Earnings call transcript: NNIT Q4 2024 reports strong organic growth, stock dips

Published 19/02/2025, 10:50
Earnings call transcript: NNIT Q4 2024 reports strong organic growth, stock dips

NNIT reported a Q4 2024 revenue of DKK 470 million, slightly below the forecast of DKK 474 million, with an organic growth rate of 7.1%. The company’s stock fell by 1.71% to 80.6, reflecting cautious investor sentiment amid a minor revenue miss and broader market concerns. According to InvestingPro analysis, NNIT currently appears undervalued, with a "GOOD" overall Financial Health score of 2.62 out of 5.

[Get access to 5 more exclusive InvestingPro Tips for NNIT and over 1,400+ stocks with a Pro subscription.]

Key Takeaways

  • NNIT achieved a Q4 organic growth of 7.1%, demonstrating resilience in a challenging market.
  • The company’s stock declined by 1.71% post-earnings, possibly due to a slight revenue miss.
  • High customer satisfaction and strong client relationships remain key strengths.
  • Restructuring costs and macroeconomic challenges in China present ongoing hurdles.

Company Performance

NNIT’s Q4 performance showcased a robust organic growth rate of 7.1%, despite a minor revenue shortfall against forecasts. The company continues to benefit from strong relationships in the Danish public and private sectors, particularly with Novo Nordisk (NYSE:NVO). However, macroeconomic challenges, particularly in China, and restructuring costs have impacted overall performance.

Financial Highlights

  • Full Year 2024 Revenue: DKK 1.85 billion
  • Q4 Revenue: DKK 470 million
  • Full Year Organic Growth: 6%
  • Q4 Organic Growth: 7.1%
  • Group Operating Profit Margin (Full Year): 6.3%
  • Q4 Operating Profit Margin: 9.1%

Market Reaction

NNIT’s stock fell by 1.71% following the earnings release, closing at 80.6. The decline reflects a cautious market response to the slight revenue miss and ongoing macroeconomic challenges. The stock has experienced a challenging year, with a -25.72% return over the past 12 months, trading between USD 10.49 and USD 18.93. Analysts maintain a neutral stance, with a consensus recommendation of 2.0 out of 5.

Outlook & Guidance

NNIT has set ambitious targets for 2025, with an organic growth target of 7-10% and an operating profit margin target of 7-9%. The company anticipates a gradual improvement throughout the year, although Q1 2025 is expected to be below the guidance range.

Executive Commentary

CEO Per Fors emphasized the company’s positive trajectory, stating, "We are demonstrating that in our outlook for 2025 that we are moving yet another step in the right direction." CFO Karsten Reynjos highlighted the importance of increasing consultant utilization as a key lever for growth.

Risks and Challenges

  • Macroeconomic pressures in China could impact growth.
  • Restructuring costs of DKK 20 million may affect profitability.
  • Market slowdown in Europe and the U.S. poses challenges.
  • Dependence on key clients like Novo Nordisk could be a risk if relationships change.

NNIT’s earnings call highlighted both the company’s strengths and the challenges it faces in a complex global environment. Investors will be watching closely to see how the company navigates these dynamics in the coming quarters.

[Access the comprehensive NNIT Pro Research Report, part of InvestingPro’s coverage of 1,400+ stocks, for detailed analysis and actionable insights.]

Full transcript - Nnit AS (NNIT) Q4 2024:

Operator: I’ll now turn the call over to the speakers. You may now begin.

Per Fors, CEO, NNIT: Thank you very much, operator, and excuse for the slight delay. But most important, good morning, everybody, and thank you for joining this webcast. My name is Per Fors and I’m the CEO of NNIT. And with me today, I have our CFO, Karsten Reynjos and together we will present our results for the fourth quarter and also the full year of 2024, which we released yesterday evening. Please turn to Slide two.

I will walk through the key business highlights, including a regional update. After this, Karsten goes through the group results, including our financial outlook for 2025 and our adjusted financial aspirations toward 2027, which we announced on the February 11. Before heading to the next slide, please pay attention to the disclaimer in the bottom of the slide. Let’s turn to Slide three. No doubt that 2024 was an eventful year for NIT.

