Business model and growth strategy
High proportion of recurring revenue
Our business model is based on a high proportion of recurring revenue. This gives us stable and predictable cash flows that create opportunities to act in the long term. We also become less sensitive to temporary declines in individual companies. Nowadays, software functions are delivered with increasing frequency over the Internet via cloud-based services. This means that our offering is being expanded to also encompass operation and storage. When traditional license sales are replaced by a subscription model (SaaS) both the operating margin and the proportion of recurring revenue increase. For our customers, this means low investment costs and that costs for development, operation, maintenance, upgrading and support are included in the ongoing agreement. A secure overall offering at a known cost.
Growth through acquisition
Vitec grows through acquisitions of well-managed software companies in vertical markets in the Nordic countries. There are mature companies with mature products in mature markets, thus organic growth is relatively low. We are an industrial player that acts for the long term and retains the acquired companies in the Group. It requires a thorough acquisition process and responsible management of the companies.
In Vitec, we have many years of experience and expertise in the development, sales and support of vertical market software. This makes it possible to identify acquisition targets that, based on a number of important aspects, are fully in line with our strategy. Throughout the Nordic region we continuously target a hundred or so software companies as potential acquisitions. The acquisitions made in existing verticals contribute to increased market share, while the acquisition of entirely new sectors leads to increased risk diversification within the Group. One decisive factor in the decision-making process is that the acquisition must contribute to the earnings per share increasing in the Group. Therefore, it is important that the company has good profitability and positive cash flows. We also invest a lot of time and commitment in personal meetings with people in the company before deciding on an acquisition. Because we buy companies to keep them in the Group, it is important to agree on fundamental values, business model and strategies.
The acquired companies are profitable and well-managed. Therefore, it is important to maintain the smooth functioning of the business and the important local industry knowledge. The local management is supported by processes and infrastructure that exist in the Group. All companies are followed up with common key figures that govern the strategic direction towards a high proportion of recurring revenue and focus on good cash flows. In the Group, we have common principles for how the product development should be planned and implemented to ensure that our offering is relevant in the future. The decentralized leadership requires that local leaders are familiar with and act on the basis of the Group's strategy and corporate culture.
Brand and product strategy
All operations within the Group must contribute to strengthening the Vitec brand. As a rule, we put Vitec in front of the name of the acquired company and gradually change over to Vitec as the only logo. We retain the name of the product which is communicated to the market together with the brand Vitec.
Acquisitions may mean that we are offering products with partly overlapping functionality or even competing products. When this happens, we make no immediate changes. In case of later new developments we evaluate the possibility of creating components with support for all product lines. In this way, a process is initiated that future-proofs the products and creates a new, joint product line for all customers within the specific industry.
Our software often enables increased efficiency and reduced use of energy and paper for our customers, for example by mobile solutions and e-signature. An important part of our business includes the operation of data centers for propriety and customer software. Here we strive to use 100 % renewable energy and make efficient use of our resources. For example, we use so-called free cooling, which means that during the winter months we take advantage of the natural cold of the outside air. We also largely use server virtualization that provides lower energy consumption and reduced consumption of hardware.
The use of modern technology also enables a rational approach and a more sustainable situation for both employees and the climate. One example is our video conference facilities and webinars which results in less traveling. Another function is secured print-outs in our office printer that provides both improved security and reduced consumption of paper and ink cartridges.