Earnings Call: H1 2021

Aug 26, 2021

Ladies and gentlemen, thank you for standing by, and welcome to the SoftwareONE H1 Results Webcast. At this time, all participants are in a listen only mode. Following the presentation, there will be a question and answer session. I would now like to hand the conference over to your first speaker today, Dieter Schlosser, CEO of SoftwareONE. Thank you. Please go ahead. Thanks, moderator, and good morning and a warm welcome to our H1 results presentation. I'm Dieter Schlosser. I'm the CEO of SoftwareONE. I'm joined over here with Alex Alexandrov, our CEO As well as Hans Groote, our CFO. I will take you at the start through some key takeaways and the highlights of the first half of this year. That will be followed by a detailed business update by Alex and then concluded by the financial performance of Hans. I will then turn down to the outlook for the full year, and we will then go to a Q and A session Let me also refer to the disclaimer On Slide 2 regarding the forward looking statement and non IFRS measures, as usual, please read them carefully. Starting with a few key takeaways for this presentation. You remember in the end of 2020, we already started To make some strategic investment, we continued this during the first half of the year. We returned to a very solid level of Growth, very, very proud to share this with you. On the strategy side, Our strategy remains the same. We are focusing on the overall growth with our 65,000 customer Digitizing software and cloud, attaching the portfolio of our solution and services, everything underpinned via the Piragloud platform, which is Unique in the market. Allow me to go into the business lines on software and cloud. We still showed some residual COVID-nineteen related purchasing weakness. And let me elaborate a bit more of that. We have seen this till April. From May June onwards, we have seen improvement and recovery throughout the geographies. As well, we have a continued shift to pay as you go. And that's something where for those who are new To ask, maybe I go a bit more into detail. Pay as you go is a consequence of moving into the cloud. You move from subscription to consumption. But it's also a conscious decision, a conscious strategy from SoftwareONE to establish a larger lifetime value with our Pay as you go is more scalable, is recurring revenue And allows us to be closer to our customers. On the regional side, LATAM, as you know, was Quite heavily impacted by COVID-nineteen, particular 2, 3 countries, Brazil, Mexico as well as Colombia, to a certain extent, that's rather the macroeconomic environment. On Solutions and Services, we delivered a very strong performance. Our portfolio is resonating, whether it's pre COVID, whether it's during COVID or whether it's post COVID. Absolute demand is increasing with customers. Our pipeline is rock solid. Our backlog has never been on that level. So there are all the artifacts, all the signs are there That we continue on the same level of growth for the second half of the year. Our investments in H1, Where we capture the market opportunities in cloud based services will lead to a growing EBITDA margin profile for the full year. We are reiterating the full year guidance with confidence. We strongly believe that our investments are reading the yielding the results on a full year basis, and we remain focused on executing our strategy. Let me go now to a few key highlights. We ended up the H1 with growth of 12.3%, that's constant currencies. That's also inclusive of Intergroupo. In numbers, it's CHF 440,000,000 of Swiss francs. On the EBITDA side, we are at CHF 109,000,000. The EBITDA margin you see over here, we are at 26.3%. Fast, this is the pathway to the full year guidance. We have seen Solution and Services outperforming this 53.4%. And again, That has become now a quite sizable portion of our overall GP profile. We are talking about 35% of our overall profile. Going to the acquisitions, you have seen the announcements. In essence, you can put them in So 2 buckets. We have done 4 SAP acquisitions in the first half year also associated with our strategic agreements With Microsoft, and we have done 2 acquisitions, 1 on Google and 1 on AWS. But let me also draw your attention to the 5,400,000 managed cloud users, which We are in the meanwhile supporting those who have been with us since the beginning of our IPO. They absolutely know the story how we have started. We have Committed and promised to you that this is a scalable solution, which will grow on an incredible level. At that time, we said we are doubling up every 18 to 24 months. That has still that has absolutely materialized. It's still For us, the tenure for the future, it is a sticky lifetime value. It's a close customer relationship. It's recurring revenue. It is absolutely scalable. The contribution margin absolutely Outways the initial investment, which we need to do if we would if we grow further. Before I come to the Executive Board Appointments, you have seen the announcement. Hans Grut, our CFO, is retiring by year's end from operational activities. He has been with us for the last 7 years. He was instrumental to the IPO. He has built a best practice finance organization. He overall contributed very well to the success of SoftwareONE. I don't want to wish him all the best now because he's still here for us For the next 3 months, but I want to thank him. I want to thank him for his contribution, for his guidance and for his mentorship, And we will continue to work together to year's end. It's also very notable That SoftwareONE is attracting high caliber talent in the executive But you will see this also when we go a bit more into detail in the Capital Market Days across the organization. You will also personally Get to know many of our global talents, but very happy to announce that Rudolfo Savitsky is joining us from the 1st January, A very seasoned executive leader, very seasoned CFO from a publicly listed organization, And he will join us 1st January 2022. Also, we have announced Bernd Schlatter. Bernd Schlatter Has been appointed as the President of Services. Bernd has joined us from BCG, Wey has led the Silicon Valley office of BCG. He has a fantastic, amazing background. He is coming from the top consulting companies, Consulting not only service providers on where they need to go, but also the customers where they need to pivot on the technology As well as on digital transformation and has been himself on the service provider side as well. So very authentic, Already onboarded, already making an impact, which is very pleasing to see. Now let me go to the next slide and Talk you through our gross profit growth and to walk along that. You see on the left side, The blue is the solution and services. Let me do this at a later stage. Let me focus on the red side, Which is our software and cloud business line. Over here, you see a slight negative growth of 2.1%. Yes. In essence, there are three reasons for that. Number 1, as I mentioned earlier, there was still some residual weakness In software and cloud for the 1st 4 months of this year. As I said, we have seen that turning around in May June, And we are seeing it continuing to recover