We face challenges greater than we firstly anticipated, such as the slower than anticipated recovery in our data migration business, a more cautious customer behavior, a more moderate market slowdown in Europe and continued challenges in Asia, most notably in China. On the other side, we saw a solid growth trajectory in the private and public segments of our business and also a turnaround effort in Region Asia positively materializing. In Q4, we managed to change the growth and profitability trajectory from Q3. Our revenue for the fourth quarter amounted to DKK $470,000,000 equal to a growth of 7.1%. Organic growth was also 7.1%.

The margins picked up in the last quarter as planned, ending at 9.1%. The Q4 financial performance resulted in an organic growth for the full year of 6% and a margin of 6.3, which was in line with our latest outlook announced end October last year. Even though our initial expectations going into the year were higher than what we delivered in terms of financial performance, we are happy with ending the year on a solid note. Please turn to Slide four. During the year, we have made good strategic progress.

We have reached several important milestones after the divestment to ensure that NNIP has a strong platform to stand on and further evolve. In our corporate strategy, we have made some deliberate choices to diversify our business focusing on global life science and the private and public space here in Denmark. In 2024, we have proven that those choices has been the right ones. Besides improving and growing our Life Sciences business, the public segment has really had a strong year with close to 30% growth where we also won important contracts. A key revenue driver for NNIT is our ability to grow engagement with existing customers.

This can be done only if the customer relationship is strong. Our Customer Satisfaction Score for 2024 is a direct testimonial of that. We reached a score of 4.5 out of a scale of five, which is actually the highest performance ever. In terms of Net Promoter Score, 2024 ended on the 43, which is helpful because our customers at large are willing to recommend us to others. For the past years, NNIT has acquired companies in Europe, US and Denmark.

Now all Group companies except SKAES have been integrated into NNIT during 2024. This has been a major effort by all our employees in order to make this happen and we have even completed the integration faster than planned. This means that Exelis Health Solution, Migration Powerhouse and Essa Controls are now an integrated part of NNIT with location in both U. S. And Europe.

After the divestment, NNIT has streamlined its system landscape and simplified the IT backbone. As part of the divestment, we have completed the IT separation, we have implemented a new ERP system and also a new HR system. All of these projects have been completed in 2024, which again has required a huge effort from all our employees. The benefits are great as all entities are now running on the same systems, access and quality of data have been increased and the costs have been structurally lowered. Lastly,

: I would

Per Fors, CEO, NNIT: like to mention the relocation of offices we have done across the globe. We did this for two reasons: one being to strengthen our employer brand and also to lower our facility costs. We have actually managed to do both things and we are happy with the outcome. Please turn to Slide number five for a regional update. The business and financial performance across our regions is fragmented.

Despite an overall organic growth of 6% for the full year, we saw that the regions were facing different challenges. For U. S. And Europe, we have seen a moderate slowdown of the Life Sciences market causing cautious customer behavior and price pressure emerging and this is especially true for Europe. Also, both region has been negatively impacted by the decline in the data migration business.

In Asia, a challenging microeconomic environment in China has resulted in a significant price pressure, especially from local competitors. On the other hand, Region Denmark has seen a solid traction within the private space and strong growth in the public segment as mentioned earlier. A few more comments on Europe. During 2024, we managed to organically grow our business in Region Europe with almost 10% in a difficult market, where we saw new projects that were characterized with a shorter time frame, more narrow scope and some of them also postponed or put on hold. Despite the solid organic growth, the profitability came below last year’s level, which was underwhelming.

This was mainly due to having too many people with low utilization. In January, we welcomed Pia Ingels as a new Head of Region Europe, replacing Ricco Larsen, who has been an important part of the company for the last twenty five years. Pia comes with great NNIT experience, where she lastly has overseen our engagement with Novo Novis very successfully. Besides having a consultancy background, PIA has a strong commercial mindset and great understanding of project background execution and also a background in consultancy asset. The immediate focus for PIA and Region Europe is to strengthen the backlog and pipeline and of course also to improve profitability.

Turning to Region U. S, the organic growth for 2024 was on full year basis disappointing. The decline was mainly driven by the data migration business, but also some slight decline in other parts of the market, especially within R and D. Revenue decline, retail and operated profit margin increased compared with last year as there were less spend on external subcontractors and also we did some capacity adjustment early in the year and also have a continued focus to drive down costs. We also saw a significant pickup in performance in Q4.

