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

Welcome to Netcompany presentation for the annual report for the financial year 2023. [Operator Instructions] This call is being recorded. And I will now hand you over to the speakers. Please begin.

Good day, and welcome to this presentation of Netcom results for Q4 and full year 2023. 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. I will pause for 30 seconds here and let you all 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 is our performance for Q4 and the full year 2023 as well as our guidance for '24. I will walk you through the business highlights for the fourth quarter and 2023 in general, and I will go through our financial guidance for 2024. 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? We grew revenue in Q4 with 4.9% in constant currencies. Currency fluctuations impacted revenue growth negative with 0.7 percentage points, leaving reported revenue growth at 4.2%. For the full year, we grew revenue 10.7% in constant currencies, in line with the original guidance given at the beginning of the year. Gross profit in Q4 decreased by 12%, yielding a gross margin of 28.9%, which was 5.3 percentage points lower than the same period last year. The lower gross margin was driven by lower margins in all business units, mainly due to the lower utilization besides in the Netherlands. And Thomas will go more into the details behind the margin development in the specific regions. Adjusted EBITDA margin was consequently also lower in Q4 2023 compared to the same period last year. Adjusted EBITDA margin for the full year was 14.9% in constant currencies, in line with the updated guidance. We added 412 full-time employees when comparing to the same quarter last year, bringing the total FTE number to 7,765 and an increase of 5.6%. And during the year, we added a total of 778 full-time employees to the group and thereby increased FTEs by 11.3%. And can we go to the next slide, please? We have won several new contracts during the fourth quarter of the year, of which I am mentioning a few here. In Denmark, we've been selected by the Danish Geodata Agency to take over the responsibility of the Danish Cadastral System. We have been selected to implement our products for customs handling [indiscernible], in a European country and we cannot disclose which, but clearly, we are glad to note that yet another product sale underpinning the importance of our go-to-market strategy with the increased focus on products and platforms is realized. And in Norway, we've been chosen an exclusive strategic partner deal by Avinor, the operator of 43 airports and the airspace over Norway. The agreement has a value of up to NOK 1.2 billion for the next 7 years. And in the Danish private segment, we've entered a technology partnership with BEC to replace the proprietary archive solution with the cloud platform mit.dk. The solution is expected to handle documents for more than 2 million bank customers. And let's go to Slide #6 please. In Netcompany-Intrasoft, we have signed several new contracts in the fourth quarter of the year, of which we are highlighting some here. In the European Union, we have signed a 4-year framework agreement with the European Investment Bank for provision of IT consultancy services. And in Greece, we have signed 2 specific contracts under the framework agreement with the Technical Chamber of Greece. This project is funded by the RRF. And can we have the next slide please? In Q4 2023, we employed an average of 7,765 employees, which was an increase of 5.6% compared to the same period last year. And on a sequential basis, FTEs in Q4'23 were on par with FTEs in Q3 '23. In Intrasoft, employee growth was 10.2% and in the U.K. and the Netherlands, employee growth was 13.1% and 24.6% respectively. And churn for the last 12 months was 15.3%, which was a decrease of 5.9 percentage points compared to last year. And can we have Slide 8, please? Before I get to the guidance for '24, I would like to give my remarks to the year we have just finished. Looking back at 2023, the year ended being as challenging as feared with multiple external factors impacting our business throughout the group. But despite these challenges, we grew revenue in line with our financial guidance for the year at 10.7% in constant currencies, driven by strong growth in the international part of the group. In fact, all international entities grew more than 20%. This would not have been possible without our go-to-market strategy that we introduced in the beginning of the year. The strategy focuses on reuse of solutions and has already been implemented successfully elsewhere and thereby benefiting both our customers and our business. Adjusted EBITDA margin for the year was 14.9% for the group, also in constant currencies. And before provision for severance payments, margin was 15.1%, which was lower than in 2022, but still in line with our expectations and financial guidance for the year. Towards the end of the year, we've seen a shift in customer sentiment in the Danish private segment and we have begun to convert pipeline cases and our revenue visibility for the year has increased by 17% compared to the same time last year. And on the other hand, macroeconomic outlook still looks uncertain though. Therefore, on balance, we expect to grow revenue between 7% and 10% and adjusted EBITDA margin between 15% and 18% in 2024. And with that, I will pass on the word to Thomas, who will give you a more detailed view on the financial performance in Q4 and for the full year of 2023. Thomas, please go ahead.

