Netcompany Group A/S

CSE:NETC

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to Netcompany Group A/S Interim Report for the First 3 Months of 2022 Conference Call. [Operator Instructions] This call is being recorded.

Today, I'm pleased to present CEO, Andre Rogaczewski; and CFO, Thomas Johansen. Speakers, please begin.

[André Rogaczewski, executive]

Good day, and welcome to this presentation of Netcompany's results for Q1 2022. My name is Andre Rogaczewski, and I'm the CEO and Co-Founder of Netcompany. I'm joined today by our CFO, Tom Johansen.

And before we get going, there are some important disclosures that I need you to read through. So could we have Slide #2, please. I will pause here for 30 seconds and let you all have a read-through of these important disclosures.

With that can we go to Slide #3, please. The topic of today's presentation is our performance in the first quarter of 2022. I will walk you through the business highlights for Q1, and I will also go through our revenue visibility and our financial guidance for 2022. And once I'm done, Thomas will go through the numbers in greater details before we open the call for questions.

And can we have the next slide, please. We grew revenue in Q1 with more than 60% or more than DKK 0.5 billion. Of that growth, 46 percentage points comes from the acquisition of Intrasoft International in October last year and the remaining 14 percentage points were organic. As communicated throughout our reporting in each quarter in 2021, our employees had in general deferred the vacation, they normally take in the first quarter to later in the year.

That means for a practical perspective that Q1 2021 had the equivalent of more than 4 working days that normally which should have been taken into consideration when assessing the organic revenue growth in the first quarter of 2022. And from a business perspective, we have never been so busy before, both in delivering projects, but also in answering to RFPs and pitching for new projects, both in Netcompany Core and Netcompany-Intrasoft.

Gross profit increased by 28%, yielding a gross profit margin of 30.4%, which was 7.7 percentage points lower than in 2021. The main impact on gross margin comes from the inclusion of Netcompany-Intrasoft, and the remaining negative impact was mainly related to the deferred vacation in Q1 2021, making the quarter abnormal, both in terms of revenue growth and margins. Despite the lower gross profit margin compared to last year, the results are in line with expectations.

The lower gross profit margin naturally impacts adjusted EBITDA margin to the same tune and adjusted EBITDA was -- sorry, DKK 259.4 million, which yields a margin of 16.6% compared to 25.3% for the same period last year. For Netcompany Core, EBITDA margin was 23.3% and for Netcompany-Intrasoft, EBITDA margin was 8.5%. Margins were in line with expectations for both Netcompany Core and Netcompany-Intrasoft. And on the employee side, we more than doubled IFT growth in the quarter and are now more than 6,500 full-time employees in the Netcompany Group.

And can we have the next slide, please? Continuing on the employee topic, the breakdown here shows the growth in Netcompany Core and the annualized number of employees in Netcompany-Intrasoft, with our comparable numbers for 2021. Freelancers in Netcompany Core were slightly increased from 59% in Q1 2021 to 65% in Q1 2022 and independent contractors in the U.K. were reduced from 47% to 17% in Q1 2022. In Netcompany-Intrasoft, total independent contractors and freelancers was around 600 of which 445 was engagement projects related to the EU.

Churn for the last 12 months was higher compared to last year, especially the first quarter in 2021 saw low churn rates as a consequence of societies to a large degree still being closed down, which meant that the level of job shifts was abnormally low in Q1 2021. Overall churn rate in Q1 was 17.4% compared to 15.8% in Q1 2021 and compared to Q4 2021, churn was declining as expected. In Q4 '21, churn rate for the Group was 20.9%. In Denmark, churn was declining compared to Q4 last year, and it was stable in the U.K. In Norway and in the Netherlands, churn was slightly increased compared to Q4 '21 and churn rate for the Group of -- sorry, for 17% to 19% is not an issue or a concern and it is an integrable part of our business model.

For Netcompany-Intrasoft, churn rates in Greece were 19.5%, which is slightly higher than pro forma Q1 '21 and also slightly higher than Q4 '21. Overall, though, we are managing churn, and we do start to see declines in churn rates that have been on the higher notes of the Group. The churn rates have not impacted our ability to grow revenue.

