Proact IT Group AB
STO:PACT
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Proact IT Group AB
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Good morning, everyone. We are starting here in just a few seconds. Welcome, and thanks for dialing in. Just letting people coming in here from the lobby. [Operator Instructions] I think we have a few more in the lobby. It looks like, at least for me. So we'll let them in.
All right. Good morning, everyone. Thanks for joining. My name is Jonas Hasselberg, I'm the CEO of Proact. And I also have with me here Linda Holjo, our CFO.
Good morning.
Good morning. And we'll go through the results of Q1 that we just announced earlier this morning. It will take a couple of minutes, maybe 20, 30 minutes. And then we'll make sure that we have plenty of time for questions at the end as well, so you can get all your questions answered.
So I'll get going here by starting sharing my slides and I see that they are coming through. Good. All right. Here we go. So we'll do a pretty standard agenda here for those of you who have been with us before, you'll definitely recognize parts of it. We'll make sure that you understand Proact, what kind of company we are. We'll talk very, very briefly about the market developments over the past quarter and some of the dynamics we're seeing. Definitely talk then about the developments here in the quarter, including the financial results and obviously wrap up with a summary. And like I said, we make sure to have room for questions at the end of the presentation.
So Proact, you know us well by now, we're turning 28 years old this year. We are serving large and midsized enterprise customers and public sector customers across Europe. We're operating in 13 countries. We are turning over SEK 350 million on a yearly basis. And we continue to grow our employee numbers.
We're about 1,100 people now. As you know, we acquired ahd in Germany here right before the end of last year and they are now part of our company and part of our business and part of our family. So we've added another 100 people into the team with ahd. So 1,100 people right now are serving customers across Europe.
Market trends are not changing under a macro scale. You've heard us talk before about the business trend, and the business trend here is at the highest level of digital transformation. We see a lot of customers that are investing in IT to refine and transform their own businesses. Simple things like making smarter decisions by getting better access to all the data they have internally of their companies or driving efficiencies in their production or internal processes by automation of their workflows or improving customer experience by increasing the way customers interact with them.
Whatever they want to achieve from a business perspective, there's IT underneath. And IT is very much the driver behind a lot of the business transformations we're seeing. And maybe more importantly, a lot of this transformation is about data. It's about getting value out of data, making better use of data, getting access to data.
And obviously, this is Proact's strength. This is what we've been doing for these 28 years. We've been serving our customers, anything from storing data, securing data, giving access to data and ultimately getting business value out of the data. It's in our core and in our DNA.
So we think this digital transformation will continue. And we think, of course, that we're very well positioned to help our customers on that journey.
There's what we call a technology trend in the market as well that runs in parallel, which is the technology trend of cloud. The cloud here is a very broad definition. A lot of people think about cloud as the Google Cloud or the Microsoft Cloud, but we look at it more as a technology architecture that enables speed and flexibility and better availability of the technology. It can definitely be a Microsoft or a Google Cloud, but it can also be technology that our customers deploy in their own data centers, but using modern cloud architecture that gives them this programmability and the scalability and the flexibility they need.
Or what we call a multicloud or a hybrid cloud, which is that they use a mix of different types of clouds. Some definitely would use Microsoft 365 for their workspace, for instance, the Office and the Windows suites. And they may be using Microsoft Azure for product development and innovation projects, but still they may want to use local storage and security measures to ensure that the data is protected and accessible and they're in control of the gold of the business, their data. That's just one example.
So we believe in the multicloud, that our customers will live in a hybrid world of using different cloud technologies for different purposes and optimize for their own business. So that's a technology trend and obviously a lot of details underneath that trend.
The third trend, which is maybe not a positive trend in the same as big as is the increasing threat of cyber attacks and cyber vulnerabilities. We've seen a couple here over the last couple of months. We spoke last time we met about the vulnerability of LOG4J, which was a very, very large global attack right before Christmas of last year, it's just one example. And we read on a regular basis in the papers about ransomware, for instance. And obviously, to some degree, the Russian invasion of Ukraine has increased the awareness and maybe also the risk of cyber attacks not only in Ukraine, but also in the rest of Europe. So a third trend that we obviously take very, very seriously, and since we are very much focused on the data and the value of the data with our customers, security's front and center for Proact.
