Ework Group — Interim / Quarterly Report 2019

Apr 25, 2019

A good start and progress, but more uncertain market

First quarter 2019 compared to 2018

• Net sales increased by 19% to SEK 3,128 M (2,623).
• EBIT was up by 17% to SEK 26.4 M (22.5).
• Order intake rose by 18% to SEK 3,909 M (3,301).
• Earnings per share after tax and after dilution was SEK 1.10 (0.97), a 13% increase.
• The consulting market was more uncertain during the quarter with wider variations between individual clients' demand, and with signs of the market weakening ahead.
• Ework is reiterating the outlook for 2019 stated in the Year-End Report of 2018, however, should the weakening of demand continue or accelerate, reaching the targets is expected to be more challenging than anticipated.

"Ework had a stable first quarter, with sales growth and earnings performance remaining positive. Earnings are up by 17%, which we're happy with against the background of our previously reported initiatives, which are continuing. We're consolidating our market position with new business, but at the same time, do see signs of the market weakening."

Zoran Covic, CEO

Net sales and operating profit

Quarterly order intake

Ework had a stable first quarter, with sales growth and earnings performance remaining positive. Earnings were up by 17%, which we're happy with against the background of our previously reported initiatives, which are continuing. We're consolidating our market position with new business, but at the same time, do see signs of the market weakening.

Ework continued to consolidate its positioning on the consulting market in the first quarter. Our offering is standing strong on the market, and we're winning exciting new business. We're especially pleased to win business when clients intend to digitalise their business models, or adapt to new, strategic investments like AI. We secured three new deals where our new, digital platform was decisive. Every day, we get confirmation that our offering and business model are ideal for the rapid transformation now ongoing in most sectors.

So far, our financial performance is according to plan. Net sales grew by 19%, order intake by 18%, and earnings by 17%. Progress was especially positive in Sweden and Poland—which are still reported jointly—and Norway, where growth was as high as 55%. Finland also performed positively in the quarter, with improved earnings.

But simultaneously, we do detect some signs of weakness on the market. Some individual clients have downscaled previously planned volumes. Our indicators such as the number of assignment enquiries received, applications from consultants, and the relationship between different skills segments, suggest some cyclical slowdown.

Overall, the business is progressing well, in accordance with our plans, but we carefully monitor the market situation. Should the weakening of demand continue or accelerate, reaching the targets is expected to be more challenging than anticipated.

Zoran Covic, CEO Stockholm, Sweden, 25 April 2019

FIRST QUARTER 2019

Increasingly uncertain and varied consulting market

Market

The consulting market was somewhat more uncertain during the first quarter, with wider variations between clients. The demand for consultants for new assignments was good in most of the skills segments where Ework is active, but some clients acted more cautiously. Demand was especially strong in Norway, also healthy in Sweden, but with wider variations, and some signs of slower progress going forward. As previously, we think the Finnish and Danish markets are somewhat weaker. Ework's demand indicators such as the number of assignment enquiries received, applications from consultants, and the relationship between different skills segments suggest some demand slowdown ahead.

The Group's net sales

Consolidated net sales for the first quarter were up by 19% to SEK 3,128 M (2,623). Sweden and Poland—still reported jointly—generated the highest growth in absolute terms. Norway contributed the highest growth in percentage terms, with net sales up by 55%.

The Group's earnings

The Group's EBIT for the first quarter increased by 17% to SEK 26.4 M (22.5). Profit after financial items was SEK 24.4 M (22.2). Profit after tax for the quarter was SEK 19.0 M (16.8). Earnings were still charged with expenses for previously reported initiatives. Margins were negatively impacted by a less favourable sales mix.

Comments on progress

In year-on-year terms, the Group's order intake was up by 18% on the first quarter of the previous year, to SEK 3,909 M (3,301). Order intake includes new assignments and extensions.

Sweden

The Swedish operation performed positively. Quarterly net sales were up by 19% to SEK 2,566 M (2,162). This increase is partly due to new clients and assignments secured in the period, but the sales mix was less positive, with a higher share of lower-margin business. EBIT was SEK 24.3 M (19.9), a 22% increase. The numbers for the Sweden segment still include the Polish operation, which continues its positive progress.

