Good morning, everybody. Welcome to our call today relating to the publication of our first quarter results. We've released our numbers on Wednesday. We've been to an investor conference yesterday, we are holding our call today. What can you expect? We have published or announced the acquisition of apsolut. We are growing more and more internationally. We have also shown for the first time our new segmentation, away from core and LOB towards a regional reporting structure reflecting our new operating model according to the countries, and which also enables us now to reflect the growth that we are focusing on. Stefan Land, our CFO, will explain you about the challenges that we're facing in the markets, but also about the opportunities and the potential that we do see because we are very well positioned in the SAP and consulting market.
Welcome, Stefan Land, our CFO. Thank you.
Thank you, Nicole. Good morning, everybody. For those of you who are not so close to our business, I would spend a few minutes just in the beginning on what we are and what we do and what is our transformation way. We are entering exactly what Nicole mentioned already in the news of the quarter and of the past few weeks. As you can see, we are an international IT provider in consulting for services and consulting with a very strong SAP focus. SAP is awarding us generally a few times a year. We are the partner of the year currently in middle of Europe, Eastern Europe in the past few years. Globally, we are the number one for transforming to S/4HANA, the new software tool of SAP the past few years. We are a validated RISE partner.
We are part of the United VARs network, which is one of 10 platinum partners currently. That means that we are facing also the situation that we can roll out, for our customers, the SAP software tools through more than 100 countries. We are carrying also the platinum partner as all the others as well. We are servicing 4,000 customers actively, and we are focusing on industries like manufacturing, life science, consumer products, automotive suppliers, wholesalers, and professional services. We are doing roughly EUR 0.5 billion in revenues. More than 50% is already recurring, so that's the cloud. EBITDA margin was, in the past business year, 9.4%. We transformed the past few years from a reseller model, so just selling licenses and support contracts and then implementing software, now to an international cloud-based IT consulting and service provider.
Of course, this provides a lot of opportunities because within the cloud, there's the opportunity to service and to implement new services, especially with the security compliance related, AI-based, and adopt them and help customers to get end-to-end processes digitalized. There's a lot of opportunity, but of course, there's also a challenge. The challenge is new competitors who are experts in dedicated processes and services on a global landscape. In Q2, end of January, we announced that we signed a contract with apsolut Group. apsolut Group is the number one SAP partner for SAP procurement. We are strengthen our portfolio, what you see on the right side of this slide, even more than in the past, related to the spend management and supply chain management.
Procurement is now key of our portfolio, which we missed and did with some partners, especially with apsolut in the past in the project. Now we are opening up another 450 upper midmarket customers. That's exactly where we would like to enter more and more with our services globally. We can accelerate on the India workbench, which has been established by apsolut the past few years. We are welcoming more than 140 new colleagues in India as well. We are opening up additional countries like the U.K. and in Asia. Everything around the Emirates, Saudi Arabia, and these countries are also now covered by us directly. If you see this on the landscape, you see on the right side is the United VARs network. That's where we are part of it. We founded this 15 years ago.
We have more than 10,000 consultants in roughly 100 countries. On the left side, you see our direct sales force and workbenches. We are mainly now in Western, Northwestern Europe based, especially, of course, in the German-speaking area. We are servicing in a total out of 61 locations. You see our three workbenches in Türkiye, Egypt, and in India now. We are really actively trying to get our expertise now more globally in order to come into the upper midmarket customers more and more. Let's focus on Q1 and of course, on the financial performance, which was not very exciting. Why? There's a temporary phase. Number one, cloud cuts revenue growth of our business.
As mentioned before, we have been a reseller, we sold a lot of licenses and support contracts and purchased the licenses and the support contracts at SAP and our second partner, Microsoft. Now we are just getting direct commission-based schemes, which ends up in lower revenues, but provides more margin in the future. There's an increased geopolitical uncertainty, especially in the German-speaking area, which leads to further delays in project launches and fewer new contracts for our ERP migrations to S/4HANA. These two big impacts have been driving our margin down to 5.3%, coming from 8.2% in the first quarter last year. Let's enter a little bit more into details and starting with the driver of the EBIT, which is the revenue streams. You see on that slide the different lines and totally different developments of revenues.
