Digital Workforce is planning an initial public offering and a listing on the Nasdaq First North Growth Market Finland

Digital Workforce Services Plc                     Press Release                  10 November 2021 at 8:00 EET

 

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Digital Workforce is planning an initial public offering and a listing on the Nasdaq First North Growth Market Finland

Digital Workforce Services Plc (”Digital Workforce” or the ”Company”) announces its intention to launch an initial public offering (the “IPO” or the "Offering") and to list its shares on the Nasdaq First North Growth Market (“First North”).

We kindly welcome you to attend Digital Workforce’s digital press conference held today 10^th of November at 10:00 EET through the following link (the conference will be held in Finnish): https://digitalworkforce.videosync.fi/2021-11-10-tiedotustilaisuus

Digital Workforce is a Finnish Intelligent Automation (IA) and Robotic Process Automation (RPA) services specialist that designs, implements and manages software robots called digital workers. Digital workers perform repetitive manual knowledge work processes for the Company’s customers, mostly consisting of large global organisations in both private and public sectors. Digital workers increase efficiency of customers’ business process, reduce costs, increase quality and relieve human workers from routine work for more productive work such as in creative roles or client service. The majority of the Company’s revenue is recurring (52.7 percent during the first nine months of 2021).

The purpose of the Offering is to create the preconditions for the Company’s listing on First North and, thus, enable investments in growth and expansion of its operations in line with the Company’s strategy. The Company expects the listing on First North to provide the Company a new channel for acquiring equity financing both from Finland and abroad, to create liquidity for the Offer Shares and to develop the Company’s profile and reputation amongst potential customers, business partners and investors. Moreover, the purpose of the Offering is to strengthen the Company’s capital structure. Furthermore, the purpose of the Offering is to expand the Company’s ownership base amongst both Finnish private investors and domestic and international institutions. The listing of the shares and increased liquidity would also help in using Digital Workforce’s shares more effectively as a means of consideration in potential acquisitions and in incentive programs for personnel.

The contemplated IPO is expected to consist of a share issue by the Company of approximately EUR 20 million (gross proceeds) and of a share sale by certain existing shareholders. The proceeds from the share issue are intended to be used to support Digital Workforce’s international growth strategy by strengthening the Company’s sales and delivery resources, and potentially also to finance corporate acquisitions. In addition, the proceeds are intended to be used to finance investments related to adopting new automation technologies and to ensure having sufficient delivery resources and scalability.

Certain funds managed by entities owned by Aktia Bank Plc, Handelsbanken Fonder and certain funds managed by SP-Fund Management Company Ltd (together “Cornerstone Investors”) have, subject to certain ordinary conditions, committed to subscribing shares in the Offering, provided that the combined value of the Company’s shares before IPO proceeds does not exceed EUR 50 million. Commitments by the Cornerstone Investors amount to EUR 9.4 million in total.

Timo Ahopelto, Chairman of the Board comments:

“Digital Workforce’s growth has been strong over the past years. The objective of the planned IPO is to enable Digital Workforce to execute its growth strategy and to expand its business. We believe that the listing will enhance brand awareness amongst clients, business partners and investors, and increase possibilities to invest in growth and to reach Digital Workforce’s long-term financial goals.”

Mika Vainio-Mattila, Chief Executive Officer comments:

“Information-intensive work is going through a huge transformation. According to our strategy, we focus on growing our business and accelerating growth especially in North America and Great Britain. We intend to expand our business by investing in new sales and delivery resources, sufficient production resources and deployment of new technologies. This is how we continue to secure our ability to help our clients to enhance their business processes and free human labour for more productive work.”

About Digital Workforce

Digital Workforce is a Finnish Intelligent Automation (IA) and Robotic Process Automation (RPA) services provider. According to the Management, based on a competitive environment survey carried out by the Company, and research company Forrester[1], Digital Workforce is one of the leading service providers specialising in RPA and IA on an industrial scale in terms of revenue, service offering, customer referenced and head count. Digital Workforce helps its customers to automate knowledge work tasks and business processes with IA through its digital workers. Digital Workers are software robots that are in essence automated team members that execute business processes precisely, tirelessly and with fewer mistakes than human workers – with no significant changes to the customer’s existing systems. Digital workers have super powers based on RPA, Artificial intelligence and cloud services, which make them fast, efficient and able to cut costs significantly and offer new and unseen business opportunities for customers.

