Proact IT Group AB
STO:PACT
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Proact IT Group AB
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[Audio Gap] gross margin. And the gross margin has increased by 1 percentage point, and profit before tax increased by 19% to SEK 46.8 million, and the net margin increased to 5.4% compared to 4.8% corresponding quarter previous year. And we have also been able to increase the solidity, so the solidity, up -- is up from 20% to 21%. And we have seen a positive development both with regards to system sales. The system sales revenues increased by 6% and amounted to SEK 575 million. And the service revenues, they have continued to develop positively during the quarter as well and amounted to SEK 291 million, which is an increase of 4%. The same goes for revenues relating to cloud services, which amounted to SEK 109 million. And rolling 12 month cloud revenues amounted to SEK 431 million, which equals an increase of 11% year-over-year.And looking at the revenue and profit per business unit. We have seen a positive trend in all business units. So in Nordics, the revenue was SEK 418 million and the profit before tax, SEK 22 million, which means a net margin of 5.3%. And the new accounting principles have affected Nordics with SEK 15 million during the quarter.And if looking at business unit U.K., it's a really good development in U.K. We saw good development in Q1 and now we see a continued positive trend in U.K. So the revenue in U.K. was SEK 170 million and the PBT, or the profit before tax, was SEK 7.1 million. So then have increased the net margin also in U.K. compared to the corresponding quarter last year. And the new accounting principles affected U.K. with -- negatively with SEK 6 million in the quarter.In West, business unit West, a continued development also in that business unit both from a revenue perspective and from a profit perspective. So the revenue for business unit West, it was SEK 249 million, and the profit before tax was SEK 18 million, which means a net margin of 7.2%. And we see the same trend in East, which of course is pleasing to see. So the revenue in East was SEK 32 million in the quarter and the profit before tax was SEK 2.9 million, which equals a net margin of 9.3%. And East has been negatively affected by the new accounting principles with SEK 1 million. So the positive trend from an overall perspective from Q1 continues also into the second quarter of the year. Now I would like to hand over Jonas Persson when it comes to cash flow and the balance sheet.
Yes. Thank you, Peter. We start with the cash flow for the last quarter, the second quarter. And we, during that quarter, we had SEK 55 million from the current operation and the change in working capital was nearly flat. And during the quarter, we invested around SEK 16 million in -- most of that is related to our own leasing company, Proact Finance, and that's in line what we have seen in the past, roughly SEK 15 million per quarter. And then we have minimized our utilization of the overdraft facilities. So it's down SEK 27 million, and we have paid back SEK 34 million to the company's shareholders as dividends. So in total, that's minus SEK 22 million, so we ended the quarter with SEK 163 million as cash.And if we look at the first half year, we have had SEK 90 million from the current operation, and we have a negative change in the working capital of SEK 48 million, and that is related to the extraordinary good result in Q4 last year. We paid out some money in the beginning as we explained in Q1. So Q2 was good, but in months period, it was minus. And of course, that should be nearly flat over the year. It's -- we don't have so much talk and so on, so it should be around 0. And during this period, we have invested SEK 46 million in Proact Finance, and we have paid SEK 19 million for the old acquisitions in Germany. And that was the final payment for that acquisition that was done during Q1 this year. And we have bought back some own shares of SEK 8 million. And as I said, we have paid out SEK 34 million as dividends. So that means that we -- during the period, it has been minus SEK 77 million, but most of that was related to Q1. And if we look at the key ratios, the balance sheet, it's up a bit due to the fact that IFRS 15 have added roughly SEK 200 million to the balance sheet. And the solidity is 21% and our long-term goal is to be between 20% and 25%. And of course, we want to be closer and closer to 25%, but at least, 21% is above 20%, that's good. And as I said, the cash and bank deposit ended on SEK 163 million, and we had bank loans and overdraft facilities of SEK 138 million. So at the moment, we have more cash than debt, plus SEK 25 million. And we have not -- or unutilized bank overdraft facilities of SEK 223 million at the moment. So the situation is very healthy, I must say. Questions about the cash flow and the key ratios and the balance sheet?
Yes. Daniel here from ABG. I have one question on the short-term debt that we see in the balance sheet that has moved from long-term debt to short-term debt. What maturity is that? And do you have any finance plans to meet those obligations?
Yes. It's -- we have a bullet in the end of the year with our bank, and that will be arranged over summer. So it's not a problem, but it's not solved at the moment, but it will be in July and August. Yes. And we will change to a more long-term solution.
So that's something we work on, of course, to solve during the summer period, and we have good control over that process, I would like to say. So the aim is to finalize everything in the end of August, beginning of September.
What's the current financial terms on that debt? And do you think you can improve that with a new solution?
Yes that's absolutely our aim to do that.
Okay, and what's the current terms?
From what perspective do you mean?
Terms of interest rate.
Yes, you can see that in the annual report, but it's, I think, 2% plus, and I think it will be 2% minus in the next version. So it will improve, yes.
Yes. So what you're saying is it will be below 2%.
Yes.
