Trifork Holding AG

CSE:TRIFOR

Earnings Call Transcript

[Frederik Svanholm, executive]

Okay. Welcome, everyone, to the presentation of Trifork's Third Quarter Results for 2024. My name is Frederik Svanholm, and I'm the Investment Director at Trifork.

Today, our CEO, Jorn Larsen; and our CFO, Kristian Wulf-Andersen will be providing a presentation of approximately 35 minutes, followed by Q&A.

Before we start, a couple of practical information. First, I would like to inform you that this presentation is recorded. It will be made available in its full length on our Investor webpage later today. Second, I would like to inform you that if you want to download the presentation for today's call, you'll be able to find it on the front page of our Investor website. Third, we invite you to ask questions and engage with management after the presentation. How that works is you raise your hand by clicking the raise hand button. I will announce your name and please then make sure to unmute yourself and then you can ask your question.

Before we get started, we have to present this disclaimer.

Okay. Let's jump to the presentation. I now hand it over to Group CEO, Jorn Larsen. Jorn, please go ahead.

[Jorn Larsen, executive]

Thank you. Thank you very much, Frederik, and thank you all for participating in this call on our Q3 numbers from Trifork Group.

So at Trifork, we are an ecosystem of 76 business units where we consolidate revenue and EBITDA, and we are 25 lab companies where we hold a minority stake. And equally, we have seen a trend throughout the year that there has been a strong innovation in both labs, but also in Trifork, where we have added a number of new products. And I will talk about some of these new platforms and products later in the presentation.

Let's move on. So first of all, we will end the year at more or less the same revenue as we had in '23. And that is, of course, disappointing because you can see from this graph and that's the reason why I bring the graph every time that we have broken a path from the past. So for the first time in a long time, we now see that we have trouble keeping up with the growth. There is a lot to be said about that and that's why I look forward to give you more insight into how we see the near future and how we see our situation right now. But that's the status of our revenue

Let's move to EBITDA. Since our organization were prepared for growth because you know from the beginning of the year and our guidance for the year, anticipated growth. We, of course, had an organization that were prepared to deliver for a growth. In Q1 and in Q3, we unfortunately saw a number of our larger accounts having major problems on the markets globally. That led to them doing dramatic cost savings and some of those cost savings affected us, where they reduced the engagement they had with the Trifork Group to a degree that we felt pain from that. And since then, we have made new strategies, new tactics to mitigate this. And what we have reported since the beginning of the year were some strategic points that were important for us to optimize in the group.

One was to increase the number of business development capabilities in the group. And we have seen that working. But just to make it clear, we are disappointed that our final result for the year is anticipated to be EUR 10 million less than what we could do in '23. So even though we have better pipelines, more products, more customers, we still are not happy with this report where we have to disappoint you and ourselves from this Q3.

Let's move on. Therefore, those EUR 10 million that we miss, we have calculated that we can initiate a number of cost savings at Trifork and some of them will be a little painful. But this is not impossible because EUR 10 million is less than 5% of our total cost at Trifork. So it is possible to do this. It's not a radical move. But from the management side, from the Board side, we tell everyone, our customers, our investors, the analysts and also our organization, our many business units, that now is the time to be very mindful about how we spend our money, if it's possible to postpone accrued cost and also management will, of course, participate here.

So, there will be no bonus -- less bonus to top management and we will decrease our fixed salary by 10%. And I already had a lot of support from the broader management team at Trifork that they will follow and do the same. And I'm very grateful for that. But I'm also -- it's necessary in this moment. And of course, there are also just things we can do to optimize the operation of the company. We can travel a little less and we can use the modern technologies like spatial computing and of course, conference calls, video calls, like we learn to do it in COVID. We have to get a little bit back there. And by doing all these things, we can get through this period.

Let's move on. So, we already showed how our guidance for '24 will be. Revenue, very close to revenue of '23. EBITDA around EUR 10 million less than '23, and the same trend for our EBIT.

