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

Welcome to the Netcompany AS Interim Report for the first 6 months of 2022. [Operator Instructions] I will now hand over to the CEO, Andre Rogaczewski. Please begin your meeting.

Good day, and welcome to this presentation of Netcompany's results for Q2 2022. My name is Andre Rogaczewski, and I'm the CEO and Co-Founder of Netcompany. And I'm joined today by our CFO, Thomas Johansen. And 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 here for 30 seconds and let you all have a read-through of these important disclosures. With that, can we please go to Slide #3, please. The topic of today's presentation is our performance in the second quarter of 2022. I will walk you through the business highlights for the Q2, and I will also go through our revenue visibility and our financial guidance for 2022. And 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? Q2 has been a busy quarter for us in Netcompany. We have continued to deliver projects to existing customers, and we have signed a number of new contracts, of which I will mention a few here. In Netcompany Core, we signed a frame agreement with Inera in Sweden. Inera has a similar role in Sweden to that of KOMBIT in Denmark as Inera is responsible for the joint procurement of certain IT services for municipalities in Sweden. The contract win is an important milestone in our ambition to establish Netcompany in Sweden towards the end of 2022. In Denmark, we signed a number of new contracts, and I will mention 3 here, 2 in the public segment and 1 in the private segment. In June, we expanded our relationship with the IT and development agency which resides under the Ministry for taxation to include all aspects of the new customs platform to be implemented under the EU regulation. Previously, we had 2 of 3 work streams in this program, and now we have the full ownership of the program. The addition that we have won is the -- like the other 2 work streams based on software platforms developed by Intrasoft and is a great example of the joint products to be delivered between Netcompany Core and Netcompany-Intrasoft. It is our ambition to sell the platforms to custom agencies throughout Europe and the pipeline for this looks very promising. Another important win for us in Q2 in the Danish public segment was the contract with the Danish Agency for supply and infrastructure to take over the maintenance and operation of the central data distribution platform and completely renew the platform to be modern and effective. The data distribution platform is the central gateway for all access points into any public agency in Denmark and thus a central and crucial part of the digital infrastructure in Denmark. The last win I will mention in the Danish business in Q2 is the project we won with Sund & Bælt to develop the core toll service provider platform, the Brobizz, the payment platform for the large payment bridges in Denmark. The solution will be built on the experiences we have already gained from similar projects in Norway and will once completed be a platform that can be utilized for any toll system provider throughout Europe. In Norway, we won a project in the public segment with the medical agency administering all prescriptive medicine in Norway, giving to all citizens. The win is important and is also an example of our desire to develop platforms that can be used in different countries as we firmly believe that this will accelerate growth in an efficient and profitable manner. And can we go to the next slide, please? As has been the case in Netcompany Core, we have also been busy -- rather busy actually in Netcompany-Intrasoft, with a number of contract wins, both in terms of renewal of existing frame agreements and in the addition of new customers to Netcompany-Intrasoft too. I will mention two of the contract wins that Intrasoft has secured in Q2. In May, we won the contract through a consortium of multiple vendors to deliver a full solution to manage and control the full external borders of the EU. This includes all from biometric scanners hardware to run the solution itself and the actual development and subsequent maintenance of the solution delivered. Our part of the project is to develop a solution that will meet the needs and standards of both the EU, but also each member state managing the outer borders of each country and the EU as a whole. We have not previously done business with this particular directorate within the European Union and is a great example of the vast growth opportunity that is present to Netcompany through the long-lasting relationship between the European Union and Netcompany-Intrasoft. Also in Q2, we won a contract with the independent authority for public revenue based in Athens, Greece. This win is important to our operation based in Greece, and an important validation of the continued growth opportunity in the Greek Public segment. Overall, I'm very pleased with the wins we have had in Q2, not only in Netcompany, but also in Netcompany-Intrasoft. They certainly support our continued growth ambitions for the group. And can we move to the next slide, please? One of the key pre-requisites for our ability to continue to win new projects is our uniquely talented employees. And as of Q2 2022, our group consists of more than 6,700 full-time employees. Netcompany Core accounts for 3,754 employees and Netcompany-Intrasoft accounts for 2,965 employees. We've added new employees in all of our markets, and our expectations is that for it to continue. When looking at the 12-month churn rate, we've seen that to be increasing. However, more importantly, the last 3 months rolling churn rates are decreasing towards a more normalized pre-COVID level. And can we have the next slide, please? Performance in the different countries in Netcompany