Value Ideas Blog
Vitec – Numbers Update, AGM and Outlook

Dear readers,

for those of you actively following Vitec, there were some news last week: the Q1 report as well as the annual general meeting. Firstly regarding the AGM:

  • Dividend has been proposed at SEK 0.90 per share, resulting at a dividend yield of 1.38%
  • All board members and the president were discharged from liability for 2015, balance sheet and income statement were approved
  • Christer Stjernfelt was re-elected chairman of the board, 4 board members were also re-elected, PricewaterhouseCoopers AB remains the auditor

Perhaps more importantly, the Q1 numbers have been published with a less-than-spectacular market reaction (but already some recovery today):



  • Net sales SEK 157 M (143)
  • Profit before tax SEK 18,0 M (21,6)
  • Operating margin 12,4 % (16,1)
  • Earnings per share before dilution SEK 0,48 (0,59)
  • Cash flow from operations SEK 84,0 M (73,5)
  • New managers in BA Real Estate and Health

The major development here that likely hit the market was the lower operating margin. The CEO Lars Stenlund highlights the ‘anticipated reduction in volume of business are Estate Agent in Sweden’, weakening NOK and new business managers that have been appointed to Real Estate and Health, leaving the outgoing managers inside the firm to focus on ‘exploration, acquisition and group interaction’. This is accompanied by the loss of 2 of their largest customers; something that has been known before. The large drag on operating profitability was justified by development and delivery of the cloud based systems for the Health sector  (but really also all other areas, e.g. Vitec Express etc.) which increased recurring revenue to impressive 85%. This development has also pushed cash flows, on the other hand, as illustrated below. They see the sales decrease in Real Estate Agent as a positive development for the overall product mix, since no area now makes up more than 30% of total sales. I have to admit that although this naturally reduces exposure to this sector, it is not the way I would see a strong growth business think about diversification. However, the firm does enjoy a low natural correlation among their segments. 




Lars Stenlund describes the financial position and preparedness for future acquisition as good: In fact, the Cash and Equivalents position now amounts to 218m SEK (likely due to an about equal drop in receivables) which gives a lot of space for acquisitions this year. The increase of subscription type services was significant: licences fell from 4.6m SEK to 3.5m SEK while recurring revenues increased from 111.2m SEK to 123. 0m SEK. The struggling Real Estate area is supposedly limited in growth due to the need of training services for integration. The important and necessary development of shifting from traditional licensing to cloud based subscription model will set up the company for the future of software licensing.


First quarter sales have shifted in proportion from Sweden (52%, now 45%) to Denmark (13%, now 18%) and Norway (23%, now 25.8%).  In absolute terms, first quarter sales have increased in every region except for Finland where they are just slightly below the last level. The weakening of the NOK has caused a significant slowdown in the Norwegian property market. The number of properties for sale decreased and the number of transactions benefiting Vitec decreased accordingly. This explains a decline is the Estate Agent business area by 14%.


In summary, we think that the short term costs faced in the Health business are a very natural part of Vitec’s strategy that has worked out well historically. In terms of the financial position we think there is now good opportunity for continued acquisition growth and in terms of market readiness of the business model great organic growth prospects. The loss of two large customers in combination with the slowdown of the Norwegian property market given the ongoing switch to ‘Software as a Service’ is definitely a ‘bump on the road’, but it does not change the long term view, nor long-term margin projections. We will not sell the position for anything below 82 SEK which is in line with our pre-stock-split valuation.



  • Noticed Vitec do not depreciate Goodwill derived from acquisitions. Taking an aggressive depreciation schedule for tax is usually part of the MO for these Roll-Ups runways. Any insight?

    • Hi Johnni, thanks for your comment.

      Generally, goodwill is subject to an annual impairment test. Impairment occurs when the recognized value is above recovery value, the maximum of fair value minus sales expense and value in use. For calculating this, Vitec uses this: ‘In the calculation, the assets are referred to the smallest cash-generating unit where an independent cash flow can be determined. The smallest cash generating unit is a business area. The discount rate after tax amounts to 8.63-9.43 per cent, and is based on a risk-free bond yield with a duration of 10 years with an addition for assessed risk.’ For FY 2015, these amounted to 9.9m SEK for goodwill (4.7m in 2014). For the additional purchase of AcuVitec, goodwill impairment was 11.2m SEK, for a purchase price of 72.8m SEK. Finally, on page 60 on the last AR, you can see impairment assumptions. The assumed sustainable operating margins are in most cases below current margins. Needless to say the 2% growth assumption is below reality and 1.5% cost growth surely above. So I would argue they already made proper use of impairment. Curious about your thoughts.


  • Any update following the release of Q2 earnings a few weeks ago? Thanks.

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