Good morning, ladies and gentlemen, and welcome to today's earnings call of secunet Security Networks AG. On the occasion of the figures for the financial year 2024, I would like to welcome CEO Axel Deininger and CFO Jessica Nospers, as well as Head of Investor Relations, Stephanie Kniep. We will start in a minute, and after the presentation, you will of course have the opportunity to place your questions in the Q&A session. Said this, I will move on and give the word to Stephanie Kniep.
Yes. Hello. Thank you. Good morning from our side and from my side. My name is Stephanie Kniep, Head of Investor Relations. I'm very delighted that you have interest in our analyst conference. Your speakers today, Axel and Jessica. Axel Deininger, CEO, and Jessica Nospers, CFO. I would like to go to Axel. Please go ahead. It's yours. The floor is yours.
Thank you. Thank you, Stephanie. If we continue, welcome, everybody. Glad that you're here, we also can give you some highlights on 2024 and Jessica will later on go into more details on the financials. What are the highlights on 2024? As you probably have heard, we got the first approval for classified information on our cloud offering, SINA Cloud, which is a software stack. That's the first approval on the market for classified information. That was for us a very important milestone as we bought a company, we now shifted them and lifted them up on the respective certifications. This is now the first classified information approval which is available on the market. That's for us a very important highlight also considering the market development we currently see.
We also achieved after long work, SINA Mobile product availability, also approval for Android. At the moment, we are still working on iOS, but I'm sure and confident that we also get the approval for iOS within the next couple of months. Then we have the first SINA Mobile product available, which is also upgrading and increasing our portfolio offering to the market next to pure desktops and laptops. We now then also have SINA extended into mobile phones. Next point, we got the approval for the Highspeedkonnektor 2.0 for the telematics infrastructure in the eHealth market in Germany, which is another milestone for us where we now can address the new telematics infrastructure we see in the market.
It's not going to be that big sweep as we have seen in 2019 with the connector where there was a clearer timeline. I think this time it's going to be more open range in the market development, but we're also confident that we can keep our market share there and addressing now the market developments with our new product portfolio and the new architecture we'll see, which is more software driven for sure as it was in the past. Still you need secure also routers in the future. We really worked hard on our portfolio enhancement in that area. What we also did was to increase our partnership offering, both with, for example, Worldline, CGI, also others.
CGI is a very important highlight as we can address the NATO market together with the CGI maintenance and service offering. As you maybe also know that we now equip NATO leadership team in Europe with our SINA solution, and we do that together with CGI, which helps us next to the pure technology offering also to offer the respective maintenance and services to our customers. I think we are going to expand and then continue with those partnerships in the next couple of years. The next one. Good. Highlights. 11th consecutive annual sales record we also have. For the first time, we achieved more than EUR 400 million revenues in sales. We have a continuous growth also in the public sector by 7%. We have a strong increase on international business of 14%.
Here, I think we could have had a higher sales. We were still restricted on the respective approvals, otherwise the increase would have been even higher. The product and the demand was there. We were just having a delay on second party or third party approval to get EU approval. We're working on that. This order is not gone. It's just moving and shifting to 2025. We have a solid EBIT situation with 42.5 million, which leads to a dividend per share of EUR 2.73. Strong cash inflow with close to 40%, which shows that we have a very good cash situation also in the company. Jessica will later go into details on the financial situation, we continue our path on having a very solid cash and also financial situation.
We increased our employees to over 1,000. We are carefully at the moment also looking at the EBIT situation in the future, but we still selectively hire people to address new markets. For us, of course, it was a very strong increase over the years. Forward looking, we constantly track the hiring situation. I think the good message is we are able to hire people, which is also strong message to the market and we are, I think, a very good reputation in the market that we also can attract talents in Germany but also outside from Germany. Thank you very much. I would like to hand over to Jessica to go in details on the financial situation for 2024.
Perfect. Thank you, Axel. As Axel said, we are very proud that we have exceeded the EUR 400 million mark. Compared to last year, it's only, let's say, not such a big growth, but I looked into the numbers just lately and saw that in the last 10 years we had a CAGR of 16%. I think it looks not too much on this slide, but I think it's quite normal after the 11th consecutive record year that growth is maybe, you know, slowing down for a year or two. We're very happy about this record sales. We have a strong business as usual in the second half of the year and the public sector had the majority of the sales and also the majority of the sales growth.
