Netcompany Group A/S

CSE:NETC

Earnings Call Transcript 2021-Q1

[Operator]

Welcome to the Netcompany Group A/S interim report for the first 3 months of 2021. [Operator Instructions] Today, I am pleased to present CEO, André Rogaczewski; and CFO, Thomas Johansen. Please begin your meeting.

[André Rogaczewski, Co]

Good day, and welcome to this presentation of Netcompany's results, the first quarter of 2021. 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 let you all have a read-through of these important disclosures.And with that, can we go please to Slide #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 the first quarter. I will 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%, yielding a gross margin of 38.1%, 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 EBITA 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 EBITA margins in Q1 and the reason for the lower margin in the Netherlands was one of nonrecurring character. FTEs grew again by more than 500, 524 million 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 the foundation for our continued growth. And can we have the next slide, please.As we have done in every quarter under the COVID-19 pandemic, we've continued to hire new employees in Q1 2021, too. In this recent quarter, we said welcome to more than 350 new employees and compared to Q1 2020, the total number of FTEs grew by 20.3%. While we have added 150 permanent employees in Q1 2021 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 219 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 percentage points 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-19 spillover effect on the labor market. While we 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 nonclient-facing resources was 6% in Q1 2021 compared to 6.8% last year first quarter. And thus, decreasing, which is what we have expected since the IPO almost 3 years ago. Can we have Slide #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 Smittestop app, the Danish version of the track and trace related to COVID-19. 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 Smarter Airports and the project with Topdanmark continues at a high pace.In Norway, we have expanded our relationship with Statens legemiddelverk 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 U.K., we've continued to expand our presence with the NHS following our award to participate on the framework contract that we succeeded to get on to last year. Our work is related around various COVID-19 related topics and activity is high. No new deals was 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. And 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 the strong momentum we had in Norway in Q4 last year. Margins improved, also supported by the high 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 Netcompany methodology during the year in Norway.In the U.K., 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 Davies as the new country managing partner. Together with Jesper Brandt, 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 has the strength and the structure to secure more large-scale deals and continue the positive momentum. Richard joins us from DXC and adds more than 20 years of industry experience with FTSE 1000 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% after adjusting for a 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 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 DKK 2.8 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 U.K. 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 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-19 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 a 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.

[Thomas Johansen, CFO & Member of Executive Board]

Thank you for that, André. And like already mentioned, I am CFO in Netcompany, and I will go more into details with the financial performance for Q1 2021. So if we move past the breaking Slide #10 and straight into Slide #11 in one go, please. So André 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 points, leaving growth in constant currencies at 23% against Q1 2020. Our revenue growth was, as mentioned earlier, organic. Gross profit margin was 38.1% 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 negative impact on margins in Denmark. The higher-than-normal cross-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-19 imposed restrictions that has eliminated travel. There's reduced cost for on-location training and education, staff events and the likes. In Q1 2021, this has reduced cost by around DKK 15 million. The reduced admin cost was supportive of the EBITA margin increasing to 25.3% in Q1 2021, an increase of 1.7 percentage points 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 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 DKK 49.6 million as a consequence of the increase in the estimated time to complete a large fixed fee project in the Netherlands. In line with the share purchase agreement, which brings profit before tax to DKK 244 million, 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 particularly in Norway, where revenue grew 53.4% and in the U.K., where growth was above 28%. In contrast to previous years, 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 Netcompany 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 a 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 cross 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% 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-19 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. 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, we're now participating in the Netcompany 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 reestimated 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 points in Norway, bringing margins to 30.8% and 17.7%, respectively. Margins in the U.K. dropped by 2.3 percentage points, but the sequential improvement from the second half of 2020 into Q1 2021 is expected to continue with a caveat that we will see a "nonrecurring" severance payment of around DKK 6.5 million, 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 DKK 100.6 million in Q1 2021 compared to DKK 95 million 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 22.9% realized. In Q1, we paid dividend of DKK 50 million, and we paid the cash part of the purchase price related to the acquisition of our Dutch operation of around DKK 89 million. Still, the cash position improved with more than DKK 100 million to DKK 314 million at the end of Q1 2021. We have also today initiated a share buyback program of DKK 50 million that we will execute during the remaining part of 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 DKK 95 million.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&A slide and open up the call for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Claus Almer of Nordea.

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

Yes, first of all, congratulations with a very strong first quarter. 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? Yes, that will be the first question.

[Thomas Johansen, CFO & Member of Executive Board]

All right. Thanks, Claus, and 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 DUs 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. And we 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 and Q3 and onwards. So there's a little bit of a timing impact on that.

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

Okay. And then the second question goes to Holland. And André, as you mentioned, you have not had any wins in Q1, at least as I understood. Does that mean that revenue in the second -- Q2 will be flattish over Q1? And how long will the current backlog bring you in Holland without winning new projects?