The Company’s service offering covers the entire lifecycle of IA: design and consultancy, development and implementation, cloud-based platform, support and maintenance as well as further development. The Company’s business model is divided into two main areas: Professional Services (“Professional Services”) and Continuous Services (“Continuous Services”). Professional Services are mainly billed on time-and-material or project basis. Continuous Services in turn generate recurring revenues as the operation and management of customers’ automation is continuous and billed based on use (e.g. pay-per-minute). The purpose of the Company’s business model is to increase the absolute revenue and relative proportion of the higher margin Continuous Services business. Digital Workforce operates globally and its customer base consists of more than 200 mostly large global organisations. The Company offers its services and solutions to a wide customer base in different industry verticals including e.g. banking and insurance services, health and social care, manufacturing and logistics, and different public sector organisations.

Historically, Digital Workforce has been able to grow rapidly while simultaneously increasing its share of recurring revenues. The company’s average annual revenue growth rate (CAGR) was 27.6 percent between the accounting periods ending in 31 December 2018 and 31 December 2020. Simultaneously, the Company’s share of recurring revenue increased from 29.7 percent to 47.2 percent between the accounting periods ending in 31 December 2018 and 31 December 2020. In the accounting period ending in 31 December 2020, the Company’s revenue was 19.1 million euros. In the first nine months of 2021 the Company’s revenue increased by 19.3 percent compared to the first nine months of 2020, and in the first nine months of 2021 the Company’s share of recurring revenue was 52.7 percent.

The Digital Workforce Group consists of the parent company Digital Workforce Services Plc. and its fully-owned subsidiaries Digital Workforce Svenska AB, Digital Workforce Sp. z o.o., Digital Workforce AS, Digital Workforce A/S, Digital Workforce Services Ltd., Digital Workforce Services Inc. and DWF Digital Workforce Services GmbH. The company offers its services globally through eight offices located in Finland, Sweden, Norway, Denmark, Germany, Poland, The United Kingdom and The United States. In the nine month period ending in 30 September 2021 the Company’s average number of personnel was 194.

Strengths

Digital Workforce’s management estimates that particularly the following factors are the Company’s strengths:

• Digital Workforce operates in an attractive target market which is expected to grow rapidly
• Digital Workforce is a leading global RPA specialist
• Digital Workforce operates a scalable business model and has a high share of recurring revenue
• Digital Workforce is in a good position to further accelerate growth

Strategy

To achieve its business targets, Digital Workforce’s strategy is built on the following cornerstones:

• Continue expanding business and developing advanced solutions in the Nordics
  • The Company has an extensive customer base and a large number of reference projects in the Nordics. The company’s strategic goals in the Nordic market is achieving high organic growth and profitability by leveraging the existing customer relationships and strong market position while developing new RPA and IA solutions. By developing new, innovative solutions, the Company can increase its sales to its current customers, further strengthen sales to new customers and at a later stage, when proven effective, introduce new solutions on markets that the Company’s management believes to be high-growth markets, such as the United States and United Kingdom.
     

• Accelerate growth in US & UK by focusing on core offering
  • The Company’s management estimates that the United States and the United Kingdom are high-growth automation markets where the adoption rate of automation is significantly behind the Nordics. These features make the markets very attractive for the Company to achieve the expected high growth. The Company’s management believes that the Company’s excellent customer references and focus on the core expertise make it possible to quickly scale to several different customers because standardised projects and service models enable short sales and implementation times. The Company’s management sees that investments should be focused more strongly on utilising the potential of these markets in particular by developing and expanding the sales organisations and delivery capabilities. The Company considers it a possibility to support the expected growth in the US and UK markets with acquisitions.

 

• Strengthen delivery resources, capabilities and management tools to support expected scalable growth
  • In the Company’s operating model, services have centralised delivery functions currently operating from Poland and Finland, whereas local country organisations focus on sales and managing the customer relationships. The Company’s goal is to make additional investments in personnel in Poland and Finland to increase its delivery resources. In addition, the Company aims to invest in management tools and systems so that there would be no organisational obstacles or slowdowns for expected high and scalable growth.

Financial targets and dividend policy

Digital Workforce’s goal is to achieve an annual revenue of EUR 100 million by the end of 2026. Approximately EUR 30 million of the annual increase in the revenue is expected to come from the Nordics and EUR 50 million from the United States and the United Kingdom.

In addition, the Company targets a clearly positive adjusted EBITDA margin by the end of 2026. In the longer term, the Company targets an adjusted EBITDA margin[2]  of over 20 percent, but in the period 2021–2026 the Company will prioritise investments for growth over profitability.

Digital Workforce has no confirmed dividend policy.