Core were mixed in Q2. Revenue growth in Denmark is not expected to materially accelerate until the second half of 2022, but the temporary increased level of sickness in Denmark observed since March did have a dilutive impact on growth in the second quarter. Our pipeline in Denmark remains solid, though and new cases are added on a continuous basis. In Norway, revenue growth was negatively impacted by the adjustment made to 3 projects and the increased sickness in the Norwegian organization too. While the adjustment to the three projects are unsatisfactory, it is a nonrecurring event, and it is our expectations that the financial performance in Norway will normalize during the second half of this year. Performance in the U.K. was strong, and revenue growth was, again, above 30% as in Q1. We continue to build our presence in the U.K. market and our relationship with customers like HMRC, NHS, Ministry of Defense, DCC and others are laying a strong foundation for ambitious growth targets in the U.K. Finally, in the Netherlands, we are still in a turnaround phase. As in Norway, we also made adjustments to one project in the Netherlands, which was the main factor for the decline in revenue growth. We are also strengthening our management team in the Netherlands, which is -- which have a dilutive impact on margins due to severance costs. However, the Dutch market remains very interesting, and we start to see a significant buildup of cases in our pipeline. Can we have the next slide, please? Performance in Netcompany-Intrasoft was strong in Q2 with a growth of 14.6 percentage points compared to Q2 2021 pro forma. We continue to build our presence in both Greece and within the EU and the pipeline activity in both EU public and private is really promising. In addition, we are now looking at more than 10 potential large projects between Netcompany Core and Netcompany-Intrasoft, mainly within the customs area and the tax area. Can we have the next slide, please? As of the beginning of July, our total revenue visibility is almost DKK 5 billion compared to a little more than DKK 3 billion at the same time last year, which is an increase of more than 62%. Naturally, a good part of the increase comes with the inclusion of Netcompany-Intrasoft and of the total increase in revenue visibility of more than 62%, roughly 51 percentage points is attributable to Netcompany-Intrasoft. This also means that the revenue visibility for Netcompany Core increased with 12 percentage points compared to the same period last year. After the completion of Q2, we've seen a further strengthening of the revenue visibility in Netcompany Core as more contracts was prolonged. In addition, we expect the number of contracts to be signed during August, which leads me into expectations for 2022. Can we have the next slide, please? Our revenue growth and margins in Denmark and Norway were impacted negatively by increased level of sickness and adjustments to three Norwegian projects. These events are temporary and nonrecurring in character. On the other hand, revenue growth and margins in the U.K. and Netcompany-Intrasoft was strong. And for Netcompany-Intrasoft also stronger than expected. Our pipeline continues to increase, and we have a number of contracts expected to be signed during August, which supports our full year guidance for the group. And consequently, we maintain our expectations to the revenue growth and margin on group level. 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, Andre. And like already mentioned, I'm CFO in Netcompany, and I will now go more in details with the financial performance for Q2 2022. So if we move past the breaking Slide #11 and go straight into Slide #12, please, in one go. Despite an increased level of sickness in Denmark and Norway, and adjustments to projects in Norway and the Netherlands, we grew revenue by 58% in Q2, which led to an increase in gross profit of more than 24% to DKK 364 million. Adjusted EBITDA of DKK 188 million was on par with Q2 2021, which led to a lower EBITDA margin, mainly as a result of the temporary higher level of sickness. The nonrecurring adjustment to projects in Norway and Netherlands, the inclusion of Intrasoft and the impact of improved employee benefits introduced on the first of January this year. If we move on to take a closer look at revenue growth in the different markets, we get a picture as follows. And can we have the next slide, please? Revenue growth for Q2 was 58%, positively impacted from currencies by 0.4 percentage points, leaving growth in constant currencies at 57.6% against Q2 2021. 50.3 percentage point of the growth was nonorganic related to our acquisition of Intrasoft in 2021 and the remaining 7.3% was organic related to Netcompany Core, measured in constant currencies. Adjusted for the temporary higher level of sickness in Denmark and Norway and the adjustment to projects made in Norway, organic revenue growth would have been 4.7% higher at 12%, in line with Q1 2022. Revenue growth in Denmark was 6.5%, driven by continued strong growth in the private segment that grew 12.5% compared to last year and public sector where revenue grew by 2.4%. The temporary higher level of sickness in Denmark had a negative impact on revenue growth of 3 percentage points, which means that in a normalized setting, revenue growth would have been close to 10% in the quarter in Denmark. In Norway, revenue declined by 18.8% in the quarter, negatively impacted by the three fixed fee project adjustments made as also flat in connection with the Q1 reporting and temporary higher level of sickness. Adjusted for these events, revenue growth would have been above 10%. So clearly, a heavy impact of close to 30% in the quarter alone from these events. Public segment declined, whereas as did the private segment as a result of these