Welcome to Netcompany Interim Report for the first nine months of 2023 Conference Call. Today's call is being recorded. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. To ask a question, please press five star on your telephone keypad. I would like to introduce your speakers, CEO André Rogaczewski and CFO Thomas Johansen. Please begin. Good day, and welcome to this presentation of Netcompany's results for Q3 2023. My name is André Rogaczewski, and I'm the CEO and co-founder of Netcompany. I'm joined today by our CFO, Thomas Johansen. Before we get going, there are some important disclosures that I need you to read through. So could we please have slide number 2, please? I will pause for 30 seconds here and let you all have a read-through of these important disclosures. With that, can we please go to slide number 3, please? The topic of today's presentation is our performance for Q3. I will walk you through the business highlights for the third quarter of the year, and I will also go through our financial guidance for 2023, where we narrow our expectations as we are now 9 months through the year. Once I'm done, Thomas will go through the numbers in greater detail before we open the call for questions. Can we have the next slide, please? We grew revenue in Q3 with 9.2% in constant currencies, all organic. Currency fluctuations impacted revenue growth negative with 0.8 percentage points, leaving reported revenue growth at 8.4%. Gross profit in Q3 decreased by 14.6%, yielding a gross profit margin of 27.5%, which was 7.4 percentage points lower than the same period last year. The main reduction in the group margin is a result of lower gross profit in the Danish and Norwegian business. Adjusted EBITDA margin was consequently also lower in Q3 2023, compared to the same period last year. We added 720 full-time employees when comparing to the same quarter last year, bringing total FTEs to 7,760, an increase of 10.2%. Can we have the next slide, please? We have won a number of new contracts during the third quarter of the year, of which I am mentioning a few here. In Denmark, we've been selected by the Danish Business Authority to develop and maintain 4 critical systems, including the Central Business Register. In Norway, we have been selected as vendor for framework consultancy for Allente, where we will provide maintenance and support lead of their critical service platform. And I'm also glad that I now can put names on the 2 U.K. contracts we announced in connection with Q2, the NHS mentioned on this slide. If I can have the next slide, please, I'll put some more words on the DALAS framework contracts we have been selected for. So, slide number six, please. In the U.K., we've been selected as supplier on the Crown Commercial Service DALAS Framework Agreement, where we, among five other vendors, have been selected for the Lot 2a, focusing on large-scale digital integration and development services for the HMRC. The contract period for the DALAS framework is four years, and we expect to be well-positioned for the tenders with our products and platforms portfolio. The first contracts are expected to be tendered during the month of December, which also means that revenue from the DALAS framework will impact from 2024 and onwards. I cannot stress the importance of this framework enough for future development in the U.K. market. Not only is the DALAS framework the largest ever in the U.K., we are also selected for the part of DALAS together with large multinational professional service companies like Accenture, Capgemini, IBM, and CGI, which is a clear indication of the development we have been undertaking in the U.K. in the past couple of years. And can we have the next slide, please? In Netcompany-Intrasoft, we have also signed a number of new contracts in the third quarter of the year, of which we have highlighted some here. A couple of the contracts were won with the government of Greece, one being the complete modernization of the Greek National Organization for the Provision of Health Services, the EOPYY. The project includes a brand-new citizen benefit system, new and advanced electronic services for healthcare providers and citizens, and a real-time claims approval system. This project is funded by the RRF. Furthermore, Netcompany-Intrasoft was awarded a 4-year contract in the European Union for the layout and graphic design services for the European Border and Coast Guard Agency, Frontex. Can we have the next slide, please? The transition into a European IT service provider is continuing into Q3, and we continue seeing double-digit employee growth in our business units outside Denmark. In Netcompany-Intrasoft, employee growth was 12%, and in the Netherlands and U.K., employee growth was 27% and 20%, respectively. Churn for the last 12 months is in line with historic levels at 18%, which is 8% lower than for the same period last year. In addition, decomposition of churn has changed, so that the proposition of involuntary churn has increased from zero in 2022 to a level more in line with historical levels now. 3-month rolling churn rates have increased in all entities apart from Greece during Q3. Can we have slide 9, please? We have delivered a satisfactory Q3 result despite uncertain market conditions. For the first nine months of the year, we have realized growth of 12.8% measured in local currency, currencies, and a margin of 14.6%. Despite the strong revenue growth in the first nine months, we still see uncertainty in the remainder of 2023 as prolonged decision-taking related to pipeline cases in the Danish private segment has continued into Q3 and is expected to impact full year results negatively. Therefore, we narrow our expectations to revenue growth and now expect growth to be between 8% and 10%, and we expect margin to be realized in the lower end of the guided range, guided range of 15%-18%, both within original guided target ranges. With that, I will pass on the word to Thomas, who will give you a more detailed view on the financial performance in Q3. Thomas, please go ahead. Thank you for that, André, and like mentioned already, I am the CFO in Netcompany, and I will now go more into details with the financial performance for Q3 2023. So if we move past the break, breaking slide number 10 and straight into slide number 11 in one go, please. André has already spoken to our performance in general terms, and I will now go more in details with the performance in Q3 2023. Revenue growth for Q3 was 9.2%, measured in constant currencies, and currencies impacted growth negatively by 0.8 percentage point, leaving reported revenue growth at 8.4%, mainly as the Norwegian kroner has depreciated during the quarter. All units outside Denmark delivered growth in Q3, and while we are still realizing the negative impact on growth from prolonged conversion time of pipeline cases in the private sector in Denmark, we are satisfied with the international growth throughout the group. The public sector in Denmark was in line with Q3 last year, and the private segment declined 12.6% as a result of the prolonged decision processes. In addition to the soft performance in the private segment, the third quarter had one working day less compared to Q3 2022. This fact impacted revenue growth negative by 1.5 percentage point in Denmark. Netcompany-Intrasoft continued the strong first half of the year and realized 28.3% revenue growth in the third quarter. The growth was broad-based and driven by strong performance in both the EU, the public and the private segment. In the U.K., revenue grew 22% compared to the same period last year and thereby continued its strong growth