BYGGFAKTA GROUP Nordic HoldCo AB

STO:BFG

Earnings Call Transcript 2023-Q1

[Dario Aganovic, executive]

Good morning, everybody, and welcome to this First Quarter 2023 Presentation for Byggfakta Group. My name is Dario Aganovic. I'm CEO of Byggfakta Group. With me, I have Johnny Engman, who is the CFO of the group.We are going to start with the company overview. I'm going to give you a company overview. This is my third quarter. So, you're going to hear me. Some of you are going to hear me for the third time. It's a lot of fun to talk about our business. Then I'm going to give you highlights of the quarter, financial and operational highlights, and then we are going to move over to Johnny for financial update and then, as usual, finalize with summary and Q&A.So let's start with the company overview. What is Byggfakta, and what do we do? We like to see ourselves as being at the core of the construction ecosystem. And in the construction ecosystem, everything circles around the piece of building environment, be it building or a piece of infrastructure, which is brought to operation after a construction project has been executed. And construction project starts with an idea, that gets conceptualized in somebody's head, some property owner or somebody that is ordering the project. It moves down into the design phase to more detailed technical specifications, to construction phase and so on. This is a process that can go on for a number of years and throughout the process, tendering is ongoing. And we say tendering, although it can be formal tendering process or it can be just word of mouth, dealing and building in the local construction ecosystems, depending on where the building is built.And then you can see each of the projects that are bringing this piece of built environment into place as a marketplace. As a marketplace where there is an ongoing interaction between lots of different stakeholders from property owners to architects, designers, engineers, technical consultants, manufacturers, contractors, subcontractors, property managers and also the regulators, government, local authorities. All of them are participating in the building process. They are continuously using the data and generating data. And there are lots of data that is used to generate here, technical data, of course, and a lot of commercial data that is used to make decisions to make contacts between different players in the ecosystem. And this data is data like a project information, information about the project itself. What is it? What is going to be built? How much is it worth? When it's going to start? When it's going to end? Who is the property owner? Who is the architect, engineer and so on?It could be standards and regulations that are applicable. And it could be information about the products that are used in the building throughout the process. And this data is giving insights to decision makers in this process. And these insights, they are coming in 2 analytics. They are coming through the utilizing project information as the sales leads to data visualization. And these insights from data are generated to use of software. It could be specification software, procurement software, project search software and so on. Byggfakta is providing unique data that is provided through our users, through software, our unique suite of software that are then used to generate insights from this data. And what we are interested specifically is the commercially relevant data. So, that is basically what we do.Next slide, please. So, we operate in 4 product segments today. There are 4 what we call product segments; Project Information, Specification, Product Information and e-tendering. Project Information is the information about the project. As I mentioned, all the data around it, very much oriented around the contacts of people who are in organization, who are participating in every construction project. And you can imagine if you work as a manufacturer of windows, for instance, you would like to know what projects are out there in a relevant area, what projects will be specified in the windows that you are able to offer, who do you need to talk to, when do you talk to them? So these are basically -- the Project Information is used by sales organizations as the sales leads. And there are lots of different suppliers of what is called the sales leads. And essentially, it is people are supplying contact information. What we do? We supply through sales leads. It is information to the contacts that are interested in spending their money on specific things in a certain period of time. And you, as a sales person know who to talk to, when to talk to them and about what, when they are ready actually to talk to you. So it is extremely valuable information. It is proprietary information for us.Specification is another product area. And the specification is software tools that are used by architects when they are specifying the building. And the specifications are absolutely necessary. Going -- basically, it is not only about the drawing, it's about what will be included in the building exactly, what technical elements, what do they need to be able to deliver? And this is a document that is used both by the construction companies when they are building, what the architect has conceptualized. And it's also a legal document that is an agreement about what this building is supposed to do. And we are supplying here software that is used by architects and engineers. And in that software, there is a database of different rules and regulations, guidelines that are linked to different aspects of specifying a building. And our software