drive growth and margin improvements, this will further support the deleveraging, both through cash generation of the business itself and through reducing the leverage ratio as adjusted EBITDA continues to grow, providing Crayon with additional flexibility with executing on our M&A strategy over time or returning cash to shareholders as appropriate.Having reviewed the Q4 and the 2021 financials, let's now turn our attention to the 2022 outlook. For 2021, we have delivered performance in line with our most updated guidance, with a total gross profit growth of 29.6% and an EBITDA margin of 21.5%. For 2022, we expect a gross profit growth of 35% to 40% as a consequence of including Rhipe into our financial statements during 2022, which implies an organic growth -- profit growth in 2022, in line with our medium-term targets of around 20%.On the EBITDA side, we expect to continue to benefit from the scalability of the business, leading to a 2022 EBITDA margin of 22% to 23%, while in the medium term, we expect a gradual increase to 25% margin as we continue to scale up our international operations -- scale up our operations in the international markets and benefit from that scalability.On the net working capital side, we expect that the 2022 net working capital will trend towards our medium term level of negative 15% to 20% of gross profit, which enables Crayon to continue to drive growth, while working capital remains a source of funds and not a use of funds.On the CapEx side, we expect an increase to CapEx to approximately NOK 100 million as the CapEx synergies from the Rhipe acquisition will be offset by accelerating investments into globally scalable platforms to drive our service growth.With that, I'll transition to Melissa for wrapping up the 2021 earnings presentation before moving to Q&A.

[Melissa Ann Mulholland, CEO & Chief Services and Solutions Officer]

Thank you so much. It's been such a fantastic year and also Q4. I'm proud of what the business has achieved, and we're really looking forward to a continued strong performance as we progress into 2022.There are 4 points which underpin our confidence for a strong 2022. The first is our attractive service-led business model, which continues to demonstrate growth in GP performance quarter-after-quarter, and we'll continue to demonstrate that performance going into the year ahead. Our proven ability to deliver profitable growth across our full global market portfolio and, of course, our people.As I mentioned, people are our greatest asset, and so we'll be continued to focus our efforts on not only recruiting the best of the best in talent in place but also ensuring that we have talent retention in the model that we have today. And last but not least, a strong balance sheet that provides strategic flexibility.So with that, I want to thank you all for your time today, and I look forward to speaking with you in our next earnings call on May 11. We will now transition to the Q&A portion of the presentation today.

[Magnus Granerod, Manager of IR]

Thank you, Jon Birger and Melissa. We have several questions that have been submitted online. The first is from Christoffer Wang Bjørnsen at DNB. He says, I wouldn't say the U.S. performance in the quarter was bad, but I guess it's behind management's own targets. Could you maybe expand a bit on what's going on there? What changes are the new management look doing during Q4? And what should we expect from the U.S. geography into 2022 in terms of growth and conversion to EBITDA?

[Melissa Ann Mulholland, CEO & Chief Services and Solutions Officer]

Great question. So the U.S. is in, I would say, hiring mode. We have really, I would say, expedited the number of resources in the U.S. market as we build up that business. We've talked about this in previous quarters, but the U.S. continues to be one of our, I'd say, big growth opportunities that we see. And to do that, we need to continue to hire and build up to the employee base that we have. We also have changed new management in the last quarter and are seeing, I would say, already strong outcomes from new leadership in place from increased talent retention but also growth with customer engagements going into 2022.

[Magnus Granerod, Manager of IR]

Thank you. Another question from Christoffer at DNB. So we understand Microsoft and other software vendors are significantly upping their prices during 2022. Can you give some color on how much of that is baked into your gross profit growth outlook for 2022? Is it significant beyond just being another great reason for your people to call your clients?

[Melissa Ann Mulholland, CEO & Chief Services and Solutions Officer]

So being a global, I would say, provider with Microsoft, we've had advance notice of the price increase for quite some time. And so this is not, I would say, anything that we are -- that would dramatically impact the business. If anything, it provides a great opportunity for us to reach out to our customers and help them also reduce their IT costs and their cloud spend, licensing spend with Microsoft. So we see this as a great opportunity for us and have been well prepared for the change ahead and have also supported our customers through this process.

[Magnus Granerod, Manager of IR]

Great. Another question now from Henriette Trondsen at Arctic. First question here from Henriette is, in your gross profit guidance for 2022, can you give some color on your expected development in the different markets?

[Jon Birger Syvertsen, Chief Financial Officer]

Yes, I can take that. And first of all, of course, the inclusion of Rhipe into the financial means that sort of during the year, we'll see a very strong growth in APAC and Middle East in the reported numbers. But looking at the organic growth, the expectations for 2022 is, of course, that we see significantly higher gross profit growth rates in the international segments across APAC and Middle East, across the U.S. and across Europe as we continue to invest in scaling up the market positions in those regions with a much stronger growth in those international segments than in the Nordic markets.

[Magnus Granerod, Manager of IR]

And another question from Henriette. What is your expectations for growth and EBITDA development for Rhipe in 2022?

[Jon Birger Syvertsen, Chief Financial Officer]

It's a great question. And sort of let me start by -- start out by saying that for the 3 months now we worked with the Rhipe team, we've seen very strong performance, and we've seen it as a team which is performing extremely -- a business which is performing extremely strong because of the people involved and because of the customer relationship that the Rhipe business has built over time. And our expectations for the performance of the Rhipe business for 2022 is a continued strong performance.As to the specifics, we are increasing the sort of, in our view, transitioning to focusing on the margins for the region as a whole, simply because the allocation of synergies and the allocation of business opportunities between the sort of -- the 2 historic parts of the business shouldn't be a key focus. But overall, we expect strong performance and organic growth in the region on top of what the Crayon and Rhipe business performed historically.