Norway

The net sales of the Norwegian operation rose by 55% to SEK 313.9 M (202.5). EBIT increased to SEK 2.9 M (1.0). The sales gains are due to continued robust progress of market positioning, and include ongoing initiatives in Stavanger.

Denmark

The Danish operation experienced a setback in the quarter in year-on-year terms. Net sales decreased by 9% in the first quarter to SEK 116.1 M (127.1). EBIT was SEK -1.5 M (1.5) for the period. These operations are still adjusting after one major client sharply downscaled volumes.

Finland

Net sales in the Finnish operation were comparable to the previous year at SEK 131.2 M (131.3). EBIT increased to SEK 0.7 M (0.1).

Financial position

The equity/assets ratio at the end of the period was 5.0% (6.0). The somewhat lower equity/assets ratio is due to increased working capital due to Ework's continued sales growth.

Cash flow from operating activities for the first quarter was SEK –65.1 M (–7.2). Payments from clients and to consultants are made at month-ends. A modest shift in payments made or received can have a significant effect on cash flow at a specific time. The firm holds a SEK 400 M credit facility for supplementary services with advance payment. Accounts receivable have been pledged as collateral for this facility.

Workforce

The average number of employees increased to 304 (282) excluding employees hired for projects. The increase is due to new hirings relating to the company's growth and initiatives previously reviewed.

Other information

The firm has two outstanding stock option programmes that are included in an incentive programme for senior managers, resolved by the AGM 2017. In total, 120,000 share warrants were resolved for issuance per year in the period 2017-2019. In 2018, 120,000 share warrants were issued with an exercise price of SEK 124.66 and mature in 2020. In 2019, 87,500 share warrants were issued with an exercise price of SEK 113.66 and mature in 2021.

Parent Company

The Parent Company's net sales for the first quarter were SEK 2,502 M (2,119). Profit before financial items was SEK 23.1 M (19.8) and profit after tax was SEK 17.7 M (16.8).

The Parent Company's equity at the end of the quarter was SEK 145.4 M (144.8) and the equity/ assets ratio was 5.0% (6.0). Otherwise, the above comments regarding the Group's financial position also apply to the Parent Company where appropriate.

Material risks and uncertainty factors

Ework's material business risks, for the Group and Parent Company, consist of reduced demand for consulting services, difficulties in attracting and retaining skilled staff, credit risks, and to a lesser extent, currency risks. The firm is not aware of any new material business risks in the forthcoming six months. For a more detailed review of material risks and uncertainty factors, please refer to Ework's Annual Report.

Subsequent events

No significant events have occurred after the end of the reporting period.

Outlook

In February 2016, Ework expressed the ambition of achieving average sales growth of 20% and an average increase of earnings per share of 20% per year in the years 2016 to 2020 inclusive. In the light of earnings performance in 2018, Ework does not expect to fully achieve its financial target for EPS for the period 2016–2020. Nevertheless, the ambition remains to increase earnings per share by 20% per year in 2019 and 2020. However, should the weakening of demand described in this report continue or accelerate, reaching the target is expected to be more challenging than anticipated. The sales growth target for 2016–2020 remains.

Zoran Covic, CEO

Stockholm, Sweden, 25 April 2019

This Report has not been subject to review by the company's auditor. The information disclosed in this Interim Report is mandatory for Ework Group AB (publ) to publish pursuant to the EU's Market Abuse Regulation (MAR). This information was submitted for publication at 08:00 a.m. (CET) on 25 April 2019, through the agency of the CEO.

