Netcompany Group A/S

CSE:NETC

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the Netcompany interim report for the first 3 months of 2023. [Operator Instructions] This call is being recorded.

I will now hand it over to CEO, Andre Rogaczewski. Please begin.

[André Rogaczewski, executive]

Good day, and welcome to this presentation of Netcompany's results for Q1 2023. My name is Andre Rogaczewski, and I'm the CEO and Co-Founder of Netcompany. And I'm joined today by our CFO, Thomas Johansen.

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

And with that, can we please go to Slide #3, please. The topic of today's presentation is our performance for Q1. And now we'll walk you through the business highlights for the first quarter of the year, and I will also go through our financial guidance for 2023, which is maintained from what we communicated to the market in January in connection with the release of our annual report 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 13.7% in constant currencies, organic and currency fluctuations impact revenue growth negatively with 1.4%, leaving reported revenue growth at 12.3%. Gross profit in Q4 increased by 5.5%, yielding a gross profit margin of 28.6%, which was 1.9 percentage points lower than the same period last year as expected. We saw continued strong margins in the U.K. and continuously improved margins in both Netcompany-Intrasoft, and in Norway, while margin in the Netherlands was slightly lower. The main reduction in group margin is a result of lower margin in the Danish business.

Adjusted EBITDA, EBITDA was consequently also lower in Q1 '23 compared to the same period last year. We added close to 1,000 full-time employees when comparing to the same quarter last year, bringing total FTEs to 7,497, an increase of 15.1%. And can we have the next slide, please?

We have won a number of new contracts during the first quarter of the year, of which I am mentioning a few here. In Denmark, we have rewon a number of contracts with the Danish Tax Administration, which is a testimony of our continued focus on quality in the projects we deliver. In addition, we have been selected to work on the development and maintenance of the new travel card to be implemented in Denmark. In Norway, we have been selected to work with the Norwegian health agency which enhanced our exposure in health area in Norway. And can we have the next slide, please?

In Netcompany-Intrasoft, we have also signed a number of new contacts -- contracts in the first quarter of the year, as highlighted here. 2 contracts were we won with one of the agencies within the European Union to provide various IT services. In addition, a contract which was won with the Lithuanian Customs Agency, to upgrade the current oil version of Intrasoft custom solution was one. The work is managed out of Greece remotely. Further, we see continued strong pipeline development within the resilience and recovery facility in Greece and expect contracts in this aspect to materialize in Q2 2022.

And finally, we expanded our relationship with the Greek energy provider, HEDNO, and expanded our relation with a large cybersecurity product along the already ongoing projects there. And can we have the next slide, please.

Taking a look at the composition of employees, as shown here, it is becoming clearer and clearer that Netcompany is transforming into a European IT service provider. As of Q1, less than 1/3 of our employees are now based in Denmark, and we see continued strong head count, in particular, the U.K. company interest.

In uncertain times like these, I'm truly proud of our continued employee growth and our continued commitment to hire top talent in all of our markets. Churn for the last 12 months was higher at 20% for the group compared to the same period last year. This was caused by a spike in churn with the freelancers in their company Intrasoft based in Luxembourg.

And looking at the 3-month rolling churn rates, we noticed lower churn rates across the group, apart from Norway, which is a clear result of cooling down in the labor markets. However, when comparing 3 months churn rate with those from Q4 in 2022, we see a clear increase in the churn rate in Denmark that increased from 12% in Q4 '22 to more than 17% in Q1 '23 as a result of the higher involuntary level of churn realized. This is fully in line with our plans and in line with our communication in connection with the annual report for '22. And can we have Slide #8, please.

Despite uncertainty in general in the first quarter of '23, we delivered strong financial results that are supportive of our full year guidance. We are, however, still early in the year, and despite a strong Q1, we maintain our full year guidance at this point in time of revenue growth between 8% and 12% and margins between 15% and 18%. And before I pass on the word to Thomas to give you a more detailed view on the financial performance, I want to remind you about our upcoming Capital Markets Day in June. And can we have the next slide, please.

