Netcompany Group As Adr

Welcome to Netcompany's financial presentation for the first three months of 2025. Today's call is being recorded. 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 five star on your telephone keypad. To withdraw your question, you might do so by pressing five star again. Today's speakers are CEO André Rogaczewski and CFO Thomas Johansen. André, please begin.

Good day and welcome to this presentation of NetCompany's results for Q1 2025. My name is André Rogaczewski 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, please? I will pause for 30 seconds here and let you have a read through of these important disclosures. And with that, can we please go to slide number three? The topic of today's presentation is our performance for Q1 2025. I'll walk you through the business highlights for Q1 and our financial guidance for 2025. Once I'm done, Thomas will go through the numbers in greater detail before we open the call for questions. And can we have the next slide, please? The group continued the growth momentum from last year and grew revenue in Q1 2025 by 9.1%. Gross profit increased by 16.1%, yielding a margin of 29.5% compared to 27.8% in the same quarter last year. The improvement in gross profit was a result of improvement in all regions. Adjusted EBITDA increased by 24.4% in Q1 2025, yielding an adjusted EBITDA margin of 17.6%. Thomas will go into more details behind the margin development in each specific segment. And during the first quarter of 2025, the workforce in the group increased by 342, equal to a 4.4% increase. And can we have the next slide, please? We want to give you a short update on the STC transaction we announced on the 10th of February. We are very satisfied with the ongoing process of the transaction and on the 31st of March we will have a Regulatory Approvals granted. We are now awaiting the final fulfillment of conditions and expect to close the transaction mid 2025. And in connection with the closing of the transaction, we expect to begin the integration of SDC into net company banking services, and we will also reinitiate our share buyback program. We look forward to being able to share more information with you subsequent to closing off the transaction. And can I have the next slide, please? So during the first quarter, we have won several new contracts, of which I'm mentioning a few here. In the Danish public sector, we were selected as the vendor for the development and maintenance of the student debt system. The new system will be implemented by leveraging our Amplio platform. Also in the Danish public sector, we were selected by the Agency for Digital Government for the modernization of the NEM account system, a central account registry facilitating public payments. The modernization includes moving the solution from an old mainframe solution to our Amplio platform. In the Danish private sector, we have renewed and prolonged a number of ongoing projects that I am not able to disclose further. And can we have slide number seven, please? In Netcompany Southeast Europe and European institutions formerly known as Netcompany Intrasoft, we have also signed several new contracts in the first quarter of the year, of which we have highlighted a few here. In the public sector in Greece, we have signed a contract with the e-Government Center for Social Security . The scope of the project is to improve the operational functioning of hospitals in the national health systems. As mentioned in connection with our annual report, we also signed a large solo contract with the Greek Tax Administration early in 2025. Another important testimony to the success of our product and platform approach. And in the private sector in Greece, we have been chosen as leader of a consortium for IDAP, the largest water supply and sewage company in Greece. The project includes the implementation of our PALS platform. In the European Union, we have been awarded a multi-year framework agreement with the European Border and Coast Guard Agency, securing the external borders of the EU member states. And can we have the next slide, please? In Q1 2025, we employed an average of 8,150 full-time employees, which was an increase of 4.1% 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. In addition, it was mainly in the international part of the group we added net new employees. The attrition rate for the last 12 months was 18%, which was an increase of 1.7 percentage points compared to last year. We continue to be able to attract the talent we need in all entities. And can we have slide number nine, please? Irrespective of the increased geopolitical turmoil and the high level of uncertainty in the beginning of 2025, we reiterate our four-year financial expectations. For revenue, we expect growth between 5% and 10% for the year. And for adjusted EBITDA margin, we expect to end the year with a margin between 16% and 19%. These targets are based on organic growth and hence exclude the impact from the SDC transaction. Upon closing off the SDC transaction, we expect to reinitiate our share buyback program. Our expectation to buy back shares to a total value of 2 billion Danish by the end of 2026 remains unchanged. And can we have the next slide, please? Now, before I pass on the word to Thomas, I just want to highlight our latest campaign, where we, on the 22nd of April, illuminated the Statue of Liberty in Paris with the message, Stand Tall Europe. In these uncertain times, we believe that Europe is the unique position in a unique position to strengthen itself and we take pride in being a mission-critical provider of world-leading digitalization services and solutions, supporting governments and enterprises throughout Europe. And with that, I will now pass on the word to Thomas. Please go ahead, Thomas.

