Good afternoon, ladies and gentlemen, and welcome to the CANCOM SE earnings call regarding the results of the second quarter of 2023. At this time, all participants have been placed on a listen-only mode. The floor will be open for your questions following the presentation. Let me now turn the floor over to Florian Mangold.
Dear ladies and gentlemen, a very warm welcome also from my side. I have with me in the room, Rüdiger Rath, our CEO, Mr. Jochen Borenich, our CSO, and Thomas Stark, our CFO. Without further ado, I'll hand over to Rüdiger Rath for the main events of the second quarter and the first half year of 2023.
Many thanks, Florian, and I'd like to introduce and welcome Jochen as a new member of the board of CANCOM SE, and also like to say thank you that you joined our call. There are some significant events, which we are explain later. Firstly, I'd like to go to hand over to Jochen, that he has the possibility to introduce himself to you as a community. Jochen?
Thank you, Rüdiger. Yeah, I started a few days ago. It's a great pleasure for me to join the board of the CANCOM Group. I've approximately 25 years of experience in the IT sector, especially in the go-to-market sector. I've joined my professional career, joined the debis Systemhaus end of the 1990s, which was the IT company of DaimlerChrysler. We were then acquired and integrated in Deutsche Telekom T-Systems. I worked 10 years with T-Systems, and in 2010, I joined the board of Kapsch BusinessCom, KBC. K-Businesscom, as one of two board members, although they're responsible for the go-to-market. You see that this is one of my focus topics. I was really impressed in the last days.
I met a lot of colleagues already, and, they're extremely open-minded and highly motivated. I think we have a great starting point to be successful in the market together as one team. I'm looking forward to cooperating and to working together with my colleagues.
Jochen, many thanks. We, Tom and I, are very pleased that Jochen Borek joined the board and take over the responsibility for our sales activities and the portfolio, and as well, the marketing activities at CANCOM SE. Highly welcome. I'd like to go over here to the major significant events in Q2, 2023. As you read this morning, in our press release, which we outlined all the numbers and, in our talk a few days before, there were some significant events in Q2, 2023, which we'd like to explain later more in detail here. Now I'd like to go to the headlines. On the revenue side, here we have still a strong demand for services.
It's a professional services or managed services, but the trading on infrastructure components and infrastructure around hybrid work slowed down more than we expected. As we outlined, here we have on the EBITDA some special effects compared to prior year level on Q2. Here, the effects came mainly from our efficiency and profitability program. The details and the consequences we will show later in a separate slide. Also, we had to wind down some projects and to name some M&A activities and the costs which going belong with the M&A activities. As a one and major triggering event, you know, we had here in this Q2, the acquisition of the KBC Group, and KBC Group entered the consolidation, started in the 1st of June, 2023. Yeah.
Where we had shortly before the signing, as you were, I think, aware, here in May 2023. K-Businesscom AG has a subsidiary of CANCOM SE, yeah, today we have no changes in the structure, yeah, of KBC yet. That has some impact on our reporting, as you will see later. After the KBC acquisition, we introduced the segment reporting. Here, the segments are Germany and International. Due to the major impact KBC will have on our outlook, on our figures, and as well on the business activity, going along with the portfolio, which we will explain in more detail later. Yeah. We created the segments to give you more details regarding the business activities and as well, the impact the KBC can give to our businesses, as well to our numbers in the future.
The segments are created, yeah, based on the seat of the company, yeah, that you can know and where is behind international and also, which is Germany. In total, the German market is as well, the strongest market as well. Here, we show, here, the international segment, that you can have some more details on the development of the business unit, KBC. I'd like to come to the financial results, H1 2023. The hardware business slowed down the second quarter, the development of the service businesses in the first half of the year, on the other, on the other hand, was mostly in line with our expectation. You can see the revenue growth. There is an impact as well, driven by the M&A activities of KBC.