In terms of the more short-term, let's say, market dynamics, a couple of things we have spoken about here. We are glad to see that COVID is no longer on our slides here. We think COVID is largely behind us. Most restrictions are being eased off our markets. We have talked since the fourth quarter of last year about the semiconductor situation. There has been shortages and delivery volatility for us. It's remained also in Q1, as expected and as we communicated here before Christmas. We said at the time we think that it was going to continue through the first half at the same level, not worsened, but same level. And roughly, that's also what we're seeing. So continued challenges, but not worse than end of last year.
And if we look at our backlog of deliveries, it's a little bit larger going into the second quarter of this year than we saw going into Q1. So we've delivered most of the backlog we had with us coming from Q4 into Q1 and then we've continued to build a new backlog going into Q2 this year, which is slightly bigger. So no significant changes to the actual delivery situation, but we continue to push a backlog in front of us.
And then last but not least, obviously, the war in Ukraine is a global disaster again and we've taken this very, very seriously. Obviously, a lot of focus on securing the health and safety of our employees. We do not have any employees in Ukraine, but we do have employees bordering Russia and Belarus, for instance. So a lot of folks and just making sure that we take care of our employees, supporting Ukraine in any way we can, taking definitely a stance against exports and Russian customers. We have not seen a significant impact on our actual business as of yet. But obviously, on a global scale, the uncertainty is again increasing and there's a risk of accelerated inflation that may impact us. So a market dynamic that is the same in that particular case as for everybody else, I believe.
You know pretty well what we do, but I think it's worthwhile repeating. We are delivering IT infrastructure. We're very keen on doing that in a way that delivered business value to our customers. IT has no inert purpose, the intent is to help our customers get some value. We look at our value proposition in 5 main dimensions that we help our customers to really figure out how do you get that value out of your strategy of consulting on a strategic level.
We have storage solutions. So we're helping our customers store their data in a way that's secure and accessible and cost efficient.
We connect our customers to their data. And obviously, the more we move into cloud technologies and cloud solutions, the data may be stored in one or multiple places, whereas the users are in completely different places. So the connectivity of data is important.
Which brings us to security, which obviously is then both increasingly supporting -- important, excuse me, increasingly important because of the increased threat. But now that we also distribute data all over the world and we have distributed workforce all over the world, we need to make sure that we can transport and access the data in a secure way. And ultimately getting value, and we'll speak a little bit more about that, where things like artificial intelligence is obviously a key trend that we see increasing in growth and importance and where our customers are making investments to really get computers to crunch the data and draw some clever conclusions out of it.
So how do we do this? Well, we have 4 main product lines and also 4 main revenue streams. We do consulting, which is growing and increasing in importance. And you've seen us make acquisitions over the past year where consulting is a key part.
Managed services. So running the IT infrastructure on behalf of our customers so they can focus on their core business and their customers, and we take care of what we're good at, managing IT.
We do, of course, continue to resell hardware and software in the cases where customers want to manage and operate it on their own.
And then ultimately, technical support on top of that infrastructure so make sure it's always up to date, always running and always secure. So those are the 4 product lines and also 4 revenue streams.
In each of these areas, we have a number of different offerings, and I won't go through them in detail, but you can see a couple of examples here. We advise on our customers on how to use different cloud technologies, whether it's the public cloud or a private cloud. We have storage and archiving solutions, networking solutions. Obviously, we help our customers with their workspace solutions, make sure that their end users within the company can work from home or get access to all these great data and all the great IT tools; security solutions; and as I mentioned already, analytics and artificial intelligence solutions.
Surrounding these offerings, we provide support, consulting and management services. And obviously, one key thing here, which we have talked about was that we are not -- we are agnostic to the way our customers want to deploy this. We love cloud technologies. If they want to use the public cloud, that's fine, we'll still be able to help our customers in the same way. It's another, let's say, another technology platform for us. So if they want us to run it and own it on their behalf, that's fine, too. That's what we call the private and the local cloud or the managed cloud.
