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

Pleased to present the CEO, André Rogaczewski; and the CFO, Thomas Johansen. Please begin your meeting.

Good day, and welcome to this presentation of Netcompany's Q4 and Full Year 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 all have a read-through of these important disclosures. With that, can we go please to Slide #3? 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 Q4. And in addition, I will briefly touch on our full year performance. I'll also go through our revenue visibility and our financial guidance for 2021. Once I'm done, Thomas will go through the numbers in greater details before we open the call for questions. And can we have the next slide, please? So in Q4, we continued our high-growth rate and realized growth in top line of 16.5% in constant currencies, all of which was organic. In reported currencies, we realized revenue growth of 15.2%. Gross profit increased by 15.5%, yielding a gross margin of 42.4%, which was in line with Q4 last year. We have seen improved performance in both the U.K. and Norway from Q3 into Q4 based on a number of contract wins that I will comment on later in this presentation. Adjusted EBITA margin was close to 29% in Q4, which is more than 2 percentage points higher than Q4 2019. Strong performance in the Danish and the Dutch business unit was the main driver to this relative increase. In addition, margins in Norway improved in Q4, whereas margins in the U.K. continued to be lower than at the same period last year. However, in Q4, the margin in the U.K. was positive though. Thomas will go more into details with this later. But needless to say, I am naturally proud to see the performance of the organization in these particular times. FTEs grew by more than 500, 528 to be specific, in Q4 following the strong growth in FTEs in Q3 and laid a foundation for continued growth. And can we have the next slide, please? So on Slide 5, for the full year, we realized growth of close to 17% in constant currencies and 15.7% in reported currencies. While we did see a dip in our performance specifically in Q2 and Q3 caused by temporary low utilization, in particular in Norway and the U.K., we ended the year on a strong note in Q4 where all units saw increased utilization based on significant new contract wins. We realized DKK 774 million in adjusted EBITA, yielding an adjusted EBITA margin of 26.2% in the year with the global pandemic. At the same time, we grew our FTE base by more than 20% in a year with the global pandemic. I cannot express in words how proud that makes me and I'm humbled by the power of our people generated these -- generating these results with our great customers. Can we have the next slide, please? As I mentioned in my introduction, we have continued to hire new employees in Q4. Our operation in the Netherlands account for 44 of the increase in FTE, which is all organic, and is a strong testimony to the performance in the Dutch operation. While we have added 189 permanent employees in Q4 2020 in the U.K., we have reduced the use of independent contractors by 95 compared to Q4 2019, meaning that the net intake of new employees in the U.K. was 94. In Denmark, we continued to recruit and grew by 249 FTEs. We also saw growth in Norway. And in our 2 talent pools, Vietnam and Poland, we also increased our FTE level. Churn for the last 12 months was 14.6%, which was 6 percentage points lower compared to last year. And the trend we have seen in the previous quarters, with reduced churn has stabilized of around 15% from the last quarter's run rate. The amount of administrative employees measured as nonclient-facing resources was 6.2%, which is slightly lower than the levels seen in 2019 and also lower from Q3 where it was 6.5%. We expect gradually to come down towards a level of around 5% nonclient-facing during the next couple of years. And can we have Slide 7, please? In Denmark, we've won a number of large and multiyear contracts with different governmental agencies, but also in the private sector, and I will mention a few of them here. The contract we've won with Health Insurance Denmark is an example of a multiyear contract won in the private segment where we're developing a new platform for handling policies, payments and administration. In the central government, we've won a contract with the ministry for foreigners and immigration in Denmark for a large part of the ministry's system portfolio, such as asylum, resident permits and citizenship and visas. Finally, we've also won a larger contract for a case management system for 39 municipalities in Denmark, a contract won on local government where the municipalities have handled the tender themselves. In Norway, we've continued the positive trend from late Q3 and signed 3 additional contracts in Q4 with the public sector. We've won the so-called Smittestop app, trace and track app for Norway to be used in the COVID-19 response in Norway, which is live in the country right now. We've also won a project with the immigration agency and a project with a number of municipalities