BYGGFAKTA GROUP Nordic HoldCo AB

STO:BFG

Earnings Call Transcript 2022-Q2

[Stefan Lindqvist, executive]

Welcome to this presentation of Byggfakta's Q2 report. It will be myself, Stefan Lindqvist; and our CFO, Johnny Engman, who will guide you through this presentation. And today's agenda will be that we start with a short company overview, that's especially for you who are new into the company, and then we will continue with the highlights of the quarter, and then Johnny will go deeper down into the financials, and then we will end up with a Q&A.Next page, please. I think we can take the next page again. So we come to Page #4. If we then start with Byggfakta at the glance. As you can see, the math shows you which areas or which countries we are present in. And as you also can see, we are the #1 in most of the areas where we are present. And to be the #1 is an extremely important position to have in this industry. The main reason for that is that it's extremely high barriers to enter into this market when you once have got this position. So as you can see that's -- and that's due to 3 main reasons. The first is that you need to have the technical platform that needs to be state-of-the-art. Secondly, you also need a unique and proprietary data that which is manually collected or partly manual collected, and it's extremely difficult to collect. And #3, you also need a client base. And as you can see, we have a very huge and diversified customer base. We have more than 7,000 [ Phonetic ] clients, meaning that we also are not depending on one or a few bigger clients. Another thing that you can see is that we also operate with pretty good margins and we also have most of our revenue coming from subscriptions, which also means that the business is very predictable. So we can foresee what revenue we can have for the coming 12 months.Next page, please. What is it then that we are doing. If you look at this page, you can see that the main product or the core product that we have is something that we call the project information, and that's a service where we are collecting information about all planned and ongoing building projects. We try to find the project as early as possible when a property only have a plan to build something. And then we follow the project, even the the projects lifetime, adding on the enabled architect, affecting consultants with the contractors and the subcontractors. And due to the fact that they have this service, we can also then add a number of other services like specification information, the product information and the tendering.Next page, please. If you go a little bit deeper into each one of these products, and we start with the product information. And as you can see, that's more or less 50% of our revenue. And as I said, that's a service where we are collecting information about all planned and ongoing building projects. And then you normally ask yourself, how do you do that? And there's a number of different sources that we are using to be able to collect this information. Of course, we are crawling the Internet of find information in an early stage. One example of that could be that we are crawling the town of Gothenburg homepage, finding out that they have decided to explore a piece of land to build industrial buildings. Let's generate a call from our side, where we try to get the name of the property owner. In the beginning it might be that they don't even have the name of the property owner, but after a while they will give us to enable the property owner and then we continue to do the interviews with the property owner, adding on the name of the architects, the tecnonsultants, the contractors and subcontractors and so forth.Another example could be that we could crawl the Internet and find out that in the local newspaper, finding out that the school in Gothenburg burned down yesterday. That means probably that we get 2 new products. First of all, they need to clean up the old school. Secondly, they probably also need to build a new one. So that's some example of how we are crawling the Internet. But it also means that we always calling or interviewing the decision-maker, which also is important in this stage.The second source that we are using is that when we are making all these calls, it's in our DNA that we always in the end of the call ask what else are you doing. And that is actually the most important source for us to find information in an early stage. And then you probably ask why are they giving you all this information for free. And there are 2 main reasons for that. So first of all, the first thing is that it's an excellent opportunity for them to market this project so they get the best offers, the latest innovation when it comes to product development and so forth. The second thing is that they are normal extremely proud of the project. Even if you are a professional builder you don't do that many projects during your lifetime. So it's almost like they are talking about their own kids. The third source that we also are using is that we are also collecting all search building permitt. Normally, we call that our safetiness because the search been from this kind of late information, but it secures that it cover 100% of the market. The problem with the building permit is that it's fairly late information, meaning that most of the decisions are already taken. So that's the reason why we try to find the projects much, much earlier. So in over 82% of the cases, we have the projects before the stage of the building -- the search building permit. Then you probably [ Indiscernible ] than buying this information, and that's all kind of companies, everything from banks that would like to finance the projects. And then you have the -- of course, the architects, the technical consultants, the contractors and subcontractors looking for more jobs. And then you have all the building manufacturers or suppliers, which would like to sell the product into the projects. And then you also have other kind of service providers like companies renting out or cleaning up the construction site. So it's a well used and diversified customer base when it comes to the product information.The second product that we have is what we call specification. And here we have developed the technical tool that helps the architect to do the specification and connect with the drawings because when you're making a drawing, you also need to specified in text. And this is a system that is integrated with all the big CAD manufacturers like REVIT and there was [ Indiscernible ] and so forth. So it means that you can drop and drag this information. And what this helps the architects to do is that it helps us to follow the