Key performance data

SEK 000	January March 2019	January March 2018	Rolling 4 quarters Apr. '18-Mar '19	Full year 2018
Net sales	3,127,621	2,622,876	11,540,358	11,035,613
EBIT	26,386	22,492	110,425	106,531
Profit before tax	24,439	22,175	103,977	101,713
Profit for the period	19,015	16,765	81,142	78,892
Sales growth, %	19.2	9.8		16.1
EBIT margin, %	0.8	0.9	1.0	1.0
Profit margin, %	0.8	0.8	0.9	0.9
Return on equity, %	45.8	41.3	46.5	51.3
Total assets	3,535,253	2,875,924	3,535,253	3,316,630
Equity	176,648	172,700	176,648	155,610
Equity/assets ratio, %	5.0	6.0	5.0	4.7
Acid test ratio, %	102	105	105	104
Average number of employees	304	282	302	297
Net sales per employee	10,288	9,301	38,213	37,157
Key ratios per share
Earnings per share before dilution, SEK	1.10	0.97	4.71	4.58
Earnings per share after dilution, SEK	1.10	0.97	4.71	4.58
Equity per share before dilution, SEK	10.2	10.0	10.2	9.0

Equity per share after dilution, SEK	10.2	10.0	10.2	9.0
Cash flow from operating activities per share before dilution, SEK	-3.78	–0.42	-1.53	1.83
Cash flow from operating activities per share after dilution, SEK	-3.78	–0.42	-1.53	1.83
Number of shares outstanding at end of period before dilution (000)	17,240	17,240	17,240	17,240
Number of shares outstanding at end of period after dilution (000)	17,240	17,240	17,240	17,240
Average number of shares outstanding before dilution (000)	17,240	17,240	17,240	17,240
Average number of shares outstanding after dilution (000)	17,240	17,240	17,240	17,240

Shareholders

As of 29 March 2019	No. of shares	Votes and equity
Staffan Salén and family through company 1)	4,587,945	26.6%
Försäkringsbolaget Avanza Pension	3,093,000	17.9%
Investment AB Öresund	1,826,988	10.6%
Protector Forsikring ASA	1,720,499	10.0%
Katarina Salén, private and through family company	463,962	2.7%
Patrik Salén and family through company	382,000	2.2%
Ålandsbanken, on behalf of shareholders	379,480	2.2%
Erik Åfors through company	277,291	1.6%
State Street Bank & Trust, Boston	188,109	1.1%
Claes Ruthberg	180,120	1.0%
Sub-total	13,099,394	76.0%
Other	4,140,281	24.0%
Total	17,239,675	100%

1) Salénia AB

Consolidated Income Statement and Statement of Comprehensive Income

Note SEK 000	January March 2019	January March 2018	Rolling 4 quarters Apr. '18-Mar '19	Full year 2018
Operating income
Net sales 1	3,127,621	2,622,876	11,540,358	11,035,613
Other operating income	0	2	65	67
Total operating income	3,127,621	2,622,878	11,540,423	11,035,680
Operating costs
Cost of consultants on assignment	–3,004,187	–2,510,624	–11,070,305	–10,576,742
Work performed by the company for its own use and capitalized	2,559	2,558	12,474	12,473
Other external costs	–26,483	–26,900	–108,153	–108,570
Personnel costs	–65,926	–64,951	–251,462	–250,487
Depreciation, amortisation and impairment of property, plant & equipment and intangible non-current assets	–7,198	–469	–12,552	–5,823
Total operating costs	–3,101,235	–2,600,386	–11,429,998	–10,929,149
Earnings before interest and taxes	26,386	22,492	110,425	106,531
Profit from financial items
Net financial income/expense	–1,947	–317	–6,448	–4,818
Profit after financial items	24,439	22,175	103,977	101,713
Tax	–5,424	–5,410	–22,835	–22,821
Profit for the period	19,015	16,765	81,142	78,892
Other comprehensive income
Items that have been reclassified, or are reclassifiable, to profit or loss
Translation differences on translation of foreign operations for the period	2,023	4,244	22	2,243
Other comprehensive income for the period	2,023	4,244	22	2,243
Comprehensive income for the period	21,038	21,009	81,164	81,135
Earnings per share
before dilution (SEK)	1.10	0.97	4.71	4.58
after dilution (SEK)	1.10	0.97	4.71	4.58
Number of shares outstanding at end of reporting period:
before dilution (000)	17,240	17,240	17,240	17,240
after dilution (000)	17,240	17,240	17,240	17,240
Average number of outstanding shares:
before dilution (000)	17,240	17,240	17,240	17,240
after dilution (000)	17,240	17,240	17,240	17,240