And can we have Slide #6, please. We have won a number of new contracts during Q1, of which I am mentioning a few here. I will start by mentioning a few won in the Netcompany Core part of the Group. We have prolonged the contract with the municipality of Oslo, and have expanded our relationship with the win of yet another contract with Oslo municipality. In the U.K., we've added 2 new contracts, one with the National Career Services and one with the NHS. The first contract is a new customer to Netcompany in U.K., while the contract with the NHS is building on the existing relationships we have with NHS in the U.K.

In Denmark, we've won a contract with the agency of public finance and management under a framework agreement and entered into last year. In the private sector, we've expanded our relationship with Blue Water Shipping to modernize their entire application landscape. Our pipeline for the remainder of 2022 remains strong, and we can see a number of projects being advanced through the pipeline funnel in Q2 as well.

And can we go to the next slide, please? I also want to take this opportunity to mention a couple of the contracts we have won in the Netcompany-Intrasoft part of the Group. We have won the first project under the RRF in Greece to digitize all information related to land and real estate. This was the project we mentioned in connection with the presentation of our annual report in January. We have also won a project with the European Patent Office. This project was won as a joint effort between Netcompany Netherlands and Netcompany-Intrasoft organizations and will commence sometime during Q2 2022.

We also see a strong demand for solutions that will be joint projects in other geographies. One area that is generating a lot of attention right now is within the customs area. By the end of '24, all member states in the EU have to comply to a new digital uniform customs code identifier. The platform that was developed by Intrasoft is far the best platform for this specific issue in Europe. And at the moment, more than a handful projects are being scoped as joint projects with Netcompany Core and Netcompany-Intrasoft. It is our expectation that we will see project wins in this area within the next couple of quarters.

Can we have the next slide, please? We are beginning to see the integration projects in Norway and in the U.K. to come to an end. In Norway, in Q1, we were negatively impacted by the effects of a couple of fixed fee projects that we took on the books all the way back in 2020, when we had 50 people on the bench then following the initial wave of COVID-19. These projects are low-margin projects, and they are expected to be completed during Q2 this year, which also mean that we expect a meaningful improvement to both revenue growth and margins in Norway from Q3 this year. In the U.K., revenue growth was strong as was margins. We are now seeing the impact of having changed away from independent contractors, having focused on larger deals and generally focusing on projects that are the right type of projects for Netcompany.

In addition to the strong performance in the U.K., we are also increasing the FTE intake. And during Q2, we will initiate a program whereby we hire graduates in the U.K. and transfer them to Denmark in the first 12 months of their career, a great and cost-effective way to install the Netcompany culture and competencies into the U.K. hires. Demand remains strong in the U.K.

In the Netherlands, growth and margins were also significantly improved compared to 2021. However, to some extent, Q1 '21 was also a quarter with poor performance making the comparable somewhat easier. On the other hand, we do see positive developments in the Netherlands, and also in this market opportunities are good and strong.

Can we go to the next slide, please? This is the first quarter where Netcompany-Intrasoft is fully part of the Group and financial performance was in line with expectations with revenue growth of around 3%. Both public and EU business units grew whereas revenue in the private segment declined due to the timing in initiation of new projects. The pipeline for projects in Greece under the RRF is building up rapidly, and we expect more projects to be released during 2022. In the EU, we continue to expand our relationship with the commission, and we have initiated a number of project discussions and joint teams with Netcompany Core and Netcompany-Intrasoft, The backlog value for Netcompany-Intrasoft now stands at more than DKK 6.7 billion, which is DKK 200 million higher than at the year-end.

And can we have the next slide, please? As of the beginning of April, our total revenue visibility is more than DKK 4.5 billion compared to DKK 2.9 billion at the same time last year. Naturally, a good part of this increase comes from the inclusion of Netcompany-Intrasoft, and of the total increase in revenue visibility of more than 64%, roughly 50 percentage points is attributable to Netcompany-Intrasoft. This also means that the revenue visibility for Netcompany Core increased with 14 percentage points compared to the same period last year. And after the completion of Q1, we have seen a further strengthening of the revenue visibility in Netcompany Core as more contracts were prolonged, which leads me into expectations for 2022.

And can we have the next slide, please? Despite the fairly busy structure of this slide, my message on our guidance for the full year can be put simple as we maintain our guidance for the full year. We have begun 2022 on a strong note and all performance indicators are very supportive of our full year guidance.

And with that, I will give the word to Thomas to take you through the financials in greater details. So Thomas, Please go ahead.

