Earnings Call: Q1 2021

May 6, 2021

Welcome to the Ned Company Group AS Interim Report for the 1st 3 months of 2021. Throughout the call, all participants will be in a listen only mode and afterwards, there will be a question and answer session. Today, I am pleased to present are CEO, Andrey Rogachevsky and CFO, Thomas Johansen. Please begin your meeting. Good day and welcome to this presentation of Netcompany's results, the Q1 of 2021. My name is Andrei Robichevsky, and I'm the CEO and Co Founder of Netcompany, and 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? I will pause for 30 seconds here and let you all have a read through of these important disclosures. And with that, can we go please to Slide number 3? The topic of today's presentation follows our usual layout, which is that I will first give you an update on the business highlights for Q1. I'll also go through our revenue visibility and our financial guidance for 2021. Once I'm done, Thomas will go through the numbers in greater details before we open the call for any questions. And can we have the next slide please? We've continued the strong momentum from the last quarter into this recently ended quarter and grew top line by 23% in constant currencies, all of which was organic. In reported currencies, we realized revenue growth of 22.9%. This is clearly a very satisfying start to the year and a result of extraordinary hard work from all our employees, both when it comes to driving and executing on pipeline and when it comes to working efficiently in the respective projects. Gross profit increased by 16.6 percent yielding a gross margin of 38.1 percent, Which was slightly lower than in Q1 2020, mainly driven by lower margins in the U. K. And in the Netherlands, which Thomas will elaborate on during this presentation of the numbers in greater detail. Adjusted EBITDA margin on the other hand increased close to 32% compared to Q1 2020 and yielded 25.3% compared to 23.6% in Q1, 2020. All units apart from the Netherlands saw increasing EBITDA margins in Q1 and the reason for the lower margin in the Netherlands was one of non recurring character. FTEs grew again by more than 524 to be specific in Q1 following the strong growth in FTEs in Q4, where FTEs grew by 528. The continued growth of talented employees continues to be a prerequisite and a foundation for our continued growth. And can we have the next slide, please? As we have done in every quarter under the COVID-nineteen pandemic, we've continued to hire new employees in Q1 2020 onetwo. In this recent quarter, we said welcome to more than 350 new employees and compared to Q1 in Q20, the total number of FTEs grew by 20.3%. While we have added 150 permanent employees in Q1, twenty twenty one in the U. K, we have reduced the use of independent contractors by 89 compared to Q1 last year. The reduction of independent contractors in the U. K. Is almost complete now. And at the end of April, we only have 11 independent contractors remaining in the U. K. Operation. In Denmark, we continue to recruit and grew by 2 19 FTEs. We also saw growth in Norway, where the FTEs grew by 23. In the Netherlands, our FTE base grew by 41 in the quarter. And in our 2 talent pools, Vietnam and Poland, we also increased our FTE level with more than 100 FTEs compared to the same period last year. Churn for the last 12 months was 15.8%, which was 2.8% lower compared to last year. However, the churn in Denmark has picked up during Q1 and overall, we begin to see more movement of employees between different jobs and a clear indication that we are coming to an end of the COVID-nineteen spillover effect on the labor market. While they clearly enjoy a strong employer brand, we see increased competition for talent within all digital competencies across all geographies. The amount of administrative employees measured as non client facing resources was 6% in Q1 2021 compared to 6.8% last The year Q1 and thus decreasing, which is what we have expected since the IPO almost 3 years ago. Can we have Slide number 6, please? So we have won a number of larger multiyear contracts, both with different governmental agencies, but also with different private customers in various geographies, and I will mention a few here. In Denmark, we've won the continued maintenance of the Smida stop app, the Danish version of the track and trace related to COVID-nineteen. And we've also won the contract of developing the corona pass to be used in the general reopening of the Danish society. Both wins are clear example of our continued focus on the health segment within public, a segment which we see strong demand for in many years to come. We see more wins in our countries in the public sector where our GovTech framework is a very important key differentiator. And in the Private segment in Denmark, we have increased our engagement with DSV, a leading logistics company, and the relationship continues to grow. In addition, we have large ongoing engagements with the airport in Copenhagen through the joint venture smart airports and the project with Top Denmark continues at a high pace. In Norway, and we have expanded our relationship with Staaten Slegemidlweg based on the contract that we won last year. We are increasing our presence in the public segment in Norway and recently we've also won the contract to develop and deliver the corona pass to Norway. In the UK, we've continued to expand our presence with the NHS following our award to participate on the framework contract that we succeeded to get onto last year. Our work is related around various COVID-nineteen related topics and activity is high. No new deals were signed in the Netherlands in Q1. However, the existing backlog of projects has ensured a satisfactory activity