Addnode Group AB (publ)

STO:ANOD B

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to the Addnode Audiocast with Teleconference Fourth Quarter 2021. [Operator Instructions]

Today, I am pleased to present Johan Andersson, CEO; and Lotta Jarleryd, CFO. Speaker, please begin.

[Johan Andersson, executive]

Thank you, and welcome to the Q1 presentation for Addnode Group. As presented, I'm the CEO of Addnode Group, Johan Andersson, and with me is our CFO, Lotta Jarleryd as well.

So if we could move to the slide agenda, Q1 2022. Next slide, please. Before we would start off with a short intro of Addnode Group, just to put it on the map. And let me give you a brief on Q1 2022, talk a little bit about what we do within sustainability, sum it up with our investment case and then open up for Q&A. And in the presentation, you will also find a display of customer cases from our divisions and the acquisitions that we have done in 2022, 2021 and 2020, but that's more appendix and reading. So thank you.

And, please move to next slide. Looking at the Addnode Group, we provide digital solutions for a sustainable future. That means that we create sustainable growth and value by acquiring and developing cutting-edge enterprises and digitalize society. We are organizing 3 divisions: Design Management, Product Lifecycle Management and Process Management. And looking at the last 12 months, ending up in March 31, we are roughly 2,300 employees. We have a net sales of SEK 4.3 billion -- SEK 4.4 million and an EBITA result of SEK 500-plus million and looking at our revenue, we have a recurring revenue of 67%, meaning that our customers pay in advance for the right to use the software or the digital solution that we provide for them. And it could be both on-premises solutions and SaaS solutions. And then we also sell licenses and then services but implementing the solutions and integrating them with other digital solutions at our customer side and also some services around that. So...

Without any introduction, I would like to move to the next slide and present where Addnode Group are present today. So looking at the next slide, Addnode Group today, we are started out in 2003 in the Nordic countries. And then we have moved out into the world, meaning that we also have operations in Australia, Japan, Canada and latest with our acquisitions that we'll talk about a little bit later in the U.S., a significant portion of our operations. So we are step-by-step becoming more and more international.

So please, next slide. Looking at Q1, it's another record quarter, and we have also made strategic acquisitions in the U.S. and also some other acquisitions in Germany and U.K. So our people are doing a fantastic work, and we started out '22 with a record quarter. What's good is that, all 3 divisions achieved good organic growth and improved earnings and contributed to the good results in Q1. Net sales increased by 28%, 7% was currency adjusted organic growth, and we ended up at SEK 1.3 billion.

The EBITA increased to SEK 180 million and our EBITA margin strengthened to 13.6%. But importantly is that, the EBITA included a capital gain of SEK 24 million from a sale of an office in the U.K. that we -- part of an acquisition that we did in 2020, we ended up with an office, and then we now have sold it. Our policy is not to own any offices. We would like to leave them. So that's part of that. And also looking at Q1, we have had acquisition costs of SEK 12 million. And the capital gain and the acquisition costs when looking at the different segments that are reported under central eliminations, you will not find them in the different divisions.

Summing it up, it meant that earnings per share increased by 96% to SEK 3.17. So all in all, from a financial perspective, a good quarter. We have had generally good demand from both the private and the public sector, and we can also see that U.K., for example, that had a little bit tougher compared to our other market in COVID, the situation are getting better as well. So looking at the different geographies, it's moving from a stable to a good demand to sum it up. And so I think with that, we'll end that and move to the next slide, please.

So looking at our Q1, we grew all components of net sales. License revenue increased. Recurring revenue increased also with 28%, ending up at SEK 910 million. And looking at the total, you can see that our recurring revenue is 69% of total net sales. And looking to the left in the graph, you can see that we are back on a growth path with regards to net sales after having a smaller downturn in 2021 due to COVID. So I'm pleased that we are back on the growth path on a yearly basis again.

So please, next slide. Addnode Group, as I said, we are organized in 3 divisions: Process Management, Design Management and Product Lifecycle Management, and all contributing to the good growth in Q1 and the improved earnings as well.

