Welcome to this conference call from Netcompany. This call is being recorded. If you have any objections to this, please connect at this time. All participants will be in a listen-only mode throughout the presentation. Afterwards, there will be a question-and-answer session. I would like to introduce CEO André Rogaczewski and CFO Thomas Johansen. André, please begin.
Good morning, and thank you for listening in to this webcast regarding the exciting news we shared this morning. My name is André Rogaczewski, and I am the CEO and co-founder of Netcompany. I'm joined today by our CFO, Thomas Johansen. I'm thrilled to announce that we this morning successfully have agreed on a transaction with the majority shareholders of SDC, and together we will create the future of banking services. Before we get going, there are some important disclosures that I need you to read through, so could we please have slide number two? 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 three, please? The topic of today's presentation is the SDC transaction announced this morning. I will walk you through the strategic rationale of the transaction.
Once I'm done, Thomas will go through Netcompany's M&A history and the preliminary financials of the transaction. Can we have the next slide, please? This transaction marks a significant milestone for Netcompany. It aligns 100% with our go-to-market strategy to expand our capabilities and enhance our service offerings within the financial service industry, the highest spending vertical within IT services in Europe. In 2025, the total addressable market within FSI in Denmark, Norway, and Sweden is estimated to be more than DKK 44 billion, and the market is expected to grow by more than 10% annually towards 2028, supporting Netcompany's ambition of delivering continued sustainable organic growth. Netcompany already offers a solid product and platform suite in broader terms, and combining this with SDC's core banking platform and other solutions, we will, over the coming years, establish what will be the future of banking services.
Together, we will improve the banking experience for bank customers as well as for bank employees and advisors. We will do this by introducing improved and personalized advice, self-service solutions, and end-to-end digital processes to support activities such as housing journeys and onboarding of new bank customers through new industry-specific and vendor-independent banking services. During the past year, we have increased our presence in FSI, most notably with the 20% stake we bought in Festina Finance back in September 2023. FSI is an industry that is generally characterized by outdated old mainframe and legacy systems, and at the same time, the industry is heavily regulated. With the merger with SDC to establish Netcompany Banking Services, we gain access to this highly interesting market, and we are convinced that Netcompany and SDC together will be able to offer solutions in the industry that will truly make a significant difference.
Needless to say, this is a very interesting opportunity for Netcompany. We look forward to working closely with SDC to unlock this potential. Can we have the next slide, please? SDC is a prominent IT service provider headquartered in Denmark, specializing in delivering comprehensive IT solutions to FSI across the Nordic region. As the only one of the three banking centrals in Denmark, SDC has a Nordic presence. SDC was founded in 1963, and as one of three banking centrals in Denmark, they provide full IT services, including core banking systems, digital banking solutions, and regulatory compliance for more than 50 banks in the Nordics. At the end of 2024, SDC's workforce counted 980 FTEs based in Ballerup, Denmark, and Warsaw, Poland. Can I have the next slide, please?
Netcompany and SDC together bring a very dynamic offering to a static market that is not used to seeing innovative solutions being presented on a continuous basis. The combination of Netcompany's delivery excellence, SDC's subject matter expertise, and business expertise from a combined workforce of more than 9,200 FTEs will serve as the foundation for the future of banking services, together, of course, with Netcompany's product and platforms and SDC's core banking platform. Our goal is to create innovative and leading banking services in Denmark, Scandinavia, and the rest of Europe, adding substantial value for our shareholders and stakeholders.
This will be done through Netcompany's already proven product and platform suite, Amplio, mit.dk, and Easly AI, combined with products from Festina Finance, such as Festina Advisor and Festina Life and Pension, combined with SDC's key platforms for core banking based on SDC's multi-country enabled architecture, utilizing solutions as net banking and compliance solutions to enhance service for existing SDC customer banks and their end customer, and attracting new customers to a new and innovative platform with no match in the market space. We call this the future of banking services. Can I have the next slide, please? Now, where banking services historically have been developed with the view from a more compliance and regulatory perspective, our solutions will focus on customers' and clients' requirements. Of course, still following the regulatory requirements, we aim to automate everything, use data strategically, and ensure stable and compliant operations at the same time.