Thank you for that, Andre. And like already mentioned, I'm the CFO in Netcompany, and I will now go more into details with the financial performance of Q1 2025. So if we move past the breaking slide number 11 and straight into slide number 12, please. Andre has already spoken about our performance in general terms and I will now go more in detail with the performance for Q1 2025. Revenue increased 9% in Q1 measured in constant currencies and currencies impacted growth negatively by 0.1% leaving reported revenue growth at 9.1% for Q1. The growth was driven by increased activity in all business segments beside the UK compared to same quarter last year. Revenue grew 3.5% in the Danish segment and was driven by an increase of 6.5% in revenue from the public sector, while the private sector revenue was on level with Q1 last year. The net company Southeast Europe and EU institutions continued its strong growth performance from 2024 and grew revenue by 18.6% in Q1. The growth was driven by a combination of licensed revenue and continued growth in the public and EU areas. As more and more of our large implementation contracts are based on one or more of our products or platforms, licensed revenue is a natural part of Net Company's business and will continue to be driving revenue growth going forward. The products and platforms are the enabling factors that allow us to grow significantly, while the IT services industry is not. Also, NET Company Norway delivered strong growth with 19.7% revenue growth in the quarter, which was driven by continued ramp-up on the Avenor contract. In NET Company UK, the public sector grew revenue by 9%, driven by increased activity on the Dallas Framework contract and other larger engagements with HMRC and NHS. A decline in the private sector as a result of discontinuation of historical low margin contract left the overall revenue for the UK segment in line with the same quarter last year. Net Company Netherlands grew revenue by 3.7% in the quarter compared to a tough comparable in the same quarter last year. Can we move to the next slide, please? The gross profit margin in Q1 was 29.6%, an increase of 1.9 percentage point compared to the same quarter last year. The margin was positively impacted by higher license revenue in Q1 2024 compared to the same period last year. Lower margin in Denmark was caused by continued time spent on business development and tender writing, product development on existing products, and resources spent on the ongoing SDC transaction. The net company Southeast Europe and EU increased gross profit margin by 5.5% to 24.7%. The improvement was positively impacted by the license related to the Solon tax project in Greece. In Net Company UK, gross profit margin improved by 2.8% to 21.8% in the quarter. Improvement was driven by increased utilization and the previous mentioned discontinuation of historical low margin contracts. Gross margin in Net Company Norway increased by 6.8% in Q1 compared to the same quarter last year as a result of better utilization and ramp up on the AVENOR project. In netcom in the Netherlands, gross margin increased 2.7% and reached 36% in Q1. Can we move to the next slide, please? Adjusted EBDA margin before headquarter allocated costs increased by a 2.2 percentage point to 18.6% in Q1 for the group. Adjusted EBDA margin in Denmark was 22.3% compared to 23.4% in Q1 last year. The lower margin was a result of development in gross profit as already discussed. Net Company Southeast Europe and EU institutions' adjusted EBITDA margin increased 6.4 percentage points in Q1 2025 compared to Q1 last year. And in Net Company UK and Net Company Norway, the adjusted EBITDA margin increased 1.6 percentage points and 8.7 percentage points respectively, driven by better utilization in both segments. In Net Company Netherlands, the adjusted EBITDA margin improved by 2.2% and reached 18.6% for the first quarter of 2025. Can we move to the next slide, please? We have continued our focus on working capital during Q1 and as a percentage of revenue, the combined work in progress, pre-built invoices and trade receivables was 27.3% compared to 33.6% in Q1 2024. This development was caused by an increase in pre-built invoices and better and faster collection of accounts receivables. Can we go to the next slide, please? In the first quarter of 2025, we generated free cash flow of 67.9 million compared to negative 4.9 million in the same quarter last year. The improvement in free cash flow was driven by improved operating profit. As a result of the improved cash flow, our cash conversion rate also improved from negative 4.3% in Q1 2024 to 47% in Q1 2025. Days sales outstanding decreased from 66 days in Q1 last year to 57 days in Q1 this year. Main reason was that timing of the Easter last year had delayed some payments in the beginning of April 2024. Debt ratio was 1.2 times compared to 1.6 times in Q1 last year, positively impacted by the current pause in our share buyback program as a consequence of the STC transaction. We expect leverage at the end of 2025 to be around 1.5 times, reflecting additional net debt to be incurred to fund the STC transaction and the impact of the expected reinitiation of our share buyback program too. Can we have the next slide, please? Revenue visibility at the end of Q1 2025 increased 3.8% to 5.6 billion Danish, compared to 5.4 billion Danish in Q1 2024. In general, revenue visibility was higher than normal in the beginning of 2024, last year, as a number of contracts, primarily in the private sector, were signed for a longer period than normal, and when we reported our annual report the revenue visibility at the beginning of 2025 was in fact one percentage point lower than at the same time in 2024, illustrating well the extraordinarily high level of revenue visibility that we saw in the beginning of 2024. Compared to revenue visibility at the end of 2024, revenue visibility sequentially into the end of Q1 2025 increased by 15% compared to a 9.1% revenue growth in the same quarter. And just to make sure that everybody understands the nature of the non-contractually committed part of revenue visibility, let me here just reconfirm that the non-committed part of revenue visibility historically has been 100% converted into realized revenue. which we also expect for the non-contractually committed revenue for this quarter. The notion non-contractually committed revenue is used on engagements, typically in the private segment, where we have significant teams performing mission-critical work for our clients that will continue for a substantial period of time, but where the clients, due to internal procurement procedures, have not extended the contract legally for the full year yet. However, based on the nature of the work of the contracts, This revenue will be realized and the contracts will be prolonged during the year. Pipeline in both the private and the public sector for 2025 remains at a satisfactory level, indicating continued growth, and we remain committed to our financial guidance for the year, as Andre has already mentioned. And with that, I've concluded the detailed financial walkthrough, and we now open up the call for questions. So if you move to the Q&A slide, please, and open the call for questions. Thank you.