Region Asia returned to growth and profitability in 2024. The material improvement compared with last year is due to the initiatives carried out during the end of twenty twenty three and the beginning of twenty twenty four, where Asia rightsized its capacity, making sales function and part of the delivery unit and an enhanced commercial focus on project execution and fight the price pressure. We are happy with the development, but it is too early to state that we are fully back on track as we remain cautious due to the continued challenging macroeconomic environment and also the strong price pressure. As mentioned earlier, we have progressed well in Region Denmark. We continued to deliver solid growth during 2024, especially within the public area and for the Scales Group company that was performing very well.

The growth was supported by the existing contract we had going into the year and also some new important contract that we won. We grew our profit. However, the margin was slightly lower compared with last year, mainly due to significant amount of Bilbao Resources completing crucial internal projects such as the IT separation during the year. We have now concluded on those projects going into 2025, which will support margin expansion. Please turn to the next slide.

On February 11, we released our preliminary figures for 2024. In the same announcement, we also shared the outlook for 2025 and our adjusted financial aspirations toward 2027. I will briefly go through the figures and later in the presentation, Karsten will go through the details and also the assumption behind them. Firstly, the outlook for 2025, we target an organic growth between 7% to 10%, which is above the latest external market outlook from the Everest Group, which sits around 4% to 5% for the Life Science and around 8% for the public sector in Denmark, meaning that we will grow ahead of market gaining market share. In terms of profit margin, we target group operating profit, including special items, between 7% to 9% for 2025.

In regard to our financial aspirations toward 2027, the ambition for the organic growth is between 7% to 10% and a group operating profit margin excluding profit special items above 10% in 2027. Please turn to the next slide. This concludes my part of the presentation. Now I will hand over to Carsten for the group financial performance and the details around our financial outlook and the financial aspiration. Karsten, please go ahead.

Karsten Reynjos, CFO, NNIT: Thank you, Pierre. Please turn to the next slide. In Q4, we returned to profitable growth on the back of an unsatisfactory Q4 or Q3 results. Revenue amounted to DKK $470,000,000 equal to the organic growth of 7.1%. As Peer alluded to, the growth was mainly driven by expansion of engagements with existing customers across regions with the exception of Region U.

S. We are happy with the performance in the light of the moderate market slowdown and the uncertainty around the macroeconomic environment. Our group operating profit margin, excluding special items, was roughly in line with last year’s level, mainly due to the decline in the data migration business. Please turn to the next slide. As Peer mentioned, we ended the full year of 2024 in line with our latest outlook.

Of course, we are pleased with that. However, we had expected better performance when we started the year. Revenue amounted to DKK1.85 billion equal to an organic growth of 6% in a challenging market. Group operating profit was in line with last year and margin was slightly below. The improved margins going into 2025, we do see a number of levers that I will go through on the slide for the financial outlook for 2025.

Please turn to the next slide that specifies the special items for 2024. Let me start by saying that special items came in higher than we initially planned for. The total net amount was DKK 69,000,000, which was the same amount as the year before 2023. The level of special items materially increased in Q4 by a number of wearables. I will go through the elements now.

We had DKK26 million related to earn out payments. We expect these payments to be final in 2025 and therefore, we see no further earn out payments from 2026. New IT platforms and integration of group companies amounted or accounted for DKK 27,000,000. This was higher than we initially planned mainly due to us completing the integration faster, moving in special items from 2025 to 2024. Additionally, we also progressed further on the Phase II of the new ERP implementation, which was also moved from 2025 to 2024.

Restructuring cost was DKK20 million, which was also higher than anticipated as we had made more capacity adjustments during the year due to lower utilization and streamlining the organization. In connection with our relocation of the headquarter in Denmark, moving out of the premises in Oostmaiden, we also had some special item costs of around DKK9 million. We incurred one offs associated with the divestment of our infrastructure business amounting to DKK6 million. Lastly, we released an accrual of DKK20 million in Q1 twenty twenty four, which was related to a reservation made in relation to the divestment of our infrastructure business. Please turn to Slide 11 for the financial outlook for 2025.