We will take advantage of AI in a responsible way and show that the future of banking, however complex and regulated it may be, also embraces innovation and new ways of thinking. From a value chain perspective, we aim to reverse the sequence and take outset in the customer rather than compliance, but of course, always ensuring that all our solutions are compliant to any applicable regulation at any given time. You might say that we actually reset the industry and take an outset in what the customer needs rather than what the regulator wants. With that, I'll let Thomas take the word from here. He will take you through our M&A history and the preliminary financials of the transaction. Thomas, please go ahead.
Thank you, André. As already mentioned, my name is Thomas and I'm CFO of Netcompany. Can we have the next slide, please? Since 2016, we've made a number of acquisitions as outlined here. After the acquisition of QDelft in the Netherlands in 2019, we changed our M&A strategy to focus on companies with significant well-proven IP in combination with a sticky customer base. We have stuck to this strategy when acquiring Intrasoft in 2021 and when taking the 20% stake in Festina Finance in 2023. The financial performance of Intrasoft over the last three years testifies that our strategic focus was right, enabling us to increase Intrasoft revenue with more than 50% and at the same time increase margin by more than 500 basis points during our ownership.
Along the same lines, we expect the financial performance of Festina Finance to improve significantly once the large implementation projects with the Dutch life pension companies as APG and AZL go live in 2027. In addition, the recent win of the DKK 1 billion contract with Fors in Denmark was strongly supported by the inclusion of the life pension core product developed by Festina Finance. This leads me to the transaction that we have announced this morning with SDC. SDC, being a pivotal IT provider to a host of Danish, Norwegian, Swedish, and Faroe Islands-based banks, has similar characteristics as Intrasoft and Festina Finance, namely significant and well-proven IP and a very sticky customer base. We are convinced that the transaction will add value to existing banking customers and attract new banks to the new platform being developed, all to the benefit of Netcompany's shareholders and stakeholders.
Can we have the next slide, please? The latest published annual report from SDC is from 2023, and hence these numbers are shown here. Net profit for 2023 was DKK 31.4 million, which on a simple inclusion into Netcompany's 2024 results would have added close to 7% in additional profit as is. For a full presentation of the SDC business, I will refer you to SDC's homepage, where you will find a copy of the full annual report. Can we have the next slide, please? I'll sum up the presentation with the transaction highlights before we go to Q&A. The transaction values SDC at DKK 1 billion and will include a cash payment of DKK 1 billion from Netcompany to SDC's shareholders.
Netcompany will make the transaction through a newly formed company, Netcompany Banking Services, which will be merging with SDC and as a consequence, resulting in a fully owned subsidiary of Netcompany in which the activities of SDC are fully embedded going forward. The majority shareholders representing 70.94% of the outstanding share capital and voting rights have, at signing of the agreement with Netcompany irrevocably provided their commitment to vote for the merger. Due to integration costs, the transaction is expected to have a dilutive impact on earnings per share for the financial year 2025. The transaction is expected to be earnings per share accretive to Netcompany from 2026 compared to 2024. Furthermore, the transaction is expected to be double-digit percentage EPS accretive by 2028, also compared to 2024. The cash consideration is funded by way of utilizing current credit facilities and will be fully debt financed within the existing covenants.
We expect to reinitiate our share buyback programs after closing of the transaction, and we expect leverage at the end of 2025 to be around 1.5 times. Closing of the transaction is expected to take place around mid-2025, subject to regulatory and other customary conditions. That was it from our side. We are excited about the future and the opportunities that this transaction brings. We look forward to combining the two companies and together create the future for banking services. Thank you for your time and attention. We are now open to any questions, so if we move to slide 11 and open the call. Thank you.
