Netcompany Group A/S

CSE:NETC

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the presentation of Q1 report conference call. [Operator Instructions] I must advise that this conference is being recorded today, Wednesday, 6th of May, 2020.I would now like to hand the conference over to your first speaker today, André Rogaczewski. Thank you. Please go ahead.

[André Rogaczewski, Co]

Thank you. Good morning, and welcome to this presentation of Netcompany's Q1 2020 results. My name is André Rogaczewski, 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 #2? I will pause for 30 seconds here, and I'll let you all have a read-through of these important disclosures.And with that, can we please go to Slide #3, please? So 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 will also discuss our employee base and the development in that and spend some time discussing some changes we've made to senior partner group in our operation in Norway, the U.K. and the Netherlands. I'll also spend some time discussing the projects that we have delivered in the first quarter of 2020, including a few words on the project we've recently won here in 2020. And finally, I will go through our financial guidance for 2020, which you already probably have noted is maintained from our original guidance given in connection with the annual report. And once I'm done, Thomas will go through the numbers in greater detail, including detailed stages on the ongoing conversion of independent contractors to permanent employees in the U.K.Can we have the next slide, please? In Q1, we continued our high-growth rate and realized growth in top line of close to 17% in constant currencies, which is in line with our expectations for the first quarter. In Q1 2019, we had a positive impact on the top line from the release of DKK 10 million from the contingency risk reserve. And adjusting for this revenue, in a like-for-like setting, revenue would have -- adjusting for this revenue in a like-for-like setting will be increased by 18.3%. Gross profit increased by 17.5%, yielding a gross margin of 39.5%, which was an increase of 0.4 percentage points compared to the same period last year.Adjusted EBITA margin was 23.6%, which was lower than the same period last year. However, Q1 2019 did not include the impact from the recent Dutch acquisition. And further, Q1 2019 was positively impacted by the release of DKK 10 million from the risk contingency reserve, as already mentioned. Thomas will go more into details with the specifics and technical and financial explanations of this later. However, adjusted for the net effect of these factors, adjusted EBITA margin increased by 0.7 percentage points in a like-for-like setting.FTEs grew by 489 in Q1, following the strong growth in FTEs in Q4 of 489 and laid the foundation for continued growth.Can we have the next slide, please? The 486 new employees in Q1 is distributed as shown on this slide. Our operation in the Netherlands account for 89 of the increase in FTEs as we did not own the Dutch operations in Q1 2019. We've added FTEs in all units, but in the U.K., we also see the biggest change in the workforce. While we've added 86 permanent employees in Q1 2020 in U.K., we have reduced the use of independent contractors by 99. Our average age of the workforce remain low, mid-30s, and we are continuously ranked high in various employer branding surveys amongst students.Churn for the last 12 months was 18.6%, which was 6 percentage points lower compared to last year. And in Denmark, the churn ratio was reduced to 14.9% compared to 17.7% last year. In Norway, the churn ratio increased in Q1 and was 23.5%, significantly higher than for the same period last year, where it was 14.8%, mainly at the spike in employees leaving Netcompany Norway was in Q2 2019, and therefore, not included in the comparable churn for the period covering March 2018 to March 2019.In the U.K., churn rate was reduced compared to same period last year and was 25% for the year, which is still high compared to the group, but a significant improvement following the conversion of independent contractors to permanent employees. The amount of administrative employees measured as nonclient-facing resources was 6.8% compared to 7.1% in Q1 2019. We firmly believe that the nonclient-facing resources ratio will come down towards a level of around 5% during the next couple of years, in line with the level pre-IPO.Can we have Slide #6, please? Now one of our principles when acquiring a new company in a new country has always been to build the continued growth on the existing management. With 3 acquisitions done, we've learned that we and the acquired company will benefit greatly by adding senior leadership capabilities from the industry to accelerate the growth in each local unit. Recently, we've added 3 senior partners to our entities in Norway, U.K. and the Netherlands. In Norway, Geir has recently taken over the responsibility as Country Managing Partner. And in the U.K. and the Netherlands, Jack and Hein have joined the Partner Group, and they will both be pushing sales activities in each country. We are confident that these additions of senior leadership will be beneficial to us in each of the countries.And now can we have the next slide, please? During the first quarter, we delivered a number of projects, and I want to highlight 2 of them here. Firstly, we've delivered the new pension systems to the Danish state, more specifically to ATP, that is handling the payout of pensions to the elderly in Denmark. The project has been developed over the last 2 years. And with that project successfully delivered in corona times, we have once again showed a commitment to deliver projects on time, on budget and in great quality. In the Netherlands, we've delivered a platform for all students to the agency handling the enrollment process into universities in the Netherlands. The project is 1 of the 2 fixed-fee projects that our Dutch operation was already working on when we acquired the business last year. The project delivery is important for our continued growth in the Netherlands and already serves as a strong testimony of our capabilities in the Dutch market.Can we go to the next slide, please? In Denmark, we were awarded the contract to deliver a new dispatch platform, the Danish Police force, a project that is exciting and in a segment of the government sector that we have not previously been very active in.In addition, on Friday last week, the 1st of May, we were awarded the contract to build and maintain the platform for 500,000 members of the LD funds in Denmark, another significant win in the Danish Private segment. Further, both in Norway and in the Netherlands, we have a very interesting late-stage pipeline cases that look promising. So despite all the uncertainty in the world these days, we continue to see decisions being taken on initiating larger digitization projects according to plans, which naturally is reassuring for us.And this leads me to our expectations for 2020. So can we have the next slide, please? At the beginning of Q2 2020, we have a visibility of more than DKK 2.1 billion of revenue as shown here. This is an increase of 19.3% compared to the same period last year. The highest amount of contractually committed revenue is within public as has been the case historically. However, we've seen improvement in the visibility in the private segment following major wins in both Denmark and in the Norway earlier in the year. Our pipeline continues to look interesting and promising in all countries we operate in, and we progress as planned on the various tender activities we participate in.Given our current revenue visibility and the pipeline of projects we are looking into, we still expect organic revenue growth of around 18% to 20%, as outlined on the guidance slide as shown on digitalization -- sorry, as outlined on the guidance slide as shown on the following slide.Can we go to the next slide, please? Slide #10. The risks surrounding our full year guidance with originally -- when originally presented remains in play. There are still the uncertainty related to the implementation of the IR35 legislation in the U.K. And naturally, any major delays in larger tender processes when Netcompany competes could also have a negative impact on revenue growth. The current coronavirus outbreak has in Q1 2020 not impacted our business. The impact that the virus is expected to have on the markets in which we operate and on our clients introduce significant uncertainty to us also, in particularly the second half of 2020. While some companies most likely will defer decisions on existing projects and investments into IT, it is also our assessment that the need and demand for new digitalization projects and the acceleration of current initiatives will increase and offset any potential decline in demand for the kind of services we deliver.The performance in Q1 has, we think, shown the resilience of our business model and our focus on the public sector is offering additional support to our continued growth. Hence, we have maintained our guidance for the full year for both top line growth and margins, but clearly, with increased uncertainty.And with that, I will give the word to Thomas to take you through the financials in greater details. Thomas, please?