Thank you for that, Andre. And like already mentioned, I am the CFO in Netcompany, and I will now go more into details with the financial performance for Q4 2023 and for the full year. So if we move past the breaking Slide #9 and straight into Slide #10 in one go, please. Andre has already spoken to our performance in general terms, and I will now go more in details with the performance for Q4 and for the full year '23. Revenue increased by 4.9% in Q4, measured in constant currencies. Currencies impacted growth negatively by 0.7 percentage point, leaving reported revenue growth at 4.2% for Q4, mainly as the Norwegian Krone depreciated. The growth was driven by double-digit growth in all of the international part of the group, offset though by the Danish business that realized a decrease in revenue in Q4 '23 compared to Q4 2022. As in previous quarters, prolonged decision processes and high uncertainty, mainly in the private sector, was the reason for the negative revenue development in the Danish business. The public segment in Denmark declined 1.9% in Q4 compared to the same quarter last year, and the private segment declined 6%, which led to a total decline of 3.6% for the Danish business unit. Despite the negative development in the Danish business, we saw positive signs during the quarter and pipeline cases and especially the private segment started to convert into projects. Netcompany-Intrasoft continued the strong performance and realized 10.5% revenue growth in the fourth quarter. The growth was driven by public and EU segment that grew 13.9%, while the private segment revenue was on level with Q4 last year. In the U.K., revenue grew 13.7% compared to the same period last year, thereby continued its strong growth momentum. Growth in Norway of 18.4% was driven by strong performance in the private sector and was mainly driven by one larger customer. Growth in the Netherlands was 48% in the fourth quarter, solely driven by strong performance in the public segment. And can we move to the next slide, please? Gross profit margin decreased by 5.3 percentage point to 29.3% in Q4 compared to last year. However, this was an improvement sequentially from Q3 into Q4 of 0.4 percentage point. The decline was mainly caused by the lower margin in Denmark, which was 39.1% compared to 44.9% in Q4 2022. The lower margin in Denmark was caused by lower utilization compared to last year, as conversion of pipelines still was affected by prolonged decision-taking in especially the private segment during the quarter, which led to lower growth. As in previous quarters in 2023, the rightsizing of the pyramid also impacted gross margin negatively, and in addition, provisions made for severance payment diluted margins too. Margins in Netcompany-Intrasoft declined by 3.5 percentage point, negatively impacted by a relatively lower license revenue in Q4 2023 compared to the same period last year. In the U.K., margin was 23.4% compared to 31.3% in the same quarter last year. The lower margin was a consequence of the continued preparation of tender material related to the DALAS framework agreement. Tender writing activities in the U.K. will continue to be at a higher level in the first half of 2024, as we continue tendering for projects under the DALAS framework. Margin in Norway decreased 0.9 percentage point in Q4 compared to the same period last year, but on a sequential basis, margin in the Norwegian business increased 17.7 percentage point compared to Q3 2023, as utilization increased during Q4. In the Netherlands, margin increased 6.9 percentage point and reached 30.4% in Q4. The increased margin in the Netherlands was a result of better project executing. And can we move to the next slide, please? Adjusted EBITDA margin was 15.9% in Q4 '23. The 7 percentage point lower margin compared to the same quarter last year was a result of lower gross profit and increased administration cost, which was also the reason for the lower EBITDA margin in Denmark. Netcompany-Intrasoft margin decreased by 5.5 percentage point, driven by the lower gross profit margin and higher administrative cost related to IT license costs for administrative tools given the ongoing move to a common platform. Margins in the U.K. decreased by 7.6 percentage point to 11.2%, mainly driven by the lower gross profit margin. In Norway, margin increased 2.3 percentage point as a result of better utilization. And finally, in the Netherlands, margin improved significantly by 15.9 percentage point and ended up at 13.7% due to better utilization and improvement in gross profit as previously mentioned. Can we move to the next slide, please? Revenue grew 10.7% in constant currencies for the full year 2023, as a result of the strong international performance in the group that Andre has already mentioned. Total revenue in the Danish business was in line with 2022, despite a decline in revenue in the private segment of 7.3%, as pipeline conversion was prolonged due to the high level of macroeconomic uncertainty during the year. This was offset to some extent by the public segment that grew 4.9% in the year, purely driven by farming on existing customers as no new legislation or tenders were introduced during the year. Intrasoft and the U.K. grew revenue by 20.6% and 21.9% respectively, both driven by strong performance in the public segment during the year. Norway grew revenue