Datagroup SE

XETRA:D6H

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Welcome to the DATAGROUP SE conference call on Q3 figures for the financial year 2022-2023. [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. Andreas Baresel, CEO; and Mr. Oliver Thome, CFO of DATAGROUP.

[Andreas Baresel, executive]

Good morning, everybody. So I could say a warm welcome to the presentation of our Q3 figures. And at least here in [indiscernible], it's a really warm day. And I'm happy to have a lot of participants in the [indiscernible] in the middle of the summer. And yes, let's start talking about our business up to Q3 and before we go to the figures, I would like to give you some insight how the business is running when we look at the first 3 quarters of our fiscal year, and we are happy to say that we have continued our successful order intake in our core business, CORBOX. But besides this, we also have a quite good development of our digitization business. .

In detail, that means up to now in the fiscal year, we had 14 new CORBOX customers, which we could sign in this year and which are most of them now in the middle of the transition period, and starting their IT services, daily run service business within the next months. Besides this, we have 13 contract extensions by existing CORBOX customers through cross and upselling to additional services or to specific digitalization projects. And we also have that's another proof of the satisfaction of our customers, 13 contract renewals for several additional years to ensure our recurring revenues of all CORBOX business area.

Besides this, we also see, and I'm very happy about that right really strong demand for solutions of our digitization segment. So also the quite environment is different in different industries. We still see a big demand for digitization projects, and that also helps us delivering good numbers, which we will present in a few minutes.

For this good development, I have 2 examples here that you can imagine a little bit what we are talking about in practice. For example, 1 of our new customers is [indiscernible], which rely on CORBOX services in the future. It's a new CORBOX customer. And you can see here below on the CORBOX and all service families are in red. That means [indiscernible] really have chosen all CORBOX services as a full package and we are running the IP in the future, starting from managed and private cloud services or public cloud parts, application management, SAPs included up to service desk helping their end users if they have issues or demand with their IT.

[indiscernible] business is that they will be part of the [indiscernible] business in the future. You might know that in Europe, the regulations became stronger concerning critical infrastructure and the [indiscernible], which are municipal utilities and infrastructure companies will be also part of them. And also it's important that these companies running really critical infrastructures, rely on CORBOX services and the stability and reliance on these services. So we are happy to welcome these certain new customers as, for example, [indiscernible]. But, another example for growing our core business is [indiscernible] is already an existing customer for the last years. [indiscernible] is a manager and operator of 1 of Europe's largest chemical sites and they are providing services to the companies, which are located at these chemical sites such as energy supply, disposal infrastructure, safety analytics and these things. And we were able to renew a contract with them, but not only renew it. Besides it, we could upsell to additional CORBOX services. So we are now delivering with a 60-month operation period and a total order volume of EUR 21 million. We are coming from [indiscernible] million in the existing contracts. We are now delivering managed and private cloud services, application management, security and user and services. So especially in the area of managing private cloud services and application management, [indiscernible] decided also to use CORBOX services to run their IT in the future.

So these 2 examples are good examples how we develop our business in the [indiscernible]. We win additional CORBOX customers. And once they are a part of our CORBOX customer base, we try to cross and upselling into additional services. In the case, they are not using all CORBOX services all already.

Besides this, if we look in the third quarter, we have also a step in our inorganic growth. So in April, we signed the takeover of system [indiscernible]. It's 30th acquisition. So we are really happy to reach these milestones of now 30 acquisitions since our IPO in 2006. And [indiscernible] is a very good development for our expensation of our regional presences at [indiscernible] in Southern Germany, a very strong industrial area with a lot of hit and champions between the [indiscernible] and very good customer potential in this region. We were also already present with DATAGROUP Ulm in this area, and the takeover system so is an add-on acquisition to DATAGROUP Ulm. And they are bringing an excellent customer portfolio with them, with quite new, nice new approaches for additional CORBOX services in these customers' system towards bringing along to DATAGROUP.

Today, there is EUR 12 million revenue in the last fiscal year. We acquired 100% of the shares, and we are sure that this acquisition is combined with the existing DATAGROUP Ulm entity a very good base to grow our CORBOX business already also in the [indiscernible] region. And transform, of course, although the existing systems for business, which is already still a quite big part of [indiscernible] business with a trading part, retailing part into CORBOX business. That's how we do it with our new acquisitions, bringing these market units into the CORBOX [indiscernible].