As well, here, you see that the strong services businesses and the softening of the hardware demand, where it comes from, here, comes mainly, here, from the hybrid work components, equipment, yeah, which we have a slowdown, and as well, we see some activities to slow down the investment decisions on the midsize customer base, which we normally service and as well trade with, especially in Germany. If you compare the EBITDA without the special effects, where we have a special slide on, of EUR 10.2 million on the pre-year level, here, the EBITDA margin is closely by 8%. That means closely to the six months results we had the year before. As I mentioned before, we introduced the new segment here, and you can see in front of you the segment Germany.
I will not repeat the strong service demand and the softening hardware demand. You can see there, there is a 3.8% growth year-over-year in Germany, and as well, we are impacted highly on the EBITDA margin as well on the EBITDA amount. That came from the point that the one-off effects and of the efficiency and profitability program was exclusively within the segment, Germany. Here, we don't split it between Germany and the rest of the world or international. It was a difficult for us, a difficult H1, especially in Q down. Here, the expectations we had a few months before, and we saw now the result, it lowered more than we expected.
Here, we keep the revenue and gross margin, and the gross margin is highly impacted by the strong demand on professional services and other service businesses, more or less stable. We saw, and we definitely, yeah, implemented the transformation of the CANCOM Group in all areas, which we have to set off, because to achieve with our efficiency and profitability program, we definitely saw the execution in Q2, and definitely leads to the point that we have a highly impacted EBITDA, which we posted in the segment, Germany. We will benefit from that here, and the impact and the sustainable, yeah, savings, you know, which we expect by around EUR 15 million. We will show later in the slide that you can see where it comes from. I'd like to go over to the international. Clearly, KBC is the main driver of the international segment.
We in the year before, in six at half, one, 2022, I have to mention that in the revenue side, we had a lighthouse project here from the Eolease in Belgium, it's Q2 2022. You know, we have to consider that in the comparison to the revenue 6 months 2023, and as well, the impact on the EBITDA. The main driver is the KBC, and with the KBC subsidiaries, you can see the contribution is around 50% of the segment revenue, and we have 42% of the segment EBITDA. This segment will give you visibility on how the K-Businesscom and deal develops, and we'll show that in future. Please note that in comparative period, only the contribution from the CANCOM subsidiaries in Belgium and Austria are reported here. I come back to the Q2 2023.
I already commented the Q2. On the group level, we showed top line growth, yeah, which is the inorganic for the quarter. I already highlighted the special effect on the EBITDA. Without the special effect from the profitability program, we would have seen a quarter at previous year level. That's the main thing it should be in your mind here. This lower development in Q2, the impact on the half one, yeah, results is higher than we expected.... introduced last time here, the four major pillars here on trading, consulting, support, and managed services. Yeah, you can see on the H1 results, we have growth in mostly all of the segments, not call it segments, business divisions, here, where we have the trading, consulting, support, and managed services. Yeah, as well, we see a slightly increase here on the support businesses.
We had some difficulties, compared to the fiscal year before, we have an increase on the gross profit margin compared to the fiscal year before. We should not over expect here the impact on the trading side, where we have in the second quarter in lower trading than we expected here in H1. As that, we have an increase if you compare those figures together. Main highlights for the first half year, the revenue and trading is +2.6%, consulting +23.5%, support +41.7%, and managed services, +14.7%. The outlook for the service business remains strong.
All customer needs experts to take care of the IT service needs, harder to cut than the IT hardware businesses here, because our customers as well see some demographic changes in their employees, and they need as well, especially on the IT businesses, support. If you look at Q2 organically, we see a different story, especially in trading. We see a decline of 12.5% organically, from EUR 213 million to EUR 186 million in Q2. As I mentioned before, I'd like to explain to you the efficiency profitability program and what we are our expectations out of that program for the fiscal year 2025. We announced it here earlier this year, and we would like to take the opportunity to talk about the effects from the program we will see. This program is necessary.
We are now transforming the CANCOM Group, looking in areas where we can increase the efficiency. This obviously costs money if you talk about people being let go and terminating projects. We have balanced the cost of the program and the benefits on our forecast for the year 2023. This means that we will see only light effects in the full year, 2023. The main effects, and as I mentioned, always, the year 2023 is a transformation year, will be in 2024, where we expect cost savings of around EUR 50 million from three main areas of the CANCOM Group, excluding KBC. You see the personal measurings here, roughly EUR 10 million.
