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

Welcome to Netcompany's Q4 and Full Year 2024 Presentation. Today's call is being recorded. [Operator Instructions] I would like to introduce CEO, Andre Rogaczewski; and CFO, Thomas Johansen. Andre, you may begin your presentation.

Good day, and welcome to this presentation of Netcompany's results for Q4 and full year 2024. 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 here for 30 seconds 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 full year '24 as well as our guidance for 2025. I will walk you through the business highlights for Q4 2024, the full year in general and our financial guidance for 2025. And once I'm done, Thomas will go through the numbers in greater details before we open up the call for questions. And can we have the next slide, please? 2024 was the first year we started to see a material impact from our go-to-market strategy, which we initiated in the beginning of 2023. Despite a business environment that continued to be uncertain and challenging, we grew revenue for the full year by 7.6% in reported currencies and 7.4% in constant currencies, in line with guidance given at the beginning of the year. Gross profit in 2024 increased by 11.9%, yielding a gross margin of 29.1% compared to 28% last year. The improvement in gross profit was a result of improvement in all regions despite the U.K. And Thomas will go more into the details behind the gross profit developments in each specific region. Adjusted EBITDA increased by 21.8% to DKK 1.1 billion in 2024, yielding an adjusted EBITDA margin of 16.8% in reported currencies and 16.9% in constant currencies, also in line with guidance given in the beginning of the year. During the year, the workforce in the Group increased by 323, equal to a 4.2% increase. And can we have the next slide, please? During the fourth quarter, we have won several new contracts, of which I'm mentioning a few here. In Germany, we've won a contract with Munich Airport to implement AIRHART as the digital backbone of the entire Munich Airport ecosystem and thereby becoming an important strategic partner for the airport. In the Private segment in Denmark, we have signed a significant contract with Forca to basically rethink pension management through implementation of our new industry solution called AMPLIO Life & Pension based on our existing platforms, AMPLIO, EASLEY, mit.dk and Festina Finance Core Life pension application. We will enable a better and more efficient management of the pension funds within Forca to the benefit of the end customers. And in the Private segment in the Netherlands, we have been chosen as a vendor for the development, implementation and maintenance for the replacement of the primary process system at the Dutch Medicine Agency. And can we go to Slide #6, please. In Netcompany-Intrasoft, we have also signed several new contracts in the fourth quarter of the year, of which we have highlighted a few here. In the European Union, as a part of a consortium, we have signed a 5-year framework contract with the European External Action Service. The scope of the project is to provide IT workplace and user support services, among other deliveries for the European Action Service. Our market-leading product, SOLON TAX has been selected by the independent authority for Public revenue in Greece and the State Tax inspectorate of Lithuania to replace the existing taxation systems in both countries. And this is the same solution as we've sold to the Swedish tax agency back in June. In the Private segment in Greece, we have been awarded a contract with Cosmote Payments, a subsidiary of Deutsche Telekom for the expansion of the digital wallet Payzy. The digital wallet is already in use with Cosmote customers in Greece and will now be rolled out for the Deutsche Telekom customers in Germany as well. This launch is a part of Deutsche Telekom's broader strategy to expand its digital services and improve customer experience within the vertical financial services, which also fully supports our strategy to grow within the financial services vertical. And can we have the next slide, please? In Q4 2024, we employed an average of 8,249 equivalents, which was an increase of 6.2% compared to the same period last year. Compared to revenue growth, number of FTEs grew at a slower pace as a result of our increased use of existing platforms throughout the entire Group. The attrition rate for the last 12 months was 18.1%, which was an increase of 2.8 percentage points compared to last year. And can we have Slide #8, please? Before I get to the guidance for 2025, I would like to give my remarks to the year we have just finished. Looking back at 2024, our go-to-market strategy and increased focus on becoming a strategic partner within specific verticals for business-critical IT solutions started to pay off in a market that continued to be challenging and uncertain. Despite the challenges, we grew revenue in line with our financial guidance for the year at 7.4% in constant currencies. Growth was driven by the ongoing recovery in the Danish part of the Group and supported by Netcompany-Intrasoft, where particularly the EU and Public segment delivered significant growth. Also, the Netherlands and Norway delivered growth. In the U.K., we were negatively impacted by the slower-than-anticipated spending in the Public segment because of the general election there. For 2025, we expect to keep growing and to keep on improving margins. We look into 2025 with continued high uncertainty, which when it comes to both macroeconomic measures and geopolitical topics can have influence. Hence, on balance, we expect to grow revenue between 5% and 10% in 2025. And at the same time, we expect to deliver an adjusted EBITDA margin of between 16% and 19%. Looking beyond 2025, the delay in public spending in the U.K. and the divestment of nonstrategic markets in Netcompany-Intrasoft has eliminated a sizable part of our originally expected revenue levels in 2024 and negatively impacted our growth expectations for '25 and beyond. Consequently, we deferred the timing for realizing DKK 8.5 billion revenue target to 2027. However, we reiterate our adjusted EBITDA margin target of at least 20% and the redistribution of at least DKK 2 billion of cash to shareholders by the end of 2026. As Thomas will explain in greater details, we will not initiate a new share buyback program at this particular point in time despite all-time high free cash flow. And with that, I will pass on the word to Thomas. Please go ahead, Thomas.

