Zalaris ASA (ZAL) Earnings Call Transcript & Summary

Good morning. Welcome to this first Zalaris Capital Markets or Investor Day. My name is Hans-Petter Mellerud, I'm the CEO and founder of Zalaris. Please to also welcome our functional management team, including our Chief Technology Officer, Halvor Leirvåg, our EVP, Commercial sales Øyvind Reiten, Richard Schiørn, EVP and responsible for Managed Services; Hilde Karlsmyr, our Chief Human Resources Officer; and last but not least, our CFO, Gunnar Manum. Thank you to Hegnar Media, who is running our webcast. For those of you attending the webcast, there is a Q&A function that you can use to ask questions that we will respond to at the end of the presentation. For those of you present here together with us, we do also appreciate if you can wait with your questions until the end of the presentation. Please observe that the presentation is also being recorded. You will find a link to the recording on the investor part of our website. Without further ado, let's move on to the presentation. We would like to share with you 3 key messages in our presentation today. One, Zalaris PeopleHub is a popular choice among medium and large customers who want to modernize their payroll and HR processes. We achieved 33% growth in Q2, 22% in constant currency and reached EUR 100 million in annualized revenue. We are confident that we can sustain or over-deliver on our 10% growth target for the next 36 months by selling more global payroll deals based on people. Two, Zalaris PeopleHub is a flexible solution that supports our Zalaris 4.0 industrialized approach to HR and payroll. We can handle more volume with PeopleHub at a high marginal profit. We are on track to meet our 10% EBIT target, and we have the potential to exceed it with a combination of cost savings from the Zalaris 4.0 productivity improvements and increased scale from continued growth. Three, we are focused on generating cash and increasing profitability to drive free cash flow to our target levels of cash conversion. So before I go into the details of our plans and priorities, I would like to give you a brief overview of what Zalaris has achieved and where we stand today as a leading provider of HR and payroll services. Our business model based on long-term agreements and recurring revenue is favored by many investors. We have offered software as a service, Business Processes as a Service and outsourcing delivery models since we were founded 23 years ago. More than 90% of our revenue in Managed Services and around 50% of our revenue Professional is recurring based on long-term agreements. Our historic churn is low in the 2% to 3% range, delivering payroll and HR services based on one common global IT platform, there's a large people have supported by local competent resources, has been key to our success and 23 years of growth. Now EUR 100 million run rate company we are being seen as one of the leading global players in our industry. From the outset, our goal was to help customers reduce their direct process costs by 20% to 30% by outsourcing their services to us. At the same time, we enable them to operate seamlessly across borders. Approximately 1,100 employees deliver services from 17 countries. In addition, we can deliver to 150-plus countries, through partners with our people of concept. Our short-term aim is to deliver services with our own solutions and service centers for all European economic area and G20 countries. We see large companies across the globe prioritize investments toward solutions that enable unified access to payroll and HR data for analytical purposes, digitalization of workflows, reduction of costs and securing business continuity of business-critical payroll. Working from anywhere has become the new normal, driving the need for fully digitized people processes. Team Zalaris is extremely well positioned with our innovative product and services portfolio that cover the whole payroll and HR value chain. And as said, our PeopleHub platform is the core of our services, allowing customers to manage their unit capital across different countries with a single cloud-based system. This solution is also ideal for large customers who have complex needs in one country, and we may want to expand to other markets later. Our platform covers the entire employee life cycle from recruitment, onboarding, performance management, time and absence, travel expenses, payroll and more. It also helps customers achieve their ESG and sustainability goals by tracking the CO2 footprint of their employees. We offer our solution as software as a service with option of Business Process as a Service and outsourcing layers. We can integrate PeopleHub with any global HR solution that our customers use such as SAP SuccessFactors, Workday, Oracle, Cornerstone, CatalystOne and others. Zalaris has two business units, Managed Services and Professional Services. Managed Services provide solutions and services based on PeopleHub. We can offer different levels of service from software as a service to full outsourcing or Business Process as a Service. Professional Services is an SAP partner that specializes in consulting and implementation of SAP unit capital management solutions, such as SAP SuccessFactors and S4/HANA product portfolio. Professional Services also handles the implementation of new Managed Services customers. In Q2, Managed Services generate 73% of our revenue from 89 customers with more than NOK 1 million revenue and 100-plus smaller customers. Professional Services contributed to the remaining 27% from 46 customers with more than NOK 1 million revenue and 189 smaller customers. And you will learn more about Managed Services and Professional Services later in the presentation. This slide shows the amazing customer base that we have. We mainly serve midsized and large companies with over 1,000 employees and operations in multiple countries and some large single country and public customers. Our customers come from various industry segments and are leaders in their markets. We have a lot of potential to help them further digitize people processes, expand to other countries, simplify work lives and achieve more. Looking ahead to the next 3 years, we have a clear vision of what will drive our success. Our goal is to become the leading European provider of global payroll and HR solutions and services to mid-market and large customers. We plan to achieve this by growing our Managed Services revenue by 50% and our Professional Services revenue by 5% annually reaching approximately EUR 150 million annualized revenue by Q4 '26. We are confident that we can meet our 10% EBIT target and improve this 12% to 15% and from '25 and onwards. By implementing Zalaris 4.0 increasing our productivity through automation at 10% per year and leveraging our scale from additional revenue. We will prioritize organic growth following our customers to new countries in the European economic area and G20 with a focus on first establishing service center capability in the Netherlands, Belgium and France. We will target that our expansion is cash neutral by securing project funding from customers or partnering with local players. We will target new customers who are either large global or regional players with most of their employees in the countries where we operate. All local midsized and large customers who can utilize our existing organization and scale and just -- and thus contribute to higher incremental margin. A key component in both improving quality and cost of service as well as significant revenue opportunity is our strategic project to drive utilization of artificial intelligence and machine learning in our organization. As Halvor will also cover, there is a substantial potential in monetizing the large amount of data that we have. Another project in focus that is getting lots of customer attention and managed by our Chief Sustainability Officer, is continuing to build ESG into all our products and services DNA such as improved CO2 tracking, diversity, equality and inclusion reporting and analytics. In Professional Services, we will focus on converting existing customers to long-term customers by supporting them with Managed Services offering. An example is Marstons with 14,000 employees operating 1,200 pubs in the U.K. that was a Professional Services customer and is now a satisfied Managed Services SaaS customer using PeopleHub to support their payroll digitization journey. With Professional Services coming from operating in majority as local organizations. We have made great strengths over the last 6 months with EVP, Mike Ellis as the Head of Professional Services in developing it into a global organization with common methodology, staffing and right-shoring concepts. This work will continue. On the product side, Professional Services will continue developing template-based implementation approaches that support faster and lower cost implementations with higher margins and substantial recurring revenue potential for Cloud and Zalaris Care application maintenance services. A key limiter for our current growth is the availability of competent resources, especially consultants. Our strategic project, which combines recruiting with Zalaris Academy aims to address this and targets replacing 2/3 of external consultants with internal ones over the next 12 months. This will realize significant benefits with current activity levels. And last but not least, retooling the organization to utilize the latest AI-based productivity tools available as part of Microsoft's Copilot and continuing our efforts to create awareness on cybersecurity issues are other instrumental elements for our future success. Now I would like to invite our Chief Technology Officer, Halvor Leirvåg to explain how we are enhancing our delivery organizations, industrialization and scalability by standardizing our IT infrastructure and developing PeopleHub, supported by advanced AI-based solutions. So Halvor, please.

