Netcompany Group As Adr

Welcome to NetCompany's interim report for the first six months of 2025. Today's call is being recorded. For the first part of this call, all participants will be 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. Today's speakers are CEO André Rogershevsky and CFO Thomas Johansen. André, please begin your meeting.

Thank you. The topic of today's presentation is our performance for Q2 2025. I will start by walking you through the business highlights and will also give you our perspective of the current market dynamics in Europe and how we see Net Company playing an increasing and important role in the continued digitalization of Europe. Once I'm done with this, Thomas will go through the financial performance, including our guidance for 2025 before we can open the call up for questions. 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? Sorry, slide number four. Since NET Company was founded 25 years ago, our focus has been on responsible digitalization. Starting with the public sector as our primary, we have built and implemented some of the most fundamental solutions for digitalization in the Danish public sector. This has been done in a repeatable and institutional manner, giving us the opportunity to repeat this in other geographies based on our platforms, products and methodology. Today, we see greater demand than ever for increased productivity within the public sector across Europe, as every country is now launching its own digitalization strategy, backed up by EU ambitions as well. With European governments and the EU's focus on enhanced digital capabilities based on solutions from European vendors to increase European competitiveness and productivity, our investments in the future are more relevant than ever. We continue to expand our presence and footprint outside of Denmark. And within Q2, we've won projects within the public sector in the UK, Sweden and Greece. And we see positive development in the Netherlands as well. Public digital services such as advanced case management, digital post, digital wallet and digital ecosystems or so-called digital twins are some of the requests we see from European governments and with our solutions and experience in the different categories of public administration, ranging from tax and customs, emergency preparedness, welfare benefits, business administration, immigration and social security. We are well positioned to take part in the digitalization journey that Europe is on. But it's not only in the public sector that we are accelerating this digital revolution. We see more and more cases come to the market in the private sector too. where a net company has been traditionally strong in sectors such as transportation and logistics, as well as in life and pension. With our latest acquisition of SDC, we are continuing to build a strong foundation within this industry, vertical spending, most on IT and digitalization, namely the financial service industry. And with SDC, we can now also deliver banking software as a service. I'm very excited about the opportunities this brings to NetCompany. Another very important focus area for us is AI. AI is a fundamental part of our delivery model, and it's mandatory for all our employees at NetCompany to use our Digital Assistant, easily AI, to ensure that we continue to evolve and stay competitive. EaslyAI knows about net company deliverables and methodology and will assist all our employees in designing, building, testing and running our systems. As EaslyAI is our platform for generative AI digital assistance internally, it is also the foundation for our proposition for generative AI to all our customers. With Easly, it is possible to independently use various global large language models in conjunction with EU AI regulation. And recently also Phoenix AI was launched as our platform in order to use generative AI to help modernizing legacy systems within our customers. With Pulse, our real-time data engine used in airports under the name Erhard, this is now available for all sectors. We have a very strong position as a European leader within predictive AI and digital ecosystems across many industries. The future does not belong to traditional IT consultancy companies. building solutions from scratch, but rather to modern European platform companies using components and products and AI to deliver in a fast, reliable and responsible way. We have embraced this development very early on. And in 2023, launching our platform and product strategy, we are strongly positioned to take market share from the more traditional players. We have clearly differentiated our offerings from our peers which we will also continue to do while we grow. The product and platform strategy benefits both our customers and our business, as customers will experience faster project completions and reduced overall costs, while we will expect accelerated revenue growth from delivering solutions based on reusable platforms and products across sectors. All over Europe, we will continue to see demand for our customs and tax products, our case management systems, our solutions for digital post, and our real-time data engine, which to me confirms the resilience and relevance of our business model. And can we have the next slide, please? We closed the SDC transaction on the 1st of July with the merger of SDC into Net Company Banking Services. I would like to welcome all our new employees of NEC Company Banking Services. The integration of SDC into NEC Company Banking Services has now