side, the use of [ standalone ] or as a plug-in in a major CAD systems supplied by our partners such as Autodesk, Nemetschek and so on.Product Information is third of our product areas, which is, in its simplest form, essentially, a product catalog, where you have different products, building elements that are used in a building and we are storing there all-digital information about these building elements, be it marketing collateral, be it objects that can be used by architects, for instance, to take a 3D element from our catalog imported into the CAD model and link it to specification. That would be one example of usage there. And it's this richness of information in our product catalogs, which separates them from regular product catalogs that are known to the Internet since the dawn of Internet back in the '90s.Fourth is e-tendering. It is exactly as it sounds. It is everything from a simple bid notifications, tender notification service to fully fledged e-tendering platform where you have an interaction between buyers and sellers and execution of a deal. So, these are us. We hold the leading market positions in all the markets where we operate. Today, we are strong in Nordics, where we started business once upon a time. The company is very old. There are not lots of SaaS companies out there that started their business in 1936. And basically, we are the one that did that. We started Nordics, expanded through acquisitions further in the UK, where we also hold the leading position through Iberia, through Central Europe, Asia Pacific. In Asia Pacific; Australia, New Zealand and Southeast Asia, plus Hong Kong and then the US. Everywhere, number one, as you can see, #3 in the US. There are 2 major players on the US market who are operating only in US. So, they are dominant on the US market. However, on a global scale, we are the biggest player out there.We have very strong brands. We operate through local brands wherever we are. And we have grown through acquisitions and acquisitions that we have done have been very strong. We've been buying really, really good companies. And really good companies, they have very strong teams and they have very strong local brands. So, we believe in developing -- cultivating, developing these local brands. And here, you can see on this slide a selection of brands we currently have in our portfolio.So if we look into our different product areas, you can see that Project Information stands for the vast majority of what we do compared to the other areas. Almost half of our turnover is coming from Project Information. And the users for Project Information, it is a very wide group of users, everything from architects and technical people to contractors, subcontractors, manufacturers, even people like you, lots of financial analysts are using our data to understand more ins and outs of local construction markets.Specification is the second. As I said, architects, technical consultants, contractors. Here, third, you can see manufacturers are clients for our Product Information. And e-tendering, again, wider property owners, contractors, subcontractors and manufacturers. One thing to say about Product Information, it is -- the subscribers there are manufacturers who are publishing the data about the products that are then used free of charge by architects and engineers.We deliver our products through subscription services. Around 85% of our turnover -- or currently, it is to be exact, 83.8% of our turnover is coming from annual subscriptions. These annual subscriptions are paid in advance, which is contributing to our very strong working capital profile and then our EBITDA margin. We have 50,000 customers, and the average subscription spend per customer is about SEK50,000, which means that we are -- there is no really sensitivity and dependence on any of the customers. So, we are very well spread out. We have in our databases currently, as we speak, 1.3 million active projects.Now when you think about it, 1.3 million active projects, that's 1.3 million active marketplaces, where people are currently right now interacting, they are making deals and they are creating economic growth. And in each of these projects, they are still open and is still open for people to make money. Each of these projects is a lead for many, many different companies. And these projects, if you look historically, in our databases, 25 -- perhaps SEK25 million, SEK30 million of projects, they are there. So, we have a vast, vast amount of data, historic data, linkages between different players that can be utilized for analysis that the commercial people and manufacturers or architect companies, technical consultants or whoever could use.These projects are -- it is our unique proprietary information. It is coming through -- most of it is coming through manual research. We do have quite a large research organization, about 700 people strong who are calling on different projects. So every time our researcher calls to update on a project that we already have in a database, the researcher is getting information from the source, an update of how project is going, if a carpenter is selected, did you select flooring, ceiling, entering information about that and then asking what else is going on. And then typically source answers, yes, we are looking into calculating on another project here, okay, what kind of project is that, and then new projects entered in database. So it's basically network effect.We are continuously populating our database with the new projects that are then getting updated with the new projects and so on. And this is growing, and this is through our manual research that we are