CAPITAL MARKETS DAY 2019 - Netcompany
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Presenters . Status on strategy Netcompany’s business model Update on the Danish market André Rogaczewski, CEO Claus Jørgensen, COO Gustaf Löfberg, Country Managing Partner, DK Update on the UK market Behind the quarterly numbers Kevin Barrett, Partner, UK Thomas Johansen, CFO Page 2
Agenda of today . Time Page 1 Status on strategy 10:30 – 11:00 5 2 Netcompany´s business model 11:00 – 11:30 15 3 Update on the Danish market 12:30 – 13:15 32 4 Update on the UK market 13:15 – 13:45 47 5 Behind the quarterly numbers 15:00 – 15:30 58 Page 3
Agenda . Time Page 1 Status on strategy 10:30 – 11:00 5 2 Netcompany´s business model 11:00 – 11:30 15 3 Update on the Danish market 12:30 – 13:15 32 4 Update on the UK market 13:15 – 13:45 47 5 Behind the quarterly numbers 15:00 – 15:30 58 Page 4
Investment highlights . Satisfied and recurring customer base Unique scalable business Unique financial model with proven ability profile and multiple growth to deliver levers 19 years track record of Only IT services company in Europe sustainable profitable growth and North America with +EUR 200m Establish Netcompany revenue, +20% growth, +25% EBITA based on continued focus to always deliver as the Northern margin over the last +10 years, European market strong free cashflow and pay-out ratio of above 80% leader in IT services Founder driven Ability to attract with strong vision the best IT talents High growth markets driven by technological shift to strategic IT solutions Core market CAGR 2016-2022 of 10-12% Page 5
Track record of industry-leading growth and sustainable profitability . Revenue growth Reported financials (DKKm) CAGR: 21% CAGR: 23% CAGR: 39% (‘06-’11) (‘11-’15) (‘15-’18) Significant investments in Strong growth and margin despite technology, infrastructure and economic downturn 2.053 public sector expansion 1.416 41% 629 758 900 32% 33% 400 36% 28% 37% 27% 32% 32% 461 26% 24% 27% 35% 205 222 261 18% 127 179 8% 327 28% 25% 25% 22% 24% 21% 17% 15% 18% 15% '06A '07A '08A '09A '10A '11A '12A '13A '14A '15A '16A '17A '18A Revenue (DK)1 NO UK Adjusted EBITA-margin Organic Growth Challenger National champion Northern EU challenger Page 6
Netcompany today – 10 offices with +2000 IT people in six countries . Vietnam Ho Chi Minh, VN 5 (Emp. 92) Oslo, NO 4 (Emp. 184) Aalborg, DK 3 Copenhagen, DK Leeds, UK Aarhus, DK 3 1 (Emp. 1.235) 5 Derby, UK 5 2 Warsaw, PL 5 2 (Emp. 224) London, UK Delft, NL (Emp. 363) (Emp. 105) Proven capability of scaling Netcompany from ~250 in 2010 to +2,000 employees globally in 2019 Note 1: Average number of employees in Q1 2019, including freelancers and contractors Page 7
Netcompany’s core offering is to develop and deliver innovative and differentiated IT solutions . Gartner’s pace layered approach reflects the shift in spending focus from Innovation records to innovation and differentiation • Experimental solutions with continuous short iterations to test new ideas • At the forefront of each new technological wave 15-20% Innovation ‘16-’22 CAGR 1 Differentiation • Differentiating systems to give organisations competitive Differentiation 8-12% strategic advantage with tailored solutions ‘16-’22 CAGR 1 • Added complexity and governance compared to innovative solutions due to strategic importance, but still with need for agility to keep in front 0-4% Records Records ‘16-’22 CAGR 1 • Commodity (one size fits all) • Processes such as accounting that do not provide a competitive advantage and should be bought as standardised, not tailored solutions 2016 2022 Note 1: Based on company market study, core market growth in Denmark Source: Netcompany, Gartner, company market study Page 8
Netcompany directly impacts the life of Danish citizens across their lifecycle . - SELECTED EXAMPLES - From the birth of over everyone’s first day in ensuring the financing to people’s everyday life until the golden age the digital citizen school of the Danish welfare society Family benefits AULA Student Platform BORGER.DK Social Pension ICI - ATP - - KOMBIT - - Agency for Digitisation - - ATP - - Ministry of Taxation - Paying out DKK17bn yearly in child Giving teachers and parents the Single access point for all Paying out DKK120bn yearly in Collecting public debt to the and youth benefits tools to develop government self services for all state pension to one million society including income taxes, children's education Danish citizens Danish citizens fees and fines Page 9
Our core market is large and fast growing with ample room to grow . Records Differentiation Innovation ~8-10% CAGR1 ~9-11% CAGR1 ~7-9% CAGR1 ~8-10% CAGR1 Core market (’16-’22E) Core market (’16-’22E) Core market (’16-’22E) Core market (’16-’22E) ’16 - ’22 ’16 - ’22 ’16 - ’22 ’16 - ’22 CAGR CAGR CAGR ~ DKK119bn CAGR ~ DKK21bn ~ DKK13bn ~ DKK63bn 14-20% 15-20% 15-20% ~ DKK77bn 15-20% ~ DKK12bn ~ DKK7bn ~ DKK36bn 7-11% 8-12% 8-12% 8-12% 0-4% 0-4% 1-5% 0-4% '16A '22F '16A '22F '16A '22F '16A '22F Market ~ 10% Market ~ 2% Market < 1% Market < 1% share2 share2 share2 share3 Note 1: Core market: Public Sector: Central Government, KOMBIT and larger municipals; Private Sector: Medium and large companies with strategic focus on digitisation and complex projects that require sophisticated IT capabilities; 2: Based on core market definition and Gartner approach, as of 2016 Page 10