and grow. The second is the dilution Of our gross profit from software and cloud into services, which is through pay as you go. Again, pay as you go It's not only a consequence of cloud, but it's also our conscious strategy because the scalability and the lifetime value of our customer. The third point is certain geographies have not performed as we wanted them to perform. I mentioned already LatAm, and that's macroeconomic to COVID-nineteen. I will show you later A bit more on the rest of the geographies, how we have performed. Now moving to the right side and giving you more detail On the Solutions and Services, you remember, we spent in 2019 the time to integrate This ComparX integrate our service portfolio and the service catalog. We clearly committed and told you that This will lead to an acceleration once we are through the integration. We delivered this in 2020. We accelerated 23.9%. Now you see another acceleration, up to 53.4%. And yes, you see there is also 36,000,000 which is organic. And for us, it's more or less the same, whether it's organic Or non organic because every integration means also attention, means also focus and means also opportunity costs. So the achievement is the achievement. And we are very confident that this level of growth continues for the remainder of the year, Driven by pipeline, driven by backlog, but you also see at the bottom, you see the 59% and which is again a number which is growing. That's our ratio on managed service. It means we have recurring contracts and that's delivery backlog. That's not sales backlog, that is Delivery backlog, which is part of your bookings for the future. Going into the geographies, let me start with North America. You see 11.3% growth year on year. I'm very pleased over there, particularly from Q2 onwards. We have seen really an acceleration, which is also indicative of what we See in the rest of the market and also from competitors. On EMEA, we have seen a solid growth of 8.2%. You see below, DACH has really grown very well. We have in the rest of EMEA, we have 2, 3 countries which have not performed to our satisfaction level, and we have addressed this for the second half of the year. APAC is growing very nicely with 25.1 percent And LATAM on the left bottom, you see is also growing. It's growing 48.7%. But let's be clear on this. That's the the biggest chunk is the integration of Intercrupo. If we take Intercrupo out, We have a negative growth of 5.4%, which is what I mentioned earlier, macroeconomically through COVID-nineteen, So before I hand over to Alex, let me reiterate our strategy. And for those who have been with us For quite some time, you always see 5 pillars how we execute our strategy. The first pillar is continue to grow and digitize software and cloud. And I want to do a bit of a deep dive on that for you. What we see in the market, what we see from our customers, what we see from our the publishers And the ISVs and technology trends, they're in the future in this classical reselling space We're completely involved. There will be only 2 motions going forward. The first motion If the customer wants to do self-service and whether that self-service is enabled through a platform, whether it's enabled through a marketplace, Whether it's enabled through customization, they want to do a self-service. The trend is absolutely going into the into marketplaces and enabling the customer through that digital experience. The second motion is the customer wants a trusted adviser to manage their software and cloud spend. They want to manage it completely through a trusted adviser, And that's where we see great potential with our offering. We call this digital supply chain, Where we have seen tremendous growth over the past 6 months. But also on the marketplace, we are well positioned. And it's very important that you See the penetration and the adoption of our Pira Cloud because marketplace is one component of Pira Cloud. They can use our marketplace to aggregate other marketplaces which are out there, Whether it's in Amazon, AWS or whether it's in Azure or Google, and we can also use the same marketplace to do Business to business. So really an omni marketplace, which is changing the landscape quite Dramatically. Why do I deep dive over here? Why do I elaborate on this so much? So it's It's very important for the community to see that the classical reselling is changing. It is not anymore in the future about optimizing every single deal and take the highest GP out of a single deal. It's about digital experience for the customer, and the customer wants to consume software and cloud through a self-service platform. The second point is cross and upselling our solution and services. That's always a very safe terms. The ones looking on metrics are looking at upwards and sidewards mobility. We see it very simple. Every single customer which we have, we want to attach solution and services. And every solution and service customers, we want to attach Software and cloud because they both go together. They are not exclusive to each other. They are synergized. They belong to each other. And you see now from a growth perspective, on 66% of LTM is already from customers Purchasing both software and services. You also see, and we have indicated this now quite clearly, And over 70% year on year gross profit growth in our ex simple bundles. Remember, ex simple bundles It's equal for us for pay as you go. And that's a tremendous achievement. It's continuing this way. We don't see any slowdown over here. And as I mentioned earlier, highly scalable, recurring revenue And the contribution margin on this is just incredible to further scale out. The 3rd area is to look at the customers' digital journey and make sure that our portfolio is addressing that customer's digital journey, that customer's commercial or technology journey. And I want to highlight that we over here, we want to disconnect the growth of our business with headcount growth. We are focusing on the front end to the customer on absolutely IP enabled services. We are focusing to do it with a fresh approach Where we don't need a bench, where we don't need to grow similarly to headcount when we have a business growth. You will see this also later On the back office, and Alex will go into more detail. Also, we See the investment in our strategic growth areas evolving very well, very well to recall and you See more later in the slides. These are 5 strategic growth areas such as like SAP in the cloud, Such as like application services, application modernization or managed FinOps, which is the cloud dynamics In the future. To be crystal clear, in SoftwareONE, we have a golden rule. If we establish a practice, That practice has to have a potential of at least 100,000,000 GP. Our 5 strategic growth areas are on this journey to cross this €100,000,000 and will do so in the next 2 years. On the 4th pillar, we see the scale on the local operating model. That's Important because we need to further evolve on an ongoing basis on our margin profile. Again, There is an automation and there is a digital enterprise avenue for us where we disconnect the growth From headcount investments. But also it's important that we are there