Netcompany Group A/S Q4 2024 Earnings Call Transcript

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

Question: George Webb - Morgan Stanley - Analyst : Hi. Morning, Andre and Thomas. I've got a few to start off if I can. First of all, I think you slightly highlight that, Thomas, but if I look at Q4, on the private segment side, lower. And I guess, all of the regions apart from Intrasoft, if we think about the broader IT services sector in Europe. Some of the vendors were, I guess, talking about a bit of incremental weakness in Q3, Q4. In terms of your own performance, when you look at the Q4 in private segment, how much is that? I guess it's contract timing versus maybe that broader theme of private sector weakness late last year and maybe into the start of 2025. And secondly, just on the UK, in terms of how you've structured your 2025 guide, I know you won't speak to a specific country in terms of numbers. But I guess, what sort of assumptions you're making there now on the ramp up of the DALAS contract, is that second half that you're expecting or maybe even later? And then lastly, just on 2025, you mentioned the one-point headwind growth from the divestment of, I think, it's Intrasoft's media activities. I'm guessing that's not high-margin work. So I guess, within the margin guidance, is there a small benefit from that divestment? Thank you.

Question: George Webb - Morgan Stanley - Analyst : Great. Thank you very much.

Question: Poul Jessen - Danske Bank - Analyst : Yes, thank you. I have two questions. First, Danish public sector, could you put a little more color on what's going on because you have, throughout the last three quarters, had a fairly sales growth year on year? It's coming down despite it was at a very low level Q4 last year. At the same time, you'll have a much higher order intake in public sector Denmark in the second half '24. So how should we look at that kind of business until '25? That's the first question.

Question: Poul Jessen - Danske Bank - Analyst : And then the second question is about your comment on strategic considerations. As I recall it all the way back to the IPO, you have been quite firm in saying that -- as you also said just before that your focus is on high complex solutions in regulated markets. And for instance, you have absolutely no interest in the ERP market, which is, as I recall, is seen as a commodity with low margins. But at least, locally, there is a lot of speculation about a company that has just been put for sale that you could be in one of the acquirers of that one. But that is ERP, so I would just see if you want to comment on the -- you are in or out of that kind of transaction.

Question: Yiwei Zhou - SEB - Analyst : Hi, Andre and Thomas. Thank you for taking my question. And I'll do -- I have three questions. I'll do one at a time. Firstly, you mentioned that the Q4 March in Denmark was -- all the revenue was impacted by the increased business development and the tender writing activities. Is it possible for you to quantify a bit on the impact? And should we expect this to continue to be also a dilutive effect in the coming quarter?

Question: Yiwei Zhou - SEB - Analyst : Great. Thank you. Very helpful. And my next question is on the interest of the margin development, which looks quite positive here. And I recall that in the 2026, 20% EBITDA margin target, you actually quantify that what you expected that the Intrasoft will contribute. And given the development in 2024 and also the outlook for 2025, do you still see that sort of deliver? The EBITDA driver was too conservative, or it is still in line with your expectation?

Question: Yiwei Zhou - SEB - Analyst : Okay, great. My last question, on the DALAS contract, I know we have discussed many times. But I just want to ask the same question again. Could you give an update on the status? If there's any new from the customer based on your dialogue? And I know you are close eyes on this, and I mean, it's been postponed for such a long time, and you're talking about further delay. Do you see the risk of cancellation for your contract? And do you also see the risk of change in the contract value?

Question: Yiwei Zhou - SEB - Analyst : And how about the -- is there any risk of changing the contract value because I understand it's a firm agreement? But I also recall that you have got the firm project and the firm contract for one specific --

Question: Yiwei Zhou - SEB - Analyst : Great. Thanks for clarification. I'll jump back to the queue.

Question: Claus Almer - Nordea Markets - Analyst : Thank you. Also a few questions from my side, and I'll take them one by one. So the first is about this possible transaction. Could you give some color on a possible timing? And I know, obviously, this is difficult, but is it a Q1? Is it first half? Or what is the best guess? That would be the first one. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 10:00AM, NETCG.CO - Q4 2024 Netcompany Group A/S Earnings Call

Question: Claus Almer - Nordea Markets - Analyst : I'm just trying -- but do you think it will be first half, or do we have to wait for this throughout this year?

Question: Claus Almer - Nordea Markets - Analyst : Fair enough. It was worth trying, at least, Andre. My second question goes to the revenue visibility for 2025, which is around [30] year over year. And I know last year that DALAS was probably part of your expectation for '24. So first of all, how does DALAS reflect in the '25 visibility? And then the second part of that question is on leverage revenue visibility. Then obviously, your order intake really needs to improve to meet the revenue guidance. So where do we see the biggest potentials in within your different regions? Thanks.

Question: Claus Almer - Nordea Markets - Analyst : Thomas, just to be sure, so DALAS is, to some extent, included in '25 revenue visibility, but then you said something not firm. But you need to put in a specific number, I guess, in the revenue visibility.

Question: Claus Almer - Nordea Markets - Analyst : And then just to -- it's flatish, and revenue visibility is the best guess for revenue growth, I assume. So when do you think we will have a revenue visibility growth that is supporting the full-year guidance? Would that be Q1? Or do we have to wait in a bit later to see all the orders in firming up?

Question: Claus Almer - Nordea Markets - Analyst : Fair enough. That was all for me. Thank you so much.

