Q3 20/21

Aug 24, 2021

Welcome to the Data Purpose E Conference Call on the Figures for the Q3 of the Financial Year 2020, 2021. At the moment, all participants are on mute. The floor will be open for questions after the presentation. The presentation is also available for download in the Investor Relations section on Datagroup's website. I would now like to welcome Mr. Max Schauer, CEO of Datagroup. Hello and good morning. My name is Max Schaber. I'm the actual CEO of Datagroup And I'm very proud to present a very positive Q3. And if you are fine with it, let's go through the Figures. We have switched into the turbo mode. We have outstanding Q3 results And we can confirm our updated guidance. First of all, we could grow the revenue from €264,000,000 last year to SEK330,800,000 this year. The growth was based On two facts, first is we have had a high organic growth Of 9.6 percent, which is partly powered by Some hardware and trading revenues, but also a very good growth In services revenues. 2nd is that we have had Consolidated first the first time, our new acquisitions, Urano and DNA, They are consolidated from the 1st May this year, so we have one 2 months of revenues from these 2 companies in the actual 9 months figures. And we have also a very, very substantial increase in EBITDA. This is based on different reasons. Main reason is, one of the main reason is that we are in a very good mood In restructuring our business in the banking sector, you remember last year figures It has been very bad influence from the situation in the datagroup FIS In Dusseldorf, we talked a lot about this, so I only want to say that the restructuring process Is on a very, very good way and all the figures we show today Don't have only EUR 2,000,000 effect from The restructuring reserves, we build it last year in our balance sheet, So that we have another potential of another few millions for the future If something happens with our restructuring of the company, but we are on a very, very good way to do that. The team makes a great job and also customers are very satisfied at the moment. They see that it is changing consequently that we manage the business Very good in a high quality and so it gives us a very good feeling for the future Of FIS to go ahead with the restructuring, but we are not at the end of the way, Let me say, but we have to go another few miles on this way, But we are very fine to reach our goals, which are At the end of next year, we want to be positive in this company again. So there is Also a big potential for future growth, mainly in EBITDA and EBIT. If we can reach the positive margins, EBITDA and EBIT, We have also the possibility to develop it in a company wide EBIT margin, so this will bring us more than double effect in our total EBIT and EBITDA margins. Also, earnings per share went up 700%. This is based that we have a very positive Tax effect and also based on the surely based on the better EBIT And better interest in total, So that we have a very, very positive development here and this We'll be will have effect also next year, so We don't think that we have here only a peak, but it is a substantial growth, which we hope to bring also next year. We have a very, very good Development in our market units, these all exceed expectations. Based on an excellent half year results, we could continue this in Q3. We have we showed The start up of new customer systems and significant upselling into existing customers And all this led to a strong organic growth. We got 17 new customers. We could renew 40 contracts Which is a fine rate and this is also very important for our business that we can renew The existing contracts and we could expand 24 contracts significantly. This is a movement, a development which is very interesting. I promised years ago That if we get a new customer, a new Corvox customer, we also We'll develop it over time and this is really showed by these 24 expanded contracts. Most of our customers are very Fine with us. They feel our quality, they trust in Data Group and they give us new business And this is one reason for the accelerated organic growth And surely the first consultation of DNA and Organo from the 1st May And these both companies are growing very fast. Urado has Incredible good figures, so that we are fine with this acquisition And it will make us very much fun from now into the Near future, we hope that we can develop it together with Datagroup in the same speed we did it They did the last 12 minutes. Based on all of these facts, we confirm our guidance. We guide more than SEK440,000,000 of revenues And an EBITDA of more than SEK61 1,000,000. At the moment, we don't see An upgrade of the guidance, but we are fine. We are very, very Fine with these figures and we think we can beat it a bit. Now I will talk about some selected profit and loss statement figures. First of all, you see the revenue. I said enough about the revenue growth. We have had quite good development Also in changes in capitalized contract costs, this is Also a very positive sign that we don't have to capitalize these contract costs. This is based on lower big projects to start the new customer contracts. Total revenues count up to EUR 331,000,000 which is a change of 22.4 percent and this is based surely On a strong growth of material expenses, this is based truly On projects like Imfzentren vaccination centers in Germany, Databroup Stuttgart and Databroup Urano has significant part of This effect bigger hardware revenues and we but we think It's going a bit down in the future, but not so significantly That we will see a reduction of revenues in future. We will grow also in the future, probably not in this tough way we did in the last quarter. Gross profit went up 18.6. You see if you compare these both figures, revenues went up 22.4 Gross profit only 18.6 It's also a big growth in this figure. If you see that we have