[André Rogaczewski, Co]

Well, thank you for that question, Claus. I cannot go into details about exactly projects and backlog. But we have a good business in the Netherlands. We have won substantial deals last year that keeps us in line with growth for trajectory growth in 2021. We have a pipeline in the notice as well that we will see convert. So -- but we have a general election situation in the Netherlands as well, and we've seen some effects of that already in the first quarter and also here in the second quarter 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.

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

Okay. Maybe can you say if you will start to win some projects in Q2? Or is it still in a wait-and-see mode?

[André Rogaczewski, Co]

I think there's a good chance of winning some substantial deals in Q2 and Q3. So we have a good pipeline. And so it's not -- we're not looking at a desert to put it a point.

[Operator]

Our next question comes from the line of George Webb from Morgan Stanley.

[George W Webb, Equity Analyst]

André and Thomas, and congratulations from 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 2 factors match together? Are you expecting much better overall bench utilization this year as a whole? And or are you expecting to accelerate higher through the year? That's the first one.And secondly, just thinking about the U.K. with the changed 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 U.K. 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 DKK 15 million saving in the first quarter. Have those costs already started to come back in during the second quarter? Or is that more of a second half factor?

[André Rogaczewski, Co]

Thomas, if you take the first and the third question, I can take the second.

[Thomas Johansen, CFO & Member of Executive Board]

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, first 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 FTE 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 I hope that clarifies that question.On the phasing of the admin cost, there is a saving of around this DKK 15 million, 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 André.

[André Rogaczewski, Co]

Yes, George. 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 in -- within our client base. So it's just a natural progression. I -- we have a substantial part of the original partner group 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 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 the clients and also the nature of our projects.

[Operator]

Our next question comes from the line of Toby Ogg of Bank of America.

[Toby Ogg, Research Analyst & Associate]

Yes. 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 a 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 up 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?

[André Rogaczewski, Co]

Toby, a great question. Without no doubt, I think we've seen greater interest from the private sector into Netcompany's 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-19 crisis have shown in many larger corporations, they need to travel on a journey with a partner that takes responsibility. Netcompany did, 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 inserting resources, inserting 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. It 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 sector. And structurally, there is no big difference. I have to say, it all depends on the particular project, on the particular client, on 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 Netcompany. I know that was a long answer, but I hope it gave you some insight into how we are thinking.

[Toby Ogg, Research Analyst & Associate]

Yes. That's brilliant.

[Operator]

Our next question comes from the line of Daniel Djurberg of Handelsbanken.

[Daniel Djurberg, Research Analyst]

Congratulations both to strong results. My first question is a little bit about salary inflation but also inflation in terms of the independent contractors, also how to consider the U.K. market, we saw mix has changed from independent contractors to more our own employees with a salary increase and so on from January. Can you a little bit on the pricing or the salary inflation for '21? And how to think on the quarters? Would be great.

[Thomas Johansen, CFO & Member of Executive Board]

Thank you, Daniel. On the salary inflation in general terms, we are in Netcompany, 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 Netcompany's salary model, when you perform well, you will get a salary increase of between 10% and 15% every year anyway, which is over and above what is in the market. What André was alluding to in the beginning of the presentation is more this underlying pressure on the Labor Market there, where there's more movement between different companies 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 U.K. from a very practical perspective what happens is that the independent contractors that we used to have on the books, their rack rates were not really increased 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 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 first quarter 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 Netcompany method, which is an increase in salary. And then, of course, the game for us is or the challenge for us is to make sure that we have sufficient long contracts that are focusing on outcomes so that we can price them accordingly, and then we will see margins come up.

[André Rogaczewski, Co]

Yes. 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 of support in their -- during their stay in Netcompany, 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.

[Daniel Djurberg, Research Analyst]

Yes. And one more question for me, on the Danish experts transfer into the Dutch projects and from the U.K. You commented that this will be fixed during the year, but do you expect it to increase either these projects will increase in volume here in Q2, Q3 before being ended, the latter part of the year or how to think? Or will it be incremental then?

[Thomas Johansen, CFO & Member of Executive Board]

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, but we're 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.

[André Rogaczewski, Co]

Creating long-term growth in the new markets as well.

[Daniel Djurberg, Research Analyst]

Yes. And may I have a last question on being a bit of a new comer 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 of becoming the northern or the leading IT service supply in the Northern Europe, et cetera. And I was thinking, will you continue to expand to some critical volume in U.K. and Netherlands before heading into further geographic expansion? Or is it more of the opportunity that will come that will be the trigger?

[André Rogaczewski, Co]

That's a very good question. I think if you look at it, we -- we have a lot of market, we have 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 -- it does not have the same high focus as growing as we promised in the existing markets.

[Operator]

Our next question comes from the line of Gianmarco Conti of Deutsche Bank.

[Gianmarco Paolo Conti, Research Analyst]

First of all, congratulations on the first quarter and great start to the year. I also have a few. The first one, maybe just a quick one on seasonality. Could you perhaps provide some color on how should 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 to projects in the private segment, particularly, how should we be thinking about this in Q2? That was my first one.