In the middle, you see the software and support area, which have been impacted by the transition to cloud-based commission models. Licenses and commissions have been decreased by 35% to just EUR 9.1 million because C-levels are not entering and signing, executing new contracts currently. They are a little bit nervous because they have a lot of homework, especially in the industry-focused ones, like in the machinery manufacturing and the automotive suppliers. We see currently a block of decision-making because they have a lot to do to get their business into a secure area, coming into profits before they are acting and saying, "We will invest into the digitalization of the future." On top of this, you see support is just declining by 3% because if customers do not convert and migrate into the cloud, into the S/4HANA systems, then they will still need support.
Of course they are not growing, they are not hiring new people. They try to lay off workforce, and that's the reason why this area is just, let's say, flat or - 3%. On the other hand, you see the first top line, cloud services. Cloud services is growing very robust with 3%. 3% is not exciting, of course. That's not our target for the future. Due to the fact that no one is starting the migration parts now, nobody is entering into commission models, subscription models, and so on. On top of this, they do not extend the portfolio. They do not hire new people who need additional subscriptions in order to work in the respective software tools. Finally, you see the consulting line. Consulting dropped by 7%. Why?
We do not have enough execution in new projects, and that's the reason why consulting, which is not 100% recurring, is dropping by 7% currently. If we divide now our business in the future, we decided to show different regions except or instead of the former segment reporting into different portfolio areas. Why we are doing this? Number one, we have established last business year a new operating model based on our strategy 2030. We would like to enter into other midmarket customers; we have to provide in the key territories our own support done by our own workbench. On top of this, we have to provide more cloud-related additional services relating on AI, security, and compliance. All of this is following now into our operating model and therefore we divide the segments now in Germany because it's still our key market so far.
We open up Europe and rest of the world. The reasons for dropping in revenues, what you're seeing here and in margin, are exactly the same like I just mentioned on a group level. Revenue declined by 6%, contribution margin was -26%, and the margin was down to 8% operational. International, I'm just summarizing Europe and the world because without the acquisition of apsolut, which we are expecting to entering into our figures 1st of March 1st, w ith the closing or at the latest 1sy of April , it does not make sense to show Europe and rest of the world separately because rest of the world, we just having internal workbenches in Egypt so far. Revenue declined by 7% in Europe and margin came down from 12.6% to 7% in the first quarter of the business year.
We have a very solid balance sheet, and we raised net proceeds of EUR 49 million out of promissory notes in the first quarter in order to prepare ourself to grow into new markets and portfolio elements. Number one has already been executed, that's the apsolut Group, which is a big move forward because we now have closed the gap of procurement. We entered into new territories, already established, and we have an additional workbench in India, fully floating now, and we can scale on it immediately. Operating cash flow was very good in the first quarter, just EUR -1.1 million instead of EUR -7.3 million the year before. You all, as you may know, we pay out to all of our colleagues in the first quarter, the variable salaries of the year before.
That's the reason why we are always entering into the business year in the first quarter negative. We had a free cash flow of EUR -7 million, which was very good for the first quarter. Equity ratio was dropping to 30%, which is due to the high cash position of EUR 108 million because we raised funds of EUR 49 million net. There's a very solid financial position in order to go into more acquisitions and inorganic growth in the next few quarters and years. Some more KPIs relating to employees. We are roughly 2,600 without the acquisition so far, down from 2,770 the year before. Already 25% are coming out of international business in Poland, Türkiye, and our workbench in Egypt and Türkiye. Employee retention is roughly at 90%, so that's more or less our target. We are fine with that.
Health index is not on schedule, so 96% is too low. We are working strongly to get this up closer to 97% and hoping to getting more efficiency into our workbenches, and into the group in the coming few quarters. There's a long-term story on the earnings and the dividend strategy, as you can follow on this graph. The past 11 or 12 years, we always raised dividend or kept it stable over time. Now we are going into a little bit other direction. We decided to use more proceeds, more earnings, for the future acquisitions and growth part. Of course, the earnings per share came down to EUR 2.30 per share. However, EUR 1.20 is still on the target. We always providing to the market, so we give a dividend between 40% and 50% of net earnings. That's the outlook provided in November for the business year 2025, 2026.
