Cint Group AB (publ)

STO:CINT

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Hello, everyone, and welcome to the Cint Interim report Q2. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions].

I will now hand over to your host, Giles Palmer, CEO, to begin. Giles, please go ahead.

[Giles Palmer, executive]

Good morning, everybody. Do we have video, we don't, do we? So we'll just walk through the deck, right? Correct. Patrik?

[Patrik Linzenbold, executive]

Yes, correct.

[Giles Palmer, executive]

Okay. Actually, I'm really sorry. Can you e-mail me the deck that you're working on, please? Because I actually think that I have a different one and I just want to make sure that we are totally aligned on slides. Sorry about this.

Yes. Good morning. Thank you for joining, everybody for our Q2 results. The way that we're going to do this is that we'll walk through the deck that -- so, Patrik, how are people seeing this deck?

[Patrik Linzenbold, executive]

It's coming in the e-mail.

[Giles Palmer, executive]

Okay. All right. Very good. And then -- so I will start off and I will talk through the first dozen slides or so, and then I will hand over to Niels Boon, our CFO, who will walk through the financials in more detail.

All right. So let's start with Slide 1. Okay. That is so frustrating. Sorry, everybody. I haven't got the right deck in front of me, which I feel incredibly embarrassed about. Okay. Very good. So Slide 1 is the same as before. This is the Cint Exchange, basically, we joined panel providers who provide access to millions of respondents, to companies that want to get their surveys answered.

So we are the world's largest service exchange. And just on that, size is important because in any marketplace, the buyers go to where there's the most choice, the most supply the -- where they can get access to large amounts of people or niche audiences and suppliers or panel providers go to where there are the most buyers because they get the best price and they obviously get to monetize their panel. So size is important, which is why we said here that Cint is the world's largest. So let's move on to Slide 3.

Broadly, it's sort of a low drama quarter in terms of the economics of the company. As we've had said here, stable sales with [indiscernible] I'm talking year-over-year. We're pretty flat year-over-year. There's some -- obviously behind that, there are some puts and calls. In particular, the Media Measurement business continues to have a very strong performance. I'm very pleased with the way that that's going.

And as I've said in the report, we are investing more there. We think that there's more opportunity and we are going harder at that part of the business. And the Cint Exchange, it's no secret that the consolidation of Lucid and Cint in particular, that are also P2Sample and GapFish, is complicated. It's extremely complicated, and we have a very clear plan, and we're executing our plan step by step.

But we are -- the nature of this kind of work means that we're very internally focused or rather more internally focused than one would ordinarily be when you're not integrating large bits of technology. So that has an impact on our ability to kind of innovate and really push that side of the business forward which is why there's so much focus internally from me and the rest of the management team on integrating these technologies. Once we have got that done, we enter a whole different phase of the life of this company. So there's incredible focus internally and extraordinary levels of work going on to integrate this complicated technology stack.

So it is progressing. There are a couple of small delays in certain areas, the new, what gets called internally user interface, but really it's the application, it's Cint Exchange. We're rebuilding it, we're rebuilding the front end, we're rebuilding the user experience. We're taking years and years of learning and baking it into our new product. And we launched it internally in Q1. We're testing it with customers. And they've just been more bugs than we're expecting. And we've fixed up nearly all of them now, but it was -- it's more complicated than we expected once we started kind of road testing it.

So there's a few months delay on that. And then there's a couple of months delay on the panel management system that allows us -- will allow us to plug in different types of panels, different types of communities of suppliers of respondents. So it's a hugely important piece of the new Cint Exchange, that's a couple of months late, but it's going to launch in Q3. So there's lots of amazing work going on, but there's a few -- a couple of days in a couple of areas. But nothing that is not unexpected in a project of this scale.

And then the final two points here. Migration of managed services customers is on plan. So managed services customers, this is where we use our product and our technology on behalf of our customers. So that's going super well. And then finally, we took out about $1 million a month or even close to EUR 1 million a month in Q2 from our cost base. 10% of the cost -- the personnel cost for the company, which we've taken the cost of that -- of that exercise in the P&L in Q2. So the redundancy payments are all accounted for in Q2, but obviously, that benefit starts to kind of accrue in Q3 and beyond because that will happen in June. But that's a nod to our very diligent work on cost management.