On the 1st of June, we host our Capital Markets Day in our new corporate headquarters in Copenhagen, which is pictured here. As separate invitation has already been sent out today, and make sure to register. On the Capital Markets Day, we will give an update on all our markets and our progress on our platforms and products and we will be presenting our mid-term financial aspirations that we want to be achieving by 2026. It will be a day where you will get an opportunity to meet other executives from that company, and Thomas. And I will look forward to hosting you personally in Copenhagen.

And on that note, I will hand it over to Thomas to take you through the financials in greater details. Thomas, please go ahead.

[Thomas Johansen, executive]

Thank you for that, Andre. And like already mentioned, I am CFO of Netcompany, and I will now go more in details with the financial performance for Q1 2023. So if we move past the break in Slide #10 and straight into Slide #11, please.

Andre has already spoken to our financial performance in general terms, and I will now go more in details with the performance in Q1 2023. Revenue growth for Q1 was 13.7% measured in constant currencies and currencies impacted growth negatively by 1.4 percentage point, leaving reported growth at 12.3% for Q1 and mainly as the Norwegian kroner depreciated significantly. Growth was above 20% in all units apart Denmark in Q1. The lower growth in Denmark was a result driven by a decline in the private segment as some decision on projects were deferred and the impact on the changed composition in churn, leading to slightly lower utilization.

While the private segment declined around 3 percentage points, the public segment in Denmark grew by more than 13%. The development in the private segment was to a certain extent expected as the larger enterprise customers tend to be delaying decisions for bigger projects in times of high uncertainty. We take comfort in the fact that the pipeline remains strong and warrants for growth during the year.

The first quarter is historically not a strong growth quarter for Netcompany-Intrasoft. However, in this particular quarter, we realized strong performance across the business, but in particular, within the EU and the public segment -- in the private segment, sorry. In the public segment, near-term pipeline cases are expected to materialize and impact Q2 positively.

In the U.K., growth was driven by strong performance in the public segment, where we start to see the result of the focus on platforms to support sales processes. For the remaining part of the year, we expect that to continue to be further enhanced. Growth in Norway of close to 28% was mainly driven by the private segment. Also, Q1 2022, to some extent, was negatively impacted by the issues with a small number of projects observed during the first half of 2022, making the comparable somewhat easy.

Finally, growth in the Netherlands is beginning to materialize and as in the U.K. as a result of the dedicated pipeline focus that has been exercised in the last 18 months in the Netherlands. And can we move to the next slide, please.

Gross profit margin decreased by 2.1 percentage points compared to Q1 2022. This decline was mainly caused by the lower margin in Denmark, which was 35.5% compared to 40.3%. The lower margin in Denmark was caused by the impact from the change in the composition of churn, where we realized a higher proportion of involuntary churn Q1 2023 compared to last year. This was expected and is of temporary character until the pyramid structure is fully aligned.

In addition, delay in decision of some projects in the private sector that led to lower growth in Q1 also impacted gross profit margin negatively. This is also expected to be of a temporary character. Margins in Netcompany-Intrasoft was improved as a result of better delivery and projects and a slightly higher proportion of fixed fee projects than in Q1 2022.

In the U.K., margins was unchanged at 30%. However, where the margin increased to 30% level realized back in Q1 2022 was mainly driven by increased utilization. Margins in Q1 2023 was driven by sustained high utilization and sustained high-quality delivery on projects. Margin in Norway also increased as a result of better project deliverables. The lower margin in the Netherlands was a result of increased use of resources from the Danish organization on business development work, mostly related to customs and digital government opportunities. Can we have the next slide, please.

Adjusted EBITDA was 3.5 percentage points lower than compared to Q1 2022 at 16.6%. The reduction in EBITDA margin realized in Denmark was a result of the impacts from the lower gross profit margin and the increased cost for the enhanced go-to-market approach. Netcompany-Intrasoft margin increased significantly, driven by a better gross profit margin and the performance within Netcompany-Intrasoft continues to improve and more joint projects building in the pipeline.