Consolidated Statement of Financial Position

SEK 000	31 March 2019	31 March 2018	31 December 2018
Assets
Non-current assets
Intangible assets	34,178	26,947	32,882
Property, plant and equipment	5,109	5,565	5,235
Right-of-use assets	52,364	0	0
Non-current receivables	1,916	5,079	1,905
Total non-current assets	93,567	37,591	40,022
Current assets
Accounts receivable	3,241,259	2,699,620	3,038,540
Prepaid expenses and accrued income	63,932	79,654	84,410
Tax receivables	2,905	0	0
Other receivables	14,561	19,666	15,713
Cash and cash equivalents	119,029	39,393	137,945
Total current assets	3,441,686	2,838,333	3,276,608
Total assets	3,535,253	2,875,924	3,316,630
Equity and liabilities
Equity
Share capital	2,241	2,241	2,241
Other paid-up capital	59,636	59,273	59,636
Reserves	1,569	1,547	-454
Retained earnings including profit for the period	113,202	109,639	94,187
Total equity	176,648	172,700	155,610
Current liabilities
Current interest-bearing liabilities	400,000	200,187	350,000
Lease liabilities	52,688	0	0
Accounts payable	2,814,046	2,450,859	2,716,781
Tax liabilities	0	3,511	5,333
Other liabilities	39,879	16,245	42,861
Accrued expenses and deferred income	51,992	32,422	46,045
Total current liabilities	3,358,605	2,703,224	3,161,020
Total equity and liabilities	3,535,253	2,875,924	3,316,630

Consolidated Statement of Changes in Equity

SEK 000	Share capital	Other paid-up capital	Translation reserve	Retained earnings incl. profit for the period	Total equity
Opening equity, 1 Jan. 2018	2,241	59,273	–2,697	92,874	151,691
Comprehensive income for the period
Profit for the period				16,765	16,765
Other comprehensive income for the period			4,244		4,244
Comprehensive income for the period			4,244	16,765	21,009
Closing equity, 31 Dec. 2018	2,241	59,273	1,547	109,639	172,700
Opening equity, 1 Apr. 2018	2,241	59,273	1,547	109,639	172,700
Comprehensive income for the period
Profit for the period				62,127	62,127
Other comprehensive income for the period			–2,001		–2,001
Comprehensive income for the period			–2,001	62,127	60,126
Transactions with the Group's shareholders
Dividends				–77,579	–77,579
Premiums deposited on issuance of share warrants		363			363
Closing equity, 31 Dec. 2018	2,241	59,636	–454	94,187	155,610
Opening equity, 1 Jan. 2019	2,241	59,636	–454	94,187	155,610
Comprehensive income for the period
Profit for the period				19,015	19,015
Other comprehensive income for the period			2,023		2,023
Comprehensive income for the period			2,023	19,015	21,038
Closing equity, 31 Mar. 2019	2,241	59,636	1,569	113,202	176,648

Consolidated Statement of Cash Flows

SEK 000	January March 2019	January March 2018	Rolling 4 quarters Apr. '18-Mar '19	Full year 2018
Operating activities
Profit after financial items	24,439	22,175	103,977	101,713
Adjustment for items not included in cash flow	2,154	469	7,508	5,823
Income tax paid	–9,224	–7,370	–26,980	–25,126
Cash flow from operating activities before changes in working capital	17,369	15,274	84,505	82,410
Cash flow from changes in working capital	–82,518	–22,510	–110,946	–50,938
Increase (-)/decrease (+) in operating receivables	–165,710	–49,787	–513,170	–397,247
Increase (+)/decrease (-) in operating liabilities	83,192	27,277	402,224	346,309
Cash flow from operating activities	–65,149	–7,236	–26,441	31,472
Investing activities
Acquisition of property, plant & equipment	–297	–246	–1,219	–1,168
Acquisition of intangible assets	–2,669	–2,642	–12,737	–12,710
Cash flow from investing activities	–2,966	–2,888	–13,956	–13,878
Financing activities
Premiums deposited on issuance of share warrants	0	0	363	363
Dividend paid to Parent Company shareholders	0	0	–77,579	–77,579
Borrowings	50,000	16	199,813	149,829
Cash flow from financing activities	50,000	16	122,597	72,613
Cash flow for the period	–18,115	–10,108	82,200	90,207
Cash and cash equivalents at beginning of period	137,945	48,630	39,393	48,630
Exchange rate difference	–801	871	–2,564	–892
Cash and cash equivalents at end of period	119,029	39,393	119,029	137,945