had A quite significant part of hardware revenues and normally hardware revenues are not as profitable as Service revenues and we could nearly hold the growth rate in these both figures. EBITDA went up 84.1%, which is surely based on all these So went up nearly 500% and it's very fine that we could Go back to an EBIT margin to 6.5 From 1.4 last year and this much better EBIT margin, We want to grow over the next years as I said before. What do we do to grow the EBIT margin? We work very hard on our cost base. We also, For example, we work very hard on our rented space. We want to bring that down. Projects have started to reconfigure our branch offices And we stop, we finish all the rental contracts we can do Because we think we need only 50% to 60% of the space We have had before COVID. This is based on a new concept by shared workplaces And this is based also on the idea that our employees are in future Not more than 50% in office. So we think with a little buffer we can reduce In total, over the next years, down 40% with our rental space And this will bring down our rental costs minimum 30% On the base of today, if we grow, surely we don't have a or we have a lower Reduction in total, but in percentage, we will go down very significant In rental costs. 2nd is that we work very hard On our depreciation costs, because We talked about that in many of the further calls we have had. We are working very hard on our CapEx CapEx level went down significantly And this will also bring our depreciation rates down very fast over the next years, so that we will see results of these projects From the next year's balance sheet and we see a bit this year also in In terms of CapEx and cash flow statements, but we will See, it's very, very strong in the next years in the depreciation And this will bring our EBIT margin up. And we think We can go in direction of the 9% we Earnings before tax went up also very fast, More than 1,000 percent, but this is based truly on special effects Some no, this is based mainly on operating profit And the net income, which went up very high is based a bit on tax effects. So, we went up with the earnings per share from Null.24 to 1.93 which is an increase of 700%. Unfortunately, we will see that not in the future in this size, but we will grow our EPS over the time Significantly, so I cannot give you an expectation for this year. At the moment, I do not want to, But you can be sure that we will grow it significantly over this 1.93. Okay. The balance sheet has Growing in total 11.8%, which is based mainly on the acquisitions Of Urano and D and A, this is based on Goodwill, sure, and some non covered liabilities, which changed and but what is very nice, We could hold the liabilities against banks around SEK 78,000,000 And we could lower the leasing liabilities a bit And we could stabilize the pension provisions, They grew only now 0.6%. This is based on the development Of the long term interest rates, which went up a bit and so the pension provisions Grew only 0.6%. Normally, this growth is bigger And but it is we cannot steer it exactly. What we are doing in the field of Pension provisions is we are currently thinking About bringing it out of the balance sheet, but there are so many parameters to do that And you have to think very, very exact about this part Because it's so many parameters like interest rates, like long interest interest rates And so we are not yet able to give you some information how it will develop In the near future, what is very fine, these both Acquisitions, Urano and D and A brought only a very, very little part of Pension provisions with, so that we can expect that On full year figures, we will nearly stay around that except The interest rates change totally. Okay. Total Short term, the current liabilities went up a bit. This is based On an IFRS, a daunting reason If liabilities came from long term liabilities, which is more than 1 year Into a short term for Bintlichkeit, We grew up a bit in this field. Good. Cash and cash equivalents is a very interesting figure. We only went down €15,000,000 we have had investments of SEK 35,000,000 in acquisitions, so only the cash went down only SEK 16,000,000. So you can see how strong the positive cash flow is in the company at the moment. We also brought Down our liabilities, trade payables down around 12% and the total net debt Surely went up 30%, but not in this size we spent Some money for acquisitions. Equity ratio went up. This growth is Driven nearly total from positive cash flow and organic growth And we have I said it before, a growth in the total Balance sheet amount of nearly 12%. Also, the equity Profitability went up very fast, you can see, but this is truly based on all the other figures I explained. Cash flow has a very good change based on very good net income, A bit more received interest And a bit a very bit lower interest paid. The Depreciation went a bit up, but in terms of percentage It's nearly the same like last year. The effects in depreciation, I explained To you before, these effects, we will see in the next year Balance sheet in percentage. The Pension provisions went up in these quarters and we have had some Very little gains and losses of non current assets. The next figure increase and decrease of inventories Yes. Okay. I can give you the answer probably afterwards in the question area. Yeah. The Income out of business transaction, surely that is this is From our M and A business based and so we have all in total A cash flow from operating activities, which is much better than the period before. It went up from SEK 13,600,000 to SEK 40,700,000 which is 199%. Yeah. Investing activities surely showed A very big investment. This cash outflow for acquisition We have had from SEK 20,800,000 Positive, which was based on a big bad From the purchase of Port Harvies last year and went to a Negative amount of €39,000,000 