Good afternoon, ladies and gentlemen, and welcome to q.beyond's conference call regarding the third quarter results of 2022. 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 give the floor to Mr. Jürgen Hermann. Please go ahead.
Thank you very much, and a warm welcome from my side as well. As said, my name is Jürgen Hermann, I'm the CEO of the company, and like always, with me and my support is Arne Thull, our head of investor relations and M&A. In a certain way, ladies and gentlemen, Q3 came out similar to the last quarters. We could see a strong performance in the cloud segment and SAP business that was influenced by the overall situation, as well as a postponement of projects, especially in the S/4HANA transformation area. Before we dive into the slides, let me highlight two aspects that are in a certain way different to the other quarters. First, we stopped the development of software-as-a-service products due to our perception that we expect a more prolonged period of recession.
Our focus is now clearly on those areas that are from day one profitable. Secondly, our actions in the SAP business has been successful. We can see and we can measure that the SAP business is approaching the turnaround. Let's come to the details, and we start on page three. You can see that revenues are up by 8%, mainly, as mentioned, driven by a strong growth in the cloud business. EBITDA improved as well by 6% in a like-for-like view, because last year, and you remember that the sale of colocation business had a huge impact in the non-operating profit. Free cash flow, you can see that was -EUR 1.7 million and absolutely in line with the full year target. The company was able to grow, although we face a weakening economic climate.
When we're talking about the economic climate, the impact on q.beyond is not so heavily because we do have a resilient business model. On the other side, we see that especially our customers touched by the uncertainty among the overall situation. Not to forget, the inflation remains high, and one of the drivers, and this is the impact on our company as well, are the energy costs. Coming to page five and to our important KPI order entry. You can see that we achieved in the third quarter EUR 25.1 million, which was mostly in line with the last year's number with EUR 25.4 million. You can see as well, or I tell you that that 88% came from new customers or from new projects with existing customers, so new business.
Only, the remaining part, 12%, due to extension of contracts, which are normally in the area of three to five years. When we look at these numbers, I can tell you that we still expect a number of more than EUR 200 million for the full year concerning order entry. This would be another increase compared to last year and the highest number so far. Coming to page six. On the revenue side, as said, an increase of 8%. I think it's already and always comfortable that we have a high share of recurring revenues. In Q3, the number is 78%. You can see the concentration on focus sectors. 60% of all revenues came from retail, logistics, and manufacturing.
When we take the net number, so minus colocation business last year, and we add the new acquisitions, we can see that the organic growth was 6%, so 2% have been delivered by M&A. This 6%, as mentioned, despite the reduction in the SAP business. The main driver is cloud, no doubt about that. In the last two years, we have systematically expanded the range of cloud-related services on offer. Our acquisitions also enabled us to make bespoke additions to our portfolio. Concerning the cost situation, it was definitely a big change that we replaced the colocation business by the acquisition of scanplus. But let me tell you that this change is temporary because we are absolutely on track concerning the integration and development of scanplus.
For this year, for scanplus, we expect a positive EBITDA, and there's no doubt that the EBITDA margin of the company will be double-digit for 2023. As mentioned before, SAP business is approaching the turnaround. All relevant KPIs are improving, and I'm very convinced that we will return to growth course next year. This is not an expectation, this is our planning based on our existing customers and the new customers that already ordered our near to order new projects. The view on the full P&L on page nine, we can see the increase in revenues, as mentioned. We can see a slight rise in operating EBITDA.
Of course, when you compare the numbers on EBITDA and EBIT basis, it's fair enough to mention that there was a huge impact last year of the other operating income due to the colocation business, the sale of the colocation business. The balance sheet. You can see the comparison of year-end numbers 2021 to the nine months figures this year. Yeah, I think that our asset light strategy is paying off. For this year, we expect CapEx of roughly EUR 3 million. To look a little bit in the future, I think that 2%-3% of revenues is a sustainable number of CapEx for the company, driven by mainly the fact that now we are more asset light.
You can see the substance as well, and I think you know that I'm not happy with the current share price like other companies in the market. But I think we have still a high cash position. We have no debt at all. We have the property land in Hamburg with a market value more than EUR 20 million, and we have still attractive subsidiaries. Yeah, the latest acquisition in this area was productive-data. From my point of view, it's a perfect match. This was an acquisition, and I come to that in a second, that absolutely fits in our new M&A strategy. We are looking for companies that support our growth and our strategy. They must have marketable products.
The size of the company that we are looking at should at least have a volume concerning revenues of EUR 5 million. The target is EUR 10 million. Definitely positive earnings, so we have a non-dilutive impact on our numbers on a consolidated basis. We look a little bit more detail on productive-data. It's a company based in Hamburg, a data analytics specialist. They are not only introducing, enhancing all solutions about data warehousing. They have proven business model, revenues this year in the area a little bit north of EUR 10 million with positive net income, a strong team of more than 40 internal and external experts.