[Thomas Johansen, executive]

Thank you for that, Andre. And like Andre already mentioned, I am CFO of Netcompany, and I will go more in details with the financial performance for Q1 2022.

So if you move past to breaking Slide #12 and straight into Slide #13, please? Andre has already spoken to our performance in general terms, and I will go more in details with the performance for Q1. Revenue growth for the quarter was 60.4%, positively impacted from currencies by 1 percentage point, leaving growth in constant currencies at 59.4% against Q1 2021. 46.6 percentage point of the growth was non-organic related to our acquisition of Intrasoft in 2021 and the remaining 12.8% was organic related to Netcompany Core measured in constant currencies.

Gross profit increased by close to 28% to DKK 417.3 million, whereas gross profit margin was 30.4% compared to 38.1% in Q1 2021. The main negative impact on gross profit margin was the inclusion of Netcompany-Intrasoft, which diluted gross profit margin by 5.5 percentage points in Q1 2022. For Netcompany Core, gross profit margin was 36.3%, which was 2.5 percentage points lower than Q1 2021. Adjusted EBITDA was DKK 259.4 million for Q1 compared to DKK 234.8 million for Q1 2021, which led EBITDA margins -- which led to EBITDA margins of 18.9% compared to 27.5% for the same period in 2021.

As was the case when discussing the development in gross profit margin, the main reason for the lower adjusted EBITDA margin relates to the inclusion of Netcompany and Intrasoft, which had a dilutive impact on margins of 4.2 percentage points as expected. In addition, administrative costs in Netcompany Core was higher in Q1 2022 than was the case in the same quarter in 2021. That has to do with the fact that most of the world was still in some sort of lockdown in Q1 2021, which pushed cost to subsequent quarters throughout 2021.

So can we have the next slide, please. Taking a closer look at revenue growth in Q1, we've shown where growth was generated on this slide. Revenue growth in Denmark was 10.6%, driven by continued strong growth in the private segment that grew 13.7% compared to the public sector where revenue grew by 8.4%. The 10.6% revenue growth in Denmark is not to be seen as a sign that growth is coming down, but it is a consequence of an abnormally strong Q1 2021, where all normal vacation taken was deferred to Q2 and Q3, creating an artificially high growth in Q1 2021. Norway grew by 3.7% in the quarter, negatively impacted by a couple of fixed fee projects taken on back in 2020. In total, these projects impacted revenue negatively in terms of lost revenue or lower revenue by around DKK 10 million in Q1. It is the expectation that these projects will be completed during Q2 this year. Public segment in Norway grew 18.3%, whereas the private segment declined compared to the same period last year. The Private segment is expected to pick up again in growth in the second half of 2022 in Norway.

In the U.K., revenue grew 28.9%, supported by our relationship with the NHS and also HMRC, but also driven by other new customers in other parts of the central administrations, which is exciting for the future. In total, public sector -- public segment grew by close to 45% in Q1 2022, underlining the strong and continued demand for Netcompany services in the U.K. In the Netherlands, revenue increased to 30%, however, based on a fairly easy comparable from last year.

In our recent acquisition, Intrasoft, so now Netcompany-Intrasoft, we realized revenue for Q1 2022 of DKK 398.5 million compared to DKK 386.2 million in pro forma accounts for Q1 2021. Revenue was mainly driven by the parts of Intrasoft related to the EU and the public sector, whereas the enterprise segment saw some decline caused by timing of new contracts.

And can we have the next slide, please? Gross profit margin was 7.4 percentage points lower than for Q1 2021 and ended at 31.4%. The dilutive impact on margins from the inclusion of Intrasoft was 5.2 percentage points. Margins were reduced in Denmark by 3.4% as the impact from the deferred vacation in Q1 2021 made Q1 2021 extraordinarily good when it comes to both growth and margins, as already alluded to. In Norway, gross margin was reduced from 29.3% to 16.7%, mainly as a result of the couple of fixed-fee projects impacting performance negatively, as mentioned just recently. These projects are expected to be completed during Q2 2022.