Parent Company Income Statement

SEK 000	January March 2019	January March 2018	Rolling 4 quarters Apr. '18-Mar '19	Full year 2018
Operating income
Net sales	2,502,056	2,119,323	9,304,887	8,922,154
Other operating income	9,119	6,426	27,775	25,082
Total operating income	2,511,175	2,125,749	9,332,662	8,947,236
Operating costs
Cost of consultants on assignment	–2,410,474	–2,034,799	–8,945,228	–8,569,553
Work performed by the company for its own use and capitalized	2,559	2,558	12,474	12,473
Other external costs	–31,823	–25,707	–107,387	–101,271
Personnel costs	–46,635	–47,626	–176,679	–180,670
Depreciation, amortisation and impairment of property, plant & equipment and intangible non-current assets	–1,665	–328	–6,556	–5,219
Total operating costs	–2,488,038	–2,105,902	–9,223,376	–8,844,240
Earnings before interest and taxes	23,137	19,847	109,286	102,996
Profit/loss from financial items
Other interest income and similar items	1,255	2,530	86	1,362
Interest expense and similar items	–1,732	–753	–6,080	–5,101
Profit after financial items	22,660	21,624	103,292	99,257
Tax	–4,967	–4,804	–22,431	–22,268
Profit for the period *	17,693	16,820	80,861	76,989

* Profit for the period is consistent with comprehensive income for the period.

Parent Company Balance Sheet

SEK 000	31 March 2019	31 March 2018	31 December 2018
Assets
Non-current assets
Intangible assets	34,178	26,947	32,882
Property, plant and equipment	3,437	3,465	3,530
Financial assets
Other non-current receivables	1,182	4,380	1,182
Participations in Group companies	34,215	22,084	22,084
Total financial assets	35,397	26,464	23,266
Total non-current assets	73,012	56,876	59,678
Current assets
Accounts receivable	2,677,269	2,238,645	2,561,357
Receivables from Group companies	103,309	51,982	107,316
Other receivables	460	5	90
Tax receivables	1,313	0	0
Prepaid expenses and accrued income	14,481	47,469	54,154
Cash and bank balances	53,015	16,013	51,435
Total current assets	2,849,847	2,354,114	2,774,352
Total assets	2,922,859	2,410,990	2,834,030
Equity and liabilities
Equity
Restricted equity
Share capital (17,239,675 shares with par value of SEK 0.13)	2,241	2,241	2,241
Statutory reserve	6,355	6,355	6,355
Development fund	33,425	26,188	32,174
Total restricted equity	42,021	34,784	40,770
Non-restricted equity
Share premium reserve	40,849	46,678	40,848
Retained earnings	44,884	46,518	–30,855
Profit for the period	17,693	16,820	76,989
Total non-restricted equity	103,426	110,016	86,982
Total equity	145,447	144,800	127,752
Current liabilities
Liabilities to credit institutions	400,000	200,187	350,000
Accounts payable	2,302,633	2,027,636	2,280,246
Tax liabilities	0	1,670	4,889
Liabilities to Group companies	3,440	0	15,285
Other liabilities	33,507	14,400	22,142
Accrued expenses and deferred income	37,832	22,297	33,716
Total current liabilities	2,777,412	2,266,190	2,706,278
Total equity and liabilities	2,922,859	2,410,990	2,834,030

Accounting policies

The Interim Report for the Group has been prepared in accordance with IAS 34 Interim Financial Reporting and the appropriate provisions of the Swedish Annual Accounts Act.

