JDC Group AG

XETRA:JDC

Earnings Call Transcript 2024-Q3

[Franziska von Lewinski, executive]

Good day, ladies and gentlemen, and warm welcome to today's earnings call of the JDC Group. Today, we will delve into the third quarter of the financial figures of 2024. And we like to welcome CEO, Dr. Sebastian Grabmaier; and CFO, Ralph Konrad, who will start with the presentation shortly. [Operator Instructions]

And with this, let's start. Dr. Sebastian Grabmaier, the stage is yours.

[Sebastian Grabmaier, executive]

Yes. Thank you very much, Franziska, for the warm welcome. Yes, a hearty welcome from our side from the Board Members of JDC Group with the earnings call for the first 9 months of the year 2024. And you see the header is third quarter growth is more than 35% or it's actually 36.1%. So everybody here on this side is really happy to present these figures today.

So let us introduce ourselves. Ralph and I will present to you JDC's figures today. My name is Sebastian. I'm CEO, Co-Founder of JDC. We founded the company 22 years ago. Now responsible for strategy, HR products and also Investor in Public Relations.

And Ralph, I'm sure you want to introduce yourself.

[Ralph Konrad, executive]

Yes, I'm Ralph. Hi, responsible for IT, finance, legal and M&A. Last time, I also had a responsibility for all operations. And as you might remember, our new Board Member, colleague Ramona Evens, is now the COO. And I'm very happy that I now have more focus on the remaining parts.

[Sebastian Grabmaier, executive]

Right. So just a little reminder who we are. So we have typical platform, let's say we are like a gatekeeper or tall booth between all the product providers in Germany, more than 220 insurance groups, all kinds of investment platforms, investment companies, the mortgaging banks. And on the other hand, we have, yes, the intermediaries in the market, individual agents, brokers, 16,000 of those. But more and more, the banks, insurance companies, other insurance, tax and exclusive sales organizations.

So what we do is, we take in the data of all the product companies, we standardize the data, we process it and then we make them visible, either in our own systems or in the systems -- of our intermediary clients where we load them up via an API structure.

Now we have about 5.5 data sets of contracts on the platform. That translates in a little bit more than 2 million contracts in insurance, and some more in investment. And what we do, basically we aggregate as many contracts in the market that are out there and not only the data, but also the commission that comes with the data, like a trailer in a fund, every insurance contract pays us on average about EUR 40 in commission. And that's what you will see later that we collect as many as we can. So this year it will be around 700,000 this year 2024.

So on the next page, you see that the third quarter is at a record high. So for the first time in third quarter, the third quarter in a row, we achieved more than EUR 50 million in sales. So that's especially pleasing as Q3 obviously is the quarter where Germans like to have their big vacation. So sales normally are down, yes, on average more than 10% in a normal -- of a normal quarter. But you can see that we're just down a little bit from a Q1 or a Q2.

So the growth as compared to the quarter last year is 36%, which is really a good thing for third quarter. And therefore you can also see that for the entire period of 9 months, turnover is now up 29% from EUR 122.9 to EUR 158.2 million. So very pleasing figure as well. And you see that also the platform is becoming more efficient. So the earnings are growing even more than the turnover and EBITDA is up 37%, from EUR 6.7 million to EUR 9.2 million.

So and -- what we also can tell you that the strong growth is coming from all kinds of business, all business lines, and also all different sales lines or sales channels. So insurance is growing quite significantly, especially in the life insurance sector. But also investment business is back and also real estate, mortgage and also alternative investment products. So that's a very pleasing environment.

You might hear that Germany is getting a new government, which is good news for everybody who does business in Germany. And therefore you can see although the overall GDP figures might not be really pleasing, sentiment with investors are up again as there will be a conservative government starting next year. Most probably elections will be in February and then the government starting in Q2. So as people would, yes, basically anticipate this a little bit, people are starting to reinvest and also invest in both the insurance part and the investment part.

Yes, now you can see that's the whole group in figures, comparison always on the left columns, that's the quarter-versus-quarter comparison. And then the year that's these 9 months-versus-9 months comparison. So as we said, turnover is up 28.7% and EBITDA is up 37%. We have a little performer calculation inserted here. There's one-off costs both as to M&A and especially the integration of the new company Top Ten.

So there's about EUR 600,000 in EBITDA that we did not achieve, because we had some layoffs of management that we had to pay cancellation fees for and also some other costs for attorneys basically and also tax consultants. So if you would look at these or deduct these one-offs, then the figures would look even nicer. But let's stay as the as-is figures. So we're very happy with earnings growth of 37%.

So you can see that the Q3 figures are really nice. Revenues being up from EUR 38.3 million to EUR 52.1 million and also in the 9-year figures as said almost 29%. So we were very happy in the management and the entire team. So it's a harvesting of what we put into the platform for the last decade.