You see, we would like to keep revenue more or less stable, between EUR 500 million-EUR 530 million. EBIT margin shall move forward a little bit from 5.2% last year to 5.5%-6.5%, which ends up also that the EBIT before M&A effects, that's our operating EBIT, our results shall also move to EUR 27.5 million-EUR 34.5 million. Of course, it is a challenge because the start in the new business year was not exciting, but we have a very good funnel. We see in our customer relationship management a lot of opportunities and volumes, which still convince us that we can come into that range of figures. However, we are in a very uncertain situation currently. The geopolitical situation are currently driving C-levels into other decisions. They stop investments immediately very often, prompting them to short-term cost-cutting measures. That's the key for a lot of C-levels right now.
Even they know they have to digitalize the business, they have to go to the cloud, they have to focus on end-to-end process globally in order to be successful and innovative in the future. Strategically, we feel on the right path. They will return to us. There is more or less no one in the market who is saying We don't will digitalize. We don't trust in the SAP strategy. We don't see the additional services are the right ones you're providing to us, but they have limited funds. We have the clear picture that we will return to organic growth in the mid-single digit percentage range. We will drive M&A further on. apsolut will roughly add EUR 40 million per year in revenues. We really trust in the scalability and opportunity of our business model.
The margin, the profitability margin, will sustainably raise step by step in the cloud. Even we are in a very weak situation now, coming from lower-end revenue growth. We see a clear picture that cloud provides to our business model additional margin opportunities and much more robust than in the past. Ladies and gentlemen, that was our Q1 update so far, and we would be very happy to get some of your feedback for Q1 and of course, questions as well. Thank you.
Thank you, Stefan. To everybody in the call, you can put your questions in the chat, and I will read them then out, and we will answer them here directly. I will start with the first question. On your screen, you had something about AI and data in the middle. Can you give us a bit of a feeling, what do you expect internally, externally, and in general, what kind of impact do you expect from AI?
Thank you. Yeah. One of the key drivers in the financial markets currently. Thank you for this question, especially for the split internally, for ourselves and for customers. I would like to start internally. We see and we are working on two very strong AI-supported processes. Number one is the service process to our customers. We are implementing one of the leading software tools, it's called ServiceNow. Some of you may know this. It's the ex-CEO of SAP. This will provide us the opportunity to do automatic AI-based answering and services. We are loading all our historic ticketing, it's a few hundred thousands of tickets, into the AI model of ServiceNow, which will help us to return tickets of the customers in the future automatically, and of course, AI supported.
This will help us to streamline our service costs and to leverage into new service opportunities. Number two, we are working on our entire process of order processing. We are using the tools of SAP, like Joule, in order to get it more automated and more supported by AI, which means we have an own large language model updated with our own data and invoices the past few years, and we're trying to leverage then on these AI tools in order to make order processing in the future much more automated than in the past. There are some minor opportunities as well, these are the two key issues internally in our own processes we are working on.
Regarding the outside, regarding our service portfolio, so far, there is no AI, let's say, platform available for us or done by us which would ramp up revenues to the All for One model. What we clearly have in the pipe and working on in some projects with some customers, we do dedicated AI-supported solutions, especially in the production area and the logistics area. They're running a lot of projects also with AI tools on top, we are helping customer to entering into this world and getting more efficiency out. This is something which will grow step by step, that we are using AI on ourself in the projects to the customer to provide more efficiency to customer and help ourself to get also projects with higher margins than in the past.
Of course, AI support for consultants is something which is growing quarter by quarter, and in a few years, we will see a totally different approach, how an implementation of a software and the service of a software will be supported in the back end by AI tools for customers of All for One. So far so good. We are not an AI, let's say, product company or service company based, but we are using the tools SAP will entering into the software world of SAP. We do have additional own projects together with customers to get additional value in their business and using the tools for customers to make the projects much more faster and efficient than in the past.
Okay, thank you. Next question more on a financial term. Which levers do you plan to utilize to drive growth over the next three quarters in order to reach your 2026 top line guidance?
Well, we have different scenarios. Number one is we are connecting to a lot of partners globally who need additional expertise in conversions and migrations, because we do have a lot of expertise. We are the number one in the world of migrating to S/4HANA. Even we are losing some average price level, we try to get more workload into that. Of course, we are not growing our staff as planned, so far so good, in order to get more efficiency on the profitability sooner or later. We try to get more execution rate of the customers. Our sales folks do have a very clear plan and working on activities to get more execution rate out of the pipeline. There is a very strong competition. We are not the only one in the market fighting for this, but we hopefully will win more deals.