latest rules and regulations. It also avoid them to do mistakes directly on the drawings. It's normally something that's -- that's its very common that it happens already on the drawings. So this is a service used by the architects and also paid for by the architect. And it also creates a lot of efficiency because the alternative for this is that they're using normal text, there's like word or anything else like that. And this is documents which are several thousand pages big. So it saves a lot of time for them.The third product area that we have is the product information. And this is a service where we're collecting information in a database of all the building manufactured products. This is also then integrated both with the specification and the CAD systems. So when an architect sits there and should put the window into the drawing, they can search in our product information database, see which manufactures fulfills requirements and just drop in right the information directly into the drawings. And this database is then including information like you have the BIMobject, the 2D and 3D CAD details. You have all the environmental information, which today is even more important than ever. So you can see what kind of footprint this product have on the project. You have also done the specific building specification for this product. So it's all necessary information that they need to complete the drawing. And in this case, the manufacturers are paid for the service. So it's free of charge for the architect or the contractors to use this information.The fourth product area that we have is what we call e-tendering. And this is a service where we are helping mainly the property owners and the contractors when they are doing e-tendering or procurement. And here we actually are using all the other services like the project information and the product information so we can actually propose who they should send the tender documents to. One example could be if they are going to build a swimming hall in a small town in Sweden, they don't know which contractors have building swimming halls in the past because this is something they don't do every year. Then they can search in our product information database, see which contractors have been building a swimming hall in the neighborhood in the past and then send the tender documents to to them. Another example could be, if, for example, would like to tender for building material, they can also use our product information, and we can actually propose who they should send the tender documents to. And this creates both transparency, but also increased competition when it comes to prices and costs.Next page, please. And then going to Page #8. Now we're going into the highlights of the quarter. And if we start with the financial highlights, we can -- we are very proud to present that we have a very solid organic revenue growth and earnings development. And that's even due to the fact that the construction market has been very unsecure and volatile, but it also shows how strong our products and services are and how they are needed in this kind of environment. We can also see that we have an organic ARR growth, meaning that our subscription base has been growing with 7.2%, which is we are also proud of, even if our financial target is that we should be double digits, I think this shows that we have a very strong position in the market.Moving on to the operational highlights. Here we have strength and optimize our organization for increased efficiency. That means, mainly that we have sales -- our executive management team with more operational skills and focus. And we have also finalized our first foundation of the integration of all of the acquired units that we are -- had been acquiring during 2021. So that's now finalized.If we look at the market highlights, we can see clear signs of stabilization in the end of the quarter, which I think will give us some trust for the future. We can also see -- we also know that there is an increased need of our products in a weaker market. That means that whether the construction market is slightly going down, our clients actually use our information even more because they need to find new potential clients. So that's good for us.Next page, please. If we then move over to the financial highlights, you can see that the net sales have increased with 44% compared to the same quarter last year, and it would be close to SEK30 million compared to Q1 this year. So I think that shows that we have a very strong position. Our organic net sales have grown with 6.4%. Our ARR growth have grown with a little bit above 7%. So that's also good. It's almost SEK68 million since last quarter. Our EBITDA -- adjusted EBITDA is an all-time high. So we are very proud about that as well. It's even SEK9 million better than last quarter. And as you can see, our cash flow from the operating business is still very, very positive. And also the net debt is now close to our financial target of 3.0. So -- and it's going down as we haven't done any add-on acquisitions during the quarter.Next page, please. If we then look at the operational highlights, we have changed the group management, as I told you before. And that's the reason or the background for that is that we would like to improve our collaboration within -- between our different businesses and actually speed up the rollout of the different -- of the full product portfolio in all the units. It's also -- we have also been able to save some costs in combination with these organizations. We have also taken out some synergies potentials that we have had in the business. The biggest one is actually where we have merged our NBS business in Australia into our BCI business in Australia, which would create another SEK10 million of cost synergies starting from the Q4 this year. And we also continue to work hard with implementing our sales model and also work hard in the content optimization, which also save some cost in the future. But the most important part is that we have continued our focus to roll out the full product portfolio into the different units. And where we have started is the rollout of the tendering in the Nordic, the specification information in Denmark, the product information in Portugal and product information in Czech Republic. So that's a positive thing that we are now in progress of doing all these kind of things. Another important thing is that our sales teams are now fully staffed across all our geographies. What we also have done is that we have increased our M&A activity. So we have a very good pipeline for the future, which we hopefully will benefit from in the coming quarters.Next page, please. Johnny?