In the U.K., gross margin was improved significantly as utilization was improved compared to the same period last year. More and more, the operational setup and the projects undertaken in the U.K. begin to be of a type and character desired for the longer-term growth and continued margin expansion in the U.K. Gross margin were, as a consequence, lifted from 20.4% in Q1 2021 to 30.6% in Q1 2022. The margin in the Netherlands was also significantly improved from 12.5% in Q1 '21 to 24% in this first quarter of 2022. Strong performance on projects in the Netherlands and a "fairly gentle comparable" for Q1 2021 were the reasons for this significant improvement. Gross profit margin in Netcompany-Intrasoft was 18.8%, fully in line with our expectation and a result of strong delivery on projects across the portfolio, both within the EU, within the public sector and also within the private sector.

Can we go to the next slide, please? Adjusted EBITDA margin for Q1 2022 for the operating entities decreased by 8.3 percentage points in the quarter to 20%. Part of that is due to the reduced gross profit margin that I just explained and again, the main impact on margin comes from the inclusion of Intrasoft. Also, we did see increased costs related to employee activities. This was expected, and we are pleased that it is now possible to have more face-to-face activities with all of our employees. For all practical matters, Q1 2021 was an odd quarter, as we've mentioned a few times. Administrative cost in Q1 2021 actually fell compared with Q1 2020, despite FTE growing by more than 20% in that quarter last year. Clearly, a sign of the consequences of the world being in a tight COVID lockdown back in Q1 2021.

And can we have the next slide, please? Free cash flow was positive with DKK 50 million in Q1 2022 compared to DKK 100 million in 2021. The decline in the free cash flow compared to 2021 is related to the acquisition of Intrasoft and changes to net working capital following from here. For Netcompany Core, the free cash flow adjusted for on-account taxes paid was DKK 174 million compared to DKK 173.8 million in Q1 '21. The changes in working capital was driven by increased work in progress in Netcompany-Intrasoft, which is expected to level out during the year. Of the accounts receivables outstanding at the end of March, close to 47% have been paid in the month of April. For the same period in 2021, the subsequent payment of outstanding balances end of March was 42%.

In Q1, we repaid DKK 100 million on our lending facility, and we executed a share buyback program of DKK 50 million. In Q2, we will continue to deleverage our debt and we have initiated another share buyback program for another DKK 50 million.

And with that, I have concluded the detailed financial highlights, and we'll now open up the call for questions. So we'll move to the Q&A slide, please, and open the call for questions. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of George Webb from Morgan Stanley.

[George Webb, analyst]

Andre and Thomas, a few questions from my end, please. Firstly, just on growth. Can you kind of characterize how the Danish public sector tender pipeline is looking at the moment and the level of tender writing you're engaged with there at the moment? And any sense on how that total tender activity for the year as a whole was looking versus the past couple of years? I guess when I think about that, I think about 2020 is a very strong year for tenders. 2021 was quite noticeably weaker. Any view on where 2022 may shape up? And also on growth. You mentioned that you saw the 3-point impact from service line discontinuations not being -- taking place this year. Did some of those effects also already impact growth in Q1?

Secondly, just on the U.K. side, pretty meaningful sequential step-up in margins. You talked about the gross profit thing. Is that viewed as a more structural and sustainable level from here? And then just lastly, on smarter airports, I think we haven't discussed that for a while. Any view on how that's progressing would be helpful.

[André Rogaczewski, executive]

Andre here. Great questions. To just go into the public sector in Denmark to start off with the tender activity there. I think if you look into the level of ambition, but also the accurate number, concrete number of tenders coming out is actually very high. There's a lot of very big deals to be won in 2022 going into 2023. And that goes both for the Danish equivalent to [indiscernible] goes for student administration systems. That's a lot of work in customs. So to be -- I mean, in 2022, is very promising when it comes to tender activity. And today, actually this morning, the government also issued a digitalization strategy, which is also ambitious in the way that Denmark will have to continue to be one of the most digitized countries in the world. So that also looks -- I mean, points to the right direction for '23 and '24 going forward. But '22 seems like a very, very busy tender -- public tender year in Denmark, also very sizable deals, one has to say.

When it comes to the U.K., the short answer is, is it structural? Yes, it is. We have many more engagements now where we don't have contractors involved anymore. And we are delivering directly to customers in a much more project-oriented way that we've also done in Denmark. So that's the result of that. And of course, an increased engagement with some of our really important clients, NHS, HMRC, but also actually a variation of specifically public clients where we've had a good breakthrough.