As announced on the February 11, we expect to organically grow our business in 2025. We continue to see good opportunities to outgrow the market across all our business areas based on our current pipeline and indications from customers. Organic growth is expected to be between 710%. We also expect to grow our profitability compared with 2024 to between 79%. The drivers for the margin increase are driven by several improvements within commercial excellence.

Additionally, we do expect that the full year impact from the restructuring initiatives carried out in 2024 will have a positive impact into 2025. Special items are expected to be materially lower than 2024. Earn out payments amount to around DKK20 million and restructuring cost is expected to be materially lower than last year. We expect the first quarter to be below the guided range for both organic growth and group operating profit margin, excluding special items, as financial performance is expected to gradually improve throughout the year. In the outlook for 2025, we assume that there will be no further deterioration of the current macroeconomic environment.

Please turn to the next slide. In connection with our pre release of the full year ’twenty four figures, we also adjusted our financial aspirations. Before going into the adjusted figures, I will elaborate on why we updated the financial aspirations. There are three important drivers for why we changed. The first being that the financial performance in 2024 was lower than we initially expected.

The second being that the external market outlook has been downgraded. The market outlook for Everest Group now projects a CAGR of around 4% to 5% for the Life Science segment, which is around three percentage points lower than the outlook we were in possession of at our Capital Markets Day in September 2023. And lastly, we do see that the macroeconomic and geopolitical uncertainty is impacting the business greater than we initially expected. With that being said, we remain certain that the strategic direction we set in 2023 remains the right, one and that NNIT is well positioned to continue to profitably grow the business. As part of the adjusted financial aspirations, we changed the structure of the aspiration.

There are three changes. Organic growth is now measured as annual growth instead of CAGR. The profitability measure continues to be group operating profit margin excluding special items. However, instead of yearly average, it has been changed to an open ended range by end of the period, and the period has been prolonged with one year to 2027. Please turn to Slide 13.

The adjusted financial aspirations towards 2027 constitutes of an annual organic growth between 7% to 10 and a group operating profit margin, excluding special items, above 10% by the end of twenty twenty seven. As for the outlook for 2025, we do see great opportunities to outgrow the market across our business areas, which we have also proven the past two years. The margin expansion will be supported by a number of levers such as economies of scales from top line growth and optimization of utilization our continuous focus on improving organizational efficiency increase the solution repeatability across regions to leverage our great service offering and structurally streamlining our cost of the business across regions and corporate functions and leverage the synergies from the integration of group companies now finalized. As for the outlook 2025, we assume no further deterioration of the macro environment and that we are able to alleviate cost and salary inflation through price adjustments. Lastly, we have not included any M and A activity in the financial aspirations.

However, we are continuously looking for targets and opportunities. Please turn to the next slide. Before we head into the Q and A section, Pierre will provide some closing remarks. Operator, please turn to the next slide.

Per Fors, CEO, NNIT: Okay. So thank you, Karsten. And now we turn to the Q and A session.

Operator: We will now start the Q and A session. The first question will be from the line of Max Frisco from Carnegie. Please go ahead. Your line will now be unmuted.

Max Frisco, Analyst, Carnegie: Yes. Thank you for taking my questions. I have a few and I will take them one by one. So first on special items. So when you say restructuring cost is expected to be significantly below the level in 2025 compared to 2024, Is it then below SEK 20,000,000 or is it below SEK 50,000,000, which is the number stated in Note two, five in the annual report?

That’s my first question.

Karsten Reynjos, CFO, NNIT: It is the latter, Mats. It is below the cost we have for restructuring in 2024.

Max Frisco, Analyst, Carnegie: Good. So below $50,000,000 perfect. And then what is sort of a sustainable gross margin in The U. S. Going forward?

Is it still above 50% or is it close to 40% or how should we see it?

Karsten Reynjos, CFO, NNIT: It? It is not in the line of Q4 at 54%. It is though higher than in the beginning of the year. So we expect a level above 40% of The U. S.

Business going into ’25.

Max Frisco, Analyst, Carnegie: Okay. Makes sense. And then on maybe on the free cash flow and also depreciation and amortization here in 2025, can you probably give some comments around your D and A operating cash flow and potentially free cash flow here for this year?