SG&A, expenditures on the rent and offices and termination of rent, and we have some impacts due to a lower amount of employees on fleet and vehicles, and we have some cost cuttings on travel and hospitality here. One part is the external contractors. You know, we have very few projects where we use a huge amount of external contractors, and we prefer we lay off internal people. We said, "Okay, we have to reduce the amount of external contractors, and this will migrate external contractors to personal be slash employees." That means the impact will be as well, around roughly EUR 2 million. In total, we expect sustainable saving of roughly EUR 15 million, where we have here to be a right cost basis for the fiscal year 2024.
Nevertheless, there are some ongoing measures here in the times where the German, especially the German market, expect not to grow. We will definitely streamline our portfolio. Yeah, we focus on value businesses, as you saw in Q2, we wind down some projects. Yeah, that means as well, we drive the cancellation of low-margin services. Clearly, as well, we drive our digitization internally to increase the level of standardization or automization, you know, where we need to be, and this will drive, yeah, the CANCOM Group in a position to be, yeah, sustainable, successful, starting from the year 2024. We are still successful, below expectations, but as well, we attract the major impact starting from 2024. Clearly, continuous price adjustments and as well, yeah, we do regular assessment of project probabilities that are some few of the ongoing measures we anyway do here.
It's live here. You should bear in mind, EUR 15 million impact for fiscal year 2024, if we will slow down here. Not slow down, wrong wording. We will lower, have a lower cost basis here, where we start in the fiscal year, 2024. That are the major impact for the H1 Q2, and as well as explanation on the efficiency profitability program. Sometimes I had a discussion, someone said to me, that if you're, or if you're going to the , don't nimble. Area, that is sometimes very, we have to go there. Yeah, and we like to go there, and we just wanted to drive the success of CANCOM, yeah, in the future, and therefore, I'd like to hand over to Tom.
Thank you, Rüdiger. My name is Thomas Stark. I'm happy to share some insights regarding our financial KPIs with you, and let's just get started. First of all, taking a look at the CapEx, I think it is easiest KPI that we are going to talk about today. We can see a continuous significant improvement compared with the prior year, even from the simple slide that you can see in front of you, there's a significant reduction of the CapEx, and that's just what we outlined to you as a forecast as of the end of last year. CapEx was about EUR 9.6 million in the first six months, compared with the EUR 16.9 million last year.
The numbers include already one month of KBC investments in CapEx, and we have 0.7. That means for CANCOM, as it was before, we see 3.2, 4.5, 4.4, which is pretty much in line and even slightly better than what we communicated as a goal for the year to come, CapEx ratio, ratio of 1.5. I was already asked, "What's the impact of KBC? Are you going to change or not?" Well, it's quite simple to answer. KBC does not run data centers, so they are focusing, or they have a higher proportion of services. That means CapEx ratio of KBC is about 1.1%, as of 2022.
For the full year, we can therefore simply underline, we will meet our goal of less than 1.5% of CapEx to sales ratio last 12 months. That's the easiest slide. There's one effect that, that is simply diluting some of the metrics that we are talking about. We have consolidated for the first time, KBC to the CANCOM Group, as of June 1st. That means that there are major impacts impacting some of the KPIs. I will give you just a simple example. We have a balance sheet total of EUR 1.23 billion as of end of May, and we have a balance sheet total as of EUR 1.53 billion as of end of June.
The EUR 300 million difference reflect or represent a 25% change of the balance sheet positions. They mainly correspond with just one month that is contributing to the P&L, and that is June. Therefore, we have some details that might have to be explained in more detail, starting with operating cash flow. Operating cash flow, you can see, first of all, in an overall view, an improvement from a -EUR 126 as of the first six months, 2022, compared to the - EUR 79.8 in the first six months of 2023. The first message is: improvement can be seen. However, there are impacts that are triggered by the first-time consolidation of KBC. In very brief words, the cash flow of KBC in the first month was negative with a - EUR 10 million.