by 25.8%, driven by the private segment and the Netherlands grew 44.7% by growth in the public segment. And can we move to the next slide, please? Gross profit margin was 28.3% in 2023 and 4.1 percentage point lower than in 2022. The decrease was mainly caused by lower utilization in Denmark, but also impacted by increased business development activities in the U.K. related to tender writing activities on the DALAS framework. In the Netherlands, gross profit margin increased by 5.1 percentage point to 21.4%. The increase was a result of completion of legacy projects with low margins and better execution on new projects. Can we move to the next slide, please? Adjusted EBITDA margin before allocated cost from headquarter was 15.6% for the group in 2023 compared to 20.6% in 2022. The lower margin was a result of lower margin in Denmark and to some extent also Intrasoft and the U.K. In Denmark, the margin declined due to higher level of forced churn, lower utilization, moving costs, and costs related to our go-to-market strategy. In Norway, margin improved by 3 percentage points and the improvement in margin is expected to continue into 2024, as a result of better project execution and higher utilization. In the Netherlands, margin improved by 14 percentage point, and the improvement, again, was driven by better gross profit margin and reduced global administrative costs. Can we have the next slide, please? Our focus on working capital management throughout the group initiated in 2022 and accelerated during 2023, has led to a combined increase in accounts receivables and work in progress that was lower than our revenue growth, despite the fact that a larger proportion of revenue in 2023 was generated under the RRF with long work-to-invoice duration, while revenue from the private segment in Denmark with short work-to-invoice duration declined. Work in progress increased by 3.2% compared to revenue growth of 4.2% in the quarter and 9.6% for the last 12 months. Can we go to the next slide, please? Free cash flow was DKK 382.6 million in Q4 and the best ever quarterly free cash flow for the group. For the year, we generated DKK 552 million in free cash flow, yielding a cash conversion ratio of 135% compared to a cash conversion ratio of 85% in 2022. We end the year with DKK 448 million of cash on our balance sheet, and our leverage remains unchanged at 1.4x, giving us a strong balance sheet momentum going into 2024. Based on our strong balance sheet and cash flow, we have initiated the first tranche of our DKK 2 billion share buyback program by 2026, and will buyback shares for up to DKK 150 million from now until the 1st of May 2024. And can we have the next slide, please? Revenue visibility improved 17.3% for 2024 compared to last year and amounts to DKK 4.9 billion, of which contractually committed revenue amounts to DKK 4.56 billion. Non-contractually committed engagement amount to DKK 338 million. Visibility has increased by 19.9% in the public segment and 11.6% in the private segment. We see this as a clear sign that more public entities and private companies are increasing their willingness to increase their IT investments. And can we have the next slide, please? Before opening the call for Q&A, I will give some comments on our midterm financial targets for 2026 and give some details on how we expect to reach these targets. To reach DKK 8.5 billion in revenue, our organic annual revenue growth expectations towards '26 are as follows. For Denmark, we expect revenue growth between 7% and 12%, as we expect both growth in the private and public segment to be more normalized than what we realized in 2023. For Intrasoft, we expect revenue growth between 5% and 10% towards 2026. As the extraordinarily high revenue growth in 2023 was driven by a significant ramp up in projects under the RRF, which means that the 20% growth in Intrasoft is not likely to be sustained. In the U.K., we expect revenue growth between 10% and 30%, and for both Norway and the Netherlands, we expect revenue growth between 20% and 30%. EBITDA margin for the group is expected to reach more than 20% by 2026. And the building blocks towards a margin above 2026 from our 2023 level of 15% is broken down into 5 main buckets in the graph on your left. The primarily uplift in margin is expected from the increase in utilization in Denmark, which is expected to come back to previous levels, as activity in the Danish business starts to normalize. Furthermore, we expect a positive impact on margins from positive earnings in Norway and the Netherlands. This combined with non-recurring impact on margin related to rightsizing of the pyramid that we saw in 2023, continued margin improvement in Intrasoft and flatlining of headquarter and go-to-market costs will improve margin from the current level of 15% to at least 20% EBITDA margin by the end of 2026. As we have already highlighted, this morning we have initiated a share buyback program of DKK 150 million to be executed in the time from today until the 1st of May, which is the initial tranche of our commitment of a DKK 2 billion cash redistribution, mainly as share buybacks, to our shareholders by 2026. And with that, I've concluded the detailed financial walkthrough of the numbers and we now open up the call for questions. So if you move to the Q&A slide, please, and open the call for questions. Thank you.