Let's move on to how we are seeing the near future and how we see where we are now. So this, I already mentioned, a minus 0.8% decline in our business for Q3 compared to the year before. In fact, this is, of course, on the face of it, not impressive. This is not a growth. However, if you think about our situation and what happened in Q1 and Q2, the customers where we lost significant revenue from, we have actually caught up with that. So the customers we lost, that we had for many years, the revenue we lost, we have compensated for that by bringing in a lot of new customers. And our pipeline is now bigger than ever before because this was the year where we couldn't just wait for the customers to ask for more and we would just deliver and it would give us a natural growth. And once in a while, we would land and onboard a new large customer and that would give us this nice growth that we have been used to.

All of a sudden, we were behind and we have to catch up. So even though this sounds and looks not impressive at all, I'm very proud of our organization, of the result of the business development, a capability we didn't have 5 years ago that we have learned within 1 calendar year. And our Chief Revenue Officer, Morten, has led a team. He has also been teaching our bulls and our business developers how they should go to the market. So, now we are at status quo for revenue. But of course, we had to accrue the cost of postponed engagement, the cost of building a business development organization, but also to a very high degree when you have people, extra capacity, people on the bench, that is very expensive. But also we have invested more than any time before in IP and platforms. And it's because we believe that the future is much more safe for travel if we deliver IP platform products in every delivery to our customers.

I believe that the time is over where a service company like Trifork and all the rest of us in the world can live from helping our customers, just developing together with them and adding a few people here and there. We need to bring more to the table. And this is also an ask for all colleagues at Trifork. We need to do that extra thing, bring that extra IP, that innovation to our customers. It has always been the DNA of Trifork, but now even more so. We can see that we are on track with our innovation. We still measure through our Inspire work, how innovative we are, what we bring to the stages of our conferences, that it's relevant. Our channels continue to grow. People love our content. They have come manifold more to our conferences in '24 than they did in '23. That is a good signal. We are relevant and we are popular, and we are also bettering our economy in our Inspire.

Let's move on. And if we talk a little bit more about Inspire, it was one of our strategic optimization points going into '24. We had a loss of EUR 3.5 million in '23. We wanted to halve that in '24, and we are a long way on that plan and we will come very close to that goal. And this is not easy to do. But by the support from our participants, from our partners, and also a more effective way to organize and execute our conferences, but also the workshops we do, the pilots we do, the prototypes we show our customers is a part of this. So, I'm pretty happy with this development.

Let's move on. So where it really hurt in Q2 and in Q3 was the lack of growth in build. And this is the majority of our business, as you know. But there are some highlights. For instance, the public business In Denmark grew 15% in Q3 compared to the former year. And that's a positive because that was actually what we had an issue with in Q2. So in Q3, we have seen that this turnaround, we have had to wait a little bit longer for our private customers to come in and sign contracts, especially in Denmark. But if we look at the places where we have found a good path, one example of that -- one more example other than public Denmark is in the U.S.

In Q3, we had a growth of 56% compared to the year before. And I think it's quite impressive from our U.S. team to be able to land a year ago and then be able to grow the business to where it will be by the end of the year. We expect up to $14 million in revenue in U.S. in this year and that's a significant growth. So also year-to-date, we are at 29%. And if we compare '23 to '24, it's a really impressive growth. And what drives the growth in the U.S., I also just want to -- because that's what we need to replicate in other places.

So first of all, it's Vision AI, it's smart enterprise. It's our ability to work with SAP and Apple to bring our products and solutions, products from one of our start-ups, Arkyn. We now have a very good pipeline in the U.S. with large companies, and the first company has already onboarded the technology and has seen really good optimization from our mobile-first solutions where people in the field use the system directly to input and take data from the back-end SAP system. But also spatial computing that I will talk a little bit about in a bit has some very strong growth potential for us, but more about that later.

Let's move on. Then Run is still growing, and has made a little bit up for the lack of growth in Build, but we expect more from the future based on our heavy investments into our IP and platforms. A little bit of that innovation and product building have been capitalized. And this Kristian can explain in greater detail about what we have done because when you have people in your company, then if they don't -- if we are not able to bring them to work with end customers, what we can do is to build IP and prepare for the future. And that gives a good platform for the years to come.

