Earnings Call: Q1 2021

May 10, 2021

Thank you very much, and a warm welcome to our Q1 conference call. My name is Hermann Hermann. I'm the CEO of the company. And with me, like always, is Arne O'Toole, our Head of Investor Relations and responsible for M and A. Ladies and gentlemen, we had a good start this year. Why? 1st, compared to Q1 last year, we grew by 10% in revenues. Secondly, EBITDA increased to €700,000 and it proves the sustainability of our breakeven that we achieved in Q4 last year. And thirdly, very important from my point of view, year to date, our order entry sums up to €96,000,000 which is after 4 months, already 60% of the order entry we recorded for the full year 2020 in detail. So on Page 3, you can see the increase of revenues and EBITDA. And it's very important to mention again that each and every euro in revenue growth is paying in our profitability. So the €3,400,000 additional revenues leads to €1,800,000 additional EBITDA. Not to forget that 76% of revenues is recurring actually and 68% of revenues is coming from our main sectors, retail, manufacturing and energy. Let's have a few on the segments. 1st, Cloud and IoT segment. The main drivers of growth in this segment is Cloud Solutions and Digital Workplace. And yes, I'm convinced that this is only the starting point driven by the pandemic situation. I'm sure that we are always in the beginning of equipping digital workplaces for the German Mittelstand. The segment margin in this segment rises to 10%. Just to add that, last year, we achieved 7.6%, and the target for next year is 18% to 20%. So we are on track. Coming to our 2nd segment on Page 5, SAP. Yes, SAP segment grew as well, but not as much as the Cloud and IoT segment. And this has mainly to do with the fact that we still have restrictions on the consulting business that takes place on the customer premises. Although important to mention that the margin in this area rises to 13%. Last year, we achieved 6.8%, and the target for next year is 14% to 15%. So main reasons for this increase in profitability is higher efficiency, in a certain way less travel costs and more S4HANA projects. On the next slide, you can see the sum of both segments. And segment margin, our definition, includes everything apart from general and administrative expenses, which were €4,000,000 for the Q1 this year, a number, by the way, that is representative for the full year. So in a nutshell, our business model is scalable. We, in a certain way, just have to grow, and we will reach our targets. Let's have a look at the full profit and loss statements. So you can see compared to the Q1 last year that we improved in all figures. And I want to highlight that the segment contribution in absolute figures was nearly doubled from €2,200,000 to €4,100,000 And with the fact that administrative expenses are at a stable level, this is the basis for the improvement of EBITDA, EBIT and net income at the very bottom line. So snapshot of our balance sheet on Page 8. Solid equity ratio and €40,400,000 net cash as of end of March. And yes, including our plan to be free cash flow breakeven in Q4 this year, we have full financing flexibility, especially for M and A transactions to come. Yes. The next chart is my favorite chart, let's put this way, to demonstrate the 5 cornerstones of our growth strategy. Our attractive core business with, as mentioned, 70.6 percent recurring revenues our platform based innovations for the time being, small in revenues, but the future beyond 2022, a clear sector focus with retail, manufacturing and energy and since a few days with the 4th sector logistics and the management team and performance based culture and M and A as mentioned. And let's come to this 4th focus sector. Last week, we launched this and the driver is our cooperation with Rolik Logistics. And yes, there are 2 new companies. The one is a new subsidiary that will offer the full portfolio of services expected that of an IT service provider for this segment. From consulting for the CargoWise Logistics Solutions, the SAP modules, BIDW Finance and, of course, the full operation of global cloud infrastructures and data integration services through a global 20 fourseven help desk. And the second part is the investment in the logistics software specialists. And here, we are looking for, yes, among other aspects, to provide digital solutions for tracking consignments and for setting quotas, making entries and handling payments, a very innovative area. And we all know that logistics is a sector that is still not very digitized. Yes, the partner, as mentioned, is Rolik Logistics, which is an international owner operated specialist for intercontinental sea freight, air freight and contract logistics, which has more than 2,200 employees in 150 offices in 35 countries. And yes, this is only possible to enter this sector with the combination. So we have the IT competence and Rolik Logistics has in a certain way the sector knowledge. And with that, we are happy that Rolik itself is our customer, as mentioned, with a €2,000,000 order entry that we signed, a 5 year contract with the element that you can see on this page. Yes. Next page, order entry. You know that figure that is quite important for future growth. Of course, Rolik with its mid double digit million volume was a driver for the 96 €1,000,000 new orders, but there were others as well. And in any case, it is an extraordinary good start in a new year and a very good basis for ongoing strong and profitable growth. With this good start, of course, we confirm our guidance. We expect revenues to rise to €160,000,000 to €170,000,000 this year with an EBITDA in the area of €5,000,000 to €10,000,000 and a free cash flow of minus €10,000,000 to minus €5,000,000 not to forget to become positive free cash flow from Q4 20 21 onwards sustainability. As mentioned, M and A is a cornerstone of our growth strategy, and we still have 3 aspects in focus. So one is to extend and to support our existing product portfolio. The second one is to invest in unique technologies. And the third one is to expand our markets, like Hralik we did last week, to expand our strong position in focused sectors. Next page. Yes, recently, we published our first B and K compliant sustainability report. And with that, we even mentioned a clear target to become climate neutral by 2025. And ladies and gentlemen, for anyone wishing to halt climate change and cut emissions, there's no alternative from our point of view to digital solutions and digital digitization at all. And this digitization and sustainability are 2 sides