[Operator Instructions] The first question is from the line of George Webb from Morgan Stanley.

I'll start off with 3 questions, please. Firstly, on the 2024 revenue guidance. You touched on the revenue visibility growth of 17%, which is clearly above the 7% to 10% guidance range. How would we square those 2 numbers? Does that leave perhaps a little bit of risk for the upside if you execute through the year or is there something else, we should be aware of? Secondly, on the margin guidance range. I'm presuming you're expecting utilization to improve in 2024 in Denmark. So could you perhaps outline under what scenario margins might be flat at 15% this year, i.e., at the lower end of the range? And then lastly, just on hiring in Denmark, 6% year-over-year growth in Q4 because you talked that's on Denmark specific, but you seem to have quite a lot of confidence around better demand conditions in Denmark in 2024. So how you're thinking about hiring plans and perhaps accelerating the hiring processes, would be helpful?

Yes. Well, when it comes to the revenue and the visibility, well, it is actually very positive that we have such a great visibility and you might be saying that we are a bit conservative in the way we've been guiding here. But we are a bit cautious looking into also the slowness of decision-making, both in the private sector and also the public sector to accelerate in Denmark. I mean looking into the Danish market right now, we actually see the public sector wakening up. There's a lot of legislation coming. And we also see private sector picking up when it comes down to investments into AI and data-driven larger projects. However, we need to see that materialize over the year, and that's why we've been guiding as we have. When it comes down to your second question in regards to the margin, I think also as Thomas alluded to in the introductory comments here, utilization in Denmark needs to get up. We will also see a similar margin pickup in Norway and the Netherlands, but we need to see that materialize. And that's why we've been guiding the way we have. And I think 15% to 18% is a responsible guidance also in the macroeconomic environment that we are in. And when it comes to Intrasoft, the continued margin improvement there is also that relies on a long and steady project execution, both in Greece and slowly but surely changing the way we operate in the EU. So it's just looking at it, it's a trend, and we know it's going to happen, but we are just looking and observing it happening, and it's going to be one long, great journey towards better margins and the revenue that we need guiding for 2026 with a long-term guidance of DKK 8.5 billion in revenue and plus 20% in profitability. So I don't think I can get closer to than that. When it comes to the hiring, the third question, maybe, Thomas, you can comment on that one.

Yes. Sure. So -- and thanks for the question, George. In terms of hirings, as you can also see from the FTE numbers in our report, it has been fairly flat in Denmark for the last couple of quarters, given the insights we have to our pipeline conversion and the forward look and the load, we are slowly beginning to see intake of new hires again in the Danish market, which is great. And that is also a testimony to our view on the Danish market for 2024. So we are beginning to see that inflow again. Like Andre said, important for us to continue to focus on utilization and we will. And to be specific in terms of what would be the case where we would be at the lower end of the 15% to 18%. And the short answer to that is that we would see no improvement from 2023 to 2024, which is for sure not what we are planning on.

The next question is from Claus Almer, Nordea.

Also a few questions from my side. The first question goes to this projects and pipeline within the Danish private segment. Do you expect the margins attached to this project to be equal to what we have seen in the past? That will be the first question.

Well, Claus, thank you for that question. Yes. As we said before, we need to get utilization up to the levels that we are used to and the way we price projects and engagements and the way we execute upon them. Well, we've seen previously that we are able to have a great margin on those things. And of course, if we get back to normal utilization levels, and we expect that to happen too. I mean there's nothing that should hinder us in getting to that point.

So underlying, you're pricing your projects as you did back in, let's just say, before the COVID years?

Yes. With one caveat, remember that we introduced this 6th week of -- additional week of vacation in Denmark and improved paternity and maternity benefit in 2022, which had a full dilutive impact on margin in 2022 and onwards of 3 percentage points. And those 3 percentage points we're still struggling to get back. So with that caveat, yes, you're right in your assumption there, Claus.

So as I recall the CMT, you said that that negative impact will be -- there will be a catch-up within a few years?

But I heard the question towards 2024. And in 2023, as we've discussed a few times, that was not the year for us to start getting back on that. So fully remain committed to that, but I heard the question towards 2024 and not towards the midterm guidance of '26.

Then my second question is about the FTE. In the scenario where you grow your revenue by 7% and a scenario of 10%, how much -- how many more FTEs will you be adding?

That's a good question, Claus. And you know what the answer to that is, and that is that we're not really going to comment on that. Some of the revenue uplift will be from increased utilization and some will be on FTE and you might see a combination where we both have increased utilization and FTE intake, which is then a sign that we are starting to be really busy. But I'm not going to give you a percentage breakdown as to how much from 7% to 10% is AOB.

And then just a final question. Pricing. So how much of a pricing impact do you assume in your guidance?

For '24 or midterm?

Yes. You can answer on both, obviously, but let's start with '24.