where the customers, We have to deliver local, regional and global. And we have to make sure that whatever we can standardize, whatever we can automate is Coming through the system, whatever we can standardize, we can deliver globally, whatever needs to be face to face, whatever needs to be Customized towards the customer, that reduced scope needs to be local and regional. Last pillar is our M and A. And over here, we will continue to be very selectively Adding to our organic growth, and it's all about jumpstarting, it's all about capabilities. You already have seen we have announced 6 acquisitions so far. We will continue to focus on SAP in the cloud, And we will continue to focus also to add capabilities on AWS and our Google practice. With that, I'm very happy to hand over to our CEO, Alex Aleksensiv. Thank you very much. Thank you, Dieter, and also a nice warm welcome from my side. It's nice to be back in person as we conduct this call with you. I'd like to spend a few minutes with the business update, and I'll start with The backdrop in terms of our customer base and the markets where we operate. As we've talked about, from the IPO, All of our customers are using technology to enable their business. They see it Technology as a way to differentiate. They see technology as a way to grow, to transform their own business. This technology Spend continues to grow within our customers and it grows as both CapEx and OpEx. So the additional complexity as well as the additional OpEx It's quite a bit of spotlight on technology and that's the role, that's the place where SoftwareONE sits in. We're helping our customers all along those technology needs, whether it's spend, whether it's optimization, whether it's migration management in the cloud. On the right side, you see our markets, the markets where we operate. We've talked about in the top right, the software and cloud market For us, it's really the enterprise software market. You see here that it's greater than US500 $1,000,000,000 market, Now growing at over 10% as it recovers from COVID. On the bottom right, as you heard from Dieter, all of our services and solutions are built for cloud only. And as we continue to build out this portfolio, we'll spend some more time with you in the Capital Markets Day to really show you our Specific addressable markets, but overall, what we can say is the backdrop of the public cloud infrastructure as a service It's a good proxy for our markets, and you can see how well it's growing at 30% CAGR over the next several years, is organized in a way to address the customers' pain points to deliver outcomes to our customers. And that's why we speak about commercial transformation, We speak about technology transformation and ultimately digital transformation. What do we mean by this? On the commercial transformation, Yes, we are helping customers buy at the lowest cost. We're helping them buy in the right jurisdiction with the right terms and conditions. But more and more, we are helping our customers get their arms around their overall spend. We're introducing Visibility, we're introducing transparency and ultimately management of their overall spend. That's what we're able to accomplish for our customers As part of their commercial transformation. On technology transformation, it's all about helping customers get value From that spend, they are spending on software, they're spending on cloud, and often they need help to get there. They need help implementing or migrating. Then once they're in the cloud, they need help managing, they need help optimizing. And that's where our technology transformation practice plays a big role. As you heard from Dieter, as we continue to add to this portfolio, yes, the portfolio continues to grow Because we are trying to address more and more of our customers' needs, we try to do it in very much in an IP enabled way, So that it's not a plain vanilla service, it is always a software one unique service because that allows us to add more value to the customer, And finally, when we put commercial and technology transformation together And we add business or vertical expertise. We are able to take our customers all the way to digital transformation. We help them Innovate their business model, improve their own customer experience and improve the experience or optimize their own internal process or employee Our lines of business are increasingly more and more integrated, Because as I just mentioned, we are after delivering these outcomes to our customers around commercial technology and digital transformation. For example, we might take a 3rd party software or a subscription, wrap a SoftwareONE service around it, add analytics and digital interaction with our platform and come up with a SoftwareONE solution. That would cross and have gross profit That would drop into both Software and Cloud and Solutions and Services. At the same time, we might have another example, we might have application modernization. We might move a customer's workload into the cloud and that would be a service. At the same time, as that application now operates In the cloud environment, we would drive cloud consumption, and that would be a positive for our software and cloud business. I wanted to illustrate these two examples just so To better show how the two lines of business are working closely together and why we focus so much Around our overall growth rates at the customer level. To take you down to the specifics of the line of business performance, On software and cloud, you see it as 65% of our gross profit today. As Dieter mentioned, we are at negative 2% for the first half. Some of the contributors, I'll dive into now. On the Microsoft side, what we see is our billings growth It's very similar to what we see in the market, what we see with Microsoft. At the same time, we continue to see this mix effect We talked about on our last call, which is enterprise, which is about 2 thirds of our billings, continues to grow very strong, But it does not contribute. It's at a lower gross profit contribution to SoftwareONE. At the same time, SME had been weak Through COVID, it is now we're now seeing a nice recovery in SME, as Dieter mentioned, towards the first towards the end of the first half, And we expect this to really recover in the second half. The impact of SME recovery SME growth shows up in 2 ways. It shows up in software and cloud and it also really drives our pay as you go dynamic as Dieter mentioned. The second big impact, the big force that we see in our software and cloud business is pay as you go. And as you're hearing from Dieter, this is our X Simple bundles. What we do here is, yes, we offer a customer signing up to a subscription And we wrap a service around the subscription and we wrap PureCloud around it. We create a bundle that creates Much higher margin business, a very scalable and recurring business. What it does is it produces less revenue upfront Because the customer is not signing up to an annual or a 3 year contract, but it does create a very nice lifetime value of the customer and it creates A lot of gross profit that is recognized as a service on the solutions and services side. And then finally, by region, we saw weakness