[Thomas Johansen, CFO & Member of Executive Board]

Thank you for that, André. And like already mentioned, I'm CFO of Netcompany, and I will go more details with the financial performance for Q1 2020.So if we move past the breaking Slide #11 and straight into Slide #12 in one go, please.Then on Slide #12. Revenue growth for Q1 was 16.4%, negatively impacted from currencies by 0.4 percentage points, leaving growth in constant currencies at 16.8% against Q1 2019. Of the revenue growth, 3 percentage points was from our Dutch acquisition. When looking at growth in this quarter, it is important to take into consideration that we -- in Q1 2019, we leased DKK 10 million from the contingency risk reserve, which impacted top line and margins positively then without any underlying activity required from FTEs. Thus, when speaking to a more "like-for-like" comparison, those DKK 10 million should be adjusted for, and when doing so, revenue grew 18.3% in Q1 2020.Gross profit margin increased from 39.1% in Q1 2019 to 39.5% in Q1 2020. So 0.4 percentage points. When adjusting for the impact of the release of the DKK 10 million from the contingency risk reserve in Q1 '19, the like-for-like gross margin increased by 1.1 percentage point following strong performance in both Denmark and in the U.K.Interest rate cost was reduced from DKK 4.8 million in Q1 '19 million to DKK 3.9 million in Q1 '20, both as debt level was reduced and also interest rates on our loan facility came down as leverage was decreased. The reason for the increase in net financials is mainly currency adjustments on the loan held in the U.K. unit that was established in connection with the purchase of the U.K. operation back in 2017. The opposite leg of that caused the income for the same loan is accounted for under comprehensive income. So the net is neutral for the group.Can we have the next slide, please? Slide #13. So growth in Q1 was mainly generated in the Danish unit that grew 18.7% as reported. In Q1, the Danish unit spent significant amount of time on business development activities in answering to large tenders currently in the market in Denmark. Compared to Q1 2019, this activity reduced the amount of hour used on client billable activity with a value in turnover of around DKK 10 million. Taking this activity into consideration and also adjusting Q1 '19 for the DKK 10 million release in the contingency risk reserve, the like-for-like revenue growth in the Danish unit was 23.9%, which is reflecting the underlying activity level in all segments in the Danish unit, which has been really high.The growth in Norway was 6.5% in constant currencies, and as such, display the continued impact. The loss of a couple of contracts in the summer of 2019 still have on top line in the Norwegian operation. As André has already mentioned, we have taken a number of measures in Norway to ensure that we win larger projects that we have in our pipeline to support that we get to the level of growth that we expect to generate in Norway.In the U.K., growth was significantly negative -- sorry, in the U.K., growth was slightly negative in constant currencies as we start to see the change in the employment base where a larger number of independent contractors has been transferred into permanent roles or discontinued pool. Comparing to Q1 2019, the amount of client-facing FTEs in the U.K. has been reduced by 20, a reduction of 5.1% compared to a loss of revenue of 3.7%. So a relatively larger reduction in the revenue-generating resource base, if you will, the FTEs, than the actual reduction in revenue, as expected.Activities in the Netherlands remain high and also higher than expected based on strong performance in public sector, where we continued to see new wins and a increasingly interesting pipeline.Can we go to the next slide, please? From a gross margin perspective, Q1 was strong with total gross margin of 39.5%, an increase of 0.4 percentage points. The Danish operation increased margins slightly. However, the underlying improvement in margin is bigger than reported margin suggests. As mentioned already the release of the DKK 10 million from the contingency risk in Q1 '19, combined with the additional hours spent on business development activities in Q1 2020, means that the "like-for-like" margin improvement was closer to 2.7 percentage point rather than the 0.2 percentage point improvement as reported.In the Norwegian business, the reduction in margin was due to the aftermath of the loss of a couple of deals in the summer of 2019 leading to a somewhat lower utilization. The biggest positive impact on margins, though, come from the U.K. that saw margins increase from 18.7% in Q1 2019 to 25.4% in Q1 2020 as a result of a combination of a better balanced project portfolio