Netcompany Group As Adr

Welcome to Netcompany's interim report for the first six months of 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. I will now hand the call over to your speakers. Please begin.

Good day and welcome to this presentation of NetCompany results for Q2 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. And before we get going, there are some important disclosures that I need you to read through. So could we please have slide number two? I'll pause for 30 seconds here and let you all have a read through of these important disclosures. With that, can we please go to slide number three, please? The topic of today's presentation is our performance for Q2 2024. I will walk you through the business highlights for the second quarter and our financial guidance for 2024. And once I'm done, Thomas will go through the numbers in greater detail before we open the call for questions. Can we have the next slide, please? In Q2, we grew revenue by 10.2% in constant currencies. The strong growth was driven by the continued progress in the Danish part of the group as well as continued strong growth in the company Intrasoft and the Netherlands. The timing of Easter impacted revenue growth positively around three percentage points in the quarter. And looking at the first half of 24, where the Easter impact was neutral compared to 23, we realized revenue growth of 6.8%. Gross profit in Q2 grew 19.3% in constant currencies, yielding a gross margin of 29.2%, which was an improvement of 2.2 percentage points compared to the same period last year. The increase was positively impacted by more working days in Q2. And nevertheless, comparing the first half of 24 to the first half of 23, gross profit improved 9.3% in constant currencies. Adjusted EBITDA grew 38.7% in constant currencies in Q2 24 and in the first half of 24 adjusted EBITDA grew 19.2% in constant currencies. For the first six months of 24 adjusted EBITDA margin increased 1.7 percentage points to 16.1% in constant currencies. The increase in margin was a result of continued progress in the Danish part of the group and improved performance in the Netherlands and Norway. We added 186 full-time employees when comparing to the same quarter last year, bringing the total FTEs to 7,884, an increase of 2.4%. And can we have the next slide, please? During the second quarter of 2024, we have won several new contracts, of which I'm mentioning a few here. Netcompany has been chosen by the Swedish tax agency Skatteverket to modernize the central tax systems with our commercial off-the-shelf product Solon Tax. The project will be delivered through Netcompany Denmark and Netcompany Intersoft Resources. NET Company Denmark has signed a number of new contracts in the public segment, and I will mention some of them here. We have signed two new contracts under a framework agreement with the Danish Business Authority at a combined value of up to 1.1 billion Danish. Furthermore, NET Company Denmark has signed a contract with the Danish Business Authority to deliver and maintain solutions for annual reports and financial accounting. And as previously communicated, NEN Company has won a significant contract in the UK under the Dallas Lot 2A Framework Agreement. The contract has a duration of up to five years and an estimated value of £120 million. Revenue from this contract is expected from the second half of 2024 and going onwards. In the Danish private segment, NetCompany has been selected as strategic partner for the modernization of Energifyn's application landscape. And can we have slide number six, please? In Netcompany Intrasoft, we have also signed several new contracts in the second quarter of the year, of which we have highlighted some here. In the EU, Netcompany Intrasoft has been awarded a two-year framework contract with the European Medicine Agency. The agreement is to provide external services for software development, implementation and maintenance for all current and future IT capabilities. Netcompany Intrasoft has also signed a contract with the Ministry of Economy in Albania. The delivery will be including our Aramis customs product. And furthermore, Netcompany Intrasoft has entered a three-year maintenance agreement with the largest social security organization in Greece, the EFCA. In the private segment in Greece, NET Company Intrasoft has signed a framework agreement with the National Bank of Greece to provide design and maintenance services. And Vodafone Greece has selected NET Company Intrasoft for a project to provide design, implementation, support and maintenance services for all applications supporting Vodafone fixed telecommunications services. And can we have the next slide, please? In Q2-24, we employed an average of 7,884 employees, which was an increase of 2.4% compared to the same period last year. In Denmark, the number of employees decreased compared to Q2 last year, but during the quarter, we welcomed 174 new employees to our offices in Denmark. Employee growth in the Netherlands and Intersoft were 12.3% and 7.4%, respectively. Churn for the last 12 months was 17.2%, which was in line with the same period last year. And can we have slide number eight, please? For the first six months of 24, we grew revenue by 6.8% and realized an adjusted EBITDA margin of 16.1%, both in constant currencies. We maintained our expectations for the financial performance of 24 and expect revenue growth for the group to be between 7% and 10% and adjusted EBITDA margin to be between 15 and 18%. Based on strong cash flow, we increased the share buyback program for 24, going from 500 million Danish to at least 700 million Danish. Furthermore, we reiterate our mid-term targets to be achieved by 26, with a revenue target of at least 8.5 billion Danish and an adjusted EBITDA margin of at least 20%. We also reiterate our commitment to redistribute at least 2 billion of cash Danish to shareholders, mainly as share buyback. And in that aspect, we initiate a new share buyback program of 150 million Danish to be executed by the 29th of October 2024. And with that, I will pass the word to Thomas, who will give us a more detailed view on the financial performance of the second quarter 2024. Thomas, please go ahead.