Yes. I'm here today to -- as Hans-Petter said, to go through a bit on how we have developed and how we have structured our infrastructure and products on the technological side through the years. So yes, starting off with the Zalaris PeopleHub with -- which from the its inception in 2001 has been a cloud, a pure cloud platform. The PeopleHub is the core of our deliveries and is based on SAP payroll engine, supporting approximately 100 countries across the globe. SAP payroll is the global standard or golden standard in the industry and is, by far, the payroll engine with the best coverage, widest coverage in the world. It's also proven to support the most complex companies even on a global scale. To be able to achieve this scale globally and support our complex customer base, we have on purpose decided not to develop our own payroll engine in Zalaris. Instead, we are focused on expanding the functionality in our products, in our systems to support the needs of our customers outside of what is delivered directly by SAP. We have also developed the Zalaris Standard implementation-methodology, which we use in all of our implementation projects for customers. This has led to as much as an 80% efficiency improvement in some of the areas in our products. And we continue to develop these methodologies or concepts to achieve even better quality and efficient processes. Our current IT road map actually secures that we have vendor support from SAP into at least 2040 for the payroll engine. Due to its cloud nature, the scalability of the PeopleHub infrastructure is secured and has been proven over time. The PeopleHub platform has grown with Zalaris and has achieved a more than 10x user growth while actually improving performance levels along the way. Thus, new customers can be added with a minimal investment in infrastructure and landscape costs in terms of new customers. So the PeopleHub platform and the housing concept. We have set in place is pivotal in ensuring proper economies of scale for Zalaris and the companies we have acquired over the years, which is, in this case, sumarum, ROC and ba.se. This type of integration is, of course, complex and time consuming. But we are finally seeing the light at the end of the tunnel with the plan of migrating the final systems from ba.se in Q4 2023. There are many benefits of doing this integration, of course, but obvious ones being fewer vendors, streamlined usage of databases, hardware, operating systems and so on. Less to maintain less cost and, of course, less technical complexity. Not to mention that it's easier to keep it all secure when the foundation is similar to our systems. From a Zalaris operational standpoint, maybe the most important part of this call is consolidation of the ticketing system as shown here as well. We have actually gone from 6 different ticketing systems in the acquired companies into now having one common helpdesk and one ticketing system for Zalaris. We even used e-mails in some of their systems and so on as a ticketing solution in these companies. This is a key in our drive towards fully digitized processes, as Hans-Petter mentioned, and enables a much higher degree of automation of income and tickets using, for example, RPA, in system automation and other tools that are default at our disposal. We are already seeing the benefits of this consolidation in our operating efforts. The importance of one common ticketing solution is also the reason we have focused so heavily and invested in adding new helpdesk features to our systems and to our end users. So as I will discuss later on as well. As the final phase of the integration journey with the acquired companies, the direct customer migration is handled on a customer-by-customer basis. This means that the conversion can be seen as a fully-fledged implementation project as we need to move from the old set up to new, especially for the more complex larger customers. When this -- when done, this provides higher value for our customers through more potent solutions, with Zalaris while Zalaris operations are also able to streamline the processes even more since it's on the same concept as the rest of the customers. And the goal is, of course, to have all customers on PeopleHub have been providing even greater value in the end. So in terms of security, which is a hot topic these days, we have in Zalaris, had security and privacy by design in our corporate and company principles for a long time. I would honestly claim and the people who know me know this is true that we actually have it embedded in our corporate DNA. One key example of this is -- of this focus on security and privacy is our in-house Cyber Security Operations Center, or CSOC, which we established in 2015 -- no, 2016. Our CSOC is actually staff 24/7/365 to keep both our systems and customer data as secure as possible. They not only monitor our system, but they also actually do continuous penetration testing on our systems, whenever we launch new updates or new features in our products. CSOC also worked closely with external vendors who do certified penetration testing on a quarterly basis on our systems. Our developers, they follow a secure development life cycle to sure all apps are built secure. And of course, this area is where we also started our AI journey and AI usage in Zalaris. And we will do this as a CI/CD process. And as soon as we see new options in the marketplace covering and fitting our use cases, we add them as soon as they are viable for us. We are now well into the double-digit use cases for AI in the security space in Zalaris and have them already in place. Our compiled security efforts have recently actually received great feedback from both current and new customers. And even from some lost RFPs, we have gotten the feedback that our security efforts are actually either being good or even above the norm compared to our competitors. And finally, here, of course, we are audited on our [ FSA ] each and every year and certified against the standards ISO 27001, 9001 and ISAE3402. Then on to our in-house developed products and offerings, which we have shaped -- which have shaped the look and feel of Zalaris PeopleHub in the past and going into the future. In 2015, we made the choice to build our own portal as well as our mobile app on top of the SAP payroll engine. This portal went live in 2017 and have been the main entry point for all our end users ever since. In 2021, we identified the need for a more broadened and diverse toolbox for the apps used by our customers and made the decision to go into a purely new developments all-in into a Microsoft Azure-based development platform. Internally, we have named it PeopleHub 2.0 and with it, we launched our new alumni offering as the first product on this platform in Q1 2022. Stay with me now for best word bonanza, highlighting how we have developed a PeopleHub 2.0 platform to be the next-generation delivery portal for Zalaris and our customers. All the apps on PeopleHub 2.0 are enabled, we have micro services, micro front ends on top of the hexagonal infrastructure. This is done to enable proper separation of services which again are more flexible, adaptable and easier to maintain via ports and adapters. All, of course, with security and privacy by design from day 1. Our in-house developers create these apps using cutting-edge technology like ReactJS, Tailwind and Spring Cloud. The written code is then provisioned using Azure services like hybrid databases, messaging Kubernetes, vaults, cloud storages, search indexes and not to mention these days now also available -- all the offerings available from OpenAI. As previously mentioned, in 2023, we launched our new helpdesk app to all users. And in Q1 2024, we are scheduled to release the new digital services management portal, as shown in the screen shot on the side here. We expect to add many more features on this platform going forward. All of the above-mentioned best words means that we can provision the needed infrastructure from code or even more buzzwords. And the fact that we have built this platform decoupled core payroll engine and the surrounding services means that we now have the capability and option to better monetize these investments going forward in Zalaris. And what does this mean in layman's terms? Individual components can be sold and implemented on the customers' infrastructure, such as Azure and even AWS, Google Cloud and so on, if the underlying services are present there. Of course, that excludes OpenAI currently, but it can be done for those products not using that. The helpdesk app has actually already been sold and implemented on customer infrastructure on their platform in the recent weeks, proving that these products are actually viable also outside of Zalaris. In Zalaris, we first introduced our usage of machine learning when we implement our first security information event management tool or SM tool in 2015. Since then, we have expanded our usage of machine learning and AI as soon as we have seen a benefit of it. When it comes to implementing AI in our own products. We have been working on that for years already. Initially implemented in our internal tools to detect fraud and potential misuse of user accesses. And lately, we have also introduced AI capabilities in our customer-facing products. In Q1 2023, as mentioned, we introduced our new Helpdesk app, which includes AI-based ticket categorization. This means that our users don't have to choose what type of ticket they want to create. Instead, the AI assigns the correct ticket category based on your content for faster processing and more satisfied end users. NPS score on tickets have increased significantly up this after this feature was introduced, and we believe auto categorization is a big part of that increase. We are also working on expanding this option of this featuring with GPT options for customers who opt-in to that in our pilot program in the coming months. OpenAI, GPT4, PrivateGPT and other options are being tested and evaluated to find the most suitable alternative from a cost-benefit point of view. As shown in the somewhat cryptic screen shots on the side here, we are already working on several proof-of-concepts on several scenarios, including the mentioned GPT functionality. This functionality is, of course, there is to assist and hopefully avoid ticket creation in the first place, which will be a great benefit for Zalaris operations and the customers. Internal in Zalaris, we have been using big enterprise, which is Microsoft's business alternative to ChatGPT Pro for all employees since it was just, we just launched a few weeks ago. We are also planning on introducing, as Hans-Petter mentioned, Microsoft Copilot feature for all employees working with Excel and similar tools on a daily basis. The result of this should be better quality, higher efficiency and cost savings when fully implemented and embraced by our employees. Hopefully, also reducing the need for further hires when adding new customers to our fully operational service centers. And finally, to the part I'm most excited about and the potential for -- but at the same time, there's a point I need to choose my words most carefully for, not to share too much about what we are doing and hoping to make in the upcoming debt cycles. We are exploring ways to really monetize our big data repository, consisting of 20 years of data or actually 20 plus. And how this can be embedded into vector-based analysis to gain unknown insights. We are exploring ways -- no, we see a great potential to do a predictive analysis on similarity detection and anonymized data -- and on a set of anonymized data combined with productive data, maybe even in combination with public data sources such as public transport, weather services and so on. The data store, combined with our knowledge here should lead to increased stickiness for our customer base when they realize the full potential of the PeopleHub platform. In closing, thanks for listening. And now I will let Øyvind Reiten take over for the next part of the presentation.