adjustments compared to same period last year. Both the public and private segment is expected to pick up again in the second half of 2022. In the U.K., revenue grew 30.8%, supported by our relationship with NHS and HMRC and the Ministry of Defense. In total, the public segment grew by close to 85% in Q2 2022, underlining the strong demand for Netcompany services in the U.K. In the Netherlands, revenue decreased 12%, as in Norway, mainly impacted by an adjustment to one single project made in Q2. Adjusted for this, revenue would have grown by 10% in the quarter. In our recent acquisition of Intrasoft, we realized revenue of DKK 419.1 million in Q2 compared to DKK 365.8 million pro forma for Q2 2021, meaning that Netcompany-Intrasoft grew organically by 14.6% in Q2 2022. Revenue was driven by the parts of Intrasoft, relating to the European Union and interest price segment that had strong growth in the quarter. In addition, more work on joint projects with Netcompany Core was also realized during Q2. And can we have the next slide, please? Gross profit margin was 7.9 percentage points lower than for Q2 2021 and ended at 28.3%. The dilutive impact on margins from the inclusion of Intrasoft was 3.5 percentage points. Margins were reduced in Denmark by 2.6%, driven by the temporary higher level of sickness observed. Adjusted for this impact, gross profit margin in Denmark would have been 1.8 percentage points higher at 38.9%, more in line with Q2 2021. In Norway, gross margin was reduced from 24.6% to negative 6.2%. The adjustment of the -- or to the three fixed fee projects impacted margin negatively by 25 percentage points, whereas the temporarily higher level of sickness impacted margins negatively by another 6 percentage points in the quarter. Normalized gross margin in the quarter would have been 25.4%, which is slightly higher than observed in Q2 2021. In the U.K., gross margin was improved as utilization was improved compared to the same period last year and project pricing was better. Gross margins were, as a consequence, lifted from 24.8% in Q2 2021, to 27.4% in Q2 2022. As in Norway, margins in the Netherlands was also negatively impacted by project adjustment. In this case, one project, which had a negative impact on gross profit margin of around 25 percentage points in Q2 2022. Hence, gross margin declined from 23% to negative 15.5%. Gross profit margin in Intrasoft was 20.9%, which was above our expectation, and a result of strong delivery and projects across the portfolio of projects within the European part of Netcompany-Intrasoft, and more joint projects together with Netcompany Core. Can we have the next slide, please? Adjusted EBITDA margin for Q2 2022 for the operating entities decreased by 8.2 percentage points in the quarter to 15.6%. Part of this is due to the reduced gross profit margin that I just explained. The inclusion of Netcompany-Intrasoft diluted margins by 1.5 percentage points. The temporary higher level of sickness and the project adjustment in Denmark and Norway impacted group EBITDA margin negatively by more than 2.5 percentage points in the quarter. In addition, the improved employee benefits also impacted margins with around 3 percentage points, which was in line with expectations, though and communicated in connection with the annual report last year. Also, we did see increased costs related to employee activities. This was expected, and we are pleased that it is now possible to have more face-to-face activities with our employees. While margins were lower in parts of the group, we also realized increased margins in both the U.K. and for Netcompany-Intrasoft, which, to some extent, was offsetting the negative impact to margins as described. While it is not satisfactory that margins were lower in Norway and the Netherlands, we take comfort in the fact that the two largest part of the group outside of Denmark realized increased margins. Norway and the Netherlands together accounts for 5.7% of revenue in Q2, whereas Netcompany U.K. and Netcompany-Intrasoft, accounts for 42.3% of the revenue. Can we have the next slide, please? Free cash flow was positive with DKK 7.3 million in Q2 2022, compared to negative by DKK 10.2 million in Q2 2021. The decline in cash flow compared to 2021 or the change in cash flow compared to 2021 is impacted by the acquisition of Netcompany-Intrasoft and changes to net working capital. Net working capital was impacted by late payments of some due balances from three of our large customers in the public segment in Denmark due to various employee turnover issues and summer vacation with our clients at these three customers, a sum of DKK 75 million that was due at the end of June was not settled until the end of August or in the beginning of August, sorry. In addition, a large customer in the private segment in Denmark was implementing a new ERP system during the summer, which delayed payment for another DKK 15 million. However, as the late payment in Danish business is purely a timing issue and since they have been received in August, the consequence will be that the free operating cash flow will be DKK 90 million better, all other things equal, in Q3 than they were in Q2. The combined work in progress and accounts receivables increased by 4% compared to organic revenue growth of 7.3%. Days sales outstanding increased from 65 to 77 in the quarter. However, the proportion of receivables overdue with more than 90 days was reduced from 9% in Q1 2022, to 7% in Q2 2022, so a sequential decline in overdues. In Q2, we executed a share buyback program of DKK 50 million. And by the end of the quarter, debt leverage was 2.4x. And with that, we've concluded the financial analysis, and we'll open up the call for questions. So if you will move to the Q&A slide, please, and we'll open up the call for questions. Thank you.

