Addnode Group AB (publ) (ANODB) Earnings Call Transcript & Summary

Welcome to the Addnode Group Q2 presentation. [Operator Instructions] Now I will hand the conference over to the CEO, Johan Andersson; and CFO, Lotta Jarleryd. Please go ahead.

Hello, and welcome to the presentation of the interim report for the second quarter for Addnode Group. I'm Johan Andersson, CEO of Addnode Group, and I also have with me Lotta Jarleryd, who's the CFO of Addnode Group. We will walk you through the interim report for the second quarter. We will end with the Q&A. And also you will find in the presentation an appendix with acquisitions, shareholders and share performance. For those of you who are new to Addnode Group, I would like to inform you that our reporting currency is Swedish Crowns. Before we start with the Q2 report, I would like to give you a brief overview of Addnode Group. Addnode Group, we provide digital solutions for a sustainable future. We generate sustainable value growth by acquiring new businesses and actively support our subsidiaries to drive organic growth. We are organized in 3 divisions, those are Design Management, Product Lifecycle Management and Process Management. We believe in the centralized governance structure, the companies in Addnode Group provide digital solutions for sustainable -- sorry about the mix with the technical level, but we're back on the right slide now. The companies in Addnode Group provide digital solutions for sustainable design and product lifecycle management, management of real estate and facilities and public administration. The foundation of the group's overall offering of digital solutions consists of both proprietary and partner on software. We work continuously on enhancing our portfolio of proprietary software, while simultaneously consolidating our offering by developing applications that can be used in combination with software from our partners. We complement this with a strong service offering based on a high level of skills, long-term experiences and solid industry knowledge. Rolling 12 months, our net sales is close to SEK 7 billion and almost 70% of our net sales is recurring revenue. In the second quarter, EBITA amounted to SEK 110 million compared to SEK 154 million last quarter. EBITA adjusted for restructuring costs in the PLM division was SEK 120 million. The weaker earnings were primarily due to lower net sales in our Design Management division and expenses for restructuring program in our PLM division. In Design Management, lower nets sales were primarily due to weaker demand from customers in the construction industry, longer sales cycles and a significantly lower share of multiyear agreements relating to third-party products. Design Management also had a tough comparative quarter. The PLM division achieved organic growth, but as previously reported, work to increase profitability is ongoing. We estimate that the restructuring cost for implementation is about SEK 20 million, of which SEK 10 million were recognized in the second quarter of 2023. The estimated yearly cost savings around SEK 40 million with full effect from first quarter 2024. The Process Management division reported somewhat better earnings than the previous year. In July, we also closed the acquisition of Team D3 with net sales of USD 120 million. It's a natural next step after our acquisition of Microdesk in 2022. Over the past quarter, we also increased our credit line by SEK 1 billion to SEK 2.6 billion and extended our existing credit facility. And with that, I would like to hand over to our CFO, Lotta Jarleryd.

Thank you, Johan. I would like to start by sharing a few more details on net sales. In the first graph, we have set out net sales for the second quarter over the last 5 years. As you can see, the current quarter totaled SEK 1.5 billion in net sales, corresponding to a total growth of 4%. Recurring revenue demonstrated a slight decrease compared to previous year, deriving from weaker sales of Autodesk solutions in design division. Recurring revenue continued, however, to represent a considerable portion of net sales, 65%, which gives a stable foundation in our business model. As Johan already has mentioned, the portion of multiyear deals in the Autodesk business was lower than previous year. And since revenue for the entire multiyear agreement is recognized when the contract starts in accordance with governing accounting principles, a lower share of multiyear deals has an adverse effect on net sales recurring revenue as well as the EBITA. It's also worth mentioning that the net sales deriving from Autodesk solutions can vary quite a lot over different quarters. Firstly, the contract base volume that is up for renewal differs from quarter-to-quarter. And secondly, new sales can vary quite significantly over time. From time to time, our partner Autodesk also introduces different rebates and other incentives which influence customer behavior. The first graph also sets out that there was a growth in both license revenue and service revenue compared to previous year. The growth was both acquisitions-driven and organically generated. In the graph to the right, we have set out a breakdown of net sales by geography. Sweden is still our single largest market with all 3 divisions operating, representing 33% of total net sales. But after the last couple of years, acquisitions in the U.K. and in the U.S. has a consecutive organic growth. We are now to International Group with almost 70% of net sales outside Sweden. The acquisition of Team D3 will considerably increase Addnode Group's penetration of the U.S. market. Back to you, Johan.