Strategy 2022: Establish Netcompany as an emerging Northern European market leader . Set the standard for IT services and establish Netcompany as the Mission & ambition Northern European market leader in IT services Gain market share Export business model Utilise synergies and cross selling • Deliver on time, on budget and in agreed • Continue export of business model in • Exploit sector specific knowledge across quality Vietnam, the Netherlands and the UK (fully borders • Focus on complex projects requiring implemented in Norway) • Optimise staffing of projects independent of sophisticated IT capabilities • Expand into other Northern European geographical presence by focusing on • Grow faster than the market in all countries, e.g. Sweden and Finland outcome based projects geographies • Explore greenfield possibilities in selected markets Strategic initiatives Outstanding talent Differentiated management model Unique, agile, deliverable-driven & career development model & integrated sales approach methodology & toolkit Preserve the Netcompany culture How we win Continue advancing Continue to contribute to Continue attracting and retaining Top imperatives the digitalisation agenda enhancement of the talent pool the best IT people Page 11
European expansion based on disciplined M&A strategy . Strategic market prioritisation • Adequate digitalisation level with high growth segments • Public digitalisation strategy • Private sector with strategic focus on digitalisation • Attractive competitor landscape 360 degree target screening and due Sweden diligence Finland • Strong IT competencies • Cultural fit Norway • Innovative and strategic mindset • Fundamentally sound business performance UK • Proven track record of winning Denmark tender bids • Founder driven Netherlands • Motivated local leadership Tactical flexibility • Greenfield startup in selected markets • Bolt-on acquisitions in large, existing Netcompany market Strategic priority market markets Page 12 Source: Netcompany
QDelft – the perfect match . QDelft – a perfect key to the Dutch market with demonstrated ability to The Dutch market is highly attractive with key characteristics similar win and deliver large public projects to the Danish market but significantly larger • Delivering complex and business critical IT solutions • IT people leading IT people with strong talent pool • Strategic public project portfolio • Sound business culture • Founder driven • Office on Technical University Delft campus facilitating easy access to talent pool Market size approx. three times the Danish market Key facts Amsterdam, NL 5 • DKK +50m revenue 1 Haag, NL 5 Delft, NL 5 Large public sector with • +20% revenue growth2 focus on digitalisation • +/- +/- 0 EBITA in 2019 1 Strong IT talent pool • Based in Delft • 105 employees Note 1: Expected performance in 2019, source: Netcompany Note 2: Revenue growth from 2017 to 2018, reported numbers Page 13
Agenda . Time Page 1 Status on the strategy 10:30 – 11:00 5 2 Netcompany´s business model 11:00 – 11:30 15 3 Update on the Danish market 12:30 – 13:15 32 4 Update on the UK market 13:15 – 13:45 47 5 Behind the quarterly numbers 15:00 – 15:30 58 Page 14
Netcompany operates its own institutionalised, repeatable and scalable business model . Disruptive management model Outstanding talent & & integrated sales approach career development model SALES & PEOPLE DELIVERY Young workforce with Combined sales & delivery outstanding talent Decentralised management Delivering Merit-based career path digital transformation Effective, lean pyramid IT-people leading IT-people structure EXECUTION Unique, agile, deliverable-driven methodology & toolkit Scalable in-house Truly agile delivery model Execution on time and developed methodology in budget Page 15
Sales & delivery IT People leading IT people - the core of the Netcompany delivery model . 1 2 Accurate pre-selection of Unrivalled understanding of projects assures less resources requirements, ability to being wasted in low communicate solutions and estimate win rates resources needed IT-people leading IT-people ~67% FULL Average win rate Accuracy in over the last 5 years1 Project Setup 3 Delivery on time and on budget with the same team that sold the project (bid team) 100% GREEN Delivery Track Record2 Note 1: Average of 2015-2018. Total value of contracts won as a percentage of total potential value of contracts tendered for in each year; 2: Each project delivered on budget, on time (defined as including up to one month of delay) and within scope (defined as delivery of 12 more than 95% of expected project net present value) Page 16
Sales & delivery Above 90% of senior management are IT professionals – leading IT people . 11% 13% 24% 31% 100% 89% 87% 76% 69% Consultants Senior consultants Managers Principals Partners IT background 1 Other background Note 1: As of Dec-2018: Employees with IT background or significant IT experience Page 17
Sales & delivery Next-gen IT – from specialists to holistic profiles . Old school Next-gen IT skills Holistic consultants with strong IT skills as well as understanding of business and solutions Developer Business Analyst Project Manager: Same profile but more experienced and proven ability to lead Narrow focus specialists No IT skills Code Deploy Plan Operate Project Manager Operation Build Monitor Test Release Through true DevOps Administrator Infrastructure focus Page 18