So either of these cloud versions are perfectly fine. And I think in particular, since we're going and serving very large customers, most of them will have a mix of everything. They will be using public cloud for their office and their workspace solutions, but they may want to have better control of some of their core applications or the core data within their own environment or in a more private environment. So multicloud is where the world is going. And obviously, this is where we're building our offerings around.
So flipping over to Q1 just briefly. We're pretty happy with the quarter. We see good revenue growth, which is very important for us. We're coming out of 2 years of challenges with the pandemic and having a hard time reaching out to our customers because of restrictions and working remotely. Very good revenue growth, but also good organic growth, which is encouraging. Part of the revenue growth, obviously, from acquisitions or some positive currency effects. We'll talk a little bit more in detail about this.
Very good growth in new cloud contracts. We measure that as something we call total contract value, or TCV, which is on the value of the contracts we've signed with the customers over the length of the contract and, it increased with 56% from Q1 of last year and it's now a record Q1. Q1 usually a bit of a slow quarter for us, but very strong quarter this year with regards to new contracts for cloud services.
We measure our contracted revenue as annualized recurring revenue. So contracted revenue that are running on a month-by-month payment method. More specifically, this includes our managed cloud services as well as our customer support services. So good growth there, up to about SEK 1.4 billion on a yearly run rate at this point, which is a good development for something very important to us.
And ultimately then, a good growth also in EBITA, up 26% from last year.
We do see, as I mentioned already, still some delays. We believe that delays will not become worse, but rather for the second half of this year starting to normalize again. We're getting positive signs from the marketplace. We see a lot of the big chipset manufacturers making huge investments in manufacturing capacity. So we believe that the worst is over and we'll start seeing some light in the tunnel here by the mid and second half of this year.
And obviously, as I've mentioned already, Ukraine is not helping us in terms of getting a view of the future. There are some increased uncertainties, of course, with regards to the macro trends here, but you see them as well as we do, I'm sure.
A couple of other things just to highlight in Sweden, which is a very big market for us. We were awarded 2 very important frame agreements for the public sector. This is very important so we can continue to trade on an efficient basis with municipalities and all the public sector customers in Sweden. So very important and good that we can continue to be part of that frame agreement.
Two interesting customer cases that we've talked about over this quarter. A Dutch patent lawyer, which is modernizing their whole workspace and infrastructure to a global player. They put a lot of value in making sure that their end users within the company can be very effective regardless of where they work. So we're deploying a cloud-based workspace and cloud-based infrastructure for them across the globe. And then a U.K. company in Bates Wells that are completely changing their ways of working, and they select Proact here as an IT partner. Two good customer cases in terms of how we focus on, again, the business value of our customers through the IT.
Continue to be very appreciated by our key partners. Proact and our subsidiary here in Sweden, Conoa, that was acquired a year ago. We got some really good awards from our partner, NetApp, which we're, of course, appreciating.
And then last but not least, the integration project of ahd in Germany acquired here in October of last year is progressing well, and we're also starting the rebranding of ahd. So it's now branded ahd, a Proact company. So we're well underway to execute on that integration project as per the plan.
A couple of things I just want to highlight. We announced a new offering, a new service to our market and to our customers this quarter. We call it a Monitoring Platform as a Service. It's a pretty technical platform, but it enables customers that are running their own IT infrastructure to monitor the performance of the platform. And monitoring here means that all of these IT product and IT platforms, they produce an incredible amount of events or log events. It's telling their user, telling their owners what is going on. It could be simple things like how much capacity are you using or are you starting to run out of performance or is something broken or is part of the hardware not working as it should. Just thousands and thousands of events like these being produced.
In order to make use of that, you need a monitoring platform. So we now launched that as a service. So our customers who are managing their own infrastructure can use very modern and also an AI-driven platform to help them monitor their service. So this is a good complement also to our existing services. And this is where I'm particularly excited about this one. It's a good stepping stone for our customers that are today running their own IT infrastructure, they may be using the reactive support of our vendors or the Proact premium support to just make sure that their systems are up to par and all the systems lights are green.