Please, next slide. Yeah. You can see here that we have a very strong fourth quarter, a little less strong than in 2023. I'm quite happy about it because I really like seeing the workload being spread over, let's say, a half a year. It's not quite true because in Q3 2024 the strong, we had a very strong September. I'm not so keen on fourth quarter growth because it just puts a very big burden on the organization, if we have a strong third quarter, I'm very happy usually. That's a good thing, I guess. Keeping the fourth quarter constant and growing the third quarter would be my favorite growth path, so to say.
As usual in our business, you know, we have sales that are not fully covering the cost in the first and the second quarter. The EBIT comes in in the third and the fourth quarter. Historically it was more in the fourth quarter, now we're trying to spread it between the third and fourth quarter as good as we are able to steer the orders. Next slide, please. We can see that the strong growth is coming from the public sector with 7%. EBIT is growing by 5%. We need to say that we had in the public sector, it was the majority of the inventory cleanup. We built good inventory levels during the pandemic to be able to deliver at all times.
Overall, we just looked into the inventory now, and it's, let's say, grown a little bit old and we had an inventory adjustment of roughly EUR 4 million above the regular level. If you put it to the last, let's say, three or four years, it is, let's say, on average EUR 1 million per year. I think that is quite a good level. Also, we didn't kind of dispose of the laptops. We sold it for a lower price because they're a little bit old now. Next slide, please. We had some changes in the infrastructure of the eHealth business and also a little bit weak economic environment. We had NIS2 coming up, so the provision and regulation for the critical infrastructure.
Still, you know, the German companies did not follow the regulation as they should have. Now it's kind of ramping up a little bit more in 2025 because we saw some penalty letters coming to the industry and company that did not follow the regulation. Now we also see an upturn in the orders and also the customer discussions on SMK and all our products that are helping the industry to fulfill the regulation. Then we had a little bit of a change in the eHealth market. The gateway infrastructure for the telematics market has changed from, let's say, a very hardware-based model to a more as-a-service model. That is a change that came from 2024 to 2025.
Also in addition to that, we had in 2024, there were a prolongation of the telematics to the old connectors and all the old hardware, not only the Secunet ones, but also the other ones because they realized it will take a little bit of a little bit more time than expected to transfer to this more as-a-service telematics infrastructure. We are also changing our business in the eHealth market from hardware business to more of as-a-service business. As usual, when you kind of have the hardware business, it ramps down and the as-a-service business is a more continuous business, is a recurring business, but it usually doesn't bring in the same level of sales in the first and second year as usually the hardware sales do.
We expect also in 2025 to have a similar level of sales there, but we are very good in business in this as-a-service model, not only with the telematics infrastructure, but also with private service providers supporting the pharmacies and all the healthcare professionals in getting a proper access to the telematics infrastructure. That is running quite well for 2025, but it explains that in 2024 we had a little bit of a reduced sales volume. Thank you. Next page, please. International sales developed very nicely from EUR 35 million-EUR 40 million. On top of these international sales, we also have sales into the international business, for example, NATO sales, but we do it via a partner.
In terms of accounting, it's not international because our end customer is an international customer, but we have a partner that we send our invoices to, so that is not included in this overview. We haven't set the systems up in a way that it is very easy to find out what international sales are, but we are going to change that currently because we realized during this year that we need to do a few changes. It will still not be labeled in the financial statements as international sales, but we will be able to easily give an extra information on what are indirect international sales from 2025 onwards.
German sales in Germany has increased only by 2%, please take in or please keep in mind that we had a reduction in our business segment and that is kind of, you know, all German business and that explains why German sales only increased by 2%. You know, public sales in Germany increased by a higher rate. Next page, please. We are on previous years level EBIT, please consider that in last year we had EUR 2.5 million roundabout of an earn-out income in the EUR 43 million, and in this year we had EUR 4 million of inventory adjustments. If you take that into account, it is a steeper curve or it shows a growth instead of a reduction in EBIT.
Please take, keep in mind that we had some adjustments. We discussed a little bit if we want to present adjusted figures from now on, but we decided that we remain rather on the conservative side. We will, as usual, give you all the information that you need to make, let's say, your own adjustments in your analyst models, but we decided not to present adjusted figures, but rather give information about special effects. Thank you. Next page, please. Yeah. Our balance sheet, as I very often say, is a little bit boring. You know? There's nothing fancy going on. We still do not have bank liabilities.