Thank you, Lotta. So -- and we will now go into further details in the 3 divisions of Addnode Group. So looking at Design Management, we had a challenging quarter. Net sales decreased by 3% to SEK 778 million in the second quarter. Organic growth was negative, amounting to minus 6%, but adjusted for currency effects, organic growth was minus 9%. EBITA decreased to SEK 48 million and the EBITA margin reduced to 6.2%. Design management had a tough comparable compared to Q2 2022 when we saw a growth from SEK 40 million to SEK 80 million in EBITA. But lower net sales and weaker EBITA compared to the previous year were mainly due to, as mentioned before, lower sales of Autodesk agreements because of a slower construction market and longer sales cycles. Due to an uncertain market, investments in construction and civil engineering projects are now increasingly being deferred. This means that although most customers are renewing their agreements, some are deciding to downscale volumes. The share of 3-year agreements sold was lower than previously, which also may be a result of greater caution, impacted by economic conditions. We also perceive that Autodesk's change to its payment model for the 3-year agreements at the end of March 2023 had a negative impact on sales in the transition to the new terms. The Addnode Group company, Symetri including Microdesk and Team D3 has now roughly 25,000 customers. New outlets contracts are signed and contract expired are renewed all year round. But new or renewed contracts could be different in regards of both number of users and which software and applications they cover affecting reporting net sales. 3-year contracts are typically chosen by customers with established teams and long-term projects as it ensures uninterrupted workflows, essentially no risk of losing access with missing renewal and automatic product updates. In the division, you will also find the company Tribia and [ SWG. ] Tribia are providing collaborative solution for construction civil engineering and service works global providing digital solution for facility management and that's own software and they has stable progress in the second quarter. And as we mentioned, we have recently closed the acquisition of Team D3. And both organic growth and acquisitions, Addnode Group's company Symetri has grown to become the world's largest Autodesk partner with a strong portfolio of complementary proprietary software-related service. The acquisition of Team D3 with net sales of USD 120 million was a natural step after our acquisition of Microdesk in 2022. Microdesk established Symetri in the U.S.A., especially in the AEC segment and on the East and West Coast. The acquisition of Team D3 has consolidated Symetri's positioning in the manufacturing and process industry segment and also geographically in Central U.S.A., meaning that we are now having representation more broadly across the U.S., and we are covering both AEC market and the manufacturing market. Symetri's proprietary software, such as Naviate and Sovelia are now an attractive offering to both Microdesk and Team D3 customers on the U.S. market. Symetri in total now has over 400,000 daily users of the software that we provide to 25,000 customers and services being provided by 900 employees. We expect the acquisition of Team D3 to have a positive impact on Addnode Group's earnings per share from the third quarter of 2023. I'd like to take a moment also about other investments being made. The foundation of Addnode Group sustainability agenda is to deliver digital solution for customers, enabling them to design, produce and manage sustainable buildings, facilities, infrastructure, products and also services for the customers and for its citizens with the big acquisitions like Team D3 that support our sustainability agenda. But we also make early investments in an area where we can get a payoff on our market presence like Bimify, an AI solution for large-scale digitalization of existing buildings and infrastructure. Bimify is developing a digital platform for creation and maintenance of digital building models that is powered by machine learning and automated technology. BIM models drive sustainability of the built environment and building account for 40% of energy consumption and over 90% of buildings are not yet digital. So there's a huge market opportunity out there. Addnode Group companies like Symetri, Service Works Global, Tribia has a good potential to leverage on Bimify solutions, then digitalizing existing building for our customers, enabling digital twins and life cycle management. So with that, moving over to the PLM division, who had a solid growth in the quarter, but EBITA was impacted by low utilization and the restructuring that we are performing. In the second quarter of 2023, net sales increased to SEK 468 million. It was a growth of 19%. Organic growth was 13% and currency-adjusted was 6%. Market conditions in Germany, U.K. and U.S.A. were stable in the quarter. Demand in the Nordics was weaker. The division saw continued demand for PLM systems from customers, both established companies and start-ups like managing -- companies that are managing electrification investments in the vehicle and transportation industries. The trend of customers increasingly demanding time-finite leasing of licenses instead of the previous license purchases with a perpetual right of use continued. Service revenue was somewhat higher than last period. As previously reported, restructuring measures are ongoing in the division to increase profitability by adapting the organization and the cost structure. The restructuring costs for implementation are estimated at approximately SEK 20 million, SEK 10 million was recognized in the second quarter, and we expect to recognize another SEK 10 million in the third quarter. The estimated yearly cost saving is around SEK 40 million, and it will have full effect from first quarter 2024 and gradually from now. EBITA in the quarter decreased to SEK 20 million and the EBITA margin went down to 4.3%. But we -- if we adjust for the restructuring cost, it was SEK 30 million in the quarter and EBITA margin of 6.4%. Then looking at Process Management. We continue to have an organic growth and increase in EBITA. Net sales increased to SEK 320 million, so growth of 8%, organic growth was 5%. Municipalities and public authorities show some restraints in terms of investment, and there were fewer tenders than in the previous year. But the division's good and well-established relationship with a large public sector customer base, frequently present opportunities for recurring sales and expansion of current assignments. EBITA increased to SEK 60 million, and the EBITA margin was 18.8%. The divisions businesses are well positioned in public sector tenders coming forward, owing to their attractive digital solutions, in-depth experience and good references. The division is continuing to invest in enhancing its customer offering. And an example of that is the partnership with Esri, the global market leader in geographic information systems, software, location, intelligence and mapping. This week, Esri holds their annual user conference in San Diego with some 20,000 participants from the worldwide. The Addnode Group Company, S-Group Solutions was recognized for their outstanding work with the new generation of [ GIS market ] for water and sewage systems. S-Group Solution has supplied Esri's latest technology to develop a state-of-the-art solution, which helps Swedish municipality solve existing and future challenges in securing access to our most valuable resource, our drinking water. And with that, I would like to hand over to Lotta again.