So next slide, please. In Design Management, we both had a strong organic performance, and we made some strategic acquisitions by the end of the quarter. Looking at the organic performance first. Net sales increased to SEK 707 million. That was a growth of 33%. Organic growth, 11% and adjusting to currency, 5% organic growth. Symetri, our Autodesk partner, who has a good offering of own technology and services, complementing our partnership there and a very good demand in the quarter that was reflected in divisions growth and earnings. Our customers value now Autodesk partner with proprietary related products, as well as a broad in-depth design and BIM skills. Demand in the U.K., as I mentioned earlier, was especially positive coming from a lower situation. In the Nordics, manufacturing customers became more willing to invest.

Demand for the division's other offerings based on proprietary software for BIM and collaborative portal for construction, infrastructure and facility management also made good progress in the quarter. EBITA increased to SEK 89 million and the EBITA margin widened to 12.6%. In the quarter, we also made our largest acquisition to date of Microdesk in U.S. This company was consolidated from 1st of March 2022, meaning that it was 1 month that was included in the quarterly results.

So with that, please move to the next slide. Microdesk is an acquisition that is, as I mentioned, the biggest one so far for Addnode Group, but it's also a complementary acquisition of what we are doing today. Meaning that Symetri who are part of the Addnode Group that became part of Addnode Group actually in 2005, started out having a net sales of SEK 1 million and ending up in 2020, with a net sales of SEK 1.5 billion, growing through organic growth and acquisitions, and we have down that predominantly in the Nordic countries and in the U.K. And now the next step is establishing also the businesses in the U.S. through the acquisitions of Microdesk. So it's a big acquisition, but it's also complementary acquisitions to what we are doing today, meaning that Symetri and Microdesk will be one of the biggest Autodesk partner in the world and also the one with the biggest service offering. We are expecting to pay USD 50 million for this, USD 26 million upfront and USD 24 million is depending on the financial result becoming approximately years. And we have financed it through our existing credit facilities.

Next slide, please. So why are we excited about this? It means that Symetri and Microdesk together will have a global reach. We will have a technology leadership that we will -- are able to invest in our own IP supporting the Autodesk platform. We are industry focused. We will have a significant -- we will probably be the one with the biggest consultancy offering actually in the world in this space. We can see that we will have good benefit from manufacturing and construction moving together. We, as Addnode Group, came back to support the further growth of this entity. Both companies are very much customer-centric. Out of this approximately 700, at least 600 are meeting customers, if not, on a daily basis but on a retail basis. We have a strong partnership with Autodesk. And we also have other supporting technologies to support our customers within the AC area and the manufacturing area. And as I mentioned, we have a strong consulting offering. So 3 great opportunities going forward.

At present, Microdesk has a lower profitability than Symetri, but we also believe that going forward, we will be able to find a way to make sure that Symetri and Microdesk has the same profitability going forward. And how will we do that? Of course, we have a strong offering of own IP supporting that. Hopefully, that we will be able to infuse that in the U.S. market through Microdesk as well. We can share know-how both ways from Symetri and Microdesk and share resources and also looking at how to run the business in a more efficient way. So hopefully, this will be a growth platform for further.

So please, next slide. So what I mentioned is that one of the things that is exciting is that, we have a product portfolio supporting and enhancing the investment in the Autodesk platform. And we call our product there Naviate, Sovelia and CQ. And that are the things that we have invested and as a significant portion of our business of today. So that means that if someone -- if you are an architect today and you log into one of the Autodesk product, you will find these products in your toolbar. So it's integrated in these things that we deliver to our customers. So it's not a separate product. It's a bundled product, and we provide it to our customers. And why I'm mentioning this is because it makes us unique to our other competitors in the market. And, of course, it has a good contribution to our profitability as well.