and a lower proportion of independent contractors.And finally, the margins in the Dutch operation were around 31% mark for the quarter, which is a significant increase from last quarter sequentially from Q4 into Q1, where margin was around 20%. The reason for the increase in gross margin in the Netherlands is that the 2 large fixed-fee projects that the Dutch operation had on the books prior to the acquisition have now been delivered during Q1, and hence, they are not impacting margins negatively going forward.Can we move to the next slide, please? Adjusted EBITA margin for the operating entities before allocation of central headquarter cost was marginally lower percentage-wise at 25.4% against 26% in Q1 '19. The main reason for adjusted EBITA to be slightly lower while gross margin was slightly higher is that more administrative and project-related costs are incurred in the Netherlands as a consequence of the accelerated integration process there.Also impacting adjusted EBITA margin basically negatively is from the U.K., where the improvement in EBITA margin was not as large as the improvement in gross margin. The reason for that in the U.K. is that the costs associated with the ongoing conversion of independent contractors to permanent employees hit administrative costs in Q1, but also office space in the U.K. in London has been doubled with full impact on the cost in Q1 2020.Can we go to the next slide, please? As already mentioned, we want to give you an update on the IR35 legislation in the U.K. and, again, to recap, IR35 is a new piece of employment legislation that was originally to be effective in the U.K. as of 1st of April 2020. The essence of IR35 is that if you are an independent contractor in the U.K. and you only have 1 main customer, you are viewed to be an employee rather than an independent contractor, which have significant additional taxes on the individual. It also introduces taxes for the company.As a consequence of COVID-19, the U.K. government decided to postpone the implementation of IR35 to April 2021. However, we have continued to push for the implementation of IR35 as it is the right thing to do for Netcompany on the longer term. As of Q1 2019, 60% of the client-facing FTEs in the U.K. was independent contractors. That was reduced to 42% at the end of 2019 and further reduced to 37% at the end of Q1 2020. As of the 1st of April 2020, the relative part of independent contractors of client-facing employees in the U.K. was reduced even further and now stands at 26%. It is our plan to continue to reduce the amount of independent contractors throughout 2020. In absolute numbers, the amount of independent contractors was reduced by 96 compared to Q1 2019, as outlined.Can we have the next slide, please? When looking at the split between development and maintenance, the group picture is very stable. However, with an increase in Q1 2020 in maintenance revenue, both in absolute and relative terms. This was driven by a number of projects being completed and going into maintenance space, mainly in Denmark. The relative stable group distribution covers differences in the various countries where a relatively larger proportion of revenue in Denmark is maintenance compared to the other geographies. A natural consequence of the portfolio of customers being more mature and, to a higher degree, production set mode already in Denmark. Our target split remains 50-50, and the split will still vary from quarter to quarter.Can we have the next slide, please? Free cash flow improved from DKK 75 million to DKK 95 million in Q1 2020. Operating profit was improved, and working capital changes were flat, which is a result of both a negative buildup impact from work in progress, being offset by substantially improved days of sales outstanding in accounts receivables that was reduced from 70 to 56. Normalizing free cash flow for tax payment made in Q1 and related to Q1, the free cash flow was DKK 136 million compared to DKK 111 million in Q1 2019. Tax normalized cash conversion rate was 120.9% compared to 93.6% in Q1 2019. We held DKK 208 million in cash at the end of Q1 2020 and have further funding available of more than DKK 0.5 billion. So in all aspects, our cash position remains strong.Can we have the next slide, please? We had originally planned for a Capital Markets Day on 2nd of June in Copenhagen and due to obvious challenges with international travel following the COVID-19 pandemic, we will move the Capital Markets Day into the fall, and a new date will be communicated as soon as possible.So with that remark, I have concluded the detailed financial walk through, and we'll now open up the call for questions. So can we move to the Q&A slide, please, and open up the call for questions. Thank you.