And Smarter Airport, well this summer, we will finish the final release of the Smarter Airport application that will be rolling out in Copenhagen Airport gradually over the summer months and into September. And we're also now involved in a lot of tender activities in other airports and having a continuous great dialogue with several airports about the platform. And I think there was one thing more. No, yes, that was the 3%.

[Thomas Johansen, executive]

Yes. So you ask also, George and thanks for the question on the discontinued businesses, both in the U.K., and Denmark and what the impact we saw from that. And when we guided for the full year, we said that it would potentially have a negative impact on revenue growth to the tune of 3 percentage points. What we can see in Q1 is that there's a lot of business for us to have. And so far, it looks like we'll be able to cover for some of that without going into the finite details, but it looks strong and the markets are surely supportive in our endeavors to find that growth somewhere else. So that is a positive start at this time of the year.

[Operator]

The next question is from the line of Frederic Boulan from Bank of America.

[Frederic Boulan, analyst]

2, if I may. Firstly, on Intrasoft, more specifically, you mentioned Q1 was in line with your expectations. Maybe can you give us a sense of your expectations for the rest of the year, which is embedded in the guidance you've provided. I think you grew about 3% in Q1. And maybe more broadly around the demand environment, you commented on Denmark. I seem very positive about the midterm demand outlook there. Considering what we're seeing in terms of European macro, with a lot of concern and volatility, have you seen any changes in the scope of projects in the coming months or in the contrary, you see very strong structural demand for your offering? And if you can, in particular, extend that comment to the interest of business, could be great.

[Thomas Johansen, executive]

All right. Thanks, Fred, for your questions. I'll start with the question on our expectation for growth for the remaining part of the year in Intrasoft and clearly, we expect growth to pick up some during the year. Q1, we knew was going to be a little bit soft in terms of growth in Intrasoft, so we do expect that growth to pick up during the year. And we can see that coming already with deals and projects coming to the market in Netcompany-Intrasoft, both on a stand-alone basis, but also in terms of joint projects together with Netcompany Core. So without going into -- giving you the specific percentage that you're asking for, I hope you can appreciate that just talking around it, it looks supportive for the full year.

[André Rogaczewski, executive]

Yes. And Frederic, when it comes to the macro volatility question you had there, we don't see that really. We are -- in Netcompany, we are working with the robustness and the stability of European countries, especially on the government side. So we deliver some of the systems that countries really need going from benefit system all the way to collection systems and even tax customer systems. And there's a lot of digitization going on in these areas in order to make a sustainable and robust Europe. So we actually see a great demand for what we do. And that goes actually across the market. It is very complex boring systems that we deliver, and it takes years to actually implement them, and then they run for many years. But all over our markets, we see that many of the old systems need to be changed into new ones, and we are very strongly positioned both as a Netcompany Core coming from Denmark, having done that here, but also with Netcompany-Intrasoft being -- coming up with even more platforms, specifically also in the customs and tax area.

[Operator]

The next question is from the line of Anders Vollesen from Jyske Bank.

[Anders Vollesen, analyst]

So coming back to growth again, your client-facing FTEs in the company core grew around 15% this quarter. But then you mentioned this around 20% growth adjusted for vacation effects. So should we take this divergence as a means for you to sort of increase utilization and profitability going forward? Or is it more a sign of the actual growth that you're expecting in the increase in the FTEs?

And then a second question on Netcompany-Intrasoft. Why did the FTE decrease in Greece compared to last quarter's numbers? And on that point, in your capital markets update a few weeks ago, you mentioned that you have a strong market position -- and market share increase. And then there's this huge upcoming public domain projects from the RRF. Just very curious as to how you're approaching this. I mean it seems like there's endless growth opportunities upcoming in Greece. But how much of these around $20 billion that you mentioned, are you actually aiming to capture? And do you have any expectations towards the profitability profile of these projects?

And then just a last follow-up on the U.K., question from George. I was just wondering, you mentioned this transfer of graduates to Denmark. Is that going to impact in any way your opportunities and growth trajectories in the short-term.

[Thomas Johansen, executive]

All right. Thanks, Anders. I'll take part of it and Andre will chip on other parts. So the growth in the FTEs in Netcompany Core in Q1 is a result of the strong business environment we see. So we're not hiring people to cover up for some sort of vacation, a deferral or whatever. So we do expect to continue to increase FTEs throughout the year in Netcompany Core. And we also expect to see, especially in parts outside of Denmark that, that will increase even further going into the full year. So the degrowth is a result of a strong underlying foundation for our businesses. On the FTEs increase before Andre will talk to the growth in Greece.