Let's move on. So, some main events is that organization -- our organization has grown. We have onboarded some M&As, new companies into the group, and we are very happy for that. They add capabilities, know-how, innovation power and also talent. We had to let some people go during the year of obvious reasons. And therefore, our churn is somewhat higher than it was the year before. Sick leave, unfortunately, is back at a level that is a little bit too high, in my opinion. And I hope we will be able to bring that down to less than 2% again. So, I hope people will get their sleep, eat healthy and do the exercise, so you have less diseases and sickness.

If we look at trade shows, we have been extremely active in '24. That is also a cost. But we have been very active in the U.S., in Europe, in Germany, in Switzerland, and we have presented our case stories. We have presented our products. And that has already paid off. This is one of the reasons why we have been able to catch up with lost business from Q1 and Q2.

Let's move on. So here, we just mentioned some of the work we do, but I just want to spend 2 minutes on spatial computing. So, this device that the analysts and the world don't really see how we can use that. And there has been a lot of rumors about if it was a success or not. So, what we see is that the most innovative large enterprises in the world, they love this device. They love it because spatial computing can do things we could never do before. And there's probably not a lot of you who understands this as I didn't understand it 12 months ago because I had to experience it for myself. But not only that, I also have to see how our customers are benefiting from spatial computing.

Virtual reality and those headsets that look alike has been there for many years. I have a number of them myself. I have 2 Vision Pros on my table right now, and I'm showing this to everyone I need. So when I was young, as a part of one of my educations was that I had to train to become a firefighter on the open sea. So if you're in the middle of the Pacific Ocean, if you could not put out a fire potentially on a ship, you would probably die. So it was very important that you would be able to learn something to fight a fire very quickly, very correctly. And you could only do that if it was a backbone reaction that was triggered in case of a fire alarm. And you can simulate in structures on land as much as you want, but you know you're on land, and you know you can just run out of that structure and then you are out on the field and you don't die.

So, what spatial computing can do? If you want to take one little thing away from this presentation is that it can create that emotion that makes you forget that you can get out of this. It can create this emotion that you truly believe you are on that ship and it is on fire. And if you don't do it right, then you're done. So in safety, this has a high potential. In health care, it has a high potential. If you imagine these surgeries done by robotic surgery or -- where they pinch a little hole and they put a camera and they put the instruments inside, you can almost imagine that if you could do this by means of Vision Pro and spatial computing, it's like you diving into the body and you are -- the doctor and the surgeon is inside the body where he do his procedures. But enough about that. You have to experience it, and you have to learn more from our customers. But this is a major driver for growth in the U.S. and hopefully soon in Europe as well.

Let's move on. Another platform we announced here today. It's the first time we talk about AI platform. Trifork has been working with AI for 15 years or more. When I made my master's degree -- I graduated in '94, it was about AI and neural networks. And I thought it would be used in 5 years' time, but it took a few more years. But Jesper Mygind and his team, Vice President of Trifork, he has built a platform where we, over the past many months, have implemented solutions together with our customers that are truly mind-blowing because those core AI capabilities, OpenAI and all the rest of them, they are out there and they give you some superpowers, but you still need to connect your real world as a company. And so I want to give you 1 or 2 examples of how we use our Corax platform.

So, one is that if you are a foundation and you receive applications to support whatever projects that people want to have funding for, then you are actually obliged to treat all applications in a professional manner. And that means you read all of them, you understand all of them and you rank all of them and accordingly to your policies of how you hand out the support from the foundation. You need to create a fairness there. And you don't know how many applications you will receive. So, you actually don't know how much work you will have as a foundation management or the Board. But we have helped foundations optimize this, where we have AI filtering really quickly and rating these applications and helping the Board to select which one to support. And also, when you do that, then we also write the speech. So when you're invited out to hand over the -- in a nice party atmosphere event, we write the speech to the management who go and hand out the money.

Another example is that if a customer within an insurance company or a bank or something like this has a client meeting, you have all these video calls that are being used today like the one we're in now. We can ask you to transcript our conversation. But having a long transcript of a conversation is not very -- you use AI for that, okay? But it's not very useful just to have a direct transcript. What you want from this presentation probably is to have the key points, what are the takeaways but also in a conversation between a customer and fintech and the client adviser can maybe be something that you should not talk about. So, there are some compliance that could be triggered.