So next slide, please. So looking at Product Lifecycle Management. Also a quarter with strong earnings improvement, and we also made some acquisitions. Net sales increased to SEK 338 million. That was a growth of 19%, organic growth, 12% and adjusting for currency, it was 8% organic growth. Operations in the U.K. made especially positive progress in the first quarter with the increased demand for PLM systems and related services. Demand remained good in the Nordics and Germany. Initiatives in simulation solutions and solutions for customers in life sciences progressed well in this quarter. A reasonably acquired Claytex was consolidated from January 1, 2022, and the acquisition of DESYS was consolidated effective from March 1. EBITA increased to SEK 34 million, and the EBITA margin expanded to 10%. And especially pleased that we're able to deliver a very strong earnings quarter with EBITA increasing 89%.

So with that, I would like to move to the next slide. We made 2 acquisitions in this quarter, supporting and making TECHNIA even stronger as the world leading Dassault Systemes partner. The acquisition of the DESYS and Claytex with some adding SEK 200 million of net sales to what we are doing in the PLM space. They are both partners to Dassault Systemes and providing also related proprietary software and services. Claytex specializes in simulation and testing for the automotive industry. And in the creation of this DESYS also means that TECHNIA becomes even stronger on the German market. So 2 very good companies supporting the early growth journey of TECHNIA.

Next slide, please. Looking at Process Management, had a very high organic growth from our perspective, and we're also able to improve margins in the quarter. Net sales increased to SEK 288 million in the first quarter, that's a growth of 28%. Organic growth was 10% and adjusted to currency is also 10% because the majority of the business is in the Swedish market. We believe that the division is outgrowing the market in those operations providing solutions and services in documents and case management, public services and municipal engineering information system for public authorities and municipalities. The division's business are well positioned for public sector tendering owing to their attractive digital solutions, in-depth experience and good references. We can see that the competition of people in the labor market are intense and it's not that is affecting our businesses, but we can see that the competition are increasing. EBITA increased to SEK 60 million and the EBITA margin widened to 20.8% compared to 17% last year. So all in all, a very good quarter with high organic growth and improved margins.

Next slide, please. And then I would like to hand over to our CFO, Lotta Jarleryd.

[Lotta Jarleryd, executive]

Thank you, Johan. I would like to start with an overview of the consolidated cash flow for the first quarter 2022. We started the year with a strong operating cash flow that increased by 60% to SEK 242 million. This represents a cash conversion rate at 1.6x, and that is operating cash flow to EBITA adjusted for the property sales. The improved operating cash flow compared to the same quarter previous year was attributable to improved earnings, as well as higher contribution from the change in working capital.

As Johan previously mentioned, we have executed 3 acquisitions during the first quarter of this year. And the net outbound cash flow from these acquisitions was about SEK 300 million. In addition, we settled the last outstanding portion of the consideration to the sellers of Excitech that was acquired in January 2020. This payment was made in connection with receiving of the proceeds from divesting the office property that was included in the acquisition. Other investing activities mainly related to development costs for proprietary software.

Regarding cash flow from financing activities, we have drawn about SEK 300 million on our revolving credit facility to finance the acquisitions. Please also note that the Board of Directors has proposed to the AGM a dividend of SEK 3 per share. This corresponds to a total dividend of SEK 100 million to be paid out to the shareholders on May 11.

Next slide, please. I would like to carry on with a few comments on the consolidated balance sheet. We continue to operate supported by a resilient balance sheet, which gives us a favorable position to continue to grow organically and through acquisitions. Following a strong cash flow in the first quarter, the cash position was SEK 668 million as per the end of March. Together with unutilized portion of the credit facility, we had about SEK 1.3 billion in available funds by the end of March.

Other changes in the balance sheet from December 31, 2021 until the end of March 2022, predominantly derived from recent acquisitions. Following the customary purchase price allocation exercises, goodwill and other intangible assets have increased by SEK 578 million. Non-current liabilities increased as the credit facility was used for financing and continued considerations were booked at liabilities.

External debt totaled SEK 965 million and leasing debt amounted to about SEK 180 million. Please note that the utilized portion of the credit facility arranged in June 2021 is classified under non-current liabilities. The previous credit facility was classified under current liabilities as it matured to date was June 30, 2021. Following the acquisitions in the first quarter, net debt increased to SEK 481 million. The equity ratio was 34%, and return on shareholders' equity was 16%.