[Operator]

[Operator Instructions] We have questions on the line of Claus Almer.And your next question comes from the line of André Thormann.

[André Thormann, Analyst]

Hello, can you hear me?

[André Rogaczewski, Co]

Yes, we can hear you.

[Thomas Johansen, CFO & Member of Executive Board]

Yes, yes, we can hear you now.

[André Thormann, Analyst]

That's super. Just to start off, is it correctly understood that you are currently not seeing any negative effects from corona? Just to be completely sure.

[André Rogaczewski, Co]

Yes. Well, it's -- we've had a few customers who've been canceling some of their engagement with us, but it's been very few. And at the same time, we've had new customers coming in taking up that gap. It has been very minor. So to answer your question, we've seen some effects, but it hasn't been very big effects. And at the same time, we've seen positive effects from customers actually increasing their engagement because of the -- because they want to increase their digitalization levels and be more agile when it comes to the association. So looking at that in a broader perspective, we see no reason why we should change our outlook for 2020.

[André Thormann, Analyst]

Okay. And in terms of U.K. also on the corona, it seems that it's a bit different situation that we have here in Denmark. I mean you also don't expect any more negative effects to come from there? I mean the growth would already be a bit challenged from the conversion. But now with corona, I thought it would might be, yes, even worse.

[André Rogaczewski, Co]

Well, what we do best, I mean, we are continuously in contact with our customers, and we'll continuously look at the pipeline, and we look at the visibility. So from a technical numbers perspective, we see no signs that are major in any sense. However, like everyone else, in these times, we cannot predict the future. So what happens in the second half of 2020, no one knows exactly. But right now, there's no reason not to think that we can continue to deliver the digital services that we do for many of our customers. And for many customers, these services are crucially important for the operation and also to build the capabilities, especially in the time as COVID-19. So of course, the world is in a much more unsecure state. There's a lot of more risk out there. And the U.K. is a bit behind Denmark when it comes to when closing down society and when reopening, that is for sure. I think we're talking about at least 2 or 3 weeks. However, we see the same tendencies in the U.K. market as in Denmark. I mean some customers are hit hard, but some customers are actually also accelerating their digitized investments. And for the time being and what we can see and looking both at the numbers but also from the qualified inputs we get from customers, we see no reason why we should change our outlook for the time being.

[André Thormann, Analyst]

Okay. And just my last question, maybe for you, Thomas. Can you maybe walk me through the like-for-like for Denmark? What did you take in other than this provision?

[Thomas Johansen, CFO & Member of Executive Board]

So if you adjust -- sure, André. So if you adjust 2019 for the provision of DKK 10 million and then you take into consideration that we, in Q1 2020, have spent to the tune of what is equivalent of around DKK 10 million in revenues or lost revenues, if you so will, on business development, so tender writing activities and you adjust for that in Q1 2020, then you get to the growth of around 24%. So DKK 10 million off in '19 and DKK 10 million that we would have done more in a normalized setting if we hadn't written all these tenders, which we, of course, will -- and then the tender writing activities will then level out over the year. So it's high in the first half, and then it will be lower in the second half.

[Operator]

Our next question comes from the line of Poul Jessen from Danske Bank.

[Poul Ernst Jessen, Senior Analyst]

Just a follow-up on this cost on the tender writing. Shouldn't that be seen as a normal activity for a company like yours or is it exceptionally high right now? That was the first question.

[Thomas Johansen, CFO & Member of Executive Board]

Yes and like I -- at least that was my intention to try to illustrate. It will fluctuate from quarter to quarter. But when we compare, of course, we always have tender writing activities. So you're absolutely right in that, Poul. But when we look at the Q1, specifically 2020, and when we do these comparisons between one quarter and another, then we think it's also relevant to highlight when there is extraordinarily high activity. So it's not that we don't do tender writing activities throughout the year. We do, and that's a significant investment. But in Q1 2020, the investment has been even higher than it normally is, and it's been significantly higher than it was in Q1 2019. So to give flavor to what the resources are actually used for, because if you look at the underlying growth in resources in Denmark, you would see that the underlying growth is larger than the reported revenue growth. So that's the reason why.

[Poul Ernst Jessen, Senior Analyst]

Okay. Then a few questions on the outlook for the year. You are adding 24% people on the front-end side and you are guiding, including that you have some contract wins, both in the public sector and private going forward. I was just wondering if -- in case that you are not winning those contracts, how can you come, say, adjusting in then you are running at full steam, assuming winning contracts and then potentially, if not, then that would have a margin impact. How do you look at it from a risk perspective? And secondly, on the order backlog. As I can see it, last year, about 70% of the backlog you had were confirmed contracts and realized revenue where more were on -- this year, it's 90%. That means there is less left for unconfirmed or uncommitted contracts. Does that mean that you see there's a much more solid backlog this year than last year? I guess it's combined with the other question.

