Netcompany Group A/S (NETC) Earnings Call Transcript & Summary

Welcome to Netcompany Group A/S Q2 2020 Results Conference Call. [Operator Instructions] This call is being recorded. I will now hand it over to CEO, André Rogaczewski. Please begin.

Good morning, and welcome to this presentation of Netcompany's Q2 2020 results. 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. Before we get going, there are some important disclosures that I need you to read through. So could we please have Slide #2, please? I will pause for 30 seconds here, and I'll let you have a read-through of these important disclosures. And with that, can we please go to Slide #3, please. The topic of today's presentation follows our usual layout, which is that I will first give you an update on the business highlights for Q2. I will also discuss our employee base and the development in that and spend some time discussing the impact from COVID-19 that we have seen in the various geographies where we operate. I will briefly comment on a number of larger contracts won and update you on the current status for the ongoing tender activity in Q3 so far. And finally, I will go through our revenue visibility and our financial guidance for 2020. Once I'm done, Thomas will go through the numbers in greater details, including an update on our capital structure policy and the implications for potential dividend payout for 2020. Can we have the next slide, please? In Q2, we continued our high growth rate and realized growth in top line of 15% in constant currencies, which is in line with our expectations for the second quarter. In reported currencies, we realized revenue growth of 13.9%. Gross profit increased by 16.6%, yielding a gross margin of 38.4%, which was an increase of 0.9 percentage points compared to the same period last year. Adjusted EBITA margin was 23.9%, which was an increase of 2.6 percentage points compared to the same period last year. And strong performance in the Danish business unit supported by strong performance in the Dutch business unit led to this relative increase. Thomas will go more into details with this later. However, I'm naturally proud to see the performance of this organization in these particular times. FTEs grew by 404 in Q2, following the strong growth in FTEs in Q1 of 484 and lay the foundation for continued growth. Can we have the next slide, please? The 404 new employees in Q2, they are distributed as shown on this slide. Our operation in the Netherlands account for 41 of the increase in FTEs as we did not own the Dutch operation in the full Q2 in 2019. We have added FTEs in all units, including the U.K., where we also see the biggest change in the workforce. While we have added 139 permanent employees in Q2 2020 in the U.K., we have reduced the use of independent contractors by 133 compared to Q2 '19. And at the beginning of Q3 2020, we now have around 60 independent contractors engaged in the U.K., and we anticipate that, that number to be continued to be reduced during Q3 and Q4 of 2020. Our average age of the workforce remain low, mid-30s, and we are continuously ranked high in various employer branding surveys among students. Churn for the last 12 months was 15.9%, which was 5.8 percentage points lower compared to last year, and the trend we have seen in the previous quarters with reduced churn has continued into Q2 2020. In Denmark, the churn ratio was reduced to 14.4% compared to 15.8% last year. And in Norway, the churn ratio reduced from -- sorry, from 20.8% to 17.1%. And the U.K. churn rate was reduced compared to same period last year and was 14.9% for the year compared to 35.8% last year. The reduction is a combination of the ongoing conversion to own employees and the impact that COVID-19 has on the U.K. market in particular. The amount of administrative employees measured as nonclient-facing resources was 6.8%, which is at the levels seen in 2019. We firmly believe that the nonclient-facing resources ratio will come down towards a level around 5% during the next couple of years, in line with the level pre-IPO. And for all geographies, we have seen reduced churn, which, to a certain degree, have to do with the current uncertainty in the labor markets following the COVID-19 pandemic. We have decided not to send home any of our close to 2,700 employees on any form for furlough. We are not participating in any of the relief packages and we continue to hire new employees during these difficult times. And in fact, alone in Q2, we have welcomed more than 230 new employees. The country hit the hardest by the COVID-19 pandemic in our business is clearly the U.K. Thomas will discuss the numbers in greater details later, but it is clear that a 20% drop in GDP in Q2 in the