In addition, projects within the RRF in Greece are also materializing. And as Andre mentioned, we expect to see projects to be executed related here to during the second quarter. Both types of projects will have a positive impact on margins in Netcompany-Intrasoft going forward.

In the U.K., margin was for all practical matters flat at 20.1% and again, driven by gross profit margin performance, which was also the case in Norway, where margin increased by [ 0.7 ] percentage points. While the margins in Norway are still below group, we see a clear indication that the margins will continue to improve throughout the year.

In the Netherlands, margin improved by 1.1 percentage points, but like in Norway from a low level. However, margins are now positive. And like in Norway, we see a clear indication that margins will continue to develop positively during the remaining part of 2023. Can we have the next slide, please.

Work in progress improved when seen relative to revenue and increased 11.3%, whereas revenue grew 12.3% in the first quarter. This was a result of tighter management of processes around work in progress, especially in Netcompany-Intrasoft. Along with an increased focus during 2022 on collection and time to cash, the actions around work in progress is the starting point for improved working capital management. Can we go to the next slide, please.

Free operating cash flow in Q1 was strong and increased by more than 180% compared to the same period last year despite lower absolute earnings. This is a result of the focused collection of receivables moving balances faster through work in progress to accounts receivables and the continued collection of all the overdues that were used from DKK 83 million in Q1 2022 to DKK 56 million in Q1 2023.

Comparing to Q4 2022, the collection of all the overdues have also improved from DKK 63 million at the end of the year to DKK 56 million at the end of Q1. Days sales outstanding was reduced from 60 in Q1 2022 and to 54 in the recent quarter of 2023. We have continued to deleverage, and we have repaid DKK 200 million on our bank loan during Q1. Leverage was reduced from 2.8x in Q1 2022 to 1.6x in Q1 2023.

Free cash flow will, for all practical matters, be used to pay down debt further, and we expect to deleverage further from the current level of 1.6% during the course of 2023. Can we have the next slide, please.

While the level of uncertainty remains high, in 2023. We do have a strong level of visibility of our revenue for the year, as highlighted here. And overall, visibility improved with close to 9% to almost DKK 5 billion at the beginning of April 2023.

And with that, I have concluded the detailed financial review, 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] The first question will be from the line of Claus Almer from Nordea.

[Claus Almer, analyst]

I have a few questions regarding FTE and revenue growth. The first question goes to Denmark and the 6% revenue growth you had in Q1 compared to a 13% growth in the FTEs. Why this difference? That will be the first question.

[Thomas Johansen, executive]

I'll take that, Claus, and thank you for the question. So in Denmark, what we see is the impact of the rightsizing of the pyramid structure, which means that we are seeing people that are leaving us, but are still employed throughout the quarter. And hence, the count basically as FTEs, but they are basically not billable. So that's the main explanation on that. It takes some time for the FTE level to come down, but we are in the process of that and expect that to normalize during Q1 and Q2.

[Claus Almer, analyst]

But does that mean that we should on an adjusted number, CFT only growing this around 6% as the revenue? Or should we see or expect revenue growth in Denmark to come up in the coming quarters?

[Thomas Johansen, executive]

Without going into specific guidance per country because we don't do that, but we do not expect the full year performance for Denmark to be a copy of Q1. I think I'll answer it that way.

[Claus Almer, analyst]

Okay. And hopefully better. But I guess that is in your reply.

[Thomas Johansen, executive]

That is implicit in the reply, yes, but thank you for clarifying.

[Claus Almer, analyst]

So second question is also about the FTE growth and then moving up on the group level is up by 15%. And yes, there is some issues with this trimming the pyramid, but you're guiding 8% to 12% on group level full year revenue growth guidance. Why is this different?

[Thomas Johansen, executive]

So when we started -- when we gave the guidance for the full year, 8% to 12%, clearly, high uncertainty. We are off to a good start to the year, growing 13.7% in constant currencies, which is more in line with the 15.1% growth in FTEs. Still early days in the year, but clearly, we are satisfied with the performance of Q1. And then we'll see where we end the full year.

[Claus Almer, analyst]

But you see any clouds on the sky that could justify a significant lower growth than you are ramping up your FTEs?