[Johnny Engman, executive]

Thank you. So let's move to Page 12 then and then dig a bit deeper into the financial performance of the quarter and then of the date. So we start off with the ARR side of things. So this is the total ARR growth in the quarter. So we have grown 42% in the subscription base since last year. And the organic component of that is 7.2% organic growth. And as you know, this is a forward-looking indicator of the reported revenue to come. And we're quite happy to keep up the growth to be that a good 7% level even in the turbulent market conditions we have seen, especially in the beginning of the quarter.This development has been secured by strong retention levels. So we see an improvement in the retention of the existing client base while new sales performance is a bit weaker than expected as we reported already in the Q1 period that, that trend has continued in, especially in the start of the quarter. We see some signs of stabilization in the overall construction market. Price levels are still high, but they're not as volatile. And our clients are starting to adopt to this situation they see in the market.We're also happy to see that the subscription share is 85% of the total revenue base in this quarter, which is a solid number. We have seen some weakness also in the direct revenue or the add-on sales due to this market volatility that has also suffered a bit in the quarter, increasing the subscription share down as a total.If we move to the next page, looking at the retention on Page 13. Here, we have broken the graph into 2 parts. One is the actual net retention which includes all units owned more than 12 months. There, we are cruising at a strong 85.8% in the quarter. It's up with 0.6% versus Q1, and you see a bigger increase from last year when we include the U.K. units where -- which has a very strong retention level. But still quarter-on-quarter, we are improving nicely. We have also seen a like-for-like, including all units then, also the ones owned less than 12 months. And here we see a 0.1% improvement on the retention. And it's very good to see that even in the tough market conditions, we increased retention levels across the total portfolio. So this is a sign of strength of our business model that our existing clients use the service and they like the service and they renew more than they did last year and also more than they did in the first quarter.And if we then turn to the total financial performance on Page 14, Stefan partly covered it. But you see on the graph that we continue to grow reported sales quarter-on-quarter and also the adjusted EBITDA is following nicely. And we were proud about the SEK9 million increase in adjusted EBITDA versus Q1 and also a strong SEK30 million sales uplift on the report sales. Yes, we get some help on currency on net sales, but still the organic component is 6.4% organic growth in the quarter versus a year ago. Cash flow is also good, SEK124 million in the quarter. As we have said before, I think cash flow is always strongest in Q4 and Q1 where the size of the annual subscriptions is slightly bigger than it is in the Q2 and Q3 period. So cash flow is normally a little bit weaker in those 2 quarters and stronger in the Q4 and Q1 period. Net debt on reported EBITDA is 3.1x. This is not the pro forma EBITDA. If we would do that, we would be at our target level if we pro forma the EBITDA. So overall, a quarter we are happy with.And if we go to the regional performance or the segment performance on Page 15, that there is a mixed picture. If we start off with the HoldCo and Nordic region, there the development follows on Q1 with slightly lower net sales organic growth and also the ARR growth is lower than what we have seen in the past, cruising around 4% or 4.7% on ARR. We have seen the market impact, especially in the beginning of the quarter across the 4 Nordic markets, maybe with the exception of Norway, which has had a very strong performance in the quarter, but the other 3 are weaker. And you also see on the net sales that we are still growing a little bit in the quarter, but we need to regain momentum in the Nordic market once this turbulance is over. And still the margin is good. If you look at the margin for the quarter, it's 36.7% versus a year ago at 35.8%, and these are like-for-like numbers. So yes, the margin is strong and improving in the Nordic region.If we move over to the U.K. on the right-hand side, there has been a strong performance also in Q2 where we see organic growth rates above the 10% level, reported sales 11.6% organic and also the ARR base is growing with 10.9%. Both our U.K. businesses are doing well. I think NBS is doing really well and also Glenigan is cruising at the 10% level for the quarter, and we see an improved retention level, especially in Glenigan, also driving the organic ARR development.Profitability is good in the quarter, if you -- it's up to almost SEK70 million of adjusted EBITDA in the quarter, while the margin level is slightly down. One thing is, of course, the allocated headquarter costs we have in this quarter, we didn't have in last year's Q2. We did a catch-up allocation, if you remember, in Q4, and the other reason is the investments in the sales force and then fully staffing up the sales teams, as Stefan talked about, that cost some money initially, but then paid off in improved growth performance over time. So we have a very strong development in the U.K. segment.If we move