Yes, that's what I said. The growth is stemming from all product groups. You can see that obviously investment and financing, is up by 61%. That looks maybe a little bit nicer as it is, because you can see that about EUR 17 million, EUR 17.5 million come from the acquisition of Top Ten, which are almost exclusively in the investment and portfolio management side. So, but also if you would deduct this, we have a very nice growth of almost EUR 6 million in the entire investment business, as it was EUR 4 million. Top Ten was consolidated first time in December of last year.

So also growth in the, yes, big and broadly spread investment business in the group. Insurance is up 15%. That's almost 12% -- EUR 12 million in added revenue. And also the others that's a smaller portion, but you can see that it's up 10% and that's good news, because obviously there was no real estate market in Germany for the last 2 years as banks were very reluctant to sign mortgages, and there was basically no financing now.

Yes, capital investors also back in the real estate sector as prices are down and are only now starting to grow again. And this is also good news for the mortgage business that was, yes, had a drop of more than 90% with -- on our platform, and now is starting to show signs of a rebound.

Yes, the next page you can see that also it's not only the product lines, but also the sales channels that are growing. And that's, yes, a beautiful number here and good news from our broad IFA business. That's the 16,000 IFAs that are the backbone of our business, and they are up almost 30%. That's almost EUR 24 million in growth coming from this, let's say, historic business or business lines with our grown brokers. And we like to add major customers and that's what we present you in press releases from time-to-time.

That's about a quarter of our business in the Advisortech segment, but also they are up 35%. That's EUR 9 million marginal additional revenue. And that's also good news that the advisory sections, that's our almost 300 type agents under the brand of [ Phenom ]. They are up more than 17%. So that's EUR 4 million in marginal revenue. So overall we're very happy that, yes, now the growth is not coming from a one-time effect or it's not coming from one single business line, but it's the breadth of our platform business.

Yes. Ralph, quarterly.

[Ralph Konrad, executive]

Let's look at the quarterly development. If you look at this slide and then focus on the third quarter, you can see that after year 2023 where we had a growth of 10%, we see a really very strong third quarter 2024 with a plus of more than 35%.

And for the first time in history, at least as I remember, we have a third quarter that is almost as strong as the first quarter. That's extraordinary situation, and to be honest a little bit surprising, because before I heard the last earnings call, and I told you that we expect a weaker third quarter due to summer season, so no summer at JDC obviously. But we are happy with this development.

But please, as management of expectations, the growth in this quarter really was extraordinarily strong. And it's not given that this will be the fact for every quarter in the next -- in the next year or in the next quarters. Driven by the insurance and investment sector, as Sebastian mentioned, and for the rest of the year, we foresee a typical year end business, and thus a strong Q4.

One step deeper into the Advisortech segment. This also showed extraordinary good growth, good performance. Revenue was up by approximately 40% to EUR 46.4 million and EBITDA increased by almost 35% to EUR 2.7 million. Personnel costs were up 18%, only a small portion of this like real cost increase and the rest by the consolidation of Top Ten Group. To remind you, date of first consolidation was December 2023. So we are not comparing apples-with-apples.

The same with the other operating expenses that grew. They grew by 41%, but as Sebastian mentioned in the third quarter, including like EUR 300,000 restructuring and integration one-off costs. So if you deduct this, you would see an EBITDA growth of 50% in the third quarter and, yes, 35% growth reported.

For the first 9 months, turnover grew by 30% to EUR 141.2 million and EBITDA grow pro forma almost 40% and reported by 31.4%. We are very satisfied with this development and we would like to take the opportunity to thank our entire team for making this success possible.

The Advisory division has gained power again and its former strength. We had also very good quarter. The turnover grew by 18%. The sales amounted to more than EUR 9 million in only one quarter and with only a slight increase in costs, which was mainly driven by a smaller broker acquisition in Austria. This resulted in an EBITDA of EUR 0.5 million, which is a growth of 35%.

If we look at the year as a whole, the Advisory segment is once again performing strongly. Sales grew by 17.2% and EBITDA grew by 32.9%. Total EBITDA contribution to the group earnings of this segment now is EUR 2.2 million for the first 9 months, which is a very nice number for us.

Okay. Let's have a look at the cash flow statement for the first 9 months. We started with cash and cash equivalents at the beginning of the year with EUR 26.4 million, which was a plus of EUR 10 million compared to the start of 2023. Cash flow of operating activities in the first 9 months amounted to EUR 9.9 million, which is a plus of 25%. And the cash flow of investment activities amounted to minus EUR 5.4 million, driven by some effects.

The first is that we sold some securities for EUR 400,000. We invested into financial assets, which is the capital calls of Summitas, which was EUR 900,000 in the last -- in the first 9 months. And the payments for the acquisition of consolidated companies was about EUR 2 million, EUR 700,000 for the acquisition of the rest, the last 25% of our asset management company [ BBVW ] that we acquired and EUR 1.2 million for the smaller broker in Austria I mentioned.