in LatAm and this undoubtedly impacted our results. What we expect going forward is, as I mentioned, continued recovery in SME that's driving both our software and cloud and our solutions and services business And continued strong growth in pay as you go. What you see in the some of the KPIs that we're now disclosing is that the pay as you go business Was previously growing greater than 50%, and we're now seeing growth greater than 70% in the segment. On the multi vendor side, we would say, very much, closely resembles what we're seeing with Microsoft specifically, which has some weakness, purchasing weakness through COVID and a nice recovery in May June as we wrapped up the first half. Just a few highlights on solutions and services, and I'll go into more detail. On solutions and services, we continue with our strategy, as Dieter mentioned, To take our customer and do more with them. And we measure our success here with our cross sell metric, which is how much of our gross profit is with customers that do both with us, software and cloud and solutions and services. The KPI here, as we've talked about consistently, Has gone from 60% in prior period to now 66% of our gross profit is customers that are doing both with us. We believe this is very attractive because it creates, again, a stickier, more recurring customer relationship. We are much closer and interacting constantly with the I will go through the additional detail in the following slides in terms of the contribution of the Commercial and Technology segments As well as the growth rates there, we're very excited about the results because in the commercial transformation area, we are seeing return to double digit growth rates. On the technology transformation, we're seeing 39% growth. And finally, I'll spend a few more minutes on the following slides On our investment areas. As we talk about our integrated business, as we talk about How what does the future business model look like and why Dieter spent so much time in the strategy section on this? We see ParaCloud playing a critical role. This is our way to deliver an integrated business model to our customers. It's a way for us to embed our own IP, intelligence and automation. And that's why we're so excited. That's why we continue to invest so much In our platform, our platform has 3 aspects to it. The first aspect is the marketplace. This is a place where customers can come to buy, select the software and even select from our services catalog and self provision some of those solutions. In the middle, what you see is us building a way to interact with our customers in a digital way. We will not be able to replace And nor do we want to replace a lot of our human touch points. But more and more as you're hearing from Dieter, customers want that digital interaction. And they want that digital way of doing business, and that's what we're creating with SoftwareONE Digital. Finally, customers are using multiple clouds, And this is the 3rd aspect of our PiuraCloud, of our product portfolio, which is an intelligent management platform What we want to highlight here is we again, this is the connective tissue, The glue between our Software and Cloud and Services and Solutions business. We will continue to invest more and more here because this creates a lot of IP and value add And the statistics show that customers appreciate this and customers are willing to adopt it. More than 60% of our customers are now activated on the platform and we're seeing significant increases in usage. As I mentioned in the previous slide, our portfolio, our services portfolio is organized around customer outcomes. And this is what we mean around commercial transformation and technology transformation. Let me now spend a few minutes. On the commercial transformation, We are helping customers with an advisory engagement upfront to understand what are they buying, is it what they need to buy, And then as an outcome of that, we help them buy at the lowest cost. This area today contributes a little bit more than 25% to our services gross profit, and it's now growing nicely at more than 15% year on year. On the right, you see our technology transformation areas. Here, we are offering our customers scalable solutions to move to the cloud, Then we offer them an ability to manage and optimize their environment in the cloud. Many of these are very much in a managed service format, because again, we always try to balance a professional service That leads to a managed service. This for us is a key ingredient to success because it allows us to build a very scalable, profitable services business. The technology transformation area in H1 contributed more than 50% to our services gross profit And it's growing very well at 39% year on year. The strategic growth areas, I will dive into next. This today is a little bit less than 20% of our gross profit contribution and is obviously growing very fast. So let me now spend a few minutes on that. Our strategic growth areas is what we started to break out for you at the beginning of this year. It's something that where we started investing heavily in 2020. We selected these areas based on market Total addressable market opportunity and an addressable pain point with a customer. It's very important for us to say, Does a customer have a pain point? Are we able to address it? When we combine those 2, the addressable market and the customer pain point, That for us shows it's a good area for us to invest in. We can add value and help solve the customers' problems. The Strategic growth areas are made up of application services, SAP on to the cloud, hyperscaler factory, Industry Verticals, where we started with Engineering and Construction and finally Managed Synops. What I want to highlight here is that we are investing in this area. In the first half, we invested approximately $26,000,000 in OpEx, both a combination of internal organic OpEx as well as through our acquisitions. Already, these strategic growth investment areas are yielding Approximately 26 percent of our gross of gross profit. We're very happy with where they are today. At the same time, it's also very clear That these areas are still very much at the beginning of their growth journey and very much at the beginning of their ability to scale and really contribute to our EBITDA. The momentum we see here is really exciting. We're seeing win rates increasing 2 to 3 times. We're seeing pipeline at 3 times. And we hope to go into much more detail in these areas with you in our Capital Markets Day. I'll now turn it over to Hans. Obviously, a very special and exciting day for Hans and, bittersweet for us as Hans has been an amazing Thank you, Alex, And also from my side, welcome to this conference call. I'm pleased to go through the financials in more detail. I'd like to start with the profit and loss statement. The IFRS reported figures H1 2020 and H1 2021 represent the figures which you see in the half year report. More meaningful to assess our performance are the adjusted figures, which you see on the right side. The adjustments made are all in line with our policy represented in the annual report as alternative performance measure. We have achieved a total gross profit of