Thank you, Johan. I would like to continue with an overview of the consolidated cash flow. The operating cash flow for the second quarter amounted to SEK 127 million, which was slightly better than in the same quarter previous year. A favorable change in working capital was contributed to the increase. Cash conversion rate, that is operating cash flow to EBITA was about 90%. Already in February this year, we communicated that Symetri's and Microdesk partner, Autodesk alter its invoicing and payment terms for software agreements lasting more than 1 year, commencing March 27. Payments both from customers and to Autodesk are now intended to be annual even if the customer signs 3-year agreements. . This implies an initial negative effect on cash flow, but no change in revenue recognition principles, [ AI ] revenue and costs for the entire agreement value, we continue to recognize immediately when the agreement commences. The impact of the new payment model of Addnode Group's operating cash flow was, however, limited in the second quarter of 2023. A portion of the 3-year agreements reported in the second quarter were sold before implementation of the new invoicing and payment model. Additionally, several customers used to pay for the full 3-year agreement upfront despite having the option to spread payments over 3 years under the new model. In summary, we have not seen the full effect of this change yet. Cash flow from investing activities in the second quarter amounted to SEK 82 million, primarily related to development of proprietary software and earn-out payments to sellers for acquisitions made in previous years. The minority investment in startup, Bimify that Johan talked about earlier, is also included here. Cash flow from financing activities predominantly refer to the dividend to the shareholders and SEK 133 million paid on May 11 as well as utilization of the revolving credit facility by SEK 500 million, mainly for financing of acquisitions. Addnode Group's signed an agreement to acquire Team D3 in June 2023. The acquisition was completed on the first working day of July, remember to pay the initial purchase consideration on time on July 3, the loan was drawn from the credit facility already on June 30. At the same time, we also borrowed finance with first earnout payment to the sellers of Microdesk, that was acquired previous year. Consequently, about SEK 500 million increased cash flow from financing activities in the second quarter and at the same time, temporarily increase the cash position. Next page, please. And I'd like to proceed with a few comments on the consolidated balance sheet. We continue to operate supported by resilient balance sheet. Changes in the balance sheet during the second quarter were limited besides what I previously described about the financing of Team D3 and Microdesk considerations. Besides that, there were no effects from the Team D3 acquisition as it was effected on July 3 and consequently will not be consolidated into the group financial until the third quarter. Working capital showed a favorable development during the quarter. Provisions, taxes and other debt included future earn-out payments depending on the financial performance amounting to about SEK 370 million. I also would like to mention a couple of things related to equity in the Addnode Group share. Following a resolution by Addnode Group's AGM in May 2023, a third long-term incentive plan for managers and senior executives was launched. In June, 201 (sic) [ 201,000 ] call options for Class B shares were issued to some 40 participants. The market value call option premium of SEK 19.45 per call option resulted in a total purchase price of SEK 4 million, which has been applied to the group's shareholders' equity. Each call option carries entitlement for purchase of 1 share. In June, the Board of Directors supported by authorization from the AGM 2023 decided to repurchase [ 180-plus ] (sic) [ 180,000-plus ] B shares. The main purpose was to enable the delivery of shares associated with the incentive plan. The repurchase has not yet been executed. And finally, I would like to comment upon financing and net debt position. We strengthened our financial position in June 2023 when we expanded our credit line with a term loan of SEK 1 billion, increase in the total credit line to SEK 2.6 billion. This was an important foundation for our continued growth earning organically and through acquisitions. This term loan can be utilized for refinance of existing loans in different currencies as well as for general corporate purposes. The new loan has a 3-year term with a 1-plus 1-year extension option. Most of the loans already drawn from the revolving credit facility were transferred to this new term loan, which created a valuable credit scope in the revolving credit facility. In addition, we also exercised our option to extend the existing SEK 1.6 billion revolving credit facility by 1 year to June 2026 with other terms and conditions unchanged. Net debt was on the lower side, SEK 0.5 billion. Net debt to revolving 12 months EBITA was below 1. Cash position was SEK 1.2 billion and outstanding bank loan was SEK 1.5 billion. As previously described, the measures taken to finance considerations for acquisitions in July, temporarily increased the cash position as per June. However, this did not affect the group's net debt. Consequently, we had funds of about SEK 1.8 billion in total by the end of June that is available for continued growth. Available funds include cash of SEK 0.7 billion as well as the unutilized portion of the revolving credit facility of SEK 1.1 billion. Back to you, Johan.