U.K., combined with the ongoing transition away from independent contractors to perms in addition to a hard lockdown in the U.K. is also impacting the company. In general, the private sector has been hit hard in the U.K. with postponements of several digital initiatives and in general, a pause in utilization of external IT consultants in many companies. In Norway, we also see impact on a fairly hard lockdown of society on our financial performance with some companies sending home external IT consultants, not as hard as in the U.K., though. Contrary to the situation in the U.K. and Norway, our business in Denmark and the Netherlands have not been significantly negatively impacted yet. Both countries have operated with a desire to keep as much a society running during the lockdown. And in addition, we have had a much higher proportion of public sector customers in those 2 countries than in the U.K. and in Norway, reducing the negative impact from the lockdown. Furthermore, in these geographies, we have a lower proportion of our business being selling people [ in ours ] and instead a larger proportion of strategic projects and long-term engagements. And this leads me to the next topic, I want to cover some of our recent larger project wins. Can we have Slide #6, please? So in Denmark, we were awarded the contract. First, a number of contracts to deliver a new control system for the Danish Customs department to ensure that Denmark is EU compliant. This win is important as it is the first contract in a host of tenders within the customer -- customs area in Denmark. And in the Netherlands, we have won, for the Dutch business, a significant deal with the Dutch Ministry of Finance. We've also won a project with a Norwegian company, Fjellinjen, developing a toll collection system for the roads that particular company -- for that particular company operating those roads. In addition to these public tenders, we have continued to see strong demand for our projects in the private sector in Denmark, with a number of sizable wins in Q2. Further, early in Q3, we have been selected to participate in a major frame contract with the Danish Tax authority for a 4-year period for IT consulting services with a potential spend value of DKK 3 billion. In the U.K., we have won a project for the Ministry of Defense developing several applications. So despite all the uncertainty in the world these days, we continue to see decisions being taken on initiating larger digitalization projects according to plans, which naturally is very reassuring. And this leads me into our expectations for 2020, so can we please have the next slide, please? At the beginning of the third quarter of 2020, we have a visibility of close to DKK 2.5 billion of revenue as shown here. This is an increase of 18% compared to the same period last year. The strong performance in our Danish business units has increased the level of contractual committed revenues in the private segment, too, to the same magnitude that we see in the public business as a result of more wins with multiyear contracts in the Danish private segment over the last year. And given our current revenue visibility and the pipeline of projects we are looking into, we still expect organic revenue growth of around 18% to 20%, as outlined on the guidance slide as shown on the following slide. And can we go to the next slide, please? The risks surrounding our full year guidance when originally presented remains in play and in some ways, it has actually increased following the COVID-19 pandemic and the impact that a second wave of the spread of the disease may have on the markets in which we operate. The current coronavirus outbreak has in Q2 2020, not impacted our business in Denmark and the Netherlands, but has had a negative impact, in particularly in the U.K. and also in Norway. The impact that a second wave of the virus potentially can have on the markets in which we operate and on our clients introduce significant uncertainty to us also, in particular, in the second half of 2020. While some customers most likely will defer decisions on existing projects, it is also our assessment that the need and demand for new digitalization projects and the acceleration of current initiatives will increase and offset any potential decline in demand for the kind of services we deliver. And at this point in time, it is impossible to have a qualified assessment of this impact, however, we estimate that the risk is of a magnitude of 1 to 2 percentage points for organic revenue growth for the year. At this point in time, we leave our guidance for the year unchanged. And with that, I will give the word to Thomas to take you through the financials in greater details. Thomas, please go ahead.