[Operator Instructions] First question comes from the line of George Webb of Morgan Stanley.

A couple of questions from my end. Firstly, it would be good to get a bit more detail and reassurance on two aspects. Number one, the employee sickness factor is not a broader issue with perhaps changing employee culture that might drive structural and lower utilization moving forwards. And number two, that the cleanup of existing projects in Norway is not a broader issue of project delivery. And so as a result, these are factors that will be truly temporary in nature? And then secondly, can you give any color on the scale of performance turnaround you're expecting in Norway in the second half when it does normalize perhaps a level of growth or margins are aspiring to be back to the second half?

Thank you, George, for those questions. Well, when it comes to the level of sickness, we don't see any correlation between that or any behavior where people feel less satisfied or churn levels or anything like that. It seems like a general phenomenon. And recently, we've seen the level return back to normal level of sickness. And looking into other businesses, in particular, Denmark and Norway, we see the same pattern. So it looks like it's a temporary nature. And we have to remember, if people just call in sick 1 or 2 days extra during 1 or 2 quarters that actually has a big impact on our financials. So it certainly looks like a temporary phenomenon, and we don't see any signs of it being related to any type of employee culture or satisfaction of being employed in Netcompany. When it comes to Norway, you're absolutely right. We had to clean up on three projects. We've done so firmly. We've been through all three projects during the second quarter here, and we made sure that everything was settled. It is a result of actually Norway being one of the territories where we do deliver projects of very high complexity. And -- it has to be said that the Norwegians actually also deliver projects in time and budget. So these are projects where we had to learn it the hard way. We already mentioned that on the previous quarters that we had to clean up on these projects and now we've normalized that. The pipeline in Norway looks much more promising and we expect Norway to go back to normalized level during the second half of 2022. I hope that answered your questions, George?