level in the Netherlands too. Despite the slowdown that has emerged following the general election in the Netherlands, we have a strong and very promising near term pipeline there. An overall pipeline in all countries look healthy and lays the foundation for continued growth throughout the rest of the year. I am particularly pleased with the development in the U. K. And in the Norwegian pipeline as more larger scale cases begin to emerge on a more frequent basis. And can we have the next slide, please? We start to see tangible and permanent impacts on the integration of operation in Norway. We also see improvement in the U. K. And while the integration of the Netherlands in general is moving along fine, there will be obstacles arising from the rapid growth seen that need attention in the short term. Revenue in Norway increased more than 30% in Q1 on the back of Strong momentum we had in Norway in Q4 last year. Margins improved also supported by the higher utilization realized in Norway in Q1. We see strong demand for our services in Norway. And with the establishment of a second office in Trondheim, we have increased the recruitment pool significantly in Norway. The recent wins have helped increasing our brand awareness significantly in Norway and it is our expectation that we will have completed the integration to the NEG Company methodology during the year in Norway. In the UK, we have seen positive activity following the win from last year with the NHS. However, to ensure that we continue to strengthen our presence in the U. K, we have made a change to the management team in the U. K. End of March. This means that we have welcomed Richard Davis as the new country managing partner. Together with Jesper Brand, a Danish partner that we have transferred to the U. K. Organization and Richard, Christian and Steve, the partner team in the U. K. Now have the strength and the structure to secure more large skilled deals and continue the positive momentum. Richard joins us from DXC and adds more than 20 years of industry experience with FTSE1000 clients. And in our most recent acquisition, The Netherlands, the integration is progressing and we saw continued high level of activity in Q1 where revenue grew by 23 sent after adjusting for change made to a large fixed fee project. While we continue to see progression in the Netherlands, we also expect to see some growth related issues in the time to come simply because we have grown so fast. The issues that we expect to emerge is related to continued staffing and recruitment, development of senior talent into the organization and continued focus on pipeline building. To accommodate these challenges, the Danish organization will continue to play have an important supportive role in the Netherlands for the coming years. We are satisfied with the progression of our integration of the new markets And we are convinced that they are a solid foundation for significant future growth. Can we have the next slide, please? So the strong performance in all of our business units has increased the level of contractually committed revenues to close to DKK2.8 billion at the beginning of April, an increase of close to 30% compared to the same period last year. While we for many years have been accustomed to higher revenue visibility in the public segment in Denmark, the wins in both Q4 and on Q1 this year in both Norway and in the UK has increased revenue visibility further in the public sector. In addition, the level of larger scale contracts won in particular in Denmark in the private segment has improved revenue visibility even further. This leads me into our expectations for 2021. So can we have the next slide, please? For top line, we still expect revenue growth of between 15% to 20% and we still expect our margins to be between are currently in the range of 23% and 25% for the full year. It is clear that we have had a strong start to the year with high growth and high profitability. However, we are still only 1 quarter into the year and the underlying volatility remains high. New lockdowns could potentially be introduced from time to time and there might be other COVID-nineteen imposed restrictions being introduced. If anything, the last 12 months has shown how unpredictable the market conditions currently are. However, the underlying sentiment in the markets we operate in are positive and we do have Better revenue visibility than we did last year, which also means that it is probably more likely that we will end up in the upper end of the guided range for the revenue and margins likewise than in the lower end of the guided range for the full year. And with that, I will give the word to Thomas to take you through the financials in greater details. Go ahead, Thomas, please. Thank you for that, Andre. And like already mentioned, I am CFO in Ned Company, and I will go more into details with the financial performance for Q1 2021. So if we move past the break in Slide 10 and So Andre has already spoken to our performance in general terms, and I will go more in details with the performance. Revenue growth for Q1 was 22.9%, negatively impacted from currencies by 0.1 percentage point, leaving growth in constant currencies at 23% against Q1 2020. Our revenue growth was, as mentioned earlier, organic. Gross profit margin was 38.1 percent in Q1 2021 compared with 39.5% in the same quarter last year. The slightly lower gross margin was a combination of different factors in the individual countries. One main impacting factor also to the lower gross margin was the adjustment to the fixed fee project we made in the Netherlands. This adjustment alone accounts for around 0.5 percentage point of the 1.4 percentage total decline in margin. In addition, we have used a