momentum. We expect the strong growth to continue and to be further enhanced as contracts within the DALAS framework will start to come into tender and be realized during 2024. Growth in Norway was 7.3%. As in Denmark, Norway also experienced prolonged decision-taking time due to the uncertain macroeconomic environment. Growth in the Netherlands was 44.5% in the third quarter. The growth in the Netherlands was driven by strong performance in the public sector. Can we have the next slide, please? Gross profit margin decreased by 7.6 percentage points in Q3 compared to last year, which, however, was an improvement sequentially from Q2 into Q3 of 0.5 percentage point. The decline, the decline was mainly caused by the lower margin in Denmark and in the U.K. and Norway. The lower margin in Denmark was to some extent caused by the change in the churn composition, as there was a higher proportion of involuntary churn in Q3 2023 compared to the same period last year. However, the main negative factor impacting gross profit margin was the continued prolonged conversion time of pipeline on new projects in the private segment, which led to lower growth in Q3 and impacted gross profit margin, as utilization in the quarter was lower than in Q3 2022. However, compared to the previous quarter, the gross profit margin in Denmark increased from 24% to 40.3% sequentially into Q3, which shows the impact of the right sizing of the pyramid and reducing the bench in the Danish operation. These actions, the right sizing of the pyramid and reduction of the bench, will continue as part of the day-to-day management of the operation. Margins in Netcompany-Intrasoft declined by 2.4 percentage points as a result of different revenue mix compared to Q3 2022, where the proportion of licensed revenue was nil. Was nil in 2023, compared to DKK 7 million in Q3 2022. In the U.K., margin was 21.8%, compared to 26.7% 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 and other larger pipeline cases. Tender writing activities in the U.K. is going to be at a higher level in Q4 and Q1 as well, as we start to tender for the actual projects under the DALAS Framework.... Margin in Norway was 4.5%, compared to 16.4% in Q3 2022. The decrease was a result of low utilization in the Norwegian business, as Norway has also experienced prolonged decision-taking time, as was the case in Denmark. In the Netherlands, margin increased 4.1 percentage point and reached 25.5% in Q3. The increased margin in the Netherlands was a result of better project execution and better pricing on new projects, compared to the legacy portfolio of projects that have now been completed. And can we have the next slide, please? Adjusted EBITDA margin was 15.8% and up 1.9 percentage points sequentially compared to Q2 2023. Adjusting for the impact of one working day less for the entire group, margin would have been 1.3 percentage point better at 17.1%. The decrease in EBITDA margin in Denmark was a result of the lower activity in the private segment and the one working day less compared to last year. Netcompany-Intrasoft margin decreased by 1.8 percentage point, driven by the lower gross profit margin, as already discussed. Margin in the U.K. decreased by 5.3 percentage point, mainly driven by the lower gross profit margin. In Norway, margin declined as a result of the low utilization, also discussed already. In the Netherlands, continued to see improved margin, improved significantly by 10.9 percentage point and ended at 7.9% in the quarter, due to better utilization and improvement in gross profit margin. And can we have the next slide, please? Work in progress increased by 21.2% in Q3, compared to revenue growth of 8.4% in the quarter, and revenue growth of 16.2% for the last twelve months. The increase was mainly driven by increased work in progress in Netcompany-Intrasoft, as we have continued to win more and more projects funded under the RRF. These projects have a much longer, quote-unquote, "duration" in work in progress, which is typically nine months before they are invoiced and subsequently paid. So while this impacts working capital negative in 2023, it is a timing impact, and it will be fully remunerated for these projects under the RRF. Supporting this matter is the payment received in September for one project under the RRF of EUR 9.5 million, which was paid less than 14 days after the invoice was raised. Can we go to the next slide, please? Free cash flow was DKK 100.4 million in Q3, compared to DKK 221.5 million last year. The decrease in free cash flow was a result of lower EBITDA and the development in working capital changes in Q3 2023, mainly driven by a reduction of other creditors and the increase in work in progress related to Netcompany-Intrasoft. Cash flow from investing activities was impacted by the investment in Festina Finance of DKK 106 million Danish. Leverage, measured against last twelve-month EBITDA, was reduced to 1.6 times, and we find ourselves on the right track towards our midterm targets for 2026. Free cash flow generated in Q4 will be used to deleverage further. Can we have the next slide, please? Even though the level of uncertainty remains high in 2023, we continue to see a satisfactory level of visibility for our revenue, which is highlighted here. At the beginning of October, revenue visibility was close to DKK 5.9 billion, which was 10.8% higher than at the same time last year. With that, I have concluded the detailed financial walkthrough, and we now open up the call for questions. If we move to the Q&A slide, please, and open up for questions. Thank you. Thank you. To ask a question, please press five star on your telephone keypad. To withdraw yourself from the queue, please press five star again. We will have a brief pause while questions are being registered. The first question is from George Webb, Morgan Stanley. Please go ahead. Your line will now be unmuted. Hi, morning, André and Thomas. I've got three questions to kick off with, please. Firstly, on the updated guidance, more on the revenue side. Given you're running at, what? 12.8% constant currency growth at the nine-month stage, even to get to 10% growth seems to imply low single digit in Q4. I know Intrasoft has a tough comp, but curious as to why you've kept 8% on the table. That seems unrealistically low. Is there a real scenario where you could come out at the low end of the revenue guide, particularly as you are talking about a slightly better pipeline conversion, potentially from Q4 onwards? Secondly, just taking a step back, margins in 2023 likely to be down 400 or maybe 500 basis points on last year. Can you remind us on why you're so confident to get back above 20% in the midterm, particularly given you're now going to be at the lower end of this year's range? And then finally, just on license sales, I think at Q2, we talked about potential for some of those to come in during Q3 or Q4 if they didn't slip. Doesn't look like there was so much license sales in Q3, so wondering if that's still some confidence in Q4, what the outlook there looks like. Thank you. Thanks for the questions, George, and good morning to you also. So on the first question as to, what can, what can happen to go to, the bottom end of the, of, of the revised, guidance of 8%-10%. Some of it has to do with, your third question in terms of, licenses. It is absolutely true, as you state, that the, we have no licenses in Q3, and we do have some licenses that we, expect to, realize in Q4. With licenses, it is always this matter that even though we think that they are on track, and they are, if they are postponed, then they have a fairly big impact, of