NNIT A/S

CSE:NNIT

Earnings Call Transcript 2020-Q2

[Operator]

Hello, and welcome to the NNIT Interim Report for the First 6 Months of 2020. [Operator Instructions] And just to remind you, this conference call is being recorded.Today, I'm pleased to present Jens Binger, the Head of Investor Relations. Please go ahead with your meeting.

[Jens Blüitgen Binger, Head of Investor Relations]

Thank you, and good morning, and welcome to this call on NNIT's financial performance for the first 6 months of 2020 and the outlook for 2020.Slide 2. My name is Jens Binger, and I'm Head of Investor Relations. With me today is CEO, Per Kogut; NNIT's new CFO, Pernille Fabricius; and resigning CFO, Carsten Krogsgaard Thomsen.I will briefly walk you through the practicalities for today's meeting before giving the word to Per Kogut. Today's earnings release as well as the slides being used for the presentation will be available on our website. The conference call is scheduled to last approximately 1 hour. The presentation is expected to last around 30 minutes. And after the presentation, we will open for questions.Slide 3. Today's agenda can be found on Slide #3. Please note that the call is being live-casted and a replay will be made available on our website after the call.Slide #4. Please be advised that this call will contain forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause the actual result to deviate considerably from the outlook set forth. Furthermore, some of these expectations are based on assumptions regarding future wins, which may prove incorrect.With these words of introduction, I will give the word to Per Kogut and turn to Slide #5.

[Per Kogut, President & CEO]

Thank you, Jens, and a very warm welcome from me as well. First of all, to you, Carsten, thanks for your great contribution to NNIT as CFO actually since 2014, but also serving at the Board since 2004. Today, Carsten will deliver his last quarterly report for NNIT before leaving us late in August, though still be technically employed in NNIT until January next year. But also a warm welcome to you, Pernille Fabricius, who joined us just last week.In NNIT, we, like anyone else, is still facing the COVID-19 challenges on a global scale. We have operations in Europe, U.S. and Asia, but we do see big differences in the restrictions and guidelines set forth by local governments and in how this impacts our employees across the world. Since January, we have been impacted by the situation, and we have gained valuable knowledge and learnings on how to ensure our employees' health and safety while continuously ensuring stable IT operations for our customers globally.We have shown operational robustness throughout the ongoing pandemic, and we are prepared if a second or third wave should cause another global lockdown and in particular, as late as we have seen in August this week.The COVID-19 situation continue to impact NNIT in quarter 2, mainly in the project business in April and May, while growth returned to a more normal level in June. Despite the COVID-19 impact, NNIT's overall financial performance for the first 6 months was in line with our expectations. We are a robust company, and we have not applied or received any compensation from any COVID-19 aid packages provided by the Danish government.Turning to Slide #6 for the financials highlights for Q2 2020. I would like to provide you with the overall financial highlights. And later on, as usual, Carsten will go into more detail.In Q2, our revenue decreased by 5.7%, driven by a 26% decline from the Novo Nordisk Group and a 10% decline in the enterprise segment. The decline was partly offset by a 22% growth from life science Denmark and an 18% growth from our life science international. Operating profit before restructuring cost was DKK 38 million, equal to an operating profit of 5.4% compared to 5.9% same quarter last year.Turning to Slide #7 with the financials for the first 6 months of 2020. Revenue decreased 4.7%, driven by expected decline in business from Novo Nordisk mainly. The decline was partly offset by a growth of 24% from life science Denmark and an 18% growth from the international life science and growth of 15% from the public segment. So a very different impact. Operating profit before restructuring cost was DKK 85 million, equal to an operating profit of 6%, which was in line with the same period last year.Turning to Slide #8. In June, we announced that we were awarded the IT Infrastructure and SAP basis operations agreement with the Danish Defence, also called the MAS. Besides the core operations, NNIT will play a significant role in the upgrade of their current ERP system to SAP S4/HANA in a hybrid cloud setup. NNIT was also awarded a framework agreement regarding SAP application development and maintenance together with 5 other vendors. On a 7-year period, this framework agreement alone has a potential value of close to DKK 2 billion. And we, of course, have expectations to be part of that.We have extense experience in operating and maintaining highly critical IT infrastructure in Denmark as well as globally, where the security requirements are at an absolute maximum. We are therefore very proud to be awarded that contract and these contracts of the scale and importance to Danish society.We were also announced a contract win with a new customer, Saint-Gobain back in June. For the next 5 years, NNIT will assume responsibility for Saint-Gobain's servers and cloud solutions in NNIT's data centers for their business in the Nordic and Baltic countries. The collaboration will provide Saint-Gobain with a dedicated private cloud solution complying with the group's strict specification for IT security.Moving to the finance segment. We are happy to report that our long collaboration with pension company, PFA, has been extended for another 2 years. NNIT will continue to deliver infrastructure operations and consultancy to PFA. In addition, the new contract include an increased focus on hybrid cloud, enabling PFA and PFA to strengthen its digital customer service as well as agile and digital transformation.Like previous quarters, we continued to see strong growth in the life science segment, mainly driven by Veeva related solutions. Also a top 20 global pharma company awarded NNIT the responsibility of end-to-end implementation of all main service offerings, being integration, validation, migration and project services for the Veeva Quality platform. The contract is the largest international Veeva powerhouse agreement so far in NNIT.Further, on a positive note, NNIT was awarded a contract to support an existing customer's COVID-19 vaccine initiative by delivering system implementation and [ Tx feed ] documentation through the Veeva safety system at vastly accelerated time lines, for obvious reasons. So many positive moments as well.And with this, Carsten, please walk us through the financial details.