Sales & delivery IT people leading IT people unlocks unique accuracy and commitment in resource estimation before signing of contract . Resource Estimation Delivery Bottom - Up Approach Top - Down Approach Full accountability, as the same manager is responsible for scoping, resource estimation and delivery Identify and estimate hourly budget Benchmark project team structures of all components of the solution to actual realised similar projects Verify component estimates & Consolidate teams into optimal Fully integrated consolidate into resource estimate organisation and resource estimate Delivery on time bottom-up & top- and on budget down approach Two-way verified solid and committed resource estimate KEY Developers trained in Managers are IT people able to DELIVERY DRIVEN FULL TARGET MARGIN ACHIEVED PRICING ENABLER accurate estimation technically verify all estimates Estimates only done by developers Bottom-up or only done by Managers Top-down will set projects of on unrealistic terms Integrated approach requires special skills with both developers and managers Page 19
Sales & delivery Sourcing model provides flexibility and scalability to support high growth . Access to huge, international resource pool of talented IT …working together across the solution life-cycle people… Resource flexibility through global sourcing A centres Project team setup with local and global delivery B Denmark 1 Vietnam 1 resources 1,235 employees 92 employees 86% >5% freelancers No freelancers UK 1 Poland 1 C All employees covering full life-cycle 363 employees 224 employees 4% 65% contractors No freelancers Norway 1 Sourcing type 184 employees 10% >5% freelancers 3 1 1) Sales 2 2) Project management Netherlands2 3) Delivery 0% 105 employees 0% freelancers Revenue share (Q1 2019) Note 1: Q1 2019 figures Note 2: QDelft, Netherlands. Acquired 13 May 2019 Page 20
People Proven recruitment platform attracting the best IT talents . Netcompany is the employer of choice for talented IT ... supported by strong employer branding graduates... • Netcompany is the #7 choice in the minds of students and improving in • Number of events and related initiatives at or aimed at ranking target universities in 2018 #1 among Danish Student rankings, DK¹ companies (Universum rank, 2015 – 2018 0 7 10 20 15 12 20 35 34 24 19 16 9 15 15 30 2015 2016 2017 2018 Huge available target pool in Denmark 2... ... complemented with global footprint Total students Clear strategy to address key talent Netcompany talent pool available p.a. Master, Diploma ~5,700 and Bachelor IT Total 2.900 Resource pool graduates Experienced ~1,800 IT hires Total 1.300 50,000+ IT graduates annually in Total Danish ~7,500 other core geographies 4.200 Resources Total Note 1: Source; Universumglobal.com/rakings/denmark Note 2: Netcompany, Universum Research Page 21
People Effective recruitment conducted by delivery focused managers or partners . ATTRACT DEVELOP SUSTAIN Stringent hiring criteria defined Fast time-to-hire process Superior offer win rates 30 Top performers in IT or science related degree Dedicated talent screening 1 resources (DK, UK, NO, PL, HIGHEST TECHNICAL STANDARDS VN and NL) ~800 Assessment via case-based interviews conducted by Candidates interviewed in IT people / project managers to assess fit into the 2018 in Denmark 2 model of integrated sales and delivery 75-80% BUSINESS ACCUMEN COMBINED WITH IT SKILLS 48 HOURS Successful offers From interview to offer Personal fit with Netcompany’s performance culture 3 7 DAYS From interview AMBITION TO GROW to contract signing Page 22
People Onboarding process – new hires on project and fully productive from day 1 . ATTRACT DEVELOP SUSTAIN Pre start Month 2-6 Month 2-6 Month 2-6 Month 7-12 Introduction mail/Code of Assignment of Buddy and All new employees are Info Conduct/other intro Mentor welcomed at NC Update Participation in Code of Participation in the first Academy Pluralsight for Non-IT-Profiles Conduct relevant Academy Seminar First project evaluation and Second project evaluation and Development First mentor meeting second mentor meeting third mentor meeting Breakfast with CEO and COO. Management Meeting with Project manager Lunch with Area Director Employer Participation in potential Opportunity to participate in Branding Netcompany events Employer Branding events Survey – Your first week in Survey Survey – Recruitment process Survey – Code of Conduct Netcompany/Your first month in Netcompany Page 23
People Institutionalised career model accelerates development and attracts best IT people . ATTRACT DEVELOP SUSTAIN Netcompany’s career development program offers a With specialisation after initial new-starter level structured career path Consulting Consulting Generalist Consulting Career Architect Specialist Description tracks Partner Consultants Principal Master ▪ New hires start as generalists before specialisation into Architect Specialists 1 & Test either Specialist, Generalist, or Architect consultants Specialists Managing Principal Architect ▪ Technical expertise in the management of technical Manager A Architects architecture and software development B Senior Consultant ▪ Project management, sales, relations, management of B Generalists A C client expectation Senior Architect Senior Specialist 1 C ▪ Development of domain expertise, acquire profound Specialists Consultant & Test Specialist practical knowledge and be a technical programmer Others (not Accelerated career path with large progression visibility ▪ Analysts, Interface or System consultants, etc. illustrated) attracting top performing IT talent Page 24