But with this platform that can also do -- starting to monitor the platforms to make sure that capacity is optimum, security is where it should be and so on and so forth, but it's also a good stepping stone then to take them to the next level meaning letting Proact also manage the systems for them. So we now have a very kind of clear and systematic growth journey or growth ladder for our customers. They can buy infrastructure from us, they can buy the support from us, the combined monitoring platform with AI capabilities from us or they can let us run all their infrastructure. And it's a very kind of easy step-by-step approach for somebody who wants to move away from running their own systems and owning their own systems all the way into outsourcing it to Proact. So it's a great new product that complements our portfolio from that regard.
It's a very modern monitoring platform. We use it ourselves to monitor our own systems and to monitor our customer systems. It's AI-based. It gives one -- as we call it, one pane of glass, one dashboard for all the internal systems so they can read out and get a view of their full infrastructure. They don't need to go in for one system for their email platform and another for storage and a third one for their security platforms. But they get one complete view of their whole infrastructure. And it's then presented in a way where AI capabilities and machine learning has made sure that it's providing just the most relevant information to the user. So good complement to our portfolio.
And then I also mentioned AI. We published a couple of interesting case studies here during this last quarter on AI because we see a lot of our customers, maybe in particular in the public health care and educational sector, that are investing now in AI platforms. And in the case of educational sectors, with the University of Örebro here in Sweden or the University of Turku in Finland that are building shared AI compute platform for a lot of their research as well as a lot of their educational efforts to run on shared platforms for high computing use cases.
The case in Turku, for instance, they do a lot of machine learning. Getting the machines to actually learn could take hundreds of hours. They crunch incredible amount of data to get conclusions out of it and draw learnings from it. And with this new platform, they're cutting that learning time down drastically by running on high-performance computing platforms instead of traditional platforms. And obviously, we're very happy that we are the partner can help our customers invest and build those kinds of IT platforms for future AI research.
This is typical then the traditional business of Proact, reselling platforms, but it's for completely new and future use cases. And it's, I guess, a good proof point that not everything will move to the cloud, but you sometimes need high-performance equipment and solutions also in-house. And here's a good couple of use cases that you can study on your leisure time.
With that, let me hand over to Linda.
Thank you, Jonas. So first, the highlights of the financials, the P&L. As Jonas mentioned, strong growth compared to last year, 19% with growth in both systems and services: systems of 15% and services of 26%, so even stronger. This, of course, also led to an increase in EBITA, same growth there, 26%, a margin of 4.9%. And correspondingly also a good growth in our profit before tax to 37.5%, a margin of 3.5%.
So if you go to the next slide, we have a little bit more details. If we start with the revenue development then, the growth of 19%. 5% of that was organic. So we do see good organic growth in the quarter. We also have acquisitions contributing well, 10%. And this, in this quarter, it's ahd then that we acquired in Germany in the last year in November and then Conoa that we acquired in April last year in Sweden.
We also had positive currency effects -- translation currency effects of 4% in the quarter.
Some of the highlights then. The new cloud contracts where the TCV was SEK 122 million in the quarter compared to SEK 78 million last year, so very, very strong Q1. Typically a little bit of a weaker quarter we've seen historically, but this quarter we closed a lot of deals in several of our countries.
Splitting up the services growth of 26%, we had 5% organic growth. All of our revenue streams grew organically. Cloud revenues grew by 31%. Here, ahd was -- or is strong in managed cloud services. So that's the main reason for the growth, but also good organic growth underlying that, which we're, of course, very happy to see.
Support services growing by 6%. And then very, very strong growth in consulting services, where we see strong demand across a lot of our geographies for the types of competencies we have. Also here, Conoa contributing significantly to the nonorganic part.