[André Rogaczewski, Co]

Let me take the first part of that and maybe, Thomas, you can do the second. I mean, we are running up -- the business runs normally as it has always done. And we always have tenders coming up, and we have some tenders that are more important than other tenders. And of course, you're right. If we don't win the tender that we need to win, then it will always affect the numbers. However, the business runs normally as it does right now with all the tenders we need to win at some certain point of time, like it was the case last year and the year before. So nothing abnormal in there. And Thomas, when it comes to the backlog?

[Thomas Johansen, CFO & Member of Executive Board]

Yes. So when it comes to the revenue visibility, then it's true that the proportion of contractually committed revenue is higher, and that has to do with more contracts in the private sector being of multiyear-type contracts, which clearly makes the revenue more secure, if you so will. So the quality of the revenue visibility is increased when you look at it compared to 2019. However, though, the reason why we've always include noncontractually committed revenue is that typically is for ongoing projects and maintenance on business-critical systems. So while they have not been, from a strict legal perspective, contractually committed based on history, we know that, that is what's going to happen then and come into our books anyway. So from a pure legal perspective, you're right, Poul, it's better quality, and that has more to do with the more multiyear contracts in the private sector.

[Poul Ernst Jessen, Senior Analyst]

Okay. And then on Norway, can you -- 2 questions there. Can you update on the tenders out there? You have earlier said that you had to win 1 or 2 out of some 5, 7 plus that you are participating in. What's the status relating on that? And then on a technical point, the HQ cost allocation for Norway in the first quarter went up to close to DKK 3 million from less than DKK 1 million last year on each quarter. Is that a new run rate for Norway?

[André Rogaczewski, Co]

Okay. So the first part of the question, we certainly see an interesting pipeline in Norway. We've added the Danish resources to write tenders. We are very well positioned. According to plans, we are building up in a pipeline that is more similar to the one we have in Denmark, a strategy... sorry, I think was interrupted. Can you hear me?

[Poul Ernst Jessen, Senior Analyst]

Yes. I can.

[André Rogaczewski, Co]

So it's a very positive setting. We have increased our number of people who can write tenders in Norway, and we have hired experienced people in Norway to help build up the relations. And I think we're in a very positive situation. However, I can't reveal exact tender status on the particular bids that we are providing within Norway.

[Thomas Johansen, CFO & Member of Executive Board]

And to add further, Poul, the reason why the allocated cost in Norway has gone up in Q1 has to do with the resources allocated to the Norwegian operation from Denmark. And a significant amount of resources being added to write and help the Norwegian organization write tenders. So that is what we're doing now, and we'll continue to do so some part of Q2, but then it will normalize. So it's not a new run rate for Norway. We've added, like André said, new capabilities in Norway. Geir is a Country Managing Partner. We've added more senior partners also with experience in tender writing in Norway and with deep understanding of the Norwegian business. So they will be able to "run on their own feet," but they need some help in the initial phase, and that's what we have been allocating to them in Q1, and that's what you can see in the allocated cost.

[Poul Ernst Jessen, Senior Analyst]

Okay. Then 2 final ones, then I'm done. One is that you continue talking about admin being about 5% long term of the total employees and you show today that it's down versus last year. But if you compare it to -- for the recent 3 quarters, it's moving upwards. So when should that come to an end? And then the second question. Looking at U.K., you talk about a decline in front-end people. I was just wondering, Vietnam and the resources out there, how should we look at that on a group level now? In the past, it was U.K. only, how is it now?

[Thomas Johansen, CFO & Member of Executive Board]

So on the client-facing employees, it is true that, well, it's quarter-to-quarter down and then it's a little bit up sequentially, and that has to do with activities in the U.K. -- sorry, in the Netherlands in terms of admin resources. And when the Netherlands will start and continue to grow, the relative share of admin resources will remain the same in absolute terms, and that means relatively, it will come down. So the nonclient-facing resources where we have the target of 5%, we will get down there, and we've said that it will be within 1, 2 years, and that still goes. But we need to have some scale, both in the Netherlands and particularly also in the U.K. going forward. In terms of the Vietnamese part of the U.K., roughly half is working on U.K. projects and the rest is working on projects in Denmark, mainly, but also Norway, and that is more the rate going forward.

[André Rogaczewski, Co]

Yes. We got to use Vietnam as we're using Poland across geographies.

[Operator]

Next question comes from the line of Alex Tout from Deutsche Bank.