[Thomas Johansen, executive]

Difficult to predict the future, especially in these times. So we don't see any major negatives. On the other hand, there still is uncertainty. And with the uncertainty also comes the downside that it is really difficult to predict. But so far, so good, I think it's how we would label it, Claus, and then we'll see where we end the year. We're not really too keen on making any firm statements on what's going to happen on macro and what's going to happen on geopolitical uncertainty simply because it's impossible to predict, at least from our side.

[Operator]

The next question will be from the line of George Webb from Morgan Stanley.

[George Webb, analyst]

A few questions on my end, please. Firstly, on Intrasoft's strong performance. It was also strong in Q4, but in that quarter, we're calling out some license sales and pass-through sales no mention of kind of similar dynamics in this release, and you mentioned there's some positive project factors into Q2 as well. Was there anything significant around those items in that 20% number for Q1. And also if you could talk about operational priorities for Intrasoft this year, that would be helpful.

Secondly, on Claus' question around the Permian reshaping in Denmark. Can you give us any feel for the size of the growth headwinds in Q1 in Denmark from having those nonproductive employees? And then lastly, one clarification on the Intrasoft backlog in the Q1 release. It says there's about 5.7 billion of backlog expected between 2024 and 2030. In the Q4 report, I think it was 6.1 million between 2024 and 2029. So wondering if anything there has changed of note.

[Thomas Johansen, executive]

All right. We'll take the questions. And hopefully, we've got them all there, George, otherwise, you need to help us. But on the performance of Intrasoft, and the specific question as to, was that growth driven by license revenue as we saw in Q4. The answer to that is no. The top line growth in Intrasoft was based on projects, completion of project deliverables both within the European Union within the private sector in Greece. And there's generally a strong performance and good underlying productivity. The 3.2 million that has been income recognized as license revenue in Q1 is mainly related to Netcompany Co. So basically, monetization of some of the products that we have been working on now also in Netcompany Co. In Q2, our expectation is that we see some of those projects under the RRF to materialize, and that will most likely have a higher proportion of license revenue. I'll leave it at that. And then maybe on what we see on Intrasoft, in general, I'll leave that to Andre to give a few comments on that.

[André Rogaczewski, executive]

I think there are operational excellence, I mean, we see a continuous improvement in the way we address projects both in Netcompany-Intrasoft but also in common projects. And of course, it has an influence. It's very difficult to say exactly how fast we can move Intrasoft becoming Netcompany in the delivery aspect completely. That's going to take some time when we said that all the way through. But of course, on all the things that we do together and also in reutilizing some of the platforms that both Netcompany and Netcompany-Intrasoft has is having an effect. And I think we will see also the projects being made under RRF, more and more common approaches will, of course, yield a better operational excellence. But I think I'll leave it with that. It's a continuous effort that we are -- both companies are really striving to follow and follow up on and we -- I think we're seeing the first results of the aim to do so. And there's a lot to be gained there, but it takes time. And I'll leave it with that.

[Thomas Johansen, executive]

And then on the second question on the impact on the change to the pyramid and rightsizing of that. We're not going to be too specific on that other than it does have an impact, and it is having an impact mainly in Denmark. And when we gave guidance for 2023 back in the annual report, there was this overall impact from remuneration and like impacts of 1.5 percentage points for the group. That is mainly related to impacts in Denmark, and it's mainly related to the first half. So that's why the impact is bigger in Q1, and there will be the [ 1.5 ] flat throughout each of the quarter. On the intro backlog, it is developing all the time. We see new deals being signed, especially with the European Commission. We also release income from the backlog, so that's the nature of that, George.

[Operator]

The next question will be from the line of Orson Rout from Barclays.

[Orson Rout, analyst]

Congratulations on the results. First question I have was just on head count developments for the rest of the year, you still added almost 150 people sequentially in terms of this full-time employee count. I was wondering with sort of the attrition in Denmark now increased, how you expect that to develop over the coming quarters? Do you still expect this full time employee number to tick off sequentially for the next quarters because we've, of course, seen some combat starting to head count to cut some head count. I was interested if you could give some color there.