So if we go to next slide, please. Slide 4. Figures in brief, as I said, nothing too dramatic here. Obviously, we want to get the company back to growth. I mean, there's no secret there, and we didn't. Q2 was not a growth quarter. Now there was a -- we deprecated, we turned off the P2Sample platform in Q2. And that -- it's a complicated thing to sort of describe the impact of that. But basically, the traffic that was going through that platform and that was rooted through to the Cint platform.

And we missed a couple of things during that migration or when we turned that off, which caused some of the programmatic buyers to not be able to programmatically buy basically or they weren't getting the right price through the platform, the [indiscernible] that were using the P2Sample platform weren't getting the right data through the API on the Cint platform, which we think is hard to actually be absolutely kind of confident on this number, but we think it's a minimum of EUR 2 million impact in net sales in Q2.

Now if -- and that was an error, like hands up, we made mistakes. That was an error self-inflicted as it were. But if that hadn't have happened, the company would have, we think, been marginally in growth for Q2, but it did happen. So let's not get away from it. The impact of that, though, was mainly in May, a little bit in June and we think will be nowhere near the magnitude of what we saw in Q2 going forward. So we're pretty confident that we've pretty much solved that problem. But as I said in the report, that this is a complex process, and we can't put it to everything that's going to happen. And there might be other issues as we deprecate platforms, turn things off, unify our tech stack and move all of our customers onto it and as I said, to get to a new phase of innovation and growth.

So yes, the numbers are there on the screen. I mean I won't read them out because it's they're self-evident. But as I said, net sales, a slight decline, good cost control, but we took a significant amount of redundancy costs in Q2.

Next slide, please, Slide 5. Focus on product integration, customer migration. I've said this already, but it really is and I said this when I came into the company, the mantra that we have internally is consolidate, standardize and optimize. That's the phase, we're still in that phase. We're getting through it. As I said, I'm super proud of the team and all the work that's going on. It's extraordinarily difficult, but everybody is really working very diligently, and we have a very clear plan.

And as I said earlier on, there's a couple of delays in 2 particular areas. But in general, everything else is on plan. And also decommissioning, deprecating, one of the 4 platforms that were there when I joined, getting that done is a landmark moment. And then we've got -- we've got -- we've already deprecated GapFish, we've deprecated P2Sample now. We've got the last job now, which is integrating Cint and Lucid and releasing our new application. And that, as I said, is the core focus and then migrating our customers.

So a final point here, investment in automation, AI and the new Cint exchange through customer's feedback on the feasibility of getting their surveys answered, saving them time and money. We've spent a lot of time, our data science team spent a lot of time on this feasibility functionality in particular. So what this is, is that a customer comes in, they have a complex request or a complex survey that they want to get answered, and they've got a whole bunch of different respondents that they want to have answered that survey.

And we are able to tell them how quickly they can get it done and for what price ahead of time. And this is the best in the market. It's driven by pretty advanced AI and it works super well, and it also works extremely quickly, which is important for programmatic buyers. So very proud of that work, and that is rolling out in the new platform, which is just a small hint to the fact that we're not just consolidating, we're not just sort of cleaning up, we're actually innovating as well.

And that leads us on to the next slide, Slide 6, Media Measurement. More resources are going into this part of the business because it is performing super well. It's high margin, it's high growth. And we think there's more to come here. So just I called out 3 things that we're doing here, adding social media data, insights from social media data as well as the ability to measure digital display ads out of home, so in public. So this is a new functionality that we added during the quarter. And we've also upgraded the reporting to analyze the results that would come back using more advanced techniques and AI.

So just very briefly, the Media Measurement business is super interesting because we ask the people who have actually seen the ads, we can match through cookies and mobile ID devices and hashed e-mails, the people that get served advertising, digital advertising via Trade Desk, Amazon, Netflix, Disney and so on. We can ask them before, during and after the campaign, their opinion about the brand. So this is about brand uplift. And as we have the world's largest exchange, so we have the ability to get to the most number of people. And so we're in a unique position here to actually give brands the sort of emotional response, the brand uplift data around their advertising.