Thank you, Halvor. So I will take you through the part of the presentation where we look into the market in general where we particularly focus and also how we see the outlook. So our core competency lies in the provision of outsourced, payroll and HR services primarily to large and midsized enterprises throughout Northern and Central Europe. In the realm of business consultancy, we proudly stand as a leading practice, offering an expansive portfolio encompassing a comprehensive spectrum of SAP and SuccessFactors services. Our operational footprint spans 13 countries in Europe with additional 5 countries in active development. This strategic expansion plays a crucial role in firmly establishing Zalaris as a preferred partner for European enterprises characterized by a multi-country presence. Our strategic vision is focused on achieving complete and comprehensive coverage across the entirety of European markets in the near future. While we have a presence in Australia and India, it's essential to highlight that Europe remains the primary focus for growth within particular Managed Services. Our commitment to industry leadership is not only evident in our ambitious expansion plans but also in our recognition as a formidable player within our sector. Influential industry analysts such as Gartner, Everest and Nelson Hall consistently acknowledge our influence and capabilities. We take pride in a remarkable sales performance that stands at approximately 120% year-to-date. This achievement is made possible by our efficient and competent sales force whose dedication expertise drive our continued success, combined with a comprehensive product and service offering. We have achieved a track record of successfully providing global support to European companies, and we are poised to capitalize on this momentum to sustain our current growth rate. The addressable market has seen substantial expansion due to emerge of global opportunities to which we are now increasingly invited. Our approach to managed CapEx is highly efficient, thanks to a well-established partner ecosystem, facilitating the seamless implementation and operation of PeopleHub. Our technology and operational approach are tailored to the scale of each country within our purview. For countries with large employee populations, we rely on our trusted partners for the full deployment and management of PeopleHub. In smaller markets, we ensure comprehensive coverage through the integration of tail-end partners into our operational framework. This approach allows us to optimize our resources effectively while delivering consistent service quality across diverse market sizes. We are actively engaged in the expansion of our presence beyond the borders of Europe. This expansion includes ongoing initiatives in 3 countries located outside the European region, all of which are fortified by our strategic partnerships and which we're instrumental to winning these and stringent criteria used to assess and evaluate opportunities. Such criteria include, for example, strategic geographical fit with our ambitions, size and complexity of the customer and adherence to our contracting principle to manage risk. It is imperative to emphasize that our primary criteria for endorsing global deals is the concentration of the employee population within European countries where we are already present or have a strategic aspiration to establish one. We target specific customer characteristics, enabling us to be efficient in selling and be focused. One of these key criteria revolves around the geographical scope of our potential clients' operations, specifically, whether they maintain a presence in one country or multiple countries. This consideration is rooted in the recognition that one of our core competencies lies in providing comprehensive multi-country payroll solutions. While we do entertain single-country opportunities, our level of interest typically relates to several factors, including the scale of the prospective client's workforce, and a portfolio of functional requirements beyond core payroll. Another key segmentation criteria we'd like to emphasize is the first versus second generation outsourcing. Zalaris has shown to be particularly competitive in first-generation outsourcing, often including the transfer of employees under [ GP ]. Frequently, first generational outsourcing is done by moving from customers internal shared service centers or consolidating current operations, which radically simplifies a mutual business case. Our ability and flexibility to transfer employees and establish service centers close to where the customer is located, have shown to simplify negotiations and have been a key differentiator to our competitors. Other flexibilities, setting us apart are that our commercial terms based on as versus [ to be ] costs, provide confidence and predictability for both the customer and Zalaris. In considering our clients' IT strategies, in the past, Zalaris Solutions reliance on SAP and SuccessFactors have shown higher success rates when clients also adapt to an SAP strategy. However, in this swiftly evolving cloud market, many clients choose a variety of global HR solutions. It's important to note that Zalaris committed to offering the best integrated solutions for payroll and local HR transactions, irrespective of the client's global HR solution strategy. In pursuit of this commitment, we have invested and gained extensive experience in integrating with other leading HCM solutions such as Workday and Oracle, positioning us as a preferred payroll partner regardless of the client's HR solution preference. Zalaris operates in an attractive market, a market which is expected to grow with approximately 10% within both Managed and Professional services, a benchmark that Zalaris currently outperforms. Our market assessment, which is also supported by industry analysts identified several driving forces to this growth. These factors encompass a globalized workforce, increased focus on regulatory compliance exemplified with GDPR and a persistent emphasis on cost and innovation. The core market niche consists of multinational corporations operating in two or more countries within the region, aligning seamlessly with one of our key strengths. Zalaris maintains a strategic focus on the multi-region and global markets, both which are projected to achieve an annual growth of approximately 10%. Consequently, we anticipate a positive outlook for Zalaris with a sweet spot within multi-country and further upside within multi-region and global opportunities. We also operate in a competitive market, and we take pride in our steady progress over the past years, advancing towards the upper right corner, a position that designates market leadership. On the left, we outlined our standing as assessed by Everest for global deals. Zalaris is strategically positioned for market leadership with the capacity to attract new clients and poach customers from competitors. Everest identified several core strengths in our arsenal, including our robust multi-country solution that encompass end time processes are demonstrated competence and expertise all reinforced by our strong local presence. On the right, we present our own assessment of the European market landscape concerning multi-country opportunities within the region. Our primary competitors in this domain include SD Worx and Alight, while ADP takes a more active role in opportunities involving U.S. clients with our European footprint. Additionally, we also face competition from other companies on a regular basis with some variations across geos and also typically depending on single country versus multi-country or multi-region. Despite the competitive nature of this landscape, we see we increasingly win due to various factors, such as use cases with large multi-country deals headquartered in the Nordics, Germany or the U.K., need for one IT solution to consolidate their payroll and transactional HR as well as integrate with the client's preferred HR solution. And last but not least, our strong in-country presence, combined with our right-shoring approach. Customers choose Zalaris due to qualitative measures and not due to low price. Moreover, our team's professionalism and our ability to collaborate effectively with clients in the transformation of their HR and payroll operations, frequently emerge as significant factors influencing clients' decision to engage with Zalaris. To further enhance our visibility and improve our learning process, especially where we have not been successful. We have initiated an even more structured approach to conduct win-loss surveys. This service will provide more data and insights, enabling us to prioritize our efforts effectively. It will also provide important guidance on where we should prioritize further innovations and investments to align with customers' requirements and expectations. We do now enforce a standardized value proposition in all geos, which is expected to continue driving growth and improved profitability. Our improved growth over the past year is a result of our successful efforts to enhance our presence in the German market. This success can be attributed to our initiatives aimed at standardizing our product offering, clarifying our sales approach and optimizing our commercial contracts. These initiatives, combined with a strong local entrepreneurship and in-depth market knowledge have been instrumental in driving our achievements. We maintain a positive outlook regarding the continuation of our current growth rate. This optimism is grounded in the improved pipeline of opportunities and increased addressable market in DACH, which is approximately 3x the size of the Nordics. In addition, deals in the DACH region tend to be approximately 2 to 3x the size of the traditional deals we have signed in the Nordics. Our recent success in Germany is evident in our significant increased pipeline of opportunities and closed sales, which have risen from approximately 25% in 2021 to approximately 70% year-to-date in 2023. This achievement is attributed to improved global standards, better market visibility and strong local entrepreneurship. Additionally, our focus on standard PeopleHub, standard business case templates and standard contracts has enhanced profitability, contributing positively to our EBIT improvement program in Germany. We aim to apply these learnings to markets with slow growth in Managed Services, including the U.K., which we consider to represent a significant untapped potential for us. And where we have seen limited local and multi-country opportunities despite strong growth within Professional Services. In summary, we have demonstrated significant growth in the past year. We have booked ACV of more than EUR 10 million. We maintain a positive outlook and are confident in our ability to sustain this momentum going forward. Thank you. And I will now let Richard Schiørn take over for the next part of the presentation.

