Datagroup SE

XETRA:D6H

Earnings Call Transcript 2023-Q1

[Operator]

Welcome to the DATAGROUP SE conference call on the figures for the first quarter of the financial year 2022/2023. [Operator Instructions] The presentation is also available for download in the Investor Relations section on the DATAGROUP's website.

I would now like to welcome Mr. Andreas Baresel, CEO; and Mr. Oliver Thome, CFO of Data Group.

[Andreas Baresel, executive]

Good morning. I'm happy to welcome you to our Q1 figures presentation this morning. And with me, my colleague, Oliver Thome, and I'm happy to show you our results of the Q1 within the next hour.

So we can say we've started again with a very good Q1 into the new fiscal year '22/'23 and with quite solid numbers. And I think these numbers prove again the sustainability of our DATAGROUP model, of our strategy to focus on recurring revenues in long-term contracts based on the CORBOX service portfolio. We managed to grow revenue and EBITDA again. So we have increased our revenues from EUR 123 million to EUR 127.7 million compared to Q1 of the last fiscal year, and we have increased the EBITDA from EUR 19 million to EUR 19.7 million also slightly compared to last year's Q1. But if we look on the EBIT, we see a much better development there.

We have an also overproportionate increase in EBIT against the EBITDA. So the EBIT rise from EUR 10.2 million to EUR 11.5 million, and you see there the additional effect of our CapEx reduction as we were following in the last year's. And with this development, we have managed to reach the 9% EBIT margin target in this quarter. The EPS grew from EUR 0.74 to EUR 0.87, so also an increase there. And overall, we can say we see here the operational leverage of further efficiency gains through our production model, on the one hand, and also through our efforts in further automation and other production efficiency measures we have done through the last years.

Another effect we see also in the Q1 in '22/'23 is the strong order intake also coming from last fiscal year. You might remember that with a new CORBOX contracts, it takes a transitional period of several months until these new contracts become effective. And we see the effects of the last year's additional new contracts. We've won last year 18 additional contracts, 20 new. Only 2 customers have not renewed, so in a net result that were 18 additional contracts. And we have also expanded 20 contracts and 34 contracts renewed. So ensuring also the strong CORBOX customer base we have. And by the growth of this core business with additional customers, we now see, and also we'll see in the next quarters, the effects in the P&L, which is additional revenue and also with a good margin of the CORBOX business we have in our core business here.

And that's something we are quite focused on, really focusing on this CORBOX core business. So if you know our past presentation, we have changed a little bit here the way how we show our revenue split. So on the lower side, we now see the CORBOX core business, which has developed over the last years more and more. And if you -- if you calculate in detail the development in the last fiscal year '21/'22, we see an organic growth of 6.4% in this core business. And that's what's quite important for us because on the top line, we always have special effects of retail business or special effects in transforming revenues of new acquisitions, which don't do CORBOX business from the day they are joining DATAGROUP, of course. But we are transforming these revenues and also, of course, sometimes reducing low-margin revenues.

But if we focus on the CORBOX core business, we see a continuous growth like compared to the 2021 fiscal year. We have now calculated EUR 6.4 million organic growth. And that's what I'm always saying, is that our core business has a good organic growth even with if sometimes we have on the top line effects of transforming business, especially the business of new acquisitions. And that's something we are -- even in the challenging times we have at the moment, we are still focusing on, more and more CORBOX growth. That's the same we also do this time. Of course, in these times, it's not this easy to still continue the growth in this business. But with our model, we are quite confident that we can continue this way also in the next quarters.

And I would like to give you a short insight only on how we handle with our model these challenges we have at the moment. What are the challenges? It's often discussed in the economy these days. We have a worldwide energy crisis and the cost of energy has increased also during the last 12 months again. And of course, we are also facing this energy cost increases with especially the data center services where you need energy to run all data center capacities. The next point is, of course, the labor market. The wage increases are also, you can name it, inflation there. The IT industry had a strong challenge in getting these -- all these experts, finding the experts, a lack of experts already in the last years. But the wage increases also has its effects here, and I will show you how we try to handle it. We still have disrupted supply chains all over the world, especially what also addresses IT technology, server storage. All these things, we of course also need to run our CORBOX services. And the fourth point, the cybersecurity threat, it's still becoming a more threatened situation there. We still have an increase in the effects on the cybersecurity space, not only because the warrant we train, but it's definitely part of the reasons.

