Datagroup SE

XETRA:D6H

Earnings Call Transcript 2022-Q2

[Operator]

Welcome to the DATAGROUP SE Conference Call on the Half Year Report for the Financial Year 2021, 2022. [Operator Instructions] The presentation is also available for download in the Investor Relations section on DATAGROUP's website.

I would now like to welcome Mr. Oliver Thome, CFO of DATAGROUP.

[Oliver Thome, executive]

Ladies and gentlemen, I would like to welcome you to DATAGROUP's conference on the half year figures. My name is Oliver Thome, I'm CFO of DATAGROUP. As you have probably already seen in the press release, the first 6 months have started very well for us. We had a strong start into the year in the first quarter with a substantial increase in revenues, margins and earnings. The development also continued in the second quarter.

Revenues in the first 6 months increased by 71% to nearly EUR 250 million. The organic growth of about 4.2% during the last 12 months period is within the expectation in the Management Board.

The first time full consolidated companies, the Urano and the dna, today DATAGROUP BIT Oldenburg, we're also able to develop very well in the DATAGROUP's environment. The strong development of our CORBOX sales is reflected in 11 new customers, 26 contract renewals and 16 contract extensions. The EBITDA could even be improved by 23.5% to EUR 37.4 million.

Next slide, please. The great development of our EBIT from 47.5% to a total of EUR 20.5 million is also reflected in the EPS, which increased by 14.5% to EUR 0.150. In the same period of the previous year, the EPS was significantly positively influenced by a very positive tax effect from the activation of deferred taxes. The increase in net income from this financial year to the previous financial year is therefore only limited comparable.

Next slide, please. Summarized, we had a very strong performance in the first 6 months. We do not recognize negative impact from the war in Ukraine, and we are not affected by the supply chain bottleneck.

Next slide, please. And so I'm pleased to show you some selected profit and loss figures. In the first 6 months, as I already mentioned, we were able to significantly increase the revenue by more than 17%. The gross profit could be increased by more than 13%. But -- and that's very important. On the other hand, you can see the personnel costs only rose by about 11.2%. And so we were able to translate the good sales and cost development into a significant increase in our profitability and the EBITDA and especially in the EBIT.

Next slide, please. You can see the increase in goodwill in the selected key balance sheet figures and this is due to the acquisition of Urano and BIT Oldenburg former dna in the past financial year.

The net debt increased by around EUR 20 million due to acquisitions and the dividend payment from this year. The equity ratio likewise increased significantly to more than 25%, thanks to the strong result.

Next slide, please. In the cash flow statement, you can primarily see the already mentioned strong increase in the operated cash flow driven by the good operating earnings. The cash flow from investing activities shows on one hand, the earn-out of 2 company acquisitions of the past fiscal year. The CapEx investments, on the other hand, could be reduced to a normal level comparable to the previous year. The cash flow from financing activities shows the finance leases in the range from the previous year. Beyond that, we made the dividend payment.

Next slide, please. The long planned change in the Management Board was completed on April 1. Max Schaber, you know very well, resigned from his position on the Management Board at the end of the last Annual General Meeting in March and is now a member of the Supervisory Board. Andreas Baresel, my colleague has been on the DATAGROUP Management Board since 2018 and joined DATAGROUP since a long time. And he is succeeding Max Schaber as CEO with Dr. Sabine Laukemann, who has been working for the company since almost 20 years, the appointment of the Management Board was completed.

Next slide, please. We were able to continue our long M&A history in this year, and this has been the 29th acquisition. And with the purchase of 100% of the shares in the Hövermann IT, we can strengthen the North Rhine-Westphalia [indiscernible] region. In addition, the acquisition allows us to add SAP's Business One to our SAP experience. Further, we can use Hövermann IT's own structures comparable to our CORBOX to address customers in the German Mittelstand.

We see a clear potential for DATAGROUP, especially in the customer segment and we are pleased to be able to win a great team with a very successful company for us.