Then the recurring revenues, the ARR that Jonas talked about, 21%. It's 3% organically and that's [ done on the account of ] support revenue growth to the SEK 1.4 billion, approximately level. And that's the graph on the right-hand lower side here. We see the rolling -- 12-month rolling, that's increasing a little bit slower and then the overall quarterly numbers that's showing good growth here in line with our strategy to make this a much more significant part of our revenues.
Systems increase was 15%, of which 5% organically. We see organic growth in all business units, except NOBA. And as you know, the system business is a little bit more volatile in different quarters. We do see that the semiconductor shortages have impacted as Jonas said. And it's impacted a little bit differently between different countries depending on what types of deals and what types of suppliers we've been selling, but we do see overall an impact that has meant that we have a strong order backlog into the next quarter.
So if we look at the margins or the profitability, we have the adjusted EBITA trend. On the right-hand side here, we can see that Q1 often is a fairly weak quarter for us, significantly improved from last year, 26%, with somewhat of a margin improvement as well.
We look at the underlying analysis what has contributed to this overall increase in EBITA. The revenue growth, of course, has a large impact on it. We have seen in the quarter lower gross margins than last year. We look -- and that's actually for both services and systems. For services, we've invested or increased the cost when it comes to ensuring customer quality and working with efficiency. We've invested in securing quality in certain countries and for certain customers, which has come with the cost. We will also spent a little bit more than usual on product development for our services. So of course, the ambition is that this in future quarters will generate more revenue with happier customers, but also that these investments will result in an improved profitability. So we see this as a short-term effect.
Then for the systems part, gross margins here do fluctuate over the quarters. So here also we don't see this as a long-term trend. Rather, we can see that it's some of our larger systems deals come with lower margins. And then this quarter, we had some of those that we typically see have lower margins that has impacted it. But that's the main reason that the EBITA margin didn't increase more than it did.
SG&A costs are up, but that's due to acquisitions if we adjust for -- and currency effects. If we adjust for currency effects and acquisitions, the organic growth here is -- or it's declining by 2%. So we have continued good cost control even though we do see that travel and entertainment is starting to come back from nonexistent last year.
And then, of course, the bottom line EPS improves as we see the growth in EBIT.
If we then talk quickly about our different business units. Nordic & Baltics, 10% growth and a little bit of currency, but also primarily the Conoa acquisition. Systems, flat organically, growing 5% in total. Services growing more, 23% in total, organically 9%. We can see here that all services are increasing, but the big growth here is in consulting, which is not only Conoa, it's also growing really well underlying in a lot of countries.
Conoa, in total, then contributed by SEK 25 million in revenues, primarily to consulting, but they do also have some system sales, as you can see from the difference between overall systems revenue growth and organic growth.
In Nordic & Baltics, here is one of BUs where we see a bigger impact on the delivery issues and delays where we have a significant backlog going into Q2. So underlying, we've closed deals on a high case here, but the backlog has been increasing.
EBITA margin is decreasing and EBITA going down. And this is here one of the areas where we have the impact on the services gross margin and the costs related to working with improved customer satisfaction and working to secure, we become even more efficient in the future, that is impacting negatively.
If we move to our next business unit and the U.K. Strong revenue growth, 10%. Here, we have one of the strongest currency effects. So here, Cetus that we acquired is more than a year out so it's no longer part of the acquisition, but it's part of the organic growth. So overall, 2% organic growth, of which systems 4%, services down 1%.
If we dig into the services, we can see consulting strong with a couple of big customer engagement and good underlying demand. Whereas as we can see from the revenues, we had some -- well, we've had a little bit of soft system sales last year and that impacts support. Typically, we sell support deals when we've closed the system deals. And when we didn't close them, we now see that effect on systems revenues that -- or on support revenues that is decreasing a little bit.
We did manage to increase slightly the EBITA margin and EBITA and that's a result of the higher revenues, of course, impacting the EBITD, but also continued good cost control and sustained gross margins here.
So if we take our next one, the West, where, well, you can see it here as well on the right-hand side that Q1 last year especially was challenging and we initiated, well, during Q1 last year an improvement program, cost reduction program, which we've delivered on successfully. So we see now strong development on profitability.