The second question I had is just on the depreciation and amortization, which was higher as a consequence of the new right-of-use assets from the new headquarter. And that of course, led to stronger declines below EBITDA. I was wondering if for the rest of the year you could provide some guidance or direction for what DNA should do over the coming quarters as well?

[André Rogaczewski, executive]

Okay. Thanks, Orson. Maybe I'll do the first one, you can do the second question. When it comes to headcount in Denmark, but in general, that's our policy, what we're looking -- we're hiring a lot of people and we're doing it in a very structured way. We know exactly how to educate them and what to use them for and a lot of them are actually new people coming also out of universities. So we continue to do that. It's a strategy and we have pinpointed exactly what competencies we need in terms of what we have in our pipeline as well.

So we do that as a continuous effort, and we will continue to do so. And of course, we will always look at the pyramid and try to shape it accordingly to the perfect size. But continued efforts in hiring talent will be done throughout 2023, just as we've seen so far. And when it comes to the new headquarters and depreciation, I'll leave that to you, Thomas.

[Thomas Johansen, executive]

And thanks for the question also on D&A, Orson. In Q1, there is a steep tick up in depreciation to the tune of around DKK 15 million from DKK 30 million to DKK 45 million. That is mainly related to the calculation or the termination of the rent agreement at our previous headquarter and cost for reestablishment of that, which is being depreciated in the first and second quarter of 2023.

When it comes to the request for a sort of guidance on depreciation and amortization throughout the year, I think that's a good and relevant question, and we will give some more clarity on that in the Capital Markets Day. That's a topic which is well suited for that. So we'll revert to that Orson on Capital Markets Day. So I hope you can wait another 3 weeks with those information.

[Operator]

The next question will be from the line of Balajee Tirupati from Citi.

[Balajee Tirupati, analyst]

Balajee Tirupati from Citi. Two questions from my side, if I may. Firstly, if you can comment on how should demand evolved over the past 3 months? And could you also kindly share additional color on the pipeline and client different cycle in private sector, but also if any evolution has happened in public sector? And then I have a follow-up question.

[André Rogaczewski, executive]

Yes, it's a good question. I think what we're seeing right now is that there's a continued demand for digitization, both in public and private sectors across our markets, but it varies a great deal. And there's a lot happening, especially when it comes to introducing new platforms on top of existing ERP or mainframe systems and utilizing even artificial intelligence as a future power of productivity. So we are very much involved in those dialogues.

Sales cycles are traditionally both in public and private sector when it comes to these platforms. They are 6, 9, 12 months long and even sometimes longer. But we are very well positioned. And I think we see some -- in some areas in private sector, we are seeing a real nice buildup in pipeline, but they also need to be executed upon it, so to speak, and closed as deals, and we're, of course, working on that.

But overall, I have to say demand is as we used to see a strong and the demand even in markets where financial conditions are somehow more difficult, for instance, in the U.K. We still see a strong demand both in public and private sector for digitalization. So it's just a question of being positioned correctly with those strategic platforms and reutilizing what we've done in Denmark in many of the new markets, and that's where we are focusing. And that's also why I'm really looking forward to the Capital Markets Day because we will show some really good examples of that on the Capital Markets Day.

[Balajee Tirupati, analyst]

And follow-up question is on your revenue outlook for 2023 after a relatively stronger first quarter and hopefully, second quarter, again, should benefit from a softer base comparison. You are still maintaining the outlook of 8% to 10% growth. So could you comment on what underlying expectations factored within top and bottom in your 2023 outlook?

[Thomas Johansen, executive]

Yes. Great question, Balajee. And you know how I'm going to answer it. So at this point in time, we take comfort in a strong start to the year. And I understand the question in terms of how do we reconcile 13.7% top line growth with the 8% to 12%. And of course, that's a question that we get. But we'll leave it at this, where we say we're off to a good start to the year. That is comforting. There's still uncertainty in the rest of the year. But of course, as we progress through the year, that level of uncertainty will gradually decline. We still think it's early days to change our expectations. But of course, it is a much better start to the year than had it been another number we reported. So that was a very long no answer, but I'm sure you can appreciate why we say the way we do.