We think our DATAGROUP model is quite strength, handling these effects. How do we do it in detail? Focusing on energy as a first topic. We still centralized for the CORBOX cloud capacities. And the effect of our central production, of course, is that you reduce the number of dedicated platforms, and therewith, you reduce the energy requirement of all these capacities. We are, for example, tracking the number of virtual machines we produce with a certain amount of kilowatt hours energy. And tracking this over the last years, we see a steady increase of the capacities we can produce with the same amount of energy. And this, of course, helps us, on the other hand, to handle the increasing prices. Besides this, we are making multiyear contracts with energy suppliers, so ensuring good conditions. Of course, it's part of planning issue to see -- or to forecast how the energy prices will develop in the next 6 years. But we are using our purchasing volume here to get better purchasing conditions. Besides this, of course, all these measures have a good effect on -- or positive effect on our CO2 neutrality and sustainability because energy we don't even need any more also has a good effect on the sustainability.

In the same way, more or less, our model helps us to handle the labor market challenges. By further consolidation of the platforms we run, we also can reduce the personnel intensity. So consolidation, but also automation or partial automation of the services, we run all these measures and reduce the personnel intensity. And of course, we're also using AI technology since several years now and something which is -- since the ChatGPT discussion came up, of course, a very hot topic. But we are following a quite continuous path there in improving from quarter-to-quarter also our automation abilities there. And that, of course, reduces the personnel intensity, like I said. So with the same amount of people, with the same staff, with the same team size, we can also produce more capacity output in terms of data center delivery capacities. For example, we are tracking there also the number of SAP systems or virtual machines we are producing with the same team size. And we also see a good impact on -- good effect over the last years there.

A further look on the global supply chain issues. There, of course, we also have a positive effect of the further compression of our production capacities. So reducing the amount of capacity we need to produce a certain amount of services. We're ongoing -- follow the data center consolidation, which also reduces the capacity you have to purchase in terms of IT equipment of all kinds. And this help us to hold an additional capacity reserve. So reducing the number of platforms, you can afford a higher number of capacity reserves, and with all these supply chains and securities, that's quite helps too that you have a more a bigger reserve of capacities to being sure to handle the customer requirements of new contracts or increasing capacities from existing contracts. Of course, this also helps us to reduce CapEx requirements a little bit, like you saw. We still have a positive effect of increasing EBIT on a -- compared to a more or less stable EBITDA ratio.

And the last part, again, cybersecurity threat situation. We have -- we are facing this by still expanding our security service portfolio. Security service family within the CORBOX was and the family with the strongest growth over the last 12 months. So more or less, all customers are purchasing additional CORBOX security services now because seeing what happens out there in the cyberspace and knowing that only additional technologies and services help them to address these issues. And of course, also, we at DATAGROUP also renew the services with new innovative technologies. For example, also AI technologies are used to automatically recognize cyberthreats today without any interaction of administrators to analyze these problems. They are automatically recognized by having patterns from further older threats and bringing this knowledge or learning automatically these patterns and recognizing threats automatically. And that's also necessary to help the security situation. And with our centralized platform, we of course can handle these issues than EV..

And that's a kind of development, and I hope it's fine for you to give you a bit more insight on these challenges during this call, that we also can manage to have quite good figures, a good development of our financial figures by strengthening our base, by strengthening this DATAGROUP model. And for the figures in detail, I now would like to hand over to Oliver.

[Oliver Thome, executive]

Thank you very much, Andreas, and I welcome you from my side as well for the presentation for our Q1 figures of the fiscal year 2022/2023. And would like to make a little bit more a deep dive into some selected P&L figures. The market frame and the things which become relevant for us from the market, from the situation outside in, just then very good explained by Andreas Baresel. And what you have just seen in the presentation is that we were able to increase our revenues to a total of EUR 127.7 million. On the other side, you can see that the personnel expenses increased up to EUR 57.7 million, and this is due to the acquisition we made and have now our first consolidation from Hövermann IT and Cloudeteer.