So on '24, the margin guidance is not driven by a huge pickup in pricing. And the same goes actually for midterm guidance 2026.

And what about revenue?

So revenue -- yes, I mean, revenue is driven mainly by increased activity. So it's volume driven, not price-driven per se. Then of course, there is a change potentially in mix and some of the different segments we have will have a higher revenue per FTE than others, but you're well aware of that. So it's just to make sure that you don't do a simple flat lining of the curve.

The next question is from Yiwei Zhou, SEB.

I also have a couple of questions here. Firstly, I remember when we went to -- sort of go into 2023, you said you couldn't pass the wage inflation to your customers. Could you also comment on the situation for 2024? Do you still have the same challenge or it has improved?

I think the answer is -- the question is, has a different impact for '24 than '23 all the time. And in 2023, the underlying CPI, and especially in the month of November, December and also early in the year was between 8% and 10%. Right now, we see a much lower CPI and also a much lower salary inflation. At the same time, we've done a lot in terms of our pyramid structure in 2023, making sure that we have the right balance between junior, seniors and the lot throughout the pyramid. So given the fact that we are not seeing the same high wage inflation pressure and given the fact that we've done a lot to streamline the pyramid structure, and adding that increased activity will mean that we will hire more people as graduates. We don't see the same challenge in 2024 as we saw in 2023.

Yes. And maybe generally, just adding to that, there's also -- I mean, the tendency or at least a trend where you see the heat on IT resources has been going down a bit over the last 6 to 12 months. That's not only for Denmark but across Europe. So you see -- it's easier to get the right resources and you'll see -- definitely see the levels of churn going down across the entire sector.

And next question, could you maybe update the timeline for at least your expectation for the Danish public tenders? And you said in last quarter, could you -- is it the same expectation? Could you remind us what the pipeline -- the timeline is now?

Well, generally, you can see that the Danish public sector has -- is an awakening happening. So there's a lot of legislation coming in through the first. I think the end of the first half year, you see much more coming in on the heavy welfare systems. And then you also see the first signs of larger big tenders coming out now. Some of them are very public and some of them are still not known to the public, but they are planned. So -- and several of them are already in the pipeline of larger Danish IT companies, including ourselves. And the [indiscernible] is coming out, the student administration tenders also, even though it's divided into several parts, is also out there. And there's a lot happening on the legislation part with the reforms coming from government over the last 6 months and in the 6 months to come. So we see a different year in '24 than in '23, and we will see a pickup in second quarter and coming into the third quarter for sure. There's a lot of tender activity going on.

And I will ask my last question and I'll jump onto the queue. That is regarding the Avinor contract. Could you maybe comment on how much you can utilize the Smart Airport platform? Yes.

Yes. I think that the interesting part about the Avinor contract and basically, all the various tenders that are related to our platforms. I think you'll see that the platform is extremely crucial in terms of clicking in winning this one, but it's also the competencies and domain knowledge associated with the platform that is absolutely important. So the Avinor deal is basically about having the right domain skills and knowledge and the access to the platform, not necessarily using the platform everywhere. And we'll see that happening, I think, across the entire sector of aviation in airports, but also in other areas of transportation. So the – Avinor deal is really basically a deal about having a lot of resources helping Avinor to digitize the entire operation there, including maybe using parts of the platform. So the platform is not a particular part of this deal. This deal is basically having access to people who knows what to do and may be using the parts of the whole platform in the next 6 to 7 years to come.

Which will then be added to the contract.

Exactly. Then that will be added to the contract. It's not really even a part of the contract, but it's crucial in choosing the winner of the contract.

The next question is from [ Jasper Stugumir ] from -- please state your own company.

Hello, Jasper Stugumir here from Handelsbanken. A few has already been answered, but a follow-up on the Norwegian contract here in Avinor. What does this NOK 1.2 billion in [ 17 years ] been for you in 2024? Will we see some more already positive impact in Q1 here or more in the later part of the year?

You will see some positive impact already in Q1 because the contract is very much about resources helping Avinor in various aspects in parts of the operation of the existing IT on there. So we will man up and start already now in Q1. So you will see an impact of that from the beginning of the year.

And my second question is with regards to the U.K. framework agreement here. You commented on increased time spent for tenders within the DALAS framework, leading to low utilization. But can you comment a bit on these contracts? How it will play out in 2024 in terms of the margins in the U.K.? Do you see -- and do you see that you have enough stuff for taking on this -- such a task or do you see any restraints here?