handling distressed children and youth, building on platforms and experiences from Denmark. In the U.K., we were admitted to the framework contract with the NHS. And in December, we won a contract under that framework to further develop solutions in the COVID-19 response area of the NHS. The Dutch operation continued to renew contracts in Q4. And overall pipeline in all countries look healthy. And from a relative perspective, it is of a better quality compared to the pipeline we had a year ago before the pandemic. And can we go to the next slide, please? So looking back at 2020, the ongoing integration activities in the 3 acquired companies have led to positive results. We acquired our Norwegian operation a little more than 4 years ago now and we are now finally beginning to see a performance as we would expect. From our original plan, we are 1 year late. However, performance, in particular, Q4 2020 gives us comfort for the Norwegian operation in 2021 and onwards. Revenue in Q4 increased 22%, whereas revenue increased 9.6% for the full year. Margins in Q4 was 11.4% compared to 8.6% full year, clearly reflecting the improvement to the business we've seen in Q4. We have owned our U.K. operation now for 3 years. And while we originally anticipated a 5-year integration period, we also have to be realistic and say that 2020 in many ways was the last year for us in the U.K., meaning that we still have another 3 years of integration work to go here. However, Q4 did bring positive results in the U.K. We saw revenue grow from Q3 into Q4, but for the full year, revenue fell by 13.6%. Margins were improved in Q4 at 9.2% compared to 4.5% for the full year. Our most recent acquisition is in the Netherlands, and we have owned that operation for more than 1.5 years now. Performance has in 2020 been outstanding and much better than we anticipated and would have hoped for. Clearly, we benefit from the Dutch operation being already focused on project-based public deals when we acquired it. In addition, a significant number of larger public deals won in 2020, which has positively impacted the performance here. That is also why the purchase price has been increased. And I know that Thomas will go more into details with this later in the presentation. Overall, we are satisfied with the progression of our integration of the new markets, and we are convinced that they are solid foundation for significant future growth. And can we go to the next slide, please? This year, we have updated our ESG reporting substantially, and we have initiated a number of activities with the 3 main areas of ESG to take that company to the next level. In particular, in the social area is where we believe we can be aspirational to others, and we will clearly continue to do our outmost to facilitate the continued focus on the environment. I've shown our targets and performance for all the elements here. Rather busy slide, I must say. I will not go into details here, but merely highlight that we are committed to continue to reduce our footprint on the environment, both directly as a company, but also as a key part in leading digitalization with our clients, helping them to become more environmentally sustainable. On the gender balance, we are already pushing and leading activities to attract more females into our industry to expand the base from where we can hire top talent. We will continue that work and even accelerate it going forward. And can we have the next slide, please? At the beginning of 2021, we have a visibility of more than DKK 2.1 billion of revenue as shown here. This is an increase of 16.6% compared to the same period last year. The strong performance in our Danish business units has increased the level of contractually committed revenues in the private segment to the same magnitude that we see in the public business, a result of more wins with multiyear contracts in the Danish private segment over the last year. This leads me into our expectations for 2021. So can we go to the next slide, please? In connection with our Q3 reporting, we gave our initial expectations to 2021. For top line, we still expect revenue growth of between 15% to 20%. The underlying volatility remains high. New lockdowns are being introduced from time to time. However, the underlying sentiment in the markets we operate in are positive. We expect our margins to be between 23% and 25%. And in 2020, there were a number of cost savings that we were actually a little sad to see, namely the savings that had to do with us not being able to travel to various units, not being able to gather all our great employees and host big company events and the likes. We plan for these things to reoccur in 2021. And we have assumed a spend in 2021 to be at level pre-COVID-19. We will now during the first half of the year -- sorry, we will know during the first half year -- the first half of the year whether we will see a total spend at that level. But for now, we certainly plan for it. And with that, I will give the word to Thomas to take you through the financials in greater details. So Thomas, please go ahead.