So obviously, you've got behavioral data, click here and buy and so on and so forth. That's obviously very important. But so is brand and so is attitudinal data. And Cint is in an amazing position to be able to deliver this attitudinal data at scale. And it's obviously that part of the business is doing extremely well. But I just wanted to get a little bit of a flavor of what this media measurement business is. It is -- we occupy a very interesting and quite unique space within this sort of area of understanding how your paid media is performing.

If we move -- so Niels, do you want to take it from here on the financial update?

[Niels Boon, executive]

Yes. Thank you. We can go to the next slide, please. So just as a reminder that we changed our reporting format as of Q1. It's in the same slide as we showed last time, but it didn't get picked up everywhere completely. So it is good to remind everyone, so we have the net revenue recognition instead of the gross revenue recognition that we had before. And in terms of costs, we have the function-based income statement right now instead of cost base, and we have a new measure called EBITA and not EBITDA to also include depreciation and basically give a better representation of the company performance. Next slide, please.

So overall, the numbers you just saw really briefly with Giles as well. You can see here the seasonality pattern that we usually have. So Q1 was low, as is always, one of the weakest quarters or the weakest quarter. So we had a nice rebalance in terms of revenues year-on-year. It was still down However, without this temporary supply issue of the migration for suppliers, we would have shown a small growth, but it is what it is, as Giles mentioned as well.

On the gross profit side. You see also the nice rebound compared to Q1, in particular. Year-on-year, it's still a little bit lower in terms of margin. There are two items in here. One is what we call direct labor costs, as people are working directly with the other projects basically and with the clients, making sure that the projects are happening. And the other part is housing cost and housing is the bigger one. This deprecation of P2Sample that also triggered the revenue issue of EUR 2 million is also going to save cost on the housing side actually, which will be visible more from Q3 onwards. So this overall a net positive. It's just that right now, during this migration, you lost on the revenue side, and you don't see the full savings yet.

And going to the right on the EBITA, you see also a good improvement, both compared to last quarter and also year-on-year, despite a slightly lower gross margin, and this is due to lower operating expenditure, of course. Let's go to the next slide, please.

So here, you have the usual split between Cint Exchange, the main core business and Media Measurement. It's similar as what you've seen in the previous quarters as Media measurement is growing quite rapidly, and that's ongoing still, whereas exchange is in decline. On the right, you see the regional split and also split out now from the Americas, the Media Measurement business because it's mainly in the Americas.

So therefore, the Americas actually look quite stable year-on-year. However, that includes a lot of the Media Measurement business. And without that, it would also have shown a decline similar to the other regions. Maybe we can go to the next page.

There we have the overall P&L. We already touched upon the numbers, of course, briefly until EBITA. I think there's not so much to add, there's a lower cost in OpEx, in particular, G&A. R&D expenses were a bit higher than last year. That has to do with lower capitalization of that work.

So that's also what you would see later in the next page. Overall, EUR 7 million EBITA instead of EUR 6.3 million. And then we have items affecting comparability that I need to highlight or the so-called NRIs, nonrecurring items. Here we have 2 categories this time. So we used to have only 1 category related to the acquisition of Lucid and the integration of that. And that one we always said was going to end in Q2 '24, which is where we are right now, and that's exactly what happened as well. So this is the final time that you will see NRIs related to that. It was EUR 2 million, EUR 2.0 million.

And the other part is, which Giles also briefly mentioned already, we had this reorganization that we announced externally on July 1. EUR 2.9 million NRI is related to that, that's a provision for expected severances. So that's a one-off thing that also shows up here, is mainly noncash in Q2 and coming later during Q3, maybe a little bit in Q4 in terms of cash. So overall, EBIT is still including all those effects also improved a little bit. Next slide, please.

On the cash flow, so overall, net cash flow was kind of stable. So it was EUR 500,000 minus as compared to minus EUR 10 million last year. So that's a big difference. You see the different elements. Operating cash flow improved by EUR 3.3 million, and that was including EUR 0.3 million higher interest payments. So it would have been EUR 3.6 million better year-on-year without that effect.

Then the second element is, of course, the working capital. So there, we had a minus of EUR 2.2 million compared to EUR 8 million minus last year. So that's better year-on-year, mainly driven by accounts payable. And then here, you see the cash flow from investing activities, which is mainly the capitalized development, both what I mentioned before, the P&L as well. So it's lower than last year. So you capitalize less of the R&D costs and therefore, you see a small increase of R&D cost in the P&L and actual lower amounts here.