So we can have AI triggering if somebody says, I want to move money from this account to this account and maybe one of these accounts are in a location where you're not allowed to move funds from or the amount or something else. So, we have helped fintech companies optimize this situation. So, we can red flag communication that is not appropriate or should trigger some compliance. Also, -- you also talk about things about your life in those conversations. And normally, a client adviser would have to update their customer relationship management system with the information about maybe the family of this customer that ties this customer into doing business with this fintech company. So, we can also update the CRM system. And then we can do a minutes of meetings of what was decided and we can send out a letter directly after the meeting, and that saves a lot of costs. So, that's 2 examples of how we have been using our Corax platform so far. And I hope everyone at Trifork will present it to their customers or maybe some of you in this meeting today.

Let's move on. So, I don't want to spend much time on this because I'm a little bit behind on time, but we have worked very seriously with the strategic priorities that we set out for in the beginning of the year. And then we have handled the challenges that we saw coming later into the year. So, I think we should move on.

Labs. So if we think or if we see now that we are challenged on our core business in Trifork segment, it's rather the opposite in Labs. We have extremely good performance in the top 3 lab companies. And we could not avoid to update the valuation on some of these companies because they are valuated on a DCF model, and they have exceeded and overperformed on their budgets and truly amazing results on some of them. And if you want to do a little bit research itself of some of these companies where you can read about the numbers in the public registers. So strong, strong performance from Labs.

Let's move on. I think, Kristian, here is where I hand over the word to you.

[Kristian Wulf-Andersen, executive]

Thank you, Jorn.

And I will also try to keep my session short so that we have a lot of time for potential questions. This is really just to state that we are working towards our CSRD reporting, which will be together with the Annual Report for 2024 and that we have set the science-based targets and here report on exactly how we do towards meeting the targets.

Overall now, I will go through some of the details in the financial reporting. As Jorn already talked into was the group performance on revenue, so I will not say a lot more there. Just to say that if we compare the results this year compared to last year's same period, without including the hardware and third-party licenses, then the decline was only 0.8% and 1.8% if everything was included. And as normal, we don't include any revenue from the Trifork Labs companies. Trifork segment performance, as Jorn also talked into, you see here that the margins decreased overall for the year from 15.2% to 12% and to 12.3% in Q3 isolated. This is also, as Jorn talked into, the reason for launching this addition to what we already have done until now with cost savings, and we expect the effect to be around EUR 10 million during 2025.

Looking a little bit more into the segment performance. Then as you see here, Inspire is minus EUR 1.6 million. We initially guided to be around EUR 1.5 million in minus for the year. And we still expect that Q4, where we have some of the largest conferences would be more or less breakeven in the fourth quarter. We see the highest impact in relation to the Build-based business, where we saw margin decrease compared to last year. And in Run, we are more or less at the same ratio in margins as in 2023 same period 9 months.

The other expenses decreased with EUR 600,000 compared to last year. So that's, of course, an improvement in relation to the overhead costs not distributed into the business units. The Trifork Group performance on EBIT is more or less a direct relationship to the missing margins on EBITDA. So, this is directly related here. So, there are only a few additions in relation to amortization from the new acquisitions. And otherwise, it's the stable, you can say, development in EBIT compared to EBITDA.

Looking into the Trifork Inspire segment. Then here, you have the total numbers. So year-to-date, we have saved, as you see to the right here, EUR 800,000 compared to the cost level we had last year. That has been some decrease of costs, but also additional revenue. And if you recall back from the previous quarters, then we had additional costs in relation to there, also to resizing the organization and reshaping the organization. So, that is one-off cost in this year. So the ongoing cost level has decreased overall.

Looking into the Build segment. Then this is really what we already talked into. But here, you see the adjusted EBITDA margins on Build. And here, you see the high decline, as I talked about before, from the 18.5% to 11.3% in Q3, isolated. And this is really where the lack of performance or utilization in engagements has the highest impact, both for Q3, but also for the year overall. Looking into the Run segment, then you see overall for the year, we have more or less the same margin as in the 9 months '23. We had a higher margin in in Q3 '24. Part of that 5% to 7% is caused by us, improvements from new engagements and lower implementation costs, where we -- our Contain platform now is sold as a separate product as well to implementation with -- in the customers' environment, own environment. So, this has caused our investments there to qualify for also being capitalized. So, part of that is included in third quarter '24. Overall, the capitalization for the group is in '24, the same level as in '23.