That means compared with CANCOM, with CANCOM, we've improved from - EUR 126 to a - EUR 69, which is a good improvement that we see, however, not the size that we expected it. There are other positions that you might be wondering about, that are, they are affected just as all the positions in the cash flow statement. The effect is simply you have all the totals as of end of June, including KBC, and you are comparing with all of the data that have not including KBC. You can't change this.
However, if you take a look at the overall data and take a look at what the guidance for the full year 2023 might be, you will realize that we are starting with an improved level, however, still negative, and this is something we have to take into account. We have secondly, we are about to work with KBC on, well, their, their working capital requirements. We are trying to talk about to impose our market power on vendors, to change payment terms, to talk about what are the other measures and means, how we can affect the reduction of working capital. This is an ongoing process.
Both in combination, the improvement that we have seen, the way we want to go, and the measures that are still in place to be done until the end of the year, we are expecting a cash flow effect with a special effect that is triggered or should be triggered by the supply chain improvement of EUR 100 million as of end of the year. That's the positive effect that we are seeing until the end of the year. It is slightly lower than we have expected it before. However, it's still a very strong, significant inflow in the third and the fourth quarter. Let's take a look at PPA. Again, something that has more significant impact than, well, in relation with smaller acquisitions.
We have paid about EUR 109, EUR 156 million for the KBC, and we've paid back loans of EUR 37 million, which is in total about EUR 190 million. goodwill is about EUR 130 million, and we have intangibles that are written off that can be found on page 30 in the interim report. You can look them up easily. Customer base, mainly EUR 16 million in orders that we have taken over for EUR 14 million, and so on. The total of write-offs should be amortized over the next five years. We have shown you on the slide what the impact should be. However, please take into account that we are still talking about preliminary data.
All the data are subject, checked to audit, are subject to potential changes until the end of the year, and the preliminary should be addressed clearly. 2023, you see a seven-month impact. By the way, I was already asked why we are seeing a lower level in 2023 compared with the level of 2024. Clearly, the answer is we have just seven months of amortization in 2023, and we have 12 months in 2024. After a five-year period, everything should be written off, and the improvement of earnings per share and the amortization in total can be seen on the slide. The split of segments is quite simple. It's 90% international and 10% Germany.
In the next earnings call, and after having finished the preliminary of the PPA, we will show you the impacts allocated to each segment for your models. That said, I will hand over back to Rüdiger for some more updates.
Many thanks, Tom. Usually, we go from here to the forecast. This time we have brought you some updates on the topics a lot you have been asking for lately. Here, the update will be on the K-Businesscom acquisition. Let me say some words on the deal before I hand over to Jochen, because I think he can most explain the best of the growth plan and the activities we have in front of us in the combined business scale. That was and is the biggest acquisition CANCOM has done so far. It will change the accelerate and the development of both companies. Here, on the hybrid work businesses, on the security, on the AI, on the automation businesses. We have a much, much more stronger and better market position as both companies had than alone.
CANCOM and KBC are an excellent strategic fit in terms of portfolio, customer access, geographically, and as well on the cultural side. Both companies have a lot of in common, and this, and it's something we are going to profit in the coming months. We create with the acquisition, a strong player in one of the economically strongest regions across Europe. Let me give you some words on the deal, rationale, and structure, yeah, below, behind. As you all saw, we did a capital increase for the acquisition, we had a lot of questions why we did not pay cash. I'd like to give you some thoughts on that. At KBC, there was a management buyout a couple of years before. The management invested back then because they believed in the K-Businesscom case.
They also see the potential behind the combined business case and wanted to stay invested in CANCOM as well. We see it as a positive sign, and to add, if we weren't able to pay a major part of the purchase price in shares, it was a deal breaker. A lot of competitors tried that in the past, and we were successful. It put us in an excellent pool position, and we made the deal. We started a share buyback to take the dilution of the existing shareholders out. The communication to the market was not good. I can say it was bad, yeah, but we were shortly in front of the general meeting. We had the deal here together, and we as well here announced after the general meeting, the share buyback, you know, we wanted to do.