[Unknown]

Yes. So if you turn to the next slide with the financial statements for Q2, you can see that we see a negative revenue growth of 5.7%. This was driven by a 26% decline in revenue from Novo Nordisk and a 10% decline in the enterprise segment, while we continue to see strong growth in our other life sciences business and especially in our international life science business, which has not been so impacted by the COVID-19.Our gross profit and operating profit margins in Q2 were 0.2 and 0.5 percentage points below last year, while the margins for the first half of the year were at the same level as last year. All in all, as Per said, this development is in line with our expectations from the beginning of the year. But I would like to elaborate a little on the different factors impacting these results.So starting with the SLA business, this developed as expected. Margins from our SLAs with Novo Nordisk declined also as expected, due to the loss of the application maintenance service level agreement and a significant price reduction on the operations maintenance service level agreement. The cost restructuring program was also as expected, not able to fully compensate for this development.But then on a more positive note, we saw a considerable margin improvement in both the other life sciences segment and in the private and public segment. And this was very much driven by the cost restructuring program, but also by better margins on our project business. SLA business was not really impacted by COVID-19 in Q2, but we did see some delays of tenders, which mean that we will not, as originally expected, see revenue from these in Q3, but not until Q4. So bear this in mind.COVID-19 did impact our project revenue negatively in Q2 and thereby also our overall margin in Q2. In private and public, we saw lower project activity, especially in April and May, as customers delayed or stopped some projects, while as Per also mentioned, we did see project activity return to the normal growth level in June.Scales was quite severely impacted by customers reducing their project activity in Q2. And the reduced project activity level in Q2 also meant that the billable utilization was below the targeted level in the cost restructuring program. And that had a negative impact on our margins.In the international life sciences business, we saw much more resilience towards COVID-19, except for in China, which was impacted quite severely in Q2, as we also saw in Q1. The negative impact from COVID-19 in Q2 was, to a large extent, offset by an asset review of the useful lifetime of certain servers and data center assets. And this had a positive margin impact of 1 percentage point in Q2, 0.7 percentage points in the first half of the year, and for the full year, we expect an impact of around 0.4 percentage points. This is pretty complicated stuff. But as you can see, there is an asymmetry between the first half and the second half of the year.If you then turn to the next slide with the status on our implementation of the cost restructuring program, this is still progressing as planned, except for the utilization track, which I just mentioned. This has been impacted by COVID-19 between 1 and 2 percentage points, simply seeing project activity decline rapidly. And it takes time to get staffing in place to mitigate that. But it is important to say that all the initiatives we have targeted in this track, they have been implemented and we are ready to see higher utilization rates again once COVID-19 has a smaller impact on our project business.The automation track is completely on track, delivering the reduced hours on these tasks. On external expenses, this is also on track, and we do actually see some extra cost savings here due to the COVID-19 situation, where of course travel costs and representation costs and so on are lower than normal.When it comes to the staff and sales cost, then the plan is also progressing as expected. So all in all, we are set for getting the promised total cost reduction of DKK 150 million this year. A little behind on the utilization track, but we expect to catch up on that in the second half of the year.If you then turn to the life sciences slide on the next page, well, here, you see the well-known picture where Novo Nordisk is declining with 26%, and this is as expected. We also see that both life sciences international and in Denmark is increasing with around 20%. And please note that if you add life sciences in Denmark and internationally, if you add