of the same coin and with that part of our future. Yes, our growth strategy 2020 plus is on track. And even today, we are working on the basis for growth beyond 2022, especially with platform based innovations. And you can see our targets that we now published 2 years ago when we sold our telco business. And so far, as mentioned, we are on track. And with that, I'm happy to take your questions. And the first question comes from Jonas Blum, Robert Research. Please go ahead with your question. Yes, good afternoon and thank you for taking the questions. I got 3, please. Firstly, I was wondering around logistics market that you are now also targeting with your services. Is that something that you already baked into your midterm targets? I mean, I'm sorry if you have to repeat this now because I have some technical difficulties of the call. Or should we think of it as potential upside to its current midterm targets here about? And secondly, since you changed the wording slightly around your 2021 guidance in terms of the pandemic impact from Q2 to Q3 in terms of the obstacles related to the pandemic. I was just wondering if that's something that we should consider as well, you basically expecting to end up the year at the lower end of the guidance or is it basically neutral? And then just finally around your SAP business, I mean, you were talking about favorable margin contribution, which is basically a result of 2 factors: 1, less travel and 2, the improved cost structure. Just wondering again if you could quantify those 2 metrics. Thanks a lot. Yes. Thank you very much for the questions. Concern logistics or the new segment, it's pretty the same like the others that we are already targeting. We are always questioning ourselves, is this a sector that we know where we have a certain experience or we have a partner that helps us to be successful on one hand. And secondly, is this a sector that is, let's say, with a low level of digitization and with huge challenges concerning the years to come? And definitely, logistics is in that area like the other partners. Of course, we would not enter would not have entered this sector without a strong partner like Rolik because this would be a real greenfield approach. And with that, with this partner, I think we are well prepared to be successful. Concerning the mid time targets, this is part of our numbers that we announced already. Concerning our wording, so actually, I do not have the idea that we changed the wording or any obstacles. So we always said that there's a certain impact concerning SAP consulting, especially the area where we are not able to enter the customer premises, which is still the case as mentioned. And apart from that, I think there is no impact. And therefore, there is the full commitment to our guidance this year. Concerning SAP, you are right. We mentioned more Sohana projects. We mentioned less travel costs. And we mentioned higher efficiency, especially by, let's say, improve our mixture of internal and external employees. And a bit so far more detailed numbers. Yes, the competitors would be happy to get them, and we will not disclose them for the time being. Great. Very helpful. Thanks. At the moment, there seem to be no further questions. We have one more question coming up from Janik Steering, Stifel. Please go ahead with your question. Yes. Thank you very much. I would just have one additional question, and that would be if you could provide an update on the planned sale of the colocation business, please. Yes. Thanks, Janik. I'm looking to Anne. I think we have now all things closed so far. So the entity is there. And I think not I think, I'm sure that we will or very soon can give further information to the market that know the process has started officially and still the plans are in time to now to start the process and maybe to close if this is the option that we will choose. Of course, there are other strategic options, but the sale of the business is our preferred solution. And if it will happen, I think it is most likely to be closed in the Q3 this year. So everything is on plan, Janik. Great. Thank you very much. And we have one more question from Sebastian Bijner, Monterga. Please go ahead with your question. Yes. Thank you for taking my questions. So I have 2 left. The first one is you said that currently the expansion of your competence in the enterprise software business is an important topic. So which applications are you currently focusing on? And the second one is what were the main drivers for the order intake of €28,800,000 in Q1 being lower than in any quarter in 2020? The first one concerning new Enterprise Solutions. The new one is, yes, maybe linked to our we call it internally expect the next portfolio. And here we are focusing on this sale of our store butler, our solution for the retail area, which provides our customers with, let's say, a digital solution for their stores and secondly, concerning the agizer. Yes, at the end of the day, the €20,800,000 received in the 1st 3 months is still a good number, and we are happy with that. And we are fully on track concerning our full year target. Of course, there are always delays from one quarter to the other, but we are absolutely confident that we make our numbers, and there's no negative impact at all. Okay. Maybe a last one. Is the new share program for your employees linked to the development of the share price? The new share program is not linked to the development of the share price. This is only for the management team, not for the employees. I want to make sure I think we have a different situation because, let's be honest, the salaries are different, and we want to really encourage our employees and to make sure that each and every will take part at this. And of course, the risk structure of, let's say, a normal employee and normal worker is different compared to the management team. Okay. Thank you. There are no further questions from the audience. There are no more questions. So I would like to hand back over the closing remarks to the company. Yes. Thank you very much for your time, for your questions, for taking part. A final statement, yes, our as mentioned, our growth strategy is working, ladies and gentlemen. We have we do have an attractive core business, and we are expanding in new markets. We are boosting the momentum with platform based innovations, and we have the financial strength to support this development by targeted acquisitions. Yes, thank you very much again. Stay healthy, and maybe we meet us on Wednesday on our AGM. Thank you very much, and goodbye.