26 October 2022
Presentation of financial results Q3 2022
Disclaimer
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Important factors may lead to actual profits, results and developments deviating substantially from what has been expressed or implied in such statements. Although the Company believes that its expectations and the presentation are based upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the presentation. The Company is making no representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the presentation, and neither the Company nor any of its directors, officers or employees will have any liability to you or any other persons resulting from your use.
Agenda
Today's presenters
- Highlights
- Company in brief
- Financial review
- Markets and outlook
- Q&A
Hans-Petter Mellerud CEO and Founder
Gunnar Manum CFO
Highlights
Simplify work life. Achieve more.
Q3 2022 key takeaways
- Accelerated growth: Revenue growth of 17 percent (constant currency). Managed Services grew by 24 percent
- Rapid growth has affected EBIT negatively: Stable margins on existing customers. EBIT temporarily negatively affected by ramp-up cost to handle large volume increases
- EBIT improvement program: Will increase annual EBIT by minimum NOK 40 – 50 million from current level by end-2023 from costs improvements and contribution from signed contracts
- Successful new-sales: Strong inflow of new contracts in Q3, including a 5-year contract with CSL Behring in Germany and Switzerland
- Good outlook: Solid pipeline of new business with several deals in final selection stage
Continued development in new signings to serve additional 15'300 employees secure recurring revenue growth
- Several new landmark deals and extensions signed securing continued growth in 2023
- Pipeline of Multi-Country Peoplehub powered opportunities strong and potential of another year of record sales
- Peoplehub package powered by SAP SuccessFactors v 2.0 completed and expected to create additional demand in cooperation with SAP
5-year agreement for outsourced payroll solution and outsourcing services based on Zalaris PeopleHub to global pharmaceutical company CSL Behring's 7'800+ employees in Germany and Switzerland
5-year agreement for outsourced payroll solution and outsourcing services based on Zalaris PeopleHub for international hearing aid retailer Amplifon's 2'500+ employees in Germany
Zalaris to provide SaaS payroll solution based on Zalaris Peoplehub for 3'000 employees to international payroll company iiPay's end customer in Germany
5-year agreement for payroll outsourcing services based on Zalaris Peoplehub for Polish chemical company Ciech's 800 employees in Germany
Five-year agreement to implement and operate PeopleHub solution powered by SuccessFactors to Sealord's 1'200 employees in APAC/New Zealand.
Managed Services grew by 24% in the third quarter, in local currency
Revenue NOK 160.6m (+21.2%)
*Revenue in local currency converted to NOK using the avg. currency rate from the quarter last year. See Q3 interim report for definitions of APMs
- +24.2% higher revenue when adj. for currency effects
- The inclusion of ba.se added +3.3%, while +20.9% relates to new customers and volume increases
- More change orders contributed with 5.4% (+NOK 7.2m) of the revenue growth
- Change orders as a % of total MS revenue in Q3 was 11.0%, compared to 9.6% LTM (>90% recurring revenue)
- Net new signings with annual recurring revenue (ARR) of ~NOK 25m during the quarter
- Continued good activity level, particularly within the European multi-country HR & Payroll segment, where Zalaris has a strong position.
- A number of large-size deals in are final stage where Zalaris is selected as one or one of two final bidders in exclusive negotiations.
Professional Services had marginally higher revenue compared to last year, in local currency
Revenue NOK 61.3m (-2.5%)
*) Revenue in local currency converted to NOK using the avg. currency rate from the quarter last year. See Q3 interim report for definitions of APMs
- Revenue in Professional Services grew by 1% was when adjusted for negative currency effects
- Significant PS capacity still being utilized on implementing new customers in MS (transformation projects) in Germany and UK
- Pressure on PS consulting resources, particularly in Germany, and lack of available resources is the key growth inhibitor
- In local currency, revenue in Poland grew by ~27%, from additional volume from existing clients, while Germany had a reduction of ~7%
Majority of Professional Services revenue is recurring and supports a continuous presence with customers
Distribution of Projects vs long term AMS based revenue
~50 % of Professional Services revenue is recurring, or recurring like, and based on long term agreements and relationships
~80 % of Professional Services revenue is from customers that were customers 12 months prior
Revenue customer split
* Customers that were invoiced in the same quarter previous year
** New customers since the end of the same quarter previous year
EBIT improvements program lifting underperforming entities to target EBIT levels
EBIT% YTD Q3'22 per country:
- Target EBIT margin of 15 – 20% per entity (before any allocation of group costs)
- Key characteristics of high performing entities
- High level of standardization with customer deliveries on one common Zalaris Peoplehub platform
- Higher level of near- and offshoring
Key activities Zalaris Germany to improve EBIT
- Complete roll-out of Zalaris standard service management concept and workflow providing a digital transport layer moving work to anywhere in the Zalaris organization
- Move transactional activities to near/offshore centers in Latvia, Poland and India, and use RPA to reduce average resource costs and gain access to more talent
- All new customer projects starting from 2022 sold and implemented on scalable multi-tenant Peoplehub solution
- Reduce dependency on external consultants
EBIT improvement program to increase annual EBIT by minimum NOK 40 – 50m by end-23
- Improve customer margins in Northern Europe through full implementation of Zalaris 4.0 operating model and near-/offshoring by end of 2023 resulting in NOK 8 - 10m annualized cost savings
- Implement Zalaris 4.0 operating model and near-/ offshoring for German operations by end of 2023 resulting in NOK 8 - 10m annualized savings
- Utilize existing capacity to serve new customers and additional change orders resulting in NOK 5 - 10 million annualized savings/incremental margin
- Add contribution (margin) from customers to go live (net of non-renewals) with an EBIT effect of NOK 20 million
- Reduce the use of external consultants and replace with own employees with 20-25% lower costs resulting in ~NOK 5 million annual savings
- Review overhead costs targeting maintaining or slightly lower existing levels
Company in brief
Simplify work life. Achieve more.