Yes, overall cash, EUR 30.8 million rounded and the net debt -- yes, that's maybe also good to highlight actually. We also had another loan amortization payment of EUR 2.3 million in Europe. That was the second one. We had the first one in Q1 and the second one now in Q2. So therefore, that amount is less. Net debt, of course, goes together with cash, and increased to EUR 79.5 million. Next page, please.

This is my final one. It's about working capital deep dive. It's a bit of a mixed picture so you can see that it decreased compared to the previous quarter by EUR 2.5 million in absolute amounts and also compared to customer strength, it went down from 10.4% to 9.7%. However, when you look at the drivers, you see that accounts receivable increased a lot by EUR 10.9 million and account payables by even more, and therefore, the net effect is positive.

But of course, I think that I'm personally focused on the most is accounts receivable and bringing that down. So this is one of the main areas that I'm working on with not just the finance team but also together with the commercial team, even with also other teams involved to bring this down. It's a complex kind of structural issue, but we are getting down to the bottom of it, and there are so many elements that are coming together to improve this. However, you don't see it yet in the numbers here. And the good news is that we are not in dispute with clients about that they don't agree with the invoices. It is more of finding ways of how to get and pay them efficiently, getting rebate structurally also going forward.

So I think overall, quite confident that we can solve this over time. But as you can see here in the numbers, it's not shown yet. I think that's actually my final slide. And we can go back to Giles.

[Giles Palmer, executive]

Thank you, Niels. I'm going to repeat what I said earlier on because this is the focus of the company, Slide 15, please. Consolidate, standardize, optimize, create a company that is lean and efficient and able to then refocus on innovation and building technology that will drive the company forward. So it's the same message. We're still in the middle of it. But it is going pretty much apart from a couple of small areas to plan.

And as I said earlier on, I'm very grateful to my team and the rest of the company for the work that's going on. It really is -- you can't see it from the outside, but it is -- we're working incredibly hard to make this happen. So yes, it's a very sort of repeat of what I've been saying for a while. But hopefully, that gives some confidence that we are actually doing it because we are. So I guess let's move to Q&A because we've said, I think, all we need to say.

[Operator]

Our first question goes to Thomas Nilsson of Nordea.

[Thomas Nilsson, analyst]

I have two questions. First, in terms of the reduction in sales of EUR 2 million in Q2 due to panel providers not being on the new platform. What do you expect in terms of effects in the second half of the year from this disturbance?

And secondly, net working capital is still very high as a percentage of total customer spend. What trends do you see here in net working capital? And do you see any risks of bad debt in accounts receivables, which now stand at EUR 109 million?

[Giles Palmer, executive]

I'll take the first one, Niels, and then maybe you can answer the second. We -- as I said earlier on, we think that this particular issue is pretty much in the rearview mirror. So it's difficult, I don't have an estimate of the impact in Q3 or Q4, but we think we're pretty much back to kind of normal sort of operations after the deprecation of P2Sample. So yes, we think that this issue is pretty much behind us.

Niels, on the [indiscernible] net working capital?

[Niels Boon, executive]

I'll take the second one. Yes. As I mentioned, indeed, like I agree, and we all agree that it's still quite high. We do take that provision every month. And yes, so we are, I think, good with that as well. As I mentioned this well, we are not in any like major disputes about the amount. So from that perspective, like I'm quite confident that collectible in particular with the bigger clients, they're also quite healthy companies. Many of them also shared their financials publicly.

So from that perspective, and also the way they collaborate with us on solving this problem because it's like a strong collaboration with clients obviously also here. I don't see major risks from that perspective. Of course, like there's never zero risk in life. But overall, no major bet or risk in here. And also, as I mentioned at the beginning, we already take this, that allows as well. I hope that answers your question.

[Operator]

The next question goes to Predrag Savinovic of Carnegie.

[Predrag Savinovic, analyst]

Start with OpEx. I think if we look at the underlying OpEx trend, it's improving. So is this the level you have here, do you think that is representative going forward? Can this kind of OpEx improvement stick? I think you called out to decommissioning some platforms. So that suggests that this could be a new normal? Is that correct?