Thank you for that, André. And like already mentioned, I am the CFO in Netcompany, and I will now go more into details with the financial performance for Q4 2020. So if we move past the breaking Slide #12 and straight into Slide #13 in one go, please, Slide #13. So 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 Q4 was 15.2%, negatively impacted from currencies by 1.3 percentage point, leaving growth in constant currencies at 16.5% against Q4 2019. All revenue growth was organic in Q4, and the underlying growth was actually a little bit higher if adjusted for the impact from the release of DKK 13 million from the contingency reserve taken in Q4 2019. In addition, the level of vacation taken in Q4 2020 was higher than expected, which impacted revenue negatively in the means of less revenue generated compared to our capacity. This impact was roughly DKK 12 million. So adjusted for these 2 factors, revenue growth in Q4 2020 would have been 20.6% rather than the reported 15.2%, which is more in line with resources available that grew by 21% in the quarter. Gross profit margin was 42.4% in Q4 2020 compared to 42.3% in Q4 2019. There are positive and negatives impacting to the unchanged margin, positive factors from better utilization in general and lower cost from travel and so forth and negative factors from more vacation [ health ]. In addition, the release of the contingency risk reserve in Q4 2019 impacted margins positively then, so in '19. And in a normalized basis, the growth in gross profit margin would have been a full percentage point higher in Q4 2020 adjusting for this. Administrative costs were almost flat despite a continued net hiring in the period. The main reason for this is, like the case was in Q2 and Q3, that a series of administrative costs have not occurred during the lockdown in Q4. We have not done any business travel. There have been no external training sessions, no social activities at all and so forth. Some of these costs will reoccur once societies are generally more open. However, the timing hereof is difficult to predict. In Q4, we adjusted the final purchase price for the acquisition of Q Delft in The Netherlands as the agreement was that the adjusted EBITA result for 2020 would be the base for the final valuation. This increase in value has to be accounted for as an additional cost due to IFRS 3, and I'll detail this more on the next slide. However, the impact for Q4 2020 is a cost of DKK 141.3 million, which together with a calculated internal profit for trades with smarter airports of DKK 4.5 million reduces the net result before tax by DKK 146.3 million in Q4 to DKK 48.3 million. As these adjustments are nontax deductible, the effective tax rate is high at 89% for the quarter and 29% for the year. For 2021, the effective tax rate is expected to be around 22% again. Can we have the next slide, please? The large adjustment we make to the purchase price for our acquired Dutch operation is occurring as a combination of superior performance from Q2 and onwards for the rest of 2020 and the technicalities of IFRS 3. And just to recap, under IFRS 3, we would have been allowed to make the adjustment to goodwill rather than P&L if we had made it within 12 months from the date of transaction, meaning effectively in connection with our Q1 report for 2020. However, at the time, for Q1, early May 2020, we did not anticipate the Dutch operation to perform so strong as it ended up doing. Basically, the Dutch operation generated EUR 1.5 million more EBITA than we had estimated. And because we did not make the change after 12 month, the practicalities of IFRS 3 is that we have to account for the increased value as a cost to the P&L and an increase in the total purchase price to be paid, which will still mainly be paid in the means of RSUs. Can we have the next slide, please? Public sector revenue grew by 14.5% in Q4, mainly driven by growth in all units and, in particular, in the Netherlands that saw growth of 97%. In the U.K. and Norway, growth was above 20%. In contrast to previous quarters, revenue growth in Denmark was the lowest of the units in the public sector. And this was due to a combination of more larger scale projects being won in the private segment in Denmark and also that a number of resources from the Danish organization was working on projects outside of the Danish organization in Holland and in Norway and in the U.K. on public clients. Margins improved as both utilization improved and a number of costs related to training staff events and the likes were not realized due to COVID-19-imposed restrictions. And next slide, please? The private segment outgrew the public segment for the first time in the last couple of years in Q4 2020. Growth was fully driven by the Danish organization where we've seen a strong and lasting pickup in demand for large, complex digitalization projects. Our strong track record of getting projects done in time, in budget