Hello, ladies and gentlemen, and welcome to the DATAGROUP SE Investors and Analyst Conference Call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Mr. Max Schaber.
Hello, and hopefully a healthy afternoon for all of you. We will talk about the Q1 figures and the development of the company. I will start with some figures. We could grow our revenues from EUR 69.4 million in Q1 2018 up to EUR 82.8 million in Q1 2019. Our EBITDA is coming up from EUR 9.1 million to EUR 9.5 million, which is a 4.4 increase. And if we see the one-off costs we have had in Q1, we have some costs in restructuring of the restart of DATAGROUP Ulm, IT-Informatik, which we bought out of a bankruptcy.
We have also high startup costs for large-scale projects and some other one-off costs, like consultancy fees for the ITI deal, and some other one-off costs. If we count that together, we would have reached an EBITDA margin of 14.6%, which is much better than it was the year before. And we are quite well on track to have better margins in the next few quarters and in the next time. Because the problem is, we bought this ITI, which brings around 20 million EUR revenues a year, with nearly no EBIT and EBITDA effect.
Even the EBITDA effect will be around null this year, counted together, and the EBIT effect might be a bit negative. But this is the cost of a fast-growing business based on M&A. And if we look at the cost of this acquisition, it is a very, very cheap acquisition we did with IT-Informatik. EPS, if we calculate all these one-off effects, would have been grown up to 39 cents per share. With these one-off costs, we went down from 27- 17. This is surely based also on these one-off effects. In the balance sheet, we have had a very big development compared with the Q1 2018-2019 figures.
We grew up the goodwill from EUR 46 million to EUR 64 million, which is based on the UBL acquisition last year we did, which was a Frankfurt company. To remember, around EUR 20 million revenues and a quite good EBIT margin. Also, the long-term financial liabilities went up based on a loan, EUR 69 million Schuldscheindarlehen, and which is seen in liabilities to financial institutions. We have also very fast-grown liabilities from finance leasing, which is based on the IFRS 16 influence. We have some more pension provisions.
This is based on change in interest rates and also the change in the age of the pensioners. Short-term liabilities went up also a bit, which is based on also a bit on the IFRS 15, 16 changes and also from liabilities from finance lease. Cash and cash equivalents was a bit lower because we bought the UBL, we bought also the ITI, and we have had to paid back around EUR 9 million share of an older promissory loan, and we also had to invest a lot of money in the new big deals like NRW.
Accounts receivable also went up. This came with the new acquisitions, the M&A deals. The management of accounts receivable was not so good in the companies we bought. So we are working on this to increase these figures to make it better and to make a better liquidity management in the new acquired companies. Net financial debt surely went up based on this promissory loan and also with the growing of the balance sheet, the equity ratio went down. Return on equity went also down. This is not as well.
We are not sufficient with this percentage, but it is very much influenced by these cost effects I told you before. We are very hopeful to make these balance sheet relations even better. We have an over the year expectation in return on equity, which is a bit better than 10. But it depends very much on the operational business we can account this year. Beyond the figures, we have a very strong order intake with CORBOX. We have many new customers.
We have had, let me say nine new CORBOX customers in Q1, and we have also a very good mix of these new customers, which is very important for us to have no sector risks and no bulk risks. So, we are very satisfied with our sales people, our sales process, and also many customers renewed their contracts, and also we could make a good upselling within the existing customer base, existing customer base. Also we have, like the years before, nearly no cluster risk. Largest customer is a bit below 4% of gross profit of the company, in total.
We see at the moment surely some influences by the COVID-19 thing, but it is not to see that it will affect us very hard. The reason for that is that we have long-term service contracts with a very high level of recurring revenues. This is a very strong shield against corona-related downturn. We have many of our services, mostly all of our services are not based on a personal contact. Let me say, probably 20%- 30% of our total revenues are produced with a personal individual contact, and many of them can be replaced by a remote contact.
For example, the SAP consultant has not to travel to the customer, but he can make it via video conferences and via telephone and via computational communication, so that the risk of
Uh, infection.
The risk of infection is very low. We have one part which might be affected for the situation that one of our offices will be shut down, then we could have an effect on our service desk modules. What we did in the last few weeks, we checked all the network licenses, all network lines, to have a secure scenario to bring the services from home office. We expect that we could do around 50% of our whole capacity out of home working places.
But you should see that DATAGROUP is a very decentralized structured company, and this decentralizing structure, or decentralized structure, helps us, gives us the hope that we don't have to close down the whole company, in case of an infected employee. But we, with our 40 branches, branch offices in Germany, we might be infected in 10% or 20% of our whole population. But that we can cover up to 50%, so we expect at the moment, we expect not more than around 10% of our total revenues to be on risk. But it can come in a complete other way, but nobody knows that.