[Thomas Johansen, CFO & Member of Executive Board]

Yes. So without going into specifics as to how much is private and public going to grow, Gianmarco, and thanks for the question, by the way. 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 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 Netcompany, which means to -- it needs to be large scale. It needs to be complex. It needs to be long tailed. We need to be able to come 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 initially think of it as instead of jumping on one leg and now we're running on both feet. So that's more how we think of it. And then whether it's public-private it is not that important, also expanding on what André said earlier on. On a more longer-term perspective, margins are not that different from one segment to the other. There is a little bit of a timing difference right now where we see higher profitability in the private sector. On a longer term, you will also see that even out, but that can flex up and down from one 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 you to get an understanding of.

[Gianmarco Paolo Conti, Research Analyst]

Right. I see. Okay. Fair enough. Okay. So this is certainly something quite different. How do you see sales and marketing to be approximate? 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 cost, just like a one-offs in this quarter? I saw you guys did 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 on to your marketing efforts to show a bit more of the brand awareness? Or is it just like a Q1 one-off?

[André Rogaczewski, Co]

Well, certainly, 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're 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 will 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.

[Gianmarco Paolo Conti, Research Analyst]

Right. That makes sense. I had a last one, but I think you guys have reiterated that point a fair few times around adjusted EBITA margins both private versus public, but I guess it's still in the long run, correct me if I'm wrong in the long run is roughly the same. It's just that in each one of those 2 segments, you have some projects which will yield higher and some prices, which will yield lower. And perhaps in the shorter term, if you do focus a bit more on private, it should potentially have a little bit of a higher margin impact there, but in the long run, it should be roughly a balance. Correct?

[André Rogaczewski, Co]

Correct. That's correct.

[Operator]

Our next question comes from the line of Yiwei Zhou of SEB.

[Yiwei Zhou, Analyst]

I have 3 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?

[André Rogaczewski, Co]

Yes, that's a good question, Yiwei. Thank you for that. I mean we do not -- it is not without 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'd 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 have been -- it's been necessary to add some external consultants to help up. 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 -- we do our very best to keep it down. If we don't -- if we're not able to keep it down is because we're growing somewhere wells and helping out. And as Tom has alluded to earlier, that's not a permanent situation. But right now, a really good sense to help out on the projects in other countries.

[Yiwei Zhou, Analyst]

So we should also expect that this was continue to dilute to the gross margin in Denmark in the coming quarters? Is it a fair assumption?

[Thomas Johansen, CFO & Member of Executive Board]

I don't think that was what the answer was. So I think André 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.

[Yiwei Zhou, Analyst]

But is it fair to understand you will continue to have some kind of dilutive effect or positive dilutive effect from the usage of external consultants in Denmark?

[Thomas Johansen, CFO & Member of Executive Board]

We have the same answer. We're not really commenting detail on margins.

[Yiwei Zhou, Analyst]

Okay. Fair enough. My second question here is so this is the second quarter you balanced the growth in Danish public and the private segments. 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 -- public customer? Could you elaborate a bit here?

[Thomas Johansen, CFO & Member of Executive Board]

Yes. So the reason why we are growing in the private sector right now is that there's a lot of very interesting projects there. It's not that we are stopping to focus on the public sector, I would actually say on the contrary. And André is highly engaged in that, both in Denmark, but also internationally. So there's a timing of that. Right now, there is a higher 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 large-share Danish public institutions. On the contrary, I would say.

[André Rogaczewski, Co]

Yes. Let me answer this. I mean there's been a lot of focus on this call on private versus public, public versus -- 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 tail 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-19, 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 2 quarters, we've been growing in the private sector, in Norway now we're growing in the public sector. 2, 3 quarters ago, it was actually the opposite. 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 50-50 because of the economy being 50-50 public and private. There is not more much more to it actually, basically.

[Yiwei Zhou, Analyst]

All right. And my last question here, I just want to clarify on this DKK 15 million cost savings really COVID restriction. Do you still expect it to fully normalize this year?

[Thomas Johansen, CFO & Member of Executive Board]

No. It's going to be difficult for us to spend what we have saved simply because there's not enough Fridays in a popular setting here in the remaining part of the year. So we will see some acceleration of cost, but some of the savings are also going to be there for the good part of 2021.

[Yiwei Zhou, Analyst]

Okay. And do you expect any like long-term savings here?

[Thomas Johansen, CFO & Member of Executive Board]

I think that's an interesting structural question, Yiwei, and that's something we will be more educated on, having an opinion on later on in the year because clearly, will COVID-19 impact the way we work? Sure. Will it have an impact on how we engage with our customers, with our employees? Sure. How? Really difficult to say here. What we can say here short term as society is beginning to open up all of our employees, they have really missed being in the office. 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 I don't think makes any sense at this point in time.

[Operator]

[Operator Instructions] There are currently no further questions registered. I'll hand back to the speakers for any further remarks.

[André Rogaczewski, Co]

So thank you very much, and have a great day.