and in agreed quality, as validated over the last many years in our public segment in Denmark, is often the single most important factor when private institutions engage us. Margins increased in the year as fewer costs were realized as an impact from COVID-19, but also the poorly performing private part of particularly the U.K. operation was discontinued in Q2 and Q3 of 2020, leaving the part that is left in the private segment of the U.K. at higher rates and thus, with a significantly reduced dilutive impact on group margins for the private segment. Can we have the next slide, please? Growth in Q4 was generated through all units apart from the U.K. As just mentioned, the private segment grew strong in Denmark in Q4, supporting a total growth of close to 19% in Denmark for Q4. The Norwegian unit benefited greatly from the project wins in Q4. In the Netherlands, growth was 90% in the quarter based on strong performance during the year with additional new projects won, increased recruitment and better average hourly rates. In the U.K., revenue declined as expected. Importantly, revenue did not decline sequentially from Q3 to Q4, indicating that Q3 was, in many aspects, a "low point and floor" in the U.K. operation. Late in Q4, the U.K. operation was included in the NHS Framework contract and a project has already been won under that framework contract. Can we have the next slide, please? Gross profit margins are on the same level as Q4 2019. However, on a like-for-like basis, adjusted for the impact of the release of the DKK 13 million from the contingent risk reserve in Q3 2019, the gross margin in this quarter would have increased by a 4 percentage point compared to Q4 '19. The Danish operation realized the highest margin at 47%, in line with last year. The strong margin in Denmark was driven by strong underlying performance on projects and deliveries in time and on budget. Opposite the realized results in Q3 where margins dropped steeply in Norway, they were almost in line with last year in Q4 as the resources in Norway were much better utilized in Q4. The margins compared to Q4 2019 in the U.K. still dropped, however, improving sequentially from Q3 2020 into Q4 2020. The margins in the Dutch operation were increased as was the case in Q3 as a result of the continued improvement in the underlying projects in the Netherlands. And can we move to the next slide, please? Adjusted EBITA margin for the operating entity, and that is before allocation of central headquarter costs, increased by close to 2 percentage point with a strong performance in Denmark and in the Netherlands. In Denmark, margins improved 1.3 percentage point. And in the Netherlands, margins improved with a staggering 47.4 percentage points. The Netherlands margins improvement from negative 17.4% to positive 30% was a result of completion of a number of loss-making projects, completion of some integration projects and lower administration costs, in general, following the lower activity as a result of COVID-19. Margins in Norway increased by close to 1 percentage point to 11.4%, in stark [ contrast ] to Q3 where margins was down more than 9 percentage points to 6.8%. Improved utilization and generally lower cost as a consequence of COVID-19 led to the improvement in margins. Adjusted EBITA margin in the U.K. was lower than Q4 2019. But as in Norway, the trend from Q3 has been reversed, however, not as notably yet as in Norway. On balance, we are naturally satisfied with the group margins realized in Q4. And can we move to the next slide, please? Free cash flow was DKK 209 million in Q4 2020, almost twice the amount compared to Q4 2019 where it was DKK 117 million. Cash flow continued to improve during Q4 as continued focus on reduction of working capital led to further reduced days sales outstanding that are now down at 55. Work in progress, on the other hand, has increased. But seen together with accounts receivables as one total amount, the balance of the 2 items increased by 11.7% in 2020, which is clearly lower than revenue growth of 15.7%. The strong cash position, the lower leverage of around 0.5x and the anticipated continued cash flow generation in the future puts us in a position to redistribute around DKK 100 million for the year 2020 to our shareholders in connection with the AGM in March 2021 as a combination of dividend and share buybacks. We will propose to the AGM that a dividend of DKK 1 per share, equal to around DKK 50 million, to be paid after the AGM. And we will initiate a share buyback program to be executed in the period from the AGM to the end of Q2 of another DKK 50 million. Our target capital redistribution going forward is to gradually come to a total redistribution of up to 50% of free cash flow generated annually. And with that remark, detailed financial analysis, and we'll now open up the call for questions. So we'll move to the Q&A slide and open up the call for questions. Thank you.