Thank you for that, André. And like already mentioned, I'm the CFO in Net Company, and I will now go more into details with the financial performance for Q2 2024. So if we move past the breaking slide nine and straight into slide number ten in one go, please. Andre has already spoken to our performance in general terms and I will now go more in details with the performance for Q2. In Q2 revenue increased by 10.2% measured in constant currencies and currencies impacted growth positively by 0.3 percentage point leaving reported revenue growth at 10.5% for Q2. The growth was driven by continued progress in the Danish entity and continued strong performance in Netcom and Intrasoft and the Netherlands. Revenue in Denmark increased 14%, driven by an increase of 15.9% in the public segment and an increase of 11% in the private segment. The improvement in both segments was driven by increased utilization and also by three more working days in the quarter due to the timing of Easter. For the first six months of 2024, revenue in Denmark grew 6.6%. The net company Intersoft continued its strong start of the year and grew revenue 10.9% in the quarter. The growth was driven by the public and the EU area that grew 15.6% despite a tough comparable. Netherlands continued the strong growth from the beginning of the year and grew revenue 61.2%, solely driven by the public segment. In Norway, revenue increased 7.5%, driven by a 10.9% increase in the public segment, which was slightly offset by a 3.5% increase in the private segment. In the UK, revenue declined 16% compared to the same period last year. The decline was a result of a slower than expected ramp up under the Dallas Framework Agreement. And can we have the next slide, please? Gross profit margin increased by 2.3 percentage points to 29.6% in Q2 compared to last year. The increase was driven by more working days in Q2 2024 and better utilization, which more than offset the 15 million Danish lower license revenue in the quarter. In Denmark, gross profit margin increased 4.7%. The improvement was driven by better utilization and three more working days compared to the same quarter last year due to the timing of Easter. Looking sequentially at the gross profit development, the margin was up 1.6% compared to Q1 2024, despite one working day less in Q2 2024, underpinning the improvement in utilization in the Danish business unit. Margin in net company Intersoft declined by 0.8 percentage point, negatively impacted by lower license revenue in the quarter. In the UK, margin was 15.6% compared to 24.6% in the same quarter last year. The lower margin was a consequence of decline in revenue and additional time spent on business development. Margin in Norway increased 3.5% in Q2 compared to the same quarter last year, positively impacted by more working days in the quarter. And in the Netherlands, margin increased to 34.4% in the quarter compared to 4.5% in Q2 last year. The increase in margin was a result of better project economics and improved utilization driven by joint projects. Can we have the next slide, please? Adjusted EBITDA margin before allocated cost from HQ increased 3.4% to 17.3% in Q2, and for the first six months of 2024 the margin increased 1.7% to 17%. In Denmark, margin increased 6.1% to 24.1% in Q2 2024 compared to Q2 last year. The increase was driven by additional working days and better utilization, supported by a flattish absolute administrative cost compared to last year. Margin in the net company Intersoft decreased 0.6% due to the different revenue mix as already mentioned. In the UK, margins decreased by 7.2% to 3.8%, mainly driven by a lower gross profit margin. In Norway, margin improved 6.3% as a result of improved gross profit margin and a minor decrease in administrative costs. In the Netherlands, margin improved significantly by 38.7 percentage point to 20.2%. And the increase in the Netherlands was driven by improved gross profit margin from projects and administrative costs on level with the same period last year. Can we have the next slide, please? Work in progress decreased by 14.3% to 847.2 million Danish in Q2 2024. The decline was a result of larger amounts being invoiced at the end of Q2 2024. As a total, combined work in progress, pre-built invoices and trade receivables increased by 3.4% to 2.17 billion Danish, whereas revenue for the last 12 months increased by 6.6%. Can we have the next slide, please? Free cash flow was 148.2 million Danish in Q2 2024 compared to negative 72.5 million Danish in Q2 last year. The improvement in free cash flow was driven by the improvement in EBITDA and improvement in working capital changes further supported by the reversal of the negative impact from payments of accounts receivables seen in Q1, which was pushed into Q2. Net working capital changes in Q2 2024 improved compared to Q2 2023, positively impacted by the timing of Easter, which postponed the collection of trade receivables, as already mentioned. The absolute amount of trade receivables increased significantly in the quarter due to a large amount of working progress invoiced at the end of Q2. Days sales outstanding increased by 5 days, leading to a DSO of 73 days. This increase is expected to reverse in the coming quarter. Trade receivables as of 30 June paid in the following month amounted to 703.7 million Danish in July compared to 536.7 million in July 2023. supporting the accelerated repayment of receivables, which will have a positive impact on DSO, as just stated. Leverage was 1.5 times in Q2 2024 compared to 1.4 in Q2 2023. Can we have the next slide, please? Revenue visibility improved 6.7% to 5.8 billion Danish, of which contractually committed revenue amounted to 2.4 billion Danish and non-contractually committed engagements amounted to 157 million Danish. Visibility increased by 8.2% in the public segment and 3.4% in the private segment. In addition, we've realized a lower amount of license revenue at this point in time compared to last year, which implies that license revenue in 24 will be more back and loaded than it was in 24. It also has an impact on revenue visibility. We continue to see a clear indication that public entities and private companies are increasing their willingness to increase their IT investment. And with that, I have concluded my detailed financial analysis, and we will now open the call for questions. So can we move one slide to the Q&A side, please, and open the call for questions. Thank you.