We have a complete plan for a disaster recovery plan for all of these influences, but nobody can know that exactly how it develops over the next few weeks and months. Probably we can talk about that in the Q&A after my little speech. To our latest acquisitions, we have closed Diebold Nixdorf Portavis, which was closed on second of March, and will be consolidated from March up to September. So we will have seven months of Portavis revenues in our total PL. We have acquired 68% of the shares of Diebold Nixdorf Portavis. 32% will remain on the minority shareholders. And this is Hamburger Sparkasse and Sparkasse Bremen.
These both have a call and a put option, and we also have a call option for these shares. And the plan at the moment is to call these shares within the next five to seven months, so that we can do it in the actual financial year, a complete acquisition of Portavis. With Portavis, we will expand the existing sector know-how in the financial IT services, and we also will build up our customer relationships and can establish ourselves in this high volume market. It is the biggest market for IT services in Germany. Two figures, our financial institutions make around 24% of the whole IT services market in Germany. Automotive makes only 16%.
That you can see how big the financial services sector is in the German IT market. To remember, we are not a project-driven company like GFT, but we are driven by long-lasting service contracts. By the way, Hamburger Sparkasse has prolonged, has made a new service contract before closing the transaction, which ends in eight years. This is a situation, a good situation we have never had before, that we could count an eight-year contract, which is worth more than EUR 156 million over the next eight years with the Sparkasse Hamburg. It surely has stepped down over the years, but we are very fine with the idea to grow new customers and to get a new customer base and to cover that step down in revenues.
But we also hope that our main business with Sparkasse Hamburg, Sparkasse Bremen, and the other financial institutions that we can hold this business or even grow it with these institutions. Portavis has around 200 employees and we expect to generate revenues of some EUR 66 million in the current fiscal year. Out of these EUR 66 million, we will consolidate around EUR 35 million in DATAGROUP's fiscal year. And Portavis has an actual EBIT margin of around 4% and we will try to scale it up to more than 10% over the next years. And by the way, Portavis has also an EBITDA margin which is more than 15% at the moment.
So we have an EBITDA around 12 at the moment, 12 million a year at the moment. The big difference is also a lot of investment in computational hardware, and we think we can bring that a bit down, based on effects, combining DATAGROUP-based services with Portavis services. Yeah, we expand with this Portavis acquisition, our banking field of competence. We will create an efficient IT service provider and, and we'll, we are talking to, to a few additional future acquisitions in this field. So you can expect that we grow this sector within the DATAGROUP revenue stream. And to manage that all perfectly under a, under a very experienced, banking, banking services experienced management, we could hire Dr.
Dr. Jan Sczepanski, as a sector, as a divisional director for the banking and insurance IT service part in DATAGROUP. He is a management and banking expert with several years of experience as a strategy and management consultant for European financial services industry. Most recently, he was director and divisional head of organization and IT at Bankhaus Lampe. He graduated in Information Management and Business Innovation at the University of St. Gallen, and he makes his base studies in business administration at the Bergakademie Freiberg. Yeah, so far for the financial sector, financial IT services sector, also, we will give you a little update on the acquisition of DATAGROUP Ulm, which was acquired at the first of August, nineteen nineteen.
And we are very, very proud of this acquisition. This is a real worth adding acquisition DATAGROUP made in last year. We acquired assets and employees, as well as individual subsidiaries of IT-Informatik. IT-Informatik is a specialist for SAP consulting, maintenance, and software development, with many years of experience, was founded in 1987. Together with the subsidiaries, we took over around 300 employees, around 120. This is a little typo in the presentation. 120 of them are SAP experts that strengthen our SAP competence. We have had a very low purchase price.
We paid around EUR 4 million for all of these, for the Barcelona branch, the Berlin company called Mercoline , and the assets in Ulm, and we have achieved the breakeven in February 2020. This breakeven, to remember, is after a EUR 6 million lost in the last financial year, fiscal year of DATAGROUP Ulm. They lost EUR 6 million, and we made it within around six months to make the company profitable. This is an example over the abilities of DATAGROUP to develop companies in a very short time to a positive turnaround. And we are sure that we can develop IT-Informatik new DATAGROUP Ulm GmbH within the next seven months to a total slightly black result.