these 2 numbers together, they actually give DKK 174 million, which is exactly the same revenue as we have in Novo Nordisk. So our other life sciences segment is actually as big as the Novo Nordisk segment now.As mentioned, we had the negative impact from Novo Nordisk on our margins, and we do see the gross profit margin declining with 2.9 percentage points and the operating profit margin with a little more than 3 percentage points.What I'm happy to see is that the margins in our other life sciences segment. Here, we see a quite big increase in our profitability. This is due to the cost restructuring program, but also due to strong growth in high margin projects.If you then turn to the private and public segment, then as expected, we see the enterprise segment declining with 10%. This is due to the phasing out of the Pandora contract, which we will be completely out of in August this year. But already in May and June, the activity level was much lower.We still see growth in the public, while the finance segment is declining, and that is due to the so-called MIA contract. This is a kind of IT service company for insurance, smaller insurance companies, and they're not using this company anymore. And then Alka insurance was acquired by Tryg and thereby giving their services that way around.I think it's very positive to see that our gross profit margin and our operating profit margin increased with 2.8 and 2.4 percentage points, again, due to a cost restructuring program. But it does also show that our private and public segment, here, we see our earnings beginning to increase and will, over the coming years, come up to a more normal and acceptable level.If we then turn to the next slide with the currency development, then currencies have not had all that big impact on our accounts. You can see that the CNY and the Czech koruna had recently declined. It did not impact our results so much in Q2. But if they stay at this level in the coming quarters, then we will be seeing some positive tailwind on our operating profit.We see the U.S. dollar actually having a positive contribution in Q1. But from the end of Q2 and into Q3, we see a quite large depreciation of the dollar. And of course, that will have a negative impact on our revenue and margins. But all in all, these impacts are minor.Turning to net financials. These are all very small numbers. Net financials decreased from minus DKK 1 million to minus DKK 6 million. The primary reason for this are losses on currency fluctuations on receivables denominated in U.S. dollars. So when we have contracts in Denmark in U.S. dollars and then when the U.S. dollar depreciates, then we lose, of course, money on that when we convert that into Danish kroner, and that has this negative impact. You can see for the half year, it's more or less at a breakeven. And you can also see that with a more stable currency development gains from currency hedges are very small now, and we only have a little bit part on equity in our actually small minus there. Our interest expenses are still very low at around minus DKK 4 million.If we then turn to the next slide with the employee development, we see a decline in the total number of employees of 6.2%. Of course, this is a consequence of the cost restructuring program and the loss of the business with Novo Nordisk and Pandora. And you can see that we especially see a large decline in China with 123 FTEs. This is because a large part of Novo Nordisk business is operated out of China. We do also see a decline of 70 FTEs in Denmark. And of course, that has been higher Danish salaries, a significant positive impact on our bottom line.In Prague, we have also reduced 40 FTEs as part of the cost restructuring program, but also the 2 contract losses. There's one area where we are seeing growth, and that's in our international offices outside the outsourcing centers. So that's in Germany, in U.S. and in Switzerland where we are increasing with 33 FTEs in order to support the strong growth that we are seeing in the international life sciences business. With this development and with a high growth in our international life science business, which is project business, which to a smaller extent is driven out of offshore centers, and with the loss of the Pandora and Novo Nordisk contracts, then we do see a small drop in the share of employees in low-cost countries. That's quite natural.Turning to the balance sheet. Normally not much to say about this. But I think there are 3 areas that I would like to