We are very happy that we have a proper capability for additional bank debt or bank debt at all, you know. Because, as usual, we are very much looking into M&A transactions, and it's not so easy for us to find a proper target. First of all, we need to looking into a proper addition to our business or our markets or something that we do not have in our portfolio. We also have the problem, or not the problem, but we have the challenge that we need, we need a go from the authorities. You know, they also might be able to refuse an M&A target for us, you know, because we are important to the public.
That makes the look a little bit difficult, but we are working on it all the time. Bank debt is a very good option for us, possibly to finance an M&A transaction together maybe with some equity. It very much depends on the size of the target. For smaller targets, we are still in a very in a very comfortable position to finance that via cash. Next page, please. The cash flow also, we increased our cash balance, particularly we could operating activities were very good to finance, investing and financing activities, and still there is some money left in the bank. That's very nice. We have a quite a high level of cash and cash equivalents.
Usually it reduces a little bit in the first half of the year. First of all, we have our bonus payments for the employees. Second of all, and much more important, we have the dividend payments coming out in, I guess, June because I think our general assembly is end of May. In June we will distribute the dividend. As the business is a little bit weaker in the first half of the year or compared to the second half, it is not at the same level, it is usually that we dip a little bit into our cash balances to finance the business. A little bit fun fact for the first quarter, it looks quite nice for the first quarter.
We have a positive development, and actually we didn't expect that to be positive in the first quarter. We planned a little bit more conservative than we did for the last year, but it turns out it is going to be a bit better if things stay as they are. I think we're done with the financials now and I hand over again to Axel.
Thank you, Jessica. Just some comments on share and the dividend. As you can see here, I think we had a very positive development. I know that we have been rather quiet in 2024, but also looking back, I think 2024 was still a very intense year for us to prepare future growth also on focusing on developing new products, what you saw at the beginning that we now have new stuff on the pipeline. I guess this will pay off on the long run as we now can also address the markets with a wider product portfolio.
I think very positive, the share development over the last couple of weeks, I would say, getting us back to the SDAX, and I'm quite confident that we also can see further growth both in revenue and also in the share development. The shareholders' participation in our success means that our dividend is going to increase from EUR 2.36 to EUR 2.73. We continue with our dividend policy on having a payout ratio of 50%. We also plan to continue with that dividend policy over the next couple of years, and that's something also we propose to the annual shareholder meeting on the 28th of May. EUR 76 million corresponds to a dividend of EUR 2.73 per share.
I'm optimistic that we also can increase that dividend in the future as well with more profitable business and growth we expect. Next one. Coming back. What's our strategy and continuous growth targets? I think nothing changed on the strategy. I think we are well on track there. What we did, public sector, we are continue to expand our portfolio in the existing public customer base. Of course, this one this year we started, I think quite good in the year, of course there's a question mark as long as there's new government and of course there's a certain uncertain budget situation. However, as you all know, we expect also significant investments now in digital infrastructure in Germany apart from the infrastructure investments in other areas.
Definitely digitalization will be on the top list and we'll still see a growth potential for our portfolio. Especially when you look down on the cloudification. We now have the approval for classified information. We continue to expand our portfolio, develop high secure and sovereign cloud ecosystems. This is not going head-to-head versus hyperscalers for sure, but of course supporting multi-cloud open source infrastructure in the German market, and that's something we're going to address. First approval went for software stack, but we are also targeting infrastructure as a service with respective approvals.
This leads also to a transformation of our security expertise and also of the SINA portfolio to have that cloud ready, and I think that's a quite unique situation in the market as our most of our classical competitors on the infrastructure side are not going into the cloud and are not cloud ready, and that's our, I think, big unique selling point for the future that we have a broad offering which is also then cloud ready also within the respective classified areas. eHealth addressing the German market for telematics infrastructure. Jessica said that already. The wave is now going down, but we expected that. That was for sure. The Highspeedkonnektor now is running out with service and maintenance contracts. Now we're preparing for the next wave, developing new products and also more software and application driven.