Karsten Reynjos, CFO, NNIT: Yes. I think it’s important to note that for 2024, we had some significant project activities ongoing impacting our cash flow. First of all, we had the IT separation, which was from an expense point of view accrued for in 2023. But of course, we had the negative cash flow from the salary payments related to this work going on in 2024. This amounts to more than million.

Dollars And then the second element is our investment in our new ERP platforms and HR solutions, which amounts for more than $50,000,000 So just these two elements alone constitute a negative cash flow of $100,000,000 in 2024. As we have completed these activities, this will, of course, not be repeated into 2025, thereby improving our cash flow.

Max Frisco, Analyst, Carnegie: Okay. Makes sense, Karsten. Thank you. And then final question from my side in terms of seasonality. So how do you see this year?

Do you see there’s a ramp up from Q1 to Q4? So again, Q4 will be the strongest quarter. Maybe you could provide some comments around the demand environment here in the beginning of twenty twenty five?

Karsten Reynjos, CFO, NNIT: Well, in relation to the profitability, as we have done some capacity adjustments also in Q4. Last year, we expect to see the benefits of that, of course, into the new year, both in The U. S. But also in Region Europe. If you look at the seasonality, as I mentioned during the webcast before, we expect Q1 to be at a lower level than the guidance range but with gradual improvements throughout the year.

As you have also seen, we have made an adjustment to the regional management for Region Europe, and we expect the effort that PIA is putting into restructuring Region Europe will improve the profitability throughout the year as well. So we see gradual improvements throughout the year.

: Makes sense. Okay. Thank you.

Operator: Thanks, Matt. The next question will be from the line of Paul Jissen from Danske Bank (CSE:DANSKE). Please go ahead. Your line will now be unmuted.

: Thank you. I have a question or just a clarification, come back to my question on restructuring. I assume that restructuring in 2025 would be less than $20,000,000 isn’t that correct? Well,

Karsten Reynjos, CFO, NNIT: we expect it to be at a significant lower level than in 2024. And we have currently not plans for increasing it more than to million, but we are not guiding specifically on the amount. What is important for us is that we are quickly addressing all capacity as we go through the year. And if we see significant need for restructuring, then we will address it sooner. So we don’t counter experiences like we did in Q3 last year significantly decreasing our profitability.

But my expectation, just to repeat it, is that we will have a significantly lower amount of special items into 2025 than what we have seen in 2024. As mentioned just before as well, you have seen that we have made some changes to the management of Region Europe in Q1, which, of course, will be coming with some restructuring costs in Q1 already.

: Yes. I was just wondering what’s the base number when you say significantly lower here? The $69,000,000 is including earnouts and new IT platforms as well. I’m just thinking about the restructuring was twenty million dollars last year.

Karsten Reynjos, CFO, NNIT: Yes. And my current expectation is that we will also be below that amount for restructuring.

: Okay. And then we say no more earnouts in 2026, but if you look at the balance sheet, you have a long term earn out on the balance sheet of $5,000,000 I guess, long term that means that it’s something for $26,000,000 It

Karsten Reynjos, CFO, NNIT: is the payout in $26,000,000 but we have earn outs related to Essay Controls and Primpa Services in 2025, which would be extensive throughout the year in 2025. This is what is amounting to our estimated 20,000,000

: Okay. So there will be no payments or expenses in 2025?

Karsten Reynjos, CFO, NNIT: It would be expense, but the cash flow effect will be in NOK 26,000,000.

: Okay. Then on the guidance, you talk about a strong pipeline, strong backlog moving into 2025. Is that referring to public sector Denmark or across? And does it also include expected wins during 2025 or is it on the portfolio?

Per Fors, CEO, NNIT: Paul, I mean, I think the pipeline is pretty well spread out through the regions. But of course, the two strongest regions regarding the pipeline is clearly the Danish business, both for the public sector business in Denmark, but also the private business. And outside Denmark, it looks hopeful and good in The U. S. And also in Europe, the kind of Danish part of the DAP science business.

In Europe, of course, we’ve had an impressive growth of normal this year by 14% totally. So it’s in Denmark, it looks good. Outside Denmark, a little bit tougher and in Asia, a bit tougher.

: But it’s including expected wins when you talk about the Lao Francisco?

Per Fors, CEO, NNIT: It’s

: not something necessary, you have one by now.

