Hello, ladies and gentlemen, and welcome to the SNP SE conference call regarding the full year results in 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 turn the floor over to your host, Marcel Wiskow.
Thank you, operator. Good afternoon, ladies and gentlemen. Thank you very much for accepting our invitation. This morning we published our annual report for the fiscal year 2022. The report, the corresponding report documents, and the corporate news can be found on our website at the section Investor Relations. Joining us for the first time, our new CEO, Dr. Jens Amail, who has been with SNP for a little over two months now. Furthermore, with us in this call, Dr.
Thorsten Grenz, so far CFO of SNP. Last but not least, Gregor Stöckler, COO of this company. Given the new personnel line up, I would like to inform briefly about the agenda of this call. The first part will be presented by Jens, giving us a first overview concerning his first impressions and targets for SNP.
The second part, covering the financials and the outlook, will be presented by Thorsten. The third part, Gregor and Jens present our strategy program, Elevate, what have already been achieved, what are the plans for the future. After this, we are open as usual for your questions. With this introducing words, I will hand over to Jens for the first time.
Thank you very much, Marcel. Hello everyone, also from my side. Thank you for joining the call. As Marcel said, this is my first earnings call with the company. I'm looking forward to the dialogue with all of you, not only on this call, but also beyond. I do hope that I will get the opportunity to meet many of you in person within the next few months. Before we go into the details, if you allow me to briefly introduce myself.
Before joining SAP, I was working for almost 15 years in a series of senior executive assignments at SAP, most recently as the COO of SAP Greater China, and prior to that as the managing director of SAP UK & Ireland. Prior to joining SAP, I was working at Siemens for more than 10 years, most recently as the U.S. MD for their enterprise networks division, in total being based in Silicon Valley for almost 6 years. Now, I am very excited to be here because, as you can actually read on this slide, I'm absolutely convinced that SNP is in a strong position in a very resilient and growing market.
I'm very much looking forward to entering the next chapter of SNP together with the team, our clients and partners. One more point before we actually getting started. I would like to use this opportunity to thank my predecessor, Michael Eberhardt, not only for the extremely warm welcome and the excellent handover, but for everything he did leading the company through the most difficult times after the tragic passing of our founder.
For me, Michael is a true role model for real leadership and integrity. Thanks to his leadership, SNP was able to grow the top line over the last few years as well, particularly building on the strong ecosystem relationships Michael has started to establish. Overall, after a couple of difficult years, we are quite pleased with our top line, with EUR 173 million in revenue and EUR 194 million in order entry. The EUR 173 million revenue represent 9% year-over-year growth, like for like.
The EUR 194 million order entry represent 10% year-over-year growth, also like for like. However, it is clear that we need to improve in quite a few areas. We have not been able to fully meet our own most recent guidance, which we have published in October. We clearly want to be more predictable going forward. We also want to see stronger growth in software. When you look, for example, at this chart, at the years from 2019 through 2022, you only see an average growth rate of around 5%. Of course, we also want to be more profitable and have a better operating cash flow.
The EUR 6.8 million, 4% EBIT is clearly below our own expectations. While I am here at SNP, obviously, just over two months, I feel quite comfortable that we have a good understanding how to get there. Either by driving the execution of existing initiatives and bringing them to the next level, like for example, our partner push, or by some adjustments of our setup to align the company even better to the critical success factors of a software business.
We will share a brief update later on where we stand with our strategic initiatives, but next I want to hand over to our CFO, Thorsten Grenz, to provide a more detailed overview about our 2022 results. Thorsten, over to you.
Thank you, Jens. Dear participants, I will present you some key insights into our 22 numbers. As usual, I will not read the charts line by line, but point to the most important facts on each chart to enable us to have as much time reserved for the discussion later on. For the key figures, Jens has already addressed some of the most important numbers. Group revenues has grown. For comparison, we have given you also the like for like numbers.
How these like for like numbers are calculated can be found in the definition of the bottom of the chart. In particular, we are glad to post a significant growth in partner revenues, a number that grows by 70%. We will be coming back to the strategy here. What we have promised and focused on is starting to deliver. Software revenues are also up by 10%. EBIT is at least positive with a small increase over last year. Our partner business is starting to perform well.