We do have the capacity both in the U.K. and with help from the rest of the group to write the tenders. These are large tenders, and they will materialize. Well, according to time plans, they will materialize and be selected winners will be selected to during Q2 and then going into Q3 that they will be executed upon. So the first half year in the U.K., we will be spending some time in actually getting ourselves into positioning ourselves into winning one of these last tenders. And it's very big deals. It's part of our strategy, just like with the Avinor deal, it takes time to position yourselves into it. But when you win them and when you start executing upon them, their long-term deals with a very business-critical nature. So yes, I guess the short answer is we still need some months to go in order to win one of these contracts and then hopefully, during the second half year, you'll see more of an impact on the financial results of the U.K. office.

And that also means that by that timing in the second half of the year, when that happens, we will be adding additional resources to the U.K.

Yes.

And could you say something about the margins here?

In the U.K., for DALAS in specific. So it's difficult to comment in specific contracts and also since we are on the framework, but we still need to win the contracts which we're in the process of. So what we can say overall is that increased activity in the U.K. will be accretive to margins in the means of better utilization, larger projects where we can work with some of our unique delivery models. So that will potentially be accretive to margins when that happens. I'm not going to give you a number, Jasper, and you would not -- maybe you would want that, but I don't think you would expect me to be able to do that at this point in time.

The next question is from Orson Rout from Barclays.

The first one is just on Intrasoft profitability. If we adjust Intrasoft per capitalized R&D, the margin there is now still at a very low 3% even despite a very strong growth this year, you saw margins contract. Now in the midterm guidance, margin bridge, Intrasoft margin expansion seems to be a significant part here. So I was just wondering if you could touch a little bit on the levers and how you build conviction that you can expand margins within Intrasoft, even if growth is only going to be up 5% to 10% when the margin was contracting last year when you saw growth at over 20%. That's the first one.

On margin and on capitalization and the like, Orson, thanks for the question. Also, remember that part of the product development, if you so will both for [ Hermes ] and for [ Solon ], for PERSEUS and the like is to the benefit of the group. So a number of these products are basically being sold and also generate revenue and profit throughout the group, which, of course, has an accretive impact on the different entities in the group that are selling these products is not the full, but there is an impact on that. Then when we compare margins in '22 to '23, there was a higher proportion relative of software license or product license, if you will, in Q4 2022 mainly related to projects within social security and that excludes the profitability bridge, if you so will profitability in Intrasoft in 2022 and a little bit lower in 2023. We expect to see continued improvement in margin in Intrasoft driven by even more product sales, by more products under the RRF that tends to have a better margin than some of the other products. And we are comfortable that we will be able to get that margin increase that we've put in the mid-term guidance of an impact of at least 0.8 percentage point.

The second question I have is just on phasing and, I guess, in the industry, a big question is when are we sort of going to see growth improve? And I was wondering whether the 4.9% organic growth in Q4 is something where you can say, this is already a trough, and we think it's going to improve from Q1 onwards, especially with the pipeline strength in Denmark you've been speaking to? Or is it a bit too soon for that? And do you expect that more to be towards Q2 or even second half, that sort of incline in the growth?

Yes, sure. And then we'll talk in general terms, Orson, as we don't really guide per quarter. So overall, we do see better visibility going into 2024. It's no secret and that has been the case throughout, when we've reported that when we start the year and we discuss revenue visibility. The revenue visibility tends to be higher in the close period compared to the end period of the year. That means that more of the revenue is contracted in Q1, Q2 and then less in Q3 and less in Q4, which is naturally in the business like ours. And then taking into ration that revenue has grown by 17%. You can draw the conclusion that it's probably fair to assume that we are seeing growth in Q1, Q2, which will be larger than what we saw in Q4 on a sequential base and also on a comparable basis.

And then one final one just on the fine related to the new digital mailbox or the [indiscernible]. It seems as if we shouldn't expect an immediate impact yet from a financial perspective, but I was just wondering where the other Danish public entity had sort of rate this as an issue, have been asking questions regarding that fine. I was also wondering, backward looking, if the mit.dk contract was one of the reasons for perhaps weaker growth in 2022 and 2023? Did you have to make any sort of concessions as a consequence of the problem in the first day that you saw there or was that really a non-issue?

No, that was really a nonissue. I mean the event was part of the launch 2 years ago, and it's been known by everyone in the public sector. And actually, before we -- before the date it was announced that we possibly could be fined in this and that's fine if it's going to incur in 1 or 2 years' time or whatever, we of course contacted all the customers. So there's no surprise in this. It's been known for 2 years and it has no effect on our overall relationship to the customers and it's just part of everyday business that sometimes these things happen and it's been approached very sensibly and doesn't have any effect on, neither on the, I guess, financials in 2024.

