Netcompany Group As Adr

Welcome to Net Company's interim report for the first nine months of 2025. Today's call is being recorded. If you have any objections to this, please disconnect your line. All participants will be in a listen mode throughout the presentation. Afterwards, there will be a question and answer session. To ask a question, please press five star on your telephone keypad. I would now like to introduce CEO Andrej Rogacevski and CFO Thomas Johansen. Andrej, please begin.

Good day and welcome to this presentation of NET Company's results for Q3 2025. My name is Andrej Rogacevski 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 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 Q3 2025. I start by walking you through the business highlights for the quarter and some of our recent launches. Once I'm done, Thomas will go through the financial performance, including our guidance for 2025 and long-term targets before we open the call for questions. And can we have the next slide, please? The future does not belong to traditional IT consultancy companies building solutions from scratch, but rather to European platform companies using components and products and AI to deliver in a fast, reliable and responsible way. In 2023, we launched a product and platform strategy embracing this development, and we are strongly positioned to take market share from more traditional players. We have clearly differentiated our offerings from our peers, which is also why we continue to grow. An example of a recent product launch is Vera, based on our Pulse technology. The launch is happening in a time where European governments, institutions and large enterprises continue to focus on European digital sovereignty through European solutions developed and hosted in Europe on European data. Vera is a critical solution for European defense and resilience, providing AI-enabled awareness, prediction, and response. This is a vertical we have invested heavily in within the last 12 months, and our ambition with Vera is to become a preferred European vendor and a trusted partner in a time of change. Another example of where we have differentiated our offerings is within real estate, where we have commercialized our offerings and launched Amplio Estate. Amplio Estate is a new solution for property management companies that aims to set completely new digital standards for property management across Europe, moving away from mere administration to real automation and new process support driven by AI. Our solution for the life and pension industry, Amplio Life and Pension, is a third example of launching vertical solutions on Amplio. Very fundamentally, all of our launches and products and platforms are AI-ready. But AI is also a fundamental part of our own delivery model, and it's mandatory for all employees at Net Company to use our digital assistant, Easily AI, to ensure that we continue to evolve and stay competitive. Easily AI knows about Net Company deliverables and methodology, and will assist our employees in designing, building, testing, and running our systems. at our capital market state tomorrow, we'll elaborate further on these topics. And can we go to the next slide, please? We closed the SDC transaction on the 1st of July with the merger of SDC into Net Company Banking Services. In Q3, we've commenced the integration of Net Company Banking Services into Net Company Group. The integration efforts are progressing faster than anticipated, and I'm thrilled about the opportunities NET Company banking services give us within the financial service industry. We can already see now that the combination of deep subject matter expertise within FormaSTC combined with NET Company best-in-class IT development capabilities will offer the customers solutions that are unmatched in the industry. We look forward to accelerate the partnership with our banking customers in the future. And we will already in this quarter be launching new AI initiatives benefiting our customers. Thomas will give you a detailed walkthrough of the NBS numbers in his part of the presentation. And can we have the next slide, please? And now I mentioned some of the contracts we've won during the third quarter. In the public sector in the Netherlands, we have been selected as a strategic innovation partner for the development, management and implementation of a new shared registration system for 3RO, the three collaborating probation service organizations in the Netherlands. The system is based on our Amplio platform. In the Danish private sector, we have entered an ambitious strategic collaboration with Heimstaden Bostad, PHM Group and Thulander. Together, we will introduce a new revolutionary European property management system built on top of NIC company Amplio and with AI deeply integrated into core processing with easily AI. This is the first contract for a newly launched Amplio state solution. The Scottish Government has selected Netcompany to build a digital communication infrastructure for Scotland and its citizens. The ambition is to enable broad digitalisation and interoperability of digital solutions and communication flows in Scotland, thus driving innovation and efficiency in the digital government, gradually replacing a large part of the analogue processes of today. The solution Scott account mailbox is built upon the company's AMI platform, which is extended and customized for the specific needs and the digital ecosystem of Scotland. And can I have slide number seven, please? Also in NIC company C and EU, we have signed several new contracts in the third quarter of the year, of which we have highlighted a few here. In the public sector in Greece, we have entered an agreement with the technical chamber of Greece. The project includes creation of an integrated system that will use new GIS and AI technologies and high resolution aerial photography to effectively identify cases of unauthorized construction. Also in the public sector in Greece, we have signed a contract with the Independent Authority for Public Revenue , where the scope of the contract is to design and develop a new integrated electronic human resources and payroll management system with the aim of digital transformation and upgrading the administrative capacity and operation of their services. In the private sector in Greece, we have been awarded a one-year contract extension with the leading gaming company in Greece, OPAP, to deliver end-to-end application delivery services, including design, implementation, and quality assurance across the core gaming platform. And also in the private sector in Greece, we have been awarded a one-year contract extension with Hellnik to provide support, maintenance, and development services. And with that, I'll now pass on the word to Thomas. We'll give you a walkthrough of the numbers. Please go ahead, Thomas.