Thank you, Lotta. We just like to take a few minutes to address our sustainability agenda. Addnode Group, we provide technology for a sustainable future. This is supported by our sustainability agenda. Our biggest contribution to a more sustainable society, we believe is the digital solutions we offer to our customers, so they can use them, for example, to perform digital simulation for the benefit of the environment and health, they can make more sustainable design choices, example reducing carbon footprint, can design, build and maintain more energy-efficient buildings and infrastructure. And as we highlighted in our interim report, I would like to introduce you to 3 cases that shows how we actually work with our digital solutions to support the sustainability development goals. The first example to the left is from Symetri in the Design Management division. Symetri has supported EASYFIX Rubber products on a digitalization project to improve the utilization of technology and structural capital to promote business and sustainability targets. A new working method established have reduced cost and increased efficiency while reducing carbon footprint. The second example in the middle is from TECHNIA in the PLM division. TECHNIA's delivered a powerful design tool and robust PLM system to Bold Valuable Technology with the new PLM platform, both battery solutions have become more available and cost efficient. The third example to the right is from Forsler & Stjerna, is in the Process Management division. Forsler & Stjerna is supporting the public transport provider, Skånetrafiken with planning tool Rebus. They will rush in greater efficiency and reliability of public transport. It means more people choose these alternatives above their own cars. Just remember, each journey by public transport instead of car cuts climate emissions by an estimated 90%. You'll find the full version of these cases at the Annual Group website. And just to end the presentation before we go into Q&A. And in this diagram, you will find the -- how the EBITA of Addnode Group has evolved over the last 10 years. Addnode Group, we provide solutions that digitize society. We see great business opportunity in the wake of global trends such as digitalization, sustainability, urbanization and automation. Our strategy is to, with a sound risk-taking, capitalize on these trends by continuously acquiring new businesses and actively supporting our subsidiaries to generate sustainable value growth and drive organic earnings growth over time. With this strategy, EBITA can vary between quarters and years, but Addnode Group's yearly average EBITA growth has been 20% to 40% historically, when they measured over the past 3, 5 or 10 years. Our strong financial position offer us the potential to keep delivering in line with our profitable growth strategy. Over the past quarter, we increased our credit line by a further SEK 1 billion and extended our existing credit facility. So with that, as an introduction and presentation to the interim report, we would like to open up for Q&A.