That means we don't lose money in the whole year, but we also don't earn money. So you should count, if you calculate the percentage figures in terms of EBIT and EBITDA, please see that this more than 20 million we can add to the P&L, will bring no EBIT and EBITDA margin this year, but next year it will help us very good. Okay, we also gave a release, a guidance release at the annual shareholders meeting. We released our guidance with EUR 375 million in sales, and we wanna reach more than EUR 55 million in terms of EBITDA. And these both guidance figures we are quite sure to achieve that. Let's see what the time is bringing up.
I hope that COVID will not bring us down, but as I explained before, we are quite good prepared for all these things. For the reason that we are not very project-related, less than 10% of our revenues are project-oriented, we are not so much, hopefully, infected by the virus. Thanks for your listening, and now we can go to the Q&A.
Ladies and gentlemen, if you would like to ask a question, please press nine and star key on your telephone keypad. If you would like to withdraw your question, press nine and star key again. And we have first question is coming from Mr. Knut Woller from Baader Bank. Mr. Woller, your line is open.
Yeah. Hello, thanks for taking my questions. I have actually a couple of them. The first one on the one-offs that you cited. What are the one-offs you are expecting for the second quarter? I think we had roughly EUR 2.7 million in Q1, so what are the one-offs we should expect for the second quarter? Then on, I know that you focus a lot on EBITDA margins, but, looking further down the P&L, consensus is still expecting an EBIT margin of 8%, which would be up thirty basis points year over year. You were at 3.3% in Q1 2020. You don't expect IT-Informatik to generate positive tailwind in terms of margins. Portavis is dilutive in terms of margins.
So what is an EBIT margin we should pencil in our models for 2019, 2020? And also, looking at the dilutive margin impact of Portavis, how confident are you that you can achieve your greater than 9% EBIT margin target in the year 2020- 2021? That would be the first set of my questions, and then I have a couple of follow-ups.
Okay, let me start with the last, Knut. As you know, we don't guide EBIT margins. The reason is on the hand. But what I can say, in the same way we have one-offs negative in a negative part, we also have one-offs, will have one-offs in a positive way. So we think that the positive effects of our acquisitions will be bigger as the negative effects we show. I know that you have a very strong way to see these effects, but fairly, if you always see the positive effects, which are not operative, you should see also the negative effects as non-operative.
And if we count that together, we will have a more positive effect on the EBIT of the, also on the EBIT margin, that you can see at the end of the year. We don't give you any numbers, any figures for the Q2 and Q3, because in all these very value-accretive business we are doing. The new onboarding of Portavis and onboarding of IT-Informatik and all these companies, which are very value-accretive. For example, you can see that we paid nearly nothing for Portavis and got a very big amount of money, EUR 45 million in cash. You can see that one of our things we can do, and we do very well, is with all these acquisitions....
The first question was?
One of them.
One of them.
Yeah, I answered it. Yeah. So, yeah, if you count that all together, we are not so far behind. At the moment, we continue to be ambitious with the 9%, around 9% EBIT margin, in the mid-term ambition.
Okay, and so on, on consensus in terms of EBIT margin, do you think that consensus estimates have to come down this year?
No. No.
So 8% is an achievable EBIT margin despite the high D&A of Portavis, despite the dilutive impact in terms of EBIT margins, so that-
Yes, as I explained to you, in the moment, we don't
If I understand it correctly, there will be tailwind and other operating income that will offset that.
Yes.
-effect.
It's also a negative tailwind from these acquisitions. For example, the lower EBIT margin of Portavis and the null EBIT margin or like slightly minus EBIT margin of IT-Informatik. But there are also positive tailwinds, for example, via Badwill and other effects coming with these acquisitions. And from my point of view, we want to count that together and want not be hit for the bad effects and ignored by the good effects.
Okay, understood. Still, I would argue that the cash flow is not following the margin, but I leave it there.
Yes-
Then on the-
Cash flow is following, Claude. The cash flow is 45 million EUR positive. Yeah, it is a cash flow. It is not an operating cash flow, but how to discuss about that? We have the money in the bank, on our cash.
That's right, but you will take the pension-
Yeah
- liabilities as well, so-
Yeah, but pension liabilities, we have to pay in years and years and years, and not now. Cash flow is an actual figure, not a figure in 10 years.
Yeah, yeah. Okay, we can have different views on that.
Yeah, you can see it in this way. You cannot always count down. You cannot always count down the bad effects and ignore the good effects.
Well, I think financial debt is clearly, pensions are clearly part of financial debt, so I have a different view on that. I accept that you have your view on it. So we don't agree on it-
Yeah.
Mr. Schaber.
Okay.
That's the point.
Good.
On the equity ratio and when you want to do further M&A, the equity ratio will likely come down on the back of the acquisition of Portavis.