course, when in the quarter that they were supposed to fall in. So, the 8% and the bottom of the range has to do with the risk if everything comes to a halt and we sign no licenses and we see no conversion of the pipeline in the Danish private segment in Q4. So, a fairly dark scenario, you could say. On the question in terms of what makes us comfortable for the midterm financial targets as when it comes to margin, despite the margin drop that we've had this year, what is important for us is that the vast majority of the margin decline in 2023 has to do with basically lower utilization. Low utilization coming from it takes longer time to convert our pipeline cases. It takes a little bit of time to adjust, as we say, the right sizing of the pyramid. But once we are through with that, then the mechanics of a professional services company is that when you are running at low utilization and you start to realize sales again, then the initial part of that sales revenue generated will be delivered on already existing staff. Which means that the first part of revenue growth will be on a one-to-one, ripple effect down to, down to profits. And that is also what we saw, for instance, in the U.K. in 2022, where the U.K. grew revenue of around 30%, but only grew FTEs at 15%. And that was not because we increased prices in the U.K. by 15%, that was because utilization increased. So, what is going to drive up margin is the impacts of right sizing of the pyramid, which we start to see already now in Q3, sequentially from Q2 in Denmark, and then high utilization. And then, as you asked, and then I answered on the first question on the, on the license, we still have license that we expect to realize in Q4. Some of it could have happened in Q3, but it didn't, so now it's in Q4. Absolutely clear. Thank you. Maybe just one question coming on to, coming on to Norway. I mean, the financial performance in Norway, mostly from a margin perspective, hasn't been particularly, I guess, exciting for quite a long time. And I know you've tried to do things internally around resource sharing and the likes. I mean, is there anything structurally you need to do to the Norwegian business to get it sustainably, at least in... I know the macro is tough, but to get it sustainably in a better position than it is now, is that something you're looking at? Well, I don't think we need to do anything structurally in the Norwegian business. Actually, it's the same case as in Denmark. We just need to convert some of that pipeline, and we do have people there ready to undertake complex projects because over the last three years, they've been practicing that. So, no, we are actually ready in Norway when we get more work to do. And also, of course, right sizing the pyramid. We will also look at that continuously, depending on how the financial and economical environment develops. Understood. Thank you very much, Mike. The next question is from Claus Almer, Nordea. Please go ahead. Your line will now be unmuted. Thank you. Also a few questions from my side, I will do them one by one. T he first one is given the performance in this quarter, maybe also the full year, 2023 or nine months, this year, when you look at the falling margins, does that make any changes to your strategy and your cost planning? That would be my first question. We adjust our cost base on an ongoing basis, Claus. You can also see, for instance, admin cost coming, being slimmed somewhat. The main cost we have still is employees, that is what? 80-85% of all cost. It is really coming back to this quote-unquote "right sizing of the pyramid." You start to see the impact of that in the numbers. It does take some time before it's really out of the numbers. But sequentially, if you look at the FTE growth for instance in Denmark from Q2 to Q3, then you start to see that the FTE growth in the group is not really generated in Denmark. It is generated outside. So we are adjusting our structure all the time compared to what we expect for top-line activity. When it comes to the overall strategy, Claus, and thank you for that question, then there will be no changes. We are constantly working towards getting bigger and larger engagements, both in the private and public sector, and reusing all our experiences, methodology, and platforms as much as possible in order to get us an effective delivery as possible. If we look outside of Denmark, going into a new market and being relevant and chosen into those framework agreements, that's the first priority that we have. And then when we get in there, we will deliver reusing our platforms and skill sets, and hopefully bringing margins up gradually over time, delivering on reusing our experiences. So that's the same strategy that it's been for quite a while. But this reusing the components and the platforms, do we see that in the numbers in the third quarter? Or when should we start to see this, you could call it a profitability leverage, or it's just being passed through to the client, getting the product cheaper? Well, it's not in the numbers in Q3. It is something that we start to see from 2024 and onwards. Part of the benefit we will share with our clients so that they will experience faster time to market, lower total cost of ownership, which we believe will put us in a better position to win large-scale projects. And part of it, we will contain within Netcompany Group and pass on to the shareholders. But that is something which will start to be more visible in the numbers from 2024 and onwards towards our midterm financial guidance, as previously mentioned. Okay. This may be a question regarding the private sector in Denmark down by 12% in the quarter, and you now talk about a more optimism and a better conversion of the pipeline. So what is actually these potential clients saying? Why would they, in Q4, start these projects? Why not in Q2, why not in Q3, and maybe a higher likelihood of recession is in front of us? So maybe a little bit more flavor to this pipeline conversion would be very helpful. So it's a good question there, Claus. I mean, there's a big difference between replacing a core system in a large company than just being an in-house consultancy partner, where you buy resources for specific tasks. And if you look at the pipeline in the private sector in Denmark, it really has the character and resemblance of something that is truly business-critical for many of the clients. And we are running through several discovery phases where we are depicting and making more precise what the business benefits will be. And many times, these discovery phases can actually be prolonged and become even more fundament for a longer strategic partnership. So that's really, really normal. The larger and more critical projects are, the bigger decision it is, and the more you have to substantiate everything you do, and that's what happens during these discovery phases. What I'm happy to see is that we are actually involved in many more of these types of discovery phases than we've ever been before. But of course, we also need to see some of these things convert into and to be realized into large-scale work, which we are hoping for in Q4, Q1. Further to that, Claus, we are starting to see some of those projects actually being begun. So we have started on some of those projects that we had in pipeline, both in Q2 and also starting Q3. They are beginning to start up. Well, I totally understand that now things may take longer, et cetera, et cetera. But we talk about the revenue being down 12% in the quarter, year-over-year. And I think in the past, you have explained this prolonged decision phase due to risk or uncertainty