Thank you for that, Andre. And like already mentioned, I'm the CFO of Netcompany, and I will now go more in details with the financial performance for Q4 and for the full year 2024. So if we move past the breaking Slide #9 and straight into Slide #10 in one go, please. Andre has already spoken about our performance in general terms, and I will now go more in details with the performance for Q4 and the full year 2024. The revenue increased by 5.7% in Q4, measured in constant currencies. Currencies impacted growth positively by 0.3 percentage points, leaving reported revenue growth at 6% for Q4. The growth was driven by continued recovery in the Danish part of the Group that grew revenue by 5.3%, driven by a 9.2% increase in the Public segment, while the Private segment was on level with the same quarter last year. And once again, Netcompany-Intrasoft continued the strong performance and realized 10.6% revenue growth in the fourth quarter. The growth was driven by both the public and the EU segment that grew 9.6% and the Private segment that grew 14% compared to the same quarter last year. Also, the Netherlands continued the strong performance from previous quarters and grew revenue by 14.7% in the fourth quarter. In Norway, revenue declined 3.9% due to the decrease in revenue in the Private segment. In the U.K., revenue declined 7.3% compared to the same period last year as the stagnation in public spending continued into Q4 and led to lower-than-anticipated activity levels. Can we move to the next slide, please? Group revenue grew 7.4% in constant currencies full year 2024. Total license revenue accounted for 1% of Group revenue in 2024, in line with 2023. As we discussed in connection with our Q3 earnings, the sales opportunities with embedded license revenues, which potentially could have been closed in Q4 were all pushed into 2025, of which some have already been executed in January. And none of the sales opportunities discussed in connection with Q3 with embedded license revenues have been lost. Group revenue growth was slightly offset by the performance in the U.K., where the public segment was negatively impacted by a slower-than-anticipated ramp-up on a large strategic project following the standstill in public spending after the general election in July 2024. We would naturally like to see these projects being pushed forward again, and we start to see signs that this is actually happening. Revenue in the Public segment, including the EU, grew by 9.4% in 2024, driven by growth in Netcompany-Intrasoft in Denmark, the Netherlands and Norway. Growth in Netcompany-Intrasoft was supported by the ongoing cooperation with TAXUD and the European Commission and growth in the Public segment in Greece spurred by funding under Resilience and Recovery Facility, the RRF. The Public segment in Denmark was positively impacted by increased tender activity compared to 2023. In the Netherlands and Norway, growth was driven by new contract wins and farming with existing customers. In the Private segment, revenue grew by 3.8% in '24, mainly driven by growth in Denmark, supported by our go-to-market strategy and continued pipeline conversion. The contract won with Forca will be supportive of the continued growth in the Private segment in Denmark in 2025 and onwards. And can we have the next slide, please? Gross profit margin in Q4 was 29.5% and on par with the same quarter last year. The margin was positively impacted by DKK 17.7 million more in license revenue in the quarter compared to the same quarter last year, but offset by a decrease in gross profit in Denmark, U.K. and Norway. The lower margin in Norway was caused by increased time spent on business development and tender activities, leading to wins such as Munich Airport and Forca, which Andre has already mentioned. Margins in Netcompany-Intrasoft increased by 5.5 percentage points, driven by better utilization and project execution and a higher amount of license revenue. Gross profit margin in the U.K. decreased by 1.4 percentage points in the quarter and the lower activity level in the U.K. administration led to lower utilization. In addition, a number of employees were made redundant in the U.K. in Q4. Margin in Norway decreased by 8.8 percentage points in Q4 compared to the same quarter last year due to increased time spent on business development during the quarter. In the Netherlands, margin increased 7.7 percentage points and reached 37.9% in Q4. The increased margin in the Netherlands was a result of significantly better project execution. Can we have the next slide, please? For the full year, gross profit margin for the Group reached 29.6%, an increase of 1.3 percentage points compared to last year. The improvement was a result