[Operator Instructions] The next question comes from Daniel Thorsson from ABG Sundal Collier.

Yes. Johan and Lotta, I start off with a question, looking ahead in Design Management here. You mentioned the tough comps from last year. And that is obviously true and the comps are getting even tougher in the second half of this year, especially in Q3. Last year, you mentioned a very strong tailwind from 3-year licenses, which in my book should result in an even greater decline in organic growth ahead in Design Management. Is there anything on the positive side that I'm missing that could mitigate that?

I think just to start off with that, the one thing that we're pointing out in the interim report is that there is -- we could say, yes, we have a decline in the businesses. So we will not expect organic growth in the Symetri division, Design Management as a start. But when we are pointing out the 3-year deals and we say there is probably some impact in the second quarter from the new agreements with the 3-year deals, what we're basically saying that is there are probably some customers -- are probably delaying their investments as well with regards to trying to understand a bit. So it's both a combination of a weaker market and part of that could be affecting the 3-year deals but part of us could also be affected that the customer sort of wait and see and see how the new agreements regarding that stands out.

Okay. So that could be some businesses coming back in Q3, actually.

Yes.

I see. Okay. And then a follow-up on that one. Do you perceive that some of the decline in the quarter is company specific? Or is it mainly the market development? And will you, in that case, also look to adjust the cost base ahead to do any restructuring or lowering the cost share in design?

Addnode Group has always been focused on the bottom line, I mean that we will protect that. But we have not initiated any bigger cost reductions in Design Management so far. We always look -- protect the bottom line. So if for any reasons, we will see that the decline will sort of carry out, we will, of course, take measures. But not so far.

Okay. Good. In PLM then, is there a risk in the second half of the year that we will see the cycle also hitting that division and causing a negative growth rate? Or is it something in that division that should mitigate and make PLM more resilient than Design?

Yes. I think what separates them is that it's -- they are not attracting the AEC market and going for that. They -- you will find the customer base being manufacturing, life science and high-tech companies. And they are active in the Nordic countries and in the U.S. -- and a little bit in the U.S., but more U.K. and Germany. We can see that most of the -- like we pointed out in the interim report, we -- the new EV companies are doing their engineering in the U.K. market are a growing company -- part of our business as well. So there are differences in the end customer group.

I see. Okay. And final question then on Process Management, the 5% organic growth was slightly below what I expected. But are there any onetime effects in this quarter, like you mentioned fewer tenders? Was it fewer tenders than normally? Or just year-over-year? And then also perhaps a negative calendar effect on the delivery side, I guess. Is that something that could make the growth rate come back to levels we have seen recently? Or is this more a level we should expect to have?

You're true that there are some -- this is a Swedish company, and there are some predominant businesses there. So there are some calendar effects with it. We normally don't mention them because we think it's -- we're focusing more on the year-over-year effect. But you're true that there are some calendar effects. As we mentioned, they are a little bit of a slow in the tender announced, so probably affected that as well. But I think over time, it will be tough to expect that this will have a 10% organic growth. It's this -- if we can keep this and it did better in the quarter, that is good, but I will not make any promises that they will sort of go on with 10% organic growth going forward.

The next question comes from Daniel Djurberg from Handelsbanken.

Johan and Lotta, a few questions on my side as well. First, on the Team D3 that is coming here in July. You mentioned it would give a positive impact on EPS from Q3, i.e., bottom line. But ballpark, could you say anything about how it would impact Design Management, for example, the EBITA margin rolling 12 months or something backwards just to get a bit more easier to be modeling here.

I think if you're looking historically at that business, they are coming -- it's an entrepreneur-led organization having a healthy growth time-over-time. They are predominantly addressing more of the manufacturing and process automation industry. There are some AEC business in it, but the majority is attracting that type of business. They are earning money. And the profit margin is -- if you look at the -- historically, we have been going around 10% on top of that of the businesses, they are not generating to 10% margin, but they have a healthy margin. And if it's probably the operating margin before any capitalization, they are probably more around 6%, 7% to give any guidance on where they are performing at the time of when they sort of enter Addnode Group, so probably 6% to give you any guidance on that.

