Ecit AS

OSE:ECIT

Earnings Call Analysis

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to this presentation for the results of Q1 2024. The results will be presented by CEO, Peter Lauring and CFO, Mads Skovgaard.

[Peter Lauring, executive]

Hello, and welcome to Q1 2024 ECIT report. Agenda for today, 2024 financial highlights, performance in our divisions, acquisitions year-to-date '24, a financial review and our overall assessment for the quarter. First, a few highlights. Q1 '24 results, we have delivered a revenue of NOK 1 billion with 16% lower growth, of which 3.8% is organic and EBITDA at NOK 112 million, 11.2% margin and EBIT at NOK 49 million, 4.9% margin and an earnings per share at NOK 0.05 versus NOK 0.07 same quarter last year.

Free cash flow amounts to NOK 70 million as of -- in comparison to NOK 111 million last year. The 10 largest companies in the group represents approximately 60% of the total -- of the activity in the total group.

Market cap around NOK 3.3 billion and number of shares outstanding, 465 million. 16% growth, of which 3.8% is organic. We are affected both from macroeconomic and political conditions, which affect mainly the IT division. On the other side, the F&A division is doing quite well. We are affected by the timing of Easter in March '24 versus April '23. And cost savings program announced by the end of 2023 to save NOK 40 million is in progress according to plan. We can see a little in the Q1 2024, and we expect to see more to materialize throughout the year.

The EBITDA of NOK 112 million delivered in Q1 is affected by Easter, as mentioned, and the political and macroeconomic conditions. We see the Easter alone to affect that at a minimum of NOK 15 million, which we expect to be normalize through Q2. So we will deliver a normal H1 performance is our expectations as of now. Performance in our divisions. The F&A division, our largest division, came out of Q1 with a revenue of close to NOK 600 million with an EBITDA of NOK 90 million, revenue growth of 12.5% and a margin of 15.7% versus 16.9%.

The division has delivered a good organic growth in the quarter. The EBITDA is, as mentioned, affected by Easter. Consolidation within the division companies that are merging gradually building a group is ongoing, and we are having an increasing focus on nearshoring going forward. The IT division came out of Q1 '24 with a revenue of NOK 400 million and EBITDA of NOK 30 million, revenue growth close to 14% and EBITDA margin at 7.5% versus 11.8% last year. And the IT division is affected not only by macroeconomic and political headwind, but also by Easter.

Within the division, also here, we are doing mergers and consolidation and see some effects, and we expect this to -- these effects to ease out during 2024, early 2025. The Tech division with a revenue of NOK 54 million and EBITDA close to 0, revenue growth 56%. And if we look at our core software, we have delivered a growth at 24% comparing March '24 with March '23. The core software is the software that supports the F&A division doing accounting and payroll production. Especially 2 products is standing out in the division. It's Intect, our Danish payroll system and ECIT Digital, a workflow system that supports customer across Europe. And with that, over to you, Mads.

[Mads Skovgaard, executive]

Thank you very much, Peter. A few words to our acquisitions done so far in the year, which represent more than NOK 60 million in annualized revenue. We have completed 3 acquisitions within F&A business during the period, which all is represented in Sweden. The acquisitions have strengthened our presence, primarily in the northern part of Sweden and also some in our largest cities. In January, we acquired a 25% ownership share in Zirius, an ERP software company that we see as a good fit to our digital development in ECIT.

Some comments to our financials for the first quarter of the year. Looking at our top line, total revenue growth was almost 16% compared to 26% last year. And the lower revenue growth can mainly be explained, as Peter mentioned, by Easter timing, resulting in fewer working days in the quarter compared to the same period last year. Despite the impact of Easter timing, our F&A business had a good quarter with organic revenue growth in line with expectations. Macroeconomic and local political headwinds continue to affect certain parts of our IT segment, namely IT consultancy and specialized equipment.

And although we see signs of stabilization for both areas, the outlook remains somewhat uncertain. Looking at our EBITDA result, we came out with NOK 112 million compared to NOK 15 million last year, representing a margin of 11.2% compared to 13.4% last year. And the lower margin result from the Easter impact and also the lower activity in the parts affected by lower IT spending. Financial expenses have increased from NOK 10 million last year same period to NOK 16 million this quarter. And the increase is a result of more debt, but also higher interest rates compared to last year. Adjusted profit for the period ended with NOK 33 million compared to NOK 50 million last year.

Easter impact and higher financial expenses are the main explanation behind the development. Cash flow and financial positions. Our cash flow from operations was NOK 112 million versus NOK 140 million last year. And the decrease is a combination of extraordinary positive change in our net working capital, but also lower EBITDA results. And referring to last year's net working capital, the positive change last year came from fluctuations between Q4 2022 and Q1 2023. The development in our operational cash flow is also reflected in our free cash flow for the quarter.

Net interest-bearing debt, where we exclude leasing debt, represents NOK 396 million compared to NOK 42 million last year. And the increase in debt can mainly be explained by the completed acquisitions last 12 months, representing NOK 176 million and the strategic decision to increase our ownership share in our subsidiaries, representing NOK 112 million during the last 12 months. And with that, over to you, Peter.

[Peter Lauring, executive]

Thank you. Our overall assessment of Q1 2024. We are affected by Easter, fewer working days affecting organic growth and EBITDA. We are as well affected by macroeconomic and political headwind that affects especially the IT revenue and EBITDA. On the EBITDA side, next to the 2 factors, we have initiated a cost savings program in late 2023. We can -- I have seen a little of this in the figures for Q1 and more will materialize throughout 2024.

Net interest-bearing debt at NOK 396 million is affected, as mentioned, by Mads, both by our acquisitions, but also more extraordinarily by our increasing subsidiary ownership where we've spent more than NOK 110 million, but increased our ownership share with approximately 10% compared to last year. M&A activity is in line with what we did last year and our target for the area. We have a good pipeline of companies who could consider to become part of ECIT and the financial means to be able to do the acquisitions we see will fit ECIT. Q2 '24, we expect a catch-up of the negative Easter effect we saw in Q1, and we expect a normal H1 or first half year in '24 as we see the underlying business is in line with our expectations. And with that, thank you for your attention and time to look at ECIT Q1 '24 report.