Thank you for that, Andre. Like already mentioned, I'm the CFO of NET Company and I will go through our financial performance for Q3 2025. Also, please bear with us for the added complexity to this particular quarterly report following the inclusion of NET Company Banking Services into our numbers for the first time. So if we move past the breaking slide number eight and straight into slide number nine in one go, please. As of 1st of July 2025, Net Company Banking Services, formerly STC, was included in Net Company Group. This resulted in adaptation of new accounting standards for STC, moving from Danish GAAP to IFRS. The acquisition means that we in this quarter have made a full purchase price allocation of the 1 billion purchase price, just as we have made full provision for restructuring costs. Taking a look on the financial performance in the quarter, we grew organic revenue in constant currencies by 8.5% compared to Q3 2024. Currencies impacted revenue growth negatively by 0.3%, resulting in reporting organic revenue growth of 8.2%. Organic growth was driven by 6.7% growth in revenue from the public sector and 11.7% growth in revenue from the private sector. Revenue growth was supported by all segments, except from Norway. Reported revenue grew 34.3%, of which 26.1% were non-organic related to the inclusion of net company banking services. In net company Denmark, organic revenue increased 4.8% compared to Q3 2024, driven by revenue growth of 14.3% from the private sector, while revenue in the public sector was in line with the same period last year. Net Company CEU continued the strong growth for the first half of the year and grew revenue 12.5% compared to the same period last year. The growth was driven by both the public and the private sector that grew 12.2% and 13.5% respectively. Also, NIT Company UK continued its strong growth from the previous quarter and grew revenue 17.4% compared to Q3 2024. The growth was driven by the public sector, which grew revenue by 23.8% compared to the same quarter last year. The growth in the public sector was supported by increased engagement with both existing and new customers, including a continued ramp-up of resources on our engagement with HMRC through the DATAS framework and through other contracts. Revenue in Net Company Netherlands increased 10% compared to Q3 last year and was solely generated in the public sector. In net company Norway, revenue decreased slightly by 2%, driven by a soft market for IT consulting that generally has been declining over the last 12 months. In net company banking services, revenue grew 5.8% compared to pro forma revenue of SDC Q3 2024. This was a result of increased activity with existing customers. Can we move to the next slide, please? In a market where most of our peers have seen little or no growth, the net company grew organic revenue with 7.1% in the first nine months of 2025 compared to the same period last year. Organic growth was driven by the public sector, including the European Union, that grew revenue 8.3% and supported by revenue growth of 4.3% from the private sector. Growth in both segments was supported by our products and platforms and AI solutions. Reported revenue grew 15.7% in the first nine months of 2025, of which 8.7 percentage points were non-organic, related to net company banking services. Can we move to the next slide, please? In Q3 2025, organic adjusted EBDA before allocated H quarter cost increased 8.7% to 348.1 million, yielding an organic adjusted EBDA margin of 19.1%, in line with the same quarter last year. Reported adjusted EBDA increased 17.3% to 359.3 million in Q3 2025. Adjusted EBDA margin for the group was 17.3% compared to 19.8%. The explanation for the lower margin is the inclusion of Net Company Banking Services, which impacted adjusted EBDA margin negatively by 2.5 percentage points. In Net Company Denmark, adjusted EBDA margin was 29.2% in Q3 2025 compared to 28.6% in the same quarter last year, underpinning the margin acceleration that we've seen in Net Company Denmark. In net company CU, adjusted EBDA margin was 12.1% in Q3 2025, compared to 11.6% in the same quarter last year. In net company UK, adjusted EBDA margin was 14.3% in the quarter, compared to 10.3% in the same quarter last year, and at the same time significantly improved compared to Q2 2025. In net coming to Norway, adjusted EBITDA margin was 0.4% compared to 11% in the same quarter last year, and the decline was related to the soft market in Norway. Adjusted EBDA margin in Net Company Netherlands was 22.9% for the quarter, in line with Q3 last year. In Net Company Banking Services, the adjusted EBDA margin was 6.4%, in line with performer adjusted EBDA margin of 6.6% in SDC in the same quarter in 2024. Can we have the next slide, please? For the first nine months of 2025, organic adjusted EBITDA before allocated headquarter cost was 17.5% for the group in line with the same period last year. Reported adjusted EBITDA margin before allocated cost from headquarter was 16.6% compared to 17.8% in the same period last year. And again, reported margin was negatively impacted by the inclusion of net company banking services to the group numbers. Can we have the next slide, please? I will now give a detailed walkthrough of the acquisition of SDC and the financial impact of including SDC into Netcompany Group. As of 1st of