[Magnus Granerod, Manager of IR]

And another few questions here. Now from Oliver Pisani at Carnegie. So first, headquarter costs of NOK 56 million look a bit high in Q4. Anything in particular that affected this quarter? And how do you see this developing ahead?

[Jon Birger Syvertsen, Chief Financial Officer]

It's a great question. And first and foremost, clearly, there is an effect and part of the scalability of the business model comes from the fact that we're now sort of reaching more and more functional areas and top pace, reaching a critical scale, where it's meaningful to centralize certain resources and leverage those across more markets, which leads to a -- if anything, a slightly higher share of headquarter costs than you would otherwise -- than you've seen historically.But overall, I think the clear expectation is that the gross profit growth should continue to outpace any growth in costs on headquarter to demonstrate the scalability within there.

[Magnus Granerod, Manager of IR]

Also from Oliver, approximately how much revenue or gross profit do you have from AWS and Google Cloud today?

[Jon Birger Syvertsen, Chief Financial Officer]

Yes, we're not disclosing sort of specifics on vendor and vendor breakdown. But it's clear that sort of the significance and the importance of AWS and Google Cloud to us as a business is not in the direct impact day-to-day in the 2021 financial statements. It's in the relevance to -- in ensuring the relevance to our customers in our multi-cloud engagements and clearly also based on the potential that both of these cloud platforms, as they increasingly pivots to partner-led business model, represents for our business today.

[Magnus Granerod, Manager of IR]

Also from Oliver, any particular products that are driving demand and growth?

[Melissa Ann Mulholland, CEO & Chief Services and Solutions Officer]

So certainly, I would say our business model around cloud economics is an area of growth, as we've talked about in previous quarters. But also, I would say the cloud services because we know that increasingly, especially as remote work is not a new concept, we've been in this with the pandemic for the past 2 years, but it's not necessarily going away. And so companies need to continue to, I would say, increase their cloud performance but also their data and increase we see in areas such as security with, I'd say, breaches in the market today. So that creates an opportunity for Crayon to be well positioned from that perspective.And I also see a question here around just what type of M&A targets do we see looking forward. So there are really 2 distinct aspects to that. I'd say one is really just about scalability and geographical presence. So Rhipe is a great example of that, where we set up the business in APAC just a few years ago and have reached profitability. But we also see that through Rhipe, we now have a much larger presence and are able to capture more market share and reach more customers and partners through Rhipe. And so that's really integral into our business.Then we have, what I would call, the Services focus, which is examples such as Sensa where they have deep skills that we're able to immediately build out managed services. And to Jon Birger's point, that also ties into the global footprint that we're having as we now are in over 40 markets around the world.

[Magnus Granerod, Manager of IR]

We also have a few questions here from Thomas Tang at MediumInvest. The first is, on our organic growth, what were the organic growth rates in gross profit from Q4 and 2021? And how much of the margin improvement in Q4 is driven by Rhipe?

[Jon Birger Syvertsen, Chief Financial Officer]

Yes. It's a great question, and it's an important question. In Q4, in total, 22% of the EBITDA margin -- sorry, 22% gross profit growth was organic. But here, I also think it's important to reflect on the constant currency effects because the Norwegian kroner depreciated relative to most other currencies year-over-year.So looking at the organic growth rate in constant currency terms, we're seeing 27% organic gross profit growth, which is a very strong number. And you see the same effect for the full year numbers, where the -- where we delivered 20% organic growth. But in constant currency terms, we actually delivered 26% organic growth in constant currency terms.On the margin improvement in Q4 by Rhipe, I mean we do include the breakout of the newly acquired business in the notes to the financial statements, and you will see that the Rhipe business delivered around 23% EBITDA margin. So it's slightly accretive to the margin. On the other hand, if you look at the total amount of EBITDA and the impact of this, it's not a big driver of the margin improvement.

[Magnus Granerod, Manager of IR]

Another question from Thomas. Is it a fair assessment that a significant part of your growth is based on conversion of old legacy solutions to cloud solutions? And if so, how long is the conversion of legacy solutions likely to continue? And how significant is it for your growth targets going forward?

[Melissa Ann Mulholland, CEO & Chief Services and Solutions Officer]

So I would say no, it's not necessarily a conversion from legacy to cloud. And in some cases, it could be simply that we're building net new areas of capability, for example, around data AI. So I'd say that this area is going to continue to improve, especially as businesses need to drive more efficiencies in the business today. I mean we're all -- IT is clearly not going away, and that will continue to evolve. And hence, I also see the cloud providers increasing the amount of offerings that they have to take advantage of this in the world that we live in today.And in terms of -- also from Thomas, I see a question around, can you share the full year employee retention number? Absolutely. So today, for 2021, we're at 90% in terms of employee retention. The 98% number was specific to Q4, but we do have very strong retention in our business today, which speaks to our culture. And in a market like -- that we're in, where there's a high demand for talent, I'm really proud of the fact that we've been able to keep and grow the employees that we have today, which is important for our long-term success.

[Magnus Granerod, Manager of IR]

Thank you. I think that was the last question that we received. So with that, thank you all for listening into this Q4 earnings presentation by Crayon. Yes, thank you. Bye.