So then I will take you through our global operating model for Zalaris, a little more deep insight. Managed Services provide solutions and services based on our global platform has been named PeopleHub. These services range from software as a services that cover application maintenance to comprehensive outsourcing. The latter includes services as payroll, travel and extended control, time and HR administration as well as recruitment, employee contract management and sick leave administration. The Managed Services organization has 700 highly professional and operates 7 service locations, providing services to our customers. Among these locations, we have 3 large service centers, 1 out from India and 2 out from Europe. These global shared service centers provide services to all of our customers across multiple countries. As mentioned earlier, Managed Services accounted for 73% of total revenue and with approximately 90% recurring revenue. Managed Services provide now a global operating model, which is a robust, local competence, enabling global scalability and profitability. Our approach has been to industrialize the implementation and delivery of our services, similar to how the car industry has done for a decade. Standardization is, therefore, the foundation for our solution and services offered to the market. The local delivery centers with a strong and competent workforce are the cornerstones of our ability to provide efficient and high-quality services are aligned with law and regulation to our customers. Our defined operating model, which aims to combine local setups with strong shared service centers have been successful in achieving a scale of competence with competitive costs. This has been the goal of Managed Services since the establishment in 2019. The key drivers of PeopleHub solution are most effective when the solution is standardized. Therefore, we place a strong emphasis on implementing our defined standardized solution when we fully responsible for delivering services on behalf of our customer. Both by manage payroll and comprehensive services. Simultaneously, the degree of industrialization intensity and revenue potential are significantly higher than implementing software as a service. Given the combination of the robust PeopleHub solution, where we have a large service responsibility with higher revenue potential, we have developed a strong global operating model over time that support global scalability and profitability for the sales scope. The foundation for establishing a cost-efficient industrial operating model lies in the North of Europe. Historically, countries in the North of Europe operated more as a standalone and independent delivery organization. However, Zalaris expanded its business across the region and acquire more multi-country customer. It became necessary to strengthen the operating model to support the growth and increase demand for global services and deliveries. Consequently, we embarked on a journey to establish and define the best practice operating model that balance the local and global capabilities. Our operating model compromised 6 key capabilities that has been developed for the last 3 to 5 years. Process standardization is the foundation for industrializing and supporting all services. We have built a solid service catalog that cover all services ranging from software as a service to full comprehensive HR outsourcing. Furthermore, we have defined 16 main processes that support these services. These processes are divided into digital standardized subscription and guidelines for how our resources work in a structural way. Synergies and structure have been important in enabling efficient shared service centers. Northern Europe has established a strong new shared center in Riga, Latvia and offshore center in Chennai in India. Both centers contain competent and experienced employee organized in team pyramids with sustainable costs, reducing also the risk of employee churn and maximizing the request of demand of services. Last year, we also built a new shared service center in Poland to support all application maintenance services across our solutions. Right-shoring is to build optimized cost to serve where the labor cost is the key driver. Our predefined target location over all the 16 operational and procedure manual for the processes allocated based on legislation, complexity and language on near and offshore. Platform and Technology, as Halvor was into, the PeopleHub platform, which is designed and build to support fully digital process is the precondition for delivering services according to our defined standardized process, as mentioned above. The governance model is an essential capability to secure contracted deliveries, drive continuous improvement, manage expectation, follow-up and report to financial KPIs and SLAs, both internally in relation to our customers. We have a defined account per customer containing local and global service delivery manager and account manager, and they are responsible for the customer P&L and the relationship. From an internal perspective, we have established a data-driven structure based on the business case for each customer. These structures serve as the foundation from monitoring our spend utilization of the resources, SLA reporting, financial control and exception having to achieve cost-efficient services as planned. All of these aspects are viewed monthly in a business group. Digitalization and Automation are areas where we have made significant investment in technology and skilled also employees with deep knowledge in robotic process automation. Our center of excellence in Chennai is a natural part of the operational structure. This team has transformed most of our global processes into digital performance and continues to focus now on local deliveries. So they are now traveling locally to support these deals. As indicated in the status table, we began implementing the same global delivery model for Germany this year as we have in the north of Europe. The initiative required to complete a complete restructuring of all capabilities while leveraging all that we have already in place for North of Europe. We have already started to see some positive effects and we'll continue to focus fully on this effort in the coming year. Our company's approach to right-shoring is to optimize the target location percentage per process as best as possible, without compromising quality of services. We had 3 type of service locations, onshore, nearshore and offshore. Onshore represents local service location in the countries where we operate for our customers. These centers have strong local competence with wide experience in operating according to countries law and regulation, which is the fundamental driver to deliver efficient and quality services. Nearshore operation represents service center located in Poland and Riga. These centers' function has a global shared service hub, equipped with a high level of expertise and cost efficiency aimed at supporting local service center in delivering their respective service to the customers. Consequently, it is a need for our resources to have local language skills for the countries they support to drive efficiency and quality of deliveries. Offshore represents service location in India. The center is a global shared service center with a scale of competence with a competitive low-cost serving both nearshore and onshore centers delivering their part of the services. Employee data management, account and travel and expense are example of global processes that are being delivered out from India. Their processes are either fully delivered out from one of the location or in a mix. That depends on the type of processes. We have introduced a digital workforce as part of our right-shoring concept based on how we can leverage technology more to digitalize and automate our processes. As mentioned earlier, we have so far influenced several improvement with pretty good result. Based on this experience, we will explore and leverage technology more going forward. We see that this is definitely the future to increase productivity and quality in our services. If you look at the target percentage per service location, this metric has evolved over the years and has been influenced by contractual obligation with our customers, which has set the assumption for the scale of right-shoring. Going forward, we have set a target of 40% onshore, 20% nearshore, 20% offshore and 20% on digital workforce. In the North of Europe, we are operating close to the new target after several years of strong focus and fine-tuning. The key to further developing this model is to leverage now more technology on a larger scale to increase automation in our processes and minimize manual work wherever possible. The restructuring process in Germany is also targeting the same level of location split and expected to contribute positively to profitability moving forward. And as also Øyvind mentioned, Managed Services has a large customer base operating in all type of industries. Many of which have a significant global footprint. Building and maintaining long partnership is a critical to driving business value. We are following our governance model, which is one of the key capabilities in our operating model. And we can divide it into 3 levels. The first level is to build the foundation when we get a new customer, which is to ensure that we deliver according to expectation in the contract. The second level is to create an agenda for innovation and continuous improvement to drive cost of ownership. This includes proposing new product and services that will create more value for our customers. The final level is to embark on an expansion into new customer countries alongside a valued customer, offering scalable and reliable and cost-effective solution and services. This expansion leverages the benefit of experience we have gained from our established relationship in delivering solutions and services. This approach has resulted in low customer churn and net revenue retention in our customer partnership. Thank you for your attention, and then Hans-Petter.