July 25, Netcompany completed the acquisition of SDC. The transaction was structured as a taxable merger, whereby former SDC was merged into a new company, Netcompany Banking Services, which was established by Netcompany and capitalized with 1 billion in cash and equity. The former STC reported under Danish GAAP, whereas Net Company Banking Services will report under IFRS. This results in significant differences in accounting treatment for certain assets and expenses, most notably accounting for leases and own developed software. Under Danish GAAP, leases are accounted for as an expense and hence included in administration costs. Under IFRS, leases are capitalized as right-to-use assets and amortized over the lease term. Reporting under Danish GAAP, SDC have historically capitalized and amortized owned developed software. Under IFRS, capitalization requires a clear relation between the capitalized development cost, future cash flow related hereto, and a clearly identified delivery obligation going forward. Due to the specific nature of the contract entered into with all the customers of Net Company Banking Services and the way the total solution in SDC has been structured, with more than 300 individual solutions developed, such an application does not exist under the IFRS interpretation, even though a significant amount of IP has been developed and established and still exists. Hence, the value of own developed software is substantially reduced in the purchase price allocation from around 750 million to 33 million. The value of the developed software is instead allocated to customer relationships and goodwill. This also means that net company banking services will discontinue the previous method of capitalizing and amortizing approximately 200 million annually. Future potential capitalization of development of own software solutions will be based on specific cases where a standard SaaS solution is developed, which will subsequently be licensed. A full purchase price allocation has been performed, and based on the assessment of assets and liabilities of STC, the purchase price allocation leads to the assets and liabilities in net company banking services, as illustrated in Note 8 in the company announcement. Furthermore, as a consequence of structuring the transaction as a taxable merger rather than traditional purchase of shares, the gain arising from the transaction is taxable for the sellers and the acquired net assets will be eligible for tax depreciation for the buyer net company. Under the Danish tax law, the full purchase price of 1 billion will be eligible for tax depreciation over a seven-year period, resulting in reduced taxes of 220 million. Also as a consequence of the merger, SDC was required to exit the ownership of Jordan Data as per the shareholders' agreement. Hence, Net Company Banking Services received 65 million for the shares in Jordan Data during Q3 2025. Under the regulations for operators providing quote-unquote solution for critical financial infrastructure, Jordan Data is obliged to continue to deliver unchanged services in quality and price for at least 24 months. If no alternative operating solution is established at that point in time, Jordan Data will remain obliged to deliver these services. A main reason for the shareholders of STC to enter the transaction with Netcompany was to accelerate innovation and reduce time to market for new solutions and at the same time reduce their own running cost. To deliver on that promise, Netcompany has initiated a comprehensive transformation project of Netcompany banking services, introducing Netcompany methodologies of working, sharing existing platforms to accelerate innovation for Netcompany banking services customers, and eliminate duplicate roles post-merger. In addition, NetCompany Banking Services will leave its current headquarter in Ballerup and work out of NetCompany corporate headquarter in Steingad in Copenhagen as of January 2026. The physical move will ensure fast and swift integration and sharing of knowledge and support the integration of NetCompany Banking Services into NetCompany Group even further. During the next three years, net company expect gradually to realize cost synergies that by 2028 are expected to be between 300 and 350 million annually compared to the SDC cost base in 2024. When we originally announced the transaction, we communicated that we expected the transaction to be double digit percentage accretive to earnings per share in 2028 compared to 2024 baseline. Assuming the midpoint of the 300 to 350 million cost synergy range, the transaction will add 6.84 kroner in accretive earnings per share combined to the 2024 baseline. This is equivalent to an increase in earnings per share of 71%. As a result of the integration, a restructuring provision of 205 million has been booked and expensed as special items in Q3, covering costs to be incurred towards 2028. This covers costs related to redundancies, lease terminations, termination of contract for services no longer required, as well as various other costs related to retention and integration efforts. Another 96.5 million related to impairment of right to use assets and other regulations have also been expensed in Q3 as special items, bringing total special items for net company banking services to 304 million in Q3, whereas total special items for the group year-to-date total 351.2 million, including 35 million related to advisory in connection with the transaction. Can we go to the next slide, please? So, in summary, the inclusion of SDC into net company banking services have led to significant changes to previous accounting principles, and a significant amount of costs have been booked as special items in Q3, supporting the realization of the expected annual cost synergies of between 300 and 350 million to be reached by 2028. These are summarized in the table shown here. Can we go to the next slide, please? In Q3 2025, we employed an average of 9,482 FTEs, equal to an increase of 1,394 FTEs or 17.2% compared to Q3 2024. 