[Niels Boon, executive]

Yes. There are 2 elements to my answer. So short one is, yes, that's correct. And indeed, we have deprecated one part of the systems. It's not the biggest part, but it will help. That part will be seen in cost of services sold in the gross margin.

And the second thing to the answer to the second part is that we just have this reorganization announced, right? And that has not been shown yet. So that will come during Q3, as of Q3, I have to say. So this -- yes, we have a strong cost focus, and we keep on focusing on costs in general, where we can optimize. We will optimize and it's like a strong focus of the whole company.

[Giles Palmer, executive]

Yes. And do you want to say a little bit more about that, the cost takeout, Niels? The quantum and the fact that just repeating that, that wasn't even in Q2, right? That is net new cost reduction for Q3 and beyond.

[Niels Boon, executive]

Exactly. It's mostly in the commercial team so it would be here in the P&L in the sales and marketing expenses line. It's about EUR 900,000 a month, so EUR 10.9 million a year that we expect from this at least. And yes, that's going to come and be feasible going forward.

[Predrag Savinovic, analyst]

And a follow-up question then on cash flows. So there is a free cash flow improvement definitely from the last quarter. But if we just look at the deltas between the accounts receivables increased quite a bit sequentially and then payables, there's also a big change. If you can just discuss these changes. Is there anything you want to flag or we should be aware of because they're quite big on a sequential basis?

[Niels Boon, executive]

Yes, exactly. I think overall, I already discussed it a little bit before, of course, maybe the combination between accounts receivable and accounts payable, what's maybe good to know is that many parties can be on either side from us. So we have them as a supplier and the customer at the same time and often we discuss both sides together in parallel so that we make sure that we can clear both things at the same time.

And then in the meantime, sometimes, it means both are going up, right? And then both can go down within 1 week once we have kind of sorted the administration out on both sides and can [indiscernible] each other. So that's maybe one additional element that's not so obvious from the numbers themselves.

Other than that, another factor that I didn't mention yet is that June is our strongest revenue month generally of the year so far, I mean, because, of course, Q4 will be better seasonally speaking. But yes, June has the highest revenues so far in the year. And of course, we took a snapshot on June 30 of accounts receivables as well. So that includes a lot of the newer revenues in there too. And there's another element that drives it up like always that in at the end of Q2. Yes.

[Predrag Savinovic, analyst]

And final question, I think it was in the last quarter you discussed, I believe, it was both Netflix and perhaps Disney as well as customer wins within Media Measurement, if you could walk us through your expectations with those customers, now that [indiscernible] some time, what can they bring? Why they chose you? And the opportunities around this partnership?

[Giles Palmer, executive]

Well, we're not going to give sort of guidance on the specifics on the numbers. We've not done that before. And we actually don't break that out in the internal forecast from -- on a sort of -- to that level of granularity on a month-by-month or quarter-by-quarter basis. But I'll sort of repeat what I said before. The reason why those companies chose us is it's not a fluke. It's not -- there's a good reason. And I'll kind of refer you to my answer earlier on, which is -- we have the ability to ask the people that see the ads before, during and after the campaign, questions around brand kind of perception, a scale that nobody else can do.

So it really is a very kind of advanced and important solution that we can give to the media valuation sort of use case or industry or advertisers in general. So yes, it's a very good product. It's a very -- it's a -- yes, it's not a fluke that it's performing the way that it is.

[Operator]

The next question goes to Daniel [indiscernible] of Handelsbanken.

[Unknown Analyst]

I have a question first on -- you mentioned that you will more or less, do a rebuild on the Cint Lucid platforms and that you also have new features on top of this. Can you give us more on the launch date? And also if possible, if you use a lot of external IT consultants, et cetera, that will be less needed ahead and if any magnitude as possible to give?

[Giles Palmer, executive]

So launch date is -- we don't have a specific launch date that we've gone public with, but it's Q3. We have a lot of our suppliers, especially the most important ones, all the panel providers who are plugged in to the new Cint Exchange and we're very happy on the panel provider side. We're adding bits of functionality to the platform that will get it to a point where we can roll out to more and more customers for them to use themselves rather than us using it for them.