That will take some time, but I think we are well positioned with our existing market share, with our partnership network we have in that market to address also further growth in the eHealth area. Internationalization also here we have good successes in the EU, Spain, for example, we have never been. Also Eastern European countries still on a small scale, but also here we had some really inroads into new market segments and new countries also in the internationalization. We're working also at the moment on bigger deals in the Middle East, which I cannot comment yet. Of course this will take some time, but I'm quite optimistic that we also see a significant growth potential over the next years, not only in Germany, not only in EU, but also in the Middle East. Again, we're working hard.
Which is a starting point already though is the NATO business that took us also some years and with the HERMES project we got the first project win in the NCIA, where we are now in and listed with the central ID department of NATO. Considering also, as you all know, that NATO investments are going up and I think also the share of Germany is going up. I'm optimistic that we all can also expand our business share and business potential at the NATO. A good message on the East industry part within the business sector, we are optimistic that we have a very steep, finally a steep growth, revenue growth in 2025. We now have products available that we have been working on for quite a long time.
What's happening now that we see a pressure on the industry segment also for classified product portfolio as they get a demand. NIS2 is not, not the only driving force, but one of them. We'll see that the infrastructure is now finally picking up and we can address that now with our new portfolio elements, but also with SINA infrastructure. Now finally also industry is looking for SINA infrastructure because they'll get market requirements for classified information. I'm also optimistic that finally it will pay off what we invested over the last couple of years into that segment, and that gives us, will still take some time, but will give us a second footprint in the market.
On the acquisition side, we looked at quite a few companies. Again, here we didn't take a decision. We didn't make an offer last year, not because we were not looking into companies. We were not really confident on buying a company when we did that technical and commercial due diligence. Again, we'll continue to look out for acquisition targets. Probably also rather a little bit on the bigger side just to have a leapfrog in the market that expanding our technology offering. We continuously looking at companies. We still have a good pipeline filled with companies we have on the radar. Again, we want to have a solid decision and having a fair valuation of a company we want to buy. That's why we haven't done anything in 2024.
Again, we have a continuous radar screening on companies that are on the market. Good. Some words on the cloud solutions. Customized cloud offering for ministries, authorities and the security-oriented enterprise market. That's the target. That's that's our goal. My screen is gone. Sorry. I was on screensaver. That's something we still attack. Of course, the next level for us to get up to a high classification level of secret because that would differentiate us, especially in the area of the German armed forces. That's what we are looking for, and that's what we are also discussing currently with them, that we work together on this kind of classification level that they finally also need. Milestones I already mentioned, first components got the approval, but it's still just the beginning of the portfolio.
We will continue to expand both our offering from software stacks also to infrastructure as a service and also expanding our classification level. Keeping in mind that secret level is not available on the market, this all will be some sort of trailblazer development as there is no reference point for getting a secret approval into a cloud infrastructure. That's what we're working on, but this will still also take some time. Again, still we are front runner on the public cloud compliance, and that's what was a focus our work on the last two years to get finally the IT-Grundschutz, the ISO 27001 and the BSI C5 certification. There will be another C5 2 certification we are going to target, and that's going to happen also in the third quarter in 2025.
Again, I think we are well on track. Of course, now we'll see what projects we can address, and it will still take some time to get the loading on our infrastructure. We are confident that we now really are able to address the respective projects. We were missing actually the compliance areas in the past. What we bought was a good framework, good cloud experience, and now we are catching up on both approvals, but also on the compliance side. That's something we are going to differentiate us definitely from the market. On top, not to forget, we are not offering cloud.
We have now a full portfolio also down to laptops, desktops and mobile, which is a quite unique infrastructure, I would say, which is also unique in Europe, also globally, but of course, the target market for us. No one else has that kind of comparable portfolio for this market segment. A glimpse on the mobile side. Again, we have the first approval for iOS, milestone in 2024. We achieved that. Target now is also, and everyone is waiting for that, I know. It's available as a demo, but we are still working on the approval for Apple iOS devices. We have a solution which is running on both operating systems with respective models, and that's what we are targeting, and we are also looking forward to the first PoCs.
We'll see in the market, I think we'll see the first revenues generated this year with our mobile solution. Just a basic understanding what we did is a software suite for secure communication. Very important, it's standard mobile devices, so there's no hardware adaptation, which is nearly impossible to do that because also the customers require the latest models, availability. It's a pure software solution fully in line with our SINA infrastructure. For a SINA customer, this will be a very limited effort to integrate mobile solutions in their existing SINA infrastructure, that gives us a good setting point, I would say, to the customers.