started, and given the significant planning done over the last months, our expectation is that we will see rapid progress of the integration efforts, bringing new and innovative solutions to existing customers, at the same time attracting new customers. In connection with the announcement of Q3 25, we will include Net Company Banking Services in our financial reporting, and we are looking forward to giving you more details in connection with the Q3 reporting on the 30th of October and on our Capital Markets Day on the 31st of October, which we will host at our headquarters here in Copenhagen. And can we have the next slide, please? And now I'll mention some of the contracts we have won during the second quarter. In the Danish private sector, we have been selected as vendor for a significant enterprise customer that is currently undertaking significant investments in the overall technology stack. At this point in time, we're not able to share the name of the customer, but we expect to be able to do so in connection with our Q3 report. The contract size is significant. In the Danish public sector, we've been selected to deliver a new modernized driving license register to the Danish Road Traffic Authority. The modernization includes moving the solution from an old mainframe solution to our Amplio platform. In the Swedish public sector, we've been selected by the newly formed Swedish Payment Agency to build the digital foundation for all government social benefit payments to all Swedish citizens. The solution will be based on our Solon tax product. Furthermore, in the Danish private sector, we have seen a positive trend of conversion of pipeline in the beginning of July, which I'm looking forward to be able to disclose further information about during Q3. And can we have slide number seven, please? Also in Netcompany, SEE and EUE, former Intrasoft, we have signed several new contracts in the second quarter of the year, of which we have highlighted a few here. In the European Union, we have been awarded a framework agreement as a part of a consortium by the Intellectual Property Office. The scope of the agreement is to provide maintenance support for end-users' digital workspace, IT infrastructure and operations services. The framework is a renewal of an existing contract. In the private sector in Greece, we have been chosen to deliver end-to-end application services including design, implementation, support and maintenance for Vodafone's telecommunications service portfolio. And also in the private sector in Greece, we have won a contract with the independent power transmission operator IPTO. For IPTO, we will implement an advanced AI-driven system to enhance field engineering operations. The solution will leverage large language models, machine learning, image recognition, and historical incident data to provide real-time troubleshooting assistance to field engineers. And with that, I will now pass on the word to Thomas, who will go through the numbers in more detail. Thomas.

Thank you for that, Andre. And like already mentioned, I'm CFO of a net company and will now go through our financial performance for Q2 2025. So if we move past the breaking slide number eight and straight into slide number nine, please. In Q2, group revenue increased by 3.9%, measured in both constant and reported currencies. The growth was driven by increased activity in net company CU, net company UK and net company Norway. Revenue growth was negatively impacted by resources from the Danish business unit, allocated to a combination of product and business development, as well as preparation for the STC transaction. Product development was related to additional functionality for our products, Hermes and Solon, as well as embedded new functionality and AI capabilities into our platforms Amplio, Pulse and AMI due to increased customer demand. The increased allocation of resources from the Danish business segment related to group activities is expected to normalize during the second half of 2025. In addition, revenue growth was negatively impacted from fewer working days in Denmark, Norway and the UK due to timing of Easter. Altogether, and including lower revenue recognized from license sales compared to last year, this impacted group revenue negatively by around $75 million. Revenue in the Danish business segment decreased 3.9% in the quarter. Because of the 100 FTEs allocated to product and business development, as well as preparation for the SDC transaction and integration, revenue was negatively impacted by 25 million. Additionally, two working days less impacted revenue negatively by another 25 million. This led to a reduction in revenue in the Danish business of 50 million and was the reason for Q2 revenue being 30.8 million lower compared to the same quarter last year. Net Company's EU continued its strong growth performance from the beginning of the year and grew revenue by 12.9% in Q2. The growth was driven by an increase in the private sector of 33.1% and a 6.7% increase in the public sector and EU area. Net Company UK delivered 10.4% revenue growth in the quarter, which was driven by continued ramp up on the Dallas contract. In Net Company Norway, revenue grew by 8.1%, driven by revenue from the public sector that grew 21.9% in the quarter. In Net Company Netherlands, revenue was on level with the same period last year against a strong performance in 2024. Can we move to the next slide, please? During the first half of 2025, net company group revenue grew by 6.4% to 3.456 million Danish. The