Thank you, Richard. I will now take you through a brief overview of our Professional Services organization which, as mentioned, is now led by Executive Vice President, Mike Ellis from Sydney, Australia, who is also responsible for our APAC operations. I am presenting him today in his absence. Our Professional Services organization is SAP focused powerhouse. Business unit focuses on implementation and transformation projects SAP advisory and consulting work and long-term Application Management Services or we call it AMS and subscription services. As previously mentioned, the business unit currently has 46 active customers that generate more than NOK 1 million revenue per annum and 189 smaller customers, accounted for 27% of our revenue and grew by 7.5% year-on-year. More than 50% of the revenue is long term and recurring in nature. I'll talk more about that later. We have been an SAP application services provider or ASP partners since 2001, and we have built a strong relationship with SAP. Our focus is on midsized and large customers with cross-border needs and SAP is the only provider that can cover almost 100 countries with localize payroll, time and travel expense solutions as also Halvor has talked about previously. These are the core functionalities of our PeopleHub offering, which gives us an extremely robust and flexible framework to expand to new countries with minimal technical risk and system costs. The SAP total addressable market, including the market for Human Capital Management solutions and SuccessFactors is huge. SAP is a leader in the field, particularly for European headquartered organizations. We see great synergies in operating Professional Services and Managed Services in one organization. This helped us secure competent resources that can be reused project after project, improving quality and reducing project costs as well as maintaining a competency organization that is always fit as it has to compete in the market for regular consulting projects. Professional Services is undergoing a transformation from a local to a global organization with a consistent practice. The organization employs nearly 300 FTEs of which 2/3 are salary staff and 1/3 are contractors and freelancers. We operate in 12 countries and serve them 235 clients. Professional Services is a key value driver for Managed Services, providing more than 45% of the total capacity with that balanced distribution between people on maintenance and development or transformation projects. Professional Services generated about EUR 21 million revenue in '22 and EUR 17 million year-to-date as of August this year. Professional Services has capabilities, delivering all aspects of project-based work such as advisory and solution design as well as implementation services. It also offers recurring services such as Application Maintenance, which are now being rebranded and tech enabled as Zalaris Care. As we have seen before, the Application Maintenance Services segment, which helps customers maintain their payroll and HR systems, mostly on long-term or subscription basis, accounts for about 57% of our total revenue. Zalaris Care is our future vision for this segment. Our strong customer loyalty is reflected by the fact that 78% of our Q2 revenue in this segment came from customers who were also customers in Q2 last year. We believe that a strong professional services team is a key element to our strategy by having access to a global team of HR domain and SuccessFactors experts we can ensure the delivery of high-quality and high-value PeopleHub projects and advisory services to our customers. Moreover, we can leverage Professional Services global delivery capability to develop long-term customer relationships that can lead to Managed Services engagements and/or serve as references for future prospects. Additionally, we can use its Professional Services team as a toehold for expanding into new geographic markets and creating brand awareness for our solutions. Some of our major German clients have mentioned, for instance, that our references with large customers such as the state of North Rhine-Westphalia with 700,000 employees and pensioners have established us as a reliable provider of Managed Services, Payroll Services. Looking at our priorities for the period to come. Our main goal is to increase customer satisfaction, growth and improved margins by focusing on 4 key areas. First, we want to recruit and build our own consultants to reduce our dependency on external consultants. This will help us to ensure quality, consistency and alignment with our values and vision. We also will be able to offer more competitive rates and better margins for our services. Second, we want to leverage our installed base to generate cross-sell opportunities and additional value to our customers. We have a large and loyal customer base that trust us and relies on our solutions. We can use this as a platform to offer them complementary products and services that can enhance their business outcomes and increase their satisfaction. Third, we want to use right shoring to gain access to a larger talent pool and reduce cost to serve. Finally, we want to continue improving our PeopleHub implementation methodology and application maintenance productivity to free up resources that can generate additional customer value. PeopleHub is our proprietary framework that guides us through the entire life cycle of a project from planning to delivery and support. By improving our methodology, we can streamline our processes, reduce risks and errors and increase efficiency and effectiveness. By improving our application maintenance productivity, we can reduce the time and effort spent on routine tests and focus more on innovation and value creation. So thank you for your attention so far. And I would like to introduce Hilde Karlsmyr, our Chief HR Officer, who will share with you how we are using our own solutions and leveraging this to also create value for our customers. So Hilde.

Thank you. So Zalaris HR is a centralized organization that serves the whole group based on standardization, digitalization and optimization. My organization consists of 22 people distributed according to our right-shore concept. Today, 50% offshore, 25% nearshore and 25% onshore. We cover all the main HR areas, including regional HR business partners, talent and traction and acquisition service that handles all our recruitments and sourcing candidates proactively, resulting in that limited usage of external recruiters. People, brand and engagement, compensation and benefit, analytics, training and development and a separate unit that is responsible for all our tools and processes, constantly driving improvements and ensuring efficient integrated processes. A key element for us to provide efficient services is our strong global shared service center which delivers support to managers, employees and the HR department, constantly streamlining and automating as many administrative-operated tasks as possible for us to secure and focus necessary efforts on strategic value-creating areas in close cooperation with the business. Our global shared service team manage and support the entire organization on all our tools and processes. They ensure that all processes are executed and completed according to our process description and policies, such as onboarding activities and all mandatory regular trainings. To enable the recruiters to focus even more on finding the right talent for the organization, we have recently delegated the more administrative work, the candidate experience management. To our global shared service center, which follow up and secure good candidate experience throughout the process to strengthen our employer brand. Our digital HR support center also utilizes our chatbot technology, including human chat. And we have today a scalable HR structure for future growth. In Zalaris, we use our own HR department and services as a pilot client instead of being the internal client that is not prioritized. So we utilized all our products and services internally as we are quite complex customer ourselves with 1,100 employees across 14 countries. We have today a fully integrated digital human capital management, is essential for delivering strategic HR and good employee experiences. By automating and organizing administrative and operational tasks in all countries, we can reduce the workload and complexity of the HR area. In addition, in today's increased GDPR regulation and sanctions, which can have a significant impact on the company's reputation and finance, a strong and fully integrated digital human capital management is the only way to ensure compliant HR data handling for global companies. Today, as mentioned, we have fully digitalized the entire employee life cycle. With integrated automatic data deletion rules for each country according to global GDPR regulation and local bookkeeping regulations. This ensures that all employees, regardless of their managers' focus or location, receive the same treatment and follow-up according to our defined standards. Let me try to explain how we use digital technology to streamline our HR processes. Today, we have digital employee contracts and onboarding system in all countries that allow us to enter employee data only once in the secure -- directly in our system. When candidates sign their employee contract with us digitally, the data is automatically transferred to our master data system, Employee Central, which is connected and not to our payroll system. As a part of our digital onboarding system, new hires can access their portal and provide their personal information, such as social security number and bank accounts before they start working so that everything is ready for payroll. They also get access to onboarding materials and complete mandatory training on data handling and GDPR policies before joining Zalaris which is essential in our business as we deal with a lot of sensitive data. Our HR processes are integrated and automated so that any data changes are updated in Employee Central and reflected in our systems. For example, after our annual compensation process in SuccessFactor, the salary changes are updated in Employee Central and salary statement letters are generated, transferred and stored in our electrical personal archive called eFile. Both SuccessFactor and PeopleHub follows a self-service and transparency principle. That means that the employees can see their own data and managers can see their teams' data in the portal at any time. In the past year, we have seen a growing interest and demand from our clients for a comprehensive outsourcing solution in the HR domain. We are exploring the possibility of transforming our cost center into a profit center by offering HR as one of our core service offerings. This would allow our clients to expand their operation into new markets without increasing their overhead costs and to delegate their operational HR tasks to us while focusing on their strategic HR goal using the PeopleHub and SuccessFactor platforms. We estimate that providing extended HR services as a business process, as a service could generate addition of 120% revenue from our Managed Payroll Services, split between 55% on system software as a service and 45% on HR services. We are currently running a pilot project to establish our delivery model for our first extended HR outsourcing service with one of our newest and largest clients. I will now hand over the presentation to our CFO, Gunnar Manum who will present the financial strategy and targets.