Next slide, please. Those of you who have been with us for a long time know the excellent development of our share price. In the past financial year, in particular, the share price developed very positively. The current crisis in Ukraine is putting pressure on stock exchanges around the world. The DATAGROUP share is also currently affected. Overall, we are nevertheless very satisfied with the development of a long-term period and assume that the share price will recover again in the future. We are also not reflected -- affected as I've just mentioned by the global delivery difficulties for hardware.

Next slide, please. We keep what we promised. The turnover EBITDA and the net income exceeded the estimations of the consensus 2021. At our general meeting on the 10th of March, we published the guidance for the current fiscal year with a turnover between EUR 480 million and EUR 500 million and an EBIT between EUR 39 million and EUR 43 million. In the first 6 months, we are moving at the upper end of the expectation. And so far, we have not seen any signs that the goals we have set will not be achieved.

Next slide, please. There were only a few changes in the shareholder structure in the past financial year and what's very important for us is that our anchor investor, Max Schaber, will remain invested long term in the company. And this is still in his new role in the Supervisory Board.

Next slide, please. You can see that we will continue to actively present our company to existing and potential investors at roadshows and conferences underline the attractiveness of DATAGROUP's business model in Germany, Europe and in U.S. right in this moment.

Next slide, please. We have now come to the end of the presentation. I would like to thank you for your interest in DATAGROUP, and I'm now happy to answer your questions.

[Operator]

[Operator Instructions]

[Oliver Thome, executive]

Are there any questions I can answer?

[Operator]

First question is from Knut Woller.

[Oliver Thome, executive]

Okay.

[Operator]

You have to unmute yourselves, then you can ask your questions. Mr. Woller, you have to unmute yourself. Alternatively, you can type your question into the question box below. Mr. Woller?

[Knut Woller, analyst]

Can you hear me now?

[Oliver Thome, executive]

We can hear you.

[Knut Woller, analyst]

Excellent. So there seems to have a problem with the unmuting function. So great, we came together. A couple of questions. The first one, if I did the math correctly, and we saw in a declining organic revenue growth rate versus Q1, where you said it was 5.6%, in the last 12 months, we are now at 4.2%. If I did the math correctly, organic revenues were only flat in the second quarter. So is that first a correct assumption?

And secondly, what are you expecting for the remainder of the year? And then I would have the 3 other questions, which I would do by one by one, if that's fine with you, Oliver.

[Oliver Thome, executive]

Yes. Nice. This is a quite good question. This is the problem we just discussed between us both that the question what's the organic growth. When you look, we exceeded very strong our CORBOX business, this is more than 4.2%. And it's right, we had very strong quarter 2 in the past fiscal year. So the ramp up in comparison to the previous year, we only made 4.2%, but we increased our CORBOX business more than this. We are now evaluating this ratio. And I think this is much more interesting for you to see how our core business is developing itself. So I do not assume a declining organic growth in the future.

[Knut Woller, analyst]

Okay. And do you expect an acceleration again from what we have seen now in the last 2 quarters or last 3 quarters, I think it was between 0% and 2%?

[Oliver Thome, executive]

Acceleration can -- we have to see. We have made some very interesting order incomes, what I've just shown in the slide in the presentation with new contracts. For example, we have a big exhibition company in North Rhine-Westphalia where we placed a full IT outsourcing with every technology of our cohorts, a very, very nice development, and this is only 1 of the examples of the development of our business. So you will see the organic growth of our CORBOX business in this year maybe mainly in the next year because you know our business very well, Knut and we at first in such a situation have to shift the customers from existing systems to our systems. So the main value will come in the end of the year and mainly in the next year.

[Knut Woller, analyst]

Okay. And looking at the second quarter, we saw what I think is quite unusual a sequential revenue decline of service and maintenance revenues. So what's the reason for that? It's only been EUR 0.3 million, but normally, this revenue line is up substantially quarter-over-quarter. So is that something like you said that the delay in onboarding? Or is -- what's driving that?