complementing them with the data that is coming -- input from our own software, from specification software. For instance, it is the data that we're crawling from our website, some of the data we are buying to enrich our data set. So it's coming from all the different sources. But the core there, unique data is coming through our research. So 700 people in research, out of total about 1,900 employees.Two other large groups of colleagues are software developers. We have, in our IT organization, about 300 people that are distributed around the world, 3 large development centers, one in Jakarta, one in Lisbon, on in Newcastle. And we have a large colleague group among our salespeople. We are extremely active in sales. We are a sales company. So, we are really good at selling and what we sell to our customers who are salespeople is tools for selling. So, we are all about sales. So it's no wonder that quite large part of organization is our sales team. We, as a company, have a strong financial profile, continuously making a lot of money. Our adjusted EBITDA is continuously growing here, as you can see, and our ARR is continuously growing. And now for the first time ever, we are breaking through SEK2 billion in annual recurring revenue, which we are very proud of. So, this is about the company.Now what happened in Q1? As I said here, our net sales, it increased in the quarter to SEK600 million. which is a 14.6% increase compared with the comparable quarter. Our ARR is now over SEK2 billion, which has increased by 18.8%. We have -- our adjusted EBITDA is SEK193 million, again, solid growth compared to the last year. And then some of this growth is coming from the acquisitions that we have performed during the quarter, but we also have had a strong organic growth.Our organic ARR growth is 6.6% in the quarter. And our net retention rate remains stable around 85%. We are seeing strong development in all our regions. Most notably, if you look into specific territories; UK, US and Continental Europe have performed very well this quarter. Operationally, many of you know that we have been quite active in the acquisition space. We have done several acquisitions during the quarter. The largest one is acquisition of 4CastGroup, which is a Norwegian, Swedish construction market intelligence, a company which is very well known when it comes to construction analysis. And it is complementing the offer that we have already had. It was quite small and scattered in our portfolio earlier. But now when we are getting 4CastGroup or Prognosesenteret as they call in Norwegian and Prognosesenteret in Swedish, very different. Now, we have a really strong offering with the market analysis.Another acquisition that we have done during the quarter, we have done an acquisition of Schumann International in UK, which is a consulting company within specification space. Now, I mentioned earlier regulators. And regulation is something that is continuously getting more and more complex. So, our customers that are using specification software; architects and engineers, they increasingly need expertise help from us. And Schumann International is a well-respected consulting company within specification space that is now part of Byggfakta Group. And that will give us ability to help our customers more to boost the efficiency and the commercial outcome of what they are doing, hence, then helping us to boost our sales within specification sales.And then the third acquisition that we have done, which happened after the quarter ended was the acquisition of Pantera Technologies, which is a company within e-tendering space that is strengthening our position on the US market. And as you know, we have, during second half of last year done 2 acquisitions in the US; Quest CDN and Bid Ocean Group, which both are within e-tendering. So Pantera is building all those acquisitions that we already made there. And when we look at demand of our products in general across our product area is very strong.Our subscriptions are continuously growing. It has been a bit softer on the direct sales, i.e., products and services that are not part of subscription, more of a discretionary nature for customers. But on the subscription side, we see this continuously growing despite construction market uncertainty, which is, again, underlining our claim that when it comes to our business, we do not have coupling to construction market uncertainties and downturn of construction market, quite the contrary. We are more needed now than ever. And this is giving us organic growth. And we see organic growth as a key for a further improvement of EBITDA margin.We have seen it everywhere, where we are able to grow our margin, starts improving and moving towards our target of 40%. And in some of the regions, we are well above that target. Take, for instance, UK. So, we are continuously focusing our effort on sales. We are staffing up our sales organizations and focusing on new sales. And in addition to that, operational focus on sales, we are focusing on integration of acquired units. So, we are buying a lot of companies, yes, but we are not to be regarded as some would call some other companies as compounders. What we do? We are integrators basically. We buy the companies. We integrate them in our business and the data that they are bringing to the table, it's enriching the existing data set that they are coming to linking their software to the full data set and are getting more and more valuable for our customers as a part of our offering.So another strong quarter behind us. And now, I will hand over to Johnny to give you more details about our financial results. Johnny?

