Webstep ASA

OSE:WSTEP

Earnings Call Transcript 2020-Q4

[Trond Klethagen Johannessen, Executive Chairman]

Good morning, and welcome to this presentation of the Fourth Quarter and Full Year Results for Webstep. My name is Trond Johannessen, and I am Chair of the Board. Together with me today, I have newly appointed CEO, Save Asmervik; and CFO, Liv Annike Kverneland, who also served as interim CEO until last week. Today's agenda includes an introduction of the new CEO, a business review, financial review and a few words about outlook.Let's start with the highlights from the quarter. The fourth quarter ended with revenues of just below NOK 190 million, which is up about 7% from Q4 2019. 2020 as a whole came in at NOK 690 million, which is about NOK 30 million above the 2019 figure. Actual EBIT in Q4 was about NOK 11 million, which is 40% up from Q4 2019. If we adjust for one-off costs in the quarter, the EBIT increases to NOK 16.4 million.One-off costs are related to CEO change and provision for possible loss on receivables related to one customer in the travel sector. Adjusted for one-offs, full year 2020 EBIT ended at NOK 55.5 million. Recruiting is key for Webstep. And after somewhat reduced recruiting activity in the middle of last year, we were back to full speed in Q4. This resulted in a number of signed new employment contracts and an expected net increase of around 15 people during Q1 this year.We have also been keeping ourselves busy on the sales side. And as previously announced, we signed a multiyear contract with the Norwegian Courts Administration with an estimated value of above NOK 100 million. The project is run out of our Trondheim office, and Save will talk more about this in a moment. Several other significant engagements have also recently been won by Webstep. Notably, several of these engagements include team and project deliveries, in addition to experts for hire. Hopefully, we can share some of these successes with you in the not-too-distant future.Based on a solid financial position and a positive outlook, the Board has decided to propose a dividend payment of NOK 1.6 per share, which is the same level as recent years. On behalf of the Board, I am pleased to announce that Save Asmervik as of Monday this week, took over as CEO of Webstep. Save has, since 2011, served as a regional Director for Webstep in Trondheim. He has a Master's Degree from NTNU and has held leadership positions in companies like Equinor and EY. He has also worked several years for IBM and has extensive knowledge of the IT industry. Save has a long and strong track record that is recognized as a solid technology and consultancy leader in Webstep. Growing the organization in Trondheim from 14 to 60 employees while continuously innovating by introducing new delivery models, Save has demonstrated strategic leadership that will benefit the whole of Webstep going forward. We are confident that he will further strengthen the company's great work environment and opportunities for innovation, growth and creation of shareholder value.We will now continue with the business review, and it is my pleasure to hand it over to Save to take you through that section.

[Save Asmervik, Chief Executive Officer]