People High performance culture instilled by continuous feedback from all managers . ATTRACT DEVELOP SUSTAIN Institutionalised and management driven performance review Bi-annual performance scoring of employees based on 5-step banding rank Band Criteria High 1 Top-performers Performance vs. HR 2+ Ahead of expected performance vs. peers peers Cycle 2 On-track performance towards promotion 2- Behind expected performance vs. peers 3s are put on performance watch for 9-12m 3 Consistent 3s result in termination Low 100% of employees are provided with performance feedback Up-or-out culture enhanced within the organisation Note 1: Employees in Denmark, Poland and Norway Page 25
People High employee satisfaction to retain the best people . ATTRACT DEVELOP SUSTAIN Young and highly satisfied Employee NPS score outperforms Attrition rate 1 the tech sector and Europe 2 32 workforce initiates a virtuous AVG. AGE cycle 36% 3 Young and highly satisfied employees are strong promoters amongst top grads 19% 18% 17% 6% Employees are continuously developed by -1% experienced IT people, which accelerates 2016A 2017A 2018A progression and attracts top grads -26% -26% Top performers work within a superior delivery model for complex projects that are highly Technology Telco Europe Global appealing to the top IT grads Note 1: Attrition rate adjusted for the close down of the Hanoi office in Vietnam Note 2: Source; Management Consultancy IP 2014 (out sample of 15,015); Netcompany; Glassdoor; Statista; Company information Page 26 Note 3: 2019 figure. Source; Netcompany
Execution Agile delivery methodology based on scalable project cell structure . IT people leading IT people ...within an agile and collaborative team structure One language across the organisation Deliver large complex projects in sub-projects with small teams developing in sprints • Full accountability and technical ability of each developer • Development in close collaboration with all stakeholders • Resources take holistic view and are retained over the project life-time minimising handovers and ensuring commitment DELIVERY Interdisciplinary • Scaling of projects through additional teams or resources that hit TEAM Teams the ground running with the same background and training • Fully scalable across the organisations at constant quality as all Project projects follow codified methodology that allows managers to example deep-dive and focus on essence rather than style CODIFIED METHODOLOGY DEVELOPMENT model combining Collaborative model with focus Best practice agility and control on TRANSPARENCY TOOLKIT LIBRARY Page 27
Execution Execution approach combining agility and control to deliver on time and budget . DEVELOPMENT Traditional Waterfall Netcompany Agile Development Approach Approach Approach Iterations Define Foundation through Analysis Analysis Build in sprints Design Breaking into releases Test Build in sprints & gather feedback Gather feedback Deploy Test & Deploy to create speed to market Long time to market Agile and collaborative Agile and collaborative Limited agility Continues focus on target Lack of defined solutions No accountability Controlled change process to fulfil customer needs Lack of end focus Lack of budget and scope Late collaboration with client Strong focus on quality and progress monitoring commitment focus Preferred method over last decades – Recent years alternative approach – adopted now generally considered old fashioned but Netcompany combines agility and control, the by many with major issues around lack of still in use at many peers best of two worlds focus and control Page 28
Execution Focus on full internal and external transparency . TRANSPARENCY Very accurate updated project reporting based on real-time Netcompany Client Netcompany Project View developed methodology used throughout the organisation Project View RESOURCE ALLOCATION INTERFACE PROJECT STATUS Consistent and Early review and thorough reporting approval of allows early deliverables detection of ensures alignment deviations and between possibility to adjust Netcompany and before problems AUTOMATED TESTING TRACKING the client arise Real-time data feed 24/7 unfiltered of project status access to project status Page 29
Execution Uniform project documentation in toolkit provides predefined templates and work packages shared between customers and developers . TOOLKIT LIBRARY Deliverables Visualisation Prototypes • Identical set of deliverables driving the Netcompany • Visualisation of the solution is key deliverable, providing easy methodology across all projects access into projects and replacing more complicated design • Clear structure of deliverables to be produced at each stage of a documentation project with approved examples of best project executions • Prototypes start with early sketches of the screens of the system, attached and are then implemented in clickable prototypes that act like • Set of deliverables drive processes ensuring continuous client the end system feedback and serve as end documentation of the process Deliverables: Documents describing different aspects of the system, including design, programming guidelines, test scripts and operations manual Page 30