The second piece of your question, external consultants. We're doing all of this work ourselves, right? These are internal teams. So as they finish the work, then they can move on to innovation and extending functionality and so on and so forth. So that's what I say about consolidate, standardize, optimize and then we put ourselves in the position to really focus the R&D department on innovation, which is going to have a significant medium- to long-term impact.

[Unknown Analyst]

And if I may also ask you on the revenue per complete is on the decline and mitigates some of the volume uptake obviously. So my question is this mostly due to lower pricing on average? Or is it more about less complex questioners as a trend?

[Giles Palmer, executive]

Well, those two are very related, right? So it's both of those two things. And in particular, the polling questions. So for the U.S. election, for example, and the U.K. as well, but more in the U.S. The questions that pollsters ask tend to be shorter and therefore, sort of cheaper from a CPI, cost per interview, perspective. So that, I think, has had an impact. We don't actually -- we haven't done the analysis to say exactly what and it would be quite difficult to do. But the shorter interviews are obviously cheaper and the shorter interviews tend to be more in there. But there's more of them in polling. Made sense?

[Unknown Analyst]

Yes. Of course. But if you would do an apple to apple, i.e., the same, I suppose would give some kind of full part price reduction in the market [indiscernible]?

[Giles Palmer, executive]

Sorry, I did not -- say that again, please?

[Unknown Analyst]

If you adjust for the different complexity, would it be possible to say anything about the apple-to-apple price decline that might be there?

[Giles Palmer, executive]

Yes. We haven't done that analysis. I mean -- so there's -- I would say that it's reasonably stable. But -- yes, I mean, one of the things that we will look at from an ongoing perspective is how we can bring in more choice on the panel side in order to give our buyers the ability to access what higher value respondents, not just general population. And so these are sorts of things that we're looking at in order to sort of drive higher cost per interview.

[Unknown Analyst]

Perfect. I may also have a final question on Media Measurement, obviously mostly in the Americas, but how is the potential to bring this on more on today back in EMEA?

[Giles Palmer, executive]

For sure, there's potential. The -- it's structurally setting this up, we have to do a deep integration with the platforms. So it's -- that makes it very, very sticky, obviously. But it's not something that you can just sort of press a button and throw enormous resource at it and expect it to sort of just roll out automatically as it were. It's -- we build it sort of brick by brick. We do have a team that I think, started last year from memory in EMEA. And we also have -- we've also started to deploy commercial folks in APAC. So we are looking to expand, but we still see a huge potential in the U.S.

[Operator]

The next question goes to Charlie Brennan of Jefferies.

[Charles Brennan, analyst]

I'll do three, if I can. Firstly, can I just go back to the working capital issue. We've spoken about it a bit already. But can you just remind us what the targets are that you're working towards? And how much extra working capital do you think is tied up in the business that doesn't need to be there?

[Niels Boon, executive]

Yes. I can take that indeed. I think, yes, so overall, it's, of course, dependent always on customer spend, right, as well on the revenue level. So if you take the current situation and where we are. I would say, a reduction of about 15% should be possible structurally. So you can calculate that from the 109 basis here. However, to get there, that will not go in a straight line but client by client, right? But yes, that should be possible in there. [indiscernible].

[Charles Brennan, analyst]

So just to be clear, is that 15% of the net working capital? So we're focused on EUR 5 million?

[Niels Boon, executive]

I was referring to accounts receivables so to the [indiscernible]. And then the [indiscernible] that develops as well. [indiscernible] right? This is directional.

[Charles Brennan, analyst]

Yes. Secondly, can I just ask about the overall market environment. You're broadly suggesting that growth will be flattish this year. What do you think the market is growing at? And when you try and reaccelerate Cint, I'm just trying to get a sense of whether you're relying on the market needing to reaccelerate or whether there's an obvious opportunity for you to reclaim some market share?

[Giles Palmer, executive]

Yes. Look, I think both. I like to focus on what I can control rather than market dynamics. And like I've only been in this market as it were for sort of since April last year. So I'm probably whatever I say is take it with a grain of salt because I don't have years and years of experience. But I do know that the sentiment from the Board is that there's a sense that Cint was more susceptible to the macro environment than was somewhat expected.

