Netcompany Group As Adr

Welcome to Net Company's interim report for Q1 2024. For the first part of this call, all participants are in a listen-only mode. Afterwards, there will be a question and answer session. To ask a question, please press 5 star on your telephone keypad. This call is being recorded, and I will now hand it over to your speakers. Please begin.

Good day and welcome to this presentation of NetCompany results for Q1 2024. My name is Andrei Rogachevsky and I'm the CEO and co-founder of NetCompany. And I'm joined today by our CFO, Thomas Johansen. Before we get going, there are some important disclosures that I need you to read through. So could we please have slide number two, please? I will pause for 30 seconds here and let you all have a read through of these important disclosures. And with that, can we please go to slide number three, please? The topic of today's presentation is our performance for Q1 2024. I will walk you through the business highlights for the first quarter and our financial guidance for 2024. Once I'm done, Thomas will go through the numbers in greater detail before we open the call for questions. Again, we have the next slide, please. In Q1, we grew revenue by 3.6% in constant currencies. Fewer working days in Denmark, Norway and the Netherlands in Q1 this year compared to the same quarter last year, impacted revenue growth negatively by around 3 percentage points, underpinning the solid performance delivered by the group in the first quarter of the year. Gross profit in Q1 was on level with last year, yielding a gross margin of 27.4%, which was 1.2 percentage points lower than the same period last year. The lower gross margin was driven by fewer working days in the quarter compared to last year, which more than offset the improved utilization in both Denmark and the Netherlands. And adjusted for this underlying gross margin was 29.6% in the quarter. Adjusted EBITDA margin was 15.5% in Q1 2024, compared to 15.7% the same period last year. In constant currencies, adjusted EBITDA margin was on par with Q1 2023, despite fewer working days in the quarter. On a like-for-like basis, adjusted for the fewer working days, their margin was 18% in Q1 2024. We added 295 full-time employees when comparing to the same quarter last year, bringing the total FTE number to 2,808, an increase of 3.9%. Can we have the next slide, please? We have won several new contracts during the first quarter of the year, of which I am mentioning a few here. In Norway, our product for child welfare services, Modulus Barn, has been chosen by two regions, Trøndelag and Valdres. This will add 21 new municipalities to the already 70 municipalities using the product. In private segment Denmark, we have won a framework agreement with Arle Foods as a preferred vendor. The project will assist farmers with relevant data insights and recommendations in their transition to more sustainable farming. In public segment Denmark, we will continue the partnership with the Danish Agriculture Agency for development and maintenance of the foundational IT solution in regulation, and administration of EU agricultural grants management in Denmark. Further, in Q1 2024, Net Company UK won a significant contract with duration of up to five years and revenue from this contract is expected from the second half of 2024. And we look forward to disclosing more details on this contract win soon. Slide number six, please. In that company, Intrasoft, we have also signed several new contracts in the first quarter of the year, of which we have highlighted some here. In the European Union, we have signed three plus one year framework agreements with the European Agency for the Operational Management of large scale IT systems in the area of freedom, security and justice. In the public segment in Greece, we have signed a framework agreement with the scope of dataization of data archives of the hospitals supervised by the Ministry of Health. And in the private segment in Greece, we have been awarded a three-year contract extension with Eurobank. The agreement includes maintenance and support of the credit card processing system. And can we have the next slide, please? In Q1 2024, we employed an average of 7,808 employees, which was an increase of 3.9% compared to the same period last year. In Denmark, employees were on level with Q1 last year, but during Q1 2024, we welcomed 144 new employees to our offices in Denmark. Intrasoft employee growth was 10.2%. And in Netherlands and UK, employee growth was 14.8% and 6.7%, respectively. Churn for the last 12 months was 16.3%, which was a decrease of 3.7 percentage points compared to last year. And can we have slide eight, please? In Q1 2024, we grew revenue by 3.6% and realized adjusted EBITDA margin of 15.7% against strong comparable and despite being negatively impacted by fewer working days due to the timing of Easter. With growth on track, we see ourselves well off for the year and maintain our expectations for the financial performance for 2024 and expect revenue growth for the group between 7 and 10% and adjusted EBITDA margin between 15 and 18%. Furthermore, we reiterate our mid-term target to be achieved by 2026 with a revenue target of at least 8.5 billion Danish and adjusted EBITDA margin of at least 20%. We also reiterate our commitment to redistribute at least 2 billion of cash to shareholders, mainly as a share buyback. And in that aspect, we initiate a new share buyback program of DKK 250 million to be executed by 12th of August 2024. And with that, I will pass on the word to Thomas, who will give us a more detailed view on the financial performance in Q1 2024. Thomas, please go ahead.