Besides this, and this is a very good success for us, we were able to replace external specialists, which were normally shown in the material costs and switch the capacity into own employees. So this result is an increase of our EBITDA, with an EBITDA margin of again more than 15% to a total of EUR 19.7 million, very stable development. More interesting is that we were able to overproportionately increase our EBIT, and this is due to reduce -- the ability to reduce our depreciation. And so we were now able to present to you in the first quarter a total EBIT of EUR 11.5 million and what we have for our own goal with an EBITDA -- with an EBIT margin of 9%. The strong increase is also shown in the EBIT and the EPS, you have just seen in the presentation on the first slide.

Now I have a short look into the balance sheet. And there, you can see the increase of the goodwill. The goodwill rises up to EUR 151.4 million, and this increase is driven by acquisitions, the acquisitions I've just explained with Hövermann especially. But much more important for us, and this is quite good, is that we were able to reduce our total net debt to EUR 96 million, and this due to the acquisitions I have just explained. Very important for us is the EBITDA and the total net debt ratio, which is with 1.2, on a very low level. And this allows us with a lot of firepower to finance the further growth of DATAGROUP, and this on the organic as well as on the inorganic side. The equity ratio, meanwhile, with nearly 28%. We are very comfortable with this, and we have now a very solid balance structure for the development for DATAGROUP and for our future.

Now let us have a quite shorter look into the cash flow statement. What you know from us and from our business is recurring revenues and recurring cash. And so have still a very solid cash flow from operating activities with a total of EUR 17.4 million. The change in the special effect in the comparison of the first quarter of the previous year is that we reduced the factoring volume in case of the optimizing the interest situation of DATAGROUP. What Andreas Baresel just has explained is that the CapEx costs and the investments in our CapEx is still on a very low level, and you see the effect of this, what we have seen now in the past 2 or 3 years, and that we reduced our investments and the depreciation who gives us now the space to develop, especially the EBIT, very positive.

Let us have now look for the long-term EBITDA. And this development is a very good show, and you can compare this with the slides Andreas Baresel just has shown with the development of our CORBOX sales. And what you can see is the decision in increasing the sales with the high-margin CORBOX deals is very, very good to see especially in the past 4 years. We started with DATAGROUP 10 years before with a total EBITDA from EUR 10.8 million, and now we have developed it to EUR 76.5 million in the past fiscal year. And the percentage of EBIT margin still remains in the past 4 years on a very high level within 15% or a little bit more than 15%. And this shows the strong business of DATAGROUP.

But more impressive, you can now see in the next slide in the development of our EBIT. And this is where we just talked about and what you can see, especially in the past 3 or 4 years, the impressive development of the EBIT was achieved with an EBIT margin which absolutely rise from EUR 4.3 million now to 10x -- nearly 10x more, EUR 51.5 million, in the past fiscal year. And now you can see that with a stable EBITDA margin I've just explained in the previous slide of more than 15%, we are now able, after the high investments into the CORBOX infrastructure 3, 4 years ago, the depreciation now are declining and stabilized on a much lower level so that we are now able to increase our EBIT, and this not only absolutely in percentage as well.

So this for a short deep dive for our financials and now have quite a closer look for the future and for the ambition.

[Andreas Baresel, executive]

Okay. Thank you, Oliver. Yes, let's have a look in the further future and what's our call strategy to go on. So we are still following our dual growth strategy combined as 50% inorganic and 50% organic growth. We are, of course, still working on new acquisition targets. But let me add also a look on the organic growth side. We still see a good potential of new CORBOX customers in the German market. So our yearly growth target is EUR 10 million to EUR 15 million out of CORBOX core business growth from new customers. Of course, it's always a question when, which new contracts will become fully effective. But on an annually level, the total contract should be effect EUR 10 million to EUR 15 million from new CORBOX customers. And we are tracking this quite closely how many CORBOX new customers we are winning per year.

And the other side is cross and upselling. As you might know, CORBOX customers often start only with 1 or 2 services or with only a part of our service portfolio. And then you can upsell addition other services to them, increasing their share of the CORBOX service portfolio and -- but also doing a cross-selling to project solutions, which are also part of our service portfolio. And from this, we also expect an yearly effect of EUR 10 million to EUR 15 million in increasing this business. Of course, it also depends on which additional projects and services would -- are becoming effective in which time frame. And besides this, we are still following the transformation of low-margin revenues as a counter effect on the top line. So -- and that's the reason why we are really focusing on the core business growth and calculating this separately since some time.