We are very positive currently what we are getting in as order income in order to get more top line in revenues the next few quarters.
Okay, next question on the mark.
Maybe I add, there is, due to the apsolut opportunity now, also some cross-selling opportunities. This means that we have already two, three projects in the pipe coming from apsolut, where we are jointly approaching now bigger customers in Europe also to enter with our All for One portfolio outside of the procurement. Sorry.
Okay. Thank you. Now, coming from the top line to the margins. While margins are currently compressing, the full year target remains within reach. What specific levers are you deploying to mitigate this compression? Furthermore, as you scale your offshoring and nearshoring initiatives, do you still see the capacity for slight margin expansion in the near term?
The margin will be driven the next few quarters very much out of the top line. Because we are working on our cost structures since more than a year now, and if you follow our headcount, we have done a lot. If you follow our announcements regarding severance payments, we did a lot the past few quarters. The cost efficiency is much higher than five or six quarters before, but now we need more top line. The utilization is key. If we get utilization up, it will run or it will fall down into the EBIT by 100%, even in a consulting area, because we are not fully utilized right now. We need more fire in the top line, and we will immediately see an upgrade in our margin.
Yes, of course, if available, we are still working very hard to get more capacities out of nearshore and offshore, and we will work quite strongly also on the India opportunity now. There's already a project running of integration these capacities and add additional capacities into our India office very soon and provide services to our customers.
Okay, thank you. You're now reporting in a new way. Could you just give us a feel about the former core and LOB developments? What do you expect or what do you see at the moment?
Thank you. Very good question. Let me say some sentences. There's still some time left on this. I said, and that's the truth, that we changed our operating model. On top, there is another weakness in the portfolio elements because we are servicing more and more end-to-end. What does it mean? How shall we split end-to-end processes into dedicated portfolio elements? SAP changed their own strategy. They are now selling a business suite. If we are entering now into a contract with a customer who gets a business suite for a monthly subscription of whatever, let's say, EUR 10,000, then we don't know exactly does he use in the next few months and how much is related to customer experience, to payroll, to SuccessFactors, to ERP.
SAP changed their strategy already some years ago because they always jumped between the different portfolios elements and doing it still internally, because at the end, it is one process. We can't really, in a few years, we will not be able to say how big is your ERP business. Yeah. It's very difficult because it will all be managed in an end-to-end process through different functionalities of the customer. So far, we are of course monitoring this internally. It's a matrix organization, and we see the clear picture that ERP in conjunction with the business analytics is impacted by the geopolitical situation. We don't get enough execution in migrating to the new ERP system and following also the new analytics systems, especially in the SAP Analytics Cloud. We are very good in HR- related stuff, payroll is very robust and execution rate is also fine.
We see the first movement also in our customer experience area. Even we have been dropping revenues, you may remember, one year ago internally, but now we have a certain bottom and floor reached, and out of this we see now first growth coming again. We really have an ERP issue currently. Managed services, everything around the cloud, additional application services is growing. Not very exciting because there is a high competition in the market, so a lot of customers trying to cut costs, but it's very stable and it's growing organically.
Thank you. Last question, how about Avaya Power and further M&A news?
We are not ending here. I'm not allowed to give you more insights. You can be sure that Michael and myself, we announced, I think it was in October 2024 the first time, so that's now 16 months ago that we starting to execute an M&A strategy. Of course, M&A always needs some time because we are not using the official market projects in general because that's normally not exactly the fit we would like to have into our portfolio. We have dedicated discussions with dedicated owners of businesses since 16 months, and now we are very happy to get apsolut on board and we have more ideas and you can be sure that you will get further news also soon.
Okay. Thank you. I don't see any further questions in the chat. Thank you everybody for joining and, yeah, just be aware of news if they are coming. Thank you, Stefan, for all the details and the explanations and I hand over to you for the last words.
Thank you, Nicole. Thank you to you, thank you to all here in the room. Thank you that you're joining us, spending time with us. Hopefully you get a little bit excited that we are on the right track, even it is a very difficult situation because we are very much industry-related and the German-speaking area is not in an easy situation right now. Thank you. Have a nice day.