number of highly experienced resources from the Danish operation on projects in both the U. K, the Netherlands and in Norway. These Danish resources are slightly more expensive than if they had been locally hired and hence, they dilute the margin in the countries where they are allocated to projects. To cover for this higher cross utilization, We have had to engage a slightly higher number of freelancers in Denmark than what we would normally do, which in turn has a slightly impact on margins in Denmark. The higher than normal gross utilization is not expected to be of a permanent character. Administrative costs were reduced despite a growth in FTE of more than 20%. This is a consequence of the COVID-nineteen imposed restrictions That has eliminated travel. It has reduced cost for on location training and education, staff events and the likes. In Q1 2021, this has reduced cost by around €15,000,000 The reduced admin cost were supportive of the EBITDA margin increasing to 25.3 percent in Q1 2021, an increase of 1.7 percentage point from the same period last year. Amortizations have reduced by more than 60% as part of the intangible assets related to the FSN acquisition of 52% of the shares in February 2016 have now been fully open amortized and hence, the level in Q1 will be the level for the remaining part of 2021. Finally, we have adjusted the payable purchase price for the acquisition we've done in Holland with €49,600,000 as a consequence of the increase in the estimated time to complete in a large fixed fee project in the Netherlands, in line with the share purchase agreement, which brings profit before tax to 244,000,000 more than twice the amount for Q1 2020. Can we have the next slide, please? Public sector revenue grew by 15.9% in Q1, driven by growth in all units and particular in Norway, where revenue grew 53.4% and in the U. K. Where growth was above 28%. In contrast to previous year's revenue growth in Denmark was the lowest of the units in the public sector at 11%. This was due to a combination of more large scale projects being won in the private segment in Denmark and also a number of resources from the Danish organization, working on projects outside of the Danish organization as just mentioned. The usage of Danish resources on projects in other countries leads to lower margin in those countries. However, It sets us up for future margin expansion, and the cross usage of resources is an important element of implementing the correct net company methodology in countries outside of Denmark. Adjusted EBITA margin was 20.2% compared to 22.4% in Q1 2020, mainly driven by the adjustment to the fixed fee project in the Netherlands, which alone account for around 1 percentage point of the reduction in EBITA margin on group level. Can we have the next slide, please? As in Q4 last year, the private segment outgrew the public segment again in Q1 2021 and grew by 24.6%. The growth is mainly driven from the Danish operation with support from Norway also. Private segment revenue in Denmark grew by 51%, where growth in Norway was 14.4%. As in Q4, the growth in the Danish organization is based on a strong execution of larger scale projects and a continued inflow of additional work with existing clients as well as onboarding of new clients too. As the level of private segment business outside of Denmark is still limited. The gross usage of resources from the private Danish operation does not impact private segment in the other countries, but rather public segment, and hence, we do not see the same level of margin decrease in the private segment for the group as seen in the public segment. Consequently, margins in the private segment increased in Q1 2021 compared to Q1 2020. Gross margins increased to 45.3 percent and adjusted EBITA margin increased from 30.4% to 34.6% in this quarter. Can we have the next slide, please? All units grew revenue compared to Q1 2020, And the group revenue grew by 23% in total. Denmark grew revenue by 25%, despite the fact that a number of resources were working on projects in other operating units. The growth was, as mentioned, based on strong performance in the private segment. Norway saw the strongest growth in the group and grew 30.6% as a result of the wins in the public segment during Q4 2020, which has increased utilization significantly in Norway. In the Netherlands, revenue grew 22.9%, and that's after the adjustment to a single large fixed fee project and also despite the general election held in March that lowered activity level in Netherlands. Adjusting for the impact on the fixed fee project, revenue would have grown by more than 55% in Q1 in the Netherlands, in line with the increase of FTEs compared to Q1 2020 in the Netherlands. In the U. K, revenue grew 8.5%. But where Q1 2020 for the Netherlands, for instance, was a little bit of an easier comparable, The opposite was the case in the U. K. As COVID-nineteen imposed restrictions did not hit our U. K. Operation until April month 2020. This underlines the current momentum we see in the U. K, clearly driven also by our new relationship with the NHS, but also with other large existing customers. Looking at the growth in the U. K. On a sequential basis, the U. K. Generated revenue growth of 21.5% from Q4 to Q1 on the basis of a reduction in client facing FTEs of 1.8%, a clear example of the impact of being fully utilized. And can we have the next slide, please? Gross profit margins are slightly lower than for Q1 2020. And as mentioned, a number of factors are impacting gross profit margins. As already discussed, Danish Resources are working on projects in the other geographies, leading to a short term dilutive effect on margins in the countries outside of Denmark. In turn, the use of Danish