The mobile phone at the end of the day is a secure VPN solution that it's just a screen of information, but all the information is encrypted and stored in the back end, which makes it quite secure as the solution and very easy also to adapt new applications on the phone with a limited effort as you don't have to certify every single application you have later on integrated into the portfolio. Next one. As a basic development, also not to forget, we're working on the next level of cryptography. Our communicator, for example, is already post-quantum cryptography resistant, which means we are implementing algorithms that are already quantum computing safe. As you can imagine, our infrastructure's out there for quite many years. We have to work already now in the portfolio for the next generation.
We implement that, what you can see also on the communicator, on our box infrastructure, on L3 level, but also on the high-end SINA Workstations. That's already available in the market, and we were, I think, pretty much the first ones having that available on the portfolio. We continue that. Target is the PQC, and that's also a requirement from the approval side on our RW14. RW14 is a product that it's used on that NATO project I was mentioning before. It's a ruggedized version of a laptop, full solid. Weight is a couple of kilos, so not comparable with the standard laptops and also with dedicated hardware developed to get that post-quantum cryptography encryption available and integrated into product.
That's pretty high-end areas, and that gives us also the chance now to address especially markets in the defense space. eHealth, as we have over 80,000 devices out there on the connector, they are going to be replaced sooner or later, of course, with a software solution. We got now the first approval from gematik on the second generation. Highspeedkonnektor. For us it's HSK 2.0, so we already now offering next generation products for the replacement of the existing infrastructure. I personally believe the old infrastructure's running longer as we always expect, so it's still out there. We still have service maintenance contracts, of course sooner or later then we're going to replace the old infrastructure or the existing infrastructure now with the second generation.
That's something we are addressing in 2025, keeping our market position also with an increased security level for Highspeedkonnektor in our gateway platform and then addressing the new infrastructure set up in the future for the German eHealth market. Few words on and some data. We have a very high order backlog. I believe actually also in the second half of the year we are working on very or bigger tenders and bigger projects that we also can increase the order backlog, which gives us then a good situation also for the next couple of years. Again, that's something we're still working on, which is not confirmed. We are, I think on a good basis on our order backlog we can address and also finance our future growth and put that effort into the R&D.
When you look in also our in R&D expenses, that's now going to increase, we increased it already for the years. That will basically lead to those portfolio enhancements you will see. That's something we didn't have in the past, but we invested a lot the last two, three years on both technology but also portfolio offering. Workforce, I would call it prudent growth, which means we carefully look how many people we need. We partly also outsource resources just to keep our cost run rate under control. We're targeting new hires. We carefully select people we are going to hire that are enhancing our technologies.
I think at the moment we are pretty balanced. We have a good sustainable workforce with a retention rate which is on a very good level when I see normally IT companies who are much lower on fluctuation point of view. I'm also confident that we carefully grow in the workforce, but also keeping the EBIT line in mind. If we have some peaks, we try to cover that up with external support and external resources not to give us a too high cost run rate on the headcount side. Next one you'll see the years, which is quite, I think, amazing growth.
Not to forget, when you look at German market participations or participants, I think we had a quite unique success rate because I haven't seen any other company with that kind of growth in the market yet. The market environment is good, but there's really a big challenge for German or European companies to go to that revenue level with a very strong, of course, competition from U.S. or Israeli companies. I think we really did a good job. I'm also optimistic that we can further increase the growth rate for the next couple of years now with the overall economic situation, also with the geopolitical discussions we currently are in. I'm pretty sure that we are having both in E.U. and in Germany more discussions and more focus on sovereign solutions.
I just had a call yesterday with commission in Brussels. They definitely also support that kind of strategy for the European cybersecurity market and the industry we are in. I'm again very confident that we can come back to maybe even further or bigger growth rates in the future. Now we have to see how we deal with the uncertainty on the budget situation. I think sooner or later this is going to be also solved in Germany but also in Europe. Again, I think a very good track record. We're trying to balance the EBIT margin on around 10%, what you see here on the slide.
That's something we are trying to balance and manage that we have a, again, good profitability and then looking on further growth, expanding our portfolio and getting into new customer segments. Comes to the final outlook on 2025. We are targeting EUR 400 million-425 million revenue, EBIT margin between 9.5%, 11.5%, again, with a more aggressive focus on R&D spendings and portfolio enhancements. We are having currently a order backlog of over EUR 200 million, and we are targeting or proposing for the AGM a dividend per share of EUR 2.73. That would be it both for the recap of 2024 and the outlook of 2025. We are now happy to answer your questions. Thank you very much.