of recovery in the Danish part of the Group and improved performances in Netcompany-Intrasoft, the Netherlands and Norway. Gross profit margin declined in the U.K. as a consequence of continued time spent on business development, lower utilization and around DKK 17 million spent on severance costs during the year. Adjusting for the severance cost, gross profit margin in the U.K. would have been 22% compared to the 19.3% shown here. And can we move to the next slide, please? Adjusted EBITDA margin was 17.1% in Q4 '24 for the Group. Improvement was driven by significant improvements in Netcompany-Intrasoft and the Netherlands. EBITDA margin in Denmark was 21.6% compared to 22.4% in Q4 last year. The decrease in margin was a result of the development in gross profit, as mentioned. Netcompany-Intrasoft margin increased 5.6 percentage points, positively impacted by better gross profits, of which a part was related to higher license income. Adjusted for the increase in license, margin still improved by more than 1.1 percentage point, underlining the continued focus on margin improvement initiatives taken throughout the Group. EBITDA margin in the U.K. was 9.4%. Margin was negatively impacted by the DKK 10 million spend on severance costs in the quarter. Adjusting for this, EBITDA margin would have been 16.6% in Q4. In Norway, margin was negatively -- was negative 2.8% due to a decline in gross profit. In the Netherlands, margin improved significantly by 10.3 percentage points to 23.8% in Q4. The improvement was a result of better utilization and the improvement already mentioned in gross profit. Can we have the next slide, please? Adjusted EBITDA margin increased 2.2 percentage points to 17.7% in full 2024 compared to 15.5% in 2023. The increase in adjusted EBITDA margin was driven by improved utilization in Denmark, Netcompany-Intrasoft, the Netherlands and Norway and supported by continued focus on margin expanding activities in the Group, which meant that administrative costs did not increase in monetary terms despite a 7.6% growth in revenue. Can we have the next slide, please? We have continued our focus on working capital. And as a percentage of revenue, the combined work in progress, prebilled invoices and trade receivables was 27.8% in 2024 compared to 32.3% in 2023. This development was driven by 2 factors. One factor is a significant increase in prebilled invoices in Q4 2024, which increased by DKK 260 million. The amount of prebilling of customers can vary from year-to-year depending on the individual contracts. Another factor was the level of trade receivables that only increased by DKK 20 million despite corresponding revenues growing by close to DKK 0.5 billion. In particular, towards the end of the year, a number of significant projects met certain milestones criterias for invoicing and subsequently collection of the receivables, supporting the extraordinary strong free cash flow in Q4 and all of 2024. Can we go to the next slide, please? For the year, we have generated our best-ever free cash flow of DKK 821 million, driven by, as mentioned, improved performance and the development in working capital. As a matter of fact, our free cash flow in Q4 2024 alone was of the same magnitude as free cash flow for all of 2023. We ended the year with DKK 251 million of cash at hand, and our leverage has come down to 1.2x, giving us strong balance sheet momentum into 2025. Consequently, our cash conversion ratio increased from 135% in 2023 to 147% in 2024. During the year, we have initiated share buybacks for DKK 800 million, and we plan to cancel 2.5 million shares at the upcoming AGM, reducing our outstanding capital by 5%. We remain committed to our target of distribution of DKK 2 billion of cash to shareholders by the end of 2026. But due to ongoing advanced strategic considerations, we will not initiate a new share buyback program at this particular point in time. Can we have the next slide, please? Revenue visibility for 2025 is DKK 4.9 billion, which is unchanged compared to 2024. This implies a revenue visibility of 69.6% of the guided revenue midpoint for 2025 compared to 74.4% at the same time last year. However, revenue visibility at the beginning of 2024 was impacted by a higher proportion of long-term revenue signed than normally and historical revenue visibility at the beginning of the year has fluctuated between 63.4% and 74.4% of the guided revenue midpoint, meaning that revenue visibility into 2025 is at normal levels. It was the visibility looking into 2024 that was of extraordinary high level. And with that, we've concluded the financial analysis, and we will now open up the call for questions. So if you move to the Q&A slide, please, and open up the call.