which is not supported by any bad level, You have to remember. So, we paid this SEK 39,000,000 in total for the investment investing activities. But What went very much down, I explained to you before, is the cash outflow for investment in property, Plant and equipment from -11.6 to -3.1000000. We cannot hold this very, very positive figure for the last quarter of this year, But we accept in total a lower than SEK 10,000,000 Cash outflow in this segment, which is much better as we promised before. We promised around SEK 18,000,000 for this year and so we are much better than our own expectations. Now, We also have a very good development. Surely, we didn't pay dividend, so we have no The extension here and we have in total The figure of net cash used in financing activities is nearly the same. It went a bit down 2 0.9 percent and we paid back more than CHF 12,000,000 In a promissory note, so Databrook is Able without any capital increases to pay back their Debt and to pay out for M and A activities, which shows us In total, a very, very good balance sheet. Let me say something to our Equity ratio, we will grow that equity ratio In the near future, but we do not any capital increase except we have a very big M and A transaction on the table, but this we do not see at the moment. So you can be quite fine with Here in the next in Molagten, in the next month, we won't Give out any new shares and so there will be no capital increase and no dilution of of the shares in the next period next few months. We don't see any big Acquisition at the moment. So far to the figures, I hope I could explain it clear and I'm fine with questions afterwards. Okay. If you have any questions. Momentum, I'm not ready. I only want to drink a bit water. So let's talk about the business itself. We have a very good order intake in the segment AI and automation and mobilization of Business processes, these you remember we have an own segment in data group Which is working with RPA projects and mobilization projects, And this business is running very, very good. We got additional contracts For the development of innovative AI based services, We have recognition of builds for bonus programs with a smartphone app. We have recognition of 100 text on forms. We also have a recognition project of Custom documents to the automation of Brexit procedures, All these projects will help our customers to increase their efficiency in Business Processes. One of our very innovative customers, Baader Bank is very active with Almato, Our digitalization company, they say the cooperation with the team has been outstanding, High expectations on the solutions and targets have been fully met. This is a very nice statement of a customer And we did very, very interesting AI and RPA projects. You can see here, I don't want to explain all of that, but you can read it in And if you have questions to these projects, we will be fine to answer it. Yeah. We have some information about the share. Data group share is doing Not bad, but we hope We can go in the future again on top of development of our peer group. We think the share price is a A bit low for the good figures we have at the moment, but the market will show how it sees our status And we are happy to talk to all of you about the Chance about the future of Databroup and we are very, very bullish, we are Very positive in the moment that we can hold that we can develop very good in the future. We have some good ratings. You See how you see us at 88 and the Backlight, Baader Helvea changes the position and the others are more than between 70, 7580. So, we are quite fine with the ratings Of our analysts and we see I think we see a good growth in the future. The consensus estimate Of our analysts show for this year, EUR444,000,000 I could not comment this Surely, but we want to show this. The EBITDA is seen as an average of 61.5 And also the EBIT margin is seen at 6.3. This Sounds a bit low. I hope we can go over these consensus. We see it well, I do not want to promise anything, but we see it higher than 6.3 And these figures for 2021 to 2022 are all without any Further acquisition and further M and A transaction, and we showed the market that we always Do an M and A transaction, it is not realistic to see no M and A transaction in a whole year. So what we are working very hard on is Our commitment to the ESG sector, we have the Publication of the ESG report, you see it, you know it And we are working hard on this segment, Because it is part of our DNA, of the Data Group DNA. Data Group was 10 years ago 15 years ago very good on the way but we didn't talk about it And now the thing is we have to talk about it, we have to show what we are doing in this segment, We have to talk to the market what we have done and what we will do in the future. So we are very fine. We believe that this is a very important part Of the life of a company and as I said before, it is part of our DNA. Yeah. We have had some activities from the management In buy and sell shares mostly the management bought shares even myself In November last year, I bought shares for the amount of 9.5 1,000,000 and also Mr. Barezel, which is a Board member, And as you can see, this was for both of us And for all of the management who bought shares was a very, very Positive, very good business, very good movement and I can promise, I don't sell shares at the moment, because I believe in a good development of our share price also in future. The shareholder structure at the moment is My family office owns at the moment 53.9, Executives are around 4.1%, free float is around 42%. To the relative high rate of my family office, let me say some sentences. What we are planning to do with the family is we want to stay into data group. We but it is surely possible that we reduce Our percentage on two ways probably if there is a For the shares, we also could sell some shares Going on with