Agenda . Time Page 1 Status on strategy 10:30 – 11:00 5 2 Netcompany´s business model 11:00 – 11:30 15 3 Update on the Danish market 12:30 – 13:15 32 4 Update on the UK market 13:15 – 13:45 47 5 Behind the quarterly numbers 15:00 – 15:30 58 Page 31
Denmark at a glance . Overview of key people and organisation Key financials 2018 2017 Gustaf Löfberg Country MP Age: 48 NC since inception Revenue 1,544m 1,220m (DKK) Adjusted EBITA 461m 359m 17 ((DKK)¹ partners Share of Aalborg group (Est. ‘10) revenue 1,235 Aarhus FTEs2 (Est. ‘06) Copenhagen (Est. ‘00) 75% 86% Note 1: Adjusted EBITA adjusted for special items (non-IFRS) Note 2: Average number of employees in Q1 2019 Page 32
Denmark – a highly digitised and mature market . Key market characteristics 1 One of the most digitised countries and developed IT markets Public focus on modern IT and modernisation of municipalities Fragmented private market with medium/large companies focusing on digitalisation Netcompany is well positioned to continue delivering innovative complex solutions from a position with superior NPS and in a market with plenty of room to grow Incumbents with low NPS 2 Note 1: Source: Leading consulting firm, Netcompany, I-DESI (International Digital Economy and Society Index) 2015 Main Ranking Note 2: Net Promoter Score Page 33
Public core market size and outlook . Netcompany public core market Growth drivers Digitalisation will form the basis for the efficient welfare state Public shift towards modernisation and replacement Public IT service of legacy systems market 2016 DKK ~ 11bn Focus will be innovation combined with robust delivery as current solutions needs to be safely replaced by modern and efficient solutions ✓ IT service market where Netcompany offers solutions IT public core market spend (DKKbn) Addressable × Excludes dedicated IT market 2016 hardware/software; infrastructure CAGR 16-22 DKK ~ 7bn ~8 8-10% ✓ Central government, centralised joint Core ~5 projects for all municipalities, select CAGR market larger municipalities ‘16-’22 2016 ✓ Regions targeting selected projects 8-10% DKK ~5bn × Small individual municipalities with
Netcompany has high historical win rates on public tenders and is taking market share from incumbents . Track record of ~67% win rate in recent years… … with several high-profile tenders won since 2015 Total Totalvalue valueof ofparticipated participatedDK DKpublic publictenders tenders(in(inDKKbn, DKKbn,potential contract potential value) contract value) Relative size for illustrative purposes 44% 72% 87% 53% Other Rammeaftale (SKAT) ~67% average win rate driven by differentiated sales & delivery model with integrated sales DUBU (KOMBIT) and delivery teams FLIS (KOMBIT) 3.5 Nyt SIS (Ministry of Education) 0.5 Rammeaftale ATIS (Working Environment Authority) KY (KOMBIT) 2.1 1.8 1.9 0.6 0.9 Social Pension (ATP) 1.1 3.0 1.5 1.0 Rammeaftale ICI 0.8 (Tax Ministry) 2015A 2016A 2017A 2018A AULA – samarbejdsplatformen (KOMBIT) Netcompany won Lost/not pre-qualified Netcompany win rate as % of est. total1 By project Note 1: Total value of contracts won as a percentage of tendered value for each year Page 35
Public market provides high degree of transparency . Tender visibility Total value of known public tenders (typically multi-year contract value) Market (avg. tender contract) Renewal of more than +200 core • Most large public tender contracts have an average systems at the Danish duration of ~7 years Danish tax tax authorities authorities +10 DKKbn1 • Development phase typically first 12-18 months followed by 48-72 months of maintenance & operations • Re-tenders of maintenance & operations contracts will Customs authorities ~2 DKKbn 2 typically have higher win rates to original contract holder due to existing knowledge, unless customer satisfaction is low which is often the case with incumbents From already known new and re-tenders 10 DKKbn 2 +10-15 years ‘19-’22 Note 1: Source; Danish tax authorities Note 2: Source; Netcompany Page 36
Incumbents being challenged by agile players in public sector . Adapting incumbents and Incumbents Pure play next-gen IT disruptor agile at-scale players Example companies • International players with • Regional, agile players with • Citizen focused complex projects, established relationship through scale/scope that drive modernisation of and Description legacy systems to compete with incumbents on increased efficiency in the public and scale large-scale projects sector Avg. market share per player ~15 – 40% ~3 – 10% ~10% Source: Company market analysis, market analysis made by leading consulting firm in 2016 Page 37
Public market focus . Continue focus on core customers and agencies • Continue to disrupt the public IT market • Go for the largest complex projects (Central Government, largest municipalities, KOMBIT, ATP ) Serve already won tenders • Execute on tenders won over the last years • Positioning for winning of future re-tenders Acquire new tender contracts • Target the carefully selected “right” tenders • Leverage track record and positive customer momentum Page 38