Thank you, Hilde. And good morning, everyone. I'll present the key financial target for Zalaris for the next 3 years through 2026. During this period, we aim to maintain the high revenue growth we have achieved over the last 2 years. Additionally, we will further improve EBIT and underlying profitability while focusing on cash generation. We will start with the targeted revenue growth, even presented earlier, the key drivers for our revenue growth and how we believe we can sustain a continued high growth going forward. Over the last 2 years, our annual growth rate has been approximately 18%. When removing the impact of currency changes, the annual growth has been approximately 14%. The growth comes mainly from increased revenue from existing customers within Managed Services and from recurring revenue from long-term contracts with new customers. These contracts typically have an initial duration of 5 to 7 years. Going forward, we have set an annual growth target of 10% with a targeted total revenue of NOK 1.5 billion in 2026. The growth target for Managed Services and Professional Services is 15% and 5%, respectively. As a result, recurring revenue from long-term contracts with customers in Managed Services will represent an increasing share of total revenue, moving from 68% in 2021 to targeted 77% in 2026. For 2023, we expect revenue of close to NOK 1.1 billion. Additionally, we have approximately NOK 70 million in annual recurring revenue already contracted for future periods. Hence, we believe this revenue target to be well within reach in that time period. On the regional level, the highest growth is expected to come from DACH region as the total addressable market in DACH is approximately 3x the Nordic market, as Øyvind showed in his presentation. Earlier, Richard presented our operating model within Managed Services and how we work with right-shoring standardization and our PeopleHub platform to improve margins. As communicated, we have a short-term adjusted EBIT target of 10%, and we are progressing well on the work to achieve this with increased margin during the last quarters and shown in the graph inside the box. Our specific EBIT improvements initiative in Northern Europe have been completed, and these countries are mostly delivering above expectations with solid margins. And we will continue to work on further EBIT expansion in these countries. Our current priority is the improvement of our operations in Germany. We are making good progress, such as the relocation of work to nearshore locations and the implementation of Zalaris standard operating model. However, we are slightly behind schedule in this region, but we anticipate substantial cost efficiency improvements during the next 12 months through the initiatives highlighted earlier by Richard. For our new German customers, we are providing all services via the PeopleHub platform, which results in good contribution margins. However, some of our large existing customers are not utilizing this platform, which is currently contributing to lower profit margins in Germany. Had these customers generated 70% of the targeted customer contribution margin for Managed Services, the total adjusted EBIT margin before APAC would have been approximately 10% for the first half of 2023. Work is ongoing to transform these to profitable customers. Our long-term target is an EBIT margin of 12% to 15%. Key drivers for the increased margin will be reduced unit cost by leveraging the scalability of the PeopleHub platform and our delivery model further optimizing our right shoring and automation processes and increasing operational leverage as revenue grows as SG&A as a percentage of revenue will fall. Across all our regions, we are aiming for an EBIT margin of minimum 15% to 20% before accounting for group costs. Most regions are already within this range except for Germany and APAC. Moving forward, one of our primary objective is to focus on cash conversion and to maintain a robust positive free cash flow. In this slide, we show the cash flow for the last 12 months starting with the cash balance at 30 June last year and the EBITDA before the noncash items, deferred revenue and recognized and option costs in the period. Over the past year, our operations have generated a positive cash flow of approximately NOK 87 million before interest payments, which is too low. However, there is significant room for improvement. During this period, our cash flow was adversely affected by NOK 31 million investment in establishing operations in APAC and supporting our subsidiary, vyble. We anticipate that APAC will reach a cash breakeven point in the fourth quarter, and we plan to limit any further investments in vyble. Furthermore, our net working capital, excluding any balances related to customer projects rose by NOK 51 million during the period. This increase is primarily due to trade receivables which have grown as a result of a 33% rise in revenue when comparing this year's second quarter to last year. Generally, the payment terms are 30 to 45 days in the Nordics and 45 to 60 days in Germany. We are actively striving to curb the growth in trade receivable, but it is expected that approximately 15% to 20% of sales increase is tied up in working capital. Nevertheless, our aim is to improve our working capital compared to what we have seen in the last 12 months. The negative working capital impact should be NOK 20 million to NOK 30 million lower on a comparable basis. Our CapEx for the last 12 months was NOK 22 million, excluding a project of NOK 5 million in APAC. Our annual CapEx target going forward is NOK 15 million to NOK 20 million. As mentioned, we will have increased focus on growing operating cash flow conversion. The target is for an operating cash flow conversion before interest payment of 65% to 70%. This will be achieved through working capital improvements, particularly in trade receivables and by ensuring that transformation projects for new customers are minimum cash-neutral during the implementation stage, which has not always been the case in the past. Based on the target EBIT of NOK 180 million in 2026 as shown before, that should give an operating cash flow before interest of approximately NOK 190 million. In March this year, we refinanced bond loan with a new loan of EUR 40 million. The loan was well received in the market and is currently trading slightly above face value. Consequently, Zalaris is fully financed until 2028 with the option for early redemption from September 2025. Our liquidity position remains strong with a cash balance of NOK 140 million at the end of June. One of our financial objective is to decrease our leverage which is calculated as a ratio of net interest-bearing debt to adjusted EBITDA to below 2.5 by 2026, down from 3.8 at the end of June. The goal aims to enhance our financial flexibility, including the potential for bank financing, which would typically lead to lower financing costs and increase flexibility. Our bond loan is denominated in euro. Now the primary reason for this is that our loan was initially used to finance our acquisitions in Germany and the U.K. In addition, approximately 80% of our revenue is generated by entities outside Norway. An increasing share of revenue and net profit come from these entities. Therefore, the euro loan serves as an effective hedge against foreign currency-denominated investments in subsidiaries. However, as you've probably seen, significant fluctuation in the euro-NOK exchange rate can lead to substantial unrealized currency gains and losses in the P&L. Meanwhile, the corresponding currency translation in subsidiaries, which moves in the opposite direction is reported as part of total comprehensive income. Now here is a summary of our long-term financial targets. As mentioned, we are in for an organic revenue growth of approximately 10% annually with an EBIT margin of 12% to 15%. 50% of the growth will be from Managed Services, while Professional Services should grow about 5%. Our focus will be on generating free cash flow with a target for operating cash flow conversion before interest payments of 70% of EBITDA. For investments, our capital expenditure will prioritize reinvestment in our organic growth that gives a high rate of return and expected annual CapEx level going forward is NOK 15 million to NOK 20 million. Our goal is to reduce the net interest-bearing debt to less than 2.5x adjusted EBITDA, and we plan to uphold our existing dividend policy, which involves a payout to shareholders of 50% of net profit before tax. Now that concludes the financial section. I'll now pass the word over to Hans Petter, who will present the key takeaways from these presentations. Thank you.

Thank you, Gunnar. Yes, and I said let some of the key takeaways from this presentation. And in addition to giving you more information about our business, I am really proud to see our management team in action. I think many of you have not met them before, but add to this, all our regional managers that are here today, you will find a very committed team that has been with us for a long time, and that has shown that the endurance counts also in Zalaris, I'm very proud of what they achieved and the support they give me and the rest of the organization on a day-to-day basis. So I just have one slide here, and we hope that you have enjoyed the presentation and that you have learned something new. And in case you missed something, here are the 3 main points that we aimed at conveying throughout the presentation. So Zalaris PeopleHub is increasingly in favor by mid-market and large customers seeking to digitize their payroll and HR processes, resulting in 33% reported growth and 20% in local currency year-on-year in Q2. We are now EUR 100 million annualized revenue company and expect to delivering above our 10% growth target over the next 36 months. Zalaris PeopleHub is a scalable solution, supporting our Zalaris 4.0 industrialized approach to HR and payroll. We are on track delivering on our 10% EBIT target and are now aiming higher, driven by improved efficiency and scale and will be targeting 12% to 15% EBIT over the next 36 months. Focus on capital allocation in combination with increased profitability will drive free cash flow toward our target level of 70% of EBITDA. And we truly appreciate your interest and feedback, and we are here to now take your questions.

So comments or questions. Yes, Christian.

Could you just try and help us decompose the growth? First, should that be front-end loaded given your currently contracted backlog? And moving on to 2025-ish. How should we think about the split between new customers, CPI adjustments in the contracts and upsell and cross-selling?

Okay. That's -- let's start with one at a time.

So front and Northern growth. How should we kind of think about that growth rate developing?

Yes. So maybe you should -- so what do you -- can you explain what you mean with front loaded growth?

So at least on my estimates, using your backlog and your guidance on ERR, growth rates should be a bit above your target short term but given your target, they should probably trend below 10% going into '25, '26?

Yes. I think on that topic, I mean, it's clearly that with the success that we are experiencing in the market, we have already secured about 10% growth now for the next period to come. We truly believe if the situation -- if the market continues as is, that we will surpass our 10% growth target, but to then somewhat prudent, we maintain our 15% Managed Services growth target and 5% Professional Services growth target. And of course, at any time, we'll seek to overperform on that. But for planning purposes, we think that, that 10% per annum target is if -- that's what we are using.

And then to the next one on kind of the normalized growth. How is it decomposed into new customers, CPI adjustments and upsell and cross-selling?

Yes. I think in general, when we -- normally we'll get the majority of our Managed Services contracts are adjusted with a weighted index composing of around 75% personnel costs and 25% of consumer price indexes. So that will, of course, contribute to some of the growth. But when setting also sales targets, we use our existing revenue as the basis and then seek to increase Managed Services and Professional Services on the top of that. So I think in reality, that might give an extra effect.

I just have a question on operations. The first one is when you win companies in operation outside of Europe, can you provide an example of how you deliver and how you use partners?

Okay. Øyvind, do you want to respond to that? Of course, I can as well. But I'm happy to again show that we have people. Yes.

The question was related to when you win operations outside of Europe or with customers that have operations outside of Europe, if you can provide an example of how you deliver and how you use partners.

