Interview with Itera’s CFO Bent Hammer


CFO Bent Hammer

"Itera has a competitive advantage with strong digital capabilities and high scalability. It also has a large international potential, which could lead to further growth. It has a long-term nearshore operation with an excellent track record and is uniquely positioned for a Ukraine recovery with strong bonds to government officials and highly motivated and loyal employees. "

For those who have not heard of Itera, could you tell us about your business, what you do, and what markets you’re active in?

Itera is an international IT consultancy company that specializes in digital transformation and innovation. We help our customers leverage the power of data and technology to create value and improve their business processes. As companies embrace digital transformation, they come to us as their trusted partner to build their digital core with cloud-based technology because of our full range of services across digital strategy, consulting and execution, customer experience, technology and cloud operations. Our integrated services meet customer needs rapidly and at scale through our distributed multi-disciplined teams and our world-class cross-border Digital Factory at Scale that enables more for less.

We offer solutions in areas such as cloud, AI, development, design, QA, and security. We are active in Norway, Sweden, Denmark, Iceland, Slovakia, Czechia, Poland, and Ukraine, and we serve customers across various sectors such as finance, insurance, energy, industry, and public. Our customers are primarily based in the Nordics, but we also serve their global operations.

About 80% of our revenue comes from long-term customers that have been working with Itera over many years. For these customers the visibility is high and shows a steady growth year over year. Around 10% of our 2023 revenue is subscriptions, including our subsidiary called Compendia, that offers a SAAS solution in respect to HR and digital handbooks. With cloud offerings there are also subscription-based services and cloud consumption from solutions we manage for customers.

What is your view on the market growth ahead?

We expect the underlying market demand of IT-consultants to start picking up as soon as we are past the peak in interest rate. The underlying need for digitalization is huge, increasingly driven by the green transition and industrial shift, new AI solutions and cloud migration and modernization of systems. In some cases, this will mean scrapping old legacy systems that are cloud native and enable to embed the AI tools that can increase productivity. Generally, there is still much that must be done regarding digitalization. For example, in heavy industry, developing “digital twins” allows you to get a detailed look into the physical elements of the machines, without necessarily having to go into the physical component to check if they need maintenance.

Can you elaborate a bit about your solutions and how they hold up against competitors?

Our Digital Factory at Scale is based on Microsoft’s and other hyperscalers best practices and state of the art tools and stand second to none. Our people onshore and nearshore are on par with the best in the industry. We’re successfully competing with the top service providers in the world, be it Accenture, Capgemini or TCS. Our size doesn’t permit us to compete for the very biggest contracts in the marketplace (multi-hundred million NOKs). However, at a lower tier of engagements (<150 MNOK) our entrepreneurial and easy-to-do-business-with approach gives us a significant advantage versus the biggest players.

Can you speak about the customer journey from customer acquisition to invoice?

Typically, we follow a land-and-expand approach rather than competing for large one-off RFPs. We gradually increase our share of wallet through successful deliveries and trusted customer cooperation. Our customer base is generally very loyal and stay and grow with us over a number of years. Almost all of our deliveries, bar subscription type of services, are on time and material and billed monthly. Depending on the assignment and customers specific needs we develop a solution based on this by mapping the specific requirements to understand the user journey through the solution. After it has been implemented, we do maintenance and operate the software. In many other cases, the customers will be in charge of running the project and we will be there to offer resources and expertise.

How are your AI solutions being implemented with clients?

At Itera, we have worked with AI for more than 10 years. With the release of various copilots, the past years we have been integrating those into our development workflows and projects to maximize our efficiency and quality output.

We are also delivering several stand-alone AI projects. In sectors like banking, insurance, and energy, Itera has made significant contributions. For example, our partnership with Laki Power in Iceland involved enhancing their ice monitoring services with advanced machine learning, leading to more accurate predictions and measurements. Our work with customers such as BAHR and NHO involved building and scaling several Generative-AI-based solutions. There are businesses that can’t afford not to do the investments, as they would lose  much of their competitiveness otherwise.

Can you elaborate on what the “cloud centre of excellence” is?

A Cloud Centre of Excellence (CCoE) is a cloud transformation approach based on Microsoft and other hyperscalers cloud best practices, frameworks, processes, culture, and agile ways of working. This approach enables organizations to build, deploy, and manage cloud-based solutions effectively, agilely, and securely. It helps organizations build a future-proof and secure IT infrastructure with code, scale as needed, reuse products and code with a focus on quality and ”time to market,” focus on agility and automation at every stage of delivery, standardize and automate platform components and solutions, and transition from traditional operations to automated and efficient maintenance.