It's true that it's slightly lower in Q1 here than in Q4. I remind also that we haven't involved or included all the quarterly numbers in Netcompany-Intrasoft, simply because they are unaudited for 2021, in the period that we did not own them. So there can be some small adjustments from one quarter to the other, but we'll get better visibility and be able to disclose that in a more granular level once we go through the year. So it's more technical timing than anything else. The Greek market remains interesting and strong. And you can say maybe something about what we expect on the growth increase in RRF, Andre?

[André Rogaczewski, executive]

Yes, there's a lot of opportunity in Greece. And the interest of position in Greece is very strong. They have already -- they already were very well positioned on many of the existing administrative systems across a lot of government agencies. And what we're addressing now is how to modernize parts of that, but also looking into how we can supplement the existing portfolio of solutions with the ones we have in Denmark. And we are working on particular areas now where we're taking some of our Danish platforms and having great meetings with the Greek administration. So I see that market is very promising, and we will -- but we will strive to have the Greek, I mean, Intrasoft deliver that based on our experiences. So we will not send too many people into Greece to do that. We will have Intrasoft deliver that, but based on our experience and platforms.

When it comes to your question about the U.K. graduates coming to Denmark, I mean, that will not have any impact on our ambitions or growth in that sense. It's just the thing that we do in order to make sure that the culture and quality goes up, and these graduates will be productive in Denmark and of course, become even more productive when they return back to the U.K. So it's not -- we're not taking people out of some sort of Academy-type of work where we are not invoicing them or anything like that. This is just a prolongment of business as usual to make sure that we are operating on the same high levels in -- across countries.

[Operator]

The next question is from the line of Gianmarco Conti from Deutsche Bank.

[Gianmarco Conti, analyst]

Andre and Thomas. Just a quick one for me on margins. In fact margins this quarter were obviously impacted by higher admin costs, so could you shed some color on the gradual ramp-up for the more than 20% margin guidance for the year? What exactly is the driver for this? Is that a mix of improved utilization rates and ramp-up in contract wins? Or is it something else? And then a second question is, should we expect an impact in Q2 from the fixed fee projects and margins for Norway? When you say they will be completed in Q2, will you be still booking revenues for them during this quarter? Or is that sort of like ending at the beginning of the quarter, therefore, you won't see that much of a margin impact in Q2?

[Thomas Johansen, executive]

Thanks, Gianmarco for the questions, Thomas here. On the admin cost and on the margin buildup, we do expect margins to continue to increase throughout the year, which is generally the pattern that we see in a normal setting and it's difficult to talk about a normal setting because Q1 was -- in 2021 was not normal. And in 2020 -- the year 2020 was also not normal because of corona. But in a more normalized setting, Q1 has the lowest margin because that's where we do the adjustment of all the salaries. And that means that from the 31st of December until the 1st of January, the cost of the existing staff portfolio increases by between 6% to 8% overnight.

Then as we grow and as we hire and as we churn throughout the year, the math will sort out some of that growth so that the average cost per employee remains more or less unchanged, might increase to 3, 4 percentage point 2%, 3%, maybe, which is then sopped up by business. So there is a normal progression of margin throughout the year, and we will see that also in 2022. So it's a matter of continued high utilization, winning new projects, adding more new recruits, managing the churn throughout the pyramid just as we have done for the 22 years that we have been in business with the odd exceptions that 1 quarter here or there is different.

On the fixed fee contract impact in Norway, yes, there will be an impact also in Q2. And the impact is really that -- those projects, we utilize some people on them. So it's not that we're taking a loss or anything, but it's more seen as lost revenue potential because these people that are working on these fixed fee project cannot work on other projects where we will have higher prices because they were working on these fixed fee projects that were taken on in 2020. So until we are done with those, there will be some revenues that we would expect to have had in a normalized setting, and that will also have a slightly drag in Q2. There will still be revenue booked on those projects, but it's simply not to the same high level as all of our new projects in Norway. So that's what we mean when we say there is a drag on Norway in Q1 and also to some extent in Q2 as we also alluded to during the Capital Markets Day.