Yes, that was helpful. I'm just wondering if you can give any color on -- you can be back in double-digit growth in Norway in the second half I assume definitely back to positive margins, but kind of anything around that would be helpful. And actually, is there anything you can say on those Norwegian projects when they were signed, whether you signed prior to perhaps some of that resource showing you've done with senior talent in Denmark when you kind of really stepped that up at the start of 2020, 2021. I mean when were those contracts kind of first signed, it would be interesting as well.

So for specific revenue growth targets on an individual geography, we tend to refrain from commenting on that, George. And we'll do that today also, but we do expect revenue growth to come back to something which looks more normal and I'll leave it at that and also margins to pick up in the second half. The three projects that we've made the adjustments to are the three projects that we signed in Q2 2020, in the aftermath of the first COVID wave, where we had 50 people on the bench. So those projects we're taking on, good projects. We've priced them competitively. And then we've overrun on hours in straight talk. And those are now then being handled from a financial aspect. The three projects have been delivered. The last one is being delivered during Q3. but all the financial impacts have been cleared out on those projects with this adjustment into the books in Q2.

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

Yes, also a few questions from my side. The first goes to the sickness and I know you can't sell a hour if that hour is not available. But given the lack of billable hours in Q2, does that mean you see postponed revenue in second half, maybe in 2023? Or is it a lost revenue? That will be the first question.

To answer shortly this, it just means postponed. When people call in sick, we just have to postpone some of the activities and that's it.

Okay. That was short. The second question goes to Denmark and the performance. When do you think we will see some of the old, very impressive performance by the Danish operation, both when it comes to growth but also profitability?

There's nothing structurally different about the Danish operation as it is of right now, except, of course, the level of sickness that we've touched upon. If we look at the way we deliver projects in Denmark, it is very similar. We have to remember that this year, we've guided for two -- because we are comparing to quarters last year, well, Q1 and Q2 was very high growth, and Q3 and Q4 were lower this year, we're going to go the opposite. So Q1 and Q2 is going to be lower growth and then Q3 and Q4, higher growth. So we still expect and maintain expectations for 2022, and there's nothing structurally in the way we develop projects or deliver quality that has changed except that we now had to postpone some of our activities due to the higher level of sickness in particular since March and until now, but that seems to be running back to normal.

Okay. And then just a final question regarding U.K. and the impressive performance in the quarter. How long will the current backlog secure a high activity level?

With the U.K., Claus, the type of projects that we're doing in the U.K. right now, are of a character where they are more based on teams of 10, 15, 20 people. So not these long-term fixed fee contracts. And that is by design and desire from our side because we want to build the capability in the U.K. to deliver projects in a proper manner to avoid having to do, yes, project cleanups like we've just done in Norway. So as we grow in the U.K., we will also take on larger projects where the duration of the contracts become more important in terms of how we look at the future revenue generation. The pipeline and the projects right now at hand have a full cover for the remaining part of the year and also a good part into 2023. And then we are looking at projects that are more Netcompany classic, in lack of a better word, so larger projects more to the tune of programs. And some of them are not surprisingly, joint projects together with Netcompany-Intrasoft, and they are based in the areas of customs and in taxation. And just like all the countries within EU, the U.K., even though they're outside of the EU, also have to comply with the EU regulation of the new Unified Custom Code because they have so much trade with the European Union. So that means that the same program and platform that we're implementing in Denmark is a case we're pushing with the U.K. And that will be, by definition, much larger and give a longer duration of the projects.

Our next question comes from the line of Yiwei Zhou of SEB.

I have three. I do one at a time. Firstly, on the Danish business, you previously mentioned the growth will be more balanced between public and private segment. However, in Q2, public only grew 2% and private, we can say, still above 10%, 13%. So when do you expect the growth in public to pick up. And also maybe a follow-up here on the private. So now we are heading to an economic downturn and there's risk of recession. Have you seen any sign of demand slowdown in the private segment?