As we said in our press release, in the first step, we took over 51%, which fits in our strategy that taking over the majority of a company is mandatory. Of course, we have the options to complete the takeover by 2026 in three steps. On page 13, you see the summary of our, let's say M&A strategy. To repeat that the sale of Plusnet and colocation was the right decision, and it was successfully executed. The new acquisitions that we made in the last months and years are able to strengthen our portfolio, to support our growth strategy, to support our profitability, and to help us to position as digitizer for the German Mittelstand.
When we look at one part in this chart, the investment in Snabble, let me tell you that with a strategic decision to stop the development of proprietary software-based products, it is consistent that we do not plan to execute the call options in Snabble. Although the company is developing well and is in plan, and we still see a huge market potential for Self-Checkout solutions, it is not part of our growth strategy anymore. The stop in the development of software-as-a-service products is not the end of software development. The majority of these employees can be easily allocated to customer-related projects, and there's still a huge demand in customer coding, and we get paid in these projects from day one.
This is mainly the main change that you can see on page 14, that it's not only that as a product anymore, it's more project-related. It's more just customer coding and project software projects for our customers. We have on page 15, summarize it again, because I think that due to our press release, we raised some questions. What does it mean when we stop our SaaS strategy? It means what it says, that we stop the development of SaaS products and we'll continue to develop software for customers project for customized solutions. The reason for that is not that we do not believe or think that SaaS products are not successful. The point here is two sides.
One is that, of course, it has a huge chance and create chances and revenues in the future, but it is necessary to invest heavily up front. What we can see due to the market development is that the risk to market that increased because our customers are really reluctant to buy those software products. Therefore, I think it's consequent to change that. Yeah. When you look at the next slide, this is the outlook for the full year. You know the numbers, revenues of EUR 174 million-EUR 178 million. EBITDA from EUR 6 million-EUR 8 million, and free cash flow unchanged at a maximum of - EUR 10 million, which is unchanged, w hich is simply based on the fact that the strong fourth quarter that we expect is also based on projects, and the cash impact of these projects will be recognized in the first quarter next year.
Therefore, there's a difference in EBITDA and free cash flow. Before we come to the questions, I would like to make one comment to the German Equity Forum, which was planned end of November. On April, we presented the strategy beyond 2022 for the years 2023 to 2025, including a very aggressive software as a service strategy, including potential acquisition in the energy market. Since then, times have changed, no doubt about that. We have talked about the alignment of our strategy, especially in the area of our software and service business.
Of course, we are happy to give you more details on that change in strategy on the Equity Forum. I would like to manage your expectations concerning the midterm numbers. We see the growth in cloud business, the turnaround in SAP and the alignment in our SaaS strategy. However, some questions are not answered yet, especially the overall economic situation and the development of energy costs. Therefore, it is constructive to present the impact on the outlook on 2025 end of this month. We will do this in the beginning of next year when we have some answers on the questions I mentioned. In any case, let me finish with that. There's no doubt that we will grow next year and the years to come, at least on a market level. Yeah. With that, ladies and gentlemen, I'm happy to take your questions.
Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. In case you wish to cancel your question, press nine and the star key again. Please press nine and the star key now to state your question. The first question comes from Sebastian Siekmann. Please go ahead.
Hi, good afternoon. I have three questions, and we'll make one by one. I will go back in line. The first one, in the third quarter, goodwill decreased by EUR 4.7 million . At the same time, there's no offsetting amortization for this position, and the other intangible assets has increased. Was there a reclassification? Can you please explain this?
I have to check that, Sebastian. Actually, give me one minute on that. Maybe, you can go on with the second question and the third question. I will come back to number one immediately.
Okay, no problem. The second one is in Q3, you recognize other operating income of EUR 1.7 million, and of this amount, EUR 1.3 million is attributable to the reversal of a provision. Which provision does this relate to, and where did the other EUR 400,000 come from?
Okay, question number three.
The last one is, what does it mean in concrete terms, that you intend to develop customer-specific software in the SaaS area? Yeah, can you give us please two or three specific application examples that are possible?
Yeah, there are different possibilities. First of all, you remember that we bought Incloud, the company that was, in the meantime, merged. We have a lot of software developers that we got into the company with that acquisition, and they are working on a project basis for our customers. They are developing front-end applications in the IoT area. They are developing software for the transformation into the public cloud. These kind of projects we did in the past, and we will do in the future as well. The second example can be software development projects in the area or in context with SAP. We see even in the area of sustainability, the opportunity to develop reports for the ESG and other stuff where we can really benefit or our customers can benefit from.