So these 3 slides should give you an insight how the operational business is running, and we are quite certified with the development there. Also when we are considering the overall [indiscernible] economic environment we have in Germany at the moment.

If you go now to the numbers and looking what we've reached with the first 3 quarters of this fiscal year, we see -- in the revenue, we have only a slight increase in revenue and that's because of the absence of prior year's special effects of approximately EUR 40 million on an annual basis. We will talk about this later on.

Looking on the full year forecast on a revenue basis, but what I can say already now is that included in these numbers are the [indiscernible] of special effects on a EUR 40 million overall annual basis. So it's only a slight increase there. But as we reported, also included is a strong development of the [indiscernible].

If we go to the first level of the results, [indiscernible] we already see a better increase here. We came from EUR 58.3 million to EUR 59.6 million EBITDA. So we have good development there, and that underlies that even if the top line has only developed from this EUR 372.9 million in the last year, the same period in the last year to EUR 375 million now already on the EBITDA level, we are still growing in the results.

When we look on the next level, the EBIT level, we see that our core business, which also includes a big part of public and private cloud operations. So we are running the CORBOX for our customers. we see an even better development on the result level. So there, we came from EUR 31.9 million to EUR 34.3 million. And there was -- we have three quarters now where we fulfill our midterm margin target of 9% in these 3 [indiscernible] with 9.1% up to now. So we see that especially running centralized shared cloud platform, our CORBOX cloud platforms with still improved CapEx ratio that helps us to bring very good results even if the revenue line is only slightly increased as the revenues, which we have lost compared to last year and were compensated by more profitable CORBOX business, and that helps us to grow in the results level.

On EPS, that also means a good growth. We are coming from EUR 2.33 to EUR 2.56 per share, a 9.8% increase and I think that are quite good results on the result level if we keep in mind that on the revenue level, that's the sideway track because of the special effect. And I said, we will talk about this later on a bit more to make you understand what effects we are talking about here. But before doing this, I would like to hand over to Oliver going a bit more into the detailed numbers for Q3. Oliver, up to you.

[Oliver Thome, executive]

Thank you very much, Andreas, and I welcome you as well from my side, and I'm happy to present to you the detailed accounts of our first 9 months. And I would like this to please you to switch 1 slide further, yes, very good. Thank you very much. So let us start at first with the revenues. And on the top line, what Andreas just explained, we had a slightly increase, and we were able to increase our revenue size in the first 9 months of the actual fiscal year, but only with 0.6% very important from my side, and this shows the strongest of our profitability that the proportion of our service is still on a high level with 81.1%. We have a very stable CORBOX core business. .

And I want to show and want to please you to look on 2 further figures. The first one, this is what we just saw in the first half year, that our personnel costs increased compared to the previous year with a run rate of about EUR 10 million. This is due to acquisitions from the past year, which are now fully consolidated, especially the Wipperman, which we bought in April 2022 and the first time consolidation of Cloudeteer. In addition, the [indiscernible], we just showed you the new 30 acquisition we made in the history of DATAGROUP with a big success.

Beside this, and then you have to combine this with the material expenses and then the material expenses, especially is 1 effect, and that means that like in the first 6 months, in the first 9 months, we were as well able to switch external specialists, which we bought and which were shown in the material expenses to our own employees. And this effect is within roughly EUR 13 million, so that when you combine these growth effects, we had a positive and profitability effect from this. And maybe 1 further word to the development of our EBITDA. And this shows a little bit the movement of our business as well. What we have seen is that in the past years, especially in the past 2, up to 3 years, there is a trend up to investing goods from customers as [indiscernible]. So we do not have to invest it as CapEx costs, which forces us to have depreciation. So that means we show this in the material expenses, other expenses or in the financial results. So, the only small development of our EBITDA is more or less shown in the profitability when you look at the EBIT and the EBIT increase comparable to a really good previous year with more than 7%. That means with EUR 34.3 million. This is an increase of 7.4%.

What we see is a slightly development and increase in our financial results. This is due to the interest situation, we now see. But as we have just shown in the past, we have made long-term contracts. We have still some contracts, which allows us to have more or less very comparable financial results and interest margin. So that we have an EBIT and especially a net income, which is nearly 10% more than we had in the past.