Looking into distribution of revenue on different areas within Run. There, we see that Q3 '24 is more or less at the same range as in 2023, but with a slight increase on the license and support on own products and decrease in third-party licenses. The Lab segment's performance, Jorn talked into it in stating that we had a good performance in some of the most valuable companies in our Lab investments. But all you see here to the right that we, during 2024, have invested in new lab companies. For instance, our Bluespace Ventures investment in Switzerland and other very interesting companies coming in. So, we increased. The orange bar below is the capital that we have invested in cash. You also see a positive development in the accumulated unrealized gains. This is the gains coming from reevaluation of companies. It's a mix of a few of the minor companies where we are making downward adjustments, but the positive development in some of the more valuable companies has more than accounted for that.

Overall, we also see that the realized gains has increased. This is based on dividend distributions from our Lab companies. Last part here is the cash flow and financial position. As you see, the current position end of 9 months is a leverage of 1.8. In relation to looking into that leverage, we still have roughly EUR 4 million in treasury shares, which is not part of that calculation. And end of September, we did have a little higher trade receivables than what should be usual compared to the seasonality. So, that's also something. In Q4, we expect this leverage ratio to go down, so meaning from 1.8 and towards 1.4 based on additional cash flow from operations and the things I just talked about.

So now, we can move over to Q&A.

[Frederik Svanholm, executive]

Thank you, Jorn and Kristian. Let's start the Q&A session. [Operator Instructions]

We will start with the first question from Yiwei Zhou from SEB.

[Yiwei Zhou, analyst]

I'll do one at a time. Firstly, when looking at your new guidance range and you still expect a rebound in Q4. So except for the seasonality, then what makes you confident to deliver sort of a big Q-over-Q improvement in the current tough market condition?

[Kristian Wulf-Andersen, executive]

Okay. I can take the first here. So, thank you for the question. As Jorn talked into initially or during his presentation, we do see a pipeline building up and that is part of the reason here. So, we do see growth already now materializing in the U.S. We do see growth materialize in the public sector in Denmark, especially. And we also see more dialogues with the new customers going to the phase where we actually start delivering on those. So, this is based on the latest forecast throughout all our business units and based on already signed orders and what we can see as it is right now.

[Jorn Larsen, executive]

So, I can add, Kristian. So a few years ago, we acquired a Swiss company that for a long period of time had been working with the Lufthansa and the Swiss Airline Group and actually built some remarkable IP and products and know-how about the airline industry that, as you can anticipate, wasn't very useful during COVID. Maybe we all forgot how that was, but not a lot of people were traveling. But the rebound for the airline industry has been quite strong. And we have worked very closely with SAP and Apple to present our tools for flight crew, for safety, for really necessary applications for operating airlines and coping with the increased number of passengers globally. And so we have seen new customers coming from Germany, from U.K., from U.S. and that's all wins that we have seen in the past few weeks. And that I'm really proud of.

And of course, it took a little while before we really, you can say, harvested our investment from this company in Switzerland. But also in the same time, more business units around Europe and in the U.S. have now participated in developing these awesome tools and products. And actually, next week, we are in Florida in the U.S. in a really big trade show organized by our partners, where we will present not only the case stories from our new customers, but also where our customers will present what we have been doing with them. And so I teach a book on our business unit leader workshop. And one of them is who move my cheese. And it's a classic business book about when you see one market closing down, probably there is another market opening up and you need to have your eyes open and your radar very observant. And so the business in airline is growing quite a lot for us. And that's something we need to deliver over the next quarters. So, that's just to kind of underline what Kristian just said.

[Yiwei Zhou, analyst]

And then my next question is on the private sector. Within the private sector, which customer verticals do you experience the sort of the lower demand at the moment? And you have also added that the aviation, the airline industry is rebounding. And any sector you are seeing also sort of entering into the recovery trend? And in the verticals where the sectors which are suffering at the moment, do you see any structural issue there in the end market?