resources outside of Denmark has led to a higher usage of short term use of subcontractors to cover for the resources used in other countries, negatively impacting margin in Denmark. This is a temporary situation, though, and it will normalize, we expect during the year. The change away from independent contractors in the U. K. Has also impacted gross margin negatively as a higher proportion of the client facing FTE base were now participating in the net company salary adjustment in January than was the case in Q1 2020. The drop in margin in the Netherlands is fully attributable to the impact from the adjustment to the fixed fee project that has been re estimated in Q1 2021 and previously discussed. Can we move to the next slide, please? Adjusted EBITA margin for the operating entities increased by 0.5 percentage point with strong performance in Denmark and Norway. Margin increased by 0.9 percentage point in Denmark and by 3.8 percentage point in Norway, bringing margins to 30.8% and were 17.7%, respectively. Margins in the U. K. Dropped by 2.3 percentage point, but the sequential improvement from the second half of twenty into Q1 2021 is expected to continue with a caveat that we will see a nonrecurring severance payment of around £6,500,000 impacting margins negatively in the U. K. In Q2. However, once those costs are taken, the most significant transformational changes to the U. K. Organization have been expensed. The lower margin in the Netherlands is related to the adjustment to the fixed fee project. On balance, we are naturally satisfied with group margins realized in Q1. Can we move to the next slide, please? Free cash flow was $100,600,000 in Q1 2021 compared to $95,000,000 in Q1 2020. Cash flow continued to improve during Q4 as continued focus on reduction on of working capital. Also, this improvement was done in Q1 and has led to a further reduced days sales outstanding that are now down at 47 compared to 56 days in Q1 2020. Work in progress, on the other hand, has increased, but seen together with accounts receivables as one total amount, the balance of the 2 items increased by 20.7% in Q1 2021, which is in line with the revenue growth of 20 2.9% realized. In Q1, we paid dividend of €50,000,000 and we paid the cash part of the purchase price related to the acquisition of our Dutch operation of around €89,000,000 Still, the cash position improved with more than €100,000,000 to €314,000,000 at the end of in Q1 2021. We have also today initiated a share buyback program of €50,000,000 that we will execute during the remaining part of in Q2. In addition, we will pay the holiday pay reserve to the Danish government following new rules on this matter. This is also a payment to be made in Q2 of around €95,000,000 And with that remark, I've concluded my detailed financial analysis, And we will now open up the call for questions. So if we move to the Q and A slide and open up the call for questions. If you wish to withdraw your question, you may do so by pressing 2 to cancel. Our first question comes from the line of Claus Almer of Nordea. Please go ahead. Your line is now open. Thank you. Yes, first of all, congratulations with a very strong Q1. My first question goes to the U. K. Looking at the number of employees in Q1, that's slightly down versus Q4 2020. Could you please give an update on why is that? That will be the first question. All right. Thanks for the question. As you rightfully say, sequentially from Q4 into Q1, the amount of FTEs in the U. K. Is dropping by 1.8%. There's some timing in that. We've accelerated the de use, if you so will, of independent contractors in the U. K. And we've not fully replaced those with our own employees as of yet. We are are gearing up still in recruitment in the U. K, and we expect to continue to hire more new talent in the U. K. During Q2, in Q3 and onwards. So there's a little bit of a timing impact on that. Okay. And then the second question goes to Holland. And Andrea, as you mentioned, you have not had any wins in Q1, at least as I understood. Does that mean Revenue in Q2 will be flattish over Q1 and how long will the current backlog bring you in Holland without winning new projects? Well, thank you for that question, Claus. I cannot go into details about exactly Projects in backlog, but we have a good business in the Netherlands. We won substantial deals last year. That keeps us In line with growth for trajectory growth in 2021. We have Pipeline in the Netherlands as well that we see convert. So I but we have a general election situation in the Netherlands as well. And we've seen some effects of that already in the Q1 and also here in the Q2 of 2021. But in general, the growth we've seen in the Netherlands last year will keep us on track and we as I said, we have a good pipeline and that's How detailed I can go into the question. Maybe can you say if you start to win some projects in Q2? Or is it still in a wait wait and see mode. There's a good chance of winning some substantial deals in Q2 and Q3. So So we have a good pipeline. And so it's not we're not looking at a desert, to put it partly. Okay. Thank you so much. Thank you. Our next question comes from the line of George Webb from Morgan Stanley. Please go ahead. Your line is now open. Good morning, Andre and Thomas, and congratulations to me as well on the strong start to the year. I have a few questions, please. Firstly, just in matching up revenue visibility versus employee growth, your visibility in Q1 was clearly very strong and grew 30% year over year. On the other side, you grew your employee base at 20% in Q1. Can you talk through those two factors matched together? Are expecting much better overall bench utilization this year as a whole? Or are you expecting to accelerate