Yes, perfect. Very helpful. And also on the PLM side, you do that cost savings from this as we kick in from now. The question is, did you have any tailwind from any savings in Q2 mitigated by other facts? Or -- and do you see any reason so far in the market to expand this cost-saving program any further? Or is it the ambition you have, do you think it will be good enough given what you see now in the market?

I think when you do changes, it's a mix. You will sort of -- you will lose some revenue even though you do -- and it will also have some costs. So I think we haven't seen the impact yet on the bottom line in Q2 of the restructuring program. We will see that in Q3 and going forward. And we -- as we are now, we don't expect to do more what we have announced there.

Perfect. And if I may, a final question for me, also on process. And here, we are -- you mentioned, as Daniel said, some hesitance in signing contracts. And I was wondering if you could give any more details in, for example, is it in case management or with [indiscernible] or is it more and more broad-based...

Just to clarify, we don't see any hesitance in signing contracts. It's more that we can see the number of available tenders in the private market is a little bit less this quarter. So that means that we have to work sort of more actively with our customers to make sure that we address their needs as well. So they are willing to invest still. But we can see on forward looking that this quarter, it was a little bit less. So -- and if this is a sort of indication for the rest of the year, we will have to wait and see. But we can see in this quarter, less available tenders, but we have -- long term, we don't see any changes for the second half of the year compared to the first half of the year, but it was a slower available tender, so to speak.

I see. I also just ask on that topic, if do you see any changed budgets for these projects to be adjusting for inflation? Or will you have a less underlying volume, i.e., if the budget stays on the same level, meaning in less?

Of course, we haven't have those discussions yet with the customers. Don't know what happens. It's that you have those discussions with the big customers on the public sector during the year and see what they can end up here. But if -- so we'll have to come back to that question later part of the year. But I sort of understand your question, but I don't have a good answer for it yet.

The next question comes from Erik Larsson from SEB.

I have a question on Design Management. If you could give some color on the demand throughout the quarter, i.e., April versus May and June, and perhaps also from a geographic perspective, if that's possible.

Thanks, Erik, for that question. Looking at what we could see that, as we described in the first quarter, we had an organic growth, I think almost close to 20% with regard to design. Answering that, of course, it was higher in the beginning, sort of the beginning of the quarter, we can see that the end of the quarter we could see the effect. So we can see a slower demand in the later part of the quarter, both related to the construction cycle and also to the change in the -- like we mentioned going on the 3-year deals as well. And quite -- we can see that the slowdown was seen both in Europe and U.S. as well. And probably for different reasons, in the U.S. probably a little bit more wait-and-see from the customers. And we are still sort of making -- so it was seen both on the side of the Atlantic.

Okay. Perfect. And then a question on margins. If we assume that 3-year deals or the share of 3-year deals remain depressed even beyond the next quarter or so, should we expect lower margins or structurally lower margins? Is that a fair assumption? Or will you sort of address [indiscernible] margin in that case?

No, not structurally because it's just a smart choice but it's just a timing over a year. So structurally, it shouldn't be a lower margin. But as we sort of -- for example, we see that we have a dramatically lower part of the -- that will be affecting the first quarter. But by the end of it, you will probably -- that will sort of come back again. So if you're talking structurally in the business, no. Timing-wise, we would see an effect.

The next question comes from Fredrik Nilsson from Redeye.

I want to continue on the discussion on the bottom line in the Design Management. You mentioned that you do not expect any cost savings programs, although I suppose you are not satisfied with the 6% EBITA margin. So to me, that implies that you expect some kind of improvement in demand compared to what we've seen in this quarter. Is that a fair assumption?

I think you have to look at from different perspectives. Yes, we of course, we will adopt cost. That doesn't mean that we will have sort of a big restructuring program because we are always looking that. It's also a part of the DNA. And then you will have to see how -- what -- how long do you think that slowdown in the market will be because we have spent a lot of time hiring very good people and [ stabling ] us in the market and having the sort of the best capabilities of taking care of the customers. So then you always have to look at those type of perspectives as well. So no, we're not sitting on our hands waiting. So of course, we were looking at what we can or will do with regards to hiring and all the costs. And then we also have to balance that with making sure that we are keeping our momentum and the power in the market as well with the good people that we're hiring. So it's always a balance.