[Alexander William Tout, Research Analyst]

Could I just ask, firstly, whether you have any major maintenance contracts, either across the public or private sectors that are due for renewal over the course of 2020? It would be helpful if you could give us an idea of the percentage of the maintenance revenue base that is due for renewal over the course of 2020? And secondly, what assumptions are you making around your win rate in the public sector in FY '20 to get to your pipeline?

[André Rogaczewski, Co]

Yes. For 2020, we don't have any major maintenance contracts that are up for renew. And when it comes to our win rates, it's always a question of targeting the right stuff and spending the energy on writing the right tenders. And as long as we are having a win rate, that is what we've been doing over -- on average, over the last 2, 3 years, we'll be fine.

[Thomas Johansen, CFO & Member of Executive Board]

Yes. So it's around this 50%, 60%, Alex. So it's not like we need to win 100% of what's out there. That's not how we do our forecasting. But clearly, we expect to have our fair share. And we historically have high win ratios in Denmark, and then we expect that to continue. And then we expect to win some of those tenders that we are bidding for, both in Norway and the Netherlands. And then we are optimistic on that part. And clearly, that is a change from recent years.

[André Rogaczewski, Co]

Yes. The art of doing this is targeting the right tenders because then you will also increase your win chances. And looking at what we're targeting, it surely looks like we are a perfect match for many of them. So nothing has changed in that respect.

[Alexander William Tout, Research Analyst]

Could I just ask as a follow-up? I noticed the new hires, lateral hires in Norway and the U.K. I guess that's relatively atypical for you in Denmark where it's mostly promotions from within. Do you think that there'll be more of a need for those kinds of lateral hires in Norway and the U.K. and/or are the internal promotions also happening? And any color you could give there.

[André Rogaczewski, Co]

Well, there's a lot of internal promotions happening in both countries. And -- but the particular hires that we are mentioning here are also with respect to create -- to gain more relations in the particular markets where we don't have the historical background as we've had in Denmark. So I have to say, we expect to have a lot of both senior consultants, managers and principals coming out of our career models in all countries. However, we're just enforcing some of our partner material in those countries in order to gain stronger relations in the public sector specifically, but across sectors. That's the main reason for doing so.

[Operator]

Next question comes from the line of George Webb from Morgan Stanley.

[George W Webb, Equity Analyst]

André and Thomas, I have a couple of questions, please. So firstly, in terms of hiring, you've added over 100 employees on average during the quarter. Are you adjusting your hiring plans at the moment or at least how are you moving to do the more digitally? That's the first question. And then the second question is, to what extent are you seeing increased macro and job uncertainty in the U.K., maybe pushing some of those independent contractors to look to move full-time with Netcompany? And could that accelerate your transition process there?

[André Rogaczewski, Co]

So we're not adjusting our plans for hiring people. And you're right, I mean, we hired 100 people just in April, and all of them are actually hired virtually. Some of -- and they're all going on courses. They're doing what they always do. But now they're doing it on distance. It's been actually quite moving to see how fast we got used to the new reality. And I'm very impressed about how our HR department handled the whole situation. So we're actually running them through all the things that they have to do digitally now, and they actually become productive very fast. We have had some complaints from wives and partners at home because we equipped them with 3 screens and a lot of hardware, and some of them are sitting in small living rooms, but they're still doing their work, and we actually see them being very productive. Socially, it is a bit of a message in it. But right now, we are very optimistic about the whole -- the way it's been handled, and we see them becoming productive, and that's very, very positive. And when it comes to the U.K., I think it's a bit too early to say. But yes, you have a point. I mean we see that happening in all crisis situations that contractors become more easily perms. And also, you see companies that are hiring our contractors to go down on volumes. And I think that will happen in this crisis as well. So yes, it's a bit early to say. But in that respect, you're right, it is a positive phenomenon.

[Operator]

And your next question comes from the line of Yiwei Zhou from SEB.

[Thomas Johansen, CFO & Member of Executive Board]

We're not hearing any questions. So Yiwei maybe you're still muted. I don't know. We're not hearing any question.

[Operator]

[Operator Instructions]

[Yiwei Zhou, Analyst]

Hello, can you hear me?

[André Rogaczewski, Co]

Yes. Yes.

[Thomas Johansen, CFO & Member of Executive Board]

Yes, now we can.

[Yiwei Zhou, Analyst]

All right. Great. I have 2. Firstly, looking at your development revenue in the private sector, could you please confirm it was flat year-on-year in the quarter? Yes. Thomas, could you please confirm that?

[Thomas Johansen, CFO & Member of Executive Board]

That revenue in the private sector...

[Yiwei Zhou, Analyst]

Development revenue.

[Thomas Johansen, CFO & Member of Executive Board]

In reported, yes, that's about right. Remember, though, that the part of the revenue in the private sector come from Norway, where the impact on top line, of course, in reported is negative to the underlying revenue, which is higher.

[Yiwei Zhou, Analyst]

I mean the development revenue in the private sector. I calculated it was flat in the quarter.