CHF414,400,000 corresponding to a growth at current on constant currency of 12.3%. Even though the two lines of businesses Really belong together, as Alex just alluded to you, we present the line of businesses separately. The gross profit from software and cloud declined by 2.1% and achieved CHF267 point CHF 6,000,000 The gross profit from solution and services is CHF 146,700,000 And represents an extraordinary growth of 53.4%. On the OpEx side, the operational expenses amounted to €305,300,000 which represents 22.5% growth increased or higher than the gross profit, and this marks the investments we've made in The resulting EBITDA is CHF 109 point CHF 1,000,000 down 9% from the CHF 120,000,000 on prior year period. Depreciation, amortization, financial results and tax expenses are in sum very similar to the period of last year. But to be noted here, we have a small increase in depreciation to a smaller higher CapEx, And we had special effect, positive effect in last year due to customer relation evaluation and a tax The benefit is onetime positive effects did not recur in 2021. With this bridge on the next slide from reported profit to the from the period to the adjusted profit, We want to provide you the transparency of all the adjustments made. Starting with the IFRS, Profit of the period of €38,300,000 we added an expense of the share based compensation of 7,800,000. This contains 2 topics or 2 metrics. 1 is the Management Equity Plan, which was launched prior to IPO and was fully funded by the major shareholders, so there is No impact for the SoftwareONE for the company near on cash, near on equity. And the other one is the free grand share. The €7,800,000 is already reduced to last year of €12,400,000 and it will further reduce going forward and will end In 2022, we have adjusted expenses for the integration of acquired companies of 3,100,000 And we have adjusted M and A and earn out expenses of $5,700,000 This is mainly the earn out expenses We'll make up that sum. In addition, we adjusted the depreciation of the shareholdings In the Norwegian listed company Kranial of 1,200,000, last year, there was an appreciation of CHF 13,300,000 and finally, we make the tax adjustments of all these adjustments made And reach an adjusted profit of the period of CHF 54,300,000. Continuing with the profitability on the next slide. Our profitability here presented as EBITDA is impacted by the investments made in our strategic growth areas. The EBITDA H1 2020 of CHF 120,000,000 decreased by 9% CHF 109,100,000 Main drivers have been a gross profit decline in software and Cloud of €9,600,000 a gross profit increase in solution and services of €27,400,000 And already a nice gross profit increase of €25,800,000 of our strategic growth areas. These strategic growth areas on the other side had an OpEx of already more on the Same level and already reached a breakeven point. It's very marketable at the beginning to be in that good shape. The investments further investments we have made in delivery capabilities and sales and marketing All for future growth of our business. This results to an EBITDA of CHF109.1 million. In summary, the investments made are not yet profitable or fully profitable. However, a very good foundation is made for future growth and increase our profitability. Continuing with the cash flow. We have achieved underlying an improvement In the net operational cash flow of minus €100,000,000 in minus €32,400,000 However, On a reported basis, the cash flow decreased from €206,000,000 positive in H1 2020 To this €32,400,000 minus in H1 2021. As disclosed last year, the cash flow was inflated by about CHF 250,000,000 Last year to the COVID related vendor deferral payments corrected by this Onetime effect in the first half year in twenty twenty, the cash flow from operation activities would have been About minus CHF 40,000,000. And there you see the positive the improvement underlying we have made this year All ready. Small increases in the CapEx, you see on the left side to 14,300,000 The main contribution to the CapEx are investments in our PureCloud and also investments Internally generating in our processes and improvements. This demonstrates the small numbers that we are in an asset light Business model and able to generate positive cash flows. Continuing with our balance sheet, we do have a very strong balance sheet. And let me take The most or biggest part of the balance sheet, which is the net working capital. The net working capital is In a negative territory despite the seasonal effects we have and despite the business growth. Also here, you see the improvements underlying made to the prior year. The prior year reported Net working capital was CHF173,400,000 negative, but adjusted to this Onetime effect presented to you last year of €250,000,000 we have an improvement Made this year very significantly. And I can tell you this improvement was not only at the balance sheet date, it was Achieved during the H1 2020 period every month. Going forward, I think this trend can continue, but we do not expect that we can achieve this really Record low level we have achieved at the end of last year fully, but should be close coming to that. The equity ratio with 24.4% remains on the main On the same level as in December last year, so it's on a good level and is also demonstrating The net debt at the end of the period It's minus about €400,000,000 or you could also say the net cash positively is €400,000,000 together with On used available credit line with this unlevered solid balance sheet, we are Very well positioned for future growth and very well positioned for future acquisitions. And finally, a personal note. As announced, I will step down as CFO And retire from operational activities at the end of this period at the end of this year, sorry. The 7 years at SoftwareONE have been the best experience in my career. I enjoyed and will enjoy every day of that extraordinary and ambitious journey I was able to participate and contribute. I'm very glad that we found Widro Adolfo Savitsky an excellent successor and that we are able to plan a smooth transition. And with this, I'll give it back to Lou Dieter. Thank you. Thanks, Hans. And also thanks, Alex. Let me now, before we go into the Q and A, reiterate the outlook for the remainder of the year as well as elaborate a bit on our Capital Markets Day in October. So coming to the full year 2021 guidance, Just to reiterate on the gross profit side, our guidance was in this above 10% growth in constant currency. That's excluding Intercruco, which we expected to contribute always around 4%. Our key assumptions to the guidance, We see a further acceleration in our gross profit growth in the second half of the year. That's Led by a recovery in software and cloud, we already shared this with you with a return to a positive growth And the continued strong momentum in solution and services supported by our backlog. Midterm guidance is mid teens growth in constant currencies. On the adjusted EBITDA margin, Approximately 30%. And over here, our key assumptions are the cost base at approximately the same level In H2, 2021 compared to H1, 2021, driven by our front loaded investments, Which we have done in