[Johnny Engman, executive]

Thank you, Dario.So let's dig into the numbers a bit and we will start with the group picture, and then we'll go through the segments. Dario has already commented on some of the increases we have seen on our net sales, up with 15%, breaking through the SEK600 million mark for the quarter as such, up from SEK524 million a year ago. So a good 15% increase versus the comparable quarter. As you will see, the reported organic net sales growth is slightly lower than the ARR growth, 3.7% organic on reported sales, while the ARR growth on the subscription part of the business is doing better at 6.6%, which is a number which we're happy about.What has happened, as Dario said, is in the quarter, the direct revenue, we call it, which is either partly recurring and some of it is more one-off deals, has been a bit softer in the quarter as such. Some of the smaller add-on businesses we have across the group is having a slightly tougher time, but probably bouncing back over time. But this quarter has been a bit choppy on the direct side, while then the net sales reported is slightly lower than the subscription portfolio growth.ARR breaking through the SEK2 billion mark. Our retention remains strong at total 85%, roughly flat versus previous quarters. The EBITDA coming in at SEK193 million for the quarter. It's up with almost SEK20 million versus the comparable quarter a year ago. Margin, a little bit softer than a year ago. As we commented in Q4 and also late last year in Q3, we are investing behind the sales teams, especially in the regions where we had a slower growth in 2022, the APAC region and the Nordic region, where we have staffed up, which is costing initially, pushing down margins in this quarter. So slightly softer margin due to those sales investments, but also some of the rollout initiatives we talked about like launching Project Information in Portugal, building on the Spanish footprint, which is costing money initially, which will generate growth over time.Then I'll dig into items affecting comparability. But of course, we have had some costs for the acquisitions we have executed in the US and Norway now for advisers, and that has been an item in the quarter, taking down the reported EBITDA. Cash flow for the group was strong in the quarter, coming in at SEK182 million operationally, very close to our EBITDA. If you remember, our Q4 reported that the cash flow was a little bit softer in Q4 than expected. We had some receivables pushing over year-end. Those have now been collected, resulting in a very strong cash flow for this first quarter, and we recovered that tip over we had from the year-end cut-off.As you know, we have acquired a lot of companies in Q4 and now in Q1 with especially 4CastGroup, pushing up the net debt EBITDA ratio to 3.5x, and that is on reported basis we need to remember. We haven't done a pro forma of the EBITDA. So if we would take the full-year effect of the acquired units, both the 4CastGroup, but also the US acquisitions, the net debt would be lower. If we also take -- if we wouldn't have done the 4CastGroup acquisition, we would have seen 3.2x. So, we will see the de-levering profile of the business. In total, we have spent over SEK800 million on acquisitions and other items in the last couple of quarters. That was the group update.Let's move to the net sales then, our ARR bridge. As you can see, we are continuing growing our ARR base. It's up with almost 19% compared to March '22. We have had a good new sales quarter. And for the last 12 months, we have done SEK359 million of new sales, while we have churned or lost SEK250 million. So, we are still able to grow our ARR base, acquiring new customers at a higher speed than the churn. We're also getting, of course, help from acquisitions and FX is still working in our favor, creating this 19% growth of the ARR base. And as Dario said, subscription revenue constitutes 84% of our total revenue of this group.Retention, we have the reported net retention on the top, which is not the pro forma for the acquisition. So, I'd rather look at the bottom part of the graph, which is like-for-like retention, including all acquired units in the -- also the historic periods. And as you can see, we are cruising at slightly above 85% retention on a like-for-like basis. We are on par with Q4 last year and versus a year ago, we're up with 1 percentage point. We have repeated the message many times that we are continuously working with retaining our clients, and we should keep a speed of 1% improvement over the 12-month period. And as you can see from these numbers, we are doing exactly that. We're up with 1.0% versus a year ago on retention of the client base. So showing that our initiatives are working as expected.If we move to the segments, the geographic segments, we can start off with the Nordics. We are continuing to grow in the Nordics. As you probably remember, the ones that follow us closely, we had a weaker 2022 in the Nordic region. It was a fairly tough year over the all 4 markets, with maybe the exception of Norway, which went well strong in 2022. And we are happy to see that we are now turning the trend on the ARR growth in the Nordic region. We are up to 4.6% organic