[Operator Instructions] Our first question comes from the line of Toby Ogg of Bank of America.

I just wanted to focus in on the margin guidance here for 2021, which you've obviously lowered again today and implies 200 basis points of margin contraction year-over-year at the midpoint. As you said, you're assuming that many costs like travel and entertainment fully come back into the cost base in 2021, which is why you're expecting those lower margin. In the event that they don't come fully back into the cost base, given delayed lockdowns and slower vaccine rollout, where do you think margins could end up? And then secondly, just wanted to ask on the Computerworld article, which came out recently suggesting a pricing dispute with KOMBIT. André, perhaps you could just give us your take on the situation. How worried are you? Are you protected at all from a contract perspective? And how much of your revenues would you say are linked to KOMBIT-related projects?

Yes. Thanks for those questions. Now the first question about the margins. Well, as we mentioned, we are looking at the whole year. And we -- right now, we are expecting to spend the same amount of expenses related to travel and to see each other again. And of course, if that changes over 2021, it will have a positive effect on our margins. But we've chosen to guide this way because that's been the assumptions when we did the calculations. So I hope that answered your question. In relation to the article in the Computerworld, the outer project, yes, well, that is a project where we are addressing both teachers, parents, school leaders, a lot of parties. And that will always be -- and I think that will continue throughout the contract, which was initiated in 2017. There's been some misunderstandings in the article as well. I don't see this as any drama. Basically, we have a very good relationship with KOMBIT, and we're already addressing these things. And there will be follow-up articles over the year to come in regards to Aula. It is a very, very public project with every Dane having an opinion about it. But seen from a financial perspective, this is not a huge project. So I'm not too worried about that. And the contract will run until at least a couple of years more.

That's brilliant. And actually, just maybe just one more actually, just on the current trading. We've obviously -- we're essentially at the end of January now. Perhaps you could just give us some color on how you've been tracking in the first month of 2021.

Yes. Well, generally, Toby, we don't comment on the individual months. But we ended the year strong, and we've certainly started the year strong, and we'll just leave it on that note.

Our next question comes from the line of George Webb of Morgan Stanley.

André, Thomas, a couple of questions for me, please. Firstly, on the U.K. business, the staff structure now looks to be much closer to finishing the transition to FTEs. Can you share what the priorities or objectives are for the U.K. business in 2021? And then secondly, you mentioned that there's a pipeline emerging into large-scale projects in the Netherlands. Can you shed a little bit more light on to what those product projects are? Are they public sector-led or private sector-led and how meaningful they could be for that business unit?

Thanks for those questions. Yes, well, our priorities, objectives in the U.K. for 2021 is basically the same as it is for any of the countries, to go into larger business and society critical projects. And we are targeting the U.K. market with our govtech framework with the platforms that we have in place. And we are moving into that market gradually but in a very structured way. We think our platforms are an interesting, very interesting way to enter a market. And we see that happening both in Norway and The Netherlands and the U.K. where we address the government with about 250 references and 2,000 components where you can combine your own solutions. So that's what we're doing in the U.K., and it has had some effect already. And we're actually engaging in more and more projects, so that's promising. The same thing actually goes for the Netherlands, as you touched upon, the large-scale projects there in the public sector. So we've been having great dialogues with particular customers in the government in The Netherlands. And to be quite clear on that, the company we acquired 1.5 years ago in The Netherlands was targeting only government clients, which also means that from our perspective, coming into the Dutch market, this was a natural place to start. Now we always address any type of complex projects whether it's private or public. But when it comes to the Netherlands, it would be -- it is very natural for us to continue where they were already present at customers. And we're using exactly the same framework, the govtech framework to gain even more traction and win larger projects. So it's basically the same story, reusing many of the components and the platforms we have. So for the Netherlands, you will probably see more public-dominated business than for other countries because that's the legacy we came in with when we acquired the business there.

And I think I heard your question, George, as what kind of private, big projects we were targeting in Netherlands. And if we said that, then there was a mispronunciation on the call on our side, so apologies. Because like André say, we are focusing 100% on the public sector in the Netherlands. That's where we're strong, and that's where we have strong growth. Where we're focusing on the private segment is mainly in Denmark. So a number of large private institutions in Denmark have begun to initiate the talks with us and do much more large-scale digitalization projects, which is interesting to us because it basically gives us another leg to run on, if you saw, well, in terms of continuing to grow and not only having to grow on the public side, which we'll continue to do. But now we also have a strong market demand in the private sector, which basically balances the risk much better.

That's very clear. Maybe if I can follow-up with one more on The Netherlands side. Clearly, that -- that really strong top line transformed into a very strong margin. It sounds like the pipeline for The Netherlands is still going to be pretty good. So would you expect the level of margin that The Netherlands business is making to be sustainable into this year?

