It may be one of the youngest companies in our portfolios, but we can only admire what the founders and management have achieved in terms of growth and results since the company was founded in 1999. The reason why Netcompany is growing by 20 percent annually and has industry-leading earnings is that the founders have cultivated a unique winner culture where projects are delivered on time, on budget and with the agreed quality. It may sound simple, but far from all competitors can deliver on all these parameters. Netcompany can, however, which is why it is currently expanding its business into other European countries.

Companies all over the world are fighting to take advantage of the possibilities offered by technology. In Denmark, Norway, the Netherlands and the UK, Netcompany offers assistance through its more than 2,500 IT consultants. The IT consultancy firm should therefore be among the first you call if your company needs assistance in a large new development project.

The IT opportunities require that systems and processes are adapted and designed to run as well as possible. Otherwise, companies fail to exploit the full potential of the technology they invest in. Netcompany was founded in 1999, making it one of our youngest companies. Even though Netcompany is no longer a teenager, however, it is still going through growth spurts.

The expansion of IT and digitalisation in our society is happening quickly. While iPhone sales are reported in millions today, the best-selling mobile phone 20 years ago was Nokia’s 3310. No colour screen, no internet access. Today, smartphones have more computing power than a stationary PC had back then. A lot of system platforms are in fact so old that they limit the full potential of an organization’s IT systems.

Netcompany was founded in 1999 by André Rogaczewski, Claus Jørgensen and Carsten Gomard, who shared the ambition of creating a leading pure IT consultancy firm that would supply modern IT solutions to all of Northern Europe.

That mission has now been accomplished in Denmark, while they have taken their first steps into doing the same in Norway, the UK and the Netherlands.

Netcompany does not sell standard software and programs, but rather solutions tailored to the needs of their clients. Their goal is to grow by 20 percent per year, similar to the company’s annual growth rates over the past decade, as well as to continuously improve their earnings outside the Danish home market. Netcompany has 31 percent margins in Denmark, while the margin for the group is 26 percent – an industry-leading level.

Organic growth is the main driver, but acquisitions occur

On the Danish market, Netcompany has established a strong position with a market share of nine percent. Netcompany’s country manager in Denmark, Gustaf Löfberg, has been part of the consulting firm since the year 2000 and has been a keystone for the company’s success. The success on the Danish market has created a stable, growing and profitable platform where we expect that Netcompany will continue to gain market share. The ambitions and pace of Netcompany stand in stark contrast to larger and bureaucratic competitors whose speed – or rather lack thereof – brings to mind extinct dinosaurs.

Measured in terms of revenue, 60 percent of it comes from public sector clients while the private sector accounts for the remaining 40 percent. In 2019, Netcompany had revenue of just under DKK 2.5 billion, which was 25 percent higher than in 2018, where revenue came in at DKK 2 billion. This came from 18 percent organic growth combined with an additional boost from a small acquisition in the Netherlands.

Netcompany’s goal is not only to be a Danish but a northern European success story. With a strong foundation and base in Denmark, management is therefore focused on expanding its business into other countries such as Norway. The firm’s expanding into new lands typically happens through acquisitions of small consultancy firms, which become the new territory’s base of operations.

In 2016, Netcompany acquired a small consultancy firm in Norway. Around eight percent of Netcompany’s current revenue comes from Norway, where the company has yet to make its big breakthrough in the form of an influential major client. No such breakthrough happened in 2019, but with the hiring of two well-known profiles in the Norwegian business community, it is expected to happen in 2020.

The market share in Norway is estimated to be just over two percent, but we see no reason why it should not continue to grow. Due to the smaller size of the operation and lack of major projects, the profitability in Norway is lower than for the group. The operating margin is around 17 percent compared to 26 percent for the group and 31 percent for Netcompany in Denmark.

The strength of the foundations in the Danish operations provides the management opportunities to make strategic moves abroad. When making acquisitions, Netcompany focuses on ensuring that the target company has the right culture. Accordingly, not only the senior management, but also the lower management levels are considered. Netcompany is aware that culture is not solely defined by the top.

Lying in wait outside higher education institutions

One of the keys to Netcompany’s success has been its strong, hungry and performance-driven culture. The group of founders, of which two out of three are still actively involved in the firm, are the pioneers of this culture and remain strong culture bearers through a combination of long-term visions and day-to-day delivery. In that way, Netcompany is built in the same way as traditional consultancy firms in which a large share of the employed consultants are recruited directly from a higher education programme, full of ambitions and hunger and where career opportunities are excellent for employees with the right skills and attitude.

In Netcompany, 21 people hold a partner title, which is less than one percent of the total number of employees. The average age in Netcompany is in the mid-30s, and the vast majority of new hires – as mentioned – are fresh graduates hoping to work at an attractive workplace like Netcompany.