Thank you for that, André. And like mentioned, I am CFO of Netcompany, and I will go more into details with the financial performance for Q2 2020. So if we move past the break in Slide #9 and straight into Slide #10, please. Now André has already spoken to our performance in general terms and here, we have shown actuals against the same period last year. Revenue growth for Q2 was 13.9%, negatively impacted from currencies by 1.2 percentage points, leaving growth in constant currencies at 15.1% compared to Q2 2019. Of the revenue growth, 1.4 percentage point was the nonorganic part of the revenue growth from our Dutch acquisition in Q2 2019. Gross profit margin increased from 37.6% in Q2 '19 to 38.4% in Q2 2020. So an increase of 0.8 percentage points. In particular, the Danish business unit showed strong performance. And the change from loss to profit for our Dutch business unit clearly also adds to the overall positive performance in this quarter. Administrative costs were almost flat despite a continued net hiring in the period. The main reason for this is that a series of administrative costs had not occurred during the lockdown in Q2. We have not done any business travel, there have been no external training sessions, and there have been no social activities at all. Some of these costs will reoccur once societies are generally more open. However, the timing hereof is hard and difficult to predict. Interest cost was reduced from DKK 4.7 million in Q2 2019 to DKK 3.6 million in Q2 '20, both as debt was reduced and also interest rates on our loan facility came down as our leverage was decreased. Overall, net financials were flat, mainly due to currency adjustments on loan held in the U.K. unit that was established in connection with the purchase hereof back in 2017. The opposite income for the same loan is accounted for under comprehensive income. After tax, net result increased by more than 55% to close to DKK 96 million. Can we have the next slide, please? Growth in Q2 was mainly generated in the Danish unit that grew 22.3%. During the previous quarter, Q1, we discussed that the Danish unit had spent significantly amount of business development hours in answering to large tenders currently in the market in Denmark. Compared to Q1 2019 and Q1 2020, this activity reduced the amount of hours used on client billable activity with a value in turnover of around DKK 10 million in Q1. Activity level for business development in Q2 has been normalized and is more in line with a forward run rate, although still slightly on the high side. The growth in Norway was 3 percentage points -- was 3% in constant currencies, and as such, display, the continued impact that the loss of a couple of contracts in the summer of 2019 still have on the top line in Norway. In addition, the impact of COVID-19 in Norway has been harder than in Denmark, in particular, in the private segment. In Norway, revenue in the private segment decreased by 20% in Q2, whereas revenue in the public segment increased by 4%. As mentioned in Q1, we have taken a number of measures in Norway to ensure that we will win some of the larger projects that we have in our pipeline to support that we get to the level of growth we expect to be generating in Norway. In the U.K., growth was heavily impacted from the COVID-19 pandemic and decreased by more than 20% in Q2. The reason for the decrease is the impact to the private segment in the U.K., which, on a macro level, was hardly -- was hard impacted, which also impacted Netcompany. Revenue in the private segment fell by 46% compared to last year, however, revenue in the public segment increased by 17%, underlining the importance of establishing relevant relationship with larger public institutions and where engagements -- and engagements are in the private segment -- where engagements are in the private segment, sorry, we need to ensure that they are of a strategic and multiyear character like in Denmark. Activities in the Netherlands remained high, with revenue growth close to 200% compared to Q2 2019. However, bearing in mind, though, that we did not own the Dutch business for the full first quarter last year. But nevertheless, really strong performance in Holland based on strong performance in the public sector where we continue to see new wins. And can we go to the next slide, please? From a gross margin perspective, Q2 continued the strong performance from Q1 with total gross margin of 8 -- 38.2%, an increase of 0.6 percentage points compared to Q2 2019. The Danish operation increased margins significantly to 44.4%. That's a combination of more normalized business development activities and a general strong performance on projects. The large decrease in margins in Norway is a combination of the continued impact from loss of large deals in '19 and the COVID-19 restrictions, leading to higher resource capacity available than projects. In addition, the Norwegian business is impacted from having had a number of people working on Danish projects in Q2, meaning that revenue and costs related hereto are accounted for in the Danish business unit, and at the same time, a number of senior management resources from Danish business unit have spent time on tender writing activities in Norway, which means that the salary costs are borne by the Norwegian unit in this quarter. This, in combination, have impacted the Norwegian margins negatively by around 8 percentage points in Q2. In addition, severance payment to 2 partners in Norway has impacted margins negatively by another 3 percentage point in this quarter. Margins in the U.K. were reduced as a result of the hard lockdown in the U.K., mainly impacting IT consultants servicing the private segment. Netcompany has chosen not to lay off staff or send staff home on furlough during these difficult times despite a potential short-term positive impact that this would have on margin. Finally, margins in the Dutch operations were around the 31% mark for the quarter, which is in line with what we realized in Q1 2020 and significantly above the performance in Q2 2019. And can we go to the next slide, please? Adjusted EBITA margin for the operating activities, so that's before the allocation of central headquarter cost, was higher in Q2 2020 than last year at 31.9%, which was 4.6 percentage point above Q1 2019 and more than 6 percentage points higher than in Q1 2020. The main reason for adjusted EBITA to be significantly improved resides in the Danish and the Dutch operations that saw strong performance throughout the quarter. Expanding on the improvements in gross margin, lower activity in travel and company events has had a positive impact on adjusted EBITA margins. This is also the case in the Norwegian business unit. In the U.K., the relative larger drop in EBITA margin compared to gross margin is driven by more administrative cost related to HR activities needed to do recruitment and onboarding of own employees, which increased by 133 compared to Q2 2019 rather than independent contractors. And can we move to the next slide, please? When looking at the split between development and maintenance, the group picture is fairly stable, however, with an increase in Q2 2020 in development revenue, both in absolute and relative terms. This is driven by a number of new projects being initiated, mainly in Denmark. Our target split remains 50-50, and the split can still vary from quarter-to-quarter. Can we have the next slide, please? Free cash flow was DKK 103 million in Q2 2020, bringing total cash and cash equivalents to more than DKK 300 million at the end of Q2 2020. Operating profit was improved, but negative working capital changes eliminated that impact. Working capital changes was driven by a combination of increased accounts receivables and reduced short-term account payables. Days sales outstanding were improved by 2 days to be 64 in Q2. In addition, more than 75% of the total accounts receivables as of 30th of June were paid in July, which is an improvement compared to Q2 last year, where 52% of the outstandings were paid a month later. The strong cash position and the anticipated continued cash position for the second half of 2020 puts us in a position to potentially initiate dividend payouts subject to AGM approval. Following our capital structure policy and applying a prudent approach, we expect to be paying out dividend of between DKK 50 million and DKK 100 million for the year 2020 in connection with the AGM in March 2021. Can we have the next slide, please? We had originally planned for a Capital Markets Day on the 2nd of June in Copenhagen. And due to the obvious challenges with international travel following the COVID-19 pandemic, we've moved the Capital Markets Day to November 19th, still in Copenhagen. The Capital Markets Day will be held physically in Copenhagen. And for those not able to join physically, we will live stream the event also. Naturally, we would like to see as many of you in person, but we also recognize that this will be difficult for some of you, and hence, we will host the day as both a physical and digital event. And with that remark, I've concluded the detailed financial analysis, and we now open up the call for questions. So if you move to the Q&A slide and open the call for questions. Thank you.