Private core market size and outlook . Netcompany private core market Growth drivers Differentiation and innovation categories driven by customer innovation and competitive pressure Private IT service market 2016 Robust agile delivery is vital to customers as time- DKK ~ 27bn to-market is crucial ✓ IT service market where Netcompany offers solutions IT private core market spend (DKKbn) Addressable × Excludes IT hardware and support market 2016 functions CAGR 16-22 DKK ~ 16bn ~13 16-22% ✓ Medium and large companies with Core significant annual IT budget ~7 CAGR market ✓ Strategic focus on differentiation ‘16-’22 2016 ✓ “Non-vanilla” projects 10-12% DKK ~7bn × Excludes 70% of “records” segment × Excludes
The competitive landscape in the Danish private market is highly fragmented . Incumbents Adapting incumbents Pure play next-gen IT disruptor Example players • Typically been in the market 20+ • Legacy from incumbents but focused • Driving change in the IT industry by years on closing gap between ‘running’ delivering strategic IT solutions that Description • Focus on large, more simple projects and ‘growing’ make customers future digital • High share of revenue from • Mostly active in more simple winners maintenance and operations solutions given legacy Avg. market share per player ~5-10% ~2-5% ~10% Source: Company market analysis, market analysis made by leading consulting firm in 2016 Page 40
Private market focus . Develop core customers and capture market growth • Grow large customers with ambitious digital budget • Benefit from tailwind following increased private spend on innovation/differentiation Win large accounts and increase scope of work • Gain foothold and build scale with few large customer accounts per year • Increase scope of work with current accounts Take end-to-end ownership with large cap companies • Win “full scope” contracts with large cap companies (full ownership of digital journey) Page 41
Delivery model inherently support synergies and cross-selling . Netcompany’s Delivery model provides maximum flexibility and synergies independent of segment and sector PUBLIC PRIVATE • Tenders for new projects is strictly regulated by EU • Demonstration of knowledge and insight • Every aspect of tender has to be formally documented • Long-term dialogue Sales • Dedicated team of 30 employees assigned to studying the dynamics of • Most sales activities are initiated in close cooperation with existing Process the segment and the requirements of tender responses customers through referrals • Significant scope for selling/cross-selling • Development of typically 12 to 18 months followed by 48 to 72 months • On average, large private sector engagements have a duration of Services of maintenance and operations approximately 12 – 18 months, and are of high strategic value to customers Project • Multi-year contracts of 6 – 7 years • Shorter contracts of 12 – 18 months Length • Increasingly multi-year contracts • High degree of visibility on upcoming tenders • Continued focus on complex projects with customers having ambitious Outlook • Converge to more maintenance contracts digital budgets • Focus on larger projects that tend to have a higher strategic value • Proven ability to deliver large, complex and transformational projects • Private segment increasingly looking towards Public segment for references of transformations at scale Why We • Platform agnostic approach with long track record of delivery and ability to envision innovative solutions that creates Win trustworthiness • Integrated Sales and Delivery organisation provides required technical knowledge and insight in sales and marketing efforts • Strong public profile and ownership structure provides credibility Page 42 Source: Netcompany
CASE: Trade unions (1/3) . Ingeniørernes a- Netcompany trade unions projects BUPL kasse August 2018 10. nov 2009 Common core with streamlined processes for payments FTF/A Lærernes a-kasse and case handling Januar 2018 2. feb 2010 Serviceforbundet Agile front-end systems with the customer in center – del af Min a-kasse El fagets a-kasse 1. januar 2017 11. maj 2010 based on a standard CRM platform 1.4+ million Byggefagenes a- HK/Danmark Innovative solutions e.g. utilising AI to customize offers members are kasse 15. februar 2016 8. juni 2010 to customers, giving significant business benefits administrated by Business Danmark del af Min a-kasse Modulus handling Magistrenes a- kasse Effective handling of compliance and legislative changes 1. januar 2015 pay-out of more than 1. feb. 2011 Dansk Metal DKK 22bn. Min a-kasse 1. Nov 2014 5. april 2011 Parallel roll-out to several trade unions Krifa CA a-kasse 10. juni 2014 31. maj 2011 Replaces stiff legacy systems with focus on keeping Akademikernes a- records, not differentiation and innovation kasse AJKS 30. sept. 2013 6. sept 2011 Development organisation of approximately 90 Lederne Det Faglige Hus 6. nov. 2012 29. maj 2012 employees Page 43