When we now look on the next slide in the balance sheet, there you can see the lines I would please to concentrate you on is the goodwill. The higher goodwill is due to the acquisition we have just explained. Besides this, you can see that we have a slightly higher net debt due to the acquisition we have just made. This is due to a reduction of an instrument we used in the past more than in this year. That means factoring there you can see the trade and receivables they rose, and this is only the switch we've made in the past. But due to the high interest rate for these contracts, we just decided not to use this instrument, but you can see it in the total net debt.

We have this instrument as well. So we are able to use this. But for the financial results, it has been better not to use it. And so we have a slight increase in our total net debt. With our net debt EBITDA ratio of 1.5x, we are slightly very good, and we have announced a [indiscernible] for our organic like as well our unorganic growth.

Our balance sheet total is nearly on the same level like in the past. And as you can see, and this is very important for us that our equity ratio is now at nearly 30% of the total balance sheet [indiscernible].

So I would like to switch into the cash flow statement. And then I want to give you the cash flow from operating activities, which is very good as well. But with the effect I've just explained and that means that we reduced our factoring volume within EUR 10 million, you can see this is comparable with the previous year and the first 6 months of this year, an effect which is shown in the cash flow statement. Beside this, we reduced as well our provisions. Our provisions in the past year, and this is what you can see in our cash flow from operating activities for this whole year, and you have seen we had a very good fiscal year 2021, 2022, which we have to make [indiscernible] for personnel costs, especially, which were paid out, and this is an effect which is shown in the cash flow statement as well.

Our investing activities is like we have done in the past, especially driven by the outflow from acquisitions with nearly EUR 50 million as well [indiscernible] increase a little bit instead of the 2 figures of the past year, but we are still in a good line, what we estimate is always [indiscernible] within 5% of our contract volume or 3% of our total volume, and so we are here online. So that we have a good cash and cash equivalence on the 30th of June. And I now want to hand over Andreas to you .

[Andreas Baresel, executive]

Thank you, Oliver. Yes. And as we said -- as I said before, we would like to talk a bit more about our full year revenue effects and the effects we can see there. And if we look at the full year, we see that considering the prior year sales effect, are quite special, and we cannot fully compensate them, and that means we [indiscernible] adjust our revenue guidance and have to adjust this revenue guidance from the former guidance from EUR 520 million to EUR 540 million to now EUR 485 million to EUR 500 million on a full year base. And that's because I would like to explain this a bit more in detail because we have special effects compared to the prior year of approximately EUR 40 million on an annual base, which were not viewable and we could not forecast them at the time when we were calculated our last guidance. .

What are these effects of nearly EUR 40 million. It's, on the 1 hand, a slowdown in sales of COVID-19-related special room effects, which came quite more ahead of time than we have expected. That's on the 1 hand that are the vaccination centers. We have already talked about them. And the [indiscernible] centers we supported here in Germany were closed earlier than we expected, and that was quite a bigger portion of revenue, but also the digitalization of the schools where, for example, we delivered digitization equipment to the schools in several countries of Germany. These came also earlier to an end than expected, and that was 1 part where we have an effect on the top line.

Besides this, we have another change. We changed our accounting treatment of certain trading revenues of licenses and also hardware goods. And there, the treatment was changed following the IFRS 15 principal agent topic. And that also means that revenues, we formally showed [indiscernible] revenue are now only shown with the margin in our numbers. And there, you can see that's an effect, which, of course, on an only calculated number of revenue gives the negative effect to these figures.

And besides this, we have also premature adjustment of less profitable existing contracts from earlier acquisitions. For those of you who are already following us for quite a time, you might remember to the acquisitions from [indiscernible] and also from Portavis. Within these acquisitions, we made a contract, which was required that the customer or the former shareholder was still going on purchasing services after the acquisition. So we have a contract with [indiscernible] where they were rebuying the services from the company we acquired, the same situation with [indiscernible] the customers for [indiscernible] were selling at this time. And these built-in reductions in these acquisitions came in some areas now a bit earlier than expected. Why this happened? Because we were -- on the other side, we were able to extend the existing contracts, which we're running to an end now and to agree with these former shareholders or customers of an additional future years of continuing the services. So we adopted the revenues to a lower level earlier than the former contract would have done. But on the other hand, we now have the chance to continue delivering services in the next year. So flatten the revenue reductions in this former acquisition a little bit.