Karsten Reynjos, CFO, NNIT: Yes. We also have expectations that we will win some contracts during 2025. If you look at the life science pipeline, these are, by nature, smaller projects. So we need to, of course, during 2025, also ensure that we win projects to fulfill our revenue growth conditions. If you look at the public pipeline, we have quite an okay historical win rate if we look at the centers that we have been part of.

Our current outlook do not expect that we have a 100% win rate but a balanced win rate in line with our history within the public centers that we have submitted to previously.

: And then about the scale people and others who have been working on internal projects, should we see now that they’ve become client facing that that will boost the growth as they have not contributed to growth of three in ’24, sorry, when they now can look at external clients? Should this be an accelerator?

Karsten Reynjos, CFO, NNIT: Yes. Let me give a comment on the scales performance. As you know, we have been using Scales to deliver our new ERP platform in M and IT, and that work commenced in the second half of twenty twenty three and has been running throughout current year. And if you look stand alone at scales business considering revenue towards NN (NASDAQ:NNBR) IT and external, you would see a continued growth in the scales business. Of course, the revenue towards M and IT is coming without margin.

Thereby, if you look at region Denmark as a whole, explains part of the decline in the regional operating profit. With the ERP implementation now being complete, you would see a pickup in margin just contributed by scales now replacing the NNIT internal revenue with external revenue again. So that has a positive impact into 2025.

: Okay. And then I looked at the ethylene expenses. They were up 11% in 2024 versus 2023. I would have shown that you became more lean and without an operations business that should not go up that much. Is that just salary increases?

Are you expanding your overhead? Or how much should we take that?

Karsten Reynjos, CFO, NNIT: I would take the ’23 number with a certain amount of caution because as you recall, we had the first four months related to sorry, we had the first four months of the year with also running the infrastructure business. And of course, the correct split of back office cost, corporate cost are based on extrapolations for the first four months. And of course, there’s also been a lot of work gone into the separation after the split that is on the special items in 2023. So I think a direct like for like comparison is difficult between 2023 and 2024.

: So the ’twenty four number is more the base to look for?

Karsten Reynjos, CFO, NNIT: Yes, I would say that.

: And then we should expect lower, both for local and headquarter cost allocation lower leases across the world?

Karsten Reynjos, CFO, NNIT: Yes. We should see a decline into ’twenty five when we are reaping the synergies from our investments in new platforms, relocation of offices, etcetera.

: Final question for now, Novo Nordisk, if you look at the note on their revenue, they actually have accounted for close to 28% of the growth in 27%, eight % of the 7% growth. So they have been a real contributor to growth last year. How should we look at that? Will that be a main generator also for the future?

Per Fors, CEO, NNIT: I mean, I think, yes, we are extremely pleased by that growth because as you recall, Paul, for many years, the revenue growth with Novo Nordisk was just declining and declining in the old NN IT setup. So now with the total new NN IT setup where we sell services to the line of business, we see a pickup of growth. And I think I have a very positive forecast for 2025, I’d say, in line with that performance of 2024.

: Okay. And how do you look at it? There are costs currently in a huge spending there. When you look at it on the long term, is it the business level you expect to maintain? Or should we see some time that Norway potentially also reduces or moderates that growth on Spanish?

Do you

Per Fors, CEO, NNIT: mean for Norway specifically? Yes. No, I mean, honestly, I mean, it’s hard to look at the crystal ball what would happen in the very long future. But I mean, we have there’s a lot of positive there’s a lot of investment going into Norvo that does not just cover 2025. So we have a positive prospect for the future that we can look into.

But of course, what will happen five years to know, I don’t know that. But at least for 2025 and also looking into 2026, there’s a lot of projects going into that year. So for that period, we are at least positive.

: Okay. Thank you.

Operator: Thanks, Paul. The next question will be from the line of Miglil Korsgaard Rasmussen from Please go ahead. Your line will now be unmuted.

Migel Korsgaard Rasmussen, Analyst: Thank you for the presentation, Bernd Korsgaard. I have two questions. I’ll take them one by one. So the first one is related to Paul’s question previously. In terms of backlog for 2025, I mean, you obviously have to win some contracts in order to get it within guidance.

But just assuming that you don’t win anything new, how much could you realistically grow revenues this year?