[Operator]

The next question will be from the line of Yiwei Zhou from SEB.

[Yiwei Zhou, analyst]

I have also 3 questions. I'll do one at a time. Firstly, could you maybe comment a bit on the revenue visibility trend here? I mean normally you compare to the revenue vicinity a year ago. And I realize the trend has sort of decelerated a little bit. It was a 9.3% growth -- indicating 9.3% growth at the beginning of the year. And now accelerate to [ 8.8% ] at the end of Q1. Is -- can I understand this or sort of a softer order intake during H1. And if I understand correctly, is it mainly driven by the Danish public private segment? Or do we see -- do you see a sort of soft contract wins or intake in some other areas?

[Thomas Johansen, executive]

So the development is mainly driven by the softness we saw in the private sector in Q1 in Denmark. So your assumption there is absolutely correct way. What we also then see and why we are comfortable with the full year is our expectation to see certain projects and contracts come to close in Q2, especially within the RRF sphere, which would be with the Intrasoft in Greece. So there's a little bit of timing in it, and it's mostly related to the -- a little bit of softness in Q1 in the Danish private segment.

[Yiwei Zhou, analyst]

Okay. And then it comes to my next question. When do you expect the private Danish private segment to pick up again? Can you maybe comment a bit about the trend that will get going into this quarter in the second quarter?

[Thomas Johansen, executive]

We'll refer to -- refrain from not giving any specifics on Q2 since we are on the call in Q1. And in general, timing is really difficult to predict, but we expect it to be more normal sometime during the year. And of course, we will do everything we can to make that as fast as possible. But sometimes, actually, most times, we do need also to have our customers to sign the contract before we start working. But we see, as Andre said, good pipeline development, and we have some really interesting dialogues across industries in the Danish private sector. So we'll see on the timing. I'm not going to give you a specific date, even though you asked for it, I'm sorry.

[Yiwei Zhou, analyst]

And I want to follow up on other as question on the FTE, especially in Denmark, the FTE growth was 13% in Q1 and were about revenue growth. And maybe just want to challenge a little bit, if I'm long. If the activity doesn't pick up, in the coming quarters, and how quickly can you adjust your Danish resource to match the demand? I mean we normally see sort of big margin impact for the IT service business if the resource cannot miss the demand right.

[Thomas Johansen, executive]

So I think on our side, it is -- we're not afraid to not be able to hire more resources whenever activity level increases significantly. The margin drag we see in Q1 is because it takes longer time to adjust downwards than it does to build up in support of increased activity level. We have a strong employee recognition, a strong recognition with the students on various universities. And we continue to see that. And then maybe on the general term, Andre, on the employee market, we don't see any specific bottlenecks that worry us.

[André Rogaczewski, executive]

No. I think the situation is different now than it was just a year ago as more normalized and churn levels are coming down to normal levels. So the heating of the market is definitely different. That goes not only for Denmark, but across -- so as you said, Thomas, it's easier to ramp up. And also, I think over the last 1, 2 years, we've been -- we're much better at utilizing resources across the group. So when we need to spike up on certain projects, we can do it across the group and then add on afterwards. So it gives us more flexibility also to accompany drastic changes and needs for resources in particular areas. So overall, the resource situation is certainly -- well, it's always a battle for the right talent, but it certainly improved seen from our perspective over the last 1.5 years.

[Operator]

[Operator Instructions]

[Aditya Buddhavarapu, analyst]

This is Aditya Buddhavarapu from Bank of America. So firstly, you talked about some of the RRF projects benefiting Intrasoft in Q2. So about how that -- maybe some of the benefit actually for the rest of the year as well, maybe even in the second half. That's the first question. And then second, at the full year results, you flagged a few drivers, which are behind the margin guidance for the year. Can you maybe just talk about some of the phasing of those drivers through the rest of the year in 2Q and again, 3Q, 4Q, so working days, salary increases, the investments in the new go-to-market approach, headquarter move in Denmark that you've done, I guess, when you also headquarter costs for Intrasoft. So maybe just talk think about the phasing of some of those drivers through the rest of the year.