The company is focused on keeping in close touch with potential consultants even during their studies so that Netcompany can become their obvious first choice among workplaces.

Of course, the culture alone does not drive the company’s earnings. However, the culture is what lays the foundation for Netcompany being able to continue delivering projects to its clients. Large IT projects are comprehensive, and they can often end up running past the initial deadline and over budget. Netcompany’s project delivery in relation to its own clients, however, is on time, at the price quoted and at the agreed level of quality.

This is reflected in high Net Promoter Scores (NPS), which is a type of customer satisfaction survey. Netcompany’s NPS score is an impressive 26, where a score above 30 is “world-class”. Another bit of information related to the above is that the IT consultancy industry’s average score is negative. It can thus be assumed that Netcompany’s clients must be quite happy with what the company provides.

Happy customers are likely to return if they had a satisfactory prior experience. However, Netcompany does not only provide the development of the solution; it also takes care of the subsequent maintenance. Just under half of the firm’s revenue comes from maintenance projects, which thereby contribute to the stability and predictability of Netcompany’s development.

Maintenance is typically included as part of the project delivery, as the maintenance experience is better handled by the supplier. In public tenders, a five to seven-year maintenance clause is usually included in the contract, which comes after 12 to 18 months of development.

The supplier is in the best position to know how the solution has been set up. To further this aim, Netcompany is very focused on developing solutions based on the same operating model with defined procedures for documentation of the coding.

Netcompany’s model is that the same IT consultants both sell and deliver the project. The project manager who wins the contract must therefore also deliver the subsequent product.

This may sound like a matter of course, but the model actually differs from many other consulting firms.


500 new hires in 2019

Thanks to its ability to deliver on time, Netcompany also avoids having to pay the daily fines triggered by delays. Its industry-leading earnings are thus strengthened by its lack of delays. A supplier is not compensated for the manhours that such delays may require, which is why profitability decreases sharply once the delays trigger daily fines.

In 2018, it was estimated that there would be public tenders worth DKK 13 billion up to 2023. If Netcompany continues to increase the share of won tenders, public sector clients will continue to account for a significant share of the firm’s value creation.

Even though Netcompany sells tailored projects to its clients, there will always be some common characteristics between projects that can result in some degree of scalability. Netcompany’s experience with projects involving security requirements for legally protected personal data is another major selling point in relation to winning tenders.

500 new consultants were hired in 2019. Retaining the firm’s strong corporate culture is the biggest challenge in relation to maintaining its attractive growth rates of up to 20 percent annually. The management team needs to ensure that ambitions and a strong focus on results is not diluted by the many new hires.

Netcompany’s CEO is the visionary André Rogaczewski, who is one of the two founders still actively involved in the firm. The other one is COO Claus Jørgensen. The third founder, Carsten Gomard, has been on the board up to the 2020 annual general meeting. Netcompany’s CFO is Thomas Johansen, who joined the firm in 2017 and has contributed with his keen financial and strategic understanding of operating medium-sized tech companies from his time as member of the executive management at the software developer SimCorp (which is another one of our companies).

The founders and early key employees still own a significant share of the company amounting to around 13 percent of the capital. We regard them as attractive partners to help drive the firm forward into the future. In our view, the management team helps prevent a sense of hubris or lack of ambition among the 2,500 employees.

As a legacy from its time under private equity ownership, ahead of its listing in 2018, Netcompany had a large debt which has now been reduced to 1.4 times EBITDA. It is expected that the firm’s debt will be reduced to around 0.5-1 years’ earnings over the course of 2020. We would like to see Netcompany become completely debt-free, but we do understand that debt financing of acquisitions will be necessary in some periods.

Netcompany is able to whittle down its debt so rapidly in part because the business model of running an IT consultancy firm generates a lot of cash flows. This is due to growth not requiring fixed asset investments aside from the procurement of computers and software, and more employees, of course. Accordingly, Netcompany’s free cash flows should follow its earnings growth of more than 20 percent annually driven by a revenue growth of up to 20 percent along with ongoing improvements to the profitability of its subsidiaries abroad.

Netcompany has yet to pay out its first divided after its listing, and thereby also stands out from our other companies by neither paying out dividends nor carrying out share repurchases. However, we expect dividends to start rolling in after 2020, given that the debt is reduced according to plan. We value shareholder distributions, but we also see value in our companies investing in value-
creating growth while maintaining a degree of financial stability.

There is no question about the management team’s visions and dreams, but we also see that they are capable of realising them through strong strategic planning and execution. We have no doubt that Netcompany has an exciting future in store.