[Operator Instructions] And the first question is from the line of Claus Almer.

A few questions from my side. The first question goes to the orders you have won in July. Can you provide some color to revenue visibility if we include these orders? That will be the first question.

Yes. Thank you for that, Claus. And the orders won in July are clearly not part of the revenue stability for the rest of the year. And that means that all other things equal, of course, revenue visibility will increase for the remainder part of the year. Now some of these orders are multiyear contracts so the impact that they will have on 2020 will, to a certain extent, be limited. Of course, we need to win them and we need to start them, and we will do so. But it's not that these 1 or 2 orders alone is then making the whole year good. But of course, it will increase -- I cannot comment on the number, but it will increase revenue visibility.

Okay. Then my second question goes to FTE. Have you continued or do you plan to continue adding more employees in this quarter? And if yes, to what magnitude?

Yes. The short answer to that question is we will hire more people as we always do because there's almost a one-to-one relationship with our revenue growth target and the people that we hire. So in short, that's -- we will continue to grow the company, hire more people.

And, of course, I mean, you're asking of the number, and we're not going to be able to disclose that. But on a monthly basis, we always tag up on social media and LinkedIn, a picture of all new starters. And if you're a little skilled, you can actually count them. So we have already hired close to 100 people in Q3.

Perfect. And that goes for all markets, right? You're adding people in all markets?

Yes.

Yes.

And the next question is from the line of Poul Jessen from Danske Bank.

I also have a few questions. Could you say a little more about the U.K., when you expect, for instance, that we should see that coming back to growth? Do we have to wait until 2021? That's one thing. Then you said you had a major contract with the Ministry of Defense in the U.K. Could you, given the size of the U.K. market, put a little color on what's the size of that one? And then you also had one in the Netherlands which you said was significant. But looking at the tip, there were no value on that one either. So could you also indicate the value on that one? That's for now.

Okay. Thank you for those questions. We -- I think the situation that the U.K. is in right now, also in some of the private companies, it's very difficult to predict exactly when things will be picking up again. The good news are that we've seen an increase in revenue in the U.K. by 17% in the public segment, and we also have a reasonable good pipeline there on public segment. And I mean, the crisis will not last for -- hopefully not last forever. So that's as far we can go on your first question. The second question about the Ministry of Defense. Let me just say it's a sizable contract, and it's a framework contract as well. So it can even become bigger, but we cannot disclose any particular numbers here. And when it comes to the contract in the Netherlands, well, as you can see already now, we've hired a great deal of people there and we expect their numbers to continue to grow. And we've had some really sizable wins down there. So -- and that's it for now when it comes to -- I can't tell you more about that.