For the M&A activities, as I said, we are working on new acquisitions for the long-term growth. We need 2 to 3, of course, depending on the size of the companies we are acquiring. With the acquisition of URANO, we of course had quite a big portion 1.5 years ago, and we will see which kind of companies we can acquire next.

So using these effects, we are still sticking to our midterm management ambition, which is reaching EUR 750 million revenue in '25/'26, and this by continuously having an EBITDA more than 15% and reaching our midterm EBIT target of 9%, what we expect to reach this year. The more detailed guidance for the actual fiscal year, we will give on the general annual meeting on the 9th of March. So we can give more insight on this year's expectations then.

So that's what we've prepared for today. Like I said, we are quite happy about the first quarter, even we also have really challenging times at the moment but are also confident what's the development concerning the development of the next quarters. And I'm also looking forward to the annual meeting, presenting the expectations in detail for '22/'23.

So thank you up to now, and we open the space for your questions.

[Operator]

[Operator Instructions] We have 2 questions from Varun Kapoor. The first is, are you seeing any changes or reduction in valuations from sellers in your acquisitions pipeline due to increased interest rates and potential recession?

[Oliver Thome, executive]

Maybe I can answer to this. What we can say or what we have seen is 1 year ago when the Russian-Ukrainian war started, there was a little bit calm around the M&A sector. Meanwhile, you can see that with the rising interest rates, the multiples are still pending on a high level. But the development of the past years, that especially with the stage when the private equity sector starts to push acquisitions in Germany to -- that the rising multiples are a little bit more ending now but still on a high level. But the market on M&A sector is still quite busy. So we are comfortable that we will be able in the future for realizing our M&A target.

[Operator]

The second question is, can you please provide your expectation around organic growth that you expect in the medium term as well as how competitive the market is right now?

[Andreas Baresel, executive]

Maybe I can answer to this. So we are -- like I showed in our growth strategy, expecting this annual growth of EUR 10 million to EUR 15 million from each part, the new customers and cross and upselling. Of course, at the moment, in these challenging times, especially acquiring new customers is not this easy because changing your IT provider brings always a kind of a risk with you. So it's not this much the competitiveness on the market, it's more a reduced number of chances to acquire new customers. And of course, the reduced number is -- there's a bit more -- that's why there's a bit more competition at the moment between the service providers. But we've seen this also in the past, and I'm quite confident that even if we have less new CORBOX customers, the effect is compensated by a better cross and upselling because if you stick to your provider, you then have to fulfill all your needs with your existing providers. And that often is a kind of a counter effect we see there. And yes, competitiveness in both sectors maybe is a bit higher in the new customer area and a bit less compared to other periods or economical situations in the cross and upselling.

[Operator]

The next question is from Mr. Knut Woller.

[Knut Woller, analyst]

It's 4 questions which I'd like to do one by one. First, looking at service and maintenance. It was slightly down year-over-year and only slightly up sequentially over Q4. Is that reflecting the transformation of the lower margin business that you cited? And how should we think about service and maintenance which is a bit lagging behind the overall growth rates, which is primarily driven by the trade segment? That's question one.

[Andreas Baresel, executive]

Oliver, you want to answer?

[Oliver Thome, executive]

I can answer. Knut, it's nice to have you again here in the stage. I think we have to differentiate a little bit that the business of DATAGROUP is quite another business then of the competitors like a Blue Bear Chemicals because the material deliveries are often -- not only but often very close to our CORBOX deals. So you cannot only say we have a reduction in maintenance and we have -- in services and we have we have more deliveries. They are always depending on our total business. So we do not see that we will have a decline in our CORBOX service. It's still going further on. And the businesses, like Andreas just explained, is expanded.

[Andreas Baresel, executive]

Maybe I can add, you're right with the idea that, that's also part of the transformation of lower-margin services because it's not always a retail business or trade business, which has lower margins. Also I would say, simple service business in kind of a material mode with lower margins on hourly or daily rates. And of course, that's also something we are transferring and that's part of the effect you've just mentioned.

[Knut Woller, analyst]

Great. And then 2 questions. The first one, which room do you see to further reduce external specialists, which you cited, Oliver, as one of the drivers of EBITDA? What is still the room? Or can you quantify the freelancers you still use? And how should we think about further margin improvement from a reduction going forward?