Thank you. If you do wish to ask a question, please press five stars on your telephone keypad now. To withdraw your question, you may do so by pressing five stars again. We will have a brief pause, but questions are being registered. The first question is from the line of Daniel Djurberg from Handelsbanken. Please go ahead. Your line will now be unmuted.
Thank you. Thank you, Operator. It's Daniel Djurberg from Handelsbanken. Interesting morning and good morning to you both. Question on the risk from this deal, creating the future of banking services here. Going back some 20 years in history, Finnish competitors tried to do a similar approach, creating a European banking powerhouse that failed quite much on the back of different technology stacks, processes, legislation, and various cultures. Can you give a short discussion on why this won't happen in this case? Thanks.
Thank you, Dan, and good morning to you as well. Looking at what is currently going on in this sector and looking at the technology dimension, a lot has happened over the last 20 years. We in Netcompany are having a set of platforms that we usually surround any type of system around. Our approach has been over the last many years to modernize legacy systems. That's what we do. We have been masters in actually modernizing a set of very, very complex systems with the same natural behavior as banking systems. We've done that in the public sector. You also have to recognize that SDC, over the last many years, has been investing heavily into modernizing their platform as well. The combination of the two is actually already, at the current state, very modernized and able to succeed from a technical point of view.
From a more business standpoint, I also think that looking at the amount of services that you can bring to the market by combining not just traditional banking facilities, because that's been the thought of the past, just to modernize core banking, we're not doing that. We are actually combining core banking with Digital Post, with artificial intelligence, with self-service in a way that was not possible at that time. I think both from a technological point of view, service point of view, this is a very different approach than what you've seen in previous deals and attempts. I hope that answered your question.
Yeah, it certainly did. May I also ask you on the go-to-market strategy currently for SDC, and if you will change this, how do they use external system integrators? Will you continue to do that if that is the case? Thanks.
The DTM strategy in this FSI banking services division will be many-folded. We will, of course, be able to go out and service existing banks and new banks with core banking services, just as we've seen before. But we will also be able to modularize and sell smaller pieces, new modules, and capabilities, not even being part of the core banking. We'll be able to serve in many dimensions, and we will be a much more flexible service provider to the market than you've seen before.
Interesting. My final question for me would be: can you comment a bit on this process? If it's been an open bid process ongoing for SDC, or if it's been more of a mutual discussion coming up to this?
Thank you, Dan, but unfortunately, I'm not able to comment on the process itself.
Okay, that's enough. Thank you and good luck.
Thank you.
The next in line is Poul Jessen from Danske Bank. Please go ahead. Your line will now be unmuted.
Yes, thank you. I have a few questions. First of all, SDC is a data center or hosting operation for very small banks in Denmark. I don't know the clients in Norway and Sweden, but isn't this more an operations business than it's a solutions business?
Good morning, Poul.
That's question one.
Yes. Well, the short answer to that question is definitely no. Most of IT support to banking actually comes from these solutions, and we will add even more. Banking is a digital business of nature. The products are virtual, and being able to service customers today in the most profound way requires banking systems that actually follow development. SDC has 1.8 million bank customers altogether on their banking platforms, and a lot of their IT support for that is actually very, very business-close functionality, and we will add even more.
But I assume that it's data centers and hosting, and I don't know if it's mainframe or whatever they're running on behalf of the savings banks.
In any large complex installation, there's hosting as well involved. That's also the case with all our public large government projects and deliveries. That's a natural part of service delivered to the banks, but it's not the part that will differentiate you in the future.
If you look at the P&L for SDC, Poul, Thomas, here, when you look at the annual, you can also see that the hosting part of SDC is actually not a big part. Of course, it is a part that is important, but the vast majority of the revenue generated in SDC has to do with different types of projects, including strategic projects to the banks. For instance, the development of a new core banking platform, which is developed outside of the mainframe. That is one example of customer-specific projects that is not hosting, if you so will. There's also been development of a brand new online banking platform to serve end customers, which is also an example of strategic projects. No, SDC is not an operations center.