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

I've got a few to start off, if I can. First one, I think you slightly highlighted, Thomas, but if I look at Q4 on the Private segment side, lower in, I guess, all of the regions apart from Intrasoft. If we think about the broader IT services sector in Europe. Some of the vendors were, I guess, talking about a bit of incremental weakness in Q3, Q4. In terms of your own performance, when you look at the Q4 in Private segment, how much of that, I guess, is contract timing versus maybe that broader theme of private sector weakness late last year and maybe into the start of 2025? Secondly, just on the U.K. in terms of how you've structured your 2025 guidance, I know you won't speak to a specific country in terms of numbers. But I guess what sort of assumptions are you making there now on the ramp-up of the DALAS contract? Is that second half that you're expecting or maybe even later? And then lastly, just on 2025, you mentioned the 1 point headwind to growth from the divestment of, I think it's Intrasoft's MEA activities. I'm guessing that's not high-margin work. So I guess within the margin guidance, is there a small benefit from that divestment?

Yes. Thank you, George. Thank you for those questions. When it comes to the private sector, there's a lot of timing into that. As you probably also noticed, we've won considerable private deals as well, also especially in the FSI sector in Denmark. There's no doubt that we are strong in public sector across our country, especially because we're doing tax and customs and some of the airports are also public services. But when it comes down to whether it's public or private, we are solely concentrated on delivering high complex solutions to regulated areas. Whether that goes into public or private containers is not of that big of importance, but I know from a reporting point of view, you always look at the trends. But basically, we're doing the same thing across those 2 sectors. When it comes to the U.K., well, we are patient in the U.K. It's been a tough year in the U.K. in general, also if you look at our direct competitors. However, we have some real strategic customers at hand, we have great dialogues, we have good pipeline, and we also have some framework contracts that we need to materialize on. So we just keep on working on that, and we are confident that, that will change. I mean, the development in the U.K. will change. And when it comes to the divestment of Intrasoft activities, I think I will leave that question to you, Thomas, but it's not a huge part, and it's not very high margin contributing either.

It's -- when you look at the 1% that we are divesting, which then have a negative impact on our revenue guidance of 5% to 10%, if you add that back, it would be 6% to 11%. The impact on margin from Intrasoft is neutral. So if you look at the Group, it is lower margin revenue that we are divesting. You are right in that, George.

The next question is from Poul Jessen from Danske Bank.

I have 2 questions. First, Danish public sector. Could you put a little more color on what's going on because you have throughout the last 3 quarters had a flattish sales, growth year-over-year is coming down despite it was at a very low level Q4 last year. At the same time, you had much higher order intake in public sector Denmark in second half '24. So how should we look at that kind of business into '25? That's the first question.