highlight. You can see that the employee benefit obligation increased to DKK 105 million. This is due to the fact that we have this new employee vacation act or Feriefonden in Denmark. Here, I can say that we will be paying that obligation to the Danish state instead of keeping it ourselves. And the reason for that is that the taxation rate that you pay to the Danish state, if you do not pay that, is much higher than the interest rates that we are borrowing at.Contingent considerations on earn-outs decline with around DKK 90 million. And this is due to the fact that we have now paid earn-out payments to Scales and, to some extent, also Valiance. And then finally, we see that other current liabilities increased DKK 130 million. And this is due to the performance of employee tax and VAT as part of the COVID-19 initiatives in Denmark. So here, we are with the lease payments that most other things -- companies, as Per mentioned, we have not applied for any support from any of the aid packages as such. Turning to the cash flow. Here, we see that the cash flow from the net profit cost is declining a little. We see a quite significant change in our net working capital, which is improving with DKK 180 million. This is to a large extent due to the postponement of the VAT and payroll taxes. And down and right at the bottom, this all in all gives us DKK 233 million improvement of free cash flow, and again, shows that we do have a very strong cash flow position and a very strong liquidity and a very low gearing.And on that note, if you turn to interim dividend due to this strong underlying cash flow generation, a strong financial position, our Board has decided again to pay an interim dividend for 2020 of DKK 2 per share. This corresponds to DKK 49 million. And our financial gearing, as I just stated, is still very low at 0.9x EBITDA. I can add that even without the postponement of the VAT and employee taxes, we would still have had a strong cash flow and financial position and we would still have paid interim dividends.Turning to the backlog development for this year. Overall, we see a decline of 8% in the backlog. And this, as in previous quarters, is due to a decline of 29% in the backlog from Novo Nordisk, while we see a strong 20% growth in other life sciences and we see a decline of 4.6% in private and public due to the Pandora phaseout and also due to the COVID-19 impact.When we look at this backlog, and Per has already said this and we've said it for several quarters, as we get a higher share of project revenue in our business, you need to interpret the backlog a little careful when you use it as a predictor for the full year revenue. I can add that when you look at the pipeline, which is not in the backlog, then this is higher than last year. So we still believe that the backlog and pipeline supports revenue guidance, which is in -- within the previous guidance we've given you.And on that note, if you turn to Slide 20 with our outlook, we are maintaining our full year outlook. So still minus 4% to minus 8% revenue growth. 0.2% higher in reported currencies. And we are maintaining our operating profit margin at 6% to 8% before special items. We are increasing our special items a little since we have made more dismissals than originally expected. And this is due to a lower attrition as a consequence of COVID-19. So more dismissals than originally anticipated at the beginning of the year.Our CapEx, share of revenue, is still expected to be between 5% to 7%. We are still stating that due to the continued uncertainty regarding COVID-19 impact on 2020 activity, there is an increased likelihood that revenue growth and operating profit margin will both end in the lower end of the guidance intervals.And then just one final remark. When you look at our quarterly numbers and our full year guidance, please be aware of the normal seasonality in our business here. The normal seasonality means that we see higher revenue and higher margins in Q4 than in Q3. And the second half of the year is higher than the first half of the year. I may add that this seasonality is expected to be stronger this year due to the COVID-19 having delayed some projects and SLAs in Q2, with a negative impact into Q3 and pushing this revenue into Q4. So please have that in mind when you look at your own forecast for Q3 and Q4.And with these words here, my own very last word in this company, it's been a pleasure to work together with you and the contact I've had with all of you. But over to you, Per.