ARR growth on a rolling 12 basis compared to 3.8% we had in Q4. So, we are seeing that the new sales investments are having effect. We were actually up on new sales of subscriptions across all the 4 markets and doing better than we did in Q4. So, we're feeling that the market is with us, and we are able to acquire new customers with the sales investments we are having. And that is good to see.The drawback of that is, of course, that sales push is costing a bit of money in terms of increased sales force. So the margin or the EBITDA delivery of the region is slightly weaker than it was in Q3 and Q4. We did still SEK64 million in the region compared to SEK62 million a year ago. But as you can see, the margin is slightly lower due to these investments we have done in sales force and other staff to really regain the growth momentum and it is starting to show effect in this quarter. Very happy to see that we're turning the trend on ARR growth.If we turn to now our strongest region, it's actually delivering the highest EBITDA in the quarter. Now surpassing the Nordic region, it did SEK72 million in the quarter, a very strong margin of 44%, up from 42% a year ago. Here, you can see the effect of scale building, where we have good organic growth rates. We can see good fall-through to bottom line and therefore, a good margin delivery of the region. The speed is constant more or less. We are, on a reported basis, having 9.6% sales growth organically and the ARR is following at 9.4%.Within the region, there's been a slight shift. I think Glenigan is continuing to do extremely well. They had the best quarter ever on new sales of subscriptions. It was very strong in the first quarter, while NBS then is on the margin, a percentage point or so lower in the quarter as such. So, there's a slight shift between the 2 businesses, but overall, a very strong delivery in the region. And it really shows that the demand from the client base on the construction side with Glenigan is very strong in the UK market.If we go over to Europe then, which is also growing nicely, reported net sales at 6% organically and the ARR on a rolling 12 is cruising at 9.1%. And again, if you remember, 2022, we had an extremely strong ARR growth in Q3 and in Q4, thanks to some price increases and upsell initiatives we pushed through, especially in Portugal, Spain, and that is now returning to more normal levels. Still 9.1% is a good number, but it was extremely strong in the last part of 2022, which will help reported net sales during this year because, as you know, that ARR growth, which was very strong, will convert into reported sales number during the course of 2023.We are also investing behind these markets. We didn't discuss much of it in Q4. But as you can see, the margin is still good, 28%. It's slightly lower. So, we are continuing investing behind some products rollout. We are launching items in Switzerland with Product Information, for example. We're also doing that in Czech Republic. We're bringing the Project Information to Portugal. So, that is impacting margin short term also in this region. It's not an investment in the sales force as such. It's more rollout of the existing product portfolio, which is a result of the acquisitions we have done back in 2021 and 2022, which will help growth over time.And if we turn then to our fourth core construction segment, the APAC and US segment, as you know, it's been a tough year in '22, especially in the APAC region. US had a very good year in '22, and is also continuing on that trend in the first quarter of this year. We're actually happy to see that we also feel that the trend is turning in Australia, New Zealand, especially, which had a tough year, but now we see growth improving in those markets as well. The ARR growth is up to 2% organically in this segment, but it's also an effect from a turn in both retention and new sales, especially in Australia. We did investments in the sales force during Q3 and Q4, and that is starting to pay off. We had a good new sales quarter in the region, and US is continuing strong.If you look at organic net sales growth, it looks very negative with minus 3.4%. If you remember, we restructured the historic NBS operations in Australia during 2022. We moved that responsibility over from NBS into the hands of BCI management. And we took out almost SEK10 million of cost from that restructuring. But the side effect of that is, of course, it has an effect on some of the revenue generation of those businesses when you take out the portion of our cost and employees, which is then impacting reported net sales growth, especially in this quarter.We might see a small effect of it in Q2, but then it should be over and back to growth of that, the restructured and moved business. But without that, we would have seen positive organic net sales growth for the segment. EBITDA is strengthening, up to SEK28 million, and also the margin is going up. We have, of course, included the US acquisitions of Quest and Bid Ocean with quite good margins. So, part of that is acquisition effect, but also the underlying margin is showing some signs of improvement. So quite a good quarter in the APAC, US region.If we look at our last segment, our