Yes. So I can use one of the examples that we signed now in Q1 and where we will operate the large countries in Europe ourselves. While that customer also has a long tail of approximately 40 countries with less than 200 employees. So obviously, it doesn't make sense for us to invest in SAP or PeopleHub base solution for gross-to-net payroll. So for that, we use what we call long tail partners. We have two that we currently use that will manage the gross to net with local payroll solutions, but we integrate that with PeopleHub as the aggregation layer for employees, such that employees will always have the same, say, user experience when they look at their payslip, write their time and absence, travel expenses, et cetera. Then as I also mentioned, we have a few countries in active development, some in Europe, which we plan and have the aspiration of actually establishing ourselves like, for example, the Benelux area. But if you also looked at when we -- when I talked about global opportunities, we also had a few countries in flight, for example, in North America and Chile. And for those, this particular customer had an employee population of 1,000 plus, where we then will use PeopleHub or an SAP-based solution also for payroll. But in those countries, we use local partners to both implement and also operate and maintain the solution. But we will then serve the customer, where they partner and then deliver the onshore capacity, which we will normally do ourselves in combination with our own near and offshore capabilities.

Good. Thank you. And also, on the transformation project that you talked about and deliver within Professional Services, can you give some more examples of typical transformation project and how kind of SAP comes into that mix?

Yes. So when we talk about transformation projects in Professional Services, it's the implementation. We refer to the implementation projects in Managed Services. So for example, implementing this large customer that Øyvind talked about, that would partially be done by Professional Services and then supporting with resources into that project.

Okay. And just a final one before I can hand it over to someone else. On shared services, are you actually contractually allowed to deliver near-shoring and off-shoring to all of your clients? Or is there some clients that say, no, we're not able to deliver from India or from...

As said, we are allowed to deliver within the EU to all customers. But there are some customers with limitations to the use of capacity outside the EU. And we -- that's also, I would say, the beauty of our solutions. We have role-based access and security setups that allow us to then limit data travel to the units or organizations that can see that data such that data not to be processed outside the EU will not leave the EU and be visible to anyone outside the EU. But we are looking at also bringing some of our Indian colleagues that we're increasing the CS technical resource and not just BPO resources, onshore into, for example, Germany to help automate and digitalize the existing processes.

All right. I can hand it over if there's someone else. Then on your EBIT margin target. Just trying to understand the range there and what you kind of try accounting for?

Yes. I think the range is a range we see that through growing, if we are able to deliver us in similar contribution margins as we do in the margin -- as we do in the Northern Europe for the rest of our business, in particular for Germany are getting closer to it in combination with managing our group overhead on similar levels that we are at the moment and utilizing the scale of our centralized infrastructure, PeopleHub, as also Halvor talked about. That will, if we achieve our growth targets, give us at least 12% EBIT. But then we have seen also through the EBIT improvement program that we have been through and automation activities that we have ongoing that there is a substantial upside to improve margins further through automation because as you have seen also here today, we have a substantial -- I say, our substantial cost base consists of people costs. So then to take out manual work in our processes, which -- where we still have lots of manual work being done is as contributes to a substantial upside on the margin side if we achieve a higher level of automation than what we have. But that's more -- it's more -- it's a target and still gains to be found and not so identified as we speak.

But just to add to that, I think that provided we achieve the revenue target that we have set, I think that 12% is on the conservative side. And I think that 15% should definitely be achievable.

And have you sort of accounted for larger deals in that margin? I mean, historically, I mean, the current deals you're getting now seems to be larger than the historical ones. And I don't know, margins on the large deals tend to be lower, I would guess?

In general, I would say margins on all deals, we have the same margin targets and believe that we will get the same margin from large deals as for smaller ones. I think the key element to keep in mind is when we talk about margin on the deal, we talk about the calculated margin, which will, of course, include all the, what we call the calculated unit costs. So on a large deal, which have a footprint outside our existing markets, that will give, say, less percentage-wise incremental margin than a deal utilizing our existing infrastructure that will have a higher incremental than calculated margin because it utilizes much more our existing infrastructure. But it's still -- the larger deals are calculated to deliver that calculated margin target, which is the same for both.

Okay. And just a final one on the EBIT margin. Could you provide any guidance or indications on the margin in Germany for 2023?

The margins in Germany for 2023 are fairly low. So it's the sort of low single-digit.

They are moving in the right direction. And the German team is -- that's also one of, I would say, the real changes that we have seen to the business over the last 2 years. We have also, I would say, a fantastic management team in Germany that's all aligned on achieving the target. We are all aligned both the management team here and our, I would say, in general management teams, but particularly also the German one. And we are pretty confident that we will reach it. But it's like most other things that you do in life, it's hard work. It's not just something. It's not just changing numbers in an Excel sheet or something. It requires hard work, it's a lot of people that needs to be redirected and changed. So it's somewhat of an oil tanker to turn, but I think we are well into the turn now with the actions that Richard and his team has initiated throughout this year.

And also, I mean, the negative -- the restructuring that has been -- that Richard talked about, in Germany during the year has certainly had a negative impact on margins because you're moving work from Germany to other locations, and that means that you have an extra set of hands in for a period.

And also one point that I also like to mention, it's not just cost reductions and efficiency improvements that will drive results also for the customers in question also in Germany, but it's also commercial negotiations with our customers to -- that also seems very positive to get us into a better commercial situation also on the revenue side. But we have customers, for example, that we have now been delivered -- delivering on, say, all the customer-specific solutions that it seems now that we are able to move into PeopleHub which then will improve services significantly for both the customer, but also significantly also improve our margins on those customers.

I feel a lot wiser about your company now, which is great. Two questions. You decided to stick -- to not stick to bet on the -- as a payroll engine. And I'm sure that has a lot of benefits with the SAP brand. But could you elaborate on potential, let's say, what was the word, drawbacks. I'm just thinking that some companies are SAP-allergic to put it that way. How do you handle that? And I would presume that SAP are expensive not only for their own customers, but for people like yourselves. So that's one question on the SAP relationship, the pros and the cons. And the second question is just monetizing your data on an anonymous basis. I presume that, that would be -- or it's a question, would that be only towards existing customers or third parties? And could you give a big kind of indication of what sort of monetization potential that could be?

So to the first question, our relationship with SAP has been extremely good and is really good and we intend to maintain it really well. So -- and we -- I normally say if there was a better payroll solution, we would be running it because we are not married to SAP. Our business is to deliver the best possible solution to our customers. So if there was other better solutions, we would be having it. So yes, SAP, I would say the main disadvantage with SAP is that it is somewhat complicated implement but the flip side is that SAP allows for much more automation than any other payroll engine that we know, for example, doing retroactive calculations, you can configure it to fully automate payroll, but that takes -- it has a fairly good-sized upfront cost. But that in -- when in operations, you can deliver large and very complex payrolls very effectively with very high quality. So -- and what it also turns out to when selling business process as a service, most customers really do not care what solution we actually use, whether it's SAP or something else. So they care about the price per payslip and that we deliver the services that we promised in the service catalog. So actually, in very many cases, we don't use much time in actually talking about SAP with those customers. We talk about the services that we actually are selling. So we -- there are not many disadvantages that we actually see with SAP. And cost-wise, for us, it is an extremely cost-effective solution and the alternative to, for example, developing our own solutions, we have tested that out now with vyble. And we see it's -- it requires quite substantial investments and not only that you need to invest, but you also need to generate sufficient volume and scale in each of the countries that we then want to be present. And that's going to be the challenge for every contender to SAP as well because again, as I said, customers really do not care about what software it is as long as it delivers correct payroll. So why would you change something that actually works to something that you're uncertain about when -- if the price and quality is right. In terms of monetizing data, I think as we are very early in the process but I think we primarily think of how can we make our existing data valuable to our existing customers. So that's the kind of outlook that we currently have and then let's see what comes out of it. But I think the most realistic scenario is that we will help big customers that's been with us for a long time that have massive amounts of data to understand better how they can use that data for, for example, predict sick leave is on -- much like on a daily, weekly, monthly basis such that they can staff correspondingly, they can predict the turnover such that they can take action or to either directly toward employee groups or managers that are not behaving or whatever we might find the reason. That's the type of intent that we're currently looking at. So it's more focused on existing customers and how to create more value for them. And I think we did not mention that, but with this vast amounts of data that we have for many customers now up to more than 20 years of data. That's also an addition, call it, stickiness component that it's going to be very tough, even the customer owns that data to move that with them if they move to someone else. So if we can create more value out of the data, we think customers will be more satisfied with our services and be more likely to be with us also for even longer durations and thus keep our very low churn on that level.