growth was driven by the public sector, including the EU, that grew 9.1% in the first six months of 2025, while the private sector revenue was on level with the same period last year. The allocation of 100 FTEs from the Danish business segment into additional product and business development and preparation for the integration of SDC into net company banking services, as already described, impacted group revenue negatively by 45 million during the first half of 2025. These activities are expected to normalize during the second half of 2025. Can we move to the next slide, please? In Q2, adjusted EBDA margin before headquarter allocated cost decreased by 3.4 percentage point to 13.8%. Adjusted EBDA margin in Denmark was 16.5% compared to 23.9% in Q2 last year. The decrease in margin was a result of the allocation of FTEs to group related activities and fewer working days, as already mentioned. Net Company CEU adjusted EBITDA margin increased 1.4 percentage point in Q2 2025 compared to last year, despite lower license revenue than in the same period in 2024. In NetCompany UK, the adjusted EBITDA margin decreased 1.9% due to one workday less in the quarter. NetCompany Norway increased adjusted EBITDA margin by 4.4 percentage point compared to the same quarter last year as a result of better utilization and ramp up on the Avinor project. In NetCompany Netherlands, the adjusted EBITDA margin was 14.9% in the quarter. Can we have the next slide, please? Despite the significant investments already mentioned related to our product and business development and resources spent on preparing for the SDC transaction, we realized adjusted EBDA margin before allocated cost from headquarter of 16.2% in the first six months of 2025, not far from the 16.8% margin realized in the same period last year, underpinning the resilience of our business model and the relevance of our offerings to the market. The normalization of resource allocation in the second half of the year will have an accretive impact on our margins. And can we have the next slide, please? In Q2 2025, we employed an average of 8,333 full-time employees, which was an increase of 5.7% compared to the same period last year. The FTE growth was mainly seen in net companies EU. The attrition rate for the last 12 months was 18.2%, which was an increase of 0.9 percentage point compared to last year. We continue to be able to attract the talent we need in all the entities. Can we go to the next slide, please? In the second quarter of 2025, we generated free cash flow of 25.6 million compared to 148.2 million in the same quarter last year. The lower free cash flow was driven by a decrease in operating profit and the development in working capital. As a consequence, cash conversion rate was 32.6% compared to 104.7% in the same quarter last year. Days sales outstanding decreased from 73 days in Q2 2024 to 58 in Q2 this year. Can we have the next slide, please? In connection with our announcement of our quarterly results this morning, we have also reinitiated our share buyback program and have announced a 500 million share buyback program running until the end of January 2026. We confirm our previously communicated target of distributing 2 billion back to our shareholders through share buybacks towards the end of 2026, leaving 700 million in share buybacks to be initiated in 2026. Debt ratio was 1.3 times in Q2 2025 compared to 1.5 times in the same quarter last year. Debt leverage is expected to be around 1.5 times at the end of 2025, also as previously communicated. Can we have the next slide, please? Revenue visibility end of Q2 2025 increased 6.3% to 6.2 billion compared to 5.8 billion in Q2 2024. Based on pipeline end of Q2 and significant wins in the Danish private sector in the beginning of Q3, revenue visibility as of the end of July for both private and public sectors in the remaining part of 2025 remains at a satisfactory level. Non-organic revenue visibility from net company banking services, formerly STC, is at 780 million compared to total expected revenue of 840 to 870 million in the second half of 2025 for net company banking services. Can we have the next slide, please? Based on our financial performance for the first six months of 2025, and taking our pipeline and recent pipeline conversions and revenue visibility for the rest of the year into perspective too, we maintain our full-year financial expectations. For revenue, we thus expect organic revenue growth to be between 5 and 10%, and for adjusted EBDA margin, we expect it to end between 16 and 19%, also based on organic numbers. These targets exclude the impact from net company banking services transactions. For net company banking services, we expect non-organic revenue between 840 and 870 million for 2025. A full purchase price allocation, including provision for restructuring costs, will be made and disclosed in connection with the reporting of Q3 results on 30 October 2025. The provision for restructuring costs to be made will cover costs associated with realizing synergies for the period running until end 2028. The provision for restructuring costs will have a dilutive impact on net profit and hence on earnings per share for the results in Q3 and for the full year 2025. It is expected, though, that synergies will be realized from 2026 and onwards, and thus the transaction will be accretive to net profit and earnings per share already next year. We will now open up the call for questions, so can we move to the Q&A slide and open the questions? Thank you.