the first half of the year. The midterm guidance on EBITDA is the EBITDA growth Will be in excess of gross profit growth. On the dividend policy, our guidance It's 30% to 50% adjusted profit for the year. And as you have seen before and the historic trend, We have a progressive dividend policy. The midterm guidance remains unchanged between 30% 50% adjusted profit for the year. Now coming to our In October, on 20th October, hopefully, we see many of you at our Capital Markets Day. Over here, you will see not only us as the Executive Board, but we also bring quite a number of global talents, Demonstrating to you our strategy on software and cloud, our digitization strategy on software and cloud to As well as our solution and services, how everything flows together and how we make sure that this becomes an IP driven and not an OpEx or a headcount driven growth plan. Looking very much forward to that and hope you enjoyed the presentation. Hope you have seen what we are doing in SoftwareONE. It's always about Winning the business of today, why we build the business of tomorrow, and now I'm handing over to the Q and A sessions, And hopefully, we can spend the next 30, 40 minutes on questions and answers. Thank you very much. Thank you. And your first question comes from Stacy Pollard from JPMorgan. Please go ahead. Your line is open. Great. Thank you. A few questions from me. First of all, can you talk about the pipeline for software and cloud and what kind of Year on year growth you'd expect for the second half and could that could you make it to a positive growth for the full year? And then as you look into 20 22, do you think there's a bit of a rebalancing? So for example, the software and cloud get back up to double digits and then kind of solutions and services, obviously, quite exceptional growth in the first half of this year. Growth in the first half of this year, where do you see that sort of balancing out on a normalized basis? On the first one, in terms of our pipeline, we have already seen the pipeline growing from May onwards. Yes. We see continuous rebound in that line of business also in the current months Post H1, we have a positive momentum. If you take our geographies and that slide which I showed Stacy on LatAm And if you would normalize LatAm and if you would take those 2, 3 countries from Europe in a normal performance, We would be already on a positive level in software and cloud. So that's what we have addressed. Of course, we cannot address the macroeconomic side of it. But as you know, Brazil and Mexico and Colombia is also improving heavily on that side. On the second part is whether we see a normalization in 2022. We see this from different angles. The first one is, of course, we see that positive momentum across geographies, But we also see the SME recovery across the board. And The second part, which I want to mention over here, we see a very positive dynamics also in the Microsoft And for that, we are very confident on 2022 as well. But as you know, 2022 guidance, We will do this to full year results. Yes. No, that's fair. And second question, just Can you talk about the operating leverage that you're getting in the second half? Now I know it's partly slower investments, maybe what other areas, obviously, Comparex synergies are on target. I guess, still though there's some catch up to do, I think, in the second half. And basically trying to get a sense of just how Are you very confident in that catch up? Or are there any things that we should sort of watch around the edges that it could sort of kind of be better or worse? Yes, you're absolutely right. I mean, if you do the numbers, then you have to see that we have to have an accelerated growth in the second Half of the year, but that's not the only piece, right? We also have to make sure that the cost base goes into the same direction. We do have a high performance culture in SoftwareONE. And we're absolutely reiterating this over here. That's where we our investment into our resources in the first half of the year, we will see the payback and we will see the acceleration in the second half of the year. The compacts, as you just mentioned, yes, we are on track on that. But on top of that, the high performance culture coming out of COVID, coming out Often more empathy year of 2020, we are back on the high performance And that paired with our investment in H1 will accelerate our growth. Your next question comes from Alastair Nolan from Morgan Stanley. Please go ahead. Your line is open. Good morning. Thanks for taking the questions. Just a follow-up on Stacy's question. Am I right in saying in terms of getting to the 30% EBITDA margin for the full year, if we assume a flat cost base, We're basically implying an acceleration to close to mid-20s ex FX growth. So I think 23% ex FX growth, which is a pretty material Acceleration, can you confirm that? And what gives you the confidence to To see an acceleration of that scale. And then, I guess, more broadly, as we look into the midterm, if services It's going to continue to accelerate and become a larger component of the overall business. I think you've alluded to 50% in the midterm. How do we Get comfortable that EBITDA can grow at a faster rate than gross profit given services typically come at a lower margin GP to EBITDA. And so those would be the 2 questions, please. Yes. Thanks, Alastair. So on the first point, yes, you're absolutely right. It means that we will be exiting 2021 With a higher growth rate, for us, this is it's absolutely clear that our growth is Further accelerating in the second half of the year, there are multiple components over there, which gives us this confidence. First of all, we have we already have a run rate business, and you have seen this is now 59% of the overall 35% of the GP. That is continuously to grow, and that's already a given. It's booked. It's banked into the system. We have a pipeline with a high conversion ratio, where we have The intelligence of what the wind rate is in the past and if you simulate this, we are very confident on that as well. And both together, for us, it's absolutely clear that the acceleration in the second half You will continue. We already see this, Alastair. It's already visible now in the running environment. On the second question, When you say, if you pivot to a more solution and services organization, I just want to reiterate our strategy. Our strategy is not to become solution and services alone. Our strategy and our main differentiator is that we Have the synergy between software and cloud and solution and services, which is quite unique in the market. And to And I know where you come from with your hesitation on saying a normal system and integrator would have a different margin profile, right, On the EBITDA side, but we don't want to become a system integrator. We want to be a next gen service provider Where we drive IP, where we drive automation, a fresher approach, where even on the solution and services, it is absolutely Isolated from our headcount growth and we have a scalability where the contribution margin outweighs our investments. This paired with our digitization on the reselling space, where we have now not only a Friction to 