a possible but not actual realistic Capital increase. So the 53.9 percentage of S It's not fixed for the future. We are fine going down, let me say, for probably 45 or 40, but we plan to stay in this Percentage not to sell more and it is not planned yet at the moment, but it is possible if The businesses, mainly the M and A transaction business needs Some capital increase, it can lead to a lower percentage of HHS. Okay. Some upcoming events you can see in the publication. Also, Claudia It's fine to answer your questions. Okay. So far from my side, Sarah, I'm through now and I'm fine with questions from the audience. Thank you, Mr. Schaller. The floor is now open for questions. Alternatively, you can type your question into the question box. We have 4 questions from Mr. Knut Waller. The first question is, How confident are you to be able to maintain the organic growth acceleration beyond the current fiscal year? Yes. This is a question I ask myself every day. What can we say? Surely, the COVID, the post COVID digitalization MVMT will hold on, let me say, I expect Between 12 24 months, but nobody can say does it accelerate or does it go back. So I cannot make any promises For the rate of growth, what we see that we have Some really good new projects. We have some really good new customers. Let me say, for example, HELLA, which is not included in the figures yet, But we will see it next fiscal year and the year after In a full amount and we have some Very interesting new projects. Sales is working very well, But we see a little reduction in hardware based Revenues over the next years, not in total, but percentage wise. The second question is, capitalization went up quarter over quarter and adjusted for this tailwind, you wouldn't have beat my EBITDA estimate. What is the reason for the sequential pickup of capitalization and how will it develop going forward? I have to give it to my back office. Do we have an answer to this question? We cannot give an answer now. Knut, if you are fine with this, we will give you the answer later on. And Sarah, is it possible To put it on our website, the answer to this question? Of course, we can put the answer on the website. Perfect. So if you are fine, Knut, we will do that. All right. And the third question is, your equity ratio is still below 20%. Should we expect a capital increase in the next fiscal year? I discussed this question, I think, And the answer was given in the presentation. 4th Question, which I believe Mr. Schabe, you also answered in the presentation is what measures are you taking over to lower the pension burden? Yes. I gave it in the presentation. We are working on it, But we don't have a final solution at the moment. All right. Next up, we have 3 questions from Matilde Guillemot. The first question is CapEx reduction, which kind of CapEx do you decrease without future impact on the activity? Yes. We reduced our investment in data centers equipment And this is based on the special situation that we had to invest a lot In the last years, in such big projects like NRW Bank And these investments, for example, in NRW and in the coreBox2 banking solution Data center is made and we don't have to invest In this intensity and also the focus On hardware investments, we did In the last 18 months focus to reduce to combine All our investments in, let me say, in bulk orders to our Hardware suppliers led to a significant decrease of cost of hardware And that altogether is led to a lower investment And what is very important to say, this brings us not To a problem in solving our customer ship questions and Our delivery possibility, so We manage now our hardware investments much sharper than before. The second question is regarding the EBIT margin of 9%. When do you think you can achieve this level compared to 7.7% in 20 eighteentwenty 19? Okay. I will not promise an exact year, but we are on a good way to do that. I explained in my Presentation, what are the main drivers of EBIT margin and we see For example, in rental expenditures, We will bring from 0.5% to 1% and we also Expect 1% over probably over 2 years In the decrease of depreciation. So we should reach it. I don't want to promise a year, But within the next 2 years, we will make big steps in this direction. And the third question is, if I remember well, you don't have nearshore or offshore employees. Could this change in parallel of the change you have mentioned of no more than to present in the office. It is a small amount of people Offshore, but it is a nearshore engagement. We have around 20, 15 people in Barcelona and we have around 150 people in Eastern countries Such like as Poland, Czechoslovakia Czech Republic, sorry, And we will not grow that very, very fast, but we will Probably, we will expand it a bit, but it has no influence to the 50% rate, we discussed before. Next, we have two questions from Bastien Jollet. The first question is, how can you explain the significant decrease in CapEx from 1 year to another. What should we expect in the coming years? Yes, I explained this before. Stronger, sharper management of CapEx, Sometimes we prolongate our service contracts so that we can use, for example, Computer parts, 4 years or a year longer than expected. Also, we bring down our costs of hardware Buying, for example, we did a tender 2 months before and there it was like an auction for our suppliers And we bought a €5,000,000 or €4,000,000 contract and it brought in one day, it brought the cost Down 20%. All these things we did and we are doing at the moment And this is you can ask now why didn't you do that before? Yeah, this is one reason is that we Grew very fast and all these processes you need to have For such actions, they are in development and now The grid is going onto the street. For example, We are talking on multi year contracts With our hardware suppliers, we also implemented Projects for supplier