Revenues as well, both systems and services. But of course, especially -- well, the systems part is coming from a low level. We see that the transformation to cloud is going quickly in Netherlands, in particular, which means that companies are buying cloud services. So we do see strong demand for our cloud services here. But systems is the longer-term trend is -- that it is declining, which we can see if we look at the longer-term revenue decline here. But a little bit of rebound in first quarter. So 52% organic growth from a weak Q1 last year.
And in addition to the cloud services, we do see also here strong demand for consulting services and the TCV, the new contracts for cloud services that we closed, the U.S. is the strongest growth of our BUs here. So good, well-positioned for the future.
And the EBITA margin then remains on high level, it's 5.3%, where we basically see all of our levers impacting high revenue, improved gross margins, good cost control for SG&A.
Then our, well, last BU. I was going to say the smallest, they've grown quite quickly now with the acquisition of ahd, almost doubling. So revenue growth of 79% and that's the ahd acquisition, of course. Organically, some growth as well. That's in systems that's growing 6%, whereas services is a small decline organically. ahd, the acquisition, is contributing by SEK 67 million in revenues and that's been primarily in managed cloud services as the services growth here. But they do have, as you can see also, a systems part and some support and consulting. The organic growth in cloud revenues here is the main explanation for the decline in organic services growth and that certain effect that we have seen the old Proact BU Central, taking low levels of new contracts in 2021. So here, we're happy that we have acquired now ahd. That will give us a boost here going forward. Consulting services also here doing really well.
We see also here the EBITA margin declining and EBITA going down. Here is another one of the BUs where we do have this effect on gross margins in both systems and services. So a few low-margin systems deals, larger ones. And services, we see a decline in particular here related to our recurring services, where we have taken costs to improve quality and so invested a little bit in it, both in people and in equipment.
ahd for the first quarter was quite significantly was affected by delays of -- due to semiconductor shortages, so -- which impacted then, in turn, margins. So that has an impact on the ability to onboard new cloud contracts as well as selling systems.
So that was the last BU. Then if we look at the cash flow for the quarter. We do have a positive cash flow from operations, so SEK 94million from current operations and then a negative change in working capital, where we do see an increase in accounts receivables that we've partly offset by an increase in accounts payables. For those of you that follow us, the working capital is, well, it fluctuates with the types of deals we've taken in different quarters.
No significant investments in fixed assets in the quarter. When it -- look at financial activities, we -- yes, because we are for leasing primarily [ and that's clear ] in the cash flow statement with IFRS 16 so that we have as usual.
And then we did pay off part of our RCF during the quarter, so it's a net minus SEK 50 million in lower debt.
So overall, still strong cash position for the quarter.
And if we go to the next slide, we have the balance sheet and the net debt. Our equity ratio is increasing a little bit in the quarter. it says strong cash position.
Overall net debt at SEK 248 million, including leasing liabilities, increased, of course, since last year since we acquired both Conoa and ahd since then. We still have unutilized overdraft facility of SEK 158 million. And our 3-year revolving credit facility that we closed last summer, we had SEK 164 million left from that. So still significant headroom if we need more cash. So strong balance sheet overall.
Then if we look at our -- the financial goals that we communicated a few years ago, we, of course, want to reach and want to follow up on a quarterly basis, hit our targets and look at the rolling 12 months. We do have gaps in both our sales growth and EBITA margin. So the sales growth in this quarter was higher than our target. But as those of you who have followed us know, we have had some challenges -- or quite a lot of challenges with the semiconductor delays and COVID last year. So overall, flat sales growth for the past 12 months rolling.
EBITA margin, 12 months rolling, also still quite a significant gap to our target where we had this quarter, in particular, then the gross margin and delivery delays impacting. Our net debt-to-EBITDA ratio remains well below our target of 2%. So good headroom there.
Return on capital employed, of course, also related to lower EBITA margin, but also the significant acquisitions we've made impact our capital employed, of course. So that is also a gap there.