So also an effect which came earlier [indiscernible] additional to our former forecasting and planning. And taking all these effects together, we are, as I said, at about EUR 40 million on an annual basis. And that you're looking on the chart and you're seeing -- if you were to reduce this number on the last year's revenue, we would see a quite stable growth from EUR 461 million then to our new guidance, EUR 485 million to EUR 500 million, so this EUR [indiscernible] million must be seen as a special effect. And that, on the other hand, shows that the core business growth is quite stable as at least in my opinion, it's not also [indiscernible] way to compensate up to this level, having negative effects from about EUR 40 million and replacing this year-on-year with core business. And when we now go to the results, you will see that we are doing this replacement, this compensation by quite more profitable business. And that's why we confirm our EBITDA guidance from 76% to 80%, so different to the revenue base, where we have a new guidance, we are still confirming our EBITDA gain item. And that shows that even if we are going sideways on the top line, we still have a growth on the profitability with the numbers we have planned and forecasted in our guidance. So we are at EUR 76 million to EUR 80 million for this year on the EBITDA.

And as Oliver already showed, if we are looking on the EBITDA, so excluding the view or excluding the [indiscernible] on the goodwill, we see a quite better growth. So what we want to show here that really the operational business is performing quite well. We have some effect with higher goodwill where we have abbreviations on it now. And if we exclude them then we see a better growth on an EBITDA level and on the next slide also on the EBIT level. So we have a ratio here, which is coming from 9.7%. So you see where the range is here. We did not really have a guidance on this level, but we see it on a level from something between 10.7% to 11%, somewhere there. So that means, we can see here the strength of the operational business.

Year-to-date, we have [indiscernible] of 10.6%, and I think that's proving the performance of the operational business quite good. And that means if we go to the EBIT level, we see also this good development there. We are coming from 8.3%, and we are also there confirming our EBIT guidance of EUR 45 million to EUR 48 million. And that means we have a level of 9% in this area. Up to now, we have this 9.1%, and we are sure we will still keep this level on the full year basis.

And so if you take all this in a complete view, we have -- you can keep in mind we have special effects on a revenue base as we are transforming. That's what we're already talking, the rest in the first quarter about we are transforming revenue from former acquisitions. We have also, of course, special effects from the past, but on the development of our core business, CORBOX and really focusing on the profitability and the effects which drive profitability, like Oliver also had explained changing external staff to internal staff with better production costs. We are still successful in driving [indiscernible] core growth and also driving profitability.

And to be sure that we also will be successful here in the future, I would -- before we come to your questions, also talk a little bit about what's our focus for the next -- as the next month, the next 1 to 2 years. And there, of course, we are also looking at the challenges, which the economic environment at the moment is bringing to us. And there, we are working on the success factors, which will make us successful in our opinion, also in the next years in the competition with other service providers and the competition with the market.

And on our last slide, I would like to explain a little bit what we are doing there to really ensure that we can continue to develop us successfully, although in the next years. And we have here selected investments where we invest in capacity for growth and scalability using the 3 topics: artificial intelligence, cybersecurity and our own cloud platform. One challenge in the economic environment, I'm talking about is the lack of specialists of IT specialty. Especially with our production modeling, making IT services made in Germany, we are, of course, fully facing this lack of specialists. We are doing a lot of things in employer branding to make people interested in coming and joining DATAGROUP, of course. But on the other hand, we are sure that we will see an increase issue in the competition for these IT specialists also in the next years. And that's why we are on a good way in developing an own AI strategy, but not bringing AI as a product to the market. We are focusing on using AI to being able to scale our production, our capacity without being -- have the necessity to get additional people -- to scale our production capacities without the need for additional specialists in an everyday basis. And that's something we will present more information and we do more publications in the future, but we can already say now that we are on a very good track here. We are on the way that we are using an own AI-based technology to run our productions and to support the work of specialists by AI technology and proprietary own AI technology we are developing there, and we will present more about this in the future.

The second challenge out of our point of view, besides the lack of specialists is the increasing cybersecurity threat situation. We think in the future, only the service providers will be successful, who can offer to their customers a really secure service portfolio where the customers can be as sure as possible that these services are hardened against the cybersecurity threats. And besides this also offering special securities with [indiscernible] customers themselves in facing this cybersecurity threats. And therefore, we are broadening our security portfolio, but also integrating in our CORBOX [indiscernible] service hardened and more secure security level to really be in a good position in future competition, where I'm sure customers will look very much on the security level a provider can present, and there also, we are broadening our team. Our team is growing and also broadening our security portfolio. What means adding additional technologies, and we will also present more details here in the future, adding additional really top-level security technologies making our portfolio more secure in the future.