Healthcare & Media business, operating here in the Nordic region, primarily Sweden. It was a tough quarter. We did basically 0 EBITDA and a bit of growth. We actually feel the ARR growth of the health care business is improving. It's up to 5%, which is a good sign for the remainder of the year that we're growing the subscription base of the healthcare business. Now, again, at almost 5%, and that will, over time, result in more business opportunities on the direct revenue of healthcare. So, that business had a good organic quarter on new sales. While the media business, it was a tough quarter. It's ad spend driving it, it's subscription of magazines, also the healthcare business is partly dependent on [ about their own kids ], which is lower. So it's been a tough quarter. We're expecting it to rebound in the second quarter and over the year to normal levels. Still a small segment, but positive is the ARR growth of the healthcare operations.And if we look then at capital and what we have done with the cash, as you can see, it's been a good quarter on net working capital. It's gone from minus SEK600 million to minus SEK667 million, generating a good cash flow from operations. Cash flow is almost equal to EBITDA operationally in this quarter. So, we are seeing what we are expecting from our net working capital position.We are continuing to spend behind our software platforms, which is in the red bar in the middle of the CapEx graph. We are spending roughly some SEK30 million quarter-on-quarter. You can see that being fairly constant, which is the development efforts on launching new softwares, significant upgrades of the existing software platform. This is part of our 300 strong IT staff. A lot of it is still, of course, in the P&L for maintenance and support reasons, but the part of it, which is development spend is seen here on the CapEx graph. We are, as you know, building our Ljusdal head office still, that will continue in Q2 and Q3. And then we're moving in to the office in late October, early November. In total, we will spend SEK70 million, as we have said, we spent [ SEK17 ] million in this quarter.If you look at the bottom of the slide, which is the IFRS accounting of the office leases we're having around the world, we have, in the quarter, moved offices or extended office leases. We have moved to a new big office in Lisbon in Portugal. We have 200 staff in Lisbon, and that is a 10-year lease. And then, of course, when you enter that new long lease, you need to book that according to IFRS as a lease cost in the quarter, pushing up this to SEK88 million in the quarter, together with a new office in Jakarta in Indonesia. So, that is really a one-off effect without cash impact, but it's an IFRS booking you will see in the P&L.Then second last slide, our net debt adjusted EBITDA development. You might be worried. It goes up from 3.2x to 3.5x from Q4 to Q1. Of course, that is an effect of the acquisitions we have done and some of the other cash out items we have had. Again, the 3.5x is not in the pro forma EBITDA. So what we are reporting to our bank group is lower than 3.5x, and a number of points lower than that actually, due to the pro forma effect but also the adjustment of the leases we have under the covenant structure with the banks.As I said, operational cash flow was strong, but we are spending cash, growing this group. We have listed the acquisitions we have done since Q2 last year. And as you can see, we have spent almost SEK800 million on acquisitions and some other one-off items during this time period. It's the acquisitions, as you see on top, but then also we have done buyback of our own shares to support the LT program. We have bought back 2.2 million shares over this time period. We have also invested in the new office. We have spent SEK45 million so far, which will not recur in the next 10 years to 20 years. And we have renewed these leases, which also impacted the reported net debt EBITDA level. So, that is the reason for it coming up, but it will go down in the coming quarters from our continued cash flow. And we have now done a lot of acquisitions. As you have seen, we will focus on integrating them, getting the maximum benefit from them. So if one would expect, I think the acquisition level might be slightly lower in the next quarter or 2 because we have now done quite a lot.Last slide is, again, repeating our financial targets. We are aiming to grow organically at 10% on both ARR and reported sales over time. We will complement this with strategic acquisitions, adding 5% to 15% per year. We have now done almost 10%, added revenue through the acquisitions where we executed in Q4 and Q1. So, we are meeting that target.Over time, if we continue growing, we will see the scale effects kicking through and the target is to reach 40% EBITDA margin, which, again, we can deliver in certain segments where we have built the position strong enough to deliver on that target. We are expecting to come down to 3.0x in leverage. We will delever over time, thanks to our strong cash flow of this business. And we will not propose any dividends this year. We will accumulate the cash to delever and use for further acquisitions going into the fall of this year.