Ework is applying IFRS 16 Leases, which replaces IAS 17 Leases, effective 1 January 2019. Ework is adopting the modified transition approach and the main impact on Ework's accounting is sourced from the recognition of lease contracts on premises. The opening effect in the Consolidated Balance Sheet as of 1 January 2019 is SEK 57,732,000. This change means that lease arrangements (apart from short-term leases and leases of low value) are recognised as a right-of-use asset and a lease liability in the Balance Sheet. In the Income Statement, the straight-line operating lease is replaced with an expense for amortising the right-of-use asset and amortizing the lease liability.

Otherwise, the accounting policies and computation methods are unchanged compared to those applied in the annual accounts for 2018.

The operations in Poland are reported in the Sweden segment for the present.

Note 1 The Group's operating segments

First quarter 2019 compared to the first quarter 2018

	Sweden Jan-Mar		Finland Jan-Mar			Denmark Jan-Mar	Norway Jan-Mar			Total Jan-Mar
SEK 000	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
Income from clients 2,566,408		2,161,992	131,229	131,345	116,096	127,069	313,888	202,470		3,127,621 2,622,876
Profit per segment	39,071	41,606	2,074	1,603	–366	2,788	5,057	3,015	45,836	49,012
Group-wide expenses	–14,741	–21,697	–1,348	–1,550	–1,176	–1,249	–2,185	–2,024	–19,450	–26,520
EBIT	24,330	19,909	726	53	–1,542	1,539	2,872	991	26,386	22,492
Net financial items	–	–	–	–	–	–	–	–	–1,947	–317
Profit/loss for the period before tax									24,439	22,175

Definitions

Ework Group utilises a number of financial metrics in Interim Reports and Annual Reports that are not defined according to IFRS, known as alternative performance measures, according to ESMA (the European Securities and Markets Authority) guidelines.

A number of metrics and key indicators appearing in Interim Reports and the Annual Report are defined below. Most should be considered generally accepted, and of such nature that they could be expected to be presented in Interim Reports and the Annual Report to give a view of the Group's results of operations, profitability and financial position.

Key indicator	Definition and usage
Earnings per share	Profit for the period in relation to the number of outstanding shares before dilution at period-end. Defined in IAS 33.
Equity/assets ratio	Reported equity in relation to reported total assets at period-end. Metric illustrating interest rate sensitivity and financial stability.
Equity per share	Equity in relation to the number of shares outstanding before dilution at the end of the period. Metric illustrating shareholders' proportion of total net assets per share.
Operating margin, EBIT	EBIT in relation to net sales.
Profit margin	Profit after financial items in relation to net sales.
Quick ratio	Current assets in relation to current liabilities.
Return on equity	Profit for the period in relation to average equity in the period. Return on equity is restated at an annualized rate in interim reporting. A profitability metric that illustrates returns on the capital shareholders invested in opera tions in the period.
Sales growth	Net sales for the period less net sales for the comparative period in relation to net sales for the comparative period.

Ework Group is a market-leading and independent consultant provider operating in northern Europe, which focuses on IT, telecom, technology, and business development. Without having consultants employed, Ework can impartially match every assignment with the right competence from the whole market. Ework was founded in Sweden in 2000, and is now active in Sweden, Denmark, Norway, Finland and Poland. The firm has framework agreements with over 170 leading corporations in most sectors, and over 9,000 consultants on assignment. Ework's head office is in Stockholm. Its shares are listed on Nasdaq Stockholm.

Ework Group AB (publ)

Mäster Samuelsgatan 60 SE-111 21 Stockholm Sweden Tel: +46 (0)8 506 05500 Corporate ID no. 556587-8708

Forthcoming financial reports
AGM	2 May 2019
Interim Report, April-June 2019	18 July 2019
Interim Report, July-September 2019	22 October 2019
Contacts for more information

Zoran Covic, CEO +46 (0)8 506 05500 mobile +46 (0)70 665 6517 Magnus Eriksson, Deputy CEO & CFO +46 (0)8 506 05500 mobile +46 (0)73 382 8480