Thanks for those questions. Well, as I used to say, we really don't differ that much between public and private as long as the projects are of complex nature, and we do what we are best at. Having that said, we see a very strong pipeline in public actually right now. And we also mentioned one of the recent wins with the data distribution system. And we actually expect looking at the pipelines, that public will pick up even more in Denmark. Private business is also very interesting, and the pipeline is promising. We don't see as of now, any changes to budgets in the private enterprise business where we're addressing customers in Denmark. That's, of course, always general talk about the world situation, political macro environments and all that, but we don't see any concrete or tangible signs on IT projects being changed. On the contrary, we actually see a lot of investments into digitization still. So we are very comfortable when looking into what the plans are for our enterprise customers.

And then maybe just to add further to what Andre say. During Q2, we had a number of bids we were working on in the private sector. And we had some concern whether they would go on as planned because of the uncertainty in the macro and the uncertainty in the macro typically gives a little bit of uncertainty with the large private institutions that we work with. However, these have materialized as planned. So that means that the unsecurity we had turned out to not materialize, which, of course, is good. And we have a couple of contracts that are to be signed here in August, which will lay further foundation on the growth also in the private sector in Denmark for the remaining part of the year.

Okay. Great. And maybe just a follow-up on the public. So when -- should we assume the public will pick up already in the second half this year or more a scenario in next year?

It will start to pick up in the half of -- second half of this year. One caveat is that the majority of the people from the Danish organization that we still have to -- that we still have lend out to work on international projects, they have historically worked on projects in the public sector. So there's some change to that, but we do expect public sector revenue to pick up during the second half of 2022 in Denmark.

Great. Very clear. And my second question regarding the FTE growth in Denmark. I can see in the quarter, it was only 15% and continue to sort of slowdown from previous quarters. So in relation to -- your comment in the text of the report, saying the churn rate has now declined during Q2. How can we understand the underlying recruitment, but do you see the recruitment getting more challenged here over the quarter? And does it reflect the demand outlook or just a tough job market? Just what I'm trying to understand.

We don't see any changes in terms of how good we are and how able we are to attract our employees. Of course, it's a tough market that has been so for a long, long time, and we are able to attract exactly the people we need. And so that's going according to plan, actually.

And there are some fluctuations from quarter to quarter and, in the third quarter, in terms of the intake of new employees is already super busy and almost 100 people starting in Denmark on the 1st of August. I think the number was 95, which is a regular high for us. So there can be some fluctuation in terms of which quarter do they start, and that can s***w things a little bit. Overall, we continue to hire because we see the demand and we see the demand both this year and going into next year. And also, we expect churn to come down, as Andre said. And the three months rolling from Q2, indicates that the trend is clearly on a downward path to a more normalized level. It's going to take a little bit of time to get there, but we'll get there.

Okay. And could you perhaps comment a little bit on the churn rate or the trend in July and maybe part of August?

Yes, sure. Without giving you the number, but I can confirm that the 3 months rolling, end of June and also when we look into July, is towards a more normalized level.

Great. Very clear. And lastly, could you maybe comment on the increased credit loss?

It's a small increase, and it's some old accounts that has been written off. I think it is DKK 2 million or DKK 3 million. So that's manageable. Some of it has to do with some of the project adjustments that we also made.

So it's relating to Norway?

Small -- a little bit, and some of it is related to an old account in Netcompany-Intrasoft.

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

I have 3 questions as well. Coming to Norway. You say that you should normalize the business during H2. Now that you have completed these products in Q2, should we see that gradual coming throughout the second half? Or shall we see a significant improvement from the third quarter?

I mean, probably in both Q3 and Q4.

So it's gradual?

Yes, it's gradual.

Okay. And then on the market if you take the last 3 quarters, you have been growing your Norwegian business more or less low single digit. But if we look at Norwegian peers who are also in this space and reported, then they grew double digit and some close to 20%. What are you doing wrong in the Norwegian market, in the last 3 quarters?