And the dividend that we proposed is well in line with our dividend policy. We have our Annual General Meeting on May 5, where we've proposed -- or the Board has proposed a dividend of SEK 1.5 per share, same as last year.
Okay. So...
Thank you, Linda.
Jonas, if you want to summarize.
Summarize, yes. The summary, I think is, as you see it here on the slide, we're happy with the strong revenue growth. Obviously, we have a strategy to grow by both acquisitions and organically, and we're happy to see that in this quarter both acquisitions and organic growth has contributed. Also very positive, of course, to see that there is a good or even high demand for the cloud services, which is a strategic focus for us where we see both a strong TCV, so growth in new contracts signed, but also the ARR or recurring revenue is growing quite significantly in the quarter, partly then by the ahd acquisition.
Good systems growth, and obviously, that's also positive. We believe, as you know, in the multicloud world that customers will be buying both cloud services as well as continue to have systems of their own in their own data centers. And we see good underlying demand here as well, and we have a very strong backlog going into Q2 for deals that we couldn't deliver in Q1 either because of the semiconductor supply challenges or simply because they were closed late in the quarter. And then ultimately, of course, this has all resulted in a quite good improvement in profitability compared to last year.
So that's how we would summarize the quarter. So with that, thank you for listening. We open up for questions.
[Operator Instructions] Bear with us a second.
Fredrik Nilsson. Can you unmute yourself, please?
Yes. When can we expect the investments in quality and customer satisfaction to start having a positive effect on gross margins?
We do -- most of it will be -- the investments are relatively short term. So we should see improvements relatively quickly. There's a couple of things we do in parallel. Definitely product development that we mentioned. So some of them we talked about here, some of them we'll announce to the market in the near future. We're doing a lot of work around standardizing our delivery processes so we can deliver our services both more efficiently, definitely with a very consistent customer experience but also do it in the same way across our countries, so we can start doing cross-border delivery that we'll see here over the next few months or quarters.
So I'd say in the near future, some of these investments, as I mentioned, are short-term and temporary. Some of them we will have to continue with for a little bit longer. But these are investments that we try to harvest pretty much immediately.
Okay. So why does the Nordics & Baltics and Central need to improve its quality while West, for example, does not? Could you tell us a bit about the difference?
Yes. There's a little bit of a more or less different situation in legacy. So in the Nordics, we're ramping up a delivery capability to -- which primarily has been focused on delivering services in Sweden. We want to be able to deliver in all of our Nordic & Baltic countries. So here, we're both scaling up a bit of capacity to deliver in the Nordic & Baltics, but also just improving the general ability to do that in a consistent way. So here is partly that we are scaling up across Nordic & Baltics.
In Central, we, among other things, had to simply invest in technology platforms. We've had end-of-life technology platforms that need to be replaced. So just some life cycle management that are coming in different cycles depending on our different regions.
U.K., West, a little bit more mature. Been up and running with the service delivery for a little bit longer with -- both with the PeopleWare acquisition from 2.5 years back and the U.K. operations in general. So slightly different phases and slightly different situations in terms of where we're driving the business in those regions.
Okay. One last question from me. SG&A increased relative to the fourth quarter last year, which does not really match your typical seasonal pattern. Is there anything special affecting their numbers?
So of course, we have -- well, 2 effects in the quarter. We have currency effects, so translation effects that impact SG&A as well as the acquisition of ahd, which we now had for 3 months versus only 2 months Q4 last year.
Then one of the things that does impact is the commission payments. So it's a little bit dependent on -- in certain, yes, how many salespeople reached their commissions and not. And that, of course, will depend -- so Q4 with the delivery delays, we had lower commission payments as well than what we typically had in Q4 last year.
Daniel Thorsson, can you please unmute yourself?
I have a question on your order backlog. Are you exposed to pricing risks in the order backlog, meaning that you have already agreed on the price when the order was signed. But now we see a delay in the delivery a few quarters, which may put risk on increasing input costs or higher freight rates? Or have you mitigated that in the agreements?
Those -- there's very little, if any, pricing risks in the order backlog. That's all locked in the agreements.