The third challenge is, for sure, the unsure overall worldwide economical situation. We see that especially the customers in the [indiscernible], as we call it in Germany, the midsized companies are quite interesting in having service concepts where they have a kind of a backup to public cloud strategy following the hyperscalers, the American hyperscalers. Nearly all business or business situations -- portfolio situations, we see now hybrid approaches. So customers are really focusing having the option to have a provider, which not only can help them using the [indiscernible] cloud, but has also the capacity to run own local cloud platforms. So they can decide on their own which data are critical and should be run on a local cloud, which is hosted in Germany, run by a German provider, for example, and which they are willing to bring to the [indiscernible]. As they all have seen and the ongoing that the economical forces in the world are changes continuously concerning Asia and Americas and to being flexible here and ensure they can change if they want the portions of IT services, which are based on the different clouds, and therefore, we have decided to really stick to our own production with own CORBOX cloud because the ability and the capacity to run own cloud platforms on our infrastructure, our assets here in Germany in our opinion will also be a competitive advantage in the future to offer the customers these hybrid scenarios.

And on these 3 topics, we are working quite intensively at the moment to make sure we can rely on these competitive advantages also in the next years, because when we look at the overall economic situation, the customer situations in the future might be more competitive. And I think there you have a good competitive advantage, if you can offer your customers these 3 topics. So really being sure to deliver without being dependent on personal stuff, having secure services and the option to run services also on your own cloud platforms.

So that was a little insight on what we are working on at the moment. To really make sure that we have a good future based on [indiscernible] additional know-how and technology and also make the base for future growth and a good development of our core business. So thank you for listening up to now. And I think we are open to your questions now.

[Operator]

[Operator Instructions]. So the first question comes from Mr. Wolf.

[Andreas Wolf, analyst]

My first question would be on the HP-related revenues. Was it possible for you to place the employees, which were not required anymore in the lower contract volume in other client service relationships. The second is on CapEx. Seems like we have a higher run rate now. Is the recent -- the more recent level, the 1 that we should get used to going forward? Or were there special effects during the 9-month period?

And then as you alluded to the overall economic environment, what would a tight economic environment in general mean? Do you see clients outsourcing, out tasking more of the IT services to provide us such as DATAGROUP? Or does this basically lead to more hesitation among many midsized companies, for example, maybe you could shed some additional light on the client situations here.

[Andreas Baresel, executive]

Maybe I answer 2 questions 1 and 3 and Oliver you do the second one. So your first question on the HPE service contracts. Yes, we were able to place the stuff in DATAGROUP services within the last year, then we have nearly, I think, 6 or 7 years running now the HPE on our [indiscernible]. We had a good development step-by-step, replacing the stuff in DATAGROUP services. You might remember the capacity, the resources we took over there were the basis for our SAP service unit, and this developed quite well. The situation we now have is that the contract was ending or was planned to end now end of August this year. And it was just no additional contract years visible. And we were talking with [indiscernible] how to manage the future. And as I said, we were able to flatten the curve [indiscernible] and so instead of ending now in August, we were reducing revenues as we were already able to replace the stuff or place the stuff in DATAGROUP contracts earlier than planned. And that was the part of revenue. DXC was also reducing now, but we added 2 additional years. So made a prolongation of the 7-year contract, I think it was 2 additional years, which ensured us to place the rest of the team also for the next years on the [indiscernible] services. So that was a quite good development. Of course, we lost revenue in this year, but we ensured quite continuous development for the next 2 years.

[Oliver Thome, executive]

Maybe I will answer to the question of CapEx. What we have seen in the first 9 months is that they increased from roughly EUR 6 million in past year to EUR 11 million to the actual year. Maybe here to some words [indiscernible] first 1 is we expect normally in a run rate business, the CapEx quotation between -- with roughly 3% of our total volume or with 5% of our revenue -- recurring revenue CORBOX business. So we are here online. So we do not see big changes in this area.

What we have like in the past is that, it depends a little bit in the behavior of the contracts of our customers. That means that is what I've explained in the EBITDA development, which increased not as in the EBIT increasing with more than 7%. And that means that we see that customers more switch the contracts to finance lease, and then we do not have it inside our EBITDA. So the effect, at first it's totally in range in our view. We do not see that the business can change or that there will be the need for us to invest more than what we are expecting. And the second 1 is that this effect only [indiscernible] or that will be shown in the EBITDA. The EBIT is the same because, on the 1 hand, you have depreciation on the other hand, you have material expenses or other expenses .