[Oliver Thome, executive]

It's a delay of onboarding. But on the other hand, that we didn't make in through the acquisition. When you try to show the growth in our CORBOX business without our inorganic growth, you have seen that we had a first consolidation of dna and Urano in the last year in the 1st of May. So it's not so good comparable. So I think we are very straightforward, and we are looking very good in the end of this year. So we are moving on the upper line of our estimation, and I think we will achieve our goals. And we didn't have just on the new acquisition, Hövermann IT and our accounts in the first half year. So we will -- we have to evaluate what will be the effect of this. And if we -- what will it make with our estimation for this year, but I'm very positive.

[Knut Woller, analyst]

And then the last 2 ones. First, on the pension liabilities, the decline we saw on the balance sheet likely reflects the rising interest rates, and you probably have to offset or you have a headwind for that in terms of interest expenses, I assume is the Q2 run rate, we saw, hence, something we should expect for the remainder of the year in terms of interest expenses?

[Oliver Thome, executive]

We will -- we have to see. I'm not sure what you have seen is that we have our interest raises -- they raise and they rose, and that means that our pension -- our pension provisions can put it down. But you know that this is an effect only shown in the equity, not in our profit and loss accounts.

[Knut Woller, analyst]

Okay. So interest was not affected by that?

[Oliver Thome, executive]

Interest, no, no, no. [ Not in the profit ].

[Knut Woller, analyst]

Okay. And the last one, the earnouts that we saw for the 2 acquisitions last year, are there any earnouts left for these acquisitions or not?

[Oliver Thome, executive]

There is earnout just opened for the fiscal year '22 with which will be -- the earnout cash flow will be in the first quarter, I think, of -- on the second quarter of '22, '23.

[Operator]

The second question is from Andreas Wolf.

[Andreas Wolf, analyst]

I have a couple of questions as well. So the first one would be on Hövermann IT, what is the EBITDA contribution that we should expect from this company? Or is the EBITDA contribution basically offset by integration costs? And then on [indiscernible], should we expect any costs related to client transition as we saw in other client onboarding situations in the past? What are your expectations here?

And the third would be on the IT security of your clients. So obviously, attacks on client IT infrastructures are increasing or enterprise infrastructures in general are increasing. Does DATAGROUP have any agreements here with clients that guarantee that the IT will remain secure would this lead if, let's say, a client infrastructure is entered with this lead to any -- would this lead to any obligations for DATAGROUP? Or is this basically paid for the service more or less without bearing any risk?

[Oliver Thome, executive]

Mr. Wolf, thank you for your questions. At first, you asked for the EBITDA from Hövermann. As you maybe know from the past, we do not publish the details, but you can believe me that the business model they make is very profitable. They are in the area of the Mittelstand, it's below us. We are focused as DATAGROUP with customers with yearly revenue stream of about between EUR 100 million and EUR 5 billion. Hövermann is quite concentrated in companies between EUR 25 million and EUR 100 million. And what you see is that there is very often an owner-based structure in the governance, which is a very long-term focused and is very focused on having a quite functional IT.

And the second one, you know as one of the big things which is giving us tailwinds in the next years, the situation of employees, to getting employees for small mid-cap companies, which are, for example, in the building industry or machine industry is very hard to acquire. And so to manage the IT and to manage a safe IT especially for the customers Hövermann is looking for and is concentrated for very, very difficult. So they are looking for a partner. They are looking for a partner like Hövermann. And there, the sensitivity of the price is lower than at DATAGROUP and so we estimate a higher margin in EBITDA and EBIT comparable to DATAGROUP.

The second one you asked, [indiscernible], I don't know if you are a little bit afraid of our business we made with our FIS in the past. This is not comparable. [indiscernible] has acquired CORBOX and our core business. This is more or less for us, the ideal customer you can imagine. And this is one of our strengths. We are -- we have a centralized production approach. And with this centralized production approach, we are able to combine the technical experience of our production units as well for our market units to be the best partner for this customer [indiscernible].