A strong development in the last year. We have seen order entry of our partner segment rising by 13%, and the revenues that we have booked rose already by 70%. It is driven by strong operational steps and successes in implementing so-called factories with key partners. It is a positive result from the continuous enablement of our partners. Today, we have about 130 partner projects ongoing, which is a huge success.
The order entry and revenue by region in the last year, book-to-bill stands at a little better than 1.1. Please consider that in the year, SNP Poland is no longer included. What we see is that in particular, USA and APJ is performing well. I can say I trust that Jens will come back to that later on, but already here, the pie charts look or resemble very much prior years. It goes without saying that this might change over the years as we see that North America and Asia are growth regions in particular. Hopefully, the nature of the chart will look differently in future years. Headcount. Headcount is stable.
This means we succeeded in refilling the vacancies that were caused by attrition. We still have 60 open vacancies that remain to be filled. If anybody from our audience might be interested, we are hiring. The gap of the vacancies that we still need to fill were filled last year with external consultants. Yes, of course, compared to own people, these external resources are more expensive.
Winning in the war for talent remains a challenge also in this year. The income statements, and as I said, I will not read it line by line, but focus on the major points. First, revenues grow, as already said, and positively to be added, all regions contributed to this growth.
Gross profits posted an over proportional growth. We will see it and have already seen it. It is the contribution of a slightly larger share of software. HR costs up despite the headcount is more or less stable. That is because of wage increases and one-time effects of severance pays. We have got this with this blended position, other income and expenses.
We have other income of EUR 40 million and other expenses of this minus EUR 23 or the other expenses of minus EUR 23. In other income, the lion's share, the most important single part is EUR 9 million attributable to foreign exchange effects. In the other expenses, the most important position is external services.
External services other than the services that are already included of the cost of goods sold. We have negative Forex effects of a little more than EUR 6 million and costs for advertisement, marketing, and representative efforts of a little more than EUR 4 million. The difference between EBITDA and EBIT is depreciation, obviously. If you calculate the difference, we see that depreciation has risen by roughly EUR 1 million.
That is an increased depreciation on purchase price allocation for the acquisition EXA and Datavard. A similar exercise for EBT. What we notice, the difference between EBIT and EBT is obviously interest. This position can be divided into the lion's share or the real interest, which are about EUR 1.5 million, slightly up because of an increased interest rates in the course of the year. However, the impact is limited as about 50% of our debt is fixed rate debt.
The remaining part is the lion's share, is a dividend paid to the EXA minority shareholders. As they are minority shareholders, this outflow is considered under IFRS as an interest payment and not a dividend. For the segment software, we see a moderate increase in revenue and a pretty strong increase in the profitability.
Very much over proportional increase in EBIT is a mix effect, and we've explained it on the right-hand side. It is we have significantly grown our core software, our own core software by more than 20%. On the other hand, there's a reduction included there, which is a minus 40% for reseller software, SAP reseller software. This again, is an effect from the disposal of SNP Poland. The mix is hugely positive and underpins the value of a growing software business.
For our service organization, we have discussed already during pristine calls, the issues. Still not perfect shoring activities from lower cost countries. It is, I've pointed to that point already when talking about HR The use of external consultants, which in a fully used organization are of course more expensive than own people. EXA, our smallest segment, to better understand why our revenue is up by 20% and profitability down. In the revenues, and you can see it also in the fourth quarter, there is one big software deal included that brought up the revenues by well over EUR 1 million.
The profitability, the EBIT, is down compared to prior year, and that is attributable to higher personnel costs for two main drivers. One is, the company has invested in new people that are at the beginning, not fully productive. We have booked here expenses for a stock option employee scheme dating prior to the acquisition of the company. Order entry and order backlog. What we see is that Q4 was strong, particularly strong. A very nice catch up due to a strong performance in the year-end race, which at least brings us to the order entry for the full year of a little more than EUR 190 million.
In order backlog, and I will come to that in a minute on the second or the next chart, you see that the number is more or less stable despite a significant decline in the software segment. That is the result of a renegotiation of a major partner contract. We have given some more detail here. You see, I call it operational order entry versus revenue. We have grown our order book. There are two specific positions that have reduced the order backlog.