Thanks for the kind introduction, Trond. I really know the company from the inside and in all the potential that lies in this organization of IT experts. And to kick it off, I thought it would be a good idea to give my perspective on our go-to-market model and how we are positioned for growth.Webstep supports customers across multiple industries and areas. Together, we support our customers in solving business challenges within sectors such as transportation, health care, retail, finance, process industry and public sector. Many of our customers are influencing our daily lives and solving societal challenges, and that is something we are proud of. We are indeed developing a better tomorrow. In short, our wide range of highly skilled tech experts are delivering services on 3 levels based on the go-to-market strategy presented back in November 2019.The traditional way of delivering advisory services has been, for our customers, to hire the needed experts. This will continue and grow based on our customer demand. The demand in the marketplace is, however, changing, and we see our customers wanting more from us. There is an increased demand for Team as a Service, allowing for Webstep to construct cross-disciplinary teams to solve business and IT challenges. Sometimes the teams is under supervision from the customers, and sometimes we are taking full responsibility for delivering defined services.The third delivery method or services from Webstep is our projects and solutions business. There is a great market potential in this segment. Projects and solutions, as announced earlier, is a key area where we have been investing.Let me briefly mention a couple of examples to illustrate the delivery model. The recently signed frame agreement with Sparebanken Vest and DOMSTOL Adminstrasjonen are examples of customers where we are delivering Team as a Service.Last month, Samla was announced, where we have been working closely with Larvik kommune to develop a solution for decision support. We also recently signed a new project with Enova to deliver a new solution for energy making.I will take you through some of our wins from last quarter. The agreement with Norwegian Courts Administration has a duration of 4 years and represent an estimated value of around NOK 100 million. The agreement is part of a digital transformation of a case management systems in the Norwegian Courts Administration. Webstep will be delivering through cross disciplinary teams. The contract shows that Webstep has both the capacity and the expertise to deliver comprehensive project deliveries in line with our growth strategy.Sparebanken Vest is an independent listed financial services group, engaged in banking and financing activities on the west coast of Norway. The framework agreement with Webstep is covering digital consultancy services to improve digital services for banking customers. Webstep has a long-term relationship with Sparebanken Vest, which is based on a common understanding on the importance of culture, sustainability and business needs. Key to the agreement is the access to local IT expertise, which allows us for a more efficient IT organization with the capacity to rapidly adapt to business needs.In 2020, Enova selected Webstep as a lead IT partner for the next 4 years. The organization contributes to reduce greenhouse gas emissions, development of energy and climate technology and the strengthened security of supply. Recently, Enova selected Webstep to develop a solution for [ energy microsystema ] based on the new national regulation for energy classification of buildings. The new project is launched within the overall agreement with Enova and will be delivered through a dedicated project team by the end of 2021.The concept of Samla was developed in close cooperation with our client, Larvik kommune. Samla is an automated reporting system to visualize key population metrics and changes in demography. The cloud-based decision support tools launched in February is tailored for municipalities for them to get improved insights related to population health. Larvik kommune is the first Norwegian municipality to leverage the services on a subscription-based contract. Several other municipalities has expressed their interest in the solution.Webstep has had success with strong local offices spread across Norway and Sweden. The mode of operation has contributed to unique customer proximity and has made us well positioned to pursue local business opportunities. Our strong local presence also makes it easier to act as a strategic adviser to our customers. We have maintained this model over the years at the same time as we have facilitated even better collaboration across departments throughout the group.Our go-to-market model ensures continuity for delivery of experts, competencies and advisory services while broadening our services through providing more Team as a Service and project deliveries. Building expertise and knowledge with high-quality competency events has been an important investment in our experts throughout 2020. As an IT expert house, we need to be focused on professional development among the consultants in order to stay relevant in the marketplace.Regarding recruiting and hiring, there is still tough competition from the best IT expertise in the market, and we have a relatively stable capacity during 2020. We ended the year with 415 employees in total. We had a strong recruitment quarter in Q4, which will be visible in our headcount for Q1. More on that in the outlook. Arne Norheim stepped down as a CEO in November last year; and our CFO, Liv Kverneland, took over as an interim CEO. Now let me hand it over to our CFO, Liv Kverneland, who will take us through the financial results.

[Liv Annike Kverneland, Chief Financial Officer (Leave of Absence)]