consolidation, We want to bring down our number of suppliers. All these things We'll bring efficiency and broad efficiency. And sure, we said to our managers, We cannot spend so much money in hardware and we should find solutions to do it in a more efficient way and this works. The second question is, what are the reasons for Dirk Peters to sell large amount of shares in November 2020? Is he still in the management board? Dirk Peters is still in the management board. The reason for Dirk was That he arranged his family office complete new And he decided to sell some Data Group shares. He still owns around 120,000 pieces shares and he still wants to stay In this shareholder position and he is still in the management board. Yeah, that's the same. Next up, we have questions from Mr. Andreas Wolf. Hi, good morning. Hi, everyone. Good morning, Mr. Hava. So my question is obviously on Skarsky old skilled personnel, so many IT companies are complaining about increased employee attrition and Difficulties to onboard people, is it something that you observe as well in your Yeah, basically in your employee base. And the second question is on organic growth and The drivers behind that, so you've mentioned already more upselling into the existing customer base, more new clients, Callbox, etcetera. Are there any specific technological drivers behind that growth that you would like to highlight. The third question is regarding datagroup, So obviously last year, there were some obstacles moving customers to cobox Contracts, has this changed? Have you been able to migrate Clients to your preferred form of service delivery. And then, I'm not sure if I missed anything, but maybe you could also elaborate A bit on the working capital management, how you are, what you are actually doing here, how you are able to improve Working capital will be positive working capital effects that you or cash flow effects that you spoke about. Thank you. Yeah. Thank you, Andreas. Thank you, Andreas. First of all, employees, Yes, employees are getting more expensive. It's a quite normal trend, But also customers are willing to pay a bit more and so we can cover The bigger costs are quite good. But what is the difference Between Datagroup and let me say Adeso or others, we get a lot of people via acquisitions. You can see, if you look at the growth rate of our employeeship, We have now around 3,600 people on board and many of them Went in via acquisitions. So, we have a Quite low, churn of people and also we have in our with With a very active employee campaign, with a new work campaign, We get very good people on board And so people are not the main problem at the moment for us. Surely, there is always a problem with specialists. If you need some BI specialists in SAP, you will not find it. You have to develop it by yourself, Exact you pay incredible amounts of money for them. But in total, We manage the employee thing very, very good. Was organic growth. What are the main drivers? I explained that I think very, Very deep in my presentation, but main drivers are, 1st of all, Bigger projects around COVID. The vaccination centers which are working Until the end of this calendar year and a bit more probably, So we expect in second half of next business year, we expect a reduction in this field, But it will be covered not total, but nearly With other projects we have on board, we have in our books now. 2nd driver is surely up Selling, sometimes you get some orders from your customers and you don't have to invest any money, You can only write higher invoices, because you have The machines, you have the computers on board. We invested a lot years before and this we can use now without additional costs. And the 3rd driver is surely all projects in a little company called Clouditier. Clouditier is Now one of very of our very, very good investments, we think about Stocking up our percentage, it's not decided yet, But we think about that because the company is doing very well and what the real good thing is Company is doing very well together with the parental companies in Datagroup. For example, we have had very good projects for Forest administration in Baden Wurttemberg, we also have big public projects with sometimes total public cloud solutions and the nice thing is That we that our income is even the same or better in this with these solutions in comparison with our own cloud solutions. So The message is cloud services even public even combining public And private cloud, so called hybrid cloud solutions are moving on. The growth accelerates in this And we are very fine with this acquisition clouded here. And also, I told to you our digitalization projects We make they help us to grow and they help us to establish As also a solution and digitalization partner in the future. Next question, Ull. What's the situation in Ull? It's not as good as I expected. We have to go a very long way in Ulm and the hard way in the future. We implemented a new management in Ulm, which is getting grip on the street And we expect from Ulm also in the future, Not in the short future, but in the mid future, we expect Really good EBIT expansion and this will help us Working capital management, I want to give to my back office and we will answer this question Later on and put it in our website. Okay. Thank you. At the moment, we have no further questions. If you still have a question, please use the hand symbol or type your question into the question box and we will happy to answer them. All right. We have no further questions. Thank you for participating in our conference call today. The call will be made available on the Datigroup website. Yeah. Thank you to all participants. I'm very proud to show you the extremely positive development of Datagroup And I promise that the management will do all they can to accelerate and And to do the best job for you as our shareholders. Thank you very much.