It is also operating on behalf of the banks, but there's much more activity and business than hosting.
I was just looking at the numbers. Typically, in your kind of business and other solution companies, you have depreciations to revenue of about one, two, max three%. But in this case, it's been between 12 and 16% in recent years. Therefore, I think it's much more investment heavy and much more depreciation. That's my reasoning for being much more operations-driven.
It's obvious that when you develop new software for 50+ banks, then, of course, there is some development on that, which over a period of time has to be depreciated. It's correct that there has been investment, but the investment is not in the operations. The investment is in the platform.
It's intangible amortization models.
Yes, all of it. Yes.
Okay. Then what about Intrasoft assets? They also have a large focus on the finance industry. Are they put into this as well?
Intrasoft have one solution called Digital Experience for Banking, which is mainly sold in Southern Europe, and that is not put into this transaction.
Okay. Thank you. I'll jump back and then I'll ask John to ask questions.
Let me just remind you that if you have a question, please press five star, new telephone keypad. The next one we have is Claus Almer from Nordea. Please go ahead. Your line will now be unmuted.
Thank you. There's also a few questions from my side. The first goes to integration cost of synergies. Could you tell us what do you expect from integration costs and possible synergies in the 2026-2028 framework?
Cannot comment more than what is in the transaction announcement, Claus. That is all we can comment on at this point in time.
So you will do that later when the transaction has been approved, or when should we expect more details?
We cannot comment on when that will be disclosed. There's a process now when we need regulatory approvals. We will not be able to comment more on that than what we have already done.
Okay. Then in one of the slides showed that 70% of the shareholders have accepted. What about the remaining 30%? Do they have to sell or?
The remaining shareholders will have the opportunity to sign for the same agreement that the majority shareholders, which is 70.94%, and they will have the opportunity to sign at the same terms that the majority shareholders. That is going to happen between now and closing. Our expectation is that they will sign up for the services alongside the majority shareholders.
Thomas, they will sign up for the services, talking about business or selling their shares?
For selling their shares, sorry.
Okay. But I guess you've been talking to them up to this morning, and I guess they have not yet decided to sell. Is there any outstanding issues that prevented them to accept?
No, your assumption is.
What do you do if they don't accept?
Your assumption is incorrect.
Okay. In what way?
In the way that we have transacted this as it stands with the six majority shareholders.
Okay. Then the final question goes to the way you're going to integrate or run the business. Is this more Intrasoft or is it more like the other divisions you have acquired? Will you be integrated relatively fast, or will it be a slow integration or no integration at all?
Yeah, I mean.
Yes. Thank you. I'm just saying that there's a lot of integration going on here already. In perspective, we have a lot of services that we can add to SDC. That goes from the data point of view, that goes from a communication point of view, and from a modern technical point of view when it comes to processing. Then, of course, SDC core banking systems have already been modernized over some years. The integration is going to be between the core banking system and all the add-ons that we are going to put in there. We will still, of course, have a core banking platform where very good people knowing about that will be working on the core banking platform. We will add Netcompany resources to build and integrate to all the new stuff that we have in our hands already.
Then we will address the market with both and the whole as a palette, but also single pieces to other banks. There's going to be a huge demand for components and modules and entire systems in this sector. I'm absolutely certain. That's how the integration is going to go forward.
Okay. This new platform that SDC has developed, is this a subscription-based IP-free? How about that?
The way that SDC is run, Claus, is run basically as ownership of historically of the individual banks. The structure, if you so will, is different than what you would see in our setting. The way that they are invoicing is different. Basically, the IP belongs to SDC for the platform, and that IP we're taking over through the merger.
Sorry, I might be slow this Monday morning, but is this a subscription-based model, or how do they pay for this platform, the customers?
They pay a yearly fee.