[Per Kogut, President & CEO]

Thank you, Carsten. I'm sure it will not be your final words. We might get a question or 2.

[Unknown]

Okay.

[Per Kogut, President & CEO]

And let me round off by saying that even though our ambition level is much higher than we have performed here first half, we are satisfied with the financial performance for the first 6 months of 2020. And that we, despite the COVID-19 impact and declining revenue from Novo Nordisk and Pandora, are delivering in line with our own expectations. Actually, I would like to add that our winning solution strategy works, and we see that in the other segmental performance. We have achieved this result by revenue growth within other life science business delivering 20% growth as well as executing on our planned cost restructuring program. At the same time, we are securing future revenue by winning important contracts in other segments in Denmark and internationally.So with these words, I would like to conclude our presentation. And we are more than happy to open up for questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Yiwei Zhou of SEB.

[Yiwei Zhou, Analyst]

Can you hear me?

[Per Kogut, President & CEO]

Yes. Loud and clear.

[Yiwei Zhou, Analyst]

I have a couple of questions. Firstly, could you elaborate a bit on the strong growth in other life science? And also seems like the -- in Denmark, the growth also accelerated in the quarter. Is there any COVID-19 impact? And then -- yes, could you help us understand a little bit. And then I'll continue with other questions. Let's start with the first one.

[Per Kogut, President & CEO]

Our winning solutions strategy focuses a lot on our international, and for that matter, the life science segment in general, also Denmark. And we have seen a strong uptick on our services through international life science. As an example, the entire Veeva area where we have been announced one of the very few partners to adhere. So we see several wins in that area, but also other of our life science services. The Danish life science segment, outside Novo Nordisk, is mainly a couple of very large contracts. And we are -- customers, sorry, which we all know, and we are continuing to deliver to these clients. So I think it's a strong evidence that our international and Danish life science area within the winning solutions works. And we have anticipation that this will continue.

[Yiwei Zhou, Analyst]

And could you clarify here in the Danish life science, outside Novo Nordisk, and the growth in the quarter, which has been the main driver, is it a project-based contract, short-term contract? Or is more service lines then?

[Jens Blüitgen Binger, Head of Investor Relations]

It's Jens speaking here. It's a little bit of both. So we both see an increased projects in the Danish life science compared to last quarter. And then we also saw extraordinary low revenue in the first 2 quarters in the Danish life sciences last year. So there will be some kind of seasonality throughout 2020, where we will see higher growth rates in the first quarters compared to the second or compared to the third and fourth quarter in 2020. So we are seeing growth in Danish life sciences, but we will not -- we do not expect to end at plus 20% for the full year in Danish life sciences. International life science, it is still our ambition and belief that we continue to see the strong growth rate as we have delivered in Q1 and Q2.

[Per Kogut, President & CEO]

But I think this is not [indiscernible]. When we look at our backlog and pipeline, it is very strong.

[Yiwei Zhou, Analyst]

Great. And my next question regarding the change of your FTE. Now you increased FTE in Europe, but decreased in the low-cost centers. What will be the impact on the gross margin going forward? Could you give us a little bit guidance here?

[Per Kogut, President & CEO]

Well, what you see at the moment is that our project business is increasing much faster than our SLA business. And it's primarily our SLA business, which is operated out of the offshore destinations. So having higher margins on project business on the winning solutions and in international life sciences than on the traditional SLA business, this will have a positive impact on our overall margin as we go ahead.

[Jens Blüitgen Binger, Head of Investor Relations]

And also bear in mind that our customer composition means a lot. So if -- when we are -- as you know, have lost Pandora, which is highly SLA-driven and highly global-sourced, and then win Danish-based contracts, speaking within, for example, the public segment, then we will be more heavy out. So you should not see this as a time that our margin is going down, I would say, on the contrary on that.

[Yiwei Zhou, Analyst]

Okay. Very clear. And last question is on the topic on the private segment. The margin improvement in the quarter was also quite significant. Is it possible for you to give us an update on your revenue mix at the moment? And you mentioned in this segment that you also increased the project-based and consolidated business and decreased the SLA business, so what is the current revenue mix compared to 1 or 2 years ago?

[Jens Blüitgen Binger, Head of Investor Relations]

I think, yes -- I don't know whether you can get the exact numbers, but no doubt, we see our project business is increasing much faster than the SLA business. So what we can see is that our -- in the private and public segment, for the first half year, our SLA business is declining between 5% and 10%. And we see the opposite effect on projects where we see a plus 10% increase in the business. So that is the trend that Per also mentioned that our winning solutions strategy is focusing more on shorter-term projects and we are moving away from long-term SLA contracts.

[Operator]

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

[Poul Ernst Jessen, Senior Analyst]

I have a few questions as well. On the international life science and also on the private and public, could you give an indication of what kind of growth you see in Valiance and Scales in the quarter?Secondly, the Veeva partnership, which you also announced where you -- which has been extended, should we just see that as a marketing event, meaning that it will be the growth we assumed already earlier, or will it accelerate your growth potential in that area?Then on the restructuring cost value in for a run rate of SEK 150 million by the end of the year, can you give an update at what run rate you were already in the second quarter? So how much to expect for the remainder? Yes. That's 3 for now.