CASE: Trade unions (2/3) . The new IT The experiences from infrastructure for the the trade unions Danish trade unions customers have also has subsequently been been used for similar Finance used as an entrance to solutions in e.g. banks, large payment systems where a customer- for the large municipal focused differentiating service systems and and innovative thereby creates a solution is built as a bridge between layer around the Private and Public product’s centric old projects banking systems Page 44
CASE: Trade unions (3/3) . Examples of recent new projects Payments User recommendations through AI Apps GDPR safe communications Booking Page 45
Agenda . Time Page 1 Status on strategy 10:30 – 11:00 5 2 Netcompany´s business model 11:00 – 11:30 15 3 Update on the Danish market 12:30 – 13:15 32 4 Update on the UK market 13:15 – 13:45 47 5 Behind the quarterly numbers 15:00 – 15:30 58 Page 46
UK at a glance . Overview of key people and organisation Key financials 2018 Mark Ward Country Managing Partner Age: 45 Founder: (Hunter Macdonald) Revenue (DKK) Adj. EBITA (DKK)2 338m 29m 7 partners 363 Leeds FTEs¹ Derby London London Leeds Derby Note 1: Average number of employees including independent contractors in Q1 2019 Note 2: EBITA adjusted for special items (non-IFRS) and Group HQ costs Page 47
UK – a huge market with significant potential . Market characteristics Huge core market with expected CAGR ‘16-22 ‘of ~10% Largest market in EU – lower digital maturity than Nordics but steps taken to increase rate of digitalisation Total IT Services Market DKK 330bn per annum ✓ Central government, large municipalities, large/medium sized Large Government Departments with significant IT Budgets, companies completing transformation activities similar to those in the Addressable Nordics market ✓ Large, complex projects, DKK 171bn per annum requiring dedicated teams over longer time period Core Services, finance, production, technology, media and Market telecoms companies with major budgets are the largest DKK segments within fragmented private market 77bn per annum Source: Market analysis made by leading consulting firm in 2016 Page 48
Despite small size, Netcompany UK has a strong customer portfolio . 10 private customers Public Services/ Telecoms/ Retail Energy 4 private customers Production Technology/ Media 2 private customers Logistics 5 private customers 3 private customers Netcompany UK has a prestigious list of customers and in May 2019 invoiced 36 companies or Government departments, 19 of which have greater than DKK +8 billion revenue or yearly Government funding Page 49
Supporting the citizens of the UK . Netcompany UK is starting to influence IT delivery and UK citizens across the UK both the public and private sector Public Private We are working with We are working with We are assisting We are working with We are working as We are supporting Home Office to Highways England to Government major organisations part of a programme many major protect the UK keep the UK departments with to support UK to install smart organisations to borders roadways safe Brexit preparation manufacturing meters into every embrace new UK home technology and to innovate Page 50
UK public market trends fit perfectly to Netcompany focus . Government Transformation Strategy UK is not yet as advanced in digitalisation as some other countries, including Denmark. UK Government strategy has ambitious plans and has earmarked significant funds to digitalise and optimise the relationship between citizens and the state Increasing focus on differentiation and innovation UK Government is increasingly buying in layers and expanding their focus on procuring more differentiation and innovation based services Brexit will create opportunities It is expected, that a significant number of UK IT systems will need to be implemented and updated to support Brexit Challenges to deliver public projects Some of UK government’s major projects have challenges, which makes an ability to consistently deliver a key differentiator Page 51
Public market spend entails huge untapped opportunities . Estimated annual DKK 150bn total ICT spend in Government sectors - If only 20% of total spend is Netcompany core market, it still amounts to DKK 30bn DKK billion Kr 50.0 Kr 40.0 Kr 30.0 Kr 20.0 Kr 10.0 0.3% 0% 0% 0% 0.1% 0.2% 0.3% Kr 0 Central Local Education Health National Security Criminal Justice Transport (DKK) Total ICT annual spend Netcompany’s share of annual spend • Netcompany is less than 0.5% of spend in the government sector with our largest involvements • Public market penetration in initial phase, penetrating multiple sectors Page 52
Private market opportunities . Global organisations Many major UK private sector companies are global organisations with major budgets with decision makers based in the UK Legacy systems Many UK private sector organisations are long established and have major legacy systems that need modernisation Resistance to traditional players There is a resistance to traditional players based on previous delivery issues, buyers want viable alternatives who can deliver Integration There is strong demand for integrators who can control an organisations vendors and secure delivery Agility The need is for organisations that can be agile in ethos and delivery approach, which promotes a move away from the large traditional player Page 53