First, EUR 16 million due to the renegotiation of a major partner contract that ended up in better terms for us, but impacted the backlog. We had to adjust this backlog. I have to say, from this adjustment, there is no impact at all on revenues or EBIT in the last year. EUR 7 million negative project remeasurements. This is, well, at the end of the day, the results of efficient and effective project management because the teams managed to come in with lesser costs on time and material projects.
An order entry that was initially calculated has not been fully used. Forex impact over the full year is minor. Balance sheet. First cash position remains on prior year's level. The company is safe with a strong liquidity position. Other financial assets include the remaining part we've sold or we've executed, we've completed the disposal of SNP Poland to All for One. For the remaining parts, half of the outstanding accounts receivable have been received are included in the cash position.
The other half roughly makes up this other financial result. The position that has been affected on the opposite side is non-current assets. The accounts receivable towards All for One have been included there in prior years. The change on the liability side for total current and non-current liabilities is the result of the extension of financing instruments in the course of the year. The cash flow statement. Q4, cash-wise, regardless the sources of the cash, has been nice.
There is a free cash flow of more than EUR 20 million that came in in a single quarter. The operating cash flow has also been positive. For the full year, the free cash flow also thanks to the strong fourth quarter, is only slightly negative. These numbers have looked relatively worse during the course at the end of the first half of last year. In particular, also the operating cash flow in the full year is almost breaking. So far, a look back to the past, the outlook for the current year.
Today, we reframe ourselves to a more qualitative outlook, and the management will provide a quantitative update of its forecast for the 23 numbers with a half year financial report. For today, we can say, order entry and revenue significantly above prior year's number. EBITDA and the operating results, EBIT, are expected to grow more strongly than the revenues. Service and software segments will grow.
Finally, also for the year 2023, revenue will not be evenly distributed over the quarters. The second half, as also known from the past, will be stronger than the first half. With this outlook, I hand back the words to our CEO, Jens.
Yeah. Thank you very much, Thorsten. Let's jump into a quick strategy update. Last year, Michael Eberhardt, Gregor Stöckler, and the team launched Elevate as our strategic framework. From my perspective, I believe all five dimensions are super relevant for our success also going forward. What we have done is that we have tweaked the wording just a little bit.
It will be easier to both operationalize and communicate what we are doing. What we are doing to Elevate our global market share, to Elevate our innovation agenda, to Elevate our share of wallet, to Elevate our efficiency, and last but not least, to Elevate our ecosystem. Furthermore, we have added 2 dimensions as key enablers, our people and sustainability.
We fully understand that ESG becomes more and more relevant for investors, and this is a topic which is also very important for me personally. Which is why we have decided to put this function directly into the office of the CEO. The same is true for people, which we, which is why we have decided that Svenja Tresch, our head of HR, reports directly to me going forward in order to drive our people agenda to the next level. Gregor, why don't you share a few highlights of what already has been accomplished in 2022.
Thanks, Jens, and warm welcome from my side as well. Alongside the financial update and the outlook that was given by Thorsten, let's just quickly look back at the progress we made on the strategic agenda. Many of you commented on that in one-to-one meetings.
That you lack transparency here, you want a little bit more meat to the bones. Still, these allow us to be a bit more brief and high-level in order to pass the call in terms of times. First and foremost, in terms of our market share, the most important thing to be reported here is that the guerrilla expansion we started in markets such as France, Italy and Spain fully yielded high return. We're very happy with the progress on all three markets.
Alongside that, we're happy to report that we were able to advance our market share in our core market, Germany, which you all understand, coming out of the SAP ecosystem is still the most fought for market. We're very happy to progress here, and of course, you will see that in the 2023 financial results reflected.
In terms of our innovation agenda, as Jens said, is the matter of company, but it's also a matter of private and personal interest and passion to me. We're very happy to report that the team has concluded the migration of all functional areas of interest to SNP to one CrystalBridge platform. Going forward, we will be able to not only accelerate the speed of innovation, but actually have now laid the foundation to be in a position to do innovation once more.
First successes in the cloud data integration space make the outlook much, much warmer. We are around EUR 6 million-EUR 7 million in our revenue for 2022 already, due to the recurring effect and the fact that we are able to sustain customer relationships long term with this kind of software. We're very happy and very positive that the future contribution will be much, much higher than it is in 2022.