90 countries and to 65,000 customers, which we have today. But once you are on the marketplace, You are certainly in a digital experience where the addressable market is a completely different one. And you take the human Act out of it with the digital experience. It means whatever margin you have on that flows directly through the bottom line. So that gives us the confidence. I understand that we have to talk more about this, and we will do this in the Capital Markets Day because that's something where I think there There's still a gap from a communication point of view. That's great. Thank you. Thank you. Your next question comes from Knut Waller from Baader Bank. Please go ahead. Your line is open. Yes. Thank you. Actually, two questions. Dieter, you mentioned that you target to achieve roundabout €100,000,000 gross profit when you do something like the strategic investments that To achieve these run rates in terms of gross profit, when should we see that? And then secondly, getting back on the margin side, I mean, to get to your margin target, you probably need something like a 35% or mid-30s margin in the second half, Which looks a bit more than you have done in H1 last year. So to which extent does this margin target depend on the recovery of LATAM? And to which extent is that already penciled in by what you have achieved today and given your expectation of a broadly stable cost base in H2 versus H1. Thank you. Yes. Thanks, Knut. Very good point, both questions. On the first one, on the strategic growth areas, remember, we are talking about 5 strategic growth areas. So the principle which I said, if we invest into a practice, if we build out a strategic growth area, The addressable market has to be minimum GBP 100,000,000. That's the minimum. Otherwise, we are not investing into it. And what Alex mentioned as well, we always choose areas where there is a humongous addressable market, And he calls it customer pain point. I call it burning platform. You see this in SAP in the cloud. They have to move by 27%. On application services, they have to scale out and modernize their applications, their legacy applications. You see this in the construction vertical, 38% of CO2 emission is from the construction industry. With our solution, we are able to impact this positively. So these are the burning platforms which help us to accelerate those Strategic growth area, quite tremendously. Now you want a definite time line for me, and I have alluded to it actually in the call. I said, those five strategic areas will all cross the €100,000,000 in the next 2 years. That's it's and it's not aggregated. It is individual. And of course, We will evolve further and there might be a change on another growth area. But for those which we have visibility And we speak here absolutely out of confidence. We see the pipeline. We see the Windward and we see the ramp up and the demand from the customer side. On the that's the first one. On the second one, in terms of the EBITDA Margin profile. So our front loaded investments really will support us. Our resources will be productive. And you see this in any sales and service organization. If you invest in the first half of the year, you get the productivity in the second half of the year. If you do it staggered and you do it out of Seasonality every month continuously for 12 months. You never have a jump start on productivity. What we did is a conscious effort To really hire and use also the period where at the moment in the first half year, the talent crunch wasn't really there Because many haven't really come out of COVID, and we finished with the hiring. So we will see the productivity over there backloading our margin profile. The other aspect is, of course, if I take these handful countries and normalize them On an average growth level which we have, then we are absolutely on what we are seeing. And just to reiterate, Our EBITDA margin, what we guide is approximately 30%. Your next question comes from Michael Briest from UBS. Please go ahead. Your line is open. Yes. Thank you. Good morning. A couple from me. Just to look at the cost base and the guidance that it's flat sequentially. I mean, if I think about headcount, it's up 600 in the half and presumably that didn't all happen on January 1. And similarly, you've announced a couple of acquisitions About 400 people. And also you have this plan to get 5,000 new staff and recertified staff On Microsoft by the end of 2023, so are you saying that headcount is going to be sort of flattish in the second half on the first half? And then just Dieter coming back on your comments on approximately 30%, I mean, would 29% be within the ballpark there? And I'm curious what you said just now about the GBP 100,000,000 GP potential in each of those 5 strategic areas being deliverable by 2 years, because if I put that on top of last year's gross profit base, I get well over mid teens Gross profit growth, so maybe you could just square the circle there. Thank you. Hi, Michael. Thanks. Again, Very valid questions, Faas. On the cost base, you're absolutely right. So we it was a ramp up hiring over the first 6 months of the year, we do need to understand that we have an ongoing attrition as well, right, It is an organization like any organization has. And what you have seen is an acceleration in the first half of the year Where we actually net new hired on top of this attrition. What You are saying is that we also have strategic co investors, Microsoft, where we talk about 5,000 headcounts, let me go into this a bit. We have a contract which lasts till 2023, so it's a 3 years contract. Over this period of time, ramping up with the business demand, ramping up with the need of the customers, We have to come to a certification level of this approximately 5,000. We are already on a certification level of 2,500. I want to see our first Workforce being productive and we are not building benches. I'm not building a bench for the future. I want to see the pipeline coming through. And if we run out of capacity, if we run out of capability, We would hire in the right space, but from a focus point of view, At H2, we are focusing on making our resources productive to achieve our targets. On the approximate 29%, What you said is approximately 29%. So we said approximately 30%. We will be exiting with a high growth rate And at the end of the year, and that's also needs to be understood, that's also comparing To a week of H2 in 2020, we will not change the guidance of I'll discuss the guidance for the next year. That will come, of course, with the full year results. And in terms of your midterm guidance, say, are we then talking about high teens So mid teens, as I said, you see that we are exiting on a high growth, but we talk about the full year's results. Approximately 30% means for us approximately 30%. I mean, you Michael, it's a certain range, but It's approximately 30%. Thank you. Just on the software gross margin, has that now bottomed, do you think, at 6.4% Just given the other comments about Microsoft and the outlook on SME? Yes. So absolutely Spot on. The outlook on SMEs have contributed to that, but there's also a certain dynamic in Microsoft, which It might be not yet common