Finally, I would like to mention that the Board of Directors has proposed to the AGM a 4:1 share split. The purpose is to increase the liquidity of the Addnode Group share. The scheduled record date for the split is May 18.

Back to you, Johan.

[Johan Andersson, executive]

Thank you, Lotta. Let's move to the next slide, sustainability agenda. Looking at Addnode Group, what are we doing? Addnode Group, we work according to the sustainability agenda with 5 focus areas that we have identified. And we truly believe that our biggest contribution to a more sustainable society is the digital solutions that we offer to our customers. Our solutions are used among other things to perform, for example, digital simulations for the benefit of the environment and health, make more sustainable design choices, product lifecycle management, property management and improved participation and dialogue with citizen. So that means that the digital solutions that we will provide make it possible for our customers to create a more sustainable work. That's our contribution.

We do -- we care about the people and environment in our business, that's a given. We also ensure that our partners and suppliers support our sustainability agenda, and that's what's important to work with good partners as well. But by the end of the day, we need to make money so that we can finance our business and make investments to create a more sustainable world. And to make all these things happen, we need to have some sort of control and management of the sustainability work.

Looking at what Addnode Group do, we have identified also in U.S. global development goals that we believe have a clear link to the Addnode Group sustainability agenda. Starting from left, our objective 3, good health and well-being. That's both linked internally, but also the digital solutions that we provide, for example, to our customers in the life science sector. We have to work with the gender equality because it's important to have equal opportunities. We would like to have decent working conditions and economic growth, both internally and what we provide and sustainable industry innovation and infrastructure is an important area for us as well, and also looking at sustainable cities and communities. And all in all together, we would like to help combat in the climate change. So that's what overall we're trying to do within the sustainability area as an everyday work.

Please move to the next slide. So in summary, looking at Addnode Group as an investment, we have a strategy of acquisition driven growth, and we will continue to do that. And as you saw, we did 3 acquisitions this quarter. We will probably do some more this year. When we do it? We'll see, because we like to do acquisitions from entrepreneurs who are working in the areas that we are. That means that we are able to sell them in competitive auction processes. It's more of a long-term effort to make these things happen. So that means that it happens when it happens.

We will continue to provide sustainable digital solutions to our customers. We do believe that we have an attractive business model, meaning that customers pay upfront for the right to use the software and creating recurring revenues. It's a good cash flow and a good customer relationship. And within Addnode Group, you will find a diversification, meaning that different countries, different regions, different offerings in both the public and the private sector.

So if we also sum up the first quarter, I believe we started the year with good organic growth, acquisitions and better efficiency in the operations, meaning essentially better margins. Our strategic acquisitions of Microdesk a big step for Addnode Group and opens up the U.S. as a new domestic market. As Lotta described, we have a strong financial position with low debt to equity ratio and good cash flow that gives us the potential to keep executing our profitable growth strategy.

So with that, I think we will move to the final slide, Q&A and open up for questions. Lotta and I are both available here to answer your questions as good as we can.

[Operator]

[Operator Instructions] The first question comes from Daniel Thorsson from ABG.

[Daniel Thorsson, analyst]

Yes. My first question is on the strong margin across all the segments. For me, it looks mainly cost-driven. Anything here we should not extrapolate for the rest of '22 that may have been abnormally low for any reason in Q1? For example, if I look at Process Management, the cost decreased SEK 10 million versus Q4 quarter-over-quarter. Anything you would like to highlight here?

[Johan Andersson, executive]

Good question. We are still adopting to a new world, meaning that we are becoming more and more digital, working more and more distributed. And so -- and we are seeing the good effects of that, meaning that we are lowering our cost. There might be just a few sort of mediums we then -- let's say, that we were expecting to have some kickoffs in the first quarter. And then we had sort of the final wave of COVID, meaning that we were not able to have that, but it's just the -- that's not SEK 10 million to speak. But you have that -- so I'm a little bit -- so you can have a little bit of effect on that. On the other hand, we have learned to work more efficient in a distributed manner. So I think the jury is still out on that.