about the macro situation. And, yeah, I guess, macro outlook, it does not look more certain today than it did one or two quarters ago. So more trying to figure out why is it now that these clients or the companies are deciding to push the button and move forward? Well, generally believe that there's been a shift over the last year in the way that you've been looking at digitization and technology in some of the big enterprise companies. It is absolutely true that the outlooks, financial outlooks now are probably not more certain than they were two or three quarters ago. But many companies have been taking this as an opportunity to really rethink their technical fundamentals and to replace legacy system and also to open up for the possibility of using AI in the future. And that has caused many enterprise companies to start and embark on analysis phases where they actually turn every stone and look into what are they actually structurally gonna do differently than they've been doing for years. And these are the places that you want to be. This is where you want to be a part of that, that, those decisions. And that can actually bring you on a journey with these customers for not only one or two years, but like five or seven years, where you replace the most important systems. So I think, yes, technologically, technological development, but also financial uncertainty, has actually pushed some companies in to look into their structural costs in terms of IT and how to use IT to rationalize and become much more effective. It's not all companies, but it's, it, it's definitely a, a, a proportion of large enterprise companies that are, will go that way. And I'm happy to say that we are very well positioned, where that happens. Okay, thanks for that. That was all from my side. Thanks, Lars. Next up, we have Poul Jessen from Danske Bank. Please go ahead. Your line will now be unmuted. Yes, thank you. Just to follow up on customs, moving to the public sector, in Denmark, there has been more or less nothing going on this year in tenders. How are you looking at that going forward? Do you see it now starting to move from the fourth quarter and, especially into 2024? Or what are you being told by both company and the state here? Yeah, well, public sector, you got three main components, when it comes to, revenue in public sector, for us. And one is, of course, ongoing farming with existing customers, where you, bottom-up drive, revenue up by just being there, helping with various tasks. The second one is legislative changes, on existing larger, systems. And the third one is the one you're mentioning, when you have, big tenders coming up. When you take them one at a time, we've been pretty good at farming. 2023 was a good result of a kind of continuous farming, and you're absolutely right, that the big tenders have been postponed or not even put into place. Also, the new government had to find its feet to stand on when, in terms of what to do with digitization. There will be a new digitization strategy published in one or two weeks. There will be legislative changes in 2024, we know that, in some of the various areas where we are present, and there will also be larger tenders in 2024. But I think we'll see those materialize in the second half of 2024. So, to answer your question, is the public sector gonna be a standstill sector in 2024? I don't think so. We will see growth in the public sector, but the exact timing of it is probably gonna be depending on how these three components vary in terms of each other. But there will be growth in the public sector in Denmark in 2024 compared to 2023. Okay, and then also on the platforms you have, can you say something about both what's going on on the customs side across Europe? I think you have a lot of tenders out there you've been into now, U.K. and Austria, and also on the AirHart, what's happening there? Sure. So when it comes to the custom software, where we are primarily using the products that were originally constructed by their company, Intrasoft, we see an ongoing and positive development in the pipeline build. More and more countries are either postponing their existing plans and looking into standard software, which is great. As you said, U.K. is a very good example of how those products can be used, but also we see positive developments in Netherlands and in other countries. So, that's great, and I think in general terms, the EU prolonging some of its deadlines actually brings us into play, because countries are not necessarily delivering what they're supposed to as fast as they're supposed to, and then they turn to look into how can they just acquire this as a combination of software products and consultancy. So we're very well positioned there. And the Austrian example is a good example of us going in somewhere we're actually not even present physically and still being able to deliver it as a combination of a delivery from three different offices in their company. When it comes to AirHart and the whole airport software, it is well, the Copenhagen Airport system is now into full production. It has been used as a demo site. Anyone can come here and look at it, and it's quite impressive what's going on there. We have a growing pipeline, and we expect to convert some of that soon. This again is a very good example of something that is absolutely strategic for any airport. It is a heart surgery of an airport. And it's always a question of when going up, when you're going up some stairs and you start losing your breath, when is it time to actually shift that heart? And I think we are in a very good position in many airports. There's a lot of constructive dialogues going on, and I can't go into more detail than that, but it's a positive development. Okay, thanks. About customs, when you say prolonging deadlines, what are the deadlines now? Well, many countries now have been prolonging their internal deliveries, and right now, the deadline has been pushed into 2025. It's been pushed one year, Poul? End of 2025. Yeah. Yeah. Okay, and a final one about the guidance on the margin of 15%-18%. And you say then, low end, why you're not then lowering it to 15%-16.5 or something? Why are you keeping the high end? I don't think that we are keeping the high end. I think we say deliberately in the low end, so the low end is not 18, huh? So the low end is in the low end of the range table. So I don't think that we're keeping the high end. No, no, but why not narrow it then in- Yeah, we've chosen to guide for this way. Other companies might choose to do it in another way, but we've chosen this way. Okay. Thank you. You're welcome. Next up, we have Yiwei Zhou from SEB. Please go ahead, your line will now be unmuted. Hi, André and Thomas, thank you for taking my question. I also have a couple of questions, and I'll do one at a time. And firstly, a question back to Denmark. And it seems that it, the demand side is still a bit uncertain. But then I can see your client-facing FTE still grew, like, 5% in Q3. And how should we understand it's still growing, if despite you are also doing the right sizing at the same time? So if you assume, like, flat to revenue decline in Q4 in Denmark, does it mean sort of you will still have quite a lot of margin dilution from the low utilization in Q4? I think when we look at the client-facing FTEs, it's also important to look at it on a sequential basis. Because when you look at it on a sequential basis and not quarter-over-quarter, then you get the impact from right sizing of the pyramid. And if you look sequentially, from Q2 into Q3, you'll see that the FTE, client-facing FTEs for the Danish operation is not