Again, here, if you allow me that short outlook, Q1 is fully seconding what I just said. In terms of share of wallet, we secured a couple of very big wins outside of our core business. Just to name a few, with Aldi in the data management space and also BHP in the cloud data integration space. Key wins, not only outside the core portfolio, but also outside our core market, DACH, which is a second aspect of that success.
We extended the value creation for and with Volkswagen Group, announcement to come shortly here in the form of success stories and also 2 personal presentations from our dear friends at Audi as well as Volkswagen headquarter in our Transformation World that will be held in June again. Same here for E.ON, one of the spotlight and lighthouse projects in the S/4 migration.
A former prominent SAP board member, Luka Mucic, served as a sponsor to the project here together with Michael Eberhardt. Everything handed over to Jens now. Funny enough, also of the successor of Luka Mucic. I'm not quite aware who that is in that particular project, funny coincidence, isn't it?
In terms of the operational efficiency, we're very happy to have now under one single leader, Tara von Metzen, the portfolio management for the whole company. She's overlooking under my leadership, the whole aspect of managing and assessing our portfolio in the dimension of compatibility with all five strategic levers, namely here, fit to the ecosystem and ability to contribute recurring revenues over time.
Secondly, we simplify the group structure through the sale not only of All for One Poland, but also the recently announced restructuring within the several board areas. You've read the respective press release, I'm quite sure. Yes, last but not least, for sure, one of the most important strategic pillars going forward, how do we deal with our ecosystem?
We're extremely happy with the progress there in terms of getting the commitment and the long-term binding of key SAP system integrators. Jens mentioned that in the introduction. seven of the 10, funny enough, also 14 of the top 20 system integrators are in a strategic relationship with us. Of course, we're very happy that our long-term partnership here with All for One in Germany rendered a tremendous success.
Over the short period of the partnership, we secured more than 50 joint projects, realized that it not started as realized projects. Customers went live, which of course, is a massive attribution to, A, the strategic fit of the partnership, but also the fact that we can conquer a completely new market segment with an effective offering. Having that said, Jens will continue to give you an outlook on what we plan for fiscal year 23 in terms of strategic progress.
Super. Thank you very much, Gregor. From my side, maybe just a few headlines to illustrate what we want to focus on this year. To elevate our global market share, we want to make progress, as Thorsten already indicated, particularly in the U.S. and JPIC. When you remember the pie chart Thorsten was showing, this showed around 8% order entry for JPIC, and this needs to be much higher, more around 15%. In the U.S., we only have seen 10% of our order entry.
Also here, this needs to be much more. I was in the U.S. last week, and I'm very optimistic here for 2023 and beyond. Operationally, we want to implement a new end-to-end framework for demand generation to make some progress here as well. To elevate our innovation agenda, here we are looking into two directions. First, to extend our leadership in the core, and here potentially beyond SAP. Second, to build on the core and expand into new use cases.
We will share a more holistic update on our innovation agenda at Transformation World in June. To elevate our share of wallet, we want to establish more strategic partnerships with our key customers, focusing on a more long-term mutual value creation process. We are having a strong focus on elevating our efficiency. What you see here sounds like a generic catch-all for everything. As we do adjust our focus more to software and partners, we do have to make a few adjustments in a couple of areas. I would call that, yeah, for the lack of a better term, plumbing. A few
Yes. Thank you. Ladies and gentlemen, if you would like to ask a question, please press 9 star on your telephone keypad. If you would like to withdraw your question, press 9 star again. I'll repeat once again, please press 9 followed by a star sign to ask a question. We already have a couple of questioners coming in. The first one is Mr. Lukas Spang of Tigris Capital GmbH. Please go ahead, sir.
Yes. Hi, good afternoon, and also welcome to Dr. Meyer at SAP.
Thank you.
We, or especially you until now, talked a lot about the strategy and what you want to do better in the future. I think you are aware what didn't work well in the past. Concerning the strategy Elevate, in the past, there was also a quantitative part of the strategy, especially if you look to 2024. Today you didn't talk about this part of the Elevate strategy. Can you give us an update on this part, please?