It made more sense for us to the deal on the condition of the capital increase than, than not to do the deal. We will create substantial value for our shareholders in the coming years. What we like to highlight, KBC has been approached by multiple other parties before, as I mentioned before, they have decided to join forces with CANCOM because of the excellent fit and the strategic vision behind the combined businesses. We think that this deal was in the best interest of our shareholders and KBC. With this opening remarks, I will hand over to Jochen, because he knows KBC inside out, as our new chief sales officer, he's the right person in order to talk about the deal.
Thank you, Rüdiger. Yeah, Rüdiger, as you mentioned, the two of the leading companies, IT companies in the region, combined their strengths. You said it before, the DACH region is one of the most relevant economic regions in Europe, and especially for us in the IT segment, and now we have really a strong regional presence. Especially important is not just the regional presence, we have a great foundation. We have together more than 20,000 customers. We have a huge customer base, which means that we have a very strong cross-selling potential in the market. That this potential will be addressed with our highly skilled colleagues, with more than 5,600 colleagues, and also the possibility to use our nearshoring capabilities.
CANCOM has a nearshoring location in Slovakia, in Košice, and KBC has a nearshoring location in Prague, in Czech Republic, but also in Romania. Also, this is an opportunity to leverage this capability. We also have similar partnerships, with both work together with the market leaders in the technology segment. We also increase our relevance at the partner side and optimize the synergies in this area. Of course, we will expand our growth activities in market segments like cyber defense, in the cyber security area with our Cyber Defense Center, to grab the increasing market growth in this area. Last but not least, we have our local business units in Austria and Germany, where we'll synergize, of course, the capabilities there on the sales side and service offering.
If you have a look at the right side of the slide, you can see that we will now really have a comprehensive end-to-end portfolio. We have a common core, a common core based on our professional services, managed services, X-as-a-Service capabilities, but we also have now additional portfolio elements. If you look at the digital workplace, for instance, this is an area that KBC did not address in the past. We have just done this on a project basis, but not strategically and not actively. This means this is an add-on portfolio, which will lead to additional growth in KBC countries. Above, you see topics like digital platforms or Cyber Defense centers that I mentioned already.
This is a segment where we see a market growth above the average. Of course, we are now, together with the capabilities of KBC, able to address this market, also more efficient and more proactively than we've done before. If you look at the next slide, this means together, we are really able to accelerate our growth activities. We have a closer look now at KBC. Then we look at the timeline. We can do both. We can work on the revenue side and on the cost side. On the revenue side, as mentioned before, we have a combined end-to-end portfolio, which will increase the share of wallet at the customer side. We can leverage the platform business also by addressing new markets. On the other hand, also use the capabilities coming from CANCOM in the e-commerce and marketplace segment.
We can use the better market and customer access, of course, by combining our activities and also the CANCOM X-as-a-Service service elements, elements that are already existing, and leverage this portfolio, like our high-value added services with our Cyber Defense Center. On the cost side, partly already mentioned, with the partner portfolio that we're having, of course, we have a stronger purchasing position now. We can synergize our marketing activities and our SG&A part. Mentioned before, the nearshoring potential in Košice is also something that we, as KBC, we will use. We see that approximately a potential of 100 employees can use the nearshore capabilities that we have in Košice. Of course, we can share also the capabilities in a 7/24 service area.
The local business units will, of course, will synergize, and therefore, we'll also see on the cost side, a savings potential. If you combine both, if you combine now the market and the cost activities, we have the plan to develop KBC to a sustainable EBITDA margin of 8% by 2025. You see, we can really together accelerate the growth activities on the revenue side and on the cost side. As mentioned already, we will be-- we are stronger together. Giving the next slide to Tom, this will be the share buyback, which is, which is also partly related to the KBC transaction.