Thank you, Poul, and it's a great question, by the way. You're absolutely right. I mean, if you look at '24, some of the larger deals were postponed several times during 2024. One of them we actually announced recently, the account infrastructure, the payment financial account infrastructure for Denmark, that's the account NIM [control] that is used to pay out all types of benefits to Danish citizens. So I mean that is a very good example of something that just took much longer time. So for all -- everything considered, we're definitely coming into '25 with a strong setup for the public sector in Denmark because it came in quite late in '24. So you have a point there. There's a high order intake, and we expect that to continue over the next quarter as well. There's a lot of decisions to be made in the public sector.

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

Yes. Well, I mean, let me just underline that our M&A strategy is absolutely unchanged. We do not work with ERP systems. Our potential transaction would focus on a target with significant IP or products and include a base of large sticky customers with one of the specific verticals that we work and focus on. So the strategy is absolutely not changed, and we do not work with the ERP systems.

Next up, we have Yiwei Zhou from SEB.

I have 3 questions. I'll do one at a time. Firstly, you mentioned that the Q4 margin in Denmark was -- or the revenue was impacted by the increased business development and tender writing activities. Is it possible for you to quantify a bit on the impact? And should we expect this to continue to be also a dilutive effect in the coming quarter?

Question, Yiwei, we cannot give specific insight into how much we have spent on the activities. But we have seen a much higher proportion of business development, which is also sales-related activities in Q4. And the reason for that is twofold, both in terms of higher level of activities on public tenders, as Andre has already alluded to in terms of the significant amount of tenders in the public sector that we are working on right now, which is then supposed to give impact from 2025. And then on the contract that we signed with Forca, which is in the Private segment, the sales activities vis-a-vis such a large private customer is a little bit different than writing tenders in the public space. So with this specific sales case, which is Forca, we spent a quite significant amount of sales resources, which means people basically contracting, making sure that all things are good with the customer in Q4. And those 2 factors had a toll on our revenue in the Danish business in Q4 and hence, also on margin in Q4 in Denmark.

Great. Very helpful. And my next question is on Intrasoft margin development, which looks quite positive here. And I recall that in the 2026 20% EBITDA margin target, you actually quantified that what you expected that -- and given the development in 2024 and also the outlook for 2025, do you still see that sort of lever, that driver was too conservative or it is still in line with your expectation?

Thank you, Yiwei. I will not answer directly, which you probably also had guessed. But what we can say on margin development in Intrasoft is that we are very satisfied with that, and it gives us strong comfort in the reiteration of the 2026 margin target of at least 20%.

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

Thank you for that. I mean, we are -- I understand the lack of patience with particular contracts. However, the DALAS is a framework contract and it is actually covering a lot of areas. It can change in nature. It has been postponed in some areas, and we also have other contracts that are important here. So what we are looking at and which I can talk about is overall, we have some great framework contracts in the U.K., including the DALAS contract, and we just need to see them materialize where we have no significant news in terms of that happening in specific speeds or specific timing areas.

And further to that, Yiwei, we see no indications at all that the DALAS framework or the specific contracts within are being canceled. No indications of that whatsoever.

And how about the -- is there any risk of changing the contract value? Because I understand it's a framework agreement, but I also recall that you have got the firm project and the firm contract for less specific...

And also no indication of any changes to the contract value.

The next question is Claus Almer from Nordea.

Also a few questions from my side, and I'll take them one by one. So the first is about this possible transaction. Could you give some color on the possible timing? And I know, obviously, this is difficult, but is it Q1, is the first half or what is the best guess? That will be the first one.

Thank you, Claus. Well, we cannot be specific on that. And I guess you already knew I would say that, but we are in serious conversations and discussing this in great detail.

I'm just trying. But do you think it will be first half? Or do we have to wait for this throughout this year?

And again, I can only repeat what I said. We are in serious conversations.