Well, Lukas, Thorsten Genz speaking. Concerning the quantitative outlook, my apologies, I said we will delivering a number-oriented guidance mid-year, and that will also include a guidance for the following year, for 2024. Is that what your question focused at?
Yes. The strategy or the outlook 2024 until now I think was EUR 230 million in revenue and 10 percentage points higher EBIT margin versus 2021. The question is now, is this still valid or, let's say under review?
We are very grateful for this question, and it makes my statement much, much clearer. It is under reconsideration, and the company will come out with numbers after the half year.
Yeah.
Mr. Spang, apologies, this is obviously on me, right? I mean, not only because I just started 10 weeks ago, I wanna have a closer look at pipeline, how we execute so far, etc. After we missed our guidance for the last few years, I think it's fair to say, without washing dirty laundry, that we don't have a super predictable forecast engine in place here yet. So I need a little bit more time to assess that.
Yeah.
Herr Spang, on the software side, it's quite tricky, yeah. On one side, of course, we have to do quite a few transformational efforts, yeah, and I highlighted a few examples, yeah. This change will take time, yeah. It can take six months, nine months, 12 months, yeah. I'm not sure about that yet. On the other side, yeah, and this could be positive, software, of course, also has a very fast value creation layer.
Yeah. I've been meeting a few strategic customers in the U.S. this week in Germany, right? Software also, if we position the value of our products in an appropriate way, we can have very fast impact. How this will balance out, very difficult to say, how quickly we can make progress.
Maybe as a last point, I also don't wanna put myself under too much pressure to achieve a certain top line target because I wanna do the right deals. You have seen you have shown the impact, yeah, of selling our own software versus doing services and partner business. I wanna make the right decisions together with the team, what kind of deals we're doing and what kind of deals we're not doing. Apologies, Mr. Spang, this delay is a little bit on me.
Understood. On the outlook for this year, we can maybe come a little bit more closer in terms of your several definitions. You said that you expect higher growth in a significantly level, and in terms of profitability, you used the word moderate. Maybe you can just, or you can give a little bit more details on what you define as significantly and moderate.
Thank you. Well, for good reasons, we have chosen a qualitative outlook, a qualitative guidance. I'm a little reluctant to disclose significant more information. Maybe just some moderate comments on that. The significant growth is higher than a moderate one. Please understand that at this point in time, we do not want to give additional information on that.
Okay. could a significantly growth also be double digit or?
Yeah, can be.
Okay.
Yep.
On cash flow, Dr. Thorsten Grenz, we talked about this also in the past, and I think it's very positive that you could show significantly better numbers here in Q4. Do you see this as first improvement, as you have implemented measures to show cash flow earlier or to trigger some points in the projects to get the money earlier? Do you see this still as an ongoing project?
It is an ongoing project. I have to say, we have harvested low-hanging fruits. We made some progress. As we stated, to be open, as we stated in our annual report, we also used to a limited amount some financial engineering at year-ends. To improve the cash conversion cycle in our projects is an effort that will need, I would say, at least the first half of this year, if not longer.
Okay. What do you mean with financial engineering? Factoring or?
Yeah, yeah. We sold, some EUR 5 million, in accounts receivable.
Okay. Good. That's all my side until now. Thanks.
Thanks.
We have a couple of more questioners. The next one is Mr. Johannes Rees of Apers Capital. Please go ahead.
Yes, good afternoon. Maybe also some follow-on questions. You mentioned as your key point of your strategy to build, to increase the part of business which come from software. What means this for this part of your business, which the two-third of your sales services? How you handle the service, how you change it. This was a part of your business which was loss-making last year. What can you do to improve as a profitability in the service business? What is a target margin you can achieve there? Good service entities has also double-digit margins around 10%.
Yeah. Maybe I take a first shot here. I might be after my first impressions and Thorsten Grenz, maybe you can back me up. Of course, this does not mean we wanna exit the services business. However, we need to have a closer look, as I said, what do we need from a services side to achieve our strategy and to achieve our objectives.
What kind of services first do we need going forward more of? Of course, we continue to need our data engineering services, our project management services as we do them today. However, we also need more services, for example, in the area of enablement, of quality insurance when we work with our partners. We are currently revisiting also the focus here of our service offerings.