Yes, thank you very much for the presentation and the numbers. We now come to the Q&A session. For a dynamic exchange, please ask your questions personally via the audio track. To do this, click on the raise y our hand button. If you're connected by phone, please use the combination star nine followed by star six. If you do not have the opportunity to speak freely, you can also place your questions in our chat box. We come to the first participant. Mr. Müller, you should be able to speak now.
Yes. Hello. Good morning. Thank you very much for the presentation. I have a couple of questions. The first one would be on the spending package from the new government or packages. Of course, it's early days. Is there anything you can comment on or any expectations that you might have how this can lead to orders or what kind of orders for Secunet? Obviously, you already shared some comments. I think overall it's pretty positive, of course, but any color here would be helpful. Second question. There was also a press release that there will be a new CEO from next year or starting this year already. Some comments here would be appreciated. A third topic.
You did not talk about the biometrics division so far. My question here would just be, is the demand cycle from your perspective mostly over or in late stage here or do you expect?
Mm
... any further growth-
Yeah
in this department?
Okay. Okay. Maybe, let me catch up those three questions. The things I see on the, on the chat, also more for Jessica. Yeah, budget government, what I said before, of course I'm confident that we'll see further growth, but at the moment no one knows exactly, of course, where that's going to be spent. Unfortunately I also don't have more insights. Again, we see uncertainty on the second half. I just hope that they come as soon as possible to a final conclusion and then I think it will still take some time until you see the, let's say, the effects on us. I would say there's the, I would say the biggest potential on the defense and space area. That's my personal view.
We don't have orders yet in hand, but I'm confident that. We don't have it yet. We are in discussions, of course, from our direct customer side, they don't have visibility yet. They know of course it's coming, there's no direct budget allocation yet also to our customer side, which is then also hard for us to plan for it. We do everything to have our right portfolio offering then to be able to address the market. Biometrics was not a highlight, that's right. Still it's running well and we'll see further upside. It's what you see here. That's unfortunately not our mistakes. We have the kiosks in the German airports, most probably you have seen. You have seen them.
They are not yet connected. That's not our mistake. The point is they are up and up and ready for running, but they have a big issue on the backend side in Europe to connect them with the backend and with the data and that's something we're waiting for. We all hope that this is going to be connected towards end of the year. The original plan was already that they are start to run last year, last autumn. We are running at least one year late on the running or the actual starting point. I think contractually we are covered here, so we got our revenues, et cetera. Of course, the growth will kick in when they are finally connected.
We'll see also then at the moment that there's the next generation of eGates. The first generation we have out there in the market, we also see replacements coming for the next couple of years. It's not a huge increase, but I think still a solid business and we can still expect further growth in the Schengen area. The CEO point, yeah, you saw the announcement yesterday. I mean, I'm around for eight years, and I will be still around until end of the year and we'll do a phase over to the new CEO. For the moment, that's the only thing I can comment on that one.
Okay.
I can promise that I'm still working on getting bigger deals in for the company this year, and I'm fully on board until end of the year. Thank you.
I'm sure. I'm sure. Thank you very much.
Yes. Thank you. We move on to the next participant with a question. Mr. and Dr. Kalliwoda, you should be able to speak now.
Okay. Yeah. Thank you so much for taking my questions. I like to say that I had some acoustic or technical problems.
I am trying.
My question is about I gave you two questions via chat on Zoom.
Mm-hmm.
The other is, I saw the approvals of Apple iOS. Can you tell us some more or give us some more insight about costs? Maybe you mentioned it in your presentation. I'm interested to have some further insights in approvals of the Apple iOS trials you implement in the future. Thank you.
Okay. Maybe, try to come back to your costs. eHealth margin, maybe Jessica can address.
Yeah. Usually.
Um
... do not comment on single products and business cases.
Yeah
... or margins on single products. We're happy to take questions on the segments, but not on the products, please.
Thank you. That's the first one on the segment. Insights on staff costs. I think you can do your math when you see the staff development.
Mm-hmm.