 

Digital Workforce’s key figures

During the financial year ended in 31 December 2020, Digital Workforce’s revenue was 19.1 million euros, gross profit 6.2 million euros (gross margin 32.6 percent) and EBITDA (0.4) million euros (EBITDA margin (2.1) percent). The share of recurring revenue was 47.2 percent.

The following table sets forth the key figures of Digital Workforce:

 

	1.1.–30.9.		1.1.–31.12.
	2021	2020	2020	2019	2018
(EUR thousand, unless otherwise indicated)	(unaudited)		(unaudited, unless otherwise indicated)
Revenue	16,281.4	13,649.2	19,095.11)	17,162.01)	11,731.41)
Change in revenue, %	19.3	-	11.3	46.3	-
Revenue from Professional Services	7,696.2	7,263.0	10,085.1	11,040.0	8,248.0
Revenue from Continuous Services	8,585.2	6,386.1	9,010.0	6,122.1	3,483.4
Share of recurring revenue, %	52.7	46.8	47.2	35.7	29.7
Gross profit	5,819.8	4,264.1	6,215.5	5,374.6	2,606.1
Gross margin, %	35.7	31.2	32.6	31.3	22.2
EBITDA 2)	(383.9)	(575.8)	(405.6)	(900.2)	(2,250.3)
EBITDA margin, %	(2.4)	(4.2)	(2.1)	(5.2)	(19.2)
EBIT	(585.3)	(701.9)	(600.1)1)	(1,086.6)1)	(2,390.5)1)
EBIT margin, %	(3.6)	(5.1)	(3.1)	(6.3)	(20.4)
Result for the financial year	(1,001.4)	(1,014.2)	(905.5)1)	(1,191.1)1)	(2,575.2)1)
Earnings per share (EPS), EUR	(1.99)	(2.04)	(1.82)	(2.40)	(5.49)
Investments	(37.2)	(461.4)	(464.5)1)	(616.4)1)	(59.2)1)
Operating cash flow	(1,092.2)	(1,463.2)	(394.0)	(685.4)	(2,097.9)
Net debt	2,017.4	1,706.0	575.4	(70.5)	(858.9)
Equity ratio, %	(19.3)	(7.3)	(6.5)1)	2.81)	20.51)
Average number of personnel	194	205	200	197	145

____________________

Note: Gross profit consists of revenue after deducting the costs from raw materials and services, and the direct personnel costs of Professional Services and Continuous Services related to producing services.

¹⁾ Audited

²⁾ As its financial target, the Company also measures adjusted EBITDA. Because there has been no need to adjust EBITDA in the accounting periods of 2018, 2019, 2020 or the nine month periods ending in 30 September 2020 and 30 September 2021, the adjusted EBITDA is not separately presented as a key indicator.

 

Information on the IPO

The contemplated IPO is expected to consist of a share issue by the Company of approximately EUR 20 million (gross proceeds) and of a share sale by certain existing shareholders. Digital Workforce, CapMan Growth Equity Fund 2017 Ky and Lifeline Ventures Fund II Ky, Members of Digital Workforce’s Board of Directors and management, and subscribers participating in the contemplated personnel offering will commit to customary lock-up agreements. The contemplated IPO is expected to include a personnel offering to employees of Digital Workforce that are employed at the time of the subscription period, and members of the Board of Directors and the management team.

Cornerstone Investors, certain funds managed by entities owned by Aktia Bank Plc, Handelsbanken Fonder and certain funds managed by SP-Fund Management Company Ltd  have, subject to certain ordinary conditions, committed to subscribing shares in the Offering, provided that the combined value of the Company’s shares before IPO proceeds does not exceed EUR 50 million. Commitments by the Cornerstone Investors amount to EUR 9.4 million in total.

Danske Bank A/S, Finland branch (“Sole Global Coordinator”) has been appointed to act as the Sole Global Coordinator in the contemplated IPO. In addition, the Company has appointed Nordnet Bank AB as a subscription place of the contemplated Public Offering. Castrén & Snellman Attorneys Ltd is acting as legal adviser to the Company. Borenius Attorneys Ltd. is acting as legal adviser to the Sole Global Coordinator. Miltton Oy is acting as communications adviser to the Company. As of the contemplated listing, Danske Bank A/S, Finland branch will act as Digital Workforce’s certified adviser in accordance with the Nasdaq First North Growth Market Rulebook.