Okay. So the prices are adjusted if you see higher input costs, for example.
Prices are already agreed at the time of order.
Okay. For you as well.
Yes.
Okay. Excellent. When I look at global IT budget forecast for the coming year, it shows that IT hardware peaked at a strong growth in '21 and is now expected to grow slowly in '22 and '23.
On the contrary, you had a pretty weak development of systems in '21. How are you thinking about that business in '22? Are you seeing an increase in growth rate or slower in growth rates here or...
No. I think our view is pretty consistent that we think that there is some, but slow growth in the systems business. Roughly, we would estimate it at about 2% on a yearly basis.
However, this market has been, and maybe our part of the market specifically, has been negatively impacted by COVID where investments have been shifted to things like workspace solutions and some of the more strategic investments have been put on hold when they can't either meet their vendors like ourselves, or frankly, even meet internally with their customers to drive some of their projects.
So we think the investments over the past year or so have been slower than the actual market demand, and we're now going back to a more normal slow growth rate of systems of a low single-digit percent growth.
Okay. So do you expect that to come back a little bit in '22 at least?
Correct.
Okay. Excellent. On M&A opportunities, what are you looking for right now? I mean you have typically done service-tilted acquisitions historically. Is that still the theme? And how are the opportunities in the current market uncertainties?
Yes. No. The direction is very much the same. We're looking at 2 things: increasing our skill set and expertise and effectively our offering in the area of services; and obviously, grow our market share in some of our key markets. Now Germany, good example with ahd. So we think Nordics is an interesting market for us now to do acquisitions again. We obviously look in all our 4 regions.
But I think we spoke about it before. We will try to rotate them across region by region to give some room for integration. The flip side of that is acquisitions are somewhat opportunistic. They pop up when they pop up. So you never really know.
But so -- and if you look then specifically, when we look at services and the expertise areas, so definitely public cloud, it's a very important area to continue to grow our expertise. We have a very strong team in the Netherlands with strong Microsoft and public cloud capabilities. We need to scale that out in other regions as well, so we can deliver value-add on top of the public cloud, the same way we do value-add on top of systems today. So that's definitely a key focus area.
Security networking, also very interesting area for us in terms of where we think we can complement and strengthen our portfolios.
Conoa , the acquisition we did about a year or pretty much exactly a year from today is experts in something we call DevOps or modern application development platforms. You could argue that's a kind of a subset of cloud. That's also a super interesting and very hot area. And we see the demand for the Conoa consultants are better than -- bigger than we can deliver upon. So also increasing our capacity here -- in any region of our footprint is an interesting area.
So services, consulting capabilities in those 3 or 4, if you will, focus areas, public cloud, modern development application platforms, networking security. This is where we're primarily focusing our scouting.
Yes. Makes sense. My final question is on the consulting business. That was pretty strong in Q1 here. Did you see any effects on sick leave rates in January that were abnormally high in Sweden, for example?
And then secondly, where are we in terms of utilization and hourly prices? Are we at kind of a peak now? Or are they both increasing trends or what can you say?
So no, we haven't seen any large impact from sick leave, not last year really and not this year either. So we've been spared. I think we haven't had a lot of sick people and some of our consulting business can be done remotely as well.
We have seen good growth in hourly rates. But of course, with the market inflation expectations, et cetera, we think we can continue increasing. There is definitely work on talent and our customers realize that as well.
Utilization in -- some areas utilization is as high as it gets. We will always have pockets with lower utilization. In some areas, we can still increase. But in some areas, we're definitely looking to recruit to continue the growth. And that's the bottleneck of finding enough skilled people to recruit trade now.
Is there any other questions from the audience? Doesn't seem that way.
You're always welcome to reach out to us individually. We're happy to answer your questions also on a one-on-one basis.
So if there's no more questions today, thanks for dialing in. We'll meet again on July 14.
Yes.
Yes. July 14, sorry for being hesitant. July 14, we'll see you then. And again if there's any more questions, please reach out to us. Thank you.
Thanks very much.
Have a good Tuesday.
Bye.
Bye-bye.