I think we had very slight increase on the costs, so are we also doing our analysis there because of the fact that we are still hiring more on the, let's say, young engineering side, which means that our cost increase is, I would say under proportional to the revenue development.
Yeah.
I think we have a decent cost development. Of course, salaries go up, but we manage that very carefully. Just offering interesting opportunities which gives us still a good situation. We have thousands of applications every year, so we have a good pipeline. We are able to hire people and with a, let's say, solid salary, but we are carefully also managing salary development. That's definitely one of our key priorities, that we keep that in balance. As we are hiring very often younger people, we keep that quite on a good level, I would say, on salary development.
Absolutely. I agree.
Yeah. I think you finished.
No, no. Sorry. There was a third question. To my understanding, your iOS, your iOS question. Again, we have the iOS solution ready, and we sold it already to a market where there was no approval necessary. For us, of course, for the German customers, it's very important that they have both Android, but of course they're now waiting for the iOS approval, and then hopefully we'll see the first PoCs upcoming in the second half of the year, and that's what we are working on. More I cannot say more to that. Again, for us, it's not a complete new segment. For us, it's a portfolio enhancements on existing SINA infrastructure. It's not only about additional revenue, of course, but also to keep and to defend our market position with our portfolio offering.
That was for me even the more important point starting the development now, some times ago. I'm really happy that we now finally made it for Android, and soon we'll make it also for iOS.
Thank you very much. We move on to the next participant. Mr. Spang, you should be able to speak now.
Give me one second.
Sorry.
just saw that Dr. Kalliwoda, Dr. Kalliwoda said that he cannot hear properly. Stephanie Kniep, would you please note the questions and circle back to him then later?
Yes, yes.
Thank you. Perfect.
You can speak afterwards. Yes. Okay.
Perfect.
Hi, good morning. I just have one question related to your earnings profile.
Mm-hmm
you also showed it in the chart. If you look back to the peak margin level in 2021 and also the absolute high peak EBIT in 2021 and now, looking at 2023, 2024, now your outlook for 2025, we see more or less the third year in a row with a stable, absolute EBIT and also a more or less stable, if you take the midpoint of your guidance, EBIT margin. I know you have these investments, but when can investors expect coming back to earnings growth, not only on absolute level, but also on the margin level going forward?
Mm.
Mm.
Take the question, Axel. Okay.
Yeah, yeah.
I think it depends a little bit. You know, it can be as quick as already next year. Certainly at the lower end of the margins as I think you mentioned 12%-15%. I think 15% will take some more time. I could see us back to 12% maybe already next year. It depends a little bit on how the market develops also for the cloud solution market. We see that there is a lot of, let's say, noise in the market and a lot of announcement that we need more cloud and that there are a lot of high public cloud demand. When you look what is coming into the market, it is not so overwhelming.
It depends a little bit on how the market and the cloud is going to develop the next, let's say, one to three years. If all the big projects are coming to the market or if it's, let's say, rather smaller projects that are coming to the markets. We see not a lot of, a few six digits and very few seven to maybe eight digit projects when it comes to total contract value. Let's say the market is a little bit limited right now. Also, we think apart from that it might be already next year that we are approaching the 12% already.
We cannot perfectly assess what is coming from the market from the recent announcement, but we think that we are going to profit a lot. I think it will take some time in 2025. I do not expect a huge order income due to the federal budget, but I think in 2026, it will look differently.
Just for understanding, for the margin it would be better to get rather smaller projects or rather bigger projects?
It depends. It depends. I think for the cloud, bigger projects are better because the more load there is on a cloud, certainly to a certain extent, you know, once you need to kind of ramp up your business, but it will have an impact on CapEx first. I think in the cloud business, a little bit bigger projects are better than a lot of very small projects. For the other business, it depends, you know. It depends for if it's service or rather hardware business. That is both fine for us then.
The 15% you mentioned, is this something which is to be expected as a, let's say, midterm prospective EBIT margin? Or could we expect even more if everything goes right and the platform, the cloud platform is scaling?
I think not in the medium term. 15% is a reasonable target for the medium term and, everything beyond three to five years is far too difficult to predict in the current market environment.
Okay, thanks.
Welcome.
Thank you. The next participant is Mr. Wolf. Mr. Wolf, you should be able to speak now and place your question.
Hello. Thank you very much. Can you hear me well?
Mm-hmm.
Yeah.