We wanna make improvements on the profit margin, first by professionalizing how we support the project managers with the right tools. Second, even more important, and Thorsten Grenz, I believe you already have said that, how we actually then staff the projects. What is the right mix between junior consultants and senior consultants, between on-site resources and nearshore resources.
That's a critical topic as well. We made a little bit a business mechanical change, how we allocate the resources to the regions, also the offshore resources. Here, I believe we will make significant improvements in terms of utilization and the overall capacity management of our services organization. Clearly, in terms of services margin, yeah, we wanna be profitable, and I see absolutely no reason why we shouldn't achieve midterm double-digit services margin.
Mm-hmm.
Uh-
Other software companies are also achieving this look to SAP, right?
Exactly. As you know, right, I'm coming from SAP. I've seen the services, transformation there. Of course, this means having a focus on premium engagement services, preferred success services. To be more focused on the strategic topic of the company. We also have to focus, be careful, yeah, also learning a little bit from SAP that we don't overdo, right? Because with the cloud, right, services, of course, will continue to be a very critical success factors of our business.
Yeah. Is it also the right, maybe work sharing with the partners? You have to optimize. That's also what to do by yourself, what to give to partners, right?
Exactly. That's what I was trying to say at the beginning, yeah, what are we doing in a scalable model with partners, and that's really then more enablement, maybe senior program and pro-program management, quality assurances, and services like that. Absolutely, you're spot on. I fully agree.
About your product, also the problem was in the past that your product, and it was a product which was maybe realized and it was worked already on this, that the product was not so easy to handle and was also partner ready, in other words, ne. How much maybe the product had improved and therefore it's easier to handle, to install by partners?
So-
further way to go, or have you already achieved, the state, of the product that now it's really partner ready, you could say, ne?
Yeah. Yeah. Productizing our software a little bit more is clearly at the very top of Gregor's agenda, which is also the reason why we now put all development and product management resources under Gregor. Gregor, why don't you share maybe a little bit more details on that question?
Yeah, absolutely. You made a good comment. I want to extend your comments by.
Mm-hmm.
By differentiating two things. One is how much can we simplify and automate a very complex scenario at the customer? Think about mergers and acquisitions, the migration to S/4. De facto, we have a full organization and its back office to deploy a new platform and embrace digital transformation. That's not an easy job per se. We are not selling Excel spreadsheets.
There is a degree of automation that we will be realizing in the course of 2024 to the max in that use case. In parallel, what is going on is we will fully embrace the megatrend to cloudify a large part of IT, and there we see that the automation degree is significantly increased. Because customers and partners are better trained on standard components, such as the major hyperscalers.
Secondly, there is huge interest to retain critical know-how and competitive advantage on the partner or the customer side. We will more go in the direction to build Lego-like solutions that the partners can then use ready at the customer side. Problem is fully understood. In all fairness, we need to be also clear to each other that there is a degree of automation that cannot be overachieved anymore. That because it lies in the complexity of the job we are hired to do, basically.
For, maybe, the further improvement up to the year 2024, that's maybe the time you are most achieved of these targets, yeah.
Absolutely. That's also clear feedback when you see, just look at the fact we do 50 joint projects with, All for One.
Yeah.
We have the collaboration with Accenture that is bearing fruit significantly in all major regions. Then we are starting to ramp up the same kind of collaboration with IBM. This is fantastic news to us, right? We can never forget, if we make EUR 10 million in a joint engagement, in the back end, IBM is making EUR 100 million, right?
Mm-hmm.
It's mutually, economically, and value-wise beneficial customer, partner, and us.
Maybe two follow-on questions. How large maybe you can increase the recurring part of the software? I know it's a big topic in the software space. Everything is moved to recurring. Also we as investors like it because, you know, we have planability and therefore less risk from quarter to quarter. How much maybe you can further move the business model to recurring income?
Yeah. I think, here is ways we need to look at this. One way is, of course, I know it's the name of the game, and the cloud is recurring.
Mm-hmm.
It's more important what you said, which is how much can you plan in the agenda ahead?
Yeah.