Mm-hmm.
When do you think, or to which, down to which equity ratio you're feeling fine in the current environment, where there could be a substantial negative impact from COVID on the overall economy? So do you need to raise fresh capital to do further M&A? And the last question on COVID, you cited that your business is pretty reliable and stable, which I would agree on. However, how, how high would you see the risk that customers of yours, renegotiate contracts at lower margins? That's the last two questions.
Last question, I think, we cannot give any guidance about this. Depends, truly, it depends if a big customer asks us, we will always talk with them, sure. But at the end of the day, there is a contract and we should be not very affected by renegotiation. We can look back in the year 2008, at that time, Bosch always asked us to renegotiate contracts. We didn't do that. And
Okay, and on the equity ratio?
Yeah. Equity ratio, we've seen... At the moment, we see no need for capital raising, because we have now to make the acquisitions, in a way, to
Digest.
To digest these, and we see, let me see, the 32% of Portavis could be the next step, and some smaller other companies. But as you see, we are able to buy at very low prices, and now we will look very, very exact on the balance sheet of potential targets, that our total balance sheet is not blown up so fast and so. And we also are dealing with some possibilities to phase out these pension liabilities. And that together will bring us to a situation that we don't need a capital increase for the next, let me say, minimum 12-18 months. We don't see that.
And we have enough cash to finance these things.
All right. Thank you.
All right. Good.
Thank you. And the next one to ask a question is Mr. Andreas Wolf. Please go ahead.
Hi, it's Andreas Wolf of Baader Helvea Research.
Hi.
I do also have a couple of questions. The first one would be, obviously, on your business in the current environment. So as far as I know, your contract with the customers do also include certain KPIs that your service has to fulfill. So is there anything that we should bear in mind, let's say, in a more severe situation, would there be any payments that DATAGROUP would have to pay to their customers or contract, some contract penalties that we should bear in mind? You talked a little bit about the potential revenue impact in a bad case, in inverted commas, but apart from the revenue impact, could there also be an impact, so in terms of penalties? So that's my first question.
Yeah.
Do you want to answer it first, then-
Yeah, yeah, I can answer it directly. We do not expect any growing penalties. We have a very high quality in our services, and sure, there are penalties. There are always penalties in our business, but it grows not up to a really critical number. I even cannot say how much penalties we have had to pay last year, because it was not very big. It was below the EUR 100,000 mark size.
Yeah, and we expect that some effects on project revenues will come over the year, but we expect that this is not very big, and we also can reduce freelancing power and freelancer costs to bring that down. So I think the effects will not be as big over the next few months. So let me say for this fiscal year.
Okay. And then with regard to ramp-up costs for new projects-
Yeah.
So what's your expectation for how long will these impact your bottom line, and what we should expect for the next couple of quarters? That's my second question. Then a question related to that is also the working capital-related question. So what is your current view on when the working capital development will normalize with the subsequent cash flow effects? Thank you.
Okay. First of all, the effects of ramping up, we expect that ramping up effects will be the next two, three quarters. But in our guidance we gave you, these ramping effects are included, and we expect a lot of positive effects from the acquisitions so that we come out better, even in terms of EBIT, and even in terms of EPS. So we expect a quite good full year figure. We cannot give you exact figures over the next few quarters, but in total, we expect a better year, even in terms of EPS, as we had it last year.
Okay, thank you. And the last one is on Portavis. So obviously, you have a call option on the remaining part of the business. Is it right to assume that the purchase price would be similar to what you paid for the initial share in the company?
Yes.
Okay.
There is an agreement in the call and put options, and the price is the same we paid to Diebold Nixdorf.
Okay, thank you.
Thanks.
Ladies and gentlemen, in order to ask a question, please press nine and star key on your telephone keypad. Yes, and we have one more question coming from Mr. Lukas Frank. Please go ahead.
Yes. Hi, good afternoon, Mr. Schaber. Short follow-up question on the extraordinary effects in this year. Last week, on the general annual meeting, we talked about possible badwill effects from Portavis. Now a week later, do you have a better visibility on this right now?
No. There was no purchase price amortization process since the annual shareholders meeting and now. We are working on this and we can give some information as I told you at the shareholders meeting when we publish these figures. Yeah.
So we should assume.
It will be a very positive effect. You can be sure.
Okay, and we can assume for the information with the Q2 figures?
No, we don't. We are not sure that we will publish that, but it will be published later at the yearly figures.
Okay. Great, thanks.
Yeah.
We have one more question coming from Mr. Knut Woller. Your line is open.