Okay. Subscription-based, kind of.
No, not subscription. I'm answering the way it is. They have another structure, and it is that they are paying a yearly fee to be on the platform.
Okay. Thank you. That was all from my side. Thanks.
Thank you.
The next question is from the line of Yiwei Zhou from SEB. Please go ahead. Your line will now be unmuted.
Hi. Good morning. Thank you for taking my question. I missed this first part of the conference call. I don't know if the question is being asked. I have two questions here. Firstly, if you could maybe talk a bit about if there's any competing software platforms to SDC's, to see competitor situation?
Yes. Thank you for that question. You have three banking centrals in Denmark delivering basically core banking, and you've had that historically, SDC being one of them. SDC is the only banking central that also addresses the Swedish and Norwegian market. You can use SDC core banking systems in the two other countries as well. Where the market is moving towards is also having the ability to take those core banking services and combining them with self-service, safe communication, GDPR-compliant platforms, and very, very highly effective automated case management systems. Banking services right now, if you look at how to compete, you need to optimize and utilize all the modern technologies. You need to combine core banking with all the new things that you can do. This is exactly what we aim to do with SDC. But to answer your question shortly, in Denmark, you have two distinct competitors.
In the rest of Scandinavia, we'll be selling SDC to core banking combined with Netcompany Banking Services to any types of banks that will be interested in either servicing them in total or buying components or modules from us. I hope that answers your question.
Yeah, yeah, it's very clear. In this context, I just want to ask, going forward, when you bid for the large tenders or winning contract, is it the same pattern that you were still focusing on the IT service part of the business, and then you receive those kind of license income, software revenue on top of it as you sort of with the Solon system and other platform strategy?
I'm not sure I understand the license part, but I can leave that to you, Thomas. But I'd say in nature, it resembles a lot because these are complex regulated areas. Delivering an entire platform that both lives up to compliance, has to run every day, and really calculates well, and at the same time involves the necessary parts of self-service, GDPR-compliant communication, even artificial intelligence and case management is, of course, a huge undertaking. We've done that traditionally in the government sector. We've done it when we acquired 20% of Festina Finance. We've also shown that in life and pension, which is the same very complex regulated systems, we're able to do that too.
Of course, in going into banking services, we will be able to provide the same type of complex services, and we are a vendor that is used to go in and take responsibility and deliver those total solutions to our customers. But from your question about licenses, Thomas, can you add to that?
I think it's premature in terms of how we will. I understand the question as how we will price new customers on the platform. We'll take that once we are on the other side of closing. Anyway.
Great. Should we expect an increasing share of licensing come as group after acquisition? Or will it still be the same?
No comments on that and no comments on the distribution of revenue.
Okay. Great. My last question here, then I'll jump back to you. Given the SDC has a pretty large amortization for their software, their IP, now after integration, would you consider to change your guidance structure to guide EBITDA as you did previously?
For that, we have no comments.
All right. Thank you. I'll jump back to you.
Thank you.
The last question we have time for is from Alastair Badarabu from Bank of America. Please go ahead. Your line will now be unmuted.
Hi, André, Thomas. Thanks for taking my question. Just very quickly, looking at the SDC annual report, it looks like revenues were up 8% in 2023. I know it's year-to-year close, but could you give any sort of idea of any revenue growth in 2024 and sort of any ambitions you might have had for a few years? Firstly, and then second, any color you can give on any potential synergies we should look to?
On the first question, we cannot comment on 2024 for SDC. The second question, we couldn't really hear. What was the second question again?
Any color on potential cost synergies maybe from back office or other areas or maybe even direct technical areas?
Are you asking whether we can give any estimation of cost synergies?
Yeah, exactly.
No, we cannot comment further on what is already in the announcement.
All right. Thank you.
I would like to hand the call back to André for any closing remarks. Please go ahead.
Thank you for joining in on this early Monday morning. I hope you have a wonderful day. Thank you.