growing a lot. So, the impacts of the right sizing is starting to be shown in the numbers. And that, of course, will have an effect also going into Q4 way. Okay. Clear. I just also want to follow up, Claus and Poul's question here, the public tender. I remember last quarter you mentioned that, the expectation was some of the, public tender would be materialized, before the year end. And I understand—If I understand correctly, so some of those large tenders have been postponed to, second half of 2024. Could you, confirm? I think what we can say in terms of public tender, and the public tender that we have discussed previously that potentially could have come out in Q4, was specifically related to the re-tender of the student administration system that is going to be re-retendered. When that decision was taken, I think it was in April or May that the project would be canceled, and it would be retendered. There could have been an anticipation that that would have come in Q4. Now, they're still working on the retender material, so that is gonna come out sometime in the early part of 2024. So that was the one that we were basically referring to as something that could come out in Q4, 2023. Now looking more towards the first part of 2024. The remaining part of the public tender, as Andre was also alluding to, is coming out. Some is coming out in the first half of the year, some is coming out in the second half of the year. It all comes down to the digitalization initiative that's going to be presented by the government in the next 1-2 weeks, in terms of what's going to happen and how fast is that going to happen. So we'll wait and see on that way as to when it comes. Certain things can come in the first half, for sure, also the student administration, and then certain will come in the second half. Great. Very clear. And my next question is regarding the Festina investment. What do you expect it to contribute? I know it's not a consolidated, but I understand if it was another company consultant to deliver the project, and you will still benefit it from top line, organic top-line growth. Could you please add some color on the pipeline, et cetera? So, the pipeline on Festina Finance, which is the, I think, the investment you are referring to, way is looking good and strong. That is mainly then, of course, in the private sector in Denmark, which is good because that's where we need some more pipeline to convert. We have a couple of cases that have a conversion time experience to be fairly, fairly near, I would say. So there are certain cases that we are working on together with Festina Finance, that will converge, and that will give revenue on the consultants that are working on them. That will also be 2024 and 2025. And that will be both in Denmark, but also in other countries in Europe. Okay. Just want to follow up on this. So when you book the financial effect, so there will be organic revenue from the implementation work, and then you will have 20% of the licensing income booked below the EBITDA line? Correct. Is that right? Absolutely true. Yes. Correct. Okay, great. Great. And what size of this project are you talking about? That varies a lot, depending on the size of the customer. Some of the projects that are right now being implemented, especially ones in the Netherlands, with APG and AZL, they are big in size. They're big in size because they're big projects. APG is the largest life pension fund in Europe, EUR 640 billion asset under management. To implement a system of records for their life pension scheme to be compliant with new Dutch legislation being put in place by 2027. It's a huge project. So right now, that is mostly being done by Festina Finance themselves. We'll gradually help them to do that. The AZL project, right now, is being staffed by consultants from Accenture, and then we'll look how we can change that also. So the projects, by nature, will be large, and big, and take a long time. Okay, very clear. Last question, if I'm allowed, regarding the cost per classified FTE for Denmark. If I calculate it right, it is increased by 6% in Q3, if you compare to last year, Q3 last year. And then there has been sort of decline trend on this per person hour metrics, for some quarters. Could you a little bit of color on the change, why has been increasing here? There's some- Is there any sort of cost inflation? There's some ups and downs, quarter to quarter. It's always dangerous to compare one specific quarter with another specific quarter. Better to look at last 12 months against last 12 month. We do have, in terms of right-sizing the pyramid, some people that we say goodbye to, and that has a little bit of a cost and the likes. There's nothing imminent in terms of large salary increases per se in Q3, which would yank it up. In Q3 last year, there were also some other impacts to cost that actually reduced the cost a little bit in Q3 last year. Okay. Yeah. Thank you very much. I jump back to the queue. Thank you. The next question is from Gianmarco Conti, Deutsche Bank. Please go ahead. Your line will now be unmuted. Morning. Yeah, thanks for taking the questions. I have two on the DALAS framework, and then I'll ask a follow-up. So my first question is on the DALAS framework indeed. Given the higher tender writing activities are causing margins to fall from low utilization rates, should we expect this trend to continue in Q1 of next year? Will there be more tender writing activities that might reduce utilization rates ahead of Q4, specifically relating to DALAS? And my second question is: How does the chargeable rates of the DALAS projects compare to the baseline of projects in the U.K.? Could you give us a sense of whether there is added pricing or a premium, given the complexity nature of the projects in DALAS? Thank you. Yeah, great questions, Gianmarco. Difficult for us to be very specific on, not because we don't have an opinion on it, but the first question has to do with 2024 guidance, which is a little bit premature. So, we're not going to be able to have any firm comment on what's going to happen on utilization in 2024, in Q1, Q2 in the U.K., because that has, of course, and then talking into 2024. We will see, though, some business development or some tender writing activities, but there are also other things that can impact 2024. In terms of rates under the DALAS framework, we still lack to see the actual tenders coming out, the ones that we're going to win and ride on. So, that we will have to come back to. Of course, the logic is that if we do large-scale fixed-fee implementation projects, also under the DALAS framework, then margins will be better. But we'll have to see how the tenders are structured before we can be more on- more certain on that, unfortunately. So I know I didn't really answer your question. No, that's okay. So maybe changing subject for the follow-up. On the margins for Intrasoft, I understand that licensing caused a tough comp, but when should we expect margins here to pick up to a similar baseline as either the group, or the U.K., or Denmark? I mean, of course, Denmark is gonna be a tough one, but even just like close to where the U.K. is standing would be a good start to see. And then when do you plan on reducing the contractors' headcount? Maybe in 2024, or is that going to be pushed back even further? Yeah, big question. In Intrasoft, there are more than 600 contractors, and they are by legal requirements and written into the contract with the European Union. So, that is something which is not really something that is easily changed. We will expect margins to continue to improve in Intrasoft. There are various elements