to Page 16 then, and Continental Europe. In absolute levels, we are growing the revenue base with SEK3 million. Organic development is 3% to 3.1% in the quarter, while the ARR growth organic is slightly stronger with 5.4%. So that's positive for the future that ARR base is growing, that will result in reported sales going forward. Adjusted EBITDA is close to SEK30 million in the quarter and a strong margin of 29%. So overall, a solid performance in Continental Europe, driven by strong portal development. Switzerland is still not growing as fast as we hope. So -- but the margin is improving in Switzerland.Last of the Construction segment then, APAC, U.S., the BCI business. Here, you don't see comparative numbers because we haven't owned this for 12 months yet. But in absolute terms, the revenue development was good in the quarter. It grows from SEK78 million to SEK90 million versus Q1. It's almost on double-digit organic levels, even though we don't share that in the report, we're doing good. And we see a rebound of the add-on sales or the -- we have in Australia and New Zealand and Asia. Post Covid when the markets are opening up, we can do more of the add-on business, which helps reported revenue.Margin is still quite weak, around 20 -- slightly below 20% for the quarter. We are still investing in the Asian markets, in U.S. to drive this organic performance, where the margin is weaker than it is in Australia and New Zealand. And so that has impacted the margin in the quarter and resulting in a just below 20% level. This will improve over time as the scalability of the business kicks in, in those markets also. And final point as we said, the integration of NBS Australia, the operations we had from U.K. and Australia is now moving into BCI, and that will reduce costs in that business with around SEK10 million on a run rate basis starting from the end of this year. So by integrating, we have been able to take down the number of employees and therefore we save a lot of cost.Page 17. The other segment had a slightly weaker quarter than in Q1. Organic growth is just 3%, almost an ARR of 1.2%, still a fairly okay profit delivery of SEK4 million in the quarter. This has been a slightly weaker quarter for this other segment. We expect it to be back on track with slightly higher growth rates going forward.Switch over to cash flow and working capital on Page 18. Here, you see our negative working capital has decreased a little bit from SEK630 million in Q1 to SEK611 million. This is the seasonal effect we talked about with slightly smaller subscription pools or number of subscriptions being renewed in Q2 versus Q1. Therefore, the deferred revenue portion is flat or decreasing a bit, but still resulting in a strong cash flow for the quarter, SEK124 million operationally. We are keeping the investment level in line with previous quarters. So we are spending around SEK30 million of capitalized development on our software platforms. Also in this quarter, it is the red part of the CapEx bar. You see that's being stable now for 3 quarters in a row around this level, and this is the level we see it fit for the business going forward.Tangible investment is small as always, and then we have a slightly bigger lease CapEx. We have prebooked cloud licenses going forward. It's cheaper for us to pre-book the capacity in the cloud, and therefore it comes as a leasing CapEx in this quarter and then takes a year and then it comes again. We have also started the project to build a new office location in Ljusdal, where we will merge the 2 existing offices into a new building, and that will mean we switch from rented offices to owned offices because we're building that owned by Byggfakta. And that will, of course, mean a CapEx of around SEK70 million coming during next year when we build that office, but it will reduce rent cost. So it is more or less a cash neutral over time event. But you should expect that CapEx to come when we start the actual construction of the building.If we move to Page 19, on the cash flow and leverage. As I said, the cash flow was SEK124 million in the quarter. Also the reported cash flow is SEK86 million on the last time. Net debt has decreased to 3.1% on a reported basis, and we sit on a fairly big cash pool at the moment of SEK400 million almost in cash and cash equivalents, and we also have the unutilized credit facilities of SEK300 million. So we have the firepower for the M&A pipeline we see. We haven't done any acquisitions during Q1 and Q2 of size. But now we feel the pipeline is strong for the coming 2 quarters and the remainder of this year.We have also hedged our interest rate during the early parts of the quarter, meaning that we are 50%, 60% of the -- debt position is now hedged on interest level to secure us going forward if the interest rates increase further, has resulted in a positive valuation of those hedges of almost SEK14 [ Phonetic ] million in the quarter.And last page, as Stefan said earlier, we remain firm on our financial targets. We believe we will get to the 10% organic growth level in medium term, and also the margin will increase in the coming quarters up towards the 40% medium term. That's the aim we have as a company to drive both growth and margin to the target levels. The capital structure is at target level if we do a pro forma of EBITDA. And again, no plan to dividends because we see that M&A pipeline and we can use the cash for accretive add-on acquisitions.