What is the reason to the margin decline during 2023, and what is your strategy going forward?

The primary reason is lower billability as a result of longer sales cycles and a temporary slow-down in market demand. Investments into market development in Sweden following our re-entry to the market last year. Our country manager in Sweden is cautiously building up an organization, that is still quite small in terms of on-shore resources, but the idea is to leverage our distributed capabilities across locations where nearshore will be an substantially part. At the moment the Swedish market is particularly tough due to the overall market being in a slump, why we have not been rushing our growth there, instead focusing more on customers and building stone by stone. However, we see this as an attractive market with large potential.  

A fundamental part of our company culture is to be a responsible and attractive employer in good times as well as bad. We believe this benefits us in the long run through loyal and dedicated employees and thus create shareholder value. As such, we do our utmost to avoid involuntary downscaling of employees in times of lower demand even if this would have been more profitable in the short term. We do, however, also care for our employees in the sense that if we see that we’re unable to offer them the career development they aspire to, we have an honest conversation about this and find good solutions to help them develop their careers elsewhere. We also adjust our recruitment speed, of course, but our strategy is to largely weather the storm, pivot growth opportunities in the market, and be ready for high growth again. In the meantime, we’re extra cautious on the cost side.

Could you elaborate on what the business optimization actions are?

We’ve done some capacity reductions in fields of low demand and overhead through non-replacement and some voluntary leaves as mentioned. In addition, we do general reductions in discretionary spending, such as travel, office expenses, courses and social activities.

What is the increase in backlog due to?

Contract renewals can sometimes vary from quarter to quarter. Q4 is always the highest one with various degree of spill over to Q1. Q4-23 bookings with signed contract value of 1.7 times revenue didn’t reflect any particular surge in underlying activity levels but were some catch up from previous quarters and somewhat earlier booking for 2024 from some customers while the macroeconomics are gradually improving.

Which segment or market are you most excited about in the coming years?

We believe the Energy market, particularly related to renewable energy, will be a significant growth vehicle going forward. The development of this market can only be realized through significant digitalization. Ukraine is well positioned to become one of the biggest energy suppliers to Europe once the war subsides. Our local position, ties with the government and leading industry knowledge and technological development from the energy sector in the Nordics make us very well positioned to both the domestic Ukraine market as well as being part of foreign direct investments by leading Nordic energy companies, such as Equinor, DNV, Aker, Vattenfall, etc.

Where do you see Itera in three years? 

Once the market turns positive again, we expect to return to a high growth path. Developments in AI will further fuel this as reaping benefits from this (and they can be very significant) requires digital processes and data. In 3 years, we expect to have returned to and even surpassed previous net recruitment figures, with the ambition of adding 200-350 net FTEs per year when the market has fully returned and the Ukraine situation has been resolved.  

Could you give three reasons as to why Itera is a good investment today?

  • Strong Growth and high profitability: Itera has shown strong growth and high profitability over the past several years. Currently, growth has slowed down, and margins are squeezed, in line with the rest of the market. However, there is a strong underlying demand for digitalization that will materialize in a surge in business once the macroeconomic climate returns to normal. Itera is largely maintaining its growth capacity and sacrificing some short-term profits. We also have a business with a high cash-conversion rate and a resulting history of consistent semi-annual dividend payouts to our investors.
  • Strategic Investments: Itera has made consistent investments in international expansion, Digital Factory at Scale, and its people to capture significant growth opportunities. This includes exploring, learning, and evaluating the next generation of AI, such as generative AI and ChatGPT. With 14 well established offices based on the same operating model, we are able to increase capacity by net 200-350 FTEs per year, fueling our high growth ambitions.
  • Competitive advantage and large international potential: Itera has a competitive advantage with strong digital capabilities and high scalability. It also has a large international potential, which could lead to further growth. It has a long-term nearshore operation with an excellent track record and is uniquely positioned for a Ukraine recovery with strong bonds to government officials and highly motivated and loyal employees.

I would also like to add that we have a founder CEO that owns around 33% of the shares. Additionally, other insiders combined own 7%, which means that roughly 40% of the company is owned by insiders. This creates a strong alignment between management’s incentives and those of the shareholders, which is a guarantee for creation of long-term shareholder value.