Netcompany Group A/S Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Yiwei Zhou - SEB - Analyst : I have a few questions, but we'll keep working three. Firstly, I realized that the [PK] attrition rate was 24% and it seems that it is quite high over the last three months. And if I remember correctly, you have found the restructuring already late last year. Could you maybe elaborate a bit here? And in relation to that, could you also confirm that there was in Q2 cost of the service? There was not a lot of severance payments included here in Denmark.

Question: Yiwei Zhou - SEB - Analyst : I do one question at a time. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 14, 2024 / 8:00AM, NETCG.CO - Q2 2024 Netcompany Group A/S Earnings Call

Question: Yiwei Zhou - SEB - Analyst : Oh, yes. That was clear. And my next question is for the U.K. profitability. And you mentioned in the slide that there was a negative impact from contracts being discontinued due to price setting. Could you maybe elaborate also on this?

Question: Yiwei Zhou - SEB - Analyst : Could you indicate if that was in the private segment or public segment or --

Question: Yiwei Zhou - SEB - Analyst : Okay. My next question here is the Danish public segment. Could you give us an update on the current tender market and the pipeline?

Question: Yiwei Zhou - SEB - Analyst : Yes. Yes. And if you can maybe add a bit on the timing for the large ones? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 14, 2024 / 8:00AM, NETCG.CO - Q2 2024 Netcompany Group A/S Earnings Call

Question: Aditya Buddhavarapu - Bank of America - Analyst : This is Aditya from Bank of America. A couple from me. Firstly, could you just talk about the U.K., you mentioned the delay in contract ramp-up. Could you just talk about what you're seeing there, when you expect that to start coming through? Second, could you just talk about the free cash flow? You increased your buyback for the (inaudible) to get to the level of confidence on the free cash flow generation, but given the dynamics around trade receivables, how do you think about that for the rest of the year? And then finally, if you also just give an update on the ramp-up of the Avinor contract in Norway and when that should start to come through?

Question: Aditya Buddhavarapu - Bank of America - Analyst : Got it. Maybe just one follow-up for me on Intrasoft. Clearly, growth there has been quite strong, probably maybe even a bit better than you expected. Should we -- I mean, is there anything to think about there in the second half? Any reason why this level of growth will not continue given the contract wins you've seen?

Question: Claus Almer - Nordea - Analyst : So the first question is about adding people in Norway and the UK. So how is that progressing? That'll be the first one.

Question: Claus Almer - Nordea - Analyst : That I would assume, would say, so but maybe more about, do we get the right people? Do we get young people, experienced people? More about how this uptake that is needed to service the backlog?

Question: Claus Almer - Nordea - Analyst : That sounds good. My second question goes to the pipeline. So if we exclude these larger public tenders ongoing, how does the order backlog look for second half this year? And maybe to put some comments on the main markets, Denmark, Intrasoft and UK? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 14, 2024 / 8:00AM, NETCG.CO - Q2 2024 Netcompany Group A/S Earnings Call

Question: Mads Quistgaard - Carnegie Investment Bank - Analyst : I will take them one by one. First, is it a fair assumption that your revenue visibility for this year, which is lower compared to the previous two years, is a result of prolonged decision-making in the Danish public sector? Is that a fair assumption?

Question: Mads Quistgaard - Carnegie Investment Bank - Analyst : All right. Fair enough. Very clear. And then I have a question on coming back to Intrasoft. I think this is the first quarter where you have negative growth in the number of client-facing employees that we've got on a quarter-over-quarter basis. So does that reflect your expectations for upcoming growth in Intrasoft, or how should we view it? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 14, 2024 / 8:00AM, NETCG.CO - Q2 2024 Netcompany Group A/S Earnings Call

Question: Mads Quistgaard - Carnegie Investment Bank - Analyst : Okay. So the margin increase despite lower license sales is actually something that is here to stay for the coming quarters?

Question: Mads Quistgaard - Carnegie Investment Bank - Analyst : Good. Then my final question is on 2026 ambitions. So obviously, assuming midpoint of full year guidance, it assumes that you will deliver a revenue tag of 13.5% over the next two years of the '25 and '26 to end above DKK8.5 billion in sales. I guess that is a bit ambitious, but could you sort of explain how this should take you to -- what should take you to 13.5% revenue tag over the next two years, given where you are today and what you're guiding implicit with your current revenue visibility?

Question: Orson Rout - Barclays - Analyst : Congratulations on this fantastic Q2 results. Three questions from my side. First, is just on the guidance where you quite explicitly talked to license revenues being more H2-loaded. So there seems to be quite a high conviction that you will see a good chunk of licenses in H2. I was just wondering what gives you that sort of confidence given normally you're quite conservative on how you speak to the timing of license deals? And perhaps have you already seen some that have slipped maybe into July or August that give you that increased confidence? That's the first question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 14, 2024 / 8:00AM, NETCG.CO - Q2 2024 Netcompany Group A/S Earnings Call

Question: Orson Rout - Barclays - Analyst : Okay. Makes sense. And the second is just on the U.K. and specifically on the margin expectations for the DALAS framework. I think in the (inaudible) there was a bit of detail on the accounting treatment for subcontract is and how that might impact the margin. So I was just wondering, so on a headline margin basis, do you expect the DALAS contract to be margin dilutive because there's accounting treatment or is it a bit too early to tell?

Question: Orson Rout - Barclays - Analyst : Okay. That's encouraging and good to hear. And one last slightly tricky one just on the related party transactions. I noted that the revenue from Smarter Airport has increased for the first time in like 7 or 8 quarters. Before that it was decreasing year on year. I was just wondering what the sort of reasoning behind that quite substantial uptick is and maybe if you could link to that sort of your expectations for the ongoing loss from JV and associates, should we expect that to turn into a positive sometime over the next couple of half years or is it a bit too early to tell?