Okay. I'd like to ask two questions concerning this inventory cleanup effect.
Yes
... that, has put a burden of EUR 4 million on last year's profit and loss statement. Jessica, as you explained, this has to be accepted regularly on a regular basis, but was a larger effect last year than usually. My two questions are, first, usually such an effect is a consequent of earlier management decisions.
Yeah
what have these decisions been, and what do you know now what you didn't know then? My second question is, why is such a regular write down a necessary part of your business model? I'm sure you would avoid it if you could, but it seems to be inherently. Can you explain why this has to be accepted?
It was a management decision in 2020, to put on some extra inventory, let's say, for the pandemic, because we didn't know how we would be able to deliver. We said, we made an informed decision on getting some extra inventory on board. When you look into the, let's say, the level of roughly EUR 400 million or a little bit less, it is 1% or 2% for the years under consideration. It was a special time. There was a lot of uncertainty and it, we proved to be able to deliver the hardware at all times and I think some competitors didn't do it.
We are very happy that we took the decision, and we are fine with it. I don't think that it is an effect that comes in every three or four years. That's certainly not going to happen. I think we have very good inventory levels for the amount of inventory that we sell. Our supply chain management is getting better every year, so you do not need to expect that in three or four years to have another cleanup. Also the EUR 4 million is on top of the usual inventory cleanup that we do every year.
I think it was a very reasonable management decision and, I'm happy with it.
Thank you, Jessica. Just to add, as I've been around when we ordered when we did that order. Again, I think I mentioned it on last AGM, you have to compare maybe both to competition and maybe also to our famous colleagues from the automotive area who were not able to ship cars in those times because they were not buying semiconductors. I think we did a very good decision on the supply chain in 2020, 2021 that we were able to deliver and our competitors were not able to deliver. This growth steep or a revenue increase in 2020 and 2021 was also thanks to our excellent supply chain management, and we were able to ship and address the growth potential we had at that time.
Of course, then managing it, and this was some sort of leftovers on those stock levels we were able to generate. Again, we managed that quite well. Not to forget, we were able to deliver, and I think this is not going to be an effect for every three or four years. This was some sort of phase out of the Corona situation, which I think we managed pretty well compared to other industry segments and also compared to other competitors in our market.
Thank you very much.
Welcome.
Thank you, Mr. Bolz. I take a look at the chat box. Some of the questions have already been answered, I guess. There's one additional question concerning the acquisition, the maybe acquisition of a company concerning the eHealth business.
Yeah. Thanks for the hint. We'll have a look at it. I don't think that it's necessarily working. Maybe when we'll see the questions. I don't know where, when everyone, whether everyone can see that. Maybe just to repeat the question. Whether new cloud solutions will affect the margin, what targets do we have here, and whether in the area of eHealth, the company of CHerry would be a potential M&A candidate. Cloud solutions will affect the margin, but that will, and I said that already last time, it will take some time. We are now preparing for it. We got the approvals, and we're building infrastructure, but also software stacks. It will take some time.
Finally, you make revenues when you have a loading on your infrastructure, and this will take some time. When you look back also for hyperscalers, it took quite some time. When you look what they invested, we are not on this level. I'm confident and in the future this will also have a positive effect on the margin. At the moment we need to invest and there's not a significant loading yet on our infrastructure, but this is going to change in the coming years. It's not really easy to predict, but for sure, we want to have some sort of market comparable margin situation here, maybe even with a premium because we have the approval situation and that's a differentiating factor from my point of view.
Gerri, I didn't have a look at, frankly speaking. Thanks for the hint. I don't think that we have some sort of hardware M&A transactions in the eHealth segment. We are rather looking on the application side here. Again, we constantly look at companies whether it would make sense or not, and I'll take your advice. Thank you.
Thank you very much. We have no further questions on the line. I'll wait a few seconds. Concerning the time, I would say thank you. This is the end of the earnings call. Thank you, Mr. Deininger and Ms. Nospers for the presentation and answering the questions. I'll give the word now to Ms. Kniep for some final remarks and say thank you and bye-bye.
Thank you. I also thank you for your interest. Like always, if there are some open questions left, please contact me. You have my data here on the presentation and also on the homepage. Thank you very much and have a nice day, and a nice weekend coming soon. Thank you.
Thank you very much.
Bye.
Looking forward to see you next time. Thank you.