Okay. And also, why do you think that service works global is doing better than Symetri. I mean both are exposed to the construction sector in some way.

Yes, but they address, it's a very different offering in different markets in that segment, meaning that Service Works Global are addressing the owners and operators of facilities in the public sector. That means that the fortification agency in Sweden if they are -- there are regions that operate the hospital. I mean there are special purpose facilities that are to stand there for like 50 years. So that means that they have a long-term perspective. They are not affected by the cycles in the same sounds and Symetri are to more -- even though they are in construction, they are addressing more architects and technical consultants in that market, and that can -- varies more of a timing perspective. But the facility market that Service Works Global are addressing is long-term predominantly purpose-built facilities.

That's true. That's my mistake. I was thinking about Tribia.

Okay. Tribia, they are -- yes, they are more close to that, and you'll see some effect there. But Tribia's 90% of their businesses are in -- or 80% or 90% depending on [indiscernible] is Norway. And Norway still have a healthy market with regards to not -- if you take away the condos, if you look at public buildings and offices [indiscernible] they still have the healthy market there. It's regionalized as well, so that has an effect.

The next question comes from [ Alain Garten from Carnegie ] Investment Bank.

Johan and Lotta, [ Alain, here from Carnegie. ] I have two questions. First of all, do you expect that number of active licenses will go down throughout the year compared to last year?

If you're talking about in, I guess, in Symetri with regards to Design Management there, yes. If we can see -- normally, what happens is in a slower market is that I think Lotta addressed that earlier on is that the customers tend to stay with us over time. But what they can do is that they can adopt their number of subscriptions, actual users. So if the -- what we addressed is that, yes. So probably, we will see a downfall in the number of seats at the customers by -- during the year if the slower market continues, that will sort of affect our net sales -- reported net sales.

And do you have an estimation of how much you think that will go down?

No, we don't have any estimate because it's dependent also of the type of contracts within the market, so no, we don't have any good expectation. But overall, we expect to see a slowdown in that. So as we said, we don't expect organic growth in Symetri this year, and that is represented by -- it will be a less number of subscriptions. Not subscriptions but may deem seats on the subscription.

Would you say that the drop in sales is mainly related to the 3-year contracts? Have you seen any -- can you show how much is part of that.

And I guess the question was looking at the drop in the organic growth in design in Q2, how much that was related to sort of underlying business and how much was related to less 3-year deals.

Yes, exactly.

It's both. We do see a slowdown, especially for the -- if see construct -- if you decide the building construction market, you can see that there were less things from construction actually to people building things. And then also, we have the -- like we said, it was -- as we commented, it was an effect from the 3-year deals, both -- and that could also has to do with the slower market, still to be. And then also there were some hesitance from customers probably relating to that there are new sort of terms with the 3-year deals, and then they need to adopt to do -- how it relates to them. So we could be that we sort of have a temporary effect from that as well. So it's a mix. How much is related to [indiscernible] is too early to say.

Okay. What I thought about was that construction has seen a downturn for a couple of quarters now, so I was thinking that -- it was a quite big move that we have seen. So wondering how much that could actually be related to construction and if you're seeing this was coming from before?

Just as I commented before, we can see that in our sales figures that we saw by the second part of the Q2, we had a very good organic growth in Q1 as well. So yes, we addressed and see that it will come. But for us, it's sort of -- we could see that in our reported figures by the end of Q2. And we -- and how it will pan out going forward. Of course, we are observing to that, but I don't have any good prognosis to give you on that way if that makes sense.

Yes, okay. And one last question is that the acquisition Team D3, how large share of 3-year contracts you estimate that they have?

If you add -- I will not be able to give you a good figure on that, but I can give you a guidance. I am saying that if you add what we have already in Symetri and Microdesk altogether, they will probably not change the total mix.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you for your interest and insightful questions. And Lotta, anything to add before we close this session?

No. Just to say, have a nice summer.

The same. Great. Thank you, all.

Thank you.