The big difference to projects and products in this context of software development is that the risk from day one concerning the project is zero because we get paid on a time and material basis. These are only a few examples. Therefore, I think that of course there will be a few developers that we cannot use for our customer project, but this is not the majority. The majority will continue to develop projects for our customers. Concerning the first question, this reallocation has to do with the goodwill of scanplus. And regarding the purchase price allocation that was done in Q3. If you wanna have more detailed numbers, we can provide you later on.
The second one.
Yeah.
Yeah.
There was a depreciation of the goodwill from scanplus, or?
No, the purchase price allocation is normally done later on after the acquisition.
Oh, okay.
It's always a time lag.
Okay.
It was a reallocation that was the main issue.
Okay.
The reason behind the accruals of EUR 1.7 million in other non-operating income, as mentioned, accruals for the, let's say the building back infrastructure. That's the main reason for that. There were accruals for, if we are not able to, or the demand that there's a certain way, ability or the request to build things back in the infrastructure, and this now is solved, and therefore we can remove the accruals.
Okay. Thank you. The other EUR 400,000 in other operating income?
More very minor positions in different areas. I have to check, Sebastian, don't know these.
Yeah. No problem. Okay. Thank you very much.
The next question comes from Yannik Siering. Please go ahead.
Thank you. Good afternoon. I would also have three questions, starting with the first one, about the currently weak performance in the SAP segment, which probably will also continue into Q4. We would need to see very strong growth in the cloud segment in Q4. What are the drivers here that make you feel comfortable or confident to reach your targets? Probably also small contribution in Q4 from productive-data , that is right? Linked to that, as second question, what is needed in the SAP segments to really return to growth? Is there good order backlog that could be handled maybe in Q2 or what is it here? Lastly, third question would be your take on the cost basis going into 2023. To what extent are you also able to pass on increasing costs next year? Thank you.
Thanks a lot, Yannik. Let's start with question number one. In the beginning of this year, we expect that SAP would recover in the second half. This was not the case. We can see that right now. I expect not a very strong SAP business in Q4, but slightly better than Q3. What we can see so far, that is the reason why we are still confident that we have a strong quarter is, of course, cloud business. As in the past, we have some transformation projects. Secondly, we have some projects in the, let's say, software development area that support that. As mentioned, a minor position is the consolidation of productive-data in the first time.
Concerning SAP, concerning your second question, we can see and we have very intensive talks with existing customers and new customers. Because we have already been chosen, now we have to sign the contracts, or we are in a very good position in a certain way, in a pole position. In some offers, we are very convinced that we turn back growth in the first quarter next year. What we changed is definitely apart from the fact that we expect in a certain way projects will show up that so far have been postponed by our customers. We refocused our sales approach. You remember that in the past, we had very large customers, especially Tchibo and Haribo.
They declined, and now we have to replace them, and this was in the last month the case. That gives me the certainty that we will recover in SAP next year. Concerning cost structure 2023, I assume you're referring to energy costs and, of course, there are three elements of managing energy costs. One is, of course, in a certain way, reduce energy, which is the easiest way. The secondly is the negotiation with the supplier side. The third element is in a certain way, not in all cases, in a certain way, we can pass through energy costs to our customers. It's a mixture of all three elements.
Great. Thank you very much. Maybe a small follow-up on the cost basis and also referring to wage inflation, potentially for your highly skilled employees. What is your take on that for next year? Are you relatively able to pass on these higher costs for experts to your customers?
Let me put this way. This year we paid overall roughly 4.5% increase in wages and salary, which is not the level of inflation. Of course, it's not only salary that makes q.beyond as an attractive company. It's something more. It's more the team. It is definitely the responsibility and the tasks that our employees has, and this is very attractive from my point of view, apart from the fact that Hamburg and Cologne are attractive city. Therefore, for the time being, we do not have problems to get the right people at the right place. Concerning the cost structure and the salaries, we are able to pass them through to new customers, not to existing customers.
Thank you very much.
The next question comes from Philipp Sennewald. Please go ahead.
Yeah. Thank you very much. Thanks again for the presentation. First I would have one follow-up. You just said there will be no price increases with existing customers. So I want to ask, none at all. Are there no inflation clauses or such things in your contracts? Secondly, I wanted to talk about M&A. I mean, you were already giving us some key data on how possible targets should look like. Do you have anything in the pipeline? How far are you there? Is there, in fact, something coming next year? I mean, you have net liquidity of over EUR 40 million. You said that. Yeah, that's it from my side. Other questions already been asked.
Maybe let me precise my answer to the pricing increase and the pass-through. This was related to consultants where we have consulting customers. Concerning energy costs, of course, we can, in a certain way, pass through. Of course, in general, we are increasing our pricing in colocation business and even in the storage in other areas. This is definitely the case. Otherwise we would face some problems. Everybody is increasing prices, so even q.beyond is doing that. Of course, there are different customers. With some it's easier than with others. It's depending on the size and so on. Concerning M&A, the clear strategy and M&A is still part of our strategy. I mentioned the terms that we are following right now.
