Netcompany Group As Adr

Welcome to NIT Company's Q4 and full year 2024 presentation. Today's call is being recorded. All participants will be in a listen-only mode throughout the presentation. Afterwards, there will be a question and answer session. To ask a question, please press 5 star on your telephone keypad. To withdraw your question again, you may do so by pressing 5 star again. I would like to introduce CEO André Orgeshevsky and CFO Thomas Johansen. André, you may begin your presentation.

Good day and welcome to this presentation of NET Company's results for Q4 and full year 2024. My name is Andrej Rogaczewski and I'm the CEO and co-founder of NET Company 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? I will pause here for 30 seconds 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 Q4 and full year 24, as well as our guidance for 2025. I will walk you through the business highlights for Q4 2024, the full year in general, and our financial guidance for 2025. And once I'm done, Thomas will go through the numbers in greater details before we open up the call for questions. And can we have the next slide, please? 2024 was the first year we started to see a material impact from our go-to-market strategy, which we initiated in the beginning of 2023. Despite a business environment that continued to be uncertain and challenging, we grew revenue for the full year by 7.6% in reported currencies and 7.4% in constant currencies, in line with guidance given at the beginning of the year. Gross profit in 2024 increased by 11.9%, yielding a gross margin of 29.1% compared to 28% last year. The improvement in gross profit was a result of improvement in all regions despite the UK. And Thomas will go more into the details behind the gross profit developments in each specific region. Adjusted EBITDA increased by 21.8% to 1.1 billion in 2024, yielding an adjusted EBITDA margin of 16.8% in reported currencies and 16.9% in constant currencies, also in line with guidance given in the beginning of the year. During the year, the workforce in the group increased by 323, equal to a 4.2% increase. And can we have the next slide, please? During the fourth quarter, we have won several new contracts, of which I'm mentioning a few here. In Germany, we've won a contract with Munich Airport to implement AirHot as the digital backbone of the entire Munich Airport ecosystem and thereby become an important strategic partner for the airport. In the private segment in Denmark, we have signed a significant contract with Forsa to basically rethink pension management. Through implementation of our new industry solution called Amplio Life & Pension, based on our existing platforms Amplio, Easly, Mitdeco and Festina Finance Core Life Pension application, We will enable a better and more efficient management of the pension funds with enforcer to the benefit of their end customers. And in the private segment in the Netherlands, we have been chosen as vendor for the development, implementation and maintenance for the replacement of the primary process system at the Dutch Medicine Agency. And can we go to slide number six, please? In Net Company Intrasoft, we have also signed several new contracts in the fourth quarter of the year, of which we have highlighted a few here. In the European Union, as a part of a consortium, we have signed a five-year framework contract with the European External Action Service. The scope of the project is to provide IT workplace and user support services, among other deliveries for the European Action Service. A market-leading product, Solon Tax, has been selected by the Independent Authority for Public Revenue in Greece and the State Tax Inspectorate of Lithuania to replace the existing taxation systems in both countries. This is the same solution as we sold to the Swedish tax agency back in June. In the private segment in Greece, we have been awarded a contract with Cosmod Payments, a subsidiary of Deutsche Telekom, for the expansion of the digital wallet PaidSea. The digital wallet is already in use with Cosmod customers in Greece and will now be rolled out for the Deutsche Telekom customers in Germany as well. This launch is a part of Deutsche Telekom's broader strategy to expand its digital services and improve customer experience within the vertical financial services, which also fully supports our strategy to grow within the financial services vertical. Can we have the next slide, please? In Q4 2024, we employed an average of 8,249 equivalents, which was an increase of 6.2% compared to the same period last year. Compared to revenue growth, the number of FTEs grew at a slower pace as a result of our increased use of existing platforms throughout the entire group. The attrition rate for the last 12 months was 18.1%, which was an increase of 2.8 percentage points compared to last year. And can we have slide number eight, please? Before I get to the guidance for 2025, I would like to give my remarks to the year we have just finished. Looking back at 2024, our go-to market strategy and increased focus on becoming a strategic partner within specific verticals for business-critical IT solutions started to pay off in a market that continued to be challenging and uncertain. Despite the challenges, we grew revenue in line with our financial guidance for the year at 7.4% in constant currencies. Growth was driven by the ongoing recovery in the Danish part of the group and supported by an egg company Intrasoft, where particularly the EU and public segment delivered significant growth. Also, the Netherlands and Norway delivered growth. In the UK, we were negatively impacted by the slower than anticipated spending in the public segment because of the general election there. For 2025, we expect to keep growing and to keep on improving margins. We look into 2025 with continued high uncertainty, which, when it comes to both macroeconomic measures and geopolitical topics, can have influence. Hence, on balance, we expect to grow revenue by between 5 and 10 percent in 2025. And at the same time, we expect to deliver an adjusted EBITDA margin of between 16 and 19 percent. Looking beyond 2025, the delay in public spending in the UK and the divestment of non-strategical markets in net company Intrasoft has eliminated a sizeable part of our originally expected revenue levels in 2024 and negatively impacted our growth expectations for 2025 and beyond. Consequently, we defer the timing for realizing 8.5 billion revenue target to 2027 However, we reiterate our adjusted EBITDA margin target of at least 20% and the redistribution of at least 2 billion of cash to shareholders by the end of 2026. As Thomas will explain in greater details, we will not initiate a new share buyback program at this particular point in time, despite all time high free cash flow. And with that, I will pass on the word to Thomas. Please go ahead, Thomas.

