Cancom SE

XETRA:COK

Earnings Call Transcript 2020-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the earnings call of CANCOM SE. [Operator Instructions] Let me now turn the floor over to Mr. Bucher, Manager of Investor Relations.

[Sebastian Bucher, Manager of Investor Relations]

Ladies and gentlemen, welcome to today's Earnings Call on the Results of the First Quarter 2020 of CANCOM Group. My name is Sebastian Bucher. I manage Investor Relations at CANCOM. And with me today are Mr. Rudi Hotter, our CEO; and Mr. Tom Stark, our CFO. Both will be available for questions after the presentation. Without further ado, I would like to hand over to Rudi.

[Rudolf Hotter, CEO & Member of Management Board]

Hello, group. Hello, together. Significant events in Q1 2000 (sic) [ 2020 ]. Q1 with a strong growth in revenue, especially driven by client hardware and software. EBITDA margin decreased due to product mix and special negative one-off effect from severance payments.Cloud Solutions. Our annual recurring revenue stays on a very strong organic growth path and supported by M&A. Annual recurring revenue development highlights CANCOM's transformation to strengthen the managed service business.Significant event, for sure, coronavirus. CANCOM was fully operational during shutdown. We had about 80% of all employees working remotely from home office. Thanks to our digital workspace solution based on AHP, we are -- we were fully operational.We had outstanding growth in revenues in the Q1 2000 (sic) [ 2020 ], EUR 453.8 million, nearly EUR 100 million more than the quarter the year before. It's a 27.3% growth, strong organically growth by 22.7%. The EBITDA, EUR 26 million. EBITDA growth, 3.5%; organically, minus 8.3%. So the EBITDA margin compared to previous '19 first quarter, 5.7%. There was a high demand for hard and software that pushed revenue growth. The organic EBITDA grew by 1.6% and EBITDA margin is at 6.3% without special effect from severance payments, EUR 2.4 million for Board affairs.Cloud Solutions, we had a strong top line growth, 35%; organically, 24.1%. The EBITDA growth, 19.3%; organically, point -- 0.8%. EBITDA margin, 21.6% compared to previous year, 24.4%. The trend towards cloud way of computing is intact. There's a strong demand for managed services. Hard and software sales in the -- within the segment lowered the EBITDA margin. And it is like -- a second reason, with the strong organic growth, we need some external staff, some freelancers. These are more expensive. And we will reduce external workforce over the course of the year.IT Solutions sales, 25.5% growth; organically, strong 22.4%. The EBITDA, 1.8% growth; organically, 1.5%. EBITDA margin was lower. Margin -- margins in the trading business, under pressure, 3.8% compared to 4.7% in previous year.There's a strong demand for laptops and tablets, especially driven by home office and remote working trend, especially in the corona crisis. The Q1 2020 largely was unaffected by corona crisis, only the last weeks in March.And our strategic transformation progresses well. We moved more and more from an IT world, traditional market to an IT-as-a-Service market. So the year-to-year growth, 36% in annual recurring revenue. We can see that Cloud Solution is the larger part in -- from the segments. Cloud Solutions, EUR 18.9 million compared to previous year, EUR 15.8 million; IT Solutions, EUR 14.1 million compared to Q1 '19, EUR 13.8 million. For some financial data like operation -- operating cash flow, I want to give over to Thomas Stark.

[Thomas Stark, CFO & Member of Management Board]