 

Inquiries

Mika Vainio-Mattila, CEO, +358 40 752 0617

Sanna Enckelman, CFO, +358 50 388 3917

 

Disclaimer

The information contained herein is not for publication or distribution, directly or indirectly, in or into the United States, Australia, Canada, Hong Kong, Japan, New Zealand, Singapore or South Africa or New Zealand or any other jurisdiction in which distribution or publication would be unlawful. This release does not constitute an offer of securities for sale in the United States, nor may the securities be offered or sold in the United States absent registration or an exemption from registration as provided in the U.S. Securities Act of 1933, as amended, and the rules and regulations thereunder. No part of this planned initial public offering relating to the securities will be registered in the United States nor will the securities be offered to the public in the United States. Copies of this announcement are not being, and should not be, distributed in or sent into the United States.

In certain states, the issue, use and/or sale of securities is subject to special legal or legislative restrictions. The Company and Danske Bank A/S, Finland Branch assume no responsibility in the event there is a violation by any person of such restrictions.

The information contained in this announcement is for informational purposes only and does not purport to be full or completed. No reliance may or should be placed by any person for any purposes whatsoever on the information contained in this announcement or on its completeness, accuracy or fairness. The information contained herein shall not constitute an offer to sell or a solicitation of an offer to buy, nor there be any sale of the securities referred to herein in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration, exemption from registration or qualification under the securities laws of any such jurisdiction. Investors must neither accept any possible offer for, nor acquire, any securities to which this announcement refers, unless they do so on the basis of the information contained in the applicable prospectus published by the Company.

The Company will not offer securities to the public in any other jurisdiction than possibly in Finland. With respect to each Member State of the European Economic Area other than Finland and which has implemented Regulation (EU) 2017/1129 of the European Parliament and of the Council on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, and repealing Directive 2003/71/EC (the Prospectus Regulation)(each, a Relevant Member State), no action has been undertaken or will be undertaken to make an offer to the public of securities requiring publication of a prospectus referred to in the Prospectus Regulation. As a result, the securities may only be offered in Relevant Member States (a) to qualified investors as defined in the Prospectus Regulation; or (b) in any other circumstances falling within Article 1(4) of the Prospectus Regulation. For the purposes of this paragraph, the expression an ‘offer of securities to the public’ means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities.

In the United Kingdom, this announcement is for distribution only to and is directed only at persons who (i) fall within the definition of “qualified investors” of the Prospectus Regulation, as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 (as amended); (ii) have professional experience in matters relating to investments which fall within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Financial Promotion Order), (iii) are persons falling within Article 49(2)(a) to (d) (‘high net worth companies’, unincorporated associations, etc.) of the Financial Promotion Order, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as Relevant Persons). This announcement is directed only at Relevant Persons and must not be acted on or relied on by persons who are not Relevant Persons. Any possible investment or investment activity to which this announcement relates is available only to Relevant Persons and will be engaged in only with Relevant Persons.

This announcement includes forward-looking statements, which include statements regarding the Company’s business strategy, financial condition, profitability, results of operations and market data, as well as other statements that are not historical facts. Words such as ‘believe’, ‘anticipate’, ‘plan’, ‘expect’, ‘target’, ‘estimate’, ‘project’, ‘predict’, ‘forecast’, ‘guideline’, ‘should’, ‘aim’, ‘continue’, ‘could’, ‘guidance’, ‘may’, ‘potential’, ‘will’, as well as similar expressions and the negative of such expressions are intended to identify forward-looking statements. By their nature, forward-looking statements are subject to risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements. Except for any ongoing obligation to disclose material information as required by the applicable law, the Company does not have any intention or obligation to publicly update or revise any forward-looking statements to reflect events or circumstances subsequent to the publication of this release.

For the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended (“MiFID II”); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) Chapter 5 of the Finnish Financial Supervisory Authority’s regulations regarding investment services and activities, FFFS 2017:2, (together the “MiFID II Product Governance Requirements”), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any “manufacturer” (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the shares have been subject to a product approval process, where the target market for shares in the Company are: (i) retail investors and (ii) investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II (the “target market”). Notwithstanding the assessment of the target market, distributors should note that: the price of the shares may decline and investors could lose all or part of their investment; the shares offer no guaranteed income and no capital protection; and an investment in the shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The target market assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the offering. For the avoidance of doubt, the target market assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the shares in the Company. Each distributor is responsible for undertaking its own target market assessment in respect of the shares in the Company and determining appropriate distribution channels.

[1] Source: The Forrester Wave Robotic Process Automation Q1 2021, Forrester 2021; from public sources.

[2] The adjusted EBITDA is calculated by adjusting the EBITDA with respect to material items that deviate from the ordinary course of business and affect comparability. Such items include, for example, acquisition and restructuring costs and other material exceptional costs.