Okay. Thank you very much, Save. And by the way, I'm truly happy to have you by my side as our new CEO. So this is a financial review for Q4 and the full financial year of 2020.Let's start with some reflections on the full year of 2020. It has been a different year for all of us. As an IT consultancy, we are not among the companies that have had the toughest struggles throughout the pandemic. Our employees and our customers have adapted well to the situation. And apart from the challenging period with home schooling and closed day care in Norway, working from home has worked well for the Webstep consultants.We have experienced periods with somewhat lower utilization than we normally see in Webstep, especially in the regions affected by the challenges in the oil industry. Since our consultant salaries are dependent on the revenue that they generate, we decided to introduce the COVID-19 salary program in March to provide our employees with financial predictability and stability. This has been a costly program, but the extra costs have been more or less offset by government grants and cost savings related to traveling and social activities. We've had no furloughs in Webstep during the pandemic.So let's have a look at the figures for Q4 and the full year of 2020. We are pleased to see revenue growth of 6.6% and a solid strengthening of the EBIT in Q4 despite some one-off costs, which have affected the figures. The demand is good, operations are steady and the positive development in Sweden continues. The revenue growth of 6.6% in the fourth quarter is driven by all the revenue drivers for revenue from our own consultants, headcount increase and the combination of more billable hours and increased hourly rates. This is offset by a decrease in revenue from subcontractors.The COVID outbreak has had some effects on our cost structure. Other operating costs have decreased as a consequence of reduced traveling and events. Personnel costs have had a net increase, but this is, first and foremost, due to increased revenue from our consultants. The increase in personnel and salary cost is partly offset by reduced costs related to social activities for the employees. We have seen a strengthening of our profit in Q4 of close to 40% with an EBIT of NOK 10.9 million compared to NOK 7.8 million in Q4 2019. And as Trond mentioned, EBIT was affected by one-off costs at a total of NOK 5.5 million. These costs relate to the CEO transition and provision for a possible loss on receivables related to a single customer within the travel industry.We've had a net negative cash flow of NOK 13.6 million throughout the quarter, while the cash flow in the corresponding period in 2019 was positive with of NOK 16.6 million. And the main reason for the deviation compared to 2019 is the dividend of NOK 42.7 million, which was paid in October 2020. The cash balance ended at NOK 39.7 million compared to NOK 25.5 million at 31st of December 2019.Looking at the figures for the full year, we have had a revenue growth of 4.5% while revenues from our own consultants have increased by 6.3%. This is, first and foremost, driven by higher average headcount, which increased by 3.2% and increased hourly rates. Revenues from subcontractors have decreased by approximately 7.6%. EBIT for 2020 ended at NOK 50 million, which is slightly up compared to NOK 49.1 million in 2019.The financial position of the group is strong with an equity ratio of 64.3%. And in Q4, the Board of Directors decided to distribute a dividend of NOK 1.60 per share, amounting to a total of NOK 42.7 million. The dividend was based on the financial statements of 2019, and the Board utilized its authorization as granted by the Annual General Meeting on 7th of May 2020.And as Trond mentioned, the Board is planning to propose a dividend for 2020 of the same amount, NOK 1.60 per share. The cash flow in 2020 was NOK 14.3 million, compared to a negative cash flow of NOK 8 million in 2019.So let's move over to the figures for Norway. The Norwegian segment is approximately 85% of our consolidated revenues. So most of the comments that we had on the previous slide is valid for the Norwegian segment as well. Revenue increased by 4.1% in the fourth quarter of 2020 compared to the fourth quarter of 2019, and the growth is driven by headcount and hourly rates. EBIT in Norway ended at NOK 8.8 million, up from NOK 6.9 million, and the EBIT in Norway for the fourth quarter was affected by the previously mentioned one-off costs.Please also note that a total of NOK 1.7 million was spent on the solutions Samla, which Save talked about. And this has not been capitalized, but it has been regarded as cost in the income statement. And the solution was launched in February this year.So looking at the figures for the full year for Norway. We had revenue growth of 2.4%. And the table in the bottom of the slide shows a split between Oslo, the regional offices and subcontractor revenue. And we are pleased to see that both Oslo and regional offices have growth in the fourth quarter. Let's move over to Sweden, which accounts for approximately 15% of our consolidated revenue. Sweden continues to deliver revenue growth and stronger margins, which they have been doing throughout 2020. Of course, this is partly supported by the weakening of the Norwegian kroner, but revenue in constant currency also grew by 10.1% in Q4 and 6.4% for the full year. Our most important revenue comes from our own consultants, which had a growth of 6.5% in the fourth quarter and 13.3% for the full year. And revenue growth from our own consultants is driven by both headcount, but also, in particular, high utilization in Sweden. Further, there has been a shift in revenue mix in 2020 in Sweden where more of the revenue are generated by our own consultants, which also contributes to an increased margin. The Swedish team has focused on rightsizing costs, which we see the effect of increased profitability in 2020. But reduced traveling and social costs due to COVID have also contributed cost reductions and EBIT improvements. EBIT ended at NOK 2.1 million for Q4, an EBIT margin of 7.2%. EBIT in Q4 2019 was NOK 0.9 million, and the EBIT margin was 3.7%. So the margin is close to double in 2020 -- Q4 2020. EBIT was -- for the whole year was NOK 8.5 million compared to NOK 2.4 million in 2019. And the EBIT margin increased from 2.7% in 2019 to 7.9% in 2020. Looking at our cash flow and net debt for the full year. You can find the balance sheet and the cash flow statement in our quarterly report, and I will not go through this in detail. But here, I will mention a few highlights. And the overview, the graph shows the cash flow for the full financial year of 2020. And as you can see, we had a cash flow from operating activities of NOK 63.3 million compared to NOK 41 million in 2019. And in 2020, we paid a dividend of NOK 42.7 million compared to NOK 42.4 million in 2019.Cash and cash equivalents ended at NOK 39.7 million at 31st of December 2020, compared to NOK 25.5 million, 31st of December 2019. We have an unutilized revolving credit facility in Norway of NOK 110 million. And also in Sweden, we have a facility of SEK 5 million, and we have not been in breach with any covenants in 2020.Thank you. And with that, I will leave the word again to Save, who will take you through the outlook.

[Save Asmervik, Chief Executive Officer]

Thank you, Liv Annike, for the run-through of the financial results. 2021 is looking promising as we see a high demand for Webstep experts, and we have a very solid order book. We have recently signed significant contracts covering teams and project deliveries, Norwegian Courts Administration being one of these agreements. As mentioned earlier in the presentations, we are experiencing a very strong recruiting drive across the organization and expect the headcount will be approximate 430 by the end of Q1. We also see a reduced employee turnover. In the coming quarters, we will focus on organic growth in existing locations. We are seeing a strong momentum and promising opportunities within teams and project deliveries. I am proud to lead Webstep moving forward. As the world is going digital, we experience a high demand for IT consultancy services to enable the digital transformation. I believe we are well positioned to develop tomorrow's digital solutions and society's. Thank you.