The next question is from Gianmarco Conti from Deutsche Bank.

I have 3 as well. Just if you could again touch base on the development of the new go-to-market strategy and tender writing. Are you seeing traction in the use of your platform approach within new wins? And could this be a small contributor to your 20% margin target for 2026 given, I'd imagine, it's quite margin-accretive? I'll go for questions one after one.

Thank you for that question. And it's absolutely important for us that most of our tender activities, but also going to market and also in the private segment is based on our platform because of reusability and because of reliability in all the deliveries we do. So without being too specific, I can say that we are very, very consequent in using our platforms again and again not only in Denmark, but in every market and will that have a positive impact on our margins? Well, that's why we do it. We cannot be specific about it, but for sure, that's one of the aims of doing it. Being more reliable and delivering at time and in budget will of course also increase our margins.

If you look at the bridge, Gian, then you will note that to get to the 20%, we have not assumed that a lot of the margin will come from this go-to-market approach, meaning increased profitability from products and platforms. So that is another lever for the margin built up towards the 20%. But it's not part of the assumption that we've made that all of a sudden we can only get there if we are very successful on our go-to-market strategy. Now we want to do everything we can to be successful, and if that happens and when that happens, that's going to be positive to us.

Yes.

My second question is on the revenue guidance for next year. I saw you sort of informally guided for 5% to 10% in the coming years on Intrasoft. And I was wondering if you could touch base more on the levers as to why it's guiding so much lower than the 21% growth in 2023. Is it to do with having fewer opportunities up for grabs in the RF? And how exactly are you driving the margin increase in these projects? And as you've briefly mentioned, that they're going to be from the RRF and you're going to get some higher margin projects there?

Yes. So the RRF is absolutely important especially with the Greek market. I mean we have won a great deal of tenders based on the RRF, and we don't expect that to continue in the same pace in the years to come. And to drive margin up is going to be a question of executing and using the net company methodology, and even some of the platforms together with Intrasoft. So in the execution, project execution and delivery, we will slowly but surely try and drive margins up. But when it comes to revenue growth, we need to be a bit cautious because we've been winning a lot on the RRF and we cannot expect that same very high growth rate caused by that particular institutional setup.

So you can view it in this way, Gianmarco. So the high level of activity will continue, but if you look into 2023 and compare 2023 with 2022, then the public sector revenue increase, which accounts for around 15% of the total revenue in in Intrasoft, that segment alone increased by close to 50% driven by the RRF. And clearly, we cannot expect, would be nice, but that's not how it is, to that to increase another 50% simply because there's not that many projects. So 2024 will continue at the same high level, maybe a third above, but we don't see the same build up. So when you look at the Intrasoft in '23 and '24, view them maybe a little bit together and see the average, compare that with the previous revenue growth in Intrasoft of 7%, 8% and you'll still see something which is very positive and for sure satisfactory.

And just my final question is, given the larger amount of tender activity expected in Denmark in public over the coming 6 to 12 months. Won't this eat into your utilization rates for Denmark? I'd imagine you have to have a fair few people writing the actual tenders. And just as a follow-up from that one is, should we still expect the spillover effect in Q1 from the pyramid right-sizing?

No, so I mean the increased tender activity, we have the people that we need, we've rightsized the pyramid of course, but we also took into consideration that we need to be able to deliver tenders in the high quality that we normally do. So that's already in everything that we've been right sizing about. So no, it's not going to affect the margins in that way.

And no spillover as we've seen in 2023 on rightsizing the "Pyramid". And the reason why the impact was so profound in 2023 also had to do with the level of activity seen in the Danish business. Now as activity goes up, it's also much more efficient to manage that change to the pyramid.

The next question is from Mads Quistgaard, Carnegie Investment Bank.

I will take them one by one. So first, on the Danish public sector. Is there any large tenders which is set to leave your order books in 2024? Are you still able to maintain a 100% rewin in the public sector? So basically, whatever you win in this period of time during 2024 will be added straight into your topline and will be contributing with growth. That will be my first question.

Yes. There's no like real big defense in the public sector in Denmark in '24. However, many of the deals in Denmark, and some of them at least, are deals that are also very reliant on legislation, continuous legislation and changes into legislation. But there's nothing right now indicating that we need to defend a lot, and there's nothing indicating that the legislation will not go up. So taking those 2 things into consideration, overall things that we win will go on top of what was already there. But yes, some of the deals are of course flexible and if by any chance legislation will go down during the year that can also affect negatively. But overall, there's no big defense going on.