[Gianmarco Conti, analyst]

Fair. Just a quick follow-up on that. Are you able to quantify the drag in terms of margins or rates, I don't know?

[Thomas Johansen, executive]

No. Well, generally speaking, we don't guide for margins in each jurisdiction or in each business unit on a country-by-country level. So we will refrain from doing that Gianmarco, but it is manageable, and it will be washed out through the second half.

[Gianmarco Conti, analyst]

Just one last one for me, and then I'm done. In freelancer expectations over the year, are you expecting to increase that? Are you still sort of using -- I imagine you're still using senior resources in the U.K. and Norway from Denmark. Are your expectations sort of like flat or slight increase in freelancers throughout the quarters?

[Thomas Johansen, executive]

Flattish. You might have one quarter where we have an increase of 3 or 4 because we need some specific resources. But there's a big change in the reason why we have freelancers now. And then when we look at Q1 -- Q2 last year, the increase in freelancers in Q1 and Q2 last year was because we accelerated the usage of Danish and other resources on international projects to make sure there was quality on those projects. When we do that at short notice, we have to take out some resources from the current projects and substitute them with other resources, namely the freelancers to make sure that we meet delivery deadlines.

Now we continue to utilize resources across the group because it's the right thing to do. It makes projects better and it gives quality in our deliverables. But when we can plan for it, we can also manage it better. And therefore, the usage of freelancers will not increase to the same tune as we saw last year. So the short answer is, yes, it's going to be more or less flattish, might increase a little bit here and there, but overall, it's going to be flattish.

[Operator]

[Operator Instructions] The next question is from the line of Yiwei Zhou from SEB.

[Yiwei Zhou, analyst]

I have 2 questions on Intrasoft. And firstly, you mentioned in the report, Intrasoft had to decline revenue in private segment. And could you please elaborate a bit on? Is it something as you expected? Or it sort of surprised you? Let's do one question at a time.

[Thomas Johansen, executive]

So that is simply timing. And it's Intrasoft are doing fairly large projects. So when people roll off and then they need to roll on to new projects. So there's some timing in that. The pipeline for private projects in Intrasoft is strong.

[Yiwei Zhou, analyst]

Great. And next question on free cash flow. As I understand, in Q1, Intrasoft free cash flow was negative. And apart from -- you mentioned the change in working capital, is there anything else leading to the negative free cash flow? And maybe could you also comment on what has been the main driver for the change.

[Thomas Johansen, executive]

It's mainly driven by work in progress. So the change in working capital, which is driving the deterioration in free cash flow comes from Netcompany-Intrasoft, and the main part of that is work in progress. And it has to do with how things are being invoiced, how quick they are in terms of invoicing clients and therefore, moving from work in progress to receivables to collection. We are working with our new colleagues in Netcompany-Intrasoft to make sure that we optimize on that. And that's also why we say this is something we expect to level out during the year. But as we start the year here, there has been this little bit of a drag on working capital. We don't see any deterioration in the potential to invoice, and we don't see any deterioration in the quality of the accounts receivable. And also, as I mentioned, the subsequent collection of accounts receivable has actually increased this year compared to last year. So it is a phasing in on utilizing our processes with Netcompany-Intrasoft.

[Yiwei Zhou, analyst]

Okay. Just -- can I just follow-up here. Remember, you mentioned in the annual report, last conference call, you sort of indicated the 2022, you will see an improvement in free cash flow from 2021. Is it still the assumption?

[Thomas Johansen, executive]

It is.

[Operator]

The next question is from the line of Camilla Elvebakken from Nykredit.

[Camilla Elvebakken;Nykredit;Equity Analyst, analyst]

I have a question. Have you experienced a pickup in digitalization interest and commitment in the German market during this quarter? And do you have any comments and numbers on this?

[André Rogaczewski, executive]

Well, in general, Germany has woken up. I mean there's definitely much more interest on -- I'd say, on a strategic level at the moment. So we actually do have meetings with German government officials, and we are there on occasions, and they're looking very much into overall vertical solutions, but it's still on a very strategic level, but we're definitely following that closely.

[Operator]

As there no further questions at this moment. I will now hand the word back to the speakers.

[André Rogaczewski, executive]

Well, thank you so much for joining in, and have a great day. Thank you.