We're doing the thing wrong, which cost us money, both top line and margin when we do it wrong, and that is to clean up in projects. In Q1, we made the first adjustment to some of these projects in Norway. And as you recall, the amount at that point in time was DKK 10 million or the equivalent of DKK 10 million and then we take another DKK 15 million in Q2. So if you add DKK 25 million to -- and this goes to top line and to margin. So if you add another DKK 25 million to revenue, then we are comfortably above the growth rate seen with our Norwegian peers. And that's just a consequence of the of PoC accounting. When you do these adjustments, it hurts like -- it really hurts and you can see it. But now we've done it, and it's out of the books and that's why we are comfortable with the normalization going forward. But if you put back DKK 25 million just in the first half in top line revenue in Norway, you'll also see comfortable double-digit growth rates.

Okay. And then the U.K., you are adding about nearly 30% of FTEs in the U.K. market. Is that too an indication of the growth level you are having or is there a catch up of a number of people or how should we look at that massive growth that you are having in U.K.?

That's driven by demand. So it is a reflection of the underlying business demand in the U.K. for Netcompany services. And also the fact that we are now in front of the right level of decision-makers in large public agencies, have great relationship with HMRC, the NHS, DCC based on some strong project deliveries that we've had over the last 12 months. And then also it, of course, helps that Netcompany-Intrasoft, also have a relationship with the HMRC and some of the older platforms that the HMRC are utilizing are actually based on some of the early versions of the tax platform that Netcompany-Intrasoft has developed. And clearly, we expect and there are discussions to renew those.

Okay. My final question is on Intrasoft. You improved your gross margin by 4 percent points, which is also the reason why you outperform expectations on the EBITDA and EBIT margin. Could you put more color on what's going on there? Is it Intrasoft getting into better price products -- projects, you putting your way of working into Intrasoft or what's the reason why you produced such a large increase in the margin in 3 months?

It's a mixture, of course. I mean, some of the contracts we've been able to negotiate better prices over time, but also we're learning from each other, the organizations are learning from each other, and we are delivering more effectively together in some of the projects. So it is a mixture.

And as we said also in connection with the acquisition, one of the margin drivers for improved performance in Netcompany-Intrasoft, will be to do more and more joint projects. Now we had already 1 project ongoing with Intrasoft with the acquisition which was with the Danish tax agency on customs. That has now been expanded. We have won also new contracts in other geos together with Netcompany-Intrasoft and those projects are based on pricing with -- based on the local market. So pricing based in Denmark for instance, if it's the Danish Customs Agency. And then clearly, that is different from the cost base that Intrasoft has in Greece. So it's the first impacts of these things that we now begin to see in the books.

But just to be certain, if Netcompany Core is delivering on a joint project, that revenue and profitability is then reported within Core and not in Intrasoft?

No, it's split on a pro rata basis. So if the revenue is 100% and Netcompany Core is delivering 50 people to get the 100 and Netcompany-Intrasoft is delivering 50 people, then the revenue of 100 is split 50-50 irrespectively of what the cost base is, which means that there's going to be no margin impact on Netcompany Core because it's based on Netcompany Core, but it's going to be a margin lift up in Netcompany-Intrasoft.

Our next question comes from the line of Anders Vollesen from Jyske Bank.

Just I only have couple of questions -- easy questions left, hopefully. Just following up on Netcompany-Intrasoft the question before that, is it fair to assume then that the EBITDA level that you demonstrated this quarter would be sustainable at least for the rest of the year and also going into 2023? And then my second question is also margin related. Of course, the growth is very strong in U.K., but I noticed your EBITDA margin saw a significant sequential decline this quarter Q-over-Q and also with a quite large increase in admin costs. I was just wondering what was the reason behind this? And do you think you'll be able to materially then improve your EBITDA margin in the U.K. in the second quarter -- second half of the year.