[Andreas Baresel, executive]

Okay. Thank you. So to your last question. The overall economic situation, this 1 is difficult to answer because we have several effects, which are overlaying each other. Of course, in a more tighter economic situation, customers are using the chance or the option to save costs by outsourcing services additionally. So they are definitely additional service requests and [indiscernible] are coming on the market. On the other hand, the existing CORBOX business or customer basis [indiscernible] -- just a second, my screen has lost. .

The existing customer base is requesting in a tighter economic situation, less additional services. So they might reduce capacities a little bit their employer base and all of our contracts have a quantity-based calculation. So -- and a contra-effect is that existing revenues are reducing a little bit. And of course, if you have the situation that certain industries are quite in a very hard challenge like we see it in the [indiscernible] supplier area at the moment, they are in such a big struggle that they are not willing to run an outsourcing project in addition to the first look on stabilize their business and then looking for the option running additional outsourcing services to reduce their cost base.

So you have different effects, which are overlaying each other. So it's quite difficult to answer what the overall effect is. But as we see, it's still also in our business that a more tightened economic situation also brings up challenges. That's definitely that way.

[Operator]

So the next question comes from Mr. Wunderlich.

[indiscernible] you should be able to unmure yourself. So maybe we will skip him for this time until it works technically.

There is also a question from Mr. Woller. Do you expect to return to noticeable revenue growth next year, which margin level should we expect going forward?

[Andreas Baresel, executive]

Maybe on the growth from my side, Oliver, you can say something about the margins. Yes, we expect in the next year, again, a comparable situation as in the last years, where we can overcompensate the transformation with growth. We will see how strong the growth will be. Of course, it's also a part how the inorganic M&A pipeline will result in additional years or not. But we will see a comparable situation in the last years with also a top line growth compared to this year's figures again. .

[Oliver Thome, executive]

I can underline with the margin as well because we do not see that there is a reduction of prices to see. This is quite an opposite. We're able to raise our prices. So I expect a comparable margin that we reached in the past as well.

[Operator]

Okay. So maybe we try again, if it works now to [indiscernible]. Okay. It doesn't matter that we have enough questions [indiscernible] again later.

And then Mr. [indiscernible] is raising his hand.

[Yannik Siering, analyst]

I would have 2 left. The first 1 would be on the investments in the mentioned areas, AI, cybersecurity and cloud. And if you could quantify these to a certain extent and also the potential impact on margins.

And then the second 1 would be on your updated guidance. So I think it implies a revenue decline of around 8% to 9% in Q4 and then quite a high EBIT margin of 10.4% in Q4. So also for the full year, the margin would now be around 9.4%. Are these higher margins, are they partly due to the change in accounting? Or could you maybe elaborate a bit on the drivers of the higher margin that results from the updated guidance?

[Andreas Baresel, executive]

Thank you. So let me answer the first one. The level of investment. So we don't document or report the detailed numbers for this area. But what I can say that we are keeping on the same investment level as in the last years. What we do is we are reallocating our investment. You might remember that we did a bigger investments in our CORBOX data center capacities in the last years. For example, also did investments in the digitization of our own processes in our own tools. These investments are done now [indiscernible] reallocating these budgets now to the 3 areas I just mentioned. So you can expect a comparable level of investment as in the last years in this area. .

Of course, it's also a part of the planning that we will see how intense it will be in the future. But our assumption for now is keeping on the same investment level as we did it in the past, looking for good investment and leverage for the future. And at the moment, these 3 are our [indiscernible] topics.

[Oliver Thome, executive]

Okay. Then [indiscernible]. Let me give you the answer of what's with the margin. The margin, this is right, but we have looked very straight to look what happens in the fourth quarter. There we have the decline in revenue, especially from the effect of IFRS 15 principal agent. And that means that we lose [indiscernible] the revenue stream, but the EBIT margin keeps on the same. So the relation of the EBIT margin is in this quarter, what we expect something more than we have earned in percentage in the first 9 months.

The second 1 is what we expect is that we lose some revenues from delivering goods that was what Andreas has just explained from [indiscernible] special effect, and that means not the vaccination centers. This is what we have made with the digitalization pack with the schools and delivering digital [indiscernible], and this is delivering goods is not as good in the margin as our core business. So we are so very [indiscernible] that we will reach our EBIT situation. This explains why we expect that the [indiscernible] quarter will be a good quarter, not from the revenue side, but especially from the EBIT situation.