[Thomas Johansen, CFO & Member of Executive Board]

Development revenue, okay, I thought maybe private revenue in total.

[Yiwei Zhou, Analyst]

No.

[Thomas Johansen, CFO & Member of Executive Board]

I mean I can't comment on and say anything else than what you can see in the report we...

[Yiwei Zhou, Analyst]

So could you please give indication how should we understand? Is it because you are getting some sort of negative COVID-19 impact or it was mainly driven by U.K. and then Norway at the moment?

[Thomas Johansen, CFO & Member of Executive Board]

Okay. So it's not because we see negative impact from COVID-19, which would then lead to being more impact of the Norway, U.K.

[Yiwei Zhou, Analyst]

Okay. Fair enough. And my second question is, from a longer-term perspective, how has your expectation changed on the market demand, I mean, comparing now to before the crisis, before COVID-19?

[Thomas Johansen, CFO & Member of Executive Board]

So the question is what our expectations is on the market demand?

[Yiwei Zhou, Analyst]

Yes, exactly.

[Thomas Johansen, CFO & Member of Executive Board]

In general or in private or just in general?

[Yiwei Zhou, Analyst]

It would be nice if you can break down to public and then private.

[André Rogaczewski, Co]

Okay. So I think in the public space, right now, we don't see any major changes. As in the private space -- in the public space, we see -- some places we see the decisions are made a bit slower. But at the same time, other places, we actually see them aggressive time plans because they have the time to run through their projects. So overall, in the public sector, we're not seeing any big changes in the time plans for doing projects and writing out tender material. Now there is a political debate in all countries, specifically also in Denmark, about taking investments early on when it comes to building public infrastructure like the likes of building physical infrastructure in societies where you have the crisis going on. That's a big political discussion of moving some of these investments into earlier time frames. So -- and that is, of course, if that happens, would be -- have a positive impact on companies like ours. And when it comes to the private sector, it is really, as I mentioned before, initially, we see some companies that are hit hard. And of course, if you are hit hard, it can be difficult for you to at least to have the extra energy and provision to invest into new digitalization. However, we see a great deal of companies who are actually putting in more effort in digitalization. And I think these 2 will balance out. That's how it looks at the moment. We have some really interesting customers building up the portfolio in the private space right now. And we're also winning tenders like the one of the LD funds. And so all together, I have to say that it looks exactly as we expected at the moment. Of course, you have some up and downs. But altogether, it looks exactly as we expected. And long term, I mean, what's going to happen after this crisis? What's going to happen? We don't know. I mean, no one knows. If the world is going to go in its complete standstill and turn down, of course, it will affect any business, including ours. But for what we can see and what we have in the numbers and the feedback we get from customers, we will stick to the way we've guided, and that's also confirmed by activities in the markets.

[Thomas Johansen, CFO & Member of Executive Board]

And then I think also to add, André, just on net-net of it, if anything, then this COVID-19 pandemic shows the need for having digitalized your infrastructure.

[André Rogaczewski, Co]

Absolutely.

[Thomas Johansen, CFO & Member of Executive Board]

So long term, it is our firm assessment that the demand for digitalization will increase.

[André Rogaczewski, Co]

Absolutely.

[Yiwei Zhou, Analyst]

I can follow-up here. So could you make example of the type of projects which you see increasing demand at the moment?

[André Rogaczewski, Co]

When you have companies where you really want to introduce a new product, a new service, you want to put in another set of pricing mechanisms or you want to enlarge your skills servicing digitally and many of these companies are sitting right now and saying, why can't we introduce this product or this service or why can we go down on price on this particular part. And then they're met with an IT department that says, well, it'll take us 4 to 5 months to put that into the ERP system or if you want to integrate it to your e-commerce platform, it would take another 2 months. And they were like, that's too long. We need to build up digital capabilities from the very production all the way up to the sales and marketing part. We need digital chains, value chains in our companies. So -- and that is actually giving the motivation to look into how the infrastructure is set up in particular companies. So the acceptance of being too slow is definitely on a fall down. I mean there's no -- more and more businesses want to become digital because they want flexibility and agility in times like these.

[Yiwei Zhou, Analyst]

And then regarding those type of projects, would you consider those as the one-off project or there will be some follow-up maintenance of operational revenue once you build for the clients?

[André Rogaczewski, Co]

It's typically larger engagements because all the small things you can do, the quick wins, of course, people do that. I mean, within the first weeks of the crisis, the first quick wins you can have, you do that. But when you run into those problems where it's very time-consuming to change your business every time, you need to do some bigger investments, and you need to go into the core of your -- you probably have 1, 2 or 3 very old systems that you actually need to replace or build something around it in order to become more agile, and this is where we come into play. So that's positive.

[Operator]

And your last question comes from the line of Claus Almer.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

I hope you can hear me.

[Thomas Johansen, CFO & Member of Executive Board]

We can hear you now, Claus. You missed your first question, but we can hear you now.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

So going back to the investment in tenders, can you put some value to these tenders you are trying to submit to? And when do you think they are going to be awarded? That will be the first question.