[André Rogaczewski, executive]

When it comes to the RRF developments in particular, of course, in Greece. It's -- there's no doubt there has been some bottlenecks, and it takes time to both tender and win these deals. However, we are very well positioned. And we see definitely see a rise in our pipeline when it comes to RRF and also how concrete these things are. So we expect that to go up over the year. And many of these systems have been talked about in design actually for a long time and now materializing. So that's a positive development. So we will see a rise there. And we also see a great combination of Netcompany-Intrasoft and Netcompany group platforms and products to be utilized in RRF. And we do have a natural position in that game because we already have approximately 20% of the market in Greece. So of course, we are addressing many of these projects when he goes for your second question about driving the margin?

[Thomas Johansen, executive]

The phasing of the impact of the 3.5 percentage point was what I heard you asking about, Aditya, and a good part of the margin hit that has to do with remuneration rightsizing of pyramid structure and the likes is mainly going to be Q1, Q2 and mainly going to be in Denmark. When it comes to the go-to-market, so the 50 bps. That's evenly distributed impact over the year. When it comes to the headquarter, 50 bps in Athens, that is Q1, Q2 and Q3-ish so more and of course, also Q4, so more or less evenly distributed.

The new headquarter in Copenhagen is from Q2 and onwards. So that's more towards the back end of the year. And the working day impact is clearly a second half impact on margin. The salaries have been increased as we normally do by the 1st of January, and that means that the average cost per employee will follow the normal pattern and even out as we go through the year in terms of hiring graduates and substituting throughout the pyramid.

[Aditya Buddhavarapu, analyst]

Understood. Very clear. Just one follow-up from my side. On the free cash flows, it benefited in 1Q from better working capital. Again, how should we think about some of the moving parts on free cash flow for the rest of the year?

[Thomas Johansen, executive]

So on the moving parts on free cash flow and what we've said in connection with the full year and which we still reiterate is that the free cash flow is going to be better in nominal terms for 2023 than it was in 2022. Continued strong focus on working capital, continued focus on collection. We still have an amount of overdues more than 90 days. It has been halved since last year, but there's still some things to be had there. We can still work with the time it takes for when we do work until we put it through work in progress and collect it in cash. So some opportunities to improve there. And then there are a few bits and bobs there. But I think that's also a topic which is well suited to go in more details with on the Capital Markets Day. So we'll be also more specific on that on the 1st of June, Aditya.

[Aditya Buddhavarapu, analyst]

Perfect. And one last one from my side, actually. Because strong growth in the U.K., how much of that is sort of more greenfield wins versus market share gains from some of the other players in that space?

[Thomas Johansen, executive]

So that's all market share gain from competition. And it's one of those things where it's more -- it's more gentle to look at percentages when you are a small player in the country. And even though that we are now beginning to have a significant amount of people in the U.K., 550-ish, we're still a challenger in the U.K. market. But what we can see is that our continued focus on products and platforms, especially within customs, within tax, our solutions within various capabilities that is highly regarded within defense is really giving us a good name, and that is prompting more business to come through the pipeline that we then execute on. I don't know if you want to add something, Andre, on the U.K.

[André Rogaczewski, executive]

Yes. I think what we see in the U.K. right now is as I said -- as you said, Thomas, as an industrial domain-specific knowledge that we have in putting systems into place quickly in those complex areas like tax and customs but also all the public areas. So we see in government in the U.K. that the company is now associated with being able to deliver at time budget and within the right quality. And then we will also -- we will talk about that at the Capital Markets Day. We also see how we can reutilize many of the technical components and platforms in order to get productivity up and being able to deliver even more with the same resources. So -- but that's a continued effort that we're doing across markets. And I'm really going to look forward to show you some of that at the Capital Markets Day in 3 weeks.

[Operator]

[Operator Instructions] As there are no further questions, I will hand it back to the speakers for any closing remarks.

[André Rogaczewski, executive]

Well, thank you all for joining in today, and I wish you a very good day. Thank you.