[Daniel Thorsson, analyst]

And the same goes for...

[Johan Andersson, executive]

That means you are --. We can see a very good efficiency in the way we are working. And probably just some -- we will have some cost move from Q1 to Q3 with regards to -- but that's just SEK 1 million, SEK 2 million. It's not SEK 10 million.

[Daniel Thorsson, analyst]

Okay. So except from that, we should see a normal seasonal pattern on the underlying OpEx in '22, I guess, versus the figure we had in Q1. It's not that normal at least.

[Johan Andersson, executive]

It's not that normal from a cost perspective.

[Daniel Thorsson, analyst]

And then on the growth side, I mean, you are facing considerably tougher comps in the coming 3 quarters than we saw in Q1. And the 7% organic growth in this quarter was honestly a little bit lower than I expected at least. So how do you think about organic growth for the Group for the rest of the year? Is it possible to deliver a positive level here in Q2 to Q4? Or anything we should be aware of in terms of tough comps and demand?

[Johan Andersson, executive]

I think we could be able -- we are -- there are no things to say that we should not be able to have organic growth as a Group going forward. But what I'm trying to guide for if you're trying to see something that -- we do 3% to 5% organic growth over time, that's good for us. So as we have delivered 7%, I think that's good currency adjusted. So -- but we probably will not do 10% organic growth. That's not for the sort of have in our infrastructure and what we are doing. So definitely, in the motion that we're having, we are expecting some organic growth. We don't do it, as you know, and if you notice it, but there are nothing in it unless there -- or any further development in the world from a macro level, but we can't control that, but normally what we know today. So we are expecting some organic growth.

[Daniel Thorsson, analyst]

Yes. Okay. I just saw that the last year's Q1 was actually declining 14% organically. So the growth in this quarter was probably widely expected while in the -- you grew 10% again. Okay. But that's fine. And my last question is regarding the Microdesk -- yes.

[Johan Andersson, executive]

The most important thing for us is that, we grow organically on a profit level. And in order to do that, we need to do, of course, top level growth.

[Daniel Thorsson, analyst]

Yes, exactly. My last question is regarding the Microdesk acquisition, you say that the margin is lower than your Group margin than your Design Management margin. And as you pay half of the consideration upfront and half in earn-outs, and we do not know the exact margin level and the required targets where they are announced being paid out. We don't really know the acquisition multiples today or in the future or post synergies. So can you just help us understand this acquisition a little bit better by, for example, giving us a narrower margin range for the current Microdesk business, roughly what it needs to get the full earn-out margin-wise, as well as maybe the potential that you see you can bring this company ahead? I guess, this may not be information you want to share in full detail for some reasons, but to understand the direction and the levers in the deal would at least help us understand the value creation you're looking to create much better.

[Johan Andersson, executive]

Yes. It's a good question. And if you look at the other similar companies like Microdesk in our -- you will find that a lot of them has an operating margin of around 3% to 4% of what they are delivering. And so that's probably -- and we are having a higher margin than that. And how do we move someone from a sort of a industry margin to the margin that we are doing today that is much higher. There are a couple of things that we can do, both looking at the service offering, how you execute that and also how you add own IP to enhance the investment in the Autodesk platform. That is something that we have done fairly well, and we are expecting to have that going forward. And also the nitty-gritty daily work, how you operate the business. So there are 3 things. And those 3 things, we believe that we are able to move someone from the industry operating margin to the margin that we have on our business today.

And then looking at in 2020, for example, we did an acquisition of Excitech at that time, had an operating -- net sales of around SEK 500 million and what I described as the industry operating margin. And if you look today, what we have in Design Management, you can see that, we are not operating on what I described as an industry operating margin of 3% to 4%. So that means that we have shown that is possible, and we believe that we can do it very much again with the help of the very good management team of Microdesk together on that. So I think that's how we can sort of -- where we would like to move someone from there to and how to do that.