knowledge. And we see Microsoft will have Quite a drastic price increase in the Q1 of next year for the first time on the cloud component. So since 10 years, they're really Increasing the price drastically on Office 365, M365, etcetera, etcetera. So you will see you will For sure, I see 2 things, 2 dynamics, 2 happening over here. First of all, there will be an acceleration and renewal Prior to this point, and that would be already in the financial year of the company, so not waiting until the new financial year kicks in. So you will see an impact towards the year's end and you will see an impact in the Q1 of next year. But you also will see that customers will require more advisory and will require more Hand holding from us to how to navigate around this situation. And the other point, if you talk about bottoming out of margins, As you know, in October, there are always incentive changes from Microsoft. And the view which we have is that this year in October, there's no negative change At all, it goes actually in the opposite direction. Thank you. Very helpful. Your next question comes from Andreas Muller from ZKB. Please go ahead. Your line is open. Yes. Good morning, gentlemen. I've got a question on LATAM and also on the rest of EMEA, which was growing Not really well. What kind of measures you have implemented in the rest of the EMEA market? When do you think LATAM is going to recover? And if there was also maybe some planned attrition, for example, in Mexico With the Intergroup full acquisition. Yes. So thanks, Andreas. Let me start with LATAM. So the measurements over there is really going from a Remote sales motion into a contact sport again. Sales is contact sport, right? So that has now already evolved In the last couple of weeks, you see the cases in both countries going in the right direction, not yet over it, but It's absolutely improving. We already see this in the numbers. So it's a re pivoting of the sales motion and it's a re Very positive track and will continue to be so. Also, some other major countries in EMEA, but we have 2, 3 countries Where we were not happy with the performance in the first half of the year, what we have changed is the approach to the portfolio And the sales activity and the sales motion, and we already See, again, an impact, which has already kicked in, in the 1st month of the second half of this year. All right. Then my last question on the SME side, which seems to recover. Can you maybe give some size metrics, how that's going to recover? I think In that, of course, the pay as you go factor dilutes a bit to this growth, But just to get the feeling how this SME sector is coming back? Thank you. Yes. So we 2 messages over here, Andreas. The first one, it is not geography specific. We see this across the globe now. That recovery on the SME side, we have seen is 1st in North America in Q2, but we see it now across the globe. And for us, the metrics and the indicator is, of course, the acceleration and the growth of our X Simple bundles, Our pay as you go, where we added 50% more of acceleration, which is now above 70%. So from a target market, pay as you go is absolutely targeted to SME. So you see that rebound happening through that. The other aspect is that also SMEs in the meanwhile are really interested in the digital customer experience. So they are driving also towards the digital supply chain on our side. We have a light version for them compared to the enterprise side, and they are Driving to our production. Okay, thanks. That answers my questions. Thanks. Thanks, Andreas. Your next question comes from Ben Castiglio from Exane BNP Paribas. Please go ahead. Your line is open. Hi, good morning. Thanks for taking my question. I had a question on you're seeing strong growth in your x simple bundles, As you go to the consumption, can you quantify that in terms of the short term negative impact to software and cloud gross profit from the revenue recognition standpoint? And then the offsetting or corresponding positive impact from services as more GP gets booked over there. And how long do you think a Headwind from the shift to more pay as you go consumption could last, is that a 2021 story? Or is that something that could continue to be a headwind in the outer years? Thanks. Thanks, Sven. Yes, so the dilution or the shift from software and cloud into services, Again, we are driving a strategy over here for us. This is really creating more lifetime value on our customer base. But if you look at the addressable market of our payer CGO, it's SME again. If you look at our overall portfolio with Microsoft, that's the addressable market which We have to consider. If from a metrics point of view and from an achievement number point of view, what we can tell you is, that we are already Halfway there. So from an addressable market, from a target market, we are halfway there to convert Our customers to pay as you go from a normal subscription base. So it will take us another 18 months, 24 months Max to convert the remainder part of it. Alex, you want to say something on top of it? Hi, Ben. Hi, Ben. Yes, I would say we want to dive in a bit more into this dynamic Just to paint a picture for you on the impact on software and clouds and services and solution. It is a meaningful impact, But what we want to just again highlight with a simple example is while it has an immediate impact As you would see in the first period when you go from a in any traditional software company going from software to a subscription, It has an immediate impact because you haven't you lose the upfront, but you pick up is the monthly subscription amount and the margin that we make on it. We want to cover this in more detail. I'll just give you maybe a few stats. We see the breakeven for us in about 6 months And over the course of 3 years, which is a typical kind of commitment buying example that we would give you, We see the just the 3 year lifetime value being 6 to 8 times higher on this pay as you go model than you would see So we will then come back and help you kind of quantify the impact on both sides. But in terms of unit economics, It's a very exciting proposition for us. Sure. No, that makes sense. The lifetime value, absolutely. I'm just trying to gauge how long will this sort of short term From that initial shift last fall, but no, I appreciate that. I have one follow-up, just a clarification, if that's okay. I think you mentioned 36% growth in Solutions and Services ex Intergroup over the $16,000,000 contribution. Can you just give an indication of the contribution from the other Yes. Thanks, Sven. For us, We always separate out the bigger acquisitions, which is what we did with Comparax and what we did with Intergroupo. The other ones are bolt on acquisitions. That's part for us as business as usual then. And It's ramping. It's just simply ramping up capabilities faster than we would do with an organic hiring. So we are not really separating them. Okay. Thanks. Thank you. We have no further questions at this time. Thank you all for participating. We can now disconnect. Thanks, everyone, for joining us. And for our analysts, I'm looking forward to our Q and A later. Thanks for making time for us. Have a great day. Bye.