Per Fors, CEO, NNIT: I mean, I think we have given a revenue guidance for 2025, which is that assumption or that forecast of 2025 is built basically on two components. Firstly, we have backlog into the year, which we think underpins that number. But of course, on top of that, we need to expand some existing contracts and also win some new contracts. So it’s a balance of those two, but we are as those numbers are fresh out of the press, we think we have a solid plan to make them materialize.

Migel Korsgaard Rasmussen, Analyst: Okay. Thank you. Next (LON:NXT) one goes to the, say, medium to long term margin target of now only above 10%. I remember at the Kemper (NYSE:KMPR) to Marcus that you spoke about, at least your target previously was an average of 10% to 13%. But given that 2024 would be sort of a transition year that meant that it would be more back end loaded.

I you’d probably see margins above maybe 13% in 2026. Now you’ve postponed it one year. Is there anything structural in the way we should think about margins, long term margins in the business, obviously, aside from the lower market growth?

Karsten Reynjos, CFO, NNIT: Well, we strongly believe that we can improve our margins, of course, reflected in the guidance. We do see also with the adjustment of our revenue trajectory that we see this materializing as lower. That is the entire assumption about the updated financial aspirations. But we, as I went through the presentation, see several levers for actually expanding our margin. One is to get, of course, our capacity adjustments in place and running that as part of the sort of normal business practice to adjust that very agile compared to how we have done that in the past.

So that is one major contributor. And the other one is, of course, addressing our regional and corporate overhead costs where we see opportunities to improve that further and then, of course, extend the repeatability of our solution portfolio to a higher degree. That is an area where we can build improve quite a lot by cross selling the different solutions that we have across regions and thereby driving up our profitability more than what we have done historically.

Per Fors, CEO, NNIT: And I think not the least, I mean, as a consultancy company, I mean, the efficiency or utilization of billability, we have to call it, is an extremely important lever for us to push that up. Every percentage point contributes significantly to our bottom line. So for that period, that’s maybe one of the larger levers.

Migel Korsgaard Rasmussen, Analyst: But there’s no difference like in the way we should think about long term margins. There’s not like a structural change?

Karsten Reynjos, CFO, NNIT: No.

Migel Korsgaard Rasmussen, Analyst: Okay, sure. Thanks. That’s all for me.

Operator: Thanks, Migel. The next question will come from the line of Yiwei Zhou from SEB. Please go ahead. Your line will now be unmuted.

Yiwei Zhou, Analyst, SEB: Hi. Thank you for taking my question. Also follow-up question on the special items. Maybe just to challenge you a bit, Karsten. So you treat the capacity adjustment cost as restructuring cost.

If the market demand continues to be more volatile than you think, should we expect you continue to increase special items in the future? I mean, isn’t it just a part of your normal business operation? At least, when some of your peers did just treat it as a normal cost?

Karsten Reynjos, CFO, NNIT: Well, I think there are two sort of separations on this. One is sort of the ongoing adjustments of teams where you see projects materialize and you have to adjust their capacity. This is something that we are handling as part of normal business. What we consider special items is, for example, when we do organizational changes, integrate companies, do significant reductions, consolidating teams, taking out management layers. So these kind of very, restructuring the organization to a higher degree not just taking out one or two or three employees as you would normally do when you have to address capacity, a surplus of two big events.

So we are differentiating between these elements.

Yiwei Zhou, Analyst, SEB: Okay. I’m just hoping that you can be more specific in the future when you guide on these special items. Thanks. And my next question here is on the minimum target. I can understand the low organic growth outlook, but what is the uncertainty for you to lower also the margin outlook?

I mean, Mikael has asked the same question here. But what I understand is that those cost initiatives that you have completed as planned, so we should see that the, those margin drivers start to materialize here in ’twenty five. And isn’t just the capacity adjustments will continue to remain alternative for you to reach the margin target. Because when I compare your EBIT margin to the peers, you are still much lower than their probability. And if you see there’s no structure difference, I mean, isn’t just this utilization, it’s much lower at current level than most of your peers.

If you can help me to understand the dynamics and what you have assumed in the mid term target, especially the updated one?