[Jorn Larsen, executive]

I think I will start by explaining where I see the suffering among our customers and what we already had as pains in the Q1 and Q2 and it's not looking like it's changing. So, you see the car industry is not having its best time. You see the construction industry, that means anyone who build devices components for building office buildings, for instance. And so that is a weak market to be in.

On the other hand, we see a number of manufacturing companies outside the construction and car industry being very positive about getting our products for optimizing their own production and kind of running their companies. And that can be in energy, and it can be in manufacturing of consumer goods. I mean, we all need to eat every day. And all the products we buy that are basic products, we see a really good traction on that. And so that's how I would say it.

[Frederik Svanholm, executive]

The next question will come from Poul Jessen from Danske Bank.

[Poul Jessen, analyst]

I can start by a follow-up on Yiwei's about the guidance and you say it's secured by contract. You've seen in Q2 and Q3 delays and postponements and cancellations. Are there any risk then to what you see now that you could come out saying that it did not materialize?

[Jorn Larsen, executive]

So for the past 3 months, 4 months, we have not experienced our big customers reducing their work with us in a dramatic degree. Whether that happens tomorrow, I cannot promise you because we still have large customers. But for sure, the industries that has been affected by the world economy as it is, we see them, they already reacted. And the businesses that are strong like health care, like aviation, traveling and et cetera. But of course, if we have a full-blown war, maybe nobody wants to travel anymore. So, then that will go south. So, we can only guide accordingly to the world how it is today. We don't need to see a bettering of the global economy for reaching our goals right now, but we can, of course, not anticipating some disruption coming from some major event. And I don't know the effect of the U.S. election or the U.K. budget discussions or any other big thing. But as we see it now, I think we have -- we are already used now to being -- we have to hunt harder to get our business, which is good because our customer concentration has dramatically decreased. So, our business comes from many more customers than it did 2 years ago. But of course, we are still vulnerable towards dramatic effects on large customers.

[Poul Jessen, analyst]

That brings me then to the next question. If we look at the private sector, how much of your revenue there is based on customers you had 12 months ago? And how much is based on where you have to go out and find new customers?

[Jorn Larsen, executive]

So, except for the customers that dropped off or reduced their work with us, we maintain a good relationship with the remaining of them, and we have added a lot of new. At the year reporting that will come in '25, I will promise you that we will give a deeper analysis on how many customers, the distribution of the sizes. And I can tell you that when we did the Capital Market Day, we said that in '23, we had 657 customers with revenue more than so and so that Frederik, you can remember now because I just forgot it the amount. But we will give a deeper analysis of that in our Q4 and for the -- yes, for the full year report because this is what is driving our business now.

It's really to observe that we don't want to be too vulnerable on a single customer. So, we need to have a north of 1,000 customers at Trifork, and we are hunting very hard to get there. And in fact, I am also on the street hunting down customers now, and I do have weekly dialogues with some of them. And I don't find it that difficult to land new customers. The business is out there. And among the millions of companies we could have as customers, there are, for sure, challenges that they have that we can mitigate with our products and solutions. So, I'm not afraid that the market is not there, but it's spread thinner for sure. So, we need to hunt more and have a stronger sales force to pick it up.

[Kristian Wulf-Andersen, executive]

Thank you, Poul. And just to follow-up on Jorn's comment, what we said at the CMD is we had in 2023, 657 customers invoiced more than EUR 10,000 across the group.

[Frederik Svanholm, executive]

Okay. Next questions. We have a raised hand again from Yiwei from SEB.

[Yiwei Zhou, analyst]

I just want to double check on the cost savings. The EUR 10 million cost savings, do you expect any savings already achieved during Q4? Or is it more a 2025 forecast?

[Jorn Larsen, executive]

Yes. We do expect some cost savings to take effect from Q4, because this reduction in management salary and everyone who voluntarily participate in this in the wider management group of Trifork will take effect immediately. And also, I hope this call and of course, the work we are already doing will remind everyone at Trifork to be really mindful about how we spend our money, but also if something can be postponed a little bit without sacrificing anything. And of course, to be mindful about who we hire and how we hire because if we look back 2 years, 3 years, we had a good ratio of freelancers working for us. This is way less now. And of course, we want to bring that up again.