Payroll & HR solutions that enable digital organizations
One global IT platform with local presence
Our vision: Supporting multi-national companies manage HR and payroll across borders
Zalaris today: A leading European provider of payroll and human capital management solutions based on BPaaS and SaaS models
1,500,000
employees served
monthly across all
HR solutions |
990
Zalaris employees |
> 300,000
employees served
monthly through payroll
services |
Q3-22 Annualized
Revenue
EUR 90+
million |
Own service centers in
16 countries
with expertise in local laws
and regulations |
Together with partners
150+ countries
with
expertise
in local
laws
and regulations |
Zalaris offering is built around Peoplehub – covering the whole employee life cycle
Software as a Service (Saas)
Business Process as a Service (BPaas) and Outsourcing
Professional Service (Advisory, Analytics, Technology, Implementation)
Payroll and HR partner to mid- and large size organizations
MANAGED SERVICES (MS)
PROFESSIONAL SERVICES (PS)
*BPaaS – Business Process as a Service
Significant European player with Germany largest entity
Diversified customer base across a wide range of industries
Financial Review
Simplify work life. Achieve more.
Revenue increased by 17% for the quarter in local currency
Revenue NOK 224m (+14%)
- Revenue growth (as reported) for the quarter YoY: +14.4%
- From new entities (ba.se): +2.2%
- Increased change orders in MS: +3.7%
- New contracts/volume changes: +8.5%
- MS +21.2% to NOK 161m
- PS -2.5% to NOK 61m
- Signed new SaaS/BPaaS contracts with annual recurring revenue of ~NOK 25m during the quarter
- New SaaS/BPaaS contracts signed but yet to be implemented has annual recurring revenue of ~NOK 71m
*See Q3 financial report for definitions of APMs
Revenue growth +17.5% YoY in constant currency
New BPO contracts will result in significant revenue increase going forward
Revenue development over time based on signed MS contracts (NOKm)
Contracted ARR* evolution over time based on signed contracts (NOKm)
- Total annual revenue expected to increase by ~NOK 87m (+10%) by Q3 2023 vs. LTM Q3 2022, based on signed contracts (assuming no material churn)
- Any new contract signings after Q3 2022, with a revenue effect by Q3 2023, will come in addition
- Revenue from new contracts signed will materialise gradually through to Q3 2023
- Assumes MS change order levels at historical ~10% and PS revenue at LTM Q3 2022
*The ARR for the quarter is an estimate calculated by annualising the actual recurring revenue (according to contract revenue and additional services) for the quarter, for customers at the end of the quarter. Please refer to the APMs section of the interim financial report for further details.