That's our aim, yes. So we do have a good financial position, which means that we do have a good opportunity to negotiate good terms, that's our belief. Good, and to summarize. We are, of course, pleased with the developments. All the financial key ratios, they are going in the right direction. And as I've said before, we see some positive trends in the market. So from that perspective, we do have our -- we do have the future in our own hands, I would like to say. So it's more up to us to ensure that we focus on the right things to be able to continue this positive trend also in Q3 and the rest of the year. So now I think it's time for questions if any.
Yes, I have a few. Daniel again from ABG, if that is fine. So just to clarify the IFRS 15 affecting the quarter, that was only minus SEK 8 million, is that correct?
Yes.
And it was minus SEK 95 million in Q1.
Yes, but...
And you expected that to go down during the year. Did you expect it to go down that rapid?
No, but if you look at Page #5 in the interim report, you can see that we have sold -- or the revenues related to that part throughout the first half year is SEK 134 million, so if you take SEK 134 million and compare that with SEK 95 million, then you see the difference in Q2. But at the same time, SEK 31 million, which is related to previous periods has affected the revenues positively. So if you take SEK 134 million minus SEK 31 million, then you end up with SEK 103 million. And if you take SEK 103 million minus SEK 95 million, you end up with SEK 8 million. But to see what we have sold throughout the second quarter, you need to compare the SEK 134 million and deduct the SEK 95 million from the first quarter, right? Are you with me? So it's SEK 39 million.
Yes, absolutely. So but the thing that was difficult to compare was the SEK 31 million from last year, right? Because that was nothing that we knew about.
No, but that's not only related to last year. It's also related to the...
SEK 95 million.
The SEK 95 million, because the deals closed in the first quarter will, of course, have a positive effect already now in Q2, because we are talking about, in average, a contract length of, let's say, 18 months or so. So we already see a positive effect in Q2 of the deals closed in the first quarter.
Okay, understood, understood.
But...
And what visibility do you have on this? Do you know how much the positive effect will be in Q3 already now or...
No, that -- all that -- yes. From deals closed in previous periods, we, of course, do have control over that, but we do not know how much we will sell in Q3 at this point in time. That's the reason for why it's really difficult actually to give a forecast from that perspective and a guidance.
Okay. But what's your best guess for the second half of the year? Will we see an effect closer to the SEK 8 million that we saw in Q2, the net effect? Or closer to the kind of gross effect of SEK 95 million we saw in Q1.
No. It's closer to what you now see in Q2, and I mean Q1 was the worse quarter from that perspective, because Q1 was the first quarter when we saw the effect of the new accounting principles.
Okay. Could it, by any chance, be a net positive effect in Q3, Q4? Or will it be a negative effect? [indiscernible]
It will be a negative effect, I would like to say.
Okay, and closer to the SEK 8 million that we saw in [indiscernible]
That will -- yes, closer to SEK 8 million rather than SEK 95 million, at least.
Yes, makes sense.
And then when we enter into '19, we will have a normalized situation, as earlier described.
Yes. Okay, so focusing a little bit on the U.K. growing nicely in the quarter, 30% up year-over-year, even more adjusting for IFRS, the SEK 6 million effect you talked about. Anything on nonrecurring characteristics in the quarter or just business turning around in the right direction again?
I would like to say that we have been able to turn around the business in a good way, so we have seen a positive development, both in terms of the system and the service operation. And at the same time, we have been careful with our costs and so forth. So that's the main 3 reasons for why we have seen a really good development in U.K., I would like to say.
Is it the market picking up or you taking some market shares?
We are taking some market shares, but at the same time, we did one really large deal in the end of the quarter. And that, of course, helped out in a good way. But even if you deduct the numbers with that specific deal, we still do have a positive trend in U.K.
Okay. Okay, and all business units reported better earnings year-over-year. Anything you would like to highlight there? Is that driven by cost savings in the different markets or mainly [indiscernible]?
I think you can see in the different -- all the different business units, we do act according to the sales strategy. The service business is picking up really nicely. And of course, we are careful with the cost within the company. We are trying to take advantage of being a group, I mean, when it comes to customer support operation as well as the operation related to managed cloud services. So and by that we've also been able to increase the margin in the different regions.
Are the cost savings of a sustainable characteristic? So that you are fewer people all in all in the group. Will that sustain for the second half of the year as well? Or is it anything you have done which has a nonrecurring effect here causing lower costs in Q2?
No, no, no. I will like to say it's a sustainable situation.
Okay. When will we see number of employees growing again?
I can't really say because, I mean, it's not an end in itself to grow the number of employees. I mean the aim is rather to do more with fewer employees actually, and by that, be more efficient, because we can [ bale ] our service operation without adding new resources to it. And that's a huge difference if you compare it to an ordinary consulting company. So as I said, it's not an end in itself to grow the number of employees. We're very careful with that. We have been so during the first half of this year, and we will continue to be that for the second half as well.Any more questions? Okay. If not, then I thank all of you and wish all of you a nice summer and talk to you in hopefully Q3 report. Thank you, all.