That depends on whether you ask Q4 or on the year. And I think I know what you're asking, in Q4, we realized 30% margin in the Netherlands, which is really high. And that is mainly due to a very, very low-cost level in The Netherlands in Q4. So they have been the country that has been most tied on doing anything at all. And therefore, we do not expect, at least not yet, to generate 30% margin in The Netherlands for the full year of 2021. But we are seeing a generally improved margin on a year-over-year basis for The Netherlands. It will come down from Q4 because that was special. But when you look at the year, we expect to continue to improve margins year-over-year.

Our next question comes from the line of Claus Almer of Nordea.

Also a few questions from my side, and I will take them one by one. The first question goes to your changed margin guidance for 2021. And obviously, the COVID-19 situation will add some uncertainty. But you're also mentioning this normalization of the cost budget. I guess that hasn't changed since November when you gave the expectation for 2021. So maybe you could shed a bit more light to why you took down the margin guidance? That will be the first one.

Yes. I'll be happy to reflect a little bit on that. And just to underline for everybody in the call. So that's done. When we gave our expectations at the end of Q3, in connection with Q3, that was expectation and not guidance. And we said around 25% in margin, and we're now guiding 23% to 25%. And if you take the midpoint, then it's 24% against 24.5%, which is around 25%. But that's technicalities. So in terms of our 25% or 23% to 25%, that basically comes from the full inclusion of all the costs that we have not had in 2020. As André alluded to, we would very much like to be able to do activities with our employees again, very much like to be able to join together for company updates, various events, training activities and the like. So it's not just a matter of a few people flying around on airplanes. It's actually a lot of social gatherings that we are anticipating to come back that will have a cost impact for the full year. And that is what has been reflected in the margin for 2021 or at least the expectation. And then as André say, we'll see how much of that cost is then eventually baked into the number of 2021. We, for sure, have not been very much out of the office in January.

No.

And I think that probably goes for all on the call. But that's the assumption here that we will be in a precorona basis in 2021.

But was that not included in your expectations announced in November?

The expectations announced in November is not based on the budget for 2021. The guidance that we make in connection with the annual report is based on the budget that we have agreed with our Board. And the budget is not necessarily the same as the overall expectations that we have 2.5 months before, 2 months before we set the budget.

Okay. And then just about margins on projects. Can you put some color to the wins you've had in U.K. and Norway is also participating or impacting the lower-margin outlook?

I mean the wins per se is not impacting margins negatively because what we're doing there is we are basically freeing up resources from the bench. Now looking into -- which has a positive impact on margin. Now looking into 2021, I think everybody can agree to the fact that the pandemic is not over. That's also why the range of the expectation on top line is 15% to 20%. If we are ending at 15%, which we don't necessarily plan for, but if we are in at 15%, then we will have some people on the bench. If you look at how many people we have added also in Q4, we come in on the start of the year with additional FTEs, and we expect to staff them. However, if further lockdowns occur, there might be pockets of time where everybody is not fully utilized and that will, in itself, have an impact on margin. But right, now 1 month into the year, that is extremely difficult for us to have a firm opinion on what the full time or the full year impact of the COVID-19 pandemic will have on our margins for 2021.

Yes. And adding to that, if your question alludes to our selling products cheaper or going into the market cheaper than normal, that's not the case. I mean we're still using the same methodology and delivery mechanisms that we've always used. So I mean going into customers, new customers in new markets, we both price and deliver the same way we used to. So margins will be mostly affected negatively if we have a bench, as Thomas alluded.

Okay. That's good to have that clarified. My second question goes to adding people in the U.K. If we adjust for these -- sorry, these independent contractors, you have added more, something like 20% plus in the U.K. I understand you still need to add people in the U.K. But 20-plus percent, that's a lot. Does that reflect your backlog or maybe put more color to this trend?