Fair enough. It was worth trying, at least, Andre. My second question goes to the revenue visibility for 2025, which is around flattish year-over-year. And I know last year that DALAS was probably part of your expectation for '24. So first of all, how does DALAS reflect in the '25 revenue visibility? And then the second part of that question is, with a flattish revenue visibility, then obviously, your order intake really needs to improve to meet the revenue guidance. So where do you see the biggest potentials within your different regions?

So on revenue visibility and the impact of DALAS, it's fair to say that the visibility we have on DALAS and the amount we have taken into the visibility is lower than what we had in our visibility in 2024. And that is a reflection of the uncertainty. So DALAS is in revenue visibility, but not at a firm amount at this point in time, which we expect it to materialize into during the year. When it comes to orders signed and the revenue visibility towards the midpoint, we do have signed a significant amount of orders in January, and those will be supportive of our targets both in terms of Public and in terms of Private segments. So those contracts signed in January are in general terms, not included in the revenue visibility, and they are significant, and you've seen a number of them already. So taking that into consideration, we are comfortable with the guidance range that we've given on top line also.

Sure. Just to be sure, so DALAS is, to some extent, included in '25 revenue visibility, but then you said something not firm, but you need to put in a specific number, I guess, in the revenue visibility?

We have put in a number in the revenue visibility. And that number I'm not disclosing, but we have put in a number in the revenue visibility. And given the fact that things are delayed and taking longer time compared to what we thought of when we initially signed the DALAS framework, that amount is lower than the same amount in the 2024 revenue visibility.

Fair enough. And then just to -- so it's flattish and revenue visibility is the best guess for revenue growth, I assume. So when do you think we will have a revenue visibility growth that is supporting the full year guidance? Would that be Q1? Or do we have to wait a bit later to see all orders firming up?

No, I think without going into specific details as to what we expect of revenue visibility in Q1, 2, 3 and the end of the year, we do expect it to firm up. In terms of the best proxy and how we look at revenue, revenue visibility is one aspect of it. Another aspect which we are not disclosing, but what we are using internally is, of course, our pipeline and our ability to convert pipeline cases here off also larger pipeline cases into contracts. And what we have seen towards the second half of 2024 and what we expect to continue to see into 2025 is that an amount of those very large-scale contracts that we've been working on, no secret for quite a long time, for instance, the contract with Munich Airport, the contract with Forca selling the SOLON TAX case to Greece, they are part of the pipeline, which you normally don't have insight into, and they are materializing. And that is really what is driving also our top line. And in terms of pipeline, we are comfortable looking into 2025 and onwards.

The next one in the queue is Harry Read from Redburn Atlantic.

I just wanted to square some comments made by a competitor in the U.K. public sector on budget. Obviously, there's a large allocation to U.K. public sector for IT given the tech that was incurred, especially in the NHS. It was suggested by them the unlocking of that budget and being allocated might take a clearing event such as the spring budget. I'm just interested in your conversations with clients, whether there is a kind of impetus or there needs to be a catalyst event to drive the unlocking of this work and get it done or if there's something different that's restricting the deployment of those budgets and work?

Thank you for that question, Harry. We have -- as I said before, we have several contracts in the U.K. that we are looking on with great interest. One of them is also the work we do with NHS. We have no particular singular events affecting our overall projections for the year. I think we are -- in general, we have a position where we have been patient for a while, but we expect growth to happen in the U.K., and we also see that across our contracts.

And the next question is from Aditya Buddhavarapu from Bank of America.

Just a few from me. Could you comment on the Avinor contract? Any color you can give on the timing of the ramp-up there? What is the contribution of that in 2024? That's the first question. Second, what is the impact from the [indiscernible] divestment of the 2024 revenues? And finally, on free cash flow, I know you had a very significant inflow in Q4. Was some of that maybe a pull forward or anything from Q1? How should we just think about the free cash flow evolution during 2025?