Then I had a question on the margin bridge towards 2026, especially on Intrasoft, so the 0.8 percentage point. What is the impact on the 0.8 percentage point from the conversion of the independent contractors into firms?

Not significant. So to say it in another way, we're not assuming to get to the margin by being able to convert 100 plus freelancers.

Then a question on the free cash flow in the quarter, which was extremely strong. Could you put some comments around your expectations for this year? Do you expect to continue with the improving working capital and so on?

Yes. So we will refrain from commenting specifically on free cash flow. So it is by nature a little bit wobbly from quarter-to-quarter and therefore, no specific comments on cash flow per se. We expect and we will continue to focus very much on our working capital management. We will continue to see how fast we can move revenue from working progress to receivables to cash. There are a number of things already on our plate that we expect to also be working on in 2024. So we will be diligent on that also in 2024, Mads, but I'm not going to give any guidance on cash flow per se. What we have said though is that we will buy back shares of at least half a billion. So we will initiate the process towards the DKK 2 billion repayment by 2026. And clearly, that also is rooted in our expectations on our balance sheet and hence our cash during the year.

Then my final question is on the client facing employees in Norway, which is flattish on a quarter-to-quarter basis. You have been awarded 2 large contracts in Norway right now in the beginning of this year, and so I guess it would be fair to assume that you will increase the decline phasing employees here, or will this be delivered on an existing bench, meaning 100% utilization impact?

Great question. Yes. Very good question. It's going to be a mixture of that. It's going to be a mixture of that. And well, in Norway, of course, it's very positive that we won these 2 great contracts, but we also had a breakthrough on the vulnerable children platform that we are rolling out to all the municipalities in Norway. So all in all, it looks really, really positive in Norway. And we will be, of course, using some of the bench, but we also need to hire some new people there and we also help from Denmark. I don't think we can get closer to it than that.

The final question is from Aditya from Bank of America.

Hello. This is Aditya from Bank of America. I only have a couple. Firstly, just going back to Denmark, the recovery you saw in client sentiment in the private sector towards the end of the year, can you just maybe talk about what sort of drove that and why you think that's sustainable going into this year? And then second question, you saw a pretty big increase in profitability in Netherlands as well and to next to Norway. So any comments on, again, how you are thinking about those 2 markets into 2024 and the sustainability of the margin increase there?

I think in Denmark, it's not like the sentiment in Denmark is much more positive than it was a year ago in the private sector in general. I don't think so. At least that's very difficult to say anything about it. But when we look at net companies, GTM going to market approach in Denmark, we are very much aware of which enterprises are really investing heavily into digitalization driven by, they want to be data driven. And they want to compete in a global setting and they want to use AI and predictive AI on top of our solutions and that is that we've been positioning ourselves into those accounts and that that is what we see as a very positive effect of all the work that has been done in '23. So that's why we see a more positive sentiment towards what we're doing at the moment. When it comes to the Netherlands, well, it's primarily in the public sector that we are operating in the Netherlands and using our products and platforms from Intrasoft combined with our platforms from Denmark, we see a pick up there as well. It's a very small office still and there's still some work to be done in order to get to be known in the sector. But it's positive that we are busy again in the Netherlands compared to previous years. And I think I would leave it with that.

And maybe just to add to what Andre said on Norway and Netherlands on margin, as you specifically asked about. So the improvement in margin in Norway and the Netherlands also has to do with the fact that we are now delivering projects much better and much more in line with how we want to deliver projects, which is positive to margin. As you will recall, we had a number of projects that we took some write-offs on in Norway in Q2 2022. And we've had a suite of legacy projects that we took over when we acquired Qdelft in the Netherlands. So those projects have now been delivered. And that means that they are not dilutive to margin anymore. So it's basically better project delivery and then continued the high level of activity, which is going to especially know to be accelerated even further with the contract wins that Mads was also asking about previously.

And if I could just ask one follow-up. At the Capital Markets Day last year, you mentioned that you might do with some KPIs on -- KPIs to track the progress of shift to using platforms more. So please share any color on that and what we should expect during this year?

So we are for sure seeing a lot more on products and platforms. It's still early days. And if you look at our revenue composition, it's still only 1%, which is driven by products. And our platforms are then clearly a bigger part of our revenue. What we don't want to do is start to throw out a lot of KPIs too soon before they start to make sense. So we will be readdressing and revisiting when to do that during the course of 2024 and then we'll engage with you guys in terms of what we will say, when and how.

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

Well, thank you everyone and have a great day.

Thank you.