Karsten Reynjos, CFO, NNIT: Well, capacity adjustments is one thing, but I think as Pierre also mentioned, one of the biggest levers we have is increasing the utilization on the individual consultants. And there we see a big potential from the current level that we are coming from. So that is one significant driver that we need to drive throughout ’twenty five to realize these profitability gains. The regional and corporate cost reductions will only get us so far. I think the driver around solution with feasibility is also a significant one that we need to utilize to get above the 10% where we want to be.

Per Fors, CEO, NNIT: And maybe as the topic of that, I mean, I think if you should be humble and self reflecting, I mean, the transformation from the old NNIT to the new NNIT, as we call it, has taken a little bit more blood, sweat and tear than we anticipated. So the negative consequence of that you see in the numbers that we presented, but you also see a greater potential to improve the operation of menu aspects, both in terms of overhead, but also our utilization and efficiency numbers. So and I think we are demonstrating that in our outlook for 2025 that we are moving yet another step in the right direction. So we were offered a good start in 2023. We are not pleased by the performance in 2024, but we see definitely a better 2025.

But as I said, there’s also some needed action in Europe to get us in the right place with the new leadership in place. So those actions are actually ongoing as we speak.

Yiwei Zhou, Analyst, SEB: Okay. And let me put it another way. So you’re saying it sounds like you’re talking to 10% adjusted EBITDA margin midterm. Previously it was at 10 to 13%. And if you compare to your peers, I mean, it is around 13% or even higher.

I mean, what are the sort of the level you think, is there any structure difference you see compare your margin to the peers?

Per Fors, CEO, NNIT: I mean, I think there are many infections that’s a very, very good question. And one thing is, I truly believe that the way to get to margins higher margins is actually to have the type of focus that we have as a company, meaning that we are building two legged people who understand technology, but also understand the business. I think those businesses generally are the ones that are able to generate the greater margins. It is true that there are some competitors that are at 13% to 15%, many are at a clearly lower level. Our ambition is definitely to move as a first step in stone towards 10%.

Is that the end station? No, it doesn’t necessarily need to be that, but we need also to set realistic goals, which we can deliver upon and that’s why we’re given that guidance. So I think if we read a 10 EBIT margin as a starting point and as a floor because that’s what we communicated that we should reach 10% and hopefully larger, but we also want to set targets that we can achieve and hopefully over deliver upon. So definitely above 10% long term to 13 probably take a little bit longer time.

Yiwei Zhou, Analyst, SEB: Okay, clear. My last question here, you mentioned the new customer in the Danish private sector. Is it also life science or is the other verticals you have one?

Karsten Reynjos, CFO, NNIT: In the Danish market, I think we mentioned in The US market, right?

Yiwei Zhou, Analyst, SEB: No, Danish. You’re saying you bring new customers in the Danish private sector. I remember you were mainly targeting the public sector here in Denmark, but you said that you bring new customer in the private sector.

Per Fors, CEO, NNIT: I mean, in generally, I mean, the Danish business, if you look at the Danish business, it constitutes basically of three parts. First, you have the public business and that’s talked about. Then you have scales, who continuously are bringing new clients to grow their business. I mean, it’s a project business. They do not have any kind of repeatable business.

Their projects, which could be twenty four months long, but their whole business model is continuously bringing in new clients. That’s one source. Then the third leg of the Danish business is actually our consultancy business, which is cloud, cybersecurity, BI, DevOps, etcetera. They are also continuously working on new clients. So that’s why we kind of phrase it that way.

Max Frisco, Analyst, Carnegie: So those new customers in

Yiwei Zhou, Analyst, SEB: the private sector, is it a Scales customers or is it your own customer?

Per Fors, CEO, NNIT: It’s both in scales, but also in the third part of the business here in Denmark, because as I said, it’s three different parts to Danish business. It’s public, it is scales and it’s also the consulting. And the two latter parts to a large degree, operates on private business outside Life Science.

Yiwei Zhou, Analyst, SEB: Okay. Thanks. I’ll jump back to the queue.

Operator: Thanks, Ewen. As there are no more questions in the queue, I’ll hand the call back to the speakers for any closing remarks.

Per Fors, CEO, NNIT: Okay. Thank you for very good questions. Appreciate for you listening in. And please do not hesitate to reach out to me or Carsten if you have any further questions. With that, thank you for participating and have a great day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.