So when we need new people, we should work with our trusted contractors as well because it is less risky. And if you analyze our revenue per FTE, you can also see that the conclusion must be that we have fewer contractors working for us now than they used to be. And we need to work with that as well to reduce risk. And also today, you can have contractors that actually pay for their own education and a lot more things than they did just 2 years ago. So, there are also some advantages of the current environment today if we compare to 2 years, 3 years ago where we could not really access talent very easy. So yes, there will be also things taking effect immediately. So, maybe just one thing to add on here is that the effect -- positive effect, plus you could say, the cost of doing these initiatives. We already started the initiatives earlier. So, this is an increase of what we already did beforehand. So, there will be some negative and positive effect already in Q4, and that is included in the guidance. So the EUR 10 million is the annual saving that we are targeting towards 2, meaning that 2025 should reach that level in our target.

[Yiwei Zhou, analyst]

Great. If I may, a follow-up question to Poul's question. You said that you have not experienced any material change over the last 4 months. But I can say that last time when you did the downgrade, the guidance downgrade was in August and now it's beginning of November. So, you have changed your view and your forecast here within the last 4 months. I mean, I'm just a little bit confused by your answer. Could you help me to understand that?

[Jorn Larsen, executive]

Let me give the segue into Kristian, who will give a more detailed answer. So, you can say we -- it's true that we did not lose that significant business. But it's also true that some of the business we were quite sure to get has been pushed a little bit. And some of the contracts that I just told you about now, that we have now, we were confident that would come in September or August, but they are there now. So, this postponement is one big factor of increased costs, if you can follow me there. But also, since we did do these cost reductions and some of them are associated with staff reduction, that came maybe a little bit too late, but then also gives a direct hire cost because when you do -- and when you do attempt to save cost on that with that method, you actually are hit with a direct hire cost immediately and only after a while, you get it. So, nothing large outside has changed except for customers dragging the signature on the contracts, okay?

[Kristian Wulf-Andersen, executive]

And maybe just to elaborate a little bit more is that the budget decreases, I mean, most of the customers, it was -- there was, you could say, stopping investments or pausing investments and not leaving as customers. So, I mean, they were pausing also on other customers or other vendors. So, what we saw is that we maybe also underestimated the effect on the continuous cost savings that those customers introduced and how long time that they wanted to postpone everything. So it is really smaller budgets, even smaller budgets than we anticipated when we had the first dialogues with the customers.

[Frederik Svanholm, executive]

We have a raised hand again from Poul from Danske Bank.

[Poul Jessen, analyst]

Then I can come back to Yiwei's about the cost cutting EUR 10 million next year. Is that a full-year number that we will see next year? Or is it an annualized rate, which we will meet somewhere during next year?

[Kristian Wulf-Andersen, executive]

I mean, of course, we're targeting to get to the cost savings as fast as possible. So, our target would be that it can be the full-year effect in '25. But time will show if we can actually do that. And of course, when we put up the guidance for '25, then we have a better overview of the -- you could say, the timing of the effects and also if any of the one-off cost effects will drag into '25 or if we can actually mitigate that already in Q4 in '24.

[Poul Jessen, analyst]

But does that mean that, actually, the annualized run rate is larger than EUR 10 million?

[Kristian Wulf-Andersen, executive]

No. So the annualized, we expect to be the EUR 25 million, which would be something that [ can increase ] in the future.

[Jorn Larsen, executive]

EUR 10 million.

[Kristian Wulf-Andersen, executive]

Sorry, yes, EUR 10 million.

[Poul Jessen, analyst]

Okay. Because I was thinking some of those you are getting rid of or terminating is -- or must be people who has 3 months or 6 months notice.

[Kristian Wulf-Andersen, executive]

Yes. So, that's why I'm saying that there will potentially be some delays depending on exactly where -- if it's reductions we're talking about in workforce where that can be done or will be done. But it's also other cost areas as we have talked about. And it's also, you could say, change of potential changes in wage models, et cetera, in lease agreements, a lot of other things. So there's a -- it's a combination of a lot of different things. And we're pretty confident that we can go to this number. As Jorn said, it's roughly 5% of the all revenue in the group and we believe that's possible.