[Operator]

So in the meantime, Mr. Wunderlich used question box to ask his questions. And he's asking, when would you expect CORBOX growth to overcompensate the current growth headwinds from HDE, IFRS 15, et cetera?

[Andreas Baresel, executive]

Yes. It's difficult to calculate and of course, also depend on the acquisitions of the future. [indiscernible] system for our latest acquisition is a good example. They are bringing a quite bigger portion of classical system house and trading business with them with a bit lower margins at our core business. If we start now addressing their customers with additional CORBOX services that might also end up in the transformation of this EUR 12 million revenue package. And if you take this example, that means we have also in the future, effects that we have a counter effect between core growth and transforming revenues. And the detailed level in each year, if you look in the last years, our top line growth was also changing a little bit in the overall situation, we managed year-on-year, an overcompensation. So CORBOX growth was bigger than the trends from the negative transformation part. .

This year, we have only a sideways level. And as we said, we are expecting for next year a situation like in the last years, where we are already in an overcompensation level. But of course, it can happen that we made another acquisition where we do a big transformation step [indiscernible] we will have a comparable situation. That's part of our business model, acquiring also companies and not only let them run straight on in their business model instead of transforming business their business to the CORBOX model. So it means that could happen in some years, but in a typical situation, like in the last years with a good economic environment. We are on a basis that we can overcompensate this with more organic CORBOX growth in the core compared to the transformation effect we have .

[Oliver Thome, executive]

Maybe 1 further word to have the right view on this what happens in this moment. And this [indiscernible], I think, has to be shown whether you look -- just transformative companies. And this is what Andreas explained as our [indiscernible] companies, which are delivering CORBOX services or our solution services. And when you compare the that what they are growing in this year as compared to the previous year with -- we expect 7% up to 8%. And this is quite very good. This shows the strong order intake we just have shown in the past year. And this you can see in the accounts as well in this year, but the effect that we have special things, what we have just explained, cannot be compensated with organic growth, but -- and this is very important to understand why our EBIT develops as we have planned, because our core business, what we are doing, where we want to transform all the companies we buy has a growth rate in this year between 7% and 8%. This is quite good. .

[Operator]

Okay. So Mr. [indiscernible] added 2 more questions. He is rising the low end of the new '22-'23 revenue guidance. EUR 475 million would suggest a 20% revenue decline in Q4, both year-over-year and quarter-over-quarter. This looks concerning, why would this significant decline [indiscernible] -- so I guess the guidance number of [indiscernible] not the correct one [indiscernible]

[Oliver Thome, executive]

Maybe to show this. We have now roughly EUR 375 million, so that we expect. In the past, we had an average of EUR [ 125 ]. And we expect now within [indiscernible], maybe EUR 20 million, we will see. So this only shows the effects which we have just explained, especially the delivering effect of digital boards of our [indiscernible] and the principal [indiscernible] effects, especially.

[Operator]

Okay. So his next question is regarding DXC HPE. Why have you not managed to transfer all of the employees to other projects, given that the contract was supposed to end in September .

[Andreas Baresel, executive]

I would like to answer this way with the utilization of the stuff, we were successful and we managed to them. We just had the effect that [indiscernible] there are also external resources of freelancers part of the staffing that we see not use all of the capacity, which they were planning [indiscernible] we decided to -- and our focus on replacing is, of course, with our own and also the focus on the external resources. That's also part of the decline you have seen of external costs in our numbers, in our figures. So it's not really the situation that we were not successful in staffing the people on our internal contracts.

Of course, in the all overall area, there are also some capacities which, for example, are close to retirement now, and we agreed with them on an earlier retirement as their former [indiscernible] contract was ending. But in the overall situation because otherwise, we would have a much stronger impact on the results [indiscernible] situation that we decide to cut revenues already with before planning in this year and the people would have been on the bench, like we say, and would have no utilization. If it would have been the situation you would have seen stronger effect on the results. And as we have explained, the results are quite, quite well. So it's not like you suppose that we have no utilization for this team, we managed to leverage this quite good.

[Operator]

Okay. So Mr. [indiscernible]. I guess all the questions have been answered. And next question comes from Mr. [indiscernible] also unable to use the unmute symbol. Otherwise, we can do it like we trained it already with Mr. [indiscernible]. We also have a question from Mr. Wolf. He's writing what is the actual strategy outlook, market situation in terms of future acquisitions regarding unorganic growth ?