[Oliver Thome, executive]

You cannot get into a very detailed answer because often, we reduce these external specialists and transformation players. So at first, in the transformation phase, we need these additional capacities which are normally are good placed with external specialists when it's only the transformation part of the transformation. After this, when you run into the long-term contract, it's more important to have this knowledge on your own side. So it depends a little bit, but what you have seen is that especially in the past year, we were very successful with new CORBOX deals with 18 new contracts. And so this is the thing, we are now changing them into our own recurring business. And in this phase, we are just acquired -- and we are focused on bringing these experts, which we can use for us for the contract for a long time period to get them on our own payroll essentially. On the other hand, this is, I think, a situation you have just seen in the past month as well. that especially the hyperscalers reduced personnel. With the reduction, we get now in excess to high, sophisticated and employees which are now free to work with us.

[Knut Woller, analyst]

Great. And if we look at the factoring elements that you said was a headwind for the cash flow. Can you quantify this effect? And how do you expect this effect to work out for the full year?

[Oliver Thome, executive]

It has a one-off effect for the first quarter. I would suggest it's about EUR 5 million. The other main effect is that on the end of the quarter, we were forced to put some more inventory in our stock for some projects, which are now rolled out in January. These are the 2 main effects.

[Knut Woller, analyst]

Okay. And the last question, do you see that customers are renegotiating prices for -- or try to renegotiate prices for existing outsourcing contracts? Is that happening? Or is that something you guys don't observe at all?

[Andreas Baresel, executive]

Maybe I can answer on this one. I would say we have the other effect. We are trying to give on price increases to our customers. So yes, there is an additional negotiation on existing contracts. But in most cases, it's combined with expanding, for example, the contract period and so on. But of course, we are ourselves pushing price increases from the hardware, from energy costs, from software maintenance and giving it on to customers. Of course, in long-term contracts, it's not this easy always because we have not always a kind of energy clause or something like that where we give on energy cost directly but it's part of our service prices. But it's more from our time that we are pushing price increases into the market. And it's a bit different. It depends on the industry. Some areas, they know prices are increasing anywhere, are more open to this, also being happy to have a stable service provider in this situation. And with others, of course, it's more discussion. And that's another measure of how we handle these challenges I've just explained about besides the internal possibilities. So we are in the happy situation that we don't -- are forced to give on all price increases to the customers. It's more kind of a 25% portion, I would say we are giving on to the customer, and all the other effects can handle my own synergies internally as the ones I have just explained in the slides.

[Operator]

Next, we have Lukas Spang.

[Lukas Spang, analyst]

My first question is relating to organic growth. I don't know if I missed it in your presentation. But what was the organic growth in the first quarter?

[Andreas Baresel, executive]

Oliver, you want to answer?

[Oliver Thome, executive]

I can do. I think what we have done is that we have shown the organic growth of the CORBOX core contracts. But I think they are shown on the slides. I think the CORBOX contracts for what we are looking for is with the organic growth of about, I think, between 6% and 7%. And beside this are the effects, and this is why we are focused on these CORBOX contracts and where we are looking for, in case of the transformation Tuala just asked when we buy a company and switch their business from more or less very material and one-off business to our CORBOX business. And then we stop this or we change it to our CORBOX business and the organic growth we realized is between 6% and 7%.

[Lukas Spang, analyst]

Okay. And then, Andreas, Oliver, you talked about the new contract. And if I understood you right, you still have some, let's say, potential out of these new contracts because they are still in the transformation period and don't have their full potential in terms of revenue right now. So can you quantify the additional revenue we will see in the coming quarters out of these already secured contracts?

[Andreas Baresel, executive]

We haven't calculated this in detail. It's more or less on a total year effect, it's around this EUR 10 million to EUR 15 million compared to last year what we have as an additional growth out of new CORBOX customers, I would say. Exact breakdown for the next quarters, we don't have this. But what I can say or what I've said, we don't have the full EUR 10 million to EUR 50 million positive effect yet in the first quarter. There will more effect come, and the EUR 10 million to EUR 15 million, that's a total annual effect. So if you take the full contract within the year, so what you can calculate, that in the last quarter, we have a 1/4 of this full year effect onboarded and that's rising, especially because some of the CORBOX wins were only in the second half of the last fiscal year. But we don't have a detailed breakdown there.

