Improved profitability and continued positive development of service revenues
The first quarter has largely been affected by the uncertainty caused by covid-19. Naturally, the effects of the infection on society in general have had an impact on Proact in terms of demand, deliveries and measures to adapt the business to the situation.
It is gratifying that the first quarter, under prevailing circumstances, is characterised by improved profitability and maintained earnings compared with corresponding period last year, albeit with lower revenues. The quarter's revenue was lower than expected, which can be partly explained by the fact that the comparative figures in the first quarter of 2019 contained a few major one-off system transactions. The company's revenues decreased by 7 percent to SEK 844 (910) million, while adjusted EBITA was largely unchanged as a result of improved gross margin and higher share of service revenue and amounted to SEK 42.6 (43.1) million, giving an improved adjusted EBITA margin of 5.1 (4.7). percent.
In previous quarters, our result have been significantly affected by challenges in Business Unit West. It is gratifying that the implemented measures for improvement have produced results in both Germany and the Netherlands during the first quarter. The Netherlands is also positively affected by the integration with our latest acquisition, PeopleWare, where we already begin to see results from the opportunities to offer new services to our joint customer base in the region.
In Business Unit Nordics, service revenues developed positively driven primarily by cloud and consulting services, while system sales were lower than expected following a weak start to the year following a strong ending in 2019.
Overall, the activity has been good in the market, although covid-19 has caused some negative impact on the quarter's results, as a number of customers in specific industries towards the end of the quarter have changed their priorities and postponed orders. The quarter was also affected to some extent by longer delivery times.
We also see a tendency for our customers in certain industries to postpone decisions on major innovation investments and on new cloud service contracts that usually extend over several years. This has led to a decrease in the contract value of new contracts for cloud services to SEK 51 (61) million. At the same time, revenue from cloud services has increased by 58 percent with organic growth of 20 percent.
At present, it is not possible to determine how large or long-lasting impact of covid-19 entails. The company has a strong financial position and continuously makes the necessary adjustments to minimize the impact on delivery capacity, earnings and liquidity.
At the same time, covid-19 has created increased needs as our customers have been faced with new challenges in security, networking, accessibility and flexibility to adapt their operations. During the quarter, we launched new cloud services within our security offering, including Anti-Phishing-as-a-Service that prevents phishing attempts, and SIEM-as-a-Service that analyzes information from IT security systems in order to prevent intrusion. We have also launched a new backup service for Office 365.
Finally, I would like to emphasize that for Proact, the safety and health of our employees, customers and suppliers is our highest priority and we are closely following developments and following the authorities' advice in all our markets. Despite the prevailing circumstances, Proact has handled both customer deliveries and operational activities well during the covid-19 crisis and I am extra proud that we are able to help clients in the healthcare sector with priority support during this challenging period.
Kista, 24 April, 2020