Thank you for that, André. And like already mentioned, I am the CFO in Net Company, and I will now go more into details with the financial performance for Q1 2024. So if we move past the breaking slide number nine and straight into slide number ten, please, in one go. Andre has already spoken to our performance in general terms and I will now go more in details with the performance for Q1 2024. In Q1, revenue increased by 3.6%, measured in constant currencies. Currencies impacted growth positively by 0.2 percentage points, leaving reported revenue growth at 3.8% for Q1. The growth was driven by solid growth in Intrasoft and the Netherlands that grew 9.9% and 41% respectively. Revenue in Denmark was on par with Q1 last year, despite three working days fewer in the quarter, which impacted revenue negatively by close to 5 percentage points. Adjusted for this, public segment in Denmark increased 6.6% and the private segment in Denmark increased by 2.2%. The net company Intrasoft started the year off strong and realized 9.9% revenue growth in the first quarter. The growth was driven by the public and the EU segment that grew 13.7%, while the private segment revenue declined slightly by 1.2% compared to the same quarter last year. In the UK, revenue declined 4.1% compared to the same period last year. However, in Q1, net company UK won a significant contract with a duration of up to five years. Revenue growth in the UK is therefore expected to come back from the second half of 2024. Revenue in Norway was on par with Q1 last year, despite fewer working days in the quarter, impacting revenue negatively by more than five percentage points. Adjusted for the fewer working days, the public segment grew 7.7% and the private segment grew 5.6% in Q1 2024. And finally, Netcom in Netherlands delivered significant revenue growth of 41% in the first quarter, solely driven by the public segment. And can we move to the next slide, please? Gross profit margin decreased by 1 percentage point to 28% in Q1 compared to last year. However, adjusting for fewer working days in Denmark, Norway and the Netherlands, gross profit margin would have been 29.6% in Q1 2024. In Denmark, gross profit margin increased 1.5 percentage point despite the negative impact from fewer working days as a result of increased utilization throughout the quarter. Margins in net company interest of declined by 1.2 percentage point, negatively impacted by a different revenue mix in the quarter. In the UK, margin was 18.9% compared to 30% in the same quarter last year. The lower margin was a consequence of continued participation preparation of tender material, which was also the case during Q3 and Q4 in 2023. Margin in Norway decreased 3.5 percentage point in Q1 compared to the same quarter, impacted negatively by fewer working days in this quarter. In the Netherlands, margin increased 13 percentage point and reached 33.5%. The increased margin in the Netherlands was a result of significantly better project economics and improved utilization. Can we move to the next slide, please? Adjusted EBITDA margin before allocated cost from headquarter was 16.6% in Q1 and thereby on level with last year. In Denmark, margin increased 2.1 percentage point compared to last year as a result of better utilization and lower administrative costs. Margin in e-company Intrasoft decreased 0.8 percentage point due to the difference in revenue mix as already mentioned. The margins in the UK decreased by 10% to 9.6%, mainly driven by the lower gross profit margin. In Norway, margin decreased marginally by 0.8%, impacted negatively by fewer working days. In the Netherlands, margins improved significantly by 18 percentage points to close to 20% at 19.8 as a result of strong delivery on projects and execution. Can we have the next slide, please? Work in progress decreased by 2.7% to 909.9 million Danish in Q1 2024. Naturally, the work in progress was impacted by fewer working days in March 2024 compared to last year. As a total, the combined work-in-progress, pre-built invoices and trade receivables increased by 11.5% to $2.63 billion, whereas the revenue for the last 12 months increased 7.4%. The higher increase compared to revenue growth for the last 12 months was caused by the timing of Easter, which brought trade receivables up temporarily as payments to be received end of March was received on 2nd and 3rd of April. Can we go to the next slide, please? Free cash flow was negative by 4.9 million Danish in Q1 compared to 141.6 million Danish in Q1 2023. The free cash flow was, as mentioned, negatively impacted by the timing of tax payments and working capital changes impacted by ISDA. Trade receivables paid in the following month, that's the month of April, increased by 126.2% compared to last year and amounted to 652 million Danish. The increase in trade receivables paid in the following month clearly was also a result of Q1 2024 ending on an Easter holiday. Leverage was unchanged 1.6 times compared to Q1 2023. As part of our 2026 midterm targets of redistributing at least 2 billion to our shareholders, we have this morning initiated a new share buyback program of 250 million, which will be executed by before the 12th of August 2024. Can we have the next slide, please? Revenue visibility improved 9.7% to 5.4 billion Danish in Q1 compared to last year. Visibility increased by 10.9% in the public segment and 6.9% in the private segment. We see this improvement as a clear sign that both public entities and private companies are increasing their willingness to invest and increase their IT investments. With that, I have concluded the detailed financial analysis and we will now open up the call for questions. So if we move to the Q&A slide, please, and open the call up for questions. Thank you.