I think if you look at the client-facing FTEs, which is basically the best way to look at what the capacity is and you compare '19 with '20, then the increase is not 20%. I know that quarter-to-quarter, there's an impact there. But if you compare full year, it's not the same growth. We are continuing to hire in the U.K., and we are continuing to hire in the U.K. because we have an underlying expectation that we will grow our presence in the U.K. Timing is difficult really to say, specifically in the U.K. They are the country hit the hardest by COVID-19. At the same time, they have the implications of Brexit to work with. But overall, we see some positive signs in the U.K., and that's why we are continuing to hire people.

The number was Q4 over Q4, but okay.

Our next question comes from the line Poul Jessen of Danske Bank.

Yes. I have a few questions as well. I was wondering about the strong performance of the private sector in Denmark. Can you say something about why these contracts are coming up now? Is it a wake-up call to the privates that they need to be more digital? Is it pent-up demand? Or what is this triggering both the impact we see in the fourth quarter, but also on the backlog? Then on the guidance, you mentioned Sweden and Finland not included in, at least, in the revenue. Are there anything in the cost side there? And secondly, as I read it, you talk about Finland now as an organic entry. Have you changed anything or not going for an acquisitive entry to Finland? And then more for the bookkeeping, amortization of PP&A in '21, what level should we look for there?

Yes. Well, the pickup in the private business in Denmark is really basically, there's a general tendency, which was already there before the COVID-19 outbreak. And that was private, large enterprises being more and more aware of the necessity to invest into replacing their old back-end core systems. We've talked about that before, I mean, the theme of going into the core and replacing those systems. That was the case certainly before the pandemic outbreak. But the COVID-19 crisis has certainly made it much more actual and much more -- definitely much more -- they had to hurry up in putting in more digital platforms at private businesses. That's for sure. You can call that a wake-up call. Well, it's definitely for sure that many boards and many directors in Danish business life right now are looking into placing a digital platform as a means of being much more agile and not just launching particular standard IT systems. So instead of launching one system at a time, many private business enterprises are looking at placing a big digital platform, and from there on, launching solutions month-by-month, quarter-by-quarter. And as Thomas alluded to during the walk-through, our references in the public sector and our reliability in delivering [ at ] time, budget has actually made us a great competitor and a great choice for replacing those systems, putting in that platform. So that's something where -- I mean you can't say anything positive about this crisis, but that has been that has been good for us. It has certainly kept up the demand and even increased the necessity to put in these digital platforms. Secondly, looking into Sweden and Finland, well, you're right, we've written that deliberately in the annual report as well. These are markets that we are interested in. We've also given ourselves the flexibility in using other means to go there, not just by acquiring companies. We could be looking into an organic way in to some of these markets. We don't expect -- but if we -- if and when we do that, I don't think it will have any large influence on cost because we will go customer by customer. We are we are always leading -- we're always following customer demand and not investing heavily before. So we grow our business together with the customers. That will also go for an organic, any organic entry into those markets. And that was...

And then there's an amortization. And just on the cost of organic Sweden dash Finland, correct that there are no revenues included in the guidance. We have some smaller running cost on looking at Sweden already, which are embedded in the guidance. But no, no revenue, no margin per se, but there are some costs reflected in the guidance for 2021 also for Sweden. On the amortization, the level that can be expected for 2021 follows the note in the annual report. So basically, the parts that are being fully amortized this year, of course, will not hit the amortization next year. So that means that amortization will decline by around DKK 20 million from the level of 2020 where it was around DKK 100 million to around DKK 80 million. The increase in the contingent purchase price of our Dutch organization does not impact the purchase price amortization because it's taking over P&L. And the only thing impacting is the liable amount to the sellers of Q Delft, which is paid in RSUs.

And on the LTIP what's the increase in the LTIP versus last year?

DKK 20-some million. And then the...

DKK 20 million?

I think it's DKK 23 million or DKK 25 million, between DKK 23 million and DKK 25 million. And that's the gradual buildup of the LTIP, which is a 3-year revolving program. And so that means that every year, in the first 3 years, you have -- in year 1, you have 1/3 because there's only 1 program. In year 2, you have 1/3 of year 1 and 1/3 of year 2. And in year 3, you have all 3/3, which is 2021 for us. In addition, we have half a year of the period post-IPO for 2018, which is also impacting 2021. So that's why there's a little bit of a spike in the cost and not a full 1/3, but a full 1/3 and then the small thing from 2018 half a year. The full cost embedded in 2021, which will then be the going rate cost run rate, if you so will, is around DKK 40 million on a more or less constant level of participants in the LTIP. So that means that for 2022, there's not going to be this incremental cost pickup for share-based remuneration.