But I think, Poul, actually, there was a value to the contract in the Netherlands. If I'm not mistaken, it has a value of EUR 1. Clearly, we expect to be able to beat that.

So we should assume EUR 1 is significant?

No. But it is -- for the Dutch business, it's a significant part. And like André is saying, we're continuing to hire, and that's always a good proxy of the size of the businesses we win.

Okay. Then 2 other questions. Just a way of mindset. One is the Danish frame agreement which was announced on the tax of DKK 3 billion, and you are 1 of 6 participating in that one. How should we look at a contract like that, both by annual positions, but also, should we just take 1/6 of that or are your ambitions to take a larger share of it? Of course, your ambitions are, but what's realistic? And then secondly, coming to your revenue visibility. If we compare this year to last year, the share which you mentioned as non-contractually committed has come down significantly. Is this a buffer in the numbers? Or what's the difference here as you have much larger share in that category this year?

Yes. So to your first question, I think you're right, you got 6 vendors in that framework agreement. And, I think, my best advice is actually to look into what these 6 vendors have been doing for tax recently and how they're -- what is their engagement and -- because there will be a great deal of uncertainty of who is going to win what. It's mini -- it's going to run as a set of small tenders or smaller tenders dividing up the entire contract. But looking at those 6, you can -- I think my advice is to look into what they have been doing so far and then take it from there. It's very difficult to predict exactly how things are going, but no doubt that Netcompany is well positioned because of our track record at tax. And when it comes to the second question, Thomas, maybe you can allude to that?

Sure. And you're absolutely right there, Poul, that the contractually committed part of revenue visibility has increased, and it is relative and has increased in the private sector mainly. And that is a result of the amount of multiyear contracts that we have won in the private sector, particularly in Denmark. Historically, the purchase pattern for private sector projects has been on a more 6-month rolling basis. But some of the big wins that we had last year, and one of them we've discussed early on with Topdanmark, but there's been others also, now have a structure which is more similar to the contracts that we have in the public side. And that just means that the contractually hard committed revenue -- part of revenue visibility increases. So it's not because there's a buffer or something has changed, it's simply the portfolio of projects within the private segment that has changed to be more to the tune of what we see in the public side.

Okay. And then a final one for me, Sweden. Has there been any change in your views on Sweden? Previously, you wanted to grow acquisitive. Have you taken a change to do that more organic out of Copenhagen or Southern Sweden?

Well, it is true that we have some Swedish clients. It is true that we have some engagements over there. We haven't changed the overall strategy. We are looking at any type of possibility. Now it is definitely a possibility to serve some Swedish clients from Denmark, and we will continue to do so. And of course, if we find a company there that reflects our culture and can prolong our arm into Sweden, we will do so as well.

And then just adding a little more cloud on that also, Poul. We've tried a couple of times to look acquisitive in Sweden. And we've also had one case which spurred a company announcement. First, there was talks and then a second company announcement that it didn't materialize. Sweden is a country which is very similar to Denmark in many aspects and therefore, particularly in Sweden, it might also be an opportunity to go greenfield, but that is something we are evaluating all the time.

And the next question is from the line of [ Paul Swap ] from Morgan Stanley.

This is George Webb. Not sure necessarily who that was. I've got a few questions, please. Firstly, can you just give a quick update on the integration of Q Delft and where roughly in that process you right now?

Yes. So Q Delft was primarily a vendor delivering IT solutions projects to public in the Netherlands and that has shown to be a very good starting ground for us in the Netherlands. We have had a larger effort in bringing their delivery mechanisms up to the same standards as we have in Denmark. We have succeeded doing so. So the engagements we've had that were not giving us the necessary profits has now been changed into being sound and great engagements. And at the same time, we've -- we experienced some great wins and we've hired -- added on more employees. So to a certain extent, we have -- we are accelerating our integration process with the Dutch and in all respects, we've learned something from both Norway and the U.K. that we are utilizing in the Dutch market right now. So I think we have taken some decisions quicker there than we've done in Norway and the U.K. So right now, we have a great management team, which is a combination of the existing team and new people that we've hired. We've killed off some of the projects that were not profitable, and we've now started on new engagements. So altogether, I have to say that there's a good outlook for how the Dutch operation will run. And we are gaining more and more influence and visibility in the public sector in Holland, which is also very positive. So altogether, summarizing on that one, we are positively surprised. And I think we have used many of the experiences we've had in Norway and the U.K. in a good manner.