6 percentage points were organic and 11.3 percentage points of the increase was non-organic as a result of including net company banking services employees into the total number. The attrition rate for the last 12 months was 18% for the organic part of the group, which was a small increase of 0.5 percentage point compared to Q3 2024. On a sequential basis, the churn rate was in line with Q2 2025. Furthermore, the three months rolling churn rate was in line with Q3 2024. As net company banking services is in the initial phase of a significant and structural reorganization, it makes no sense to include data on churn within net company banking service into the group numbers at this point in time. Can we go to the next slide, please? Organic free cash flow decreased from 145.3 million in Q3 to negative 11.5 million in Q3 2025. The development in the organic free cash flow was mainly driven by development in working capital and to some extent also impacted by increased tax payments and increased acquisition of fixed assets. The negative working capital changes in Q3 2025 was mainly driven by increased contract work in progress in the organic part of the group. This was due to timing of milestone payments on projects mainly within public contracts throughout the group, while the level of trade receivables at the end of Q3 was slightly below the realized level at the end of Q3 2024. Consequently, Organic cash conversion rate was negative 7.1% compared to 89.5% in Q3 2024, while cash conversion rate adjusted for taxes paid on account decreased from 59% in Q3 2024 to negative 22% in Q3 2025. Also in Q3 2025, net company banking services accounted for negative 44 million of the group's free cash flow, which totaled a negative of 55.5 million. Cash flow is expected to normalize during Q4 and Q1, and the differences in working capital are of time and character only. Day sales outstanding decreased from 70 days in Q3 2024 to 53 days in 2025. Can we have the next slide, please? Organic revenue visibility end of Q3 2025 was 6.7 billion, which was an increase of 6.8% compared to 6.3 billion in Q3 2024. Based on pipeline end of Q3, revenue visibility in both public and private sectors for the remaining part of 2025 remains at a satisfactory level, supporting continued growth. Non-organic revenue visibility from net company banking services for the last three months of 2025 amounted to 390.5 million. Combined with the reported Q3 revenue in net company banking services, revenue visibility for net company banking services amounts to 811.4 million compared to expected revenue of between 840 to 870 million for net company banking services for 2025. Can we have the next slide, please? Considering organic revenue growth of 7.1% for the first nine months of 2025 and taking pipeline and revenue visibility into account for the remaining part of 2025, we lift the lower end of the expected revenue growth range from 5% to 6%. At the same time, we narrow the range and reduce the top end of the expected revenue growth range from 10% to 8%. Consequently, we now expect organic revenue growth for 2025 to be between 6% and 8%. At the same time, we narrow the range for our expectation to organic margin and now expect an adjusted organic EBDA margin of between 16% and 18% for 2025. We remain committed to the Share Buy Back program of 500 million launched in connection with Q2 2025 report running until the end of January 2026. Can we have the next slide, please? Yesterday evening we announced our long-term targets, and these are as follows. Long-term organic revenue growth for the group throughout any business cycle of between 5 and 10% annually, and an adjusted EBITDA margin above 20% for the group to be reached by 2029. The 20% adjusted EBITDA margin is including net company banking services using new accounting technologies, meaning that we do not continue the previous methodology of capitalizing around 200 million annually in net company banking services for development of own software. For the total group, including net company banking services, we expect total annual capitalization of cost related to development of own software to be in line with the historic levels for the group of around 100 to 130 million annually. For capital allocation, we will complete the 2 billion share buyback program by 2026, as originally introduced in 2023. We continue to be opportunistic when it comes to M&A, and we will dynamically redistribute cash using share buyback programs and dividends of all free cash flow while observing leverage, of which we have a target of below one. We will now open up the call for questions. So if you move to the Q&A slide, please, and open up for questions. Thank you.