that will have an impact on that in 2024 and onwards. But the big lift up towards, for instance, U.K. margin level or the like, is going to be a gradual improvement over the years to come. That's what we've said all along with our acquisition of Intrasoft. We don't have any magic bullet that can just help us increase margin by 5 percentage point in 1 year. But we will continue to see improvement year-over-year as we do more and more fixed-fee projects as we do more and more of the projects delivered with our own employees. And, and that, of course, will have an impact on margin, and I'll just leave it at that. Okay, just one last one. All things equal, given that there are two additional working days in 2024, should this have an impact on margins? I know you can't give us guidance. I'm not asking for guidance, 'cause I'm starting to understand that there's quite a strong correlation with high number of working days to margins. So if you can make any comments around that, that'd be great. Thank you. Well, that's easy, because that's just yes. So, that's a yes, Gianmarco. That's an easy one. Yes, there will be. Thank you. You're welcome. Next up, we have Aditya Buddhavarapu, Bank of America. Please go ahead. Your line will now be unmuted. Hi, thanks for taking my questions. Firstly, on the margin, just to clarify, I think something said earlier on, on Denmark. Did you say there's going to be more right-sizing, in Q4 as well? And so would that have some more impact on the margins? Because, earlier I thought right-sizing would largely be done by Q3. So that's the, that's the first question. Second, are there any other large tenders similar to DALAS, which you think might impact your cash levels in, Q4 or even in 2024, not just in the U.K., but across your, different markets? And then finally, if you go back to your midterm targets, implies about roughly 11% organic growth. Now, this year, you're going to do something between—in your guidance between 8-10, clearly implies acceleration over the next few years. W hat gives you confidence on that? Is it in the pipeline or maybe just the overall demand environment improving? Just get a sense of what drives that acceleration. Okay. I'll take the first question, Aditya, and then I, André will talk to other tenders, and then we talk about the midterm targets in the end. The reason why we've singled out the impact on margin on right-sizing of the pyramid, especially in Q1 and Q2, is that we didn't do it to the same extent last year. So 2022 was, in many aspects, a different year. We had high churn, and the most of the churn was voluntary, meaning that people were leaving us due to the hot labor market where especially IT services professionals were in high demand. Not so much right now, and probably even less in 2024, looking at the overall labor market. So what, what has happened in 2023 is that we've had a, a quote, unquote, "catch up," if you so will, in terms of right-sizing and managing the pyramid, which we've done in 2023. So that means that we have, we've managed the, involuntary churn more, to a higher level than we did in 2022, which is why there is this, margin impact. It's an ongoing operational thing for Netcompany all the time to manage, our, our pyramid. So we just want to, to highlight that, and that's why we mention it. So, so just because we go into Q4, that doesn't mean that we are stopping looking at how does the pyramid structure look. But the relative impact to margin will not be of a magnitude where we will continue to explain margin dilution with that element. So that's the reason why we phrase it the way we do. When it comes to the tenders, the reason why we are mentioning DALAS specifically is because it's one of the largest tenders in the U.K. as such, also for the public sector. Being a part of that framework agreement also means that we will, in the quarters to come, we'll bid on different things there, and of course, we'll be using spending activity on that, on that as such. But overall, structurally, we will not be doing more tender work than we usually do, which will still be the same proportion of what we normally do. The reason why we are mentioning DALAS here is because this is a breakthrough in the U.K. market, and we will be spending, in the near future, more time on getting into that framework and actually materializing it. Yes. And then finally, on the midterm targets, the revised, if you so will, or the narrowed guidance of DKK 8-10 billion instead of DKK 8-12 billion for revenue will have no impact on our ability to reach our midterm targets by 2026, where we've said that we aim to do at least DKK 8.5 billion in revenue, at least 20% margin, and in the period to 2026 to redistribute DKK 2 billion to shareholders, mainly in terms of share buyback. So, performance in 2023 is still supportive of that, irrespective of the fact that we've narrowed the guided range. Got it. Maybe just two quick follow-ups. If you continue to see the private sector remaining weaker in Denmark, do you think there's more right-sizing of the pyramid that needs to be done outside of just the normal activity you would do? Or put another way, are you now happy with the shape of that pyramid, assuming demand doesn't deteriorate further? And to just, again, going back to the DALAS contract, I know it's difficult to predict the timing of those tenders, but anything you can say on just the phasing of that during the year first half, second half, trying to think about when those revenues start to come in. When it comes to the private sector outlook in Denmark and whether we continue right-sizing, we will always, we will always right-size, and it's gonna be a continuous thing to do, looking into how many people... Of course, there's always a lag in time, depending on how situations develop. But we've done a good deal of right-sizing in 2023, and in a very good position, and we have a positive outlook in the pipeline. When it comes to the timing of the public tenders themselves, we've already mentioned that materializing specifically the DALAS framework will take some time. It will happen during 2024. We expect the first initiatives in terms of tenders within the Lot 2a to come to market sometime during December and into January. So that's when things starts to unlock, if you so will, Aditya. All right, great. Thanks a lot. The next question is from Harry Read, Redburn Atlantic. Please go ahead. Your line will now be unmuted. Hi, good morning, guys. Just two from me. It seems that Netherlands has reached profitability, a bit ahead of expectations on previous commentary. Should we expect that going forward, that now we've reached a level where we can expect kind of consistent profitability? Or will there be fluctuations within the cycle and some unprofitable quarters? That's the first one. And the second one is that, it looks like there's a bit of a theme of guidance being downgraded in the last quarter before the financial year end. Just wondering if the visibility in the business improves as some of the smaller divisions start to scale up towards Denmark and growth rates start to normalize. That'd be great. Thank you. Okay. So just to do your first question, and I think, Thomas, you can do the second one. But the Netherlands, the short answer is yes. So we have more the right people there. We've right-sized the company. We have been positioned into the public sector, both in some of our traditional areas, less customs, tax and customs, but also with our solutions into case management. So that, the short answer is yes. And when it comes to the second question? In terms of visibility and how we look at Q4, it's clear