hiring through the year? That's the first one. And secondly, just thinking about the UK with the change management at the end of March, but also accounting for various framework agreement on boardings as well. Can you expand a little bit more on how you judge the overall setup now in the UK and the confidence as you look into the rest of the year? And then lastly, just on the phasing of admin cost savings coming back in, you mentioned the $15,000,000 saving in the Q1. And have those costs already started to come back in during the second quarter or is that more of a second half factor? Thank you. Thomas, if you take the first and the third question, I can take the second. Yes. Thanks, George. On the relationship between revenue visibility and the growth in FTEs, you're absolutely correct that revenue visibility has increased by 30% on a base of employees that is increasing by 20%. And the main factors for the high increase in revenue visibility is, 1st of all, more contracts signed in the private sector on a longer duration, more contracts signed in both Norway and the U. K. In the public sector, also from a longer duration. And the reason why it's then possible to continue to grow or To have a higher revenue visibility signed compared to FTEs is that to a certain extent, there was some bench specifically in the U. K. And in Norway during 2020. And clearly, when that bench is utilized, we get the fact that we have revenue increase Without FTE increase, because the increase in the FTEs was actually taken last year. So hope that clarifies that question. On the phasing of the admin cost, there is a saving of around this €15,000,000 as I mentioned, correct. And Some of that is beginning to emerge, not really in the early part of Q2, But more towards the latter end of Q2 when society is generally more open, we can start to travel and have on location education, on location staff events and the like, but we are not there yet. So there will also be Some savings, if you so will, on that account during Q2. And then the U. K. Setup, I'll leave to Andre. Yes, Josh. I think the change of management in the U. K. Is just a result of natural progression in terms of what we do, what kind of projects we deliver and what markets and what levels of the executives that we target within our client base. So it's just a natural progression. We have A substantial part of the original partner grew there still and we also have some very strong new people coming in and taking more of a commercial relationship with larger clients, larger projects. So it is and we see this clearly as a natural development. And we've seen that too happening in the other countries That we've been entering, likewise in Norway, we did the same thing. So this is this was bound to happen at some point of time, and we will continue to see that kind of development in any of our new territories when we increase the size of our clients and also the nature of our projects. Thank you. Our next question comes from the line of Toby Ogg of Bank of America. Please go ahead. Your line is now open. Yes. Hi, good morning and thank you for taking the questions. Congratulations from me as well, obviously, on a very strong start to the year. So just on the private sector, clearly, we continue to see that strength there and obviously further acceleration in growth from the levels that we saw in 2020, specifically in Denmark. Can you talk a little bit about the drivers of the further step in Q1 and how sustainable you think that new level could be through the rest of the year? And then secondly, can you talk a little bit about how we should think about the implications for the group margin profile if the private sector really starts to grow within the mix, given that it's much higher margin? Thank you. Great question. Without no doubt, I think we've We've seen greater interest from the private sector into Net Company Services. However, I have to stress that we've been working with the private businesses For a long time, we've been very well known for doing large public deals. I think the COVID-nineteen crisis have shown In many larger corporations, they need to travel on a journey with a partner that takes responsibility. Net company, especially in the Danish market, we are very well known for not selling resources, but selling outcomes and projects and being a trusted advisory and partner during a longer journey. And we've seen many private businesses going from in searching resources and searching specific solutions to actually looking into platforms where they will invest into A larger digital platform encompassing several products or services and having one larger partner helping them doing so and launch several projects, several initiatives together with that partner. And that's the kind of development we've seen in Denmark with some of our strategic customers, both existing and new customers. So that's very comforting and also shows that in many corporations and businesses, a digital platform is now on the absolute top agenda in the Board and on the absolute top agenda of creating growth in almost any kind of business. And when it comes to The margin effect, I mean, traditionally, we've been very good at creating the necessary margins when developing IT solutions, both in the public and private Etcetera. And structurally, there is no big difference. I have to say, it all depends on the particular project, on the particular client, the particular situation, sometimes maintenance margins are a bit better than when we develop. That is a general rule. But we also see very different margins within the private sector and different margins within the public sector depending On the type and nature of the project, what I can say though is that we