And looking at the multiples, we have some -- I always say that we are paying in a multiple in between -- historically between 5 to 10x the operating profit. And the 10x we normally pay for someone who has own IP and high-growth. Looking at a partnership with what we are discussing at, then we're closing to 5x, and that applies to this as well. So I think that's probably roughly what I can do to help you guide there. And, of course, we have arranged the earn-out, that meaning that in order to get the earn-out, you need to do better than you're doing today. And that means that if they are able to raise the margins going forward with the help of us, then that means that the earn-outs will be paid out. So hopefully, that can a little bit more helpful.

[Daniel Thorsson, analyst]

That was very clear. And to get the earn-out, should we assume that the acquisition multiple remains relatively the same? Or will you pay slightly higher multiples if they get it? Can you say something on that?

[Johan Andersson, executive]

It's probably -- it's a very straight multiple.

[Operator]

The next question comes from Erik Larsson from SEB.

[Erik Larsson, analyst]

Happy Friday. I have a few questions. Just firstly on the last topic here. It was very clear, but I'm just curious about sort of the time line of improving the margin in Microdesk. And maybe, I guess, to that the earn-out duration, are we talking 1 year, 2 years, 3 years? That's my first question.

[Johan Andersson, executive]

Running a business, it takes some time to do so. So of course, we will not see this happening in the first year. We'll probably need the second year. And in the third year, we are expecting that it should have happened.

[Erik Larsson, analyst]

Okay. Great. Then I'm just curious on the pricing dynamics in general. I guess, when it comes to consulting and implementation and that stuff, hiking prices should be quite straightforward. But on the software side, and especially since you are partly a reseller, how does pricing work? Can you raise prices on your own? Are contracts fixed for x years? Or is there a lag when your partners hike prices? Just the dynamics broadly or how it normally works would be very helpful if you can describe it?

[Johan Andersson, executive]

Like you mentioned, our own software, for example, when we're talking about predominantly in the division process, we are in control of our own process, of course. And there you also have some indexes with regards to our support agreements and also with the services, of course, that's new. And so that's pretty much in control.

And then if you look at design, we also have our own software for the construction market with all solutions and facility management. That's roughly around SEK 400 million of our net sales, moving control. And then we -- like I said, we have our partnership business, then you have to divide it in separate things, meaning that sort of the base platform, there is a list drive. But the good thing with our partners, they are very good at this. So that means they are not lag sort of -- like it is lagging. They are probably a bit more proactive rather the other way around with prices, and that's good for us. And then we provide a lot of services and our own IP for that, and that we are in control. So there's no sort of major -- as you said lag, the one thing can be from our supporting agreement, but those are renewed around the clock, around the year, so to speak.

I don't know if that answers your doubts.

[Erik Larsson, analyst]

No, yes, it does. But have you -- have there been any price hikes so far? Like of the 7% organic growth, is there a price component in there? I guess, that's larger than usual as well.

[Johan Andersson, executive]

There's a price component in that. But the main thing -- the major part is still volume in the 7%, but it's a price component, of course.

[Erik Larsson, analyst]

Okay. Great. Just a final very technical question on the balance sheet. Just from my understanding, as we talked about, when you acquired Microdesk, you had USD 24 million of earn-outs in that price. But just glancing through your balance sheet, I can only see you specified SEK 25 million in contingent liabilities. And I just -- yes, I don't really understand your reporting. So if you would clarify which line that comes in, the earn-out?

[Lotta Jarleryd, executive]

Yes, of course. When we do the purchase price allocation, we, of course, take the whole amount, both the upfront payment and the contingent payment. So valuing the goodwill and other intangibles since on the balance -- on the asset side of the balance sheet, and then we make provisions for the contingent consideration. And that's included in non-current liabilities.

[Erik Larsson, analyst]

Okay. So it's not really seen the SEK 25 million in contingent liabilities that you haven't really got the Microdesk part on that yet then, I guess?

[Lotta Jarleryd, executive]

We make an estimate. We make an estimate of how much we think will actually be paid out within 3 years. Hence, we take a good step for that. So that is included in the balance sheet. And that's in the report, you can find that in non-current liabilities. It's in there.

[Erik Larsson, analyst]

The SEK 25 million is basically within 3 years then?