And so I think we will -- it will more or less will be the -- our current fiscal year to move them, to shift them to our systems so that we will see the success of [indiscernible] in the next financial year, but I'm very positively that this will be a very good customer for us and with a normal range of expectation of our margins.

The third question, you asked was the point of IT security. In our customer situation, we see some more activities, but not as we expected maybe 3 or 4 months ago. What we are doing is permanently to make and testing on our own systems to see if there is maybe a bottleneck or some risk use, we have in our own security situation. And this works quite well. And so we didn't have an incident right now.

On the other hand, services, which we give to our customers come from our own security operations center with our SIEM services, we have additional services like GRC, that means governance and risk management consulting. So we have a quite good stack in side of security solutions for our customers as well as one of our points -- our major points in our data centers is to make our backups. And there, we can offer our customers, it's called immutable backup immutable backups means that they are different from their own network and they are for themselves so close that it's not possible for a tech to get in touch with this immutable backup.

Our customers know very well. We inform them for the security status of their contract, and they can choose if they want to make their higher level or let it on the level they just have in the status quo and then the start of the technical standard.

[Andreas Wolf, analyst]

Okay. And maybe one follow-up, if I may. So you've touched upon staff, IT staff in general. What's the average age at DATAGROUP? I'm just asking because, obviously, the [indiscernible] generation is starting to retire. And there are also some quite mature companies within DATAGROUP. Maybe you could comment on this as well.

[Oliver Thome, executive]

The average age, I have to give a little bit after the telephone conference call because I do not know. I would expect it will be between 35 and 45 years, but I do not -- we will -- after.

[Operator]

Another question is from Yannik Siering.

[Yannik Siering, analyst]

Okay. Great. So I would have 3. First, could you provide some color on the current demand environment, especially in your core sectors of government and banking also considering the macro uncertainties. Then secondly, maybe some more detail on the progress of the bid units in general and also on the earnings recovery of that unit? And then lastly, a question on how you handle wage inflation. Are you still able to renegotiate rates with customers and pass on the higher costs? That would be it for now.

[Oliver Thome, executive]

Okay. Mr. Siering, welcome. Thank you for the questions. At first, governance and banking. We have a strong relationship to government especially to the government IT structures from Baden-Württemberg as well as [ Hauck & Aufhäuser ]. When this may be a question to look for what's the budget for the government for IT structures. So we do not recognize it in our core business because our core business is running the IT. You cannot cover these budgets. You cannot lower these budgets because your IT must run. We are now in a process to get maybe an extension with our customer [ TPV ] which we are in a process of our contract situation, but it's very stable.

Maybe the second part of the question, what's about banking. What we recognize is that the strategic way to invest in the banking sector is the right way because especially small banks, which are covered by the same rules, they have to handle is much more difficult for them. And this is a problem for them. They are looking for a service provider where we have built our CORBOX especially for the banking sector.

So besides the BIT Düsseldorf and BIT Hamburg. And to your second question, we are now in the phase where we organically and struck -- from the structures and from the business model we are putting them together. In Hamburg, we have a very strong unit for banking and very successful units with this banking structure and now putting these existing customers from Düsseldorf into the way the colleagues in Hamburg work. And there we are in progress. And I am very positively that we will handle these customers by the end of the year in the system and structure of our BIT Hamburg. This means that the question of earnings on the one hand, we are earning money with our banking sector, with. The banking sector in Common with BIT Hamburg and BIT Düsseldorf, we are positive in the situation right now. And -- but we will have to exceed this because we have some contracts. You know from the past, which are not so positively for us, but we are still working on this. We are on the right way. Our way we have defined 2 years ago, we are on track. There is no sign for us that we are missing the way in this sector.

On the other hand, and this is very important to know is that it works quite good to bolt on new customers. And we just are -- I cannot tell you the name, but we have a new customer in this sector, which we can onboard with, for us, average profitability. So there is no question of the brand of the sector, if you can earn money or lose, this has been with our FIS, a bad contract situation, but we are working on it, and the new contracts are much more profitable.