Just a question on the HR shared services. I didn't understand what type of revenue-generating services you expect to deliver actually?

From here this presentation?

Yes.

Okay. So what we basically today or say traditional service is to handle all employee data, say, maintenance, handle time and absence, travel expenses and payroll and with the HR services, we'll actually also help customers recruit and source employees, onboard employees, basically take care of all the -- create learning and organized learning content and basically all the other nonstrategic activities that an HR organization normally does, but not the strategic part of it.

Okay. So basically competing with the NES Fircroft and Airswift and those type of companies outsourcing resources?

To be honest, I am not -- I don't know those companies.

It's not a resource outsourcing, it's process outsourcing at most of the HR areas, but not as the most strategic like for employer branding. And yes, training and development of the strategy of it. But with those systems, it's also a lot of data maintenance so keeping all the master data up to date and overseeing that so that you have the good structure that you build over time. That is a very natural services and also running compensation, processes, analytics, delivering reports that you can get out of the systems.

But isn't that something that should be delivered by the Professional Services segment?

Not as an ongoing recurring service. So this is like a Professional Services will help customers implement the systems such that they can -- customers own shared service organization will use the system to perform those tasks. In this offering, we will actually be the customer shared service organization performing those tasks. So it's the next level up of services in our sales service hierarchy.

Because the Professional Services is more technical, and this is HR competence in general.

And just a couple of more questions, sorry. But can you just reiterate what you said on days sales outstanding in a different market setting [indiscernible]?

That is on average, the credit terms for customers in the Nordics are 30 to 45 days and 45 to 60 days in Germany. And also, we see it in Germany that they generally also do pay late. Well, in the Nordics, especially Norway, we are very disciplined and pay on time. So it's really 2 things that we work on, both is to -- because this is both -- this is a commercial decision in terms of the credit terms, obviously. So that's something that we need to work on. And the second is to make sure that we collect when they should be collected.

And in APAC?

In APAC, I think it's normal 30 to 45 days.

But it is clear that when you, for example, win one of the world's largest car manufacturers as a customer, they are used to somewhat more dictating the payment terms than some other customers. That's part of their business. And in some cases, it is extremely tough to negotiate it, is a part of the pricing of the agreement.

Okay. But then, I guess I have 2 follow-up questions. First one is, do you also get similar type of fame in terms towards your suppliers, whether it's not Nordics or Germany, so it's kind of linked? Or do you have the same 30 days or whatever?

I would say, in general, it's more 30 days, at least in the Nordic, it might vary somewhat in...

And when you kind of -- because working capital is -- you're tying up capital. So do you get kind of -- are you able to price that into contracts as well to compensate for more working capital binding in the contract?

So in our new calculation models, we are also taking that into account when pricing will be.

And also I'd like to add to that. For our business with employee costs being such a big part of the total operating expenses, the payroll part doesn't have the same impact as it has in many other businesses. So we can't sort of -- even though we could transfer those terms to our suppliers, it wouldn't have the same impact as in many other businesses.

I would just stick on return on capital. And then is your organization also incentivized on working capital? Or is only...

Today, they are not. But this is now changed. I think it's fair to say that up until recently, our focus was, one, growth; and secondly, as you have learned through many of our interactions and communications, it has been now getting to the 10% EBIT focus, but we are also now turning to cash. And then as also our bonus schemes and also performance and goals processes, we also actively use our overall targets for the company and roll that down to our management teams as much as it is practically possible.

So sorry. But then I guess also you guys will be incentivized on...

Exactly.

Congrats.

You say that you have covered 120% of the sales budget. You said 90% at the Q2 presentation. Could you just talk a bit about the latest signings here?

Yes. We have won 2 large deals that we have signed, one with a large German pharmaceutical, about 4,500 employees, a very cool company. We can't say the name. But we have had that customer under implementation under a letter of intent for some time targeted to go live in January. Then we also expanded global -- or as part of an existing global master services agreement where we are the preferred supplier for large financial institution. We expanded that with about 10,000 employees, a SAAS solution.

Yes. So that was the 2 ones...

Those are the 2 large ones that we have announced. And that's the two ones adding up from the 92, now the 100.

Something around NOK 30 million combined.

More like NOK 20 million.

It's in your sales which at NOK 100 million?

It's slightly above. We have a sales project of about EUR 10 million in ACV.

And new contract value that is...

That's for Managed Services. So Professional Services...

And just, of course, I know I can see that you're second -- calculation. So I think one of the reasons is that when Øyvind and his team do their sales budgets and what they include in the sales budget is also slightly different from what we report externally because we focus -- so when we report to the market, we focus on the new names and if there are new geographies added. So that could be that there are some differences in...

I can add. And we can also discuss in more detail -- already more detail. But what we have in the sales budget is new sales and application existing customers. And upsell will be, it could be like a new country like, for example, the typically announced. You could also be in new products and services, the criteria to be part of the sales budget is that is recurring revenue. So if it's only like a one-off revenue exchanger, et cetera, that will sit in another, say, target budget. So the sales project is for new and upsell. And it's not all the upsell deals that we will typically announced in the market. It could be -- for example, we have a customer now expanding to a new country with very small in size. We have had customers buying more SuccessFactor solutions, for example, with recurring subscriptions, et cetera. So currently, it adds up to approximately 120% of the communicated sales.

And one point that I also like to make on those 2 last signings that they fit perfectly to also target going forward. Those are existing or customers where we can utilize the full effect of PeopleHub and our organization capabilities in countries where we are already, meaning that we will have a higher incremental margin than our calculated margin and our communicated, say, margin target. So very positive deals for us to get those that will utilize both our existing PeopleHub physical infrastructure, our licenses that we already are have -- are paying for because we have a certain stabilizing capacity available. And of course, there's also a service center and delivery capacity that we also have in place. We do not need to establish any new operations, potentially maybe add some new resources, but also that we will try to keep as a minimum and use as much as what we have.

Any further questions?

And it's really nice to see you [ Stena ] here today because he was actually the first employee joining me when I founded Zalaris and as our first CFO. So really good to see you [ Stena ] and you at least hang on to share since then, so it must mean you still like this.

Yes, sure.

First congratulations with your achievements, the last 5 years. It's very impressive to see what you have achieved. And I believe Zalaris should be well positioned to play an important role for the further growth in this industry. I have a little bit like mitigated question, and that's regarding -- I mean, in this inflationary times, being able to adjust the prices is very important to maintain or improve the margin. And of course, good clauses in the contract is the starting point. But also it's about working with the client and educating the client to really understand the need to adjust the prices. Could you elaborate how you work with -- how we're able to adjust the prices with your customers?

As mentioned for a little while ago, we are in most contracts, we have price adjustment clauses allowing us to index with a weighted index that should cover us for both inflation and personnel cost increases. But we are also -- have started much more actively also showcasing to customers what the value that we create over the life cycle of the contracts, how their own costs are moving compared to our costs with the intent of at least creating an atmosphere that they also understand our need for adjusting prices. In Professional Services, where this is more on a project basis, we definitely -- and we're also resources -- and availability of resources is a key element. We are looking at also pricing much, using price as a way of also selecting the deals that we win, so to speak, and try to maximize the revenue more. So that's also an ongoing process. But it's an area where I think we have some improvement opportunity, but it's been much more apparent to us that we must address it now with the inflationary pressures that you also referred to. So you will see more coming, but -- and we have started the journey, but I think we can say we haven't seen the results of it much yet. So with that, I think we can conclude today. Thank you so much for coming. I think there are some refreshments and sandwiches outside for those that want to stay and we, as a management team, definitely will stay on here for some time. So if you have questions that you just ask us on a one-to-one basis, you're certainly free to do so. But again, thank you so much for coming and hope to keep you interested in Zalaris.