[Poul Jessen, analyst]

Do you have any indication on by how much you're going to reduce your capacity?

[Kristian Wulf-Andersen, executive]

No. So as Jorn said, capacity is different or is in 2 sides. So, we have capacity based on our own workforce. And then we also have more flexible capacity on contractors working for us in a close relationship. And of course, we want that ratio to be more or less as before we downsized. So, meaning that we will build up also on contractors before we build up on -- too much on our own workforce. But of course, the actual number would then be compared to how much growth that we can deliver based on the new engagements as well.

[Poul Jessen, analyst]

Okay. I have 2 questions. So, I'll take those now. One is on the delayed deconsolidation of your cyber protection business. Is that because you have not agreed with the partner? Is it just because discussions takes longer? Or is it a result of the market being more sour and thereby, you are discussing the price? Or can you give any insight? And then the other part of it, how much revenue is associated to those EUR 3 million to EUR 5 million EBITDA loss?

[Jorn Larsen, executive]

I can start a little bit there, Kristian, while you formally do answers. So, actually, one thing that has happened over the year is that we feel -- we actually feel a lot better about our Trifork security business now than we did going into the year. So, things has really changed for the better. So we have a -- you can say we have a stronger negotiation position towards a partner because the idea was never to sell the company. It was to bring in a partner and divest it in that way. And those discussions are ongoing. And yes, they are not concluded, and I cannot guarantee they will be concluded by New Year, but they are well, and there are also more options that we could do now that it's not really as a burning platform for us to stand on as it was before.

[Poul Jessen, analyst]

No, but you're still having a loss on EUR 3 million to EUR 5 million.

[Jorn Larsen, executive]

Yes. But that's for the year. So, Kristian, maybe we can clarify it more like what it was in Q3.

[Poul Jessen, analyst]

So, it's not a cost or margin improvement of EUR 3 million to EUR 5 million on next year versus compared to if you kept it?

[Jorn Larsen, executive]

Kristian, you need to answer that. It's not difficult, but I'd rather...

[Kristian Wulf-Andersen, executive]

So, I mean, just to be precise because we -- during the investigations in relation to how to do, we actually separated part of the business, so that some of the business is what we see closely related to the offerings that we also do in other areas. So, that part will then still stay. So, you could say the deconsolidation effect will not be as high as previously expected. So, we only expect, you could say, a deconsolidation effect of roughly EUR 5 million if we do it on revenue and roughly EUR 1 million on EBITDA. So, that's the current standing where we are. If we deconsolidate, then we will have to make that up in other business units. That said, of course, there is a one-off EBITDA effect if we do a deconsolidation. And this is what we then say, this is a positive effect of -- as a one-off effect of EUR 3 million to EUR 5 million depending, of course, on the valuation and exactly how we make an agreement.

[Poul Jessen, analyst]

So, that's a gain, the EUR 3 million to EUR 5 million?

[Kristian Wulf-Andersen, executive]

That's a EUR 3 million to EUR 5 million gain if we do a deconsolidation, which would be one-off on EBITDA and EBIT on adjusted.

[Jorn Larsen, executive]

But Kristian, could you maybe just on the last second here, maybe quantify if we can say it? I think we can on Q3 performance because it has -- it have had a really nice positive development throughout the year.

[Kristian Wulf-Andersen, executive]

Yes. So, Q3 was almost breakeven. So, much better than what we saw initially in the year and until first half.

[Poul Jessen, analyst]

And revenue?

[Kristian Wulf-Andersen, executive]

We cannot say more than that.

[Jorn Larsen, executive]

What we can say on this business is that the recurring revenue of it is growing steadily through the year. And then you can look into our notes as well, of course, on licenses and make your own views on the size of it.

[Frederik Svanholm, executive]

We do not have any more questions, and we are out of time. So, I just want to say thank you so much for your interest, and see you soon on the road or at the next quarter. Thank you very much.

[Jorn Larsen, executive]

Thank you.