So I think from a market perspective, the sentiment is as the market improves, so will Cint. And then from reclaiming, that's really around the way I think about that is around the innovation of the product and what we can offer to the market. And we have tons of ideas on how we can improve our offering. And either reclaim as it were, as you said, some areas of loss or net new because the boundaries and market researchers at work somewhat blurry and it's not -- it's difficult to say, okay this market -- we have buyers and suppliers who are the same company.

So it's not easy to put a sort of a hard line around. But my view is that we will innovate around product, and we will get very disciplined around the commercial organization, and that will drive performance of the company, standard stuff, basically.

[Charles Brennan, analyst]

And then lastly from me, you very helpfully tried to simplify some of the communication to us. And I think I appreciate the move to net revenues and EBITA. Just against that backdrop, what was the rationale of using EBITDA as the primary performance metric in your latest LTIP scheme. I guess the difference between EBITDA and EBITA is going to be some of the depreciation. At some stage, we're going to see some of these intangible assets reflected through the P&L. If you achieved the sort of 15% EBITDA target for your LTIPs, what does that relate to in terms of EBITA growth?

[Giles Palmer, executive]

Yes, it's a very good question. Niels, I don't know if you know the answer to that. Well, there's a bunch of things in there, Charlie. Your question was why EBITDA and not EBITA. My answer to that, and Niels you might have a slightly different point of view, but is that it's for consistency and ability to actually give shareholders year-on-year sort of comparables. So that it was really in order to make it somewhat easy to sort of present to the market. That's my view on that. There was no other real reason. I don't like EBITDA. I think it's too -- you can just muck around with it far too much. I like simple metrics, as you said, Charlie, that give a very clear read on how the business is performing. But that's my answer on that. There was no other reason. But Niels you might have a different point of view.

[Niels Boon, executive]

Yes. No, exactly. And I think why the program of the LTIP is still on EBITDA is simply because of the timing issue because to get the shareholder approval in place, of course, and that was already done on a communication of EBITDA, which was the metric that we were still on by then. And then at the end, we could not or did not want to confuse people anymore by changing also that in there. So I have not modeled it out separately, like what it means exactly one-on-one in EBITA.

But of course, we are moving in the right direction, right? And we are going to optimize no matter what for EBITDA as well, meaning you take the overall R&D expenses into account and make sure we optimize those kind of regardless of capitalization of those costs and depreciation of those costs. This is how we look at it internally. Anyway it's just more for a practical reason that we have the EBITDA in the outlet and EBITA in the reporting.

[Charles Brennan, analyst]

I'll put my hands up and say, I'm not particularly good at forecasting depreciation schedules. It's -- is there anything you can do to help us in the scaling of depreciation going forward?

[Niels Boon, executive]

Yes, I would have to get back to that. It's also dependent on the whole R&D road map for the next few years, but talking along some periods here. I think maybe Giles did not touch upon it too much, but we are working towards a strategic plan for the next 3 years and then also it becomes more concrete and more clear for us what exactly we will be working on. And then, in particular, we'll be working on also with the R&D team, which is the capitalization part that then will be depreciated as well. So it really depends on the projects that they will work on in terms of innovation, right? That's what the capitalization is. But before you can make any forecast of the depreciation schedule in itself, you need to forecast what they're going to work on, that's even more interesting at this stage, Yes. But I appreciate the question.

[Charles Brennan, analyst]

Okay. I'll leave that to your budgeting then. It's going to be a lot better than mine. Good luck for the rest of the year.

[Operator]

Thank you. We have no further questions. I'll now hand the call back over to Giles for any closing comments.

[Giles Palmer, executive]

Yes. Thank you for joining us today. As Niels said, we're working on a 3-year plan. I mean that's obviously an ongoing thing, but we're putting a lot of effort into that right now. And as we start to shift our gaze towards post-integration, life post integration and a return to a more innovative innovation mindset. And along with that, we'll do more of a look-forward Market Day with updated targets in Q4. So just kind of end on that.

But I get one final thing to say, as I said at the beginning, somewhat of a low drama quarter is our view on Q2, but it masks a ton of work that's going on the side of the company to create a unified platform and set us up for medium- to long-term success. And thank you, everybody, for joining. Thank you for your questions.