Thank you for that, Andre. And like already mentioned, I'm the CFO in Net Company, and I will now go more in details with the financial performance for Q4 and for the full year 2024. So if we move past the breaking slide number 9 and straight into slide number 10 in one go, please. Andre has already spoken about our performance in general terms, and I will now go more in details with the performance for Q4 and the full year 2024. Revenue increased by 5.7% in Q4 measured in constant currencies. Currencies impacted growth positively by 0.3 percentage points, leaving reported revenue growth at 6% for Q4. The growth was driven by continued recovery in the Danish part of the group that grew revenue by 5.3%, driven by a 9.2% increase in the public segment, while the private segment was on level with the same quarter last year. And once again, the net company Intersoft continued the strong performance and realized 10.6% revenue growth in the fourth quarter. The growth was driven by both the public and the EU segment that grew 9.6% and the private segment that grew 14% compared to the same quarter last year. Also, the Netherlands continued the strong performance from previous quarters and grew revenue by 14.7% in the fourth quarter. In Norway, revenue declined 3.9% due to the decrease in revenue in the private segment. In the UK, revenue declined 7.3% compared to the same period last year, as the stagnation in public spending continued into Q4 and led to lower than anticipated activity levels. Can we move to the next slide, please? Group revenue grew 7.4% in constant currencies full year 2024. Total license revenue accounted for 1% of group revenue in 2024, in line with 2023. As we discussed in connection with our Q3 earnings, the sales opportunities with embedded license revenues, which potentially could have been closed in Q4, were all pushed into 2025, of which some have already been executed in January. None of the sales opportunities discussed in connection with Q3 with embedded license revenues have been lost. Group revenue growth was slightly offset by the performance in the UK, where the public segment was negatively impacted by a slower than anticipated ramp up on a large strategic project following the standstill in public spending after the general election in July 2024. We would naturally like to see these projects being pushed forward again, and we start to see signs that this is actually happening. Revenue in the public segment, including the EU, grew by 9.4% in 2024, driven by growth in Netcom and Intrasoft, Denmark, the Netherlands and Norway. Growth in Netcom and Intrasoft was supported by the ongoing cooperation with Taksud and the European Commission and growth in the public segment in Greece spurred by funding under Resilience and Recovery Facility, the RRF. The public segment in Denmark was positively impacted by increased tender activity compared to 2023. In the Netherlands and Norway, growth was driven by new contract wins and farming with existing customers. In the private segment, revenue grew by 3.8% in 2024, mainly driven by growth in Denmark, supported by our go-to-market strategy and continued pipeline conversion. The contract won with Forza will be supportive of the continued growth in the private segment in Denmark in 2025 and onwards. Can we have the next slide, please? The gross profit margin in Q4 was 29.5% and on par with the same quarter last year. The margin was positively impacted by 17.7 million Danish more in license revenue in the quarter compared to the same quarter last year, but offset by a decrease in gross profit in Denmark, UK and Norway. The lower margin in Norway was caused by increased time spent on business development and tender activities, leading to wins such as Munich Airport and Forsa, which André has already mentioned. Margins in net company Intrasoft increased by 5.5 percentage point, driven by better utilization and project execution, and a higher amount of license revenue. Gross profit margin in the UK decreased by 1.4 percentage point in the quarter, and the lower activity level in the UK administration led to lower utilization. In addition, a number of employees were made redundant in the UK in Q4. Margin in Norway decreased by 8.8 percentage point in Q4 compared to the same quarter last year due to increased time spent on business development during the quarter. In the Netherlands, margin increased 7.7 percentage point and reached 37.9% in Q4. The increased margin in the Netherlands was a result of significantly better project execution. Can we have the next slide, please? For the full year, gross profit margin for the group reached 29.6%, an increase of 1.3 percentage point compared to last year. The