Well, my name is Tom Stark, CFO of CANCOM. And as usual, I'm very pleased to guide you through some of the financial KPIs. So this time, with some differing aspects as clearly, I think everybody is pretty much aware that facing the corona crisis, we had different priorities facing the financial KPIs. Everybody is pretty much aware that there were quite some dangers or risk of shortfalls in the supply chains, that the question was, as indicated in the earnings call 6 weeks ago, whether the availability of products will be stable or not, whether the production lines would -- could be ramped up by the suppliers and the vendors and whether we will be capable to get the products that we need in order to fulfill the demands of our customers and to fulfill the requirements for the projects that we had in place.So clearly, differing to any other quarter than we had, we have communicated that it's not the highest priority to meet the expectations for the financial KPIs, but to assure the availability of the business, of the products that we need. And therefore, this is something quite special from a financial point of view.First of all, the cash and cash equivalents that we have shown in the balance sheet show roughly at EUR 297 million. So very comfortable situation for different purposes, for the financing of the business clearly. Net cash is EUR 291 million. And as far as for M&A activities that I will comment on later.If you look at the operating cash flow of the first quarter, we show minus EUR 60 million. Clearly, this is triggered by several effects. First of all, we have higher inventories. Secondly, we have, due to the increase of the revenues and please be aware, the first quarter '20 showed the highest revenues that we have ever had, even topping the fourth quarter 2019 revenues. So clearly, we have more money tied in accounts receivables and in the work-in-progress positions. So we ended up the end of the first quarter with a minus of EUR 60.4 million. Clearly, this time and to provide you with some new information as well for the second quarter, this is not the most important thing. We have other priorities. We are focusing on, well, being able to deliver the products to our customers. And if you compare this with the high demand that we have shown in the first quarter, it was, from our point of view, the right decision to take.Second information is, well, going forward, what is the situation at the moment with regards to the availability of products and the supply chains. From our point of view, we are pretty comfortable with the situation. We think we have overcome the risks that are in -- that might incur with the supply chain shortfall. So we will restart managing more tightly the financial KPIs for -- to the end of the third quarter. We will see in the end of the second quarter as well an impact on, well, prioritization of the availability of products and being able to fulfill the demands of our customers.CapEx is in line with the targets that we have communicated. Notwithstanding the tremendous growth in the first quarter, we have even less CapEx in the first quarter 2020. The CapEx ratio is 1.7%. And two more comments on this. First of all, we have no internal restrictions for CapEx spendings. I think everybody is pretty much aware that we are -- have a strong belief in the growth path that we are following, never mind for the second quarter that Rudi will comment on later will bring. So we have no change in the internal approval processes, and this is something that should be underlined. Nevertheless, clearly in line with the targets, significantly below 2% CapEx-to-sales ratio, and we perfectly met expectations.The outlook on IFRS amortizations from PPA has not changed. I think we have commented on the M&A topics and in the earnings call 6 weeks ago. So substantially, there's no change in our attitude while identifying, well, targets of quality. But looking at what the impacts of the crisis might be to potential targets, we are still in a very good position. We have enough funds available to go on, on this path. And for this reason, I think we are in a very good position and have no change in the split of the amortizations from PPA.Last but not least, the financial calendar 2020. Two things to comment on with regards to the financial calendar. First of all, the hint for the Annual General Meeting in Munich, which will be the online event on 30th of June. The first time as an online event, but I think having had already a lot of different companies doing -- practicing an -- a virtual meeting, an online event, this is already nothing new to you.Secondly, the half year financial report will be submitted or released on 13th of August. That means we will be back on track. So it will be delivered reliably in time. And from this point of view, we have overcome the corona effects that we had and the end of year impacts that have delayed our first quarter release to today, and we have now -- we are back on track.And that's the perfect moment to hand over back to Rudi to explain or to comment on the forecast for the fiscal year 2020.

[Rudolf Hotter, CEO & Member of Management Board]

Yes. Thanks, Tom. Our forecast for fiscal year 2000, balanced outlook confirmed. The megatrend towards digitization remains intact for all CANCOM markets. We already see significant negative effects in revenue and earnings in April and March. So Q2 will, for sure, be burdened significantly by the shutdown. But after the strong growth in Q1 and assuming a normalization of economic activity in Q3 and Q4, we confirm our full year guidance. And so obviously, for the group -- and forecast moderate growth in revenue, gross profit, EBITDA and EBITA. For Cloud Solutions, significant growth in revenue, gross profit, EBITDA and EBITA and significant growth in annual recurring revenue compared to December 2019. For IT Solutions, moderate growth in revenue, gross profit, EBITDA and EBITA.

[Sebastian Bucher, Manager of Investor Relations]

Well then, thanks, everybody, for joining us today. And yes, stay safe in these days and looking forward to hearing from you again in August.