[Lukas Spang, analyst]

Yes. Okay. So when do you expect to to fully see this secured contracts in your revenue in this fiscal year? Is it already in Q2 or in Q3? Or...

[Andreas Baresel, executive]

No, it will take up to the end of the fiscal year. So the last transitions will end in September. So in the September revenue, there will be the full effect on a monthly basis. Then you can, of course, say the '21/'22 new customers are in '23/'24, you have a whole year of this effect. And we have the same way winning customers this year, depending on what we have already won, some in this fiscal year. they will be become effective in the next year or so. Because typically, you have to calculate a 9- to 12-month transition period. And as you know, these transition efforts are shown as an IFRS effect over the whole contract period.

[Lukas Spang, analyst]

Yes. Okay. And these transformation periods are more or less similar than 1 year before?

[Andreas Baresel, executive]

Yes, 9 to 12 months is its average transition period.

[Operator]

Next, we have Mr. Andreas Wolf.

[Andreas Wolf, analyst]

I have also 4 questions. I'll ask them also one by one. Could you comment on the automation tools you're using? Are those basically off-the-shelf tools that you implement to automate your service delivery?

[Andreas Baresel, executive]

Not only out of shelf, I would say coming from the effects, we have more or less 50% -- I would say, 40% to 50%, a bit less than half from commercial off-the-shelf tools. These are more or less data center orchestration and automation tools. And the other 50% to 60%, our own automation approaches because, you can imagine, in a shared infrastructure, you have a lot of specific processes in monitoring and processes handling, monitoring results, for example or within service desk in supporting the agent by half automation effects like finding information faster, finding solutions faster, bringing solutions to the ticket result of resolution process and so on. And there are things which are -- we are developing on our own and using our own digitization part there, which is is acting as Almato on the market. They are specialized on digitization for customers they are working mainly. But of course, we are using them also on our own. And they are doing a lot of internal projects, also bringing, for example, AI effects or technologies to our processes and so on. And so I would say 50-50, 40-60, maybe like that.

[Andreas Wolf, analyst]

Okay. And then I have a question regarding accruals, which you had in your annual report for restructuring/unprofitable contracts. How should we think about this amount going forward? Is there a need to utilize them? Or is this still a cushion that you have on your balance sheet?

[Oliver Thome, executive]

And this is a question we just discussed in the presentation of the fiscal year and presentation of the fiscal year account 2021/2022, they are especially forced or not forced. And the first step we managed, especially with one company and the banking cluster was successfully restructured so that these accruals are mainly now for the next step where we can put the whole infrastructure for the banking cluster together and to optimize this sector. And therefore, we have built these accruals.

[Andreas Wolf, analyst]

Okay. And the third question is on potential inflation-related payments to employees. We've seen that some companies are doing this. Are there any specific quarters in the current financial year when we might expect such payments to happen? Or is this inflation adjustment basically part of the overall measures that you're implementing?

[Oliver Thome, executive]

Do you want to answer, Andreas?

[Andreas Baresel, executive]

Yes. Maybe it's -- I would say it's a mixture of all. Of course, we also use these inflation extra payments, I would call them, which are also supported by the German government with special tax advantages, like you might know. We also use these measures but also other measures like typical increasing of wages and so on. And also, as I said, a lot of -- trying to manage a lot of counter effects. So what you see in the personnel expenses at the moment is the result of all this mixture. But yes, we are also using these measures as kind of extra payments. It's handled -- we have this kind of decentralized organization. So each DATAGROUP company is handling this a bit on their own, depending on the type of workforce they have, the kind of business they are in. So the handling is in a decentralized approach.

[Andreas Wolf, analyst]

Okay. And then the last question is on potential impact of higher interest rates. Do you see any implications for for your goodwill that you are sitting on your balance sheet?

[Oliver Thome, executive]

We don't see this. We just simulated this, but we are far away from a triggering event or something like this caused by the rising interests.

[Operator]

Next, we have Yannik Siering.

[Yannik Siering, analyst]

I have just 2 left. So first one would be on overall demand. Do you notice that customers start to turn maybe a little bit more cautious when it comes to new projects or upselling situations? And the second one would be basically a follow-up question on margins. We see that the upward trend is intact. Could you talk about how important price increases will be this year to continue with the margin expansion? Did I get it right that the majority comes from internal, let's say, efficiency gains? That would be helpful.