Netcompany -- and thanks, Anders. And -- those are easy questions. So thanks for that. On the EBITDA level in Netcompany-Intrasoft, it is higher than what we had expected. I'm not going to give out a level for the remaining part of the year here. But clearly, the expectation to EBITDA is for the full year, positively impacted by the realized margin in the first half, of course, without going into further details to that. We do expect to be able to increase margins in 2023 from the level that we end up in 2022, and that is fully in line with the reasoning for making the acquisition. So we will expect that to come up further in 2023 also. When it comes to the U.K., historically, we have always seen a sequential decline in margins from Q1 to Q2. It has to do with some of the cost and some of the structures in the U.K. when we reported Q1. We were also cautious in terms of saying that the margin in Q1 can swing a little bit over the year, which it does, and that's based on the structure of the U.K. business. The margins in the U.K. are expected to be sustainable at a significantly higher level than in 2021. And that is also one of the reasons that is adding to our overall performance, but it's true when you look sequentially Q1 to Q2, there is a drop. However, if you look at the Q2 against Q2, in the U.K., then we still see a margin improvement of close to 600 basis points, and we expect margin improvements also in Q3 and Q4.

Our next question comes from the line of Aditya Buddhavarapu of Bank of America.

Very quickly, a couple on the cash flow. You mentioned a couple of customers in Denmark making late payments into August. Could you talk about -- I mean, visibility you have on your other customers in Denmark market and whether there's any scope of that sort of thing happening in 3Q as well? And second, how should we think about the overall free cash flow generation in the second half of the year, especially considering some of the moving parts on working capital and Intrasoft and so on. And then the final question is, just on the overall guidance. I mean, you've maintained the full year guide that implies sort of a wide range of approximately 36% to 50% revenue growth in the second half of the year. So how should we think about the assumption between that bottom and to the top end of that guidance range?

Sure. And thanks for that. So in Q2, we had late payments from three of our very large clients, and it's a more coincidence less technicality on the clients' side where all of them had, for various reasons, new staff associated with their invoice handling, billing payment and then also some vacation overlapping, meaning that a total of DKK 75 million that was to be paid in Q2 and has subsequently been received in August were delayed. And it's, of course, very annoying when that happens, but the money has been received in August, which then means that the free cash flow in August will be positively impacted by this DKK 75 million because I should have had them in Q2. So there's nothing structural. There's nothing in terms of the quality of the credits that we have with our clients. The vast majority of our clients in -- are either large private institutions in industries that are not typically in dire straits and then public agencies or the European Union, and they do tend to pay. Sometimes they miss by a week, sometimes they also miss by a month, but we do everything we can to improve that cash collection. Also meaning that we have set aside a number of staff in our finance function to do pre-calls in terms of early billing, matching of purchase order numbers and the likes. It's tedious that it has to be that way, but it has to be that way. When you look at cash flow for the remaining part of the year, we expect that to be strong. We have built up a number of projects where the payment plan, so this is on fixed fee project where the payment plan is towards the third quarter and the fourth quarter in Denmark, in particular, and they will be paid according to plan. So that looks strong. In terms of the full year guidance and the acceleration of revenue growth, you are right in your assumption that we will accelerate revenue growth in the second half to get to guidance. If we look at 2021, then we had relative quarterly growth rates of 23% in the first quarter; 21% in the second quarter; 13% in the third quarter; and 12% in the fourth quarter. So that means that we are looking at somewhere more manageable comparables in Q3 and Q4, which clearly makes it a little bit easier than if it was a higher rate than we were comparing with. In the second half compared to the first half, if you just talk about the sequential change in terms of the buildup of revenue, there is a full 7 days more -- 7 working days more in the second half than the first half, which is equivalent of 6% more working days. And since there is a one-to-one correlation between that and revenue, that, of course, also builds to revenue. And then we have a number of nonrecurring impacts in the first half, such as project adjustments, which we don't expect to see in the second half, which will have a positive impact on revenue growth in the second half. And finally, we have, as we also outlined in our guidance part, assume that we'll see a normalization of sickness during Q3. So that means that the level of sickness is not anticipated to be mirrored fully within the second half as to the first half. So when you add all of that up together, combined then the strong growth, especially in Netcompany-Intrasoft and also in the U.K. and we see projects to support the growth in Netcompany Core, both in Denmark, in Public and Private, cleanup has been done in Norway, and in the Netherlands. Then we are in a situation where we maintain our guidance for the full year on group level.

And there are no further questions at this time. Please go ahead, speakers.

Well, thank you for your participation, and have a great day.

Thank you.