Thank you for those questions. The first one, when it comes to Avinor, things are going as expected. We have a great relationship with Avinor and we're doing a lot of great stuff together. So that contract is moving on and we have great expectations for continuing that relationship and growing the contract even further. But coming into details of how fast we're going to ramp it up, I cannot do that on this call, but things are moving on as planned.

And then for the next couple of questions on the divestment of the nonstrategic businesses of Intrasoft Middle East, Africa. I hear your question as to what was that amount in 2024 revenue. Well, the impact for '25 is around 1 percentage point or so for the Group, which means that the revenue in 2025 was in the area of DKK 60 million, DKK 70 million. We were, during the year in process of divesting these areas, which also meant that there's been potential new sales in those regions that we have not pursued. And I cannot quantify the amount of that, but there has been cases that we've not pursued because we knew that we would divest the areas anyway. As for cash flow, cash flow is strong in Q4, absolutely. There are also various impacts in Q1 that will support a continued strong cash flow. But I'm not going to comment on cash flow on a quarterly basis at this particular point in time.

And maybe just a quick follow-up on the strategic consideration. I know you're not going to talk about the timing, et cetera. But could you just remind us again the sort of financial criteria you would look at? And also, I guess, how you think about leverage in that scenario because you're also still committing to the DKK 2 billion of cash return. So could you just comment on the criteria and the leverage in that context?

Well, as you know, our criteria and our strategy for M&A has changed 3 years ago. We bought up companies with a lot of people in them or smaller companies with people that we had to change to become a company culture. That has changed, especially with the Intrasoft acquisition. We're now buying and acquiring companies that have a significant IP or products or platforms within a vertical where we can come in. So what we are acquiring is customers, ongoing relationships and business going on with customers in a very business-critical specific area. And that is exactly what we are continuously looking on to do also in the future years. So -- and when it comes down to the leverage of it, Thomas?

Leverage, we've said and we maintain that medium, longer term, a leverage target of around 1, maybe a little bit below is where we want to be. We have various opportunities within our existing financing agreement to go above the current level of 1.2 and also above 2 if we seek and if we think that is necessary. So a transaction per se would potentially impact the leverage short term, which would not be a hindrance to our target of redistributing the DKK 2 billion in cash.

The next question is from Daniel Djurberg from Handelsbanken.

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

No worries. When it comes to Norway, you're absolutely right, it's a framework agreement. So basically, when it comes to executing upon agreements such like that over time can vary. And it depends very much on the specific resources needed by the customer at specific times. There's no secret that ramp-up has been going on slower than we anticipated in '24. However, we are picking up and we expect '25 to reach the levels that we expected in '24 and continue from there. So it will materialize, and we will see the positive effect of that. And when it comes to comparing that with Germany and Lithuania, that's -- these are very difficult -- these are very different wins. Germany and Lithuania are systems that need to be delivered in a specific amount of time, and they also include license fees and services. So they're not framework agreements in the same way and will be materializing with much more certainty.

Specifically, on Norway in Q4, there were a higher proportion of business development activities than at the same quarter last year. So that's why you see the drop mainly on margin. For the full year, utilization has improved. But Q4 against Q4, it was slightly negatively impacted by a higher amount of forward-looking activities, namely business development.

Okay. That's good. And may I also ask you on -- you touched a point before here on the possible strategic move delaying buybacks or -- and not ERP companies it seems to be. But can you say anything if it's correlated to your recent market entries, I guess you would be needed to be quite larger in Munich area, for example, or if it's -- or that is totally out of the question?

I'm sorry, Daniel, but we cannot really comment on where it is and the nature of it at this particular point of time.

That's fair enough. Fair enough. I was only curious. And the last question, if I may, would be on the U.K. workforce dedicated to the DALAS framework, given lower visibility and some kind of rightsizing, I guess, we saw in Q4. Is that fully behind? Or should we expect further more cautiousness and rightsizing in that frame agreement in Q1...

That is done. And if you look at the client-facing FTEs in the U.K., that has dropped from 629 in Q3 -- in Q4 '23 to 554 in Q4, which also have this negative impact on margin due to severance cost.