[Per Kogut, President & CEO]

Take the restructuring.

[Unknown]

Yes, yes. So out of the DKK 150 million, we have done a significant part of that within all the staff functions and in operations, but there's still more coming from automation. The area where we will see further improvements in the second half is within projects business with a billable utilization use of external consultants. So that's probably around DKK 30 million left out of the DKK 150 million would be my guess around that. Then Per, should I say a few words about the Valiance?

[Per Kogut, President & CEO]

Yes, [ do you have the ] Valiance numbers?

[Unknown]

Yes, yes. So Poul, Valiance continued its strong growth of around 20%, performing really strong, not being impacted by COVID-19. We were a little worried at a point of time, because they are located in New Jersey, U.S., but they have been able to also work from -- at home and their customers have not really been impacted from COVID-19.This is not the same with Scales. As with other ERP system provider, Scales, they were heavily impacted in Q2, actually showing negative growth compared to last year after having plus 20% growth in Q1. We do see new projects coming on for the second half of the year. So we are more optimistic for the second half of the year. But all in all, we are not getting the growth from Scales this year that we had expected originally, and this is due to COVID-19.

[Per Kogut, President & CEO]

About the Veeva thing, Poul, we don't perceive this as a marketing event. We have actually invested and spent a lot of hours into getting the certification level here in Europe. And to my knowledge, we are 1 of the 2 who have been provided with that. The business status that I'm guessing you are more interested in is actually currently that we are trying to educate as many as we can. And we have actually, to a certain extent, more business than we can deliver with our interest in quality delivery. So we are really looking into could we onboard more people, how fast can we train them to the right quality level on Veeva, both in Denmark and in U.S. and other acquisition candidates in that area that could assist us. But we're not interested in buying a Veeva consultancy company. If they are also overloaded, then it will solve no problem for us. So we're looking into that, but it's a very, very positive signal, and we do see the business come along with that. And right now, we actually have our hands filled with Veeva business.

[Poul Ernst Jessen, Senior Analyst]

A follow-up on Veeva. As I understand it, what Valiance primarily did were data migration from installations. Is there a chance that going forward that you're expanding that scope also to the integrating solutions and not only doing the data migration?

[Per Kogut, President & CEO]

Well, our Veeva services is actually much more than data migration, but it's correct that we bought Valiance in order to participate on the Veeva journey or the Veeva application uptake. And we began in the migration area, because that was -- with our discussion with Veeva, that was an area where they saw a lot of bottlenecks. Now they -- we complement each other. So there will continue to be a lot of data migration that we have isolated into our Valiance entity. Obviously, clients want to move current data to the Veeva, and that's right spotting the Valiance services and IT services delivered by our Valiance entity.But secondly, implementing configurating, installing, optimizing and integrating the Veeva Vault platform is done by other entities in IT than the Valiance. So those 2 entities, our life science entity and in particular the Valiance entity, complement each other. And that's exactly why we are getting the scales we are, and that will continue.

[Poul Ernst Jessen, Senior Analyst]

Right. Will you give a number of how much out of the engine is life science, which is based on Veeva?

[Per Kogut, President & CEO]

Do we have that in ballpark figures?

[Unknown]

I guess it's at least half. At least half, I would say.

[Per Kogut, President & CEO]

Half. Yes, around half. Paul, we will try to dig into if we can isolate. It's growing a lot. But if we say half, it's [ not quite fair ]. Veeva is really having a lot of success. And where we are also assisting Veeva is, of course, getting our head around how we can scale with resources, but also their interest in moving into other areas of within our life science definition, but it could be medical devices and so on. So the service is -- service areas is growing a lot. And as mentioned, we also have -- with one client who are a pharmaceutical company, who are using Veeva Vault in one of their new applications in order to enhance their delivery and compliance, delivering a vaccine for the COVID-19. So this is booming right now.

[Poul Ernst Jessen, Senior Analyst]

Final question now from me is on the new orders you've signed. The frame agreement that Danish Defense, which is, as you said, up to slightly below DKK 2 billion over a number of years. But if we look at the buying by the government, then your share that was set at about DKK 300 million. And I know that is a typical assessment by the client. How do you look at new opportunities to do even more than those DKK 300 million?