The third question you asked is the wage inflation. A question I'm now getting very often. But my answer, therefore, is that this is a thing in IT industry and IT business, which is not new. The mainly point of wage inflation itself recognized nearly 5 years ago. This has been the time in which there was a shift from the technical guides because there -- since nearly 5 years, you need much more guys, which are educated in virtualization for networks, for operations. And these guys were are. And so the wage inflation just started very strong 5 years ago. What we have now with wage inflation is very strong combined with the inflation of energy we have now at this moment. This is another thing. We now recognize for us strongly or more strong than in the past. So we manage it very well.

On the other hand, that's very important to understand our business model. We are not a system integrator. We are an IT service provider. In our contract situation and the work in progress or the work, how we produce IT is quite different into the Bechtle, for example, a computer center or concom because that what we are doing is a centralized production phase in our ops operation production in Nuremberg, and we are able to combine with the standardization of these workloads to combine people all over Germany in the company because the standardization allows us to hire people in regions of Germany, where the wage inflation is not so high like in Eastern Germany or North and Eastern Germany. And we can bring them to a market unit there, but are going to historically, we are able to put them all into our progress and work of our operations.

So you have seen and this is very, very important. We raised our net sales, our revenue side, but we reduced the personnel costs, 70% of our revenues rise, but our personnel cost is only 11%. And this means that the wage inflation, we are looking quite for this. We are here looking for, but this is no impact we have now in our half year report, and I do not think that it will be a hard impact for this fiscal year for us.

[Operator]

The next question is again from Knut Woller.

[Knut Woller, analyst]

Yes. It just said that I can speak now. So here I am. Looking at the current [ mass ] contract, is there any impact on CapEx this year? Or do you handle that via leases? Then on the tax rate, which was a bit higher in H1 than one might have expected, what is the expectation for the full year? And then I think lastly, on the vaccination centers. I think, you won 2 centers last year, one in Q1 and the second one in the third quarter, given the easing lockdown measures and also test stuff and vaccination being now in full swing. Is there any negative impact expected or not from this tailwind not maybe repeating this year?

[Oliver Thome, executive]

At first, the question of [indiscernible] and the CapEx cost there fully included in our expectation and estimation for the current fiscal year. And as you have just mentioned, it will be made by CapEx costs, which causes depreciation or by leasing costs, which causes the other expenses in the EBIT, it's the same. So I'm very focused on the EBIT you know. And so there will be no impact, which we do not expect for the current fiscal year in our estimation.

The second one, what you asked was the tax ratio. It's right. In the past year, we had an acquisition with the dna, dna in our banking sector and this banking sector acquisition caused the profitability or the possibility to activate our different taxes of the FIS. It was very special positive situation we do not have in this first half year. So we have a nearly normal tax quotation of about 35%. We have some possibilities, which we are now looking for, which can decline the tax code for this year, but I cannot announce that for this moment, but we are looking for this if this is possible with our auditors.

The third question you had was about the vaccination centers. The vaccination centers are not still in the same size like we have 1 year ago. They have put it a little bit down. And the contract situation will be prolonged meanwhile, to the middle of the year or sometimes a little bit later. What's the expectation? It's very hard to see. We -- in our expectation, we are not thinking about that it will rise on in the second half of the year very much. For myself, but I do not repeat it, is that I expect that the vaccination center will remain this year to cover possible risks from these both variances of COVID and -- but in what kind of investments and maybe in earnings for us in vaccination center, it will go, I cannot estimate.

So we expected a little bit declining of this situation of the vaccination centers. But on the other hand, we have some projects we now start in our core business of our CORBOX. So we are to reach our goals, especially when the vaccination centers declined a little bit.

[Operator]

So right now we have no further questions. Thank you for -- yes. Sorry, go ahead.

[Andreas Baresel, executive]

So there are no further questions. I thank you for your attention and your interest in DATAGROUP. And I wish you all the best. Stay healthy, see us next time. Thank you very much.