improvement was a result of recovery in the Danish part of the group and improved performances in Netcom and Intrasoft, the Netherlands and Norway. Gross profit margin declined in the UK as a consequence of continued time spent on business development, lower utilization, and around 17 million Danish spent on service cost during the year. Adjusting for the service cost, gross profit margin in the UK would have been 22% compared to the 19.3% shown here. And can we move to the next slide, please? Adjusted EBITDA margin was 17.1% in Q4-24 for the Group. Improvement was driven by significant improvements in Netcom and Intersoft and the Netherlands. EBITDA margin in Denmark was 21.6% compared to 22.4% in Q4 last year. The decrease in margin was a result of the development in gross profit as mentioned. Net Company Intrasoft's margin increased 5.6 percentage points, positively impacted by better gross profits, of which a part was related to higher license income. Adjusted for the increase in license, margins still improved by more than 1.1 percentage points, underlining the continued focus on margin improvement initiatives taken throughout the group. EBITDA margin in the UK was 9.4%. Margin was negatively impacted by the 10 million spent on severance cost in the quarter. Adjusting for this, EBITDA margin would have been 16.6% in Q4. In Norway, margin was negative 2.8% due to a decline in gross profit. In the Netherlands, margin improved significantly by 10.3% to 23.8% in Q4. The improvement was a result of better utilization and the improvement already mentioned in gross profit. Can we have the next slide, please? Adjusted EBITDA margin increased 2.2 percentage points to 17.7% in full 2024 compared to 15.5% in 2023. The increase in adjusted EBITDA margin was driven by improved utilization in Denmark, Netcom and Intrasoft, the Netherlands and Norway, and supported by continued focus on margin expanding activities in the group, which meant that administrative cost did not increase in monetary terms despite a 7.6% growth in revenue. Can we have the next slide, please? We have continued our focus on working capital. and as a percentage of revenue, the combined work-in-progress, pre-built invoices and trade receivables was 27.8% in 2024 compared to 32.3% in 2023. This development was driven by two factors. One factor is a significant increase in pre-billed invoices in Q4 2024, which increased by 260 million. The amount of pre-billing of customers can vary from year to year, depending on the individual contracts. Another factor was the level of trade receivables, that only increased by 20 million, despite corresponding revenues growing by close to half a billion. In particular, towards the end of the year, a number of significant projects met certain milestones criteria for invoicing and subsequently collection of the receivables, supporting the extraordinary strong free cash flow in Q4 and all of 2024. Can we go to the next slide, please? For the year, we have generated our best-ever free cash flow of 821 million Danish, driven by, as mentioned, improved performance and the development in working capital. As a matter of fact, our free cash flow in Q4 2024 alone was of the same magnitude as free cash flow for all of 2023. We ended the year with 251 million of cash at hand and our leverage has come down to 1.2 times, giving us strong balance sheet momentum into 2025. Consequently, our cash conversion ratio increased from 135% in 2023 to 147% in 2024. During the year, we have initiated share buybacks for 800 million, and we plan to cancel 2.5 million shares at the upcoming AGM, reducing our outstanding capital by 5%. We remain committed to our target of distribution of 2 billion of cash to shareholders by the end of 2026, but due to ongoing advanced strategic considerations, we will not initiate a new share buyback program at this particular point in time. Can we have the next slide, please? Revenue visibility for 2025 is 4.9 billion, which is unchanged compared to 2024. This implies a revenue visibility of 69.6% of the guided revenue midpoint for 2025 compared to 74.4% at the same time last year. However, revenue visibility at the beginning of 2024 was impacted by a higher proportion of long-term revenue assigned than normally, and historical revenue visibility at the beginning of the year has fluctuated between 63.4 and 74.4% of the guided revenue midpoint, meaning that revenue visibility into 2025 is at normal levels. It was the visibility looking into 2024 that was of extraordinary high level. And with that, we've concluded the financial analysis and we will now open up the call for questions. So if you move to the Q&A slide, please, and open up the call. Thank you.