Private market – ample room to grow . Estimated annual, global ICT spend for 7 key customers totaling DKK ~35bn, shows significant potential DKK billion Kr 10.0 Kr 7.5 Kr 5.0 Kr 2.5 0.6% 1.7% 0.8% 0.2% 1.9% 0.1% 0.6% Kr 0.0 Production #1 Services #1 Production #2 Production #3 Services #2 Retail #1 Logistics #1 Total ICT annual spend by customer, anonymized Netcompany share of annual spend Page 54
Integration of Netcompany business model on track . Sales & delivery ✓ Integrated sales and delivery model implemented ✓ Bidding and winning of large tenders People ✓ Recruitment, onboarding and feedback processes in place for permanent work force ✓ Reduction of use of contractors ongoing ✓ Office setup optimised Execution ✓ Netcompany finance and staffing tools fully implemented ✓ Netcompany Academy operating for the UK to create consistent delivery performance The integration of Netcompany UK is progressing as planned - still 3 ½ years to go in the integration plan Page 55
Key steps to full integration and financial performance on par with group level 20-25% organic revenue . growth and 20- 25% adjusted EBITA-margin Revenue growth of 15- 20% and 8-10% Strategic switch to Strengthen Principal Sell the correct Closer working across Strengthen Exploit sector specific adjusted permanent work force and Manager level outcome-based countries between relationships in knowledge across EBITA-margin aligned to to support the contracts that drive management, team existing customers to borders to share Netcompany ethos pyramid structure experience, long term transfers to optimise grow existing and further strengthen and support strengthen bids and profitability and staffing model, shared accounts, ample room the career model incoming talents customer growth commercial support to grow propositions Acquisition, 25 October 2017 December 2022 Page 56
Agenda . Time Page 1 Status on strategy 10:30 – 11:00 5 2 Netcompany´s business model 11:00 – 11:30 15 3 Update on the Danish market 12:30 – 13:15 32 4 Update on the UK market 13:15 – 13:45 47 5 Behind the quarterly numbers 15:00 – 15:30 58 Page 57
Financial highlights . Revenue growth Reported financials (DKKm) Revenue (DK) Revenue (NO) Revenue (UK) 1 1 1 Adj. EBITA-margin (DK) Adj. EBITA-margin (NO) Adj. EBITA-margin (UK) 500 45% 37% 36% 400 30% 29% 29% 31% 35% 27% 29% 29% 300 26% 25% 26% 26% 19% 22% 17% 14% 22% 20% 200 17% 9% 15% 10% 5% 100 9% 3% 5% 0 -5% 0% Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Acquisition 25 October 2017 Note 1: Adjusted EBITA-margin before special items (non-IFRS) Page 58
Financial highlights . Quarterly trends DK Q1 Q2 Q3 Q4 • Adjustment of • Largest intake of • Full effect of new seniority level new employees recruits from Q3 → higher rates • Quarter with most working days • Salary increase • Public holidays • Danish summer • ’17: High level of • Easter ‘18 • Easter ‘ 17- ‘ 19 vacation (typically costs to new ERP July) and additional FTE´s (CFO, legal and finance) Page 59
Financial highlights . Quarterly trends NO & UK Both entities new to Netcompany, so difficult to see solid trendlines for now Margin will typically decrease in Q3 in NO due to new recruits – impact will be reduced as entity grows In the UK we will be seeing gradually increasing margins through the year Page 60
Working capital development . Revenue growth Reported financials (DKKm) Revenue Total Change in working capital 700 500 300 100 -100 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Page 61
Working capital . Quarterly trends - Working capital Group Generally negative working capital in Q1, Q2 and Q3 On account taxes paid in Q1 and Q4 – normally Q2 and Q3 have had the highest negative impact on working capital Driven by a large proportion sales in public, which have more back-end loaded payment plans for fixed fee projects Page 62
Revenue criteria – “POC” accounting for fixed fee projects . Business Netcompany project Netcompany meets milestone Netcompany invoice activity WIP & WIP TR revenue Accounting implications Resources (people and hours) Trade receivables increased An invoice is created and sent to allocated to project reflecting the milestone the customer Revenue and balance sheet Balance sheet “WIP” reduced Trade receivables reflect “WIP” increased reflecting the reflecting the milestone remaining unpaid invoices allocated hours Page 63
Work in progress and revenue – NET reduction in WIP in 2019 . WIP DKKm Revenue DKKm 255.1 Reduced ~2,5002 145% 22.5% 5-10% NET1 2,053.2 45% 1,416.1 102.9 2017 2018 2019 2017 2018 2019 Note 1: Based on payment plans for current fixed fee projects Note 2: Assuming ~22.5% revenue growth Page 64
Work in progress and revenue . Build up of WIP-balance as Netcompany has more large public fixed fee projects Reported financials (DKKm) Revenue WIP Percentage of revenue 3000 ~2,500 1 2500 2,053.2 2000 1,416.1 1500 1000 899.6 758.1 500 255.1 ~235 53.7 83 102.9 7% 9% 7% 12% ~9% 0 2015 2016 2017 2018 2019 Note 1: Assuming ~22.5% revenue growth Page 65
Provision . Provision development DKKm Provision Percentage of revenue As we continue to deliver large complex projects the need for general provision decline 36.1 30.3 26.41 Provision relative to revenue declines, as risk profile decreases Covers general uncertainty in the portfolio 2.1% 1.8% 1.1% All projects are individually addressed for “POC” 2017 2018 2019 performance on a quarterly basis Note 1: As per Q1 2019 – annualised Page 66
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