Okay. That's helpful. And the second question is on the U.K. employee mix. You're still clearly very quickly moving that staff base over to FTEs. Can you talk a little bit about the dynamics of those new hires? For example, what percentage is roughly from the graduate pool? Or in other words, how closely does that U.K. hiring model now resemble what you have in Denmark?

Sure. Thanks, George. The vast majority of the people that we're hiring in the U.K. are straight out of university, so the high proportion of graduates. In Denmark and in Netcompany in general, we have been saying that around 9 out of 10 is straight out of university. It's probably a little lower in the U.K., given the fact that we are ramping up so rapidly. We also need some people with some seniority to make that work. So where a run rate in Denmark is 9 out of 10, it's probably 7, 8 out of 10 in the U.K., being straight out of their university. So from universities -- leading universities in London, but also, we've found a good recruitment base from the university in Leeds and some other good universities also.

Okay. Great. And then final question. We've spoken a little bit about the U.K. I mean when we think about Norway, can you talk a little bit more about what you're expecting there in terms of pipelines? Obviously, still quite a few uncertainties going through the rest of this year and into next year. How should we think about growth in Norway next year would be helpful? Or at least, when should we expect Norway of being capable to return to, say, mid-teens to 20% growth?

So the situation is Norway -- we've been working actually over the last 12 months in helping out the Norwegians in writing large tenders and bringing the portfolio from a great but midsized project size up to much larger project sizes and even more business-critical, society-critical engagements. Now we've said this before -- I think I've said it before, we need some patience sometimes with this because we won -- we have 1 big win in the spring, which was Fjellinjen, also mentioned in this presentation. The good news is that our pipeline is looking quite good in Norway. It's not that the pipeline has been canceled or -- but some of the decisions has been postponed because of the COVID-19 crisis. And at the same time, we have a private sector in Norway where many companies have actually sent their people home during the outbreak because in Norway, you are -- after 2 days, you're actually entitled to -- by the government to receive what is equal to your normal salary. So that has actually influenced some of our customers and their activity levels. But altogether, I have to say that the pipeline in Norway looks promising. We have a lot of Danish people involved writing the tenders. We are very well positioned. So structurally, we are in a good position in Norway. And now we need to convert some of that pipeline in to work, and that will yield a higher growth rate in Norway.

Okay. That's helpful. Maybe if I can take 1 final question on -- just to clarify, as you mentioned, there's been some delays to large projects and tenders in the U.K. and Norway. To what extent has that kind of unlocked through the start of Q3 so far?

Can you -- the last part of the question was difficult to hear, George.

Sure. I'll repeat. So yes, so you mentioned that there were some delays to large tenders and projects in the U.K. and Norway through Q2. To what extent has that changed at all as we've moved through Q3 so far?

Well, it's still slow, particularly in the U.K., where some part of society is starting, then some is not. And you also know from being in the U.K. that most people are going to be in the offices until September. But then on the other hand, there are certain green shoots, particularly in the public pipeline that kind of balance the negative impact there to a certain degree on the private side; Norway, coming back from vacation, and our friends up in Norway enjoy their country. They always do that. So they are pretty big on their summer vacation. But we are seeing some increased activity though in that society, so not fully there yet, but it's beginning to pick up.

[Operator Instructions] The next question is from the line of [ Gianmarco ].

So the first question is, you previously mentioned that Brexit could present several opportunities for the U.K. public contract wins. And as you're approaching closer to deadline, considering the uncertainty brought by COVID, do you still see opportunities in the U.K. to win some of those government-mandated digital projects? And if so, would you say that, that could bring up the 70% average win rate slightly up overall?