have one objective always and that is the long tail. When we go into customers, eventually we will have a that's what we're aiming for, a long relationship With margins that adheres to what we consider being good margins in that company. I know that was a long answer, but I hope it gave you some insight into how we're thinking. Yes, that's brilliant. Thank you. Thank you. Our next question comes from the line of Daniel Hildewai of Handelsbanken, please go ahead. Your line is now open. Thank you very much, operator, and congratulations both to strong results. My first question is a bit about salary inflation, but also inflation in terms of independent contractors and also how to consider the U. K. Market where sort of mix has changed from and independent contractors to more own employees with a salary increase and so on from January. Can comment a little bit on the pricing or the salary inflation for 'twenty one and hope to think, yes, in the quarter some of the grades. Sure. Thank you, Daniel. On the salary inflation In general terms, we are in that company not typically hit that hard by salary inflation because the model we have actually gives our employees a fairly steep salary increase anyway. So in the net company salary model, When you perform well, you will get a salary increase of between 10% 15% every year anyway, which is over and above what is in the market. What Andre was alluding to in the beginning of the presentation is more this underlying pressure on the Labor Market Day, where there's more movement between and the likes. But salary inflation per se, of course, is something that we always watch, but also something that we think our model can handle. When it comes to the impact on the change away from independent contractors to our own employees in the UK, From a very practical perspective, what happens is that the independent contractors that we used to have on the books, their rec rates will not really increase year over year. So in Q1, for instance, 2020, we had around 45% of the FTE base in the U. K. Being independent contractors, which would then in Q1 2020 not have any salary increase. Now in Q1 2021, That percentage was down to 12%. So that means that a higher proportion of the client facing employees And in a lack of a better word, of the production capacity is being adjusted. And of course, that's a big step up Because it's the Q1 we do it with that magnitude. So there is a higher impact relative to the U. K. Than any other country because of this change away from independent contractors that had no salary increase by the nature of the contract. Going forward, the U. K. Will follow the normal net company method, which is an increase in salary. And then, of course, the game for us is or the chance for us is to make sure that we have Sufficient by sufficient long contracts that are focusing on outcomes so that we can price them accordingly, and then we will see margins come up. And adding to that, in general, I think our long strategy of And tradition of hiring young people as a majority of the new hires and creating an environment for them to become Better at what they do and have an education and support in their during their stay in that company, I think creates a less fragile situation towards salary inflation. We are not in the business of competing About specific resources with specific talents, with specific competitors all the time. That will just increase salary inflation. So we are much more in building up the right profiles. And then we hope that they will stay as long as possible within our organization. And one more question for me on the Danish exporters transfer into the Dutch projects and some in the UK. You commented that this will be fixed during the year, but you expect it to increase, either these projects will increase in volume here in Q2, Q3 before being ended, but I'd like to call to the year, how to think or will it be incremental then? The level we have now in Q1 in terms of how many resources from Denmark are participating in projects in the other countries, That will be more or less on that level for some months still to come during Q1 into Q3. And then gradually, we're going to start to see a more normalization of that. But it's still difficult really to predict down to the month because it has to do with the different projects, the progression and these things. And for us, it's much more important that we deliver quality in all the countries. And if that means that we have to take 5 people from the Danish organization and put them on projects in Holland for 3 months more, Then we will do that because that is really what is going to make Holland a success story, for instance. So that's how we think of it, Daniel. It will normalize, We are not pushing it to normalize to meet a specific time. We are pushing it to normalize for when the organizations are ready and can stand on their own feet. Creating long term growth in your new markets as well. Yes. May I have the last question only, being a bit of a newcomer here? I guess you've got this question many, many times before, But I was wondering a little bit on your strategy in terms of continued expansion because you have the high ambition to become the northern were the leading IT service suppliers in the Northern Europe, etcetera. And I was thinking, will you continue to expand to some critical volume in UK and Netherlands before heading into further geographic expansion or is it more of That's a very good question. I think if you look at it, we have enough market. We have a lot of market potential in the 3 new markets that we're in outside of Denmark. So that is our main focus is to create growth in those markets where we already are. So that's our focus for sure. We're also looking