with the narrowing of the range on top line, it fits with what we see in the pipeline and in the conversion of the pipeline. So on that, we are close to the end of the year, Harry, and we feel comfortable with the range that we are setting out. Brilliant. Thank you. You're welcome. Up next, we have Mads Quistgaard from Carnegie Investment Bank. Please go ahead. Your line will now be unmuted. Thank you for taking my questions. I will take them one by one. So first, on the free cash flow, which have been a topic in the quarter. So it would be nice to have some comments around free cash flow for the fourth quarter, and also expectations for the coming year, given what you see in the Danish business segment against Intrasoft and so on. Thank you. Sure. And cash flow for third quarter and year to date is lower than what we anticipated at the beginning of the year, and that is due to a combination of performance and revenue mix. And revenue mix has a toll on working capital, especially because we are basically substituting revenue in the private sector in Denmark with revenue generated under the RRF in Intrasoft. That has a longer duration, as I mentioned, in work in progress, which means that our working capital is negatively impacted there from that. Working capital, oh, sorry, work in progress in Intrasoft has increased around DKK 300 million, mainly driven by RRF projects. Of course, that has a toll on free cash flow, and that's also what you can see in free cash flow compared to last year. It is mainly a timing, so we'll start to see some of that being unlocked into 2024. I'm not going to give any specific guidance into what we expect for cash flow for 2024 or for Q4, for that matter, as that would be too specific at this point in time, Mads. But we are starting to see some of the work in progress that we have clocked up in RRFs to be materialized in invoicing and also in cash, as we saw in September, where we had EUR 9.5 million invoiced and paid as one of the RRF projects. So thank you. Then a question on license sales. So, in the previous quarter, you stated that you expect 1% of full year sales to be license sales. If I take the midpoint range full-year guidance, it translate into DKK 60 million for the year. Nine months, you have DKK 40 million booked, so should we expect DKK 20 million in the fourth quarter? It's difficult to argue with your logic. So the answer is yes. That's the logic of it, huh? And then it can be as always, with licenses, it's these things that are really binary. And if they're signed at the end of December or if they're signed at the beginning of January, it doesn't really have any impact on the long term for the business. But of course, it has an impact on Q4 versus Q1. But our expectation is still around 1%, yes. Okay, perfect. Then on the private sector in Denmark. I t's great to hear that you're starting to convert some of the projects in the pipeline, but you're also executing on existing projects. So I'm just trying to figure out what is sort of the order intake compared to what is leaving your books, because I guess most of what you do in the private sector is time and material. So could you put some words around how to think overall on the private sector, not only the pipeline, but also what you're executing and what you put into your order books? Yeah, that's more difficult for us to answer, because tenders in the private sector is not widely known and available. We actually do have a good part of the revenue generated in the private sector in Denmark that is fixed fee or fixed fee-like, but the tenders are not really known to everybody, and therefore, it's also something that we cannot comment on in details. Not like in the public sector, where you can look it up in the TED database, and then you can see it, huh? That's not how it is in the private sector. So we'll have to be a little more muted on that, Mads. We still see a backlog of contracts in the private sector, and we also have some of them being renewed and also some of them to be renewed in Q4, and we're on good track on that. But the in/out that you're asking for, I'm sorry, I cannot give you. That's fair. Then maybe on the public sector, because what is leaving the books in the fourth quarter and in the first quarter next year? Because I guess we have two quarters which given the pipeline, also will remain somewhat flattish in terms of revenue. So could you put some words around the public sector in Denmark then? Yeah, without going in specifics as to in, out in Q4, because then I'm guiding in Q4, which would be premature, compared to where we are now, just discussing Q3. But of course, you know the numbers, and what the- what we're delivering on. As André say, we're still doing quite a lot of farming in existing public tender or public clients. And the farming part is typically something that you don't see in the big tenders, because they are awarded on existing frameworks. They are awarded with budgets being flushed out for the year. So we do have some of that also in Q4. Perfect. My final question is on the capital allocation, because you announced a big share buyback program on the Capital Markets Day. But in the meantime, we have seen interest rates, which have increased a lot. So what is your focus between your... And what is coming around the share buyback program and also the financial costs you have today? So we are using free cash flow in Q4 to deleverage even further. The interest rates that we see on our funding is still stable compared to where it was at the Q2. So all other things equal, and with the current level of capitalization and moving towards a target of a leverage of one by end of 2026, we would most likely expect to see some sort of initiation of share buybacks sometime during 2024. Whether that's gonna be in the first half or second half is difficult for us to say right now, but of course, it also has to do with how things are developing, which is really difficult to predict these times. But I think there's a general consensus and expectation that interest levels are at the top end of the range right now, especially looking into the European Bank, with their latest statement coming out. And you see inflation in Euroland coming down also. So we'll see into 2024 how that pans out, Mads. Very clear. Thank you, Thomas, André. Thanks, Mads. The next question is from Orson Rout, Barclays. Please go ahead. Your line will now be unmuted. Hi, André and Thomas. Thanks for letting me on. Orson Rout here from Barclays. First one is just on Denmark and sort of the medium-term implications, because the -5% obviously are further worsening and worse than, than sort of we were expecting, and I think than sort of expectations the company were going into the year as well. And it's not only private, we've now seen public also go to, to 0% growth. So thinking about sort of the medium-term targets, where do you think sustainable growth level for, for Denmark can be coming out of this recession? Is it sort of mid-single digit growth, or do you still hope to be able to grow higher than mid-single digit in Denmark? And if so, where does the growth delta come from, from -5% to, say, high single digit growth in that region? That's the first one. Then the second one... Do you want me to take one by one, is that easier? Yeah, one by one, thanks, Orson. I'll answer the first question there. So, generally, we don't guide for revenue expectations on a country-by-country basis. And, we've also been explicit on that when we did our Capital Markets Day. Now, of course, clearly, as Denmark is still 45% of revenue in the group, and it will take some time before that comes