Yeah, thank you. And just to put all these effects aligned, Mr. Schaber, the point is, and the bad will is a non-cash effect, if I see it right, and then you have the cash effects, like restructuring. What restructuring should we see, and what will the cash EPS be, in terms of, you said it will be above last year's level on the back of the bad will that you will get from Portavis. What will be the real cash impact here?
Which cash effect you mean? The total cash-
I mean, the bad will is basically a non-cash event. It's M&A, you pay the purchase price, you probably will do restructuring, and that's implying the cash out for restructuring charges, but the bad will is basically having no cash effect. So what is the net effect if I take the non-cash items out and the cash items in terms of restructuring and so on, in terms of EPS? Can you quantify that?
We will not give that out at the moment.
Okay. Thank you.
Mr. Schaber, there are no more que-
Yes.
Oh, actually, we have one more question coming from Mr. Andreas Wolf. Please go ahead.
Hi, a quick follow-up, if I may. So, on your last call, Mr. Schaber, you alluded to your, to your plans to change, let's say, customer investment into IT. So with, with NRW, you, obviously pre-financed a lot yourself, with, with, Sparkasse Hamburg, you have another big contract now. Could you already, find terms and conditions that would allow you to, to let the customer finance the, hardware infrastructure, and, and basically take it on their balance sheet? Thank you.
Yeah, thank you for the question. Yes, we do. But this will affect on new investments. The old investments are not affected by, are not influenced by that. But what we are negotiating at the moment is a sale and leaseback contract for all these hardware investments we made. We talk about between EUR 15 million and EUR 20 million we are able to refinance in this way. And so it costs a bit more interest, but the cash effect is extremely positive out of this.
Okay, so that's only related to Sparkasse Hamburg or also to NRW?
Oh, mainly to the old assets, NRW-
Okay.
And yeah. The new assets in Hamburger Sparkasse, we have not had time to negotiate, to think about that. But this could be an appropriate way if we find that we need cash, and if we find that we should increase our positive cash flow, so we can do it. But at the moment, there is no need to work on a totally positive cash flow because we don't know what to do with the many millions. At the moment, we have. How many, Mrs. Schröder, what did we have on bank accounts? More than EUR 50 million. And we are negotiating with the banks to pay no negative interest rates.
So it would be crazy to change all the financing structure to a more positive cash flow, to have the money and what to do with the money? It's-
Yeah, and then with regard to... Sorry, I guess it was Portavis, so the EBITDA margin is quite high, similar to your levels. EBIT is lower.
Yeah.
How will it be possible for you to, let's say, create synergies with your existing business in the,
Yeah
-infrastructure related space to lift the margin of the business, so that might obviously be
That's a very good question. Thank you for that. Let me say, the people in Diebold Nixdorf decided a few years before to do no more this outsourcing business and service business in Europe, in the banking sector. And therefore, it was forbidden to hire new employees for Portavis, and they had to do their business, and they had contracts they had to fulfill, and therefore, they had to hire freelancers with high costs, and they could not employ new people. And this is the first we changed after closing the deal. So we expect around 50 freelancers less, and we will, we will-
Yeah, substitute.
We will substitute these freelancers to employees, and this will bring the costs down. Let me say a few million will bring that down, yeah. For example, a freelancer costs around 150,000 EUR or more a year, and an employee costs around 80-90. So if we can substitute over the time, 50 freelancers, you can calculate what that brings. This will bring between our first year, let me say, 1 or 2 million in the year, after three million of money. And that is one thing. Another thing is that we have had a lot of services, Portavis buy bought from people in Nixdorf.
These services, we have to transfer into services from DATAGROUP, and therefore, we expect also a cost decrease. And so it is a bundle of things we wanna do, and we are quite sure that we can bring down the costs, the operating costs, and bring up the margin.
Okay, and the delta between EBITDA and EBIT of roughly 10 percentage points is, that's my interpretation, related to some type of hardware investments that you can also replace?
Yes. Mainly, mainly, mainly, and that I explained shortly before. We expect some cost cutting in this area because we have some hardware investments we can use also from Portavis' side, and we also can strengthen some amortization, which is calculated by three years by Portavis, and we calculate it by four years, and stuff like that. It's a bundle of actions.
Okay, thank you.
Mr. Schaber, there are no questions in the queue.
Okay. So thank you for all of you, and we can promise that we work very hard in the next months, but there are tough times at the moment. You know, you see that all, you see it in our share price, you see it in the share price of the whole industry, and we will hope that it's getting better, but I think it needs a few quarters to come back to normality. Thanks a lot, and we will meet you at the next conferences or the next call. Thank you.