at potential new markets. But I think it's not a question of spreading ourselves too much geographically, that is the primary target here. We have enough market. We just need to go and get it even more in those countries where we're already present. And of course, we're also looking opportunistically at possible new Countries, but that is that it does not have the same high focus as growing as we've promised in the existing markets. Thank you. Our next question comes from the line of Gianmarco Conte of Deutsche Bank. Please go ahead. Your line is now open. Hi, Thomas. Hi, Andy. Thank you for taking my questions. First of all, congratulations on the Q1 and great start of the year. I also have a few. And the first one, maybe just a quick one on seasonality. Could you perhaps provide some color on how should we be thinking about modeling the split of public and private in the coming quarters, do you expect something similar to what was in 2020? Or do you expect private to play a stronger role given the shift in more resources being allocated projects in the private segment? Particularly, how should we be thinking about this in Q2? Yes. So without going into specifics as to how much is private and public going to The growth in the private sector has been higher than it has been in the public sector in Denmark for some quarters. It will level out again at one point in time. Our overall goal is still to have a somewhat balanced The portfolio of public and private. But I think what's even more important is that to us, it's not really important. Of course, it's important, but it's not that important whether it's a public or private project, the most important thing is that it's the right project for Ned Company, which means that it needs to be large scale, it needs to be complex, it needs to be long tail. We need to be able to with our pyramid structure. And then it's not so important whether it's one or the other. Now the reason why we like also the growth in the private segment is that That is half of the market in Denmark. And if you have if you want to continue to grow, which we want, then of course, you want to be able to attack Not only one half of the market, but both parts of the market. And visually think of it as instead of jumping on one leg, now we're running on both feet. So that's more how we think of it. And then whether it's public, private is not that important. Also expanding on what Andre said early On a more longer term perspective, margins are not that different from one segment to the other. There is a little bit of Difference right now where we see higher profitability in the private sector. On a longer term, you'll also see that even out, but that can flex up And down from 1 quarter to another. So again, bear with us with the longevity of the answer, But we cannot give you a straight percentage for Q2 and the rest of the year. So this is more how we're thinking for to get an understanding of. Right. I see. Okay. Fair enough. Thanks. Okay. So just secondly, Something quite different. How do you see sales and marketing to be approximately? Do you see it to be in the same percentage of sales as it is in Q1 for the rest of the quarters? Or was this increase in marketing costs just like the one off in this quarter? I saw you guys there a bit of a campaign in Q1. I was just wondering how should we be thinking about that in the coming quarters? Are you just kind of like expanding a little bit onto your marketing efforts to show a bit more of the brand awareness? Or is it just like a Q1 one off? Well, certainly, in some of the new markets, we are spending a bit more on marketing. That is a natural and good thing to do. In general, I think our marketing is very different from what you traditionally see. We are investing more into PR and conferences And less on traditional marketing. So we are not a heavy spender on marketing. We are using customers to customer relationships and conferences and PR and relations much more. So in general, I think our marketing costs will follow the development of the company. We have no plans of increasing that tremendously. So but you will see some jumps from quarter to quarter depending on the timing of campaigns in specific countries. But in general, we will keep the same strategy marketing wise. So we'll spend most of our energy in a business to business creating business to business relations between the important decision takers and that does not require Huge campaigns or going out to a larger audience in that sense or sponsorships. Right. That makes sense. I have the last one, but I think you guys have reiterated that point a fair few times around adjusted EBITDA margins of are private versus public, but I guess it's still in the long run, correct me if I'm wrong, in the long run, it's roughly the same. It's just that in each one of those two segments, you have some projects which will yield higher and some projects which will yield lower. And perhaps in the short term, if you do focus a bit more on private, should potentially have a little bit of a higher margin impact there. But in the long run, it should be roughly a balance, correct? Correct. That's correct. Great. Okay. Thanks a lot for that. That's all for me. Cheers. Thank you. Our next question comes from the line of Yiwei Zhou of SEB. Please go ahead. Your line is now open. Hi, Andrew and Thomas. Thank you for taking my question. I have three questions left here. Firstly, so you have utilized More external consultants in Denmark. So should we expect this will continue into the remaining of the year or you will be able to accelerate your hirings? Yes, that's a good question, Hubert. Thank you for that. I mean, We do not it is not with our goodwill that we put in more external