down significantly, then the pure math of it is that it's going to be hard to get to where we want to be by 2026 if there's no growth in Denmark, simply because of the large impact that the Danish business has still in the group. So we do expect growth in Denmark, and we also expect growth, which is more than 2 percentage point, just to say a number. But I'm not gonna give you how much we then expect that to grow, because then we end up guiding on a country-by-country basis, which is what we are not doing. But we do expect the growth to come back in Denmark. It's gonna be both in the private sector, it's also gonna be in the public sector. And like André said earlier on, 2023 has been a fairly, quote, unquote, "meager year" in terms of new, large tenders. It is expected that new projects will come out in the public sector, both in terms of within the defense area, within the personal taxation. We see the student grant administration system come back into tender. So we will expect to see public sector grow again, going forward. And I'll just leave it at that. Okay, that's helpful already. The second one is just on margin development, with a lot of focus, obviously, on the call having been on sort of utilization, right, sizing of the pyramid, which we knew going into the year, and which you sort of guided, guided on quite clearly. Was just wondering if anything in Q3 and perhaps Q2 panned out worse than you'd expect in terms of margin development, going into the year, because actually top line's been quite solid, and understand the mix effect interest after is obviously impacting the sort of margin. But was wondering whether in terms of competition and perhaps pricing pressure, this is also something that you're increasingly seeing in this macro environment, and whether there's any margin impact from that? Thank you. No, I see. I think when it comes to pricing, we don't see any structural change in there. I mean, we need to be competitive, of course, and using our platforms, we are competitive also in a functional and business kind of way. But we don't see any increasing price pressure structurally right now across margin or across markets. I think it's probably fair to assume also that looking into when we started 2023, and when we did the budget for 2023, we would not have budgeted for negative growth in the private sector in Denmark, for sure, right? Now, the group as such is fairing what we would label as satisfactory. We see strong growth in the international part, which is then covering for the lack of growth in the private sector in Denmark, which is the weak or the soft point in the report. On balance, we take comfort in the fact that we are actually growing, and we're one of the fast- one of the companies in Europe that is showing growth. But the mix has changed, so that, of course, has a toll on margin. And we are working on a day-to-day basis operationally to make sure that we do everything that we can do to change that going forward. And we are starting to see the impacts of that already. Okay, helpful. Perhaps one final one just on free cash flow. It sounded on the question before as if you're somewhat stepping away from the prior guidance, that you're expecting absolute year-on-year growth in free cash flow. Was just wondering, and I know you're not gonna guide into 2024, but if you could give some color regarding this ongoing drop drag from the mix shift, because obviously, the RRF contribution should continue to sort of grow into next year, I'd expect. So is it right to think of this mix shift being a ongoing drag on free cash flow all else equal? So, first of all we didn't guide on free cash flow for 2023. It's correct that we've said, when asked, what do we expect in terms of free cash flow generated, that at the beginning of the year, where revenue mix was different, we would expect to generate, on a nominal term, same cash flow or even better than 2022, but we never guided on it, as a strict guidance, per se. Going into 2024, the mix impact would most likely be less than it has been in 2023. And the reason why the mix impact has been so big in 2023 is that the lack of revenue generated in the public sector... Oh, sorry, in the private sector in Denmark, has been more than covered for by the revenue generated under the RRF in Greece. Now, we would not expect the same mixed delta, if you so will, in 2024, and hence the tying up of working capital into work in progress in Greece under the RRF would be relatively smaller in 2024 than in 2023. Okay, great. But just to be crystal clear, you're no longer expecting year-on-year free cash flow growth for 2023. Is that correct? Yeah, that's correct. We, we don't expect Free Cash Flow in 2023 to be higher than it was in 2022. That's, that is correct. Yes. Okay, great. Thank you. Finally, we have a follow-up from Mads Quistgaard from Carnegie. Please go ahead. Your line will now be unmuted. Yeah, thank you. I just have one question left. So looking at the revenue visibility for Intrasoft, it looks extremely strong for the fourth quarter. Have you seen any signs of market slowdown for Intrasoft, or is it, is this one of the segments where you feel extremely confident that you will see strong performance over the coming months as well? We will see strong performance, and much of what we're seeing is long-term engagements in projects. So yes, we will see a strong continuous development. Yeah. And on that note, the Greek economy is faring pretty well. Greece, as a country, was recently upgraded to investment grade, which of course is great for Greece and as a result of all the changes they've done after the big financial issues they had back in 2012. So, the private sector in Greece is stacking up very strongly, so is the public with all the funding from the RRF. If you look away from licensed sales, what would sort of drive the operational leverage in Intrasoft? Well, that's what we've discussed sometimes, and also as we discussed at the Capital Markets Day. So that is more joint projects together with the Netcompany core. So more of these projects within customs, where we sell the license and implement together. It is the increased use of our own employee base rather than externals. And then continued delivery using Netcompany methodology as we grow closer and closer. So it's a combination of those three things, but since it's a big operation, it does take some time. Then, maybe to rephrase my question: so of your backlog today, which is extremely strong in Intrasoft, how much of these projects will be based on a Netcompany methodology or will be based on joint projects between Netcompany and Intrasoft and so on? As of now, the vast majority in Netcompany-Intrasoft still resides within the European Union, so the EU. And on a short-term basis, which means 2024, 2025, that is mainly being delivered by Netcompany-Intrasoft. The projects under the RRF in Greece are mainly being delivered by Netcompany-Intrasoft because they're in Greek, and even though our methodology is fairly unique, it's difficult for Danish people to work in Greek projects simply because of the language. There are more and more projects coming into the backlog, which are based on joint projects. The Austrian project for customs is one example. The work that we do together with our friends in Holland is another example, and we do more and more of those. That will increase, without giving you a specific percentage match, but it is increasing. That was perfect. Thank you. You're welcome. As there are no further questions, I will hand it back to the speakers for any closing remarks. Okay. Thank you, everyone. Have a good day. Have a good day.