[Operator Instructions] We have a follow-up from Yiwei Zhou from SEB Bank.

I have 2 follow-up questions here. Firstly, I just want to ask about the M&A consideration. I understand that you focus on the same verticals. Could you remind us the main criteria in your due diligence for M&A transaction? I just want to know if you would be looking to integrate it? And also if you can comment a bit on the potential margin impact that happens?

Yes. Great questions, Yiwei, and relevant questions. And the answer to that, I'm sorry, is going to be an echo of what Andre has already said a couple of times, and that is that we cannot go into detailed comments on that. What we can say is that our M&A strategy is clear. We are focusing on acquisitions that will add significant IP or products with customer base that are based on large sticky customers in verticals that we find strategic important and where we see substantial growth. So that's really all we can say at this point in time. But I do understand your question.

All right. Fair enough. And then on Norway, I just want to follow up on the business development activities. Could you maybe add a bit more color on if you're talking about public or private sector? Or is it one contract or several contracts?

No, that's broad-based without being more specific, but that's broad-based, so both public and private.

And the next question is from Mads Quistgaard from Carnegie Investment Bank.

I have 3, and I will take them one by one. So first, coming back to revenue visibility, obviously, in line with previous years. But can you just remind me, at least in my time covering Netcompany, I don't recall as strong month as this month where you have signed a large amount of flagship contracts. So is it fair to assume that, yes, the revenue visibility is stable compared to previous years, but you have signed a number of contracts, framework contracts also in this month, which will obviously have a significant impact coming into Q1?

Correct?

Correct.

Absolutely correct.

All right. Then my second question is on Intrasoft because if I look at the backlog cover, not only for this year, but also what is it, the next 6 to 7 years, I see that the backlog cover is flattish year-over-year. So I know you gave the growth guidance back in -- by the end of '23, where you say 5% to 10% annual growth in Intrasoft. But why is it that Intrasoft shouldn't be able to grow in line with last year, given that the backlog cover is somewhat unchanged year-over-year?

Growth in one year and Intrasoft's backlog, which is multiyear, 6, 7 years are 2 different creatures, Mads. And you will also recall that the significant increase in backlog that has happened in Intrasoft over the last couple of years have been supported by a number of wins that has been under this so-called RRF, so the EU money, if you so will. That has always been and we planned for that has been a time box, if you so will, initiative. And based on that, we grew revenue in 2023 in the public sector by more than 50%, and we also saw significant growth in 2024. Now we cannot continue to grow 50% on RRF, which is basically an absolute amount of money. So that's why the backlog is not seeing the same increase. But that is not necessarily the same to say that there's a one-to-one correlation between what revenue growth will then be in Intrasoft in 2025 and 2026. It's more the outer years that we're talking about here.

Makes sense. But we agreed that there will be a new financial package to replace RRF, right? Is it in one or two years' time that Greece will also be allocated a new fair amount of money from the European institution. Is that correct?

That's at least the expectations, but let's -- we'll take that when it comes, Mads, but that's the expectation at this point in time, yes.

Okay. And then my final question is on license sales. So obviously, you're not guiding on license sales for this year, but you have a pretty good insight into the pipeline as you mentioned before, Thomas. So what should we expect for license sales for this year given the current pipeline?

So we have no comment on the expectation to licenses. What we can see in 2024 is that the expectation from the market was license revenue of around DKK 100 million to DKK 120 million, and we did DKK 60 million to DKK 65 million, which is the single one explanation of the lower than consensus revenue and margin because there's a one-to-one dribble down from license to EBITDA for 2024 and also 2025. So no specific guidance on license revenue in 2025. Clearly, off to a strong start with, for instance, the signature on the Greek contract with SOLON and also some other contracts in other jurisdictions. So we're off to a good start.

As no one else has lined up for questions at this moment, I will hand it back to Andre for any closing remarks.

Well, thank you all for joining in at the call, and have a great day.