[Andreas Baresel, executive]

Maybe to your first question on demand, I wouldn't say in the project and the cross and upselling, there the reduction of demand visible, at least not up to now. Of course, most of our customers are on a calendar year, their fiscal years like the calendar year. And we are still quite early in '23, and we don't see exactly already how '23 budgets will release projects. But I'm not expecting too much reduction in demand there. What I've just spoken about is maybe a bit of a reduction in the willingness to really change IT service providers in long-term contracts. Because in these times, companies are getting a bit more cautious about changing providers because it's always bringing risk with it. So what I'm expecting is that we may be -- are not able to win this many new CORBOX customers as in the last year. We are calculating this only on a yearly basis. But maybe this effect is compensated by more cross and upsell, and we will see this in the end of the year. But there, I don't expect too much demand reduction. Of course, it's always a matter of all the main economic situation. But as our customers are more widespread among the industries, it should be not that much effect. -- The overall economic situation, we also see better than expected like the rest of the economy.

Maybe on the margins, what we managed to keep in line and what we pass on to our customers, we see an effect from, let's say, 2% to 4%, I would say, increasing CORBOX prices in the existing customer base, a bit more on the new customer level that -- and with this range, we are even a bit lower than the pure time and material market or the pure retail and service markets. Our prices have increased a bit more, but of course, our customers are expecting from a service provider also this effect. And in long-term contracts, they don't have these effects prices up and down. In the last years, we had a lot of effects of prices down, which we also didn't have this effect, only 1 digit percentage in decreasing prices. And the same situation we have now with increasing sizes, maybe somewhere between 2% to 4% we pass on to the customers.

[Operator]

Next, we have Tim Wunderlich.

[Tim Wunderlich, analyst]

My question is on the EBITDA margin. So the margin was down year-over-year in Q1. Maybe I missed this, but could you once again explain why the EBITDA margin was down? I mean, I understand the EBIT margin was up, which is great. But EBITDA was down. And in this regard, you talked about the higher energy costs. Could you maybe quantify the negative impact of higher energy in Q1?

[Oliver Thome, executive]

Yes, this is quite easy to answer because you see that our business is switching a little bit. And that means that we are in the past, especially, I would say, 2 years, able to switch our projects and the investments into finance leases. And so they are shown in the other cost or in the material costs and not on the depreciation. And so it's a little bit more that we are focused on the EBIT, to see that EBIT, especially we are able to rise. Because this -- the investments we need for our own used infrastructure is also included as the infrastructure we use in customer projects for CORBOX sales. So this is the main effect that we see in the market, that there is a little bit more change, but it's still with a stable EBIT margin from -- with more than 15%.

[Tim Wunderlich, analyst]

Okay. Sounds good. And the energy impact?

[Andreas Baresel, executive]

Energy impact. It depends on which time period. You see it on a short term that we're quite higher rises. So not to afraid anybody, but in energy only, we have some time increases from about 50% in energy costs. But the good message is energy is in running shared platform only a low portion of the total production costs. And I would say in -- for example, if you're looking at one of our standard product, a kind of a managed server where you're delivering a virtual machine as a managed service to our customers, the whole energy impact like this maybe 50% we had in some periods compared to the period before ends up only in something like 2% cost increase. And if you then watch the overall effect I have mentioned or explained during the presentation, where we consolidate capacities and so on, you can -- if energy only would be -- you can compensate easily. But besides energy, we, of course, have effect also on the software costs, maintenance costs, the hardware cost. And with all over these effects, you have a total effect where I said we can compensate maybe 75% internally and maybe 25%, we pass on to the customers. That's more or less our basic calculation.

[Operator]

At the moment, we have no further questions. [Operator Instructions] All right. We have no further questions. The call will be made available on DATAGROUP's website. And with this information, I hand over to Andreas Baresel.

[Andreas Baresel, executive]

Okay. So I want to thank all of you for joining. Maybe we meet on our general annual meeting, the one or the other will join. We are doing this in present again this year, not virtual. Again, I'm really looking forward. And as we said, we also will give a deeper insight in the -- our expectation for the rest of the year, and would be happy to see you there, otherwise, maybe in one of our next quarterly call. So thank you very much, and have a nice day.