So the increase from '20 to '21 is the DKK 20 million plus?

Yes. Correct. Okay.

And then on the Netherlands, now you take this fair value adjustment. But it is also dependent on 2022. If I assume you have put budgets now and that's on the base of it, so if it outperforms to '22 growth or margins, could there then be an additional expense? Of course, that's positive because they're doing better. But could there be an additional adjustment?

If the Dutch acquisition hits all the way in the top end of their earn-out, there will be an additional adjustment to the value of DKK 20 million in 2022. So that also implies that we have taken, based on the strong performance and based on what we can see in 2021 and expectations for 2022, we are quite positive on the fact that they will meet their top end of the earn-out, which, as you say, Poul, rightfully is positive. But there's a small bit potentially of DKK 20 million, which will then hit in 2022.

Okay. And it's going to be paid in Treasury shares?

Yes.

[Operator Instructions] Our next question comes from the line of Yiwei Zhou of SEB.

I have 3. Firstly, could you please give us an indication of how much OpEx was lower relating to the COVID restriction in 2020? And secondly, regarding the employee utilization rate, is it possible for you to also give an indication on the current utilization for Norway and The Netherlands? And thirdly, so you mentioned the private sector has picked up. But then, I guess the revenue is still very skewed to 2020 -- to the public sector in 2020. How should we look at the balance between public and private revenue for 2021?

All right. Thanks for that, Wei, 3 questions. So the first question you had was what was the impact of COVID-19 on our cost base. And the impact for 2020 is around DKK 50 million in terms of no travel, no gatherings, no events, all of these things that has not happened, so around DKK 50 million. Utilization ratio for Norway and Netherlands are not disclosed. But they have increased quite substantially. In Norway, the increase is close to 10 percentage point. In the Netherlands, a little lower. What is also happening in The Netherlands is that while utilization was high in Q1, some of the utilization was on the completion of a number of fixed fee projects, which we knew were running over time. But that means that you might be utilized but at a fixed price project what has used all the hours, that means that there is no revenue on it. So of course, when those resources are then freed up from those projects. And on other projects, then you have 30, 40, 50 people, all of a sudden generating full revenues for projects with no impact on utilization because they were utilized on other projects that were just not revenue generating, which has, of course, also had a significant uplift of revenue and margin on Holland for 2020. In terms of the private versus public sector balance, our ambition is overall to see more balance in that, so 50-50. You're absolutely right in the fact that there's still an overweight of public sector business. That is mainly because, first of all, the Dutch operation is purely public. A lot of the growth in Q4 in Norway and the U.K. has by decide or by our decision been done in the public sector to really utilize the govtech framework, as André was talking about previously. Much easier for us to sell to big public institutions in those 2 countries where we don't have a strong threshold yet. By using the govtech framework and all the strong references we have in Denmark. So where the private sector will grow will primarily be in Denmark. And that's also what you see in Q4 where private in Denmark is growing by 35% and the public is growing by 9%. That's not because there's nothing to do in the public sector, but that's because we have taken a decision to follow some of those very interesting projects in the private sector because we only have a confined amount of resources that we have to apply either on public projects or private projects and where we, over the last 4, 5 years, have historically decided to prioritize public projects because there was a lot of very, very large important digitalization projects in the public sector in Denmark. Now we see that there are some of those very important private digitalization projects coming out in Denmark, and that could then potentially lead to continued growth or further growth in the private sector in the new countries in the years to come. So the new countries are lagging a little bit in terms of utilization, public sector to Denmark. So we're utilizing the benefit from Denmark there. And then we're growing Denmark private, and then we'll utilize that advantage in a couple of years in the new countries. I hope that answered the question.

There are no further questions at this time, so I'll hand back to André Rogaczewski.

Well, thank you, gentlemen, for your great questions, and I wish you a fine day. Thank you.