[Stefan Lindqvist, executive]

Thank you, Johnny. Yes, then we open up for Q&A. Thank you.

[Operator]

Thank you. Your first question comes from Joachim Gunell from DNB Markets. Please go ahead.

[Joachim Gunell, analyst]

Thank you very much. So starting off with the organic net sales growth trajectory here. Can you comment a bit on how much of this is driven by previously price increases? And this, in fact, that you mentioned that the momentum picked up to, call it, end quarter, the growth levels we saw in June and how you expect that to move into H2, basically?

[Johnny Engman, executive]

But as you know, we had the start of the war in Ukraine in March and April. So of course, those were the most turbulent quarters in the market and also shown in our performance. So we see a bit of a pickup during the quarter in the different markets that it's stabilizing the volatilities, decreasing among the client base. We're not sharing June performance as such, but we believe we're going into a more and the market conditions good during the fall.And the organic growth split. Of course, we are still pushing through the price increases as we do every year. We haven't adjusted the price policy within the Group. So we're still cruising at the same speed as we have done previously. And following the sector inflation and maybe some more, would there be an opportunity to move even faster on price increases going forward? It's something we are discussing and we might evaluate over time.

[Stefan Lindqvist, executive]

And right now we haven't done anything around that one.

[Johnny Engman, executive]

No, we're still pushing through the normal level.

[Joachim Gunell, analyst]

Understood. And, perhaps, thanks Jhonny. And Stefan, if you could comment a bit on what you want to see materialize in order to get the organic growth levels to reaccelerate back to your call midterm ambitions, whether it's to, call it, new sales investments that you have already taken that you need to reap the fruit from here? Or do you expect still, I mean, sequentially better, but still growth rates moving in the, which we have seen throughout Q2 also into the coming quarters.

[Stefan Lindqvist, executive]

How fast it will go to recover to the double digits, it's difficult to say. But I think what has been difficult for us is more the security and the volatility on the market, meaning that most of our clients have been focusing on other things than getting new jobs because if you take a contractor right now who have an ongoing project where you have price increases, could be 30%, 40%, 50%, then the focus of acquiring our services might not be the top priority for them. But I think we see some changes in that, especially then during June, and that the stabilization of the market is there. So we have good hope for the autumn that it will be back to normal, more or less back to normal again.

[Johnny Engman, executive]

But as we said, I think the sales teams are fully staffed. So you would see then if we come back to pick up both on new sales of subscriptions, but also the add-on business is coming back on stream with more direct revenue. Those would be the 2 sources of increased performance. And again, the Nordic sales team has delivered a 10% organic growth in the last 3 years. So we believe we have that in place.

[Stefan Lindqvist, executive]

Yes. And the market is that, we know that.

[Joachim Gunell, analyst]

Very clear. Final one for me. Can you just share some more insights here on what's driving this sequential improvement, especially in retention or churn? And what mix effects do you expect given that you will accelerate new sales activities towards -- I mean, new customers which tend to have a somewhat higher churn over the current quarter? Or can we expect this trajectory to continue?

[Stefan Lindqvist, executive]

What we can see is when we are implementing what we call the big factor sales model, which also includes that we are working harder with onboarding and also helping the clients to use our information on our services that it will, over time, improve our renewal rates quite a lot, to be honest. If you look -- we can take one example in U.K. where when we bought Glenigan, for example, they were down to 74%, 73% renewal rates, and now they are close to 80%. So when you start working with this, over time it will improve. And that's what we're doing. And that's actually something we do not only with the newly acquired businesses. This is an ongoing project that we are working also with even in the Nordics or with NBS and all units as we're working hard with onboarding and to be able to touch all the clients a number of times every year. So we -- and that has a good effect.

[Johnny Engman, executive]

I don't think in this quarter we had a very strong new sales performance a year ago in Q2 in '21. So of course, we have more first year clients in this quarter to renew. And when we -- if you look forward and if we have meeting weaker new sales quarters a year from now, then you would have a smaller portion of first year clients that should help kind of overall retention levels because there's fewer first year clients we have the better for us.

[Joachim Gunell, analyst]

Understood. That's all for me for now. Thank you, and have a great summer.

[Johnny Engman, executive]

Thank you.

[Stefan Lindqvist, executive]

Thank you.

[Operator]

Thank you. Your next question comes from Nick Dempsey at Barclays. Please go ahead.

[Nick Dempsey, analyst]

Yes. Good morning, guys. I've got 3 questions. So just touching again on that point about conditions improving towards the end of Q2. I just wondered if you could give us a little bit more detail on whether there's a number of customers who you've already started to see taking up new products or whether it's something that you're observing in the industry, but you've yet to see the effect of that stabilization on your sales progress? That was the first question.Second question, just looking at APAC, U.S. in the quarter, absolute revenues are quite a step-up in Q1. Of course, you have underlying growth there, which you've explained. But there's clearly some seasonality there. So maybe you could just talk us through what drives a bit of seasonality through the year in that division so we can try and get it right for the rest of the year? And then yes, you've hedged 50% to 60% of debt. But should we think about net interest in second half and 2023, stepping up clearly versus what we had before, if the 40% to 50% is not hedged is going to take a step up?