Revenue deferred as part of transformation projects for new BPO contracts continues to show a high activity level
Deferred revenue and employee hours capitalised, LTM (NOKm)
Adj. EBIT (ex. APAC) for Q3 impacted by onboarding of customers and recruitment and training of new resources to handle increased volumes
Adj. EBIT* excluding APAC (NOKm) and margin (%)
MS - EBIT (NOKm) and margin (%) PS - EBIT (NOKm) and margin (%)
Adj. EBIT (ex APAC) NOK 11.4 (NOK 14.1m) -19.1%
- Adj. EBIT (ex APAC) margin 5.2% (2.0pp)
- Adj. EBIT margin impacted by:
- build-up of delivery capacity for new contracts +158 FTEs since Q3'21 (ex. APAC) having negative effect on utilisation
- More use of external consultants on customers at a higher average cost
EBIT improvement program to increase annual EBIT by minimum NOK 40 – 50m by end-23
- Cost improvements by moving work to near-shore and off-shore locations (program has started)
- Improved allocation of resources and focus on improvement in customer margins after initial rapid growth since 2021, which necessitated large increase in FTEs
- Contribution from new signed contracts
- Reduced used of external consultants through recruitment of own personnel
* See definition of adj. EBIT under APMs in Q3 2022 Interim Report)
Condensed Profit and Loss
|
2022 |
2021 |
2022 |
2021 |
2021 |
| (NOK 1 000) |
Jul-Sep |
Jul-Sep |
Jan-Sep |
Jan-Sep |
Jan-Dec |
| Revenue |
223 564 |
195 376 |
642 191 |
573 569 |
775 265 |
| License costs |
20 704 |
17 200 |
61 120 |
48 963 |
67 481 |
| Personnel expenses |
120 179 |
98 730 |
343 792 |
303 753 |
405 949 |
| Other operating expenses |
58 392 |
51 676 |
163 441 |
142 399 |
199 886 |
| Amortization implementation costs customer projects |
7 316 |
7 338 |
22 807 |
21 017 |
29 874 |
| Depreciation, amortization and impairments |
12 617 |
12 683 |
37 033 |
36 324 |
49 488 |
| EBIT |
4 356 |
7 749 |
13 998 |
21 114 |
22 585 |
| Adjustment items |
5 393 |
6 389 |
16 953 |
18 232 |
26 989 |
| Adjusted EBIT* |
9 749 |
14 138 |
30 951 |
39 346 |
49 574 |
| Adjusted EBIT margin % |
4,4% |
7,2% |
4,8% |
6,9% |
6,4% |
| Net financial income/(expense) |
(13 776) |
(6 729) |
(34 884) |
(7 647) |
(7 571) |
| Profit/(loss) before tax |
(9 420) |
1 020 |
(20 886) |
13 467 |
15 014 |
| Income tax expense |
2 727 |
(357) |
6 390 |
(1 744) |
(2 203) |
| Profit/loss from discontinued operations |
(4 406) |
- |
(12 127) |
- |
- |
| Profit/(loss) for the period |
(6 694) |
663 |
(14 496) |
11 722 |
12 812 |
| Basic earnings per share (NOK) |
(0,95) |
- |
(1,23) |
0,56 |
0,60 |
License costs: Increase from inclusion of ba.se and volume/revenue increases
- Personnel expenses: Increased number of FTEs YoY (+169) and NOK 3.5m less deferred through customer projects, partly offset by positive currency movements. Personnel expenses per FTE decreased by 1.6%.
- Other op. exp.: Higher use of external consultants, utilized on customers (+NOK 6.5m) and higher travel costs (+1.5m)
Continued strong cash position
Development in cash balance (NOKm)
- Cash balance at 30 Sep of NOK 96m
- Negative cash flow from operating activities from NOK 20m increase in trade receivables (increased sales and timing effects)
- Investments relates mainly to internal system development including projects partly financed through SkatteFunn
- Net interest-bearing debt of NOK 284.5m vs. NOK 254.4m at the end of previous quarter.
Markets and Outlook
Simplify work life. Achieve more.
57% of European senior stakeholders from global enterprises expect the use of HR Outsourcing to grow
Well positioned in most attractive market segment
Above 10% 2018-2023 growth (CAGR) for the multi-country segment
CAGR 2018-2023 Source: Nelson-Hall, "Next Generation Payroll Services"
Well protected to changes in global macro picture
Higher inflation
- Most long-term contracts have a provision for annual indexation based on salary and CPI increases
- Experiencing some pressure on salary levels in a competitive market for resources
Fear of recession
- High share of recurring revenue and long-term contracts
- Historically seen an increased interest for outsourcing in challenging times, when companies need to focus on operational efficiencies and cost reductions
- Geographical diversified
Higher interest rates
Would increase cost of capital, but current solid cash position and positive cash-flow
Leaving Q3 continuing growth with aim of delivering on margin expectations through EBIT improvement program
- Communicated growth of 10%+ within sight and becoming a NOK 1 billion company in 2023
- Maintain target EBIT of 10% as revenue from projects under implementation are recognized and EBIT improvement program actions implemented targeting annualized EBIT of NOK 100 million in 2023
- Resilient vs macro picture. Majority of contracts with indexation clauses protect against inflation and pressure on personnel costs. Historically increased demand for outsourcing in recession/crisis situations.
Q&A
Simplify work life. Achieve more.
We simplify HR and payroll administration, and empower you with useful information so that you can invest more in people.
Thank you!
Zalaris ASA | +47 4000 3300 | www.zalaris.com
Simplify work life. Achieve more.
RESILIENT - "Able to withstand or recover quickly from difficult conditions"
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