[Per Kogut, President & CEO]

Yes, it's correct. It's a framework agreement, a huge one. And over the last 5, 10, 15 years, it is our -- we have data points where the defense is using a lot of consultancy within the agreement. So we know there is -- it's not just a framework agreement, but we know there is an uptake in that area. And we have made some estimations on the areas where we have competencies where we can support and assist the Danish Defense, and it is within the numbers you have mentioned. And Poul, of course, we're trying to win more than our -- we have mentioned, but we also have to have the right services in order to provide that. And some of our colleagues in the market have also good services that they are delivering to the Danish Defense, which is fine by us.

[Operator]

[Operator Instructions] And we have another question from the line of Poul Ernst Jessen.

[Poul Ernst Jessen, Senior Analyst]

Just had 2. [ I just had to check if there were others who wandered ] for one. It's just clarification questions about the asset life extension that you're doing, thereby reducing your depreciation. I guess, is that in the gross margin as well? Or is it [indiscernible]?

[Per Kogut, President & CEO]

It is almost -- well, it's in both and it's almost 100% on the gross profit margin, because we are talking data center assets, and that is in the growth in the production cost and service are typically also in the production cost. It impacts both.

[Poul Ernst Jessen, Senior Analyst]

Okay. Then on the international life science, the 18% growth, is that organic, all of it? I can't remember how much [ for SPG ] last year?

[Per Kogut, President & CEO]

Yes. If you take quarter-on-quarter, the 18% is organic. And then as Carsten mentioned earlier, there is quite severe impact in China due to COVID-19. So you have to take that into considerations also. And if we look at half year -- yes -- and then if you look at the half year, then there is DKK 10 million to DKK 15 million nonorganic growth in the numbers. But from quarter 2 and forward, we look at organic.

[Unknown]

Okay. And if we adjust for China, the growth in international life sciences is well above 28%.

[Poul Ernst Jessen, Senior Analyst]

Okay. Then the reversal of the state support, meaning the taxes and so on, should we expect that in Q3? And how much should we expect reversing that?

[Per Kogut, President & CEO]

We are now at a positive -- we have a positive cash flow impact of around DKK 140 million for those initiatives at the moment. We expect to end 2020 with a positive impact of DKK 100 million. We are not quite sure if it will be reduced positive impact from DKK 140 million to DKK 100 million in Q2 -- in Q3 or Q4, but it will be during the year. And then we enter into -- in '21 with SEK 100 million positive that we most likely will be repaid to the government during '21 in Q1. But they are extending these initiatives on an ongoing basis, so that is what we know for the moment.

[Poul Ernst Jessen, Senior Analyst]

Okay. And then the last one, and that is -- maybe I was not fully having attention. The postponement you talk about from Q3 to Q4 on revenue, can you repeat that what it was and how much?

[Per Kogut, President & CEO]

Yes, yes. So what I'm saying is that some of the tenders that we were bidding on before COVID-19, we expected those to be finished during Q1 or Q2 and thereby having a positive revenue contribution in Q3. Several of these were delayed due to COVID-19. And therefore, we do not expect to get this revenue in Q3, but not until Q4. So therefore, you will see that our revenue and operating profit will be skewed a little more towards Q4 than normally.

[Poul Ernst Jessen, Senior Analyst]

And is that some of those -- you have one?

[Per Kogut, President & CEO]

It is the ones that we have one, and there is also another one, which is ongoing.

[Jens Blüitgen Binger, Head of Investor Relations]

There's, for example, Saint-Gobain, where we now most likely receive the revenue impacted from start mid-December instead of Q3.

[Poul Ernst Jessen, Senior Analyst]

And the Danish Defense will also...

[Per Kogut, President & CEO]

Sorry, Poul.

[Poul Ernst Jessen, Senior Analyst]

The defense contracts, that's from next year?

[Per Kogut, President & CEO]

Yes, that's correct. But the tender was also delayed. So the process was started up a month later than was anticipated.

[Unknown]

And then there are some Scales projects, which have been delayed, but are ongoing now.

[Operator]

And we have no further questions on the line at this time. Please go ahead, speakers.

[Jens Blüitgen Binger, Head of Investor Relations]

Yes. So this concludes our conference call. So thank you for participating in today's webcast, and feel free to reach out to me if you have further questions. Bye.