[Johnny Engman, executive]

Yes. No, in fact, we take it back to starting your question. Yes, of course, if there is a 40% unhedged, if the base rate goes up on euro, SONIA and SIBOR, then you would see a small increase in the interest cost for the company. It's not big at the moment. But again, it's 40%, it's a 1% interest increase. It's not a big sum of interest. But yes, you can expect that to move up with interest rates are increasing. On the other hand, we also need to remember we have a ratchet on the interest margin. So if leverage goes down, we also get the benefit on the margin side on the financing.The APAC, U.S. question to, we will see any seasonality in that not really, it's not a seasonal effect. It is a strong quarter, especially for Asia and the U.S. So we're driving good organic growth, and that is seen on the revenue side. We also see a bit of pickup in the add-on businesses in Australia and Asia as where we talked about when COVID and the market is opening up in those areas, we see a return to some of that add-on business we have, and that's driving revenue in the quarter. So part of it is that opening up post-COVID effect also.

[Stefan Lindqvist, executive]

I think it's things that was difficult to sell during the COVID period is now, it's mainly the one-off things even if it's recurring, it's not subscription. It's marketing activities that we can do right now. Number one question, what was that?

[Nick Dempsey, analyst]

It was -- if we see the marketing or do we see it in the internal with the stabilization towards the end of...

[Stefan Lindqvist, executive]

Well, I think it's 2 signs. I think first of all, I think most of what we are doing is internal, meaning that we can impact our own sales. I think -- but what was the problem in the beginning of the quarter was that the lack of time that we got with the clients was limited because they were focusing on other things. But in the end of the quarter, they were starting to see the light in the tunnel again, and you can see that the stabilization of the market, meaning that they are knowing that the availability of building material is there and they know what's the price levels, of course. I think it's coming back to a normal situation even if prices will end up on a higher level, it's still more stabilized and we've got the time with the clients, and that had an effect on our own sales. And we don't see -- we can't see that the volatility will continue during the autumn because I think that has been the problem for us.

[Nick Dempsey, analyst]

Okay. Thank you, guys.

[Operator]

Thank you. Your next question comes from Victor Hogberg at Danske Bank. Please go ahead.

[Viktor Högberg, analyst]

Yes, good morning. So cash flow continues to be good and you reiterate your M&A agenda as well. Would you say that you're comfortable with the integration work in the already acquired entities as much as now you're comfortable to add more? Would it be better to focus on organic growth? Or what are you seeing in terms of -- on the M&A opportunity, both on a regional basis and also a product basis would be very good to get some color on. Thank you.

[Stefan Lindqvist, executive]

No, but if you look at the integration work that we are doing right now with the newly acquired businesses, I think that's on track. So I think we are happy to continue to doing M&A, which is also part of the plan. So we think we have the capacity to do that. And -- but we are doing the M&A within the product areas where we already are present. I think that's part of the strategy that we have. So we have not planned to go into any new market for the moment.

[Johnny Engman, executive]

Or new product areas. New markets might come, but not new products offerings.

[Viktor Högberg, analyst]

Okay, I see, thank you. And in terms of your target of 10% -- at least 10% organic revenue growth on an annual basis. The ARR growth organically is 7% now in Q2. If we would see a normal market, a normal level in the second half, that would imply that the nonrecurring revenues take a step up as well. Is that possible? And what's going to drive that? Some color on that.

[Stefan Lindqvist, executive]

Well, I think one of the things that we've been suffering during this volatile and unsecured market is on the direct sales. I mean, a lot of the companies, if you don't have availability on your -- or selling anything that you're lacking building materials, you don't do market activities either. But if that comes back to normal, they will start to spend money on that as well. So I think there is a big chance that we will recover part of that in the autumn, that's for sure.

[Johnny Engman, executive]

Well as the markets open up as well post COVID now, you can start having events and fairs and then you can do meeting campaigns and then those type of activities which were not allowed during the COVID period. We can see a pickup in those add-on businesses across the portfolio as well.

[Viktor Högberg, analyst]

Okay. And it seems like the pacing of growth was better throughout the quarter. You say that you see market stabilization by the end of Q2. I assume that has continued during the start of Q3. Of course, we're in a vacation period now, but I would assume that is continuing. What does your customers say in regards to their demand of your products? Have you had those kind of discussions in terms of what you're seeing in direct, which could affect you positive or negative? Or do we just see that the market potential is there, so to say?