[Andreas Baresel, executive]

Maybe I can say some words on this, and Oliver, please add your opinion. We have a bit more selective situation there. You see, as we have some acquisitions like [indiscernible]. But the situation, especially on the purchase price, the acquisition prices are a bit higher than in the past. And of course, we look there very much in detail how it's a strategic fit of the companies we are talking with. And if there are the very good strategic fit like in Ulm, we had already DATAGROUP Ulm and we have a system as a very good add-on acquisition with additive customers and not the same customer base in the Ulm area. Then we do these acquisitions. But of course, on a higher price level -- the strategic fit must be much higher on -- when you calculate the value creation model with [indiscernible]then with lower prices as in the past, there are additional acquisitions -- of course, from a value creation perspective could be calculated more easy.

So we will see additional acquisitions also in the future, but maybe on a higher price level than in the past, but for them also with a much better strategic fit then. So that's the reason with this maybe a little bit lower level of our inorganic growth, we have a very strong focus on our organic [indiscernible] growth.

[Operator]

Okay. So maybe we try again. If it works for [indiscernible]

[Unknown Analyst]

I have 2, in fact. The first 1 would be on the cost side. If we are looking at personnel costs and cost of materials, you were able to slightly reduce this ratio to sales to about 79%. Do you have any further measures planned [indiscernible] and the second 1 would be about the headwinds coming from the vaccination centers. Would you say that the majority of revenue decline is already factored in? Or is there still a potential of losing further revenues in '23 and '24 coming?

[Andreas Baresel, executive]

Maybe on our measures to further reduce personnel costs. As I've mentioned, especially by the lack of specialists compared to the growth in our revenue level, we will see a further decline of the personnel cost ratio, because not only because of optimization or productivity measures, but only by the need to do so because you don't get this amount of specialists and you would have needed. So that's why, as we have explained, we are really focusing on automation technology, so using AI technology, what we call AI ops -- AI operations, and this will help us to reach the effect you're asking to reduce the [indiscernible] capacity per service volume we are delivering as this automation technologies can just do certain service issues totally on their own with a much lesser and reduced number of staff driving them.

Of course, this is a transformation process, which when we start at the moment with AI technology, we had done some steps in this area already in the last years, which will take some years until we see the full effect. But in our opinion, we are 1 of the providers who is really in the proposition here in running these technologies and they will show the effect in the last year. So right, we will see more effects in this area.

Of course, the increasing wages also has a counter effect, which is quite strong on the market. So for the experts, you are higher, you have to pay much higher rates. But also there, we think we can overcompensate it using our automation technology, [indiscernible] technologies. We will plan to as soon as we see some more [indiscernible] can calculate some more detailed effects of these [indiscernible] of these measures we will show some more insights on this in the next months.

Maybe Oliver, you want to answer to the other question. .

[Oliver Thome, executive]

Yes. You have just asked for a further headwind from revenues, future [indiscernible]. Yes, for sure, when we say we had some tailwind from vaccination centers in the first quarter. They were a shutdown in the [indiscernible] of January, which we expected. What we see is that maybe the revenue stream of the digitalization of schools will go further. We will see that. We don't not expect a bigger effect, but a decline in contract volume with -- we have just explained very intensively with DXC. We will see, yes. So I cannot give you the details now, but we will see that some of these effects we have just shown will be present in the next year as well. But this is a very important what I've explained 5 minutes ago that the growing core business is very stable. So we are very optimistic that we can cover these effects, but they will return a little bit for the coming fiscal year as well.

[Operator]

So as I do not notice for the questions, I guess everybody was able to ask these questions. And yes, with this information, I would like to let you know that the call will be made available on DATAGROUP's website and hand over again to Andreas Baresel [indiscernible] .

[Andreas Baresel, executive]

Yes. So thank you, and especially thank you also for your questions. Also for your questions. On the revenue guidance, I think it was very important, explaining these effects to make sure everybody is understanding what has been the special situation in this year. And as we said, we are quite optimistic that we will come back next year to a normal situation. So having some negative effects are overcompensating with their core growth and also with some inorganic growth. So our view into the future is even in a challenging economic environment, quite optimistic with the CORBOX model.

So thank you again for listening, and we'll be happy to see you in [indiscernible] winter time with our preliminary figures then again. Thank you, and bye-bye.