[Lotta Jarleryd, executive]

Exactly.

[Operator]

[Operator Instructions] The next question comes from Daniel Thorsson from ABG.

[Daniel Thorsson, analyst]

Sorry, no, I was muted, sorry. I just have another M&A-related question. I saw another listed company Seafire acquiring Dassault Systemes reseller called SolidEngineer the other week with sales of SEK 100 million in Sweden. I guess, that was something you looked at, were there any reasons you did not buy it? Or didn't you look at it at all?

[Johan Andersson, executive]

I think it's very good that more people are interested in the market that we are in, I mean, reseller. But normally, we do not comment anything like that because just for a positive reason. So -- but I think -- I mean, one of your question was with the costs in the process. And I think we would like to further expand that answer. Sorry, would you like to answer that?

[Lotta Jarleryd, executive]

Yes. I want to -- so you said that we have decreased the cost in process. And -- so I'm not sure about --. Could you elaborate on what you actually meant there?

[Daniel Thorsson, analyst]

Yes, absolutely. I don't know the gross margin. So if I don't assume anything, I just take the EBITA minus the sales in the quarter, and I see that the difference there is SEK 228 million. While in Q4, it was SEK 238 million. So either you have a big movement in the gross margin in Q4 to Q1. But if I assume it to be flat in dependent on level, the OpEx must go down at least. But that's a simple calculation I just realized.

[Lotta Jarleryd, executive]

Yes, yes. I think it's too simple.

[Daniel Thorsson, analyst]

Okay. So it must be a gross margin...

[Lotta Jarleryd, executive]

Because we have positive effects on the gross margin since the efficiencies that you have.

[Daniel Thorsson, analyst]

Okay. In Q1...

[Johan Andersson, executive]

But if you compare Q1 2020, Q1 to Q1, you will see that we made an acquisition in 2020 of a company called Esri S-GROUP, and they are partnered with the American company, Esri. That means that we have increased the portion of third-party products in the offering in Process Management. And that's a very good business contributing to our EBITA, but it has a lower gross profit.

[Daniel Thorsson, analyst]

Okay. I was actually just --. Yes. I mean, yes, it does year-over-year. I was just comparing with last quarter, Q4. So S-GROUP was part of that already. And when I do that calculation, it seems to be down slightly on cost while last year Q4 -- Q1 versus Q4, it was pretty flattish. I was just wondering if there were any one-time lower cost effects there or not because the margin was very strong. And the revenue-wise, Q1 was SEK 9 million lower than Q4 sales-wise in process, while the EBITA was the same. So the difference there is obviously cost. It could be COGS or it could be OpEx. I don't know. So that was kind of my question. But I think I got a good answer.

[Lotta Jarleryd, executive]

Yes. I thought you referred to the quarter-over-quarter.

[Daniel Thorsson, analyst]

Yes, I mean, from Q1 last year. No, I looked at just Q4. So the delta here is the last 6 months. Yes. So sales was down SEK 10 million, but EBITA was flat. So I thought it was a pretty strong EBITA driven by lower costs, obviously. That was more my question. And if we could extrapolate the lower cost level here or anything especially in Q1? But, I guess, there was a few million may be lower. And, I guess, maybe Q4 was slightly higher costs because they had a tremendous year, and you got some sales fees or something like that, I don't know.

[Johan Andersson, executive]

Yes, that's probably. Overall, there are no significant changes in the cost structure from Q4 compared to -- Q1 compared to Q4.

[Daniel Thorsson, analyst]

Yes, exactly. In process then?

[Johan Andersson, executive]

In process, yes.

[Daniel Thorsson, analyst]

Yes. And gross margin-wise, nothing because we don't know the gross margin, obviously, that could move in the segment, but that should be relatively flat, I guess. Yes.

[Operator]

Thank you very much. There are no further questions. Dear speakers, back to you.

[Johan Andersson, executive]

Okay. Thank you for taking the time to listen to the presentation and some good questions. And with that, I think we end the session. Thank you.

[Lotta Jarleryd, executive]

Thank you.