Yes, there is a possibility of that. I mean there is a tendency of being in a complete shock right now in the U.K. because of the COVID-19 crisis on top of this Brexit. So we see a lack of decision-making, but there is definitely also some possibilities of winning both infrastructure and application projects coming into the autumn. But that has a great deal of uncertainty related to it. We have to say.

The logic, of course, is that the U.K. will follow through on their Brexit obligation. And in the same time, they need to reinvigorate the economy. So that -- you could come to the conclusion that, that would lead the government to initiate more projects that will facilitate both more work in the U.K. and also towards Brexit in terms of getting systems ready. So all other things equal, that analysis still hold, but it's difficult really to predict in these times. But in all of the things equal, you would expect that, that will generate some growth in market demand on the other side of this year.

Right. Makes sense, makes sense. Just a second one, more on the long-term strategy. So from a near-term to long-term view, do you see any other challenges in being able to replicate the Danish model in full in those 2 years that has been slightly more demanding from a business strategy perspective, kind of like U.K. with the year -- start of the year with the IR35 and so on?

No. Not in general. I think the model we have in Denmark is a very international model that we're striving to use everywhere, and we see very positive outcomes of that actually, both -- in all our geographies already. When we engage into projects, we deliver them on time and on budget and at the right quality when we use the Danish model. And also when we hire younger people and get them on board and after -- even after half a year, a year, they start being very, very, very productive. So it is strategically the right way to go. And of course, there's some wind out there, there's some storm out there, there's a Brexit in the U.K. and a COVID-19 crisis. There's a lot of things going on, but we just need to stick to our model and deliver quality, and I'm absolutely sure that with the references we have and the people we have on board, we will slowly but surely -- well, slowly, 18% to 20% is not that slow, but we will just, with patience and focus on quality, continue the path that we've already carved out.

And then also in connection with that, we have taken -- as an organization, we have, of course, taken in a number of learnings in terms of the acquisitions we've done. So we did Norway almost close to 4 years ago now and then the U.K. and then Holland. So there are certain things that we have learned in the integration process that we are accelerating in our latest acquisition in Holland, and we'll continue to do so simply because we see that there are certain things that we just need to do right away. And that, of course, is something that you learn as an organization. From a structural perspective, all the markets that we are in should be able to yield the same possibilities as we have seen in Denmark historically.

And the next question is from the line of Yiwei Zhou from SEB.

I have 3. Firstly, regarding the large contract on the customer system that you received in July. So I realize there is a big difference between the initial budget and also the actual contract value. Is it fair to understand that you have given a very large discount? And do you expect any sort of additional revenue follow-up on this project?

I think what you can see there is that the contracts are structured into this delivery that has to be done initially, and that's something that is very firm and has to be delivered. And then there's a lot of change requests and add-ons and a budget for that. So we have -- what you see there is what we have included in is what has to be done in a short -- in a term of developing and maintaining the first releases. And then we expect -- no one can expect exactly how big that contract is going to be, but serving -- looking at the complexity and the international adherence that a system like this needs to be able to do, the contract value will go over time, but it's very difficult to predict that. So we've included what is in the plans right now.

Okay. Very clear. And my second question is, could you elaborate a bit on the contract work-in-progress development in the quarter? I recognize it has increased quite a lot during the quarter. And when should we expect a reversal?

Yes. Thanks, Wei. It's true that the work-in-progress has increased also relative to revenue in the quarter and there are some timing of that. A number of contracts are having significant payment milestones during Q3 and Q4, and they will then be invoiced out of work-in-progress and become accounts receivable and then subsequently cash. So that's one part. And then what we've also seen in -- particularly in Q2 is a buildup of work-in-progress on some private projects. They will also be invoiced out of work-in-progress during Q3. So it's more a temporary timing than anything else, and it will come down again to receivables and subsequent cash on the second half of 2020 and then into 2021.

Very clear. A final question. I would like to follow-up on the strong pipeline in the U.K. public sector. Would you please give an indication on some time plan? When would that happen? When will we see the contract wins? And should we expand anything already this year, at the end of the year?

It's difficult to commit to a time line on anything in terms of public tender in the U.K. these days. Difficult in general, but it would be even more difficult in the U.K. There are tender activities going on. Some has to do with 2020 and a good part also have to do with 2021.

As there are no further questions, I will hand it back to the speakers for any closing remarks.

Okay. So thank you for joining this morning, and we wish you a great day.