[Stefan Lindqvist, executive]

But we have continuously discussions with our clients and we also measure things, how many log-ins they're doing and how often they are using our services and so forth. And we can see that, that has improved during the last month. And now it's a vacation period and that will also be part of our market, beginning of August as well. But we can see a clear sign that we will start working again more back to the normal level. So we are quite optimistic about the autumn. Of course, it has been kind of a challenging construction market now in Q3 -- or Q2, but that -- but normally that's not really a collaboration between our -- the weak construction market and our services because normally in a weak construction market, the needs of our services are even increasing. So that's the normal situation. And we think that will happen even this time.

[Viktor Högberg, analyst]

Okay. And final question for me in terms of growth. As you can raise prices in line with sector inflation, and that has been running high past couple of months, I don't know what kind of time period you can adjust for that. But how much of the 6.4% organic growth was due to price? And how much was due to volumes? Was the majority price or inverse?

[Johnny Engman, executive]

Maybe we don't -- again, we don't break that down, what is price, what is upsale and what is pure new sales, new sales, you see a bit. But again, we are increasing at the same speed on price increases in this quarter as previous quarters. And then so that it is an important component. And if the add-on sales and upgrades of the existing is decreasing a bit, and of course, price becomes a slightly bigger portion of the organic growth.

[Stefan Lindqvist, executive]

But that's not implemented yet. So we have not been adjusting prices for the inflation in the construction industry so far.

[Viktor Högberg, analyst]

Okay. Good clarification. Thank you very much.

[Operator]

Thank you. [Operator Instructions] Your next question comes from Charlie Brennan at Jefferies. Please go ahead.

[Charles Brennan, analyst]

Good morning. Thanks for taking my questions. I've got a few actually. The first is just yet another clarification on the second half momentum. I know you've talked around this issue, but if we assume that the market normalizes in Q3, does that mean that you're confident that in Q4 you get back to 10% organic ARR growth? Or do you still think that Q4 could be running below that run rate?Secondly, can you just give us some color on the content automation piece that you talked about in the presentation? I understand there are some cost benefits here, but I guess the more that, that process can be automated, the more it lowers the barriers to entry, and can you talk to that particular trade-off?And then thirdly, just a financial question. Can you remind us of the margin seasonality in Q3 and the phasing of holiday accruals? And on a normal basis, what sort of margin uplift we should expect in Q3? Thank you.

[Stefan Lindqvist, executive]

Will you start with the last one again.

[Johnny Engman, executive]

Yes, the margin and seasonality, we expect the same trend in this year's Q3 as we saw in Q3 last year, especially then in the Nordic segment, you would see that release of vacation accruals in the June month impacting the third quarter of the margin is for seasonality reasons always stronger in the Q3 period. You see some impact also in the U.K. and Continental Europe segment. So you should expect the same type of margin uptick in Q3 as we saw last year from this vacation release, it is quite substantial for the total group.

[Stefan Lindqvist, executive]

The second one with the content optimization, I think there are 2 things. First of all, the content automization will not decrease the barriers [ Indiscernible ] the market because this is normally a way of improving the quality of the information and that this is special than integrated in the newly acquired units like ConsulData in Spain and so forth. And what we're doing there is that we are helping them to use the tool to crawl the net, but you still need to make the interviews. Otherwise, the timing of the project is missing because if you report an architect 3 months after he has been appointed to a project, that's too late and that's information that is useless to have, you still need to make the interviews and you can only get this information directly out of the heads of the decision-makers because it doesn't really exist anywhere else. But that's what we're doing right now to increase the automization and also implementing all these systems within the project leads services so we can even improve our quality of the service but also to save some costs because some of this is manually done today.The second area that we also could do this is in the specification information where we are authorizing the way of implementing the product information into the system. So that's done. But today it's more or less done manually and now we can do it semi manually by integrating tools for that, that we can import the information instead of redoing it into our system. So that's the part of automization. But that will create some costs for the -- for the future and also increase the speed when we can implement a new product solution into the system.Then the first question was around the security, if you can continue to deliver double-digit growth, ARR growth in Q4. And it's extremely difficult to predict. But normally we are up there in a normal market side and that has been the situation for the last 10 years. So I don't see any main reason for not being able to do it in the future. If it comes already in Q4, I can't really promise.

[Johnny Engman, executive]

You also need to remember that the ARR numbers we report are rolling 12 months. So if you look at the rolling 12 onwards, it will take a few quarters before the rolling 12 gets up to 10%, even though the quarterly performance is better as you would -- you need to remember that it's rolling 12 ARR reporting.

[Charles Brennan, analyst]

Perfect. Thank you.

[Operator]

Thank you. Your next question comes from Dennis Bergin from Carnegie. Please go ahead.