Question: Harry Read - Redburn Atlantic - Analyst : Hi. Good morning, everyone. Thanks for the questions. I just wanted to square some comments made by a competitor in the UK public sector on budget. Obviously, there's a large allocation to UK public sector for IT given the tech debt that's incurred especially in the NHS. It was suggested by them, the unlocking of that budget and being allocated might take a clearing event such as the spring budget. I'm just interested in your conversations with clients, whether there is a kind of impetus or there needs to be a catalyst event to drive the unlocking of this work and get it done, or if there's something different that's restricting the deployment of those budgets and work. Thank you.

Question: Aditya Buddhavarapu - Bank of America - Analyst : Hey, Andre, Thomas, thanks for taking my question. Could you comment on the Avinor contract? You got any color you can give on the timing of the ramp up there? What is the contribution to that in 2024? That's the first question. Second, what is the impact from the Intrasoft-related development in the 2024 revenues? And finally, on free cash flow, I know you had a very significant inflow in Q4. Was some of that maybe a pull forward or anything from Q1? How should we just think about the free cash flow vision during 2025?

Question: Aditya Buddhavarapu - Bank of America - Analyst : Thanks so much. And maybe just a quick follow-up on the strategic cancellation. I know you're not going to talk about the timing, et cetera. But can you just remind us again the sort of bunch of criteria you look at and also, I guess, how you think about leverage in that scenario because you're also still committing to the DKK2 billion of cash returns? So if you could just comment on the criteria and then the leverage in that context.

Question: Aditya Buddhavarapu - Bank of America - Analyst : Understood. thank you, Thomas. Thank you, Andre.

Question: Daniel Djuberg - Handelsbanken - Analyst : Thank you, operator. And yeah, good day. A question, a small market but still, Norway, a negative 2.9% adjusted EBITDA and a normally decent Q4, I guess. So can you comment a bit more? You mentioned it was improved utilization for the full year, but obviously, something happened in Q4. Perhaps, you have touched upon it already, but can you just remind me of what it was? And also if it was related to Avino or -- and also if we look in Germany with -- and also Lithuania, if you can work your way around a little bit of this, what can you call it ramping impact that it will not happen again, similar to what we've seen with Avino or DALAS? So several questions there. Sorry for that.

Question: Daniel Djuberg - Handelsbanken - Analyst : Okay. That's good. And may I also ask you on -- you touched upon before here on the possible strategic move, displaying buybacks or -- and not the ERP companies, it seems to be. But can you say anything if it's correlated to your recent market interest? I guess you would be needed to be quite larger in Munich area, for example, or if it's -- that is total out of the 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. JANUARY 28, 2025 / 10:00AM, NETCG.CO - Q4 2024 Netcompany Group A/S Earnings Call

Question: Daniel Djuberg - Handelsbanken - Analyst : That's fair enough. That's fair enough. I was only curious. And the last question, if I may, would be on the UK workforce dedicated to the DALAS framework. Given lower visibility and some kind of right-side thing, I guess, we saw in Q4, is that fully behind? Or should we expect furthermore cautiousness than in right-side thing in that frame agreement?

Question: Daniel Djuberg - Handelsbanken - Analyst : Perfect. Thank you so much, and good luck here in Q1.

Question: Yiwei Zhou - SEB - Analyst : All right, great, and thank you for taking my questions. I have two follow-up questions here. First, I just want to ask about the M&A consideration. I understand that you focus on the same vertical. But could you remind us the main criteria in your due diligence for M&A transaction? I just want to know if you would be looking to integrate it. And also if you can comment a bit on the potential margin impact that happens.

Question: Yiwei Zhou - SEB - Analyst : All right, fair enough. And then on Norway, I just want to follow up on the business development activities. Could you maybe give a bit more color on if you're talking about the public and the private sector? Is it one contract or several contracts?

Question: Yiwei Zhou - SEB - Analyst : Okay, cool. Thanks. I'll jump back to the queue.

Question: Mads Quistgaard - Carnegie Investment Bank AB - Analyst : Yeah, thank you for taking my questions. I have three, and I will take them one by one. So first, coming back to revenue visibility, obviously in line with previous years. But can you just remind me, at least in my time covering Netcompany, I don't recall as strong as this month. We have signed a large amount of flagship contracts. So is it fair to assume that yeah, the revenue business ability is stable compared to previous years, but you have signed a number of contracts -- framework contracts also in this month, which will obviously have a significant impact coming into Q1?

Question: Mads Quistgaard - Carnegie Investment Bank AB - Analyst : All right, thank you. Then my second question is on Intrasoft, because if I look at the backlog cover, not only for this year but also yeah, what is this, the next six to seven years? I see that the backlog cover is flat this year over year. So I know you gave the growth guidance back in -- by the end of '23 where you say 5% to 10% annual growth in Intrasoft. But why is it that interest rate shouldn't be able to grow in line with last year given that the backlog cover is somewhat unchanged year over year?

Question: Mads Quistgaard - Carnegie Investment Bank AB - Analyst : Makes sense, but we agree that there will be a new financial package to replace RRF, right? Is it in one or two years' time that Greece will also be allocated a new fair amount of money from the European Institution? Is that correct?

Question: Mads Quistgaard - Carnegie Investment Bank AB - Analyst : And then my final question is on license sales. So obviously, you're not guiding on license sales for this year, but you have a pretty good insight into the pipeline, as you mentioned before, Thomas. So what should we expect for license sales for this year? I mean, the current pipeline.

Question: Mads Quistgaard - Carnegie Investment Bank AB - Analyst : All right. Thank you.