I want to make two simple examples. Look at Volkswagen. We are the number one supplier to Volkswagen's digital transformation in the SAP space. Okay? That means we are talking about rough cut. They don't know exactly by now, 140-160 productive SAP environments that will have to migrate until the year 2030. Okay? That commitment they gave us in terms of building a joint engagement, making the first key orders, key projects that we were awarded with, gives us long-term planability in both software as well as services.
Mm-hmm. Mm-hmm.
Can we report that as per IFRS as recurring revenues? No. Do we have the ability to create a significant backlog through these initial orders? Yes. I think there, I don't want to create false expectations, but it's clear that the recurring effect of the business at SNP is to be reported in more than just the dimension recurring revenue.
On the cloud side that I spoke before, on the data management side of the house, we are very determined, not only through maintenance, and by the way, the price increase we did in maintenance, that we get that recurring effect on the software side to almost 80%. Yeah. There is customers, they have purchase preferences. We will, we will not debate with them whether they have to buy a subscription or not if it's not their purchase preference. They are, of course, the recurring effect can be significant.
Mm-hmm. Great. Maybe finally, to close the software part compared to the service, what could you imagine maybe longer term, what share of revenue it maybe could achieve? Could it be in the long term 50/50 or 40/60 or so? It's also an awareness point at investor side. They hire the share of software, more you seen and maybe value it as the software company, yeah.
Give me a little bit more time here, please, yeah. Clearly above 50%. Very clear. Software, yeah. Clearly above 50%.
That's really last follow-on question. Is it all organic or could it also be acquisitions to achieve this?
We don't know yet. Too early to tell.
Okay. You come back on us. Thanks a lot.
Absolutely. Thank you for your questions. Thank you. Thank you.
We have one more questioner. It's Mr. Jannik Ziering of Jefferies. Please go ahead.
Yeah. Thank you. Can you hear me?
Yep. Yes.
Perfect. Thanks. Good afternoon, everyone. I would just have 2 follow-on questions left. The first one is again on the partner network. I mean, you have alluded to it, but maybe you can provide some additional color. That would be on, yeah, how you really plan to provide effective incentives given that you already have a very impressive partner network and that it's now probably more about getting the partners to actually use the SNP software and finally also improve the execution capabilities of the platform.
That would be the first one. Secondly, would be on the cost side. Hear maybe some comments on how significant the inflationary pressure is on wages and material costs and to what extent also you can maybe pass on these higher costs. Thank you.
Yeah. So. This is Jens speaking. Let me answer the first question, and then maybe Thorsten, you can cover the second one. The good news is we don't need any special incentives for our partners.
Yep.
Yeah. They are very, very, interested to work with us. That's why you see me, or you don't see me, actually, but I'm sitting here with a smile in my face, yeah, after my first 10 weeks, because the feedback I'm personally getting from partners is just, outstanding. Yeah. From IBM, from Accenture, from TCS, from a lot of global partners.
This is more about execution, yeah, and having a scalable engine in place to get started. The partners are very happy with the pricing models we have in place, so this is now really about scaling. Thorsten, maybe you can cover the second question.
Yes. On inflation, yes, of course, it has an impact on our labor costs. Let's focus, for example, on Germany. I would say, the cost side, we managed in a similar reasonable manner as IG Metall and IG BCE. Meaning, it's not an outrageous number. It is 5% and it is delayed. The 5% did not hit us from January on. We compensated this at the beginning of the year were rather low and may be perceived as disappointing number by our employees by being very generous with this one-off Inflationsprämie, the inflation premium, that depending on the salary, we have split into two groups.
We have used in a very generous manner, but this is a non-recurrent cost increase. I think we are managing the cost increase with a deutsch on that part and in a reasonable, in a very reasonable manner. We increased the prices on services and on the software. There, please consider that inflation picked up surprisingly and surprisingly strong during in the course of last year. After the fact, you always know better and one may say, we should have expected inflation picking up.
This means that a significant number of contracts in the last year, say mainly in the first half of last year, had already been signed prior, became evident that we needed to raise the prices significantly. All in all, the estimation is that we can pass on the rising cost.
Great. Thank you very much.
Thank you. There are no further questions in the queue.
Well, I guess if we have no further questions, then we would like to finish this call. In case of further questions after this call, investor relations will be more than happy as usual to answer your questions. I guess with this being having said, we say goodbye and stay healthy.