[Dennis Bergin, analyst]

Good morning, Stefan and Johnny. So could you provide any comments on the gross churn development for Nordics and Continental Europe? And also maybe some comments around how we should think about the organic growth with these in the second half of the year? I mean, you touched upon this before, but we also -- I mean, in Q1, you mentioned that you are seeing slightly easier comps. So really, how should we think about this and sort of the ability to quickly return to growth more in line with your target?

[Johnny Engman, executive]

Yes. Again, you don't see the gross churn in the different segments. But if you look at the the net churn, you see an improved net retention in both the U.K. segment and in the Nordic segment. So we are improving retention of the existing client base in both those 2 core segments, and that's the driver of the overall group performance that where we see improvements there. And it is because of the big tracker sales model implemented. So we are focusing on retaining the existing client base, educating them, making sure they use information, and we see the impact of that in the U.K., but also in the Nordic market that -- that is improving retention. So we feel happy about the retention levels improving in those 2 core segments.And iIf you take the comps, of course, you know we had a strong -- last year we had a stronger first half of the year and in Q2 last year was especially strong, and then we had a slightly weaker performance in the Q3 and then partly Q4. So yes, we are meeting slightly easier comps in the second half of this year. Again, if we do a good -- if we have a good performance in the second half, that would, of course, improve the growth rates.

[Dennis Bergin, analyst]

Yes. And then also, could you provide any comments on the rollout of new suites, sort of the market reception and current development versus your own expectations? I guess the timing with the current market conditions, I guess the impact so far has been relatively limited. But when are we expected to see a more, let's say, tangible impact from, for example, e-tendering in Sweden?

[Stefan Lindqvist, executive]

That will take some time until we see real figures in the P&L. But we can see -- we are promising -- we have paying clients and we are making progress more or less every day in that segment. So I don't want to give you clear numbers.

[Johnny Engman, executive]

But again, what we're trying to do when we launched these things is to get the usage and client acceptance up to make sure we get the volume of clients on and the data content up and running, and that is progressing well. But before we are seeing significant revenue numbers, it will take a number of quarters from now before we start seeing any real impact in the P&L from this. The impact you probably see now is that we're taking on costs for this rollout. So it is impacting the margin of the total group when we're doing this rollout initially before you get the revenue effect and the the positive margin development. So it's partly an explanation of the cost level and the total margin.

[Dennis Bergin, analyst]

In terms of margins, would you be able to give some more granularity on the impact from these rollouts?

[Johnny Engman, executive]

No, we haven't specified any numbers, but if you sum them up, it is quite significant investments across the different markets that Stefan talked about with the Nordic rollout, Denmark starting with specification. We also see Czech Republic and also down in Portugal. It is costing money, of course, to build up and then launch these services in the new market, but we haven't calculated a total.

[Dennis Bergin, analyst]

Got it. And then finally from my side a question on APAC and the U.S. How large is NBS business in Australia? And what are the profitability or profitability margins there? And also how dependent is the midterm margin development in APAC on a significant revenue step-up for NBS? And then finally, could you also confirm that the year-over-year like-for-like growth for DCI was close to double digit. Is that correct?

[Johnny Engman, executive]

Yes, I think you are correct that we see a good organic revenue development in BCI at the levels I indicated if we would have done that calculation. The NBS business in Australia, it is a rollout of the specification service and also the product information they have been doing in Australia with around 20, 25 staff. And the revenue is not so big since it's in launch mode and in rollout mode. So it has been carrying a quite significant loss due to the cost of that rollout, and that's what we are addressing now by integrating that business into BCI that we are taking away the losses in Australia which NBS has.

[Stefan Lindqvist, executive]

It also gives us the opportunity to do some cross-selling. So I think that's the big advantage by merging their units to the same client base.

[Johnny Engman, executive]

Yes, and BCI has the product information business called [ Indiscernible ] as well. So that integration is very...

[Stefan Lindqvist, executive]

Actually overlapping and competing.

[Johnny Engman, executive]

So we are taking away a loss we have in Australia NBS. Perfect.

[Dennis Bergin, analyst]

And that would be the reason for seeing like a weaker margin development in APAC over the past quarters?

[Johnny Engman, executive]

We need to remember that the segment, the U.K. is still called U.K. and international. So the revenue and loss have been reported under the U.K. International segment because NBS has a business in Australia and a small business in Canada as well, which is still reported on the U.K. And we might change that from Q1 going forward that thbe business will then move into DCI Australia.

[Dennis Bergin, analyst]

Perfect. Thank you.

[Operator]

That concludes our question-and-answer session and our conference for today. Thank you all for attending. You may now disconnect your lines.

[Johnny Engman, executive]

Thank you.

[Stefan Lindqvist, executive]

Thank you.