consultants. But in this case, it's actually for the good benefit of the entire group Because we are helping out on really, really interesting projects in the new markets. So I say our policy is always to keep the number down. Sometimes we need to put them in, in order to do what we want to create even more firms and more organizational growth other places. So right now, we've been it's been necessary to add some external consultants to help out. We we do not plan for that to be a permanent situation. We will always keep that number down as much as possible. And The good news is that we are actually welcoming a great new deal of employees. We hired 350 just Quarter to quarter since Q4 last year. So and we will continue to do so. So in general, we are looking at this All the time, we are monitoring it and we will do our very best to keep it down. If we don't if you're not able to keep it down, it's because we're growing somewhere else And helping out. And as Tom has alluded to earlier, that's not a permanent situation. Right now, it really makes sense to help out on the projects in other countries. So we should also expect the this was continued to dilute to the gross margin in Denmark in the coming quarters. Is there something? I don't think that that was what the answer was. So I think Andre gave a fair good description as to why there are many subcontractors and why that potentially will continue, but we did not really make any comment on margins. Is it fair to understand you will continue to have some kind of dilutive effect or positive dilutive effect from the usage of external consultant in Denmark. Still the same answer, not really commenting detail on margins. Okay. Fair enough. My second question here is, so this is the 2nd quarter you balance the growth in Danish Public and Private segment. And if you continue to do so, is it fair to assume there will be some kind of a compromise of your customer relationship in the long run, especially with your customer, a public customer. Could you elaborate a bit here? So the reason why we grow in the private sector right now is that there's a lot of very interesting projects It's not that we are stopping to focus on the public sector. I would actually say on the contrary. And Andre is highly engaged in that both in Denmark, but also internationally. So there's a timing of that. Right now, there is a high growth in the private sector, which is good because it balances our growth opportunities because we're now tapping into both pockets and this is Denmark only. But it does not mean that we are seeing or experiencing any deterioration in any of our customer relationships with The large Danish public institutions. On the contrary, I would say. Yes. Let me answer this. I mean, there's been a lot of focus on this call on private versus public, public It has always been a question of timing. We are looking at the pipelines. We're looking at the projects coming in, the timing of them, The criticality of them, how business critical are they and how long tailed are they. And then we start on these projects when we see them fit And ready to go into. I do actually believe that we will see high investments into public and private digitization in Denmark in the years to come in both areas, and we will see the same thing happening in many of the other countries. It's a structural thing happening in the countries, of course, also being accelerated by COVID-nineteen, but it's been there for quite a long time. And we will see more new platforms coming in both in the public and in the private sector. So I mean from quarter to quarter we can always discuss this, but we're just following the very same strategy all along. And I think it's interesting to see that in Denmark this quarter, the last two quarters, we've been growing in the private sector. In Norway now, we're growing in the public 2, 3 quarters ago, it actually jumps in. So I think it just shows that Both private and public is important for our company and we will not differ. We will try to balance it out as much as possible In the countries where it is fifty-fifty because of the economy being fifty-fifty public and private. There's not much more to it actually basically. All right. Thanks. And my last question here, I just want to clarify on this $50,000,000 cost savings with COE restriction. Do you still expect to fully normalize it this year? No. It's going to be difficult for us to spend what we have saved simply because there's not enough Fridays in a proper setting in the remaining part of the year. So we will see some acceleration of costs, but some of the savings are also going to be there for the good part of 2021. Okay. And do you expect any like long term savings here? I think that's an interesting structural question. We and that's Something we will be more educated on, having an opinion on later on in the year because clearly, Will COVID-nineteen impact the way we work? Sure. Will it have an impact on how we engage With our employees, sure. How? Really difficult to say. What we can say here short term as Society is being to open up all of our employees. They have really missed being in the officer. So they're coming back big time. Will there be some sort of hybrid solution in the future? I think so. Will we be having another pattern in terms of how we travel around the world? I think so. But it's still early days. So that We would like to postpone a little bit and then discuss with you guys in more details once we are better educated to do that. Otherwise, it's just going to be guessing, which please press 1 on your telephone keypad now. Currently no further questions registered. I'll hand back to the speakers for any further remarks. So thank you very much and have a great day.