After the acquisition of productive-data , I think we will not close any further acquisitions this year. I think this is fair to say. Of course, there's a pipeline, but we are analyzing it very seriously, and not to follow each and every offering here. It's very important that it fits to our strategy, that the valuation is not too high, or these things we are taking care. We will see what's happening next year.
All right, fair enough. Maybe one more question regarding Snabble. During the presentation you mentioned you will not execute on the call next year. However, you will still keep the 25% stake, or are you maybe also considering disposing the investment again?
The latter one.
All right.
In the midterm, it makes no sense for q.beyond to hold a stake in a minority stake. When we are interested in majority, and if we do not follow this path, it's consequent to think about disinvestment. Yes.
All right. Thank you very much. That's it from my side.
Okay. At the moment, there seem to be no further questions. If you would like to state another question, please press nine and the star key on your telephone now. The next question comes from Felix Ellmann. Please go ahead.
Hello. Unfortunately, I had problems to hold a question with technique, but at least I'm in. You referred more than once to the energy costs. I would like to have a number with this, if possible. If you look at the group's energy costs compared to last year, for example, what are we talking about here for the whole group? Is this EUR 1 million higher, or how much will this be in numbers, the difference, the energy shock, let's say, we are seeing right now, how much is it?
Yeah. Felix, thanks for that question. It's EUR 1 million higher, definitely. Normally, we have energy costs per year in the area of EUR 4 million-EUR 5 million. What the future looks like, that's the question. If I know the answer, I would tell you. We are analyzing the market very precisely, and I think that end of this year, early next year, we have a pretty clear view on that.
If we say if I look at the energy prices from a private customer side, and if I say we had an improvement from let's say 30%-40% on the private customer energy costs, would this be an assumption for your case also or are these completely different levels we have percentage-wise here?
It's a different level because we are talking about a business area, and we are using a lot of energy for our data centers. That's the reason why we are talking about EUR 4 million-EUR 5 million, and you cannot compare that with a residential environment. Definitely not.
Okay. We will have to be waiting for what you're doing there will lead to, hope that it will be low. The other question was, cloud-
Felix, fair enough, let me just make a clear statement. It's not a totally black box, so we have, in a certain way, a range, and it will not kill the company. Not that there's a reason, heavy threat for the company. This is not the case. Yeah.
Okay. Next question would be, cloud solutions are often purchased by customers with the intention of the technology leading, doing something new. These investments are all postponed sometimes if insecurity arises. If you see customers being insecure about the next year's economic development, for example, could you imagine that people stop buying innovative solutions in the cloud field and stop starting completely new things here?
What I think is an interesting discussion because what we see is, in a certain way, and you are right, that the uncertainty in the overall environment may have an impact on innovative products. That's the reason why we are stopped in a certain way our development of the software-as-a-service product, because these are very innovative. I would not say that cloud services in that context are innovative. The very large companies are all in the cloud now, in the Mittelstand. So our sweet spot concerning customers is really thinking about transforming into the cloud because it saves a lot of costs, definitely, and it enhances efficiency. The third one, is that what you mentioned? It improves security.
It's really pretty clear that a cloud service provided by a professional provider like q.beyond is much more secure than doing your own data center or running your own data center as a company. There's no doubt.
Okay, thank you. One final question I have just for rhetorical reasons. How much of your business is more or less connected to selling SIM cards?
Nothing.
Nothing. Okay. Not aware.
We have built up an IoT SIM platform this year, but this currently is a revenue stream of lower than EUR 1 million.
Okay. Thank you. Well, it's just interesting because I read about that.
The next question comes from Lukas Spang. Please go ahead.
Yes. Hi, good afternoon. Just a clarification question. Did you say that you expect a double-digit margin for the group in 2023?
No, for scanplus.
Did I get that wrong?
For, for scanp lus.
Okay. Then also, concerning your midterm strategy. Where will be the difference in terms of future strategy on German Equity Forum and beginning of next year?
What we see is that, and this is what the major change is, that we have to align our software-as-a-service strategy. That's what we told the market a few weeks ago, and we have, yeah, some further charts and statements on the Equity Forum, and concerning midterm numbers, we have a clear view, beginning next year.
Okay. That will be also quantitative?
Yeah.
Okay. Thank you.
Okay. At the moment, we have no further questions, so let me hand back over to your host for some closing remarks.
Yeah. Thank you very much for the interesting questions. Thanks for attending our Q3 conference call. Tough times, but as mentioned, q.beyond is well positioned. I hope we can meet you in person on the Equity Forum end of this month. Thanks a lot, take care.