Thank you, Jochen, for, for your assessment of the overall combination of the businesses. I think it's crystal clear to all of us in the room that we have good opportunities in this combined way of doing IT infrastructure services for our customers and managed services as well. This is a great opportunity, and it shows that we have not only the opportunity to grow over both sides and combine them, but that we are also represented deliberately in the board with members of two of, of the targets, KBC and of the classic CANCOM. A good thing to know, the share buyback program provides with some information, where are we at the moment? We started the, the program on third of July. The, the, the key data are there.
We are entitled to run them for about a year, until 30th of June 2024. Volume should be up to, and that's just a number, to be capable of doing whatever we want to in the framework of 10% of shares. That's the total number of shares that we can acquire in the given program. As of end of last week, and communicated at the beginning of this week, we have acquired about 480,000 shares for an average price of about EUR 25.7. Some, some comments on, on this, just referring to what Jochen Borek said. This has been, if we had a capital increase as a part of the SPA and the transactions with KBC.
First of all, we were pretty often asked: "Why are you diluting your shares, and why are you doing this, and have no need to actually do this?" First of all, I think we are already about to say that this is something that has been done just in order to get aligned with the sellers. You can't have a choice sometimes. There was one private equity that wanted to stay invested. One of the sellers is now the biggest K-Businesscom shareholder, wanted to stay entrepreneur or wanted to, well, have some have his money invested as well. Both end led to a construction that had a split of the already mentioned EUR 58 million in cash and about EUR 95 million in shares.
We had subsequently some overlay of events that Rüdiger already mentioned. We had to structure the deal, we had to do the first steps of integration. We had to wait for the annual general meetings approval for getting some more authorized capital, and all in total led to a delay for the share buyback program that we started in 2023. Let me take another perspective on this. We have bought the company, the KBC, and that's a perspective clearly for the shareholders of K-Businesscom, with 3.5 million of shares that were valued for EUR 32. We have now bought back 480,000 shares, an average price per share of EUR 25.7.
No doubt, this is something creating value or never mind how you might assess this, but we are doing something that is cheaper now than we then compared to what we have done by paying directly in cash. This is the program. We are going to follow the program, and we are communicating our run rate on a weekly basis on our website. Please feel free to follow the development. With that said, I will hand over to Rüdiger for the forecast, 2023.
Many, many thanks, Jochen. Many thanks, Tom, to give the explanation against the KBC and as well on the share buyback. I'd like to explain you, we forecast 2023. In view of the additional costs arising from the efficiency and profitability program and the M&A costs, and as well, the difficult economic environment in the K-Businesscom Group's core market, that's Germany, we as a team, adjusted the forecast for the K-Businesscom Group accordingly with the announcement we did last week. We expect on the revenue side that especially in our former expectation, we expected a stronger or deeper increase of the hybrid work infrastructure businesses in the second half of the year, and as well, that the business environment, especially for mid-sized customers, goes stronger in the north direction.
Yeah, we are the experience in Q2 talking with our sales engine, we say, that we have to be, yeah, to reduce our revenue forecast. Maybe you can tell there's a kind of prudence within, yeah, we expect that we have, a lower revenue, yeah, than we forecasted in May. Due to our gross profit, you can see that there is a stable, more or less stable environment on the gross profit due to the high demand on services, Professional Services support, and as well, Managed Services, we expect that will be stay stable. In total, will lead, yeah, to an EBITDA, which we reduced by roughly EUR 15 million. Here, you saw the one-off impact of EUR 10 million we explained in H1. We have reduced the revenue expectation by roughly EUR 100 million, which we expect mostly comes from the infrastructure side.
If you add the EUR 2 million-EUR 3 million on EBITDA on it, as well, you know, we expect EUR 1 million-EUR 2 million additional on cost of the integration of KBC. You have to rename all KBC Group members we call K-Businesscom in the future. We have to shorten the fiscal year till the year end. There may be some contingency needed to support them, and therefore, we said, "Okay, we will drive down the EBITDA and as well, the EBITDA expectation." That is more or less the forecast for 2023, and I'd like to thank you all to joining part of the meeting, the call. Now open the questions and hand over to Florian.
Thank you, Rüdiger. Operator, please open the floor for questions.