[Dario Aganovic, executive]

Very good. That was it on the presentation side. Thank you very much, Johnny. And now we are ready to take questions.

[Operator]

[Operator Instructions] The next question comes from Viktor Hogberg from Danske Bank.

[Viktor Högberg, analyst]

So on the geographic split in organic growth, Nordics and Australia are still the laggards. You have done some changes in ARR. It's better than sales growth, but the operational changes you've done, do you think that's going to bear real fruit now in Q2 and onwards? Or is it going to be very gradual in terms of sales growth improving?

[Dario Aganovic, executive]

What we see in -- thank you very much, Viktor, for your question. What we see in these regions is that it is the investments we have done there, they are bearing fruit. We are strengthening in both Nordics and APAC. We have been investing in the sales force, hiring more people in the sales, working with our processes. And we can clearly see during Q1 that we have been very successful on the new sales side while maintaining strong retention levels. So this is the nature of the business, subscription business is that when you are successful in selling new subscriptions, but then the effect that hits the P&L is gradual. So, this will continuously have effect.

[Viktor Högberg, analyst]

Okay. And on that, your target of 10% organic growth, do you think the market is there to support that during this year? Or is the Q1 and the direct sales effect is something that would hamper that for the year, given that organic growth was -- in ARR was 6.6% to accelerate that on the sales growth level? Is that possible during the year?

[Dario Aganovic, executive]

Well, the organic growth level on ARR is giving a cue as to how future will look like. As you know, we are not giving any forecast, but we are moving in the right direction. In some of the markets, we are already there. If you look at -- you look at development in the UK international, if you look at Continental Europe, some of the segments are leading the others. So it is taking some time, but we are steadily on right course. But again, it is -- I cannot tell you exactly in what quarter will that happen? I don't know.

[Johnny Engman, executive]

The ARR is a good leading indicator, as we always said, that gives us a base growth of 6.6% or around 7% on the subscription portfolio, and that is more or less partly guaranteed, right, because that's already sold and will be released through the P&L in the coming 12-month period. So, that is a good underlying base. And the direct part of the business is a bit more choppy as you have seen. And it's been a fairly tough quarter on the direct sales in the Nordic region and also in APAC, US. And the beauty of that, it can be a tough quarter, but it can also bounce back fairly quickly if we have a good quarter on the direct product portfolio. So, that can boost the reported net sales growth in some quarters if we do a good job on direct. So they go up and it will also go down.

[Dario Aganovic, executive]

Then it is important also to understand that the direct part is not in its in all entirety adjusting our kind of discretionary one-time thing that never happens again. There is a lot of stuff there that is recurring in its nature, like reports that are ordered every year. They are not subscription, but they are ordered every year or like we have in the US, there is a fair amount of direct sales is coming from our tender business where there are suppliers or builders who are subscribing to our services. They pay a basic fee and then they are paying again every time they are downloading on our [ queue ] and they pay every time, they submit the quote as well. We book it as a direct. It is not a subscription. But that is also activity that has a certain, I would say, recurring nature.

[Viktor Högberg, analyst]

Okay. Price hikes -- of the 3.8% organic net sales growth, how much was price of that?

[Johnny Engman, executive]

Yes. We don't break out the price for you exactly. Again, we were following the inflation of the sector. We can see that some are taking slightly more price now on SaaS services, right, or what we pay for our IT spend when we use third-party licenses. So, there might be an opportunity to be more aggressive on price. But so far we haven't taken any big price initiatives on top of what we normally do, with the exception of Continental Europe we did in Q3 last year.

[Viktor Högberg, analyst]

But is the -- there's both a volume component and a price component in growth in Q1. Prices not larger than 3.8% or is it?

[Johnny Engman, executive]

No. No, it's not all price. We're also growing the client base. As we said, we had a good new sales quarter on the subscription side. So, that will grow over time. So it is a combination of always a number of clients, price and upsells to the existing client base. If we expand the information packages they're getting, we are doing add-on bundles through more modules and so forth and of course, the retention of existing clients.

[Viktor Högberg, analyst]

Perfect. And final question for me, sorry. On the cost side, the investments you made now in APAC and the Nordics and beefing up the sales force, is that reflected in Q1 OpEx? Is it placed to grow from including, of course, the M&A you've done recently? But on the organic side, are you well equipped on organizational side or more investments to be expected for the year?

[Johnny Engman, executive]

Well, I think APAC or Australia and New Zealand, we started already after the summer. So, that is on a, more or less, a full staffing situation at the moment. Nordics, where we started in Q4 or late Q4, as we said, and that's been ongoing during this quarter. There could be some spillover effect into Q2 in the Nordic region as well from that investment, with not all of the sales staff was fully in place on January 1st. So, there's more to come in the Nordic region, while APAC, US are more or less fully staffed.

[Operator]

[Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments.

[Dario Aganovic, executive]

All right. That was it. Then thank you very much for listening, and thank you, Viktor, for your questions. So see you next time.

[Johnny Engman, executive]

Thank you.