[Thomas Johansen, CFO & Member of Executive Board]

Well, the tenders we are bidding for are the ones that we've discussed before. So they will be the ones that are being awarded towards the back end of Q2 into the start of Q3, so over the summer time, both in Denmark, but also in Norway and other, also in the Netherlands. And the value of that is not something we can disclose on a project-by-project case, but they are significant. And that's also why we spent significant time on writing a tenders book.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

Sure. But as a total number, can you give some flavor?

[Thomas Johansen, CFO & Member of Executive Board]

Yes, rather not. But they are significant and in terms of value, they are also to the tune of what we've seen earlier on a couple of years ago when we won a lot of the last tenders, particularly in Denmark.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

Okay. And then the second question, that's more broad-based question. And if we're going to look back at COVID-19, how have you not been surprised, positive and negative, when you look at Netcompany's business as such, but also the setup of Netcompany?

[André Rogaczewski, Co]

So if I understand -- you're falling out a bit. So if I understand you correctly in the light of COVID-19, how is our business affected and how is our business model affected. Is that the question or...

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

Yes. And the setup of Netcompany, you can say, a reason to make changes and so on.

[André Rogaczewski, Co]

All right. Yes, it's a good question. I think before COVID-19, we were actually absolutely sure that we had a full digital capability of doing most things. And when I walk into a room here and office here and I see people working together, I was always surprised that they never really spoke physically together but had all the headsets on and 3 screens, even though they're physically sitting together. And so when the COVID-19 happened, we were quite sure that it would be easier for us than most companies to spread these people out. They were still just doing communication. And then we're, of course, missing that lunch but -- lunch break together. But hopefully, that would still work, right? And that has been mainly the case. However, we have certainly increased and enhanced our methodology and also how we provide customers with end delivery of products. So many of the things that were done in a more communicative way, whether standing in front of a, say, blackboard or having a workshop, is now done in new tools that we've integrated into our methodology. So altogether, I think we've learned something as well. What I'm really positively surprised about is how fast that thing happened in this company. We see all the activities that we usually do in a project setting are done virtually. And if the tool is missing, they found it and integrated into the methodology.So the methodology and the tools, it has been enhanced a bit. However, the basic capabilities of sitting digitally, working together across -- you have to remember, we were working across geographies before. So we have had many projects across the Danish locations, Norway, Poland, Vietnam, U.K. Now they're just doing it across many more locations and across a lot of living rooms and small offices in people's private homes. However, the basic techniques are the same, and that's probably the best lesson learned from the weeks of COVID-19 outbreak and the closedown of societies that it actually works well. There is a social parameter here that is important too. We're trying to keep people happy and enthusiastic because that's probably the biggest challenge in all these areas. It's not the technology itself, it's not the tools, it's not the methodology. It's actually keeping ourselves fit and happy to -- and motivated, and we do a lot in that sense as well. We have great initiatives going on that we've never seen before, digitally across the company. And that's not only Friday bars and -- but it's all kinds of activities, gaming. So hey, we are hanging in there. But the good news is that the productivity doesn't seem to suffer. And as we mentioned before, we went into production with the pension system for the Danish government. Now that's a huge production setting, paying out more than DKK 4 billion for the elderly in Denmark. And I don't have to mention how important it is that each and every pensioner gets the right amount paid out, and this happened without any people meeting physically. I mean that's just amazing. So it can be done, but you need to know what you're doing, and we are very fortunate that we have people who are so much digitally connected and working so productively together already. Yes. Many of our customers are also in this game, and they really want to learn more from how we work together, which is also encouraging.

[Operator]

Next question comes from the line of André Thormann.

[André Thormann, Analyst]

Just a follow-up from me. Just one question actually. In terms of tender activity, just to be completely sure here, what is it that makes you confident that we won't see a negative effect in terms of postponed tenders, et cetera, in the current environment?

[André Rogaczewski, Co]

Well, we have a set of tenders that has not been postponed. We are writing them, we are investing into dialogues with the customers. There's been no signs of these tenders being postponed. And there's also new tenders coming out in the tempo that we expect. So as far as we can see right now, there's no change in activity in that area, and that is exactly why we are confident that the level of tenders out there is adequate for what we need.

[Operator]

There are no further question at this time. Please continue.

[André Thormann, Analyst]

[Foreign Language] Hello?

[Thomas Johansen, CFO & Member of Executive Board]

Yes. We can hear you speaking in Danish, but I think time is almost up. So it didn't sound like there were any more questions. So maybe let's just call it the day.

[André Rogaczewski, Co]

Yes. Thank you all for joining in and stay safe out there. Thanks a lot.

[Thomas Johansen, CFO & Member of Executive Board]

Thank you.

[Operator]

And that does conclude our conference for today. Thank you for participating. You may all disconnect.