Cash flow from financing activities is minus EUR 2.5 million. Main reason is the share buyback program that ended in May this year. And if you look at the cash flow from financing activities last year, just as a reminder, the main portion of this plus EUR 15 million was the sale of our treasury shares for EUR 13 million to Provinzial, which is since then one of our important shareholders.

The quarter ended with a cash balance of more than EUR 28 million and cash on hand at the 12th of November, Tuesday, the last data I have is EUR 34 million and some -- and a couple of some more euros.

As always, some operational key figures, they have also developed positively like in the last quarters, the numbers of the Top Ten Group. Again they are not included here, because the IT systems have not been migrated yet. So here in this slide, we are comparing apples-to-apples.

New orders peaked at around EUR 108,000 at the end of third quarter, which means an increase of 12.3% compared to the previous year, coming especially from life insurance business and a very good growth, as Sebastian mentioned, in the mutual fund business.

The number of initiated contract transfers is up more than 50% and reach a number of 450,000 -- yes, 450,000 contract transfers, which is a very, very good development. And finally, the insurance assets on our platform are constantly growing now heading for EUR 1.3 billion.

And maybe one additional comment here. We expect a very good increase in the next months here, because we know that the prices, especially the premiums and especially in the P&C sector will increase over the year again like last year due to inflation and higher costs for the insurance companies. And this will give us yes a boost in our assets. And as you know, our commissions are linked to the premiums and if premiums are rising, our commission is increasing as well. So that's also a good development for us.

As always, some information about the share price and the bond. The share price developed nicely. We had EUR 22.10 at the close of yesterday. I think now we are at EUR 23 -- around EUR 23. Market cap is EUR 300 million, and we now have 147,000 treasury shares that we bought at an average price of EUR 19.89.

The bond is still valued at EUR 20 million. We have EUR 5 million financing reserve, as you might know there, but we don't need it. And the bond is trading very nicely at a quarter of 106% at a coupon of 7%.

There's no change in the shareholder structure and the other data here. So no news on this slide. But at this point I would like to give some comment on a very important issue, and that is the liquidity of our stock, of our share. We are very satisfied with our operational performance, and I hope and I think that the shareholders look at this in the same way. Nevertheless, we do not currently see the liquidity in the share that is necessary, for the share price to follow the operational performance.

So operational performance is going up, and share price is more flat than increasing. All of us, small and mid-caps in Europe, especially in Germany, are suffering from this development, because investors are increasingly investing into larger and more liquid shares. And small caps are currently undervalued. And that's the fact for already some time.

And we are working against this development in 2 ways. The first is we have permanent investor meetings, road shows and conferences. From my memory, we never had more investor contacts than at the present. In the last weeks, we have been in the Netherlands, in the U.K., and in the United States, and we will see a lot of you on the Eigenkapitalforum in Frankfurt in 2 weeks.

And second, and that's more important, is growth. If investors want to have larger companies with larger market caps, then that's where we have to grow. And that's what we are working on. We want to increase our market cap to EUR 500 million as quickly, as soon as possible, through operational performance and also through further acquisition.

Because bigger market cap, the bigger is the liquidity. And the bigger the liquidity, the bigger is the attractiveness of JDC to your investors. And the market cap then increases with the attractiveness. I'm telling you that, or we are telling you that, although we know that you know that, yes, you investors know that that is the fact. But we want to -- we want you to know that we are aware of this too and we are working on that issue.

Some spotlights for you. The first is the stage of integration of our Top Ten Group. Again Sebastian mentioned that EUR 17.5 million of turnover and an EBITDA of EUR 750,000. It is what Top Ten contributed, and we had around 600,000 extraordinary costs for integration. So we are exactly there where we -- what we have planned. Transaction closing, of course, is done.

The first step, all formal and regulatory requirements, are fulfilled. We have now completed the formal integration of the group. That means that the Board and the Management is merged. It's the same with the employees. And the Top Ten entities are now merged with the corresponding JDC entities.

Please keep in mind that, from now on we cannot give you exact numbers on the Top Ten Group because the entities do not exist anymore. So we can give you the exact numbers backwards, but from the fourth quarter on, it's one company.

We are now working on 2 further issues. The first is marketing, because Top Ten is no longer existing as a legal entity, but it lives as a brand of JDC. And thus we have to renew marketing presence, CI and other documents. And finally, we have to finalize the operational integration in the fields of IT, information, and data security and also accounting. But we're happy with the development, and we are on track with our post-merger integration plan.

The second spotlight is very important. It's on a consolidation of the market. What you see here is data of McKinsey & Company and it gives you a look on the age structure and the development of the broker market. Some key facts from the slides. In 2019, the average age of brokers was 52.6 years. And 4 years later, the average age of brokers was 56.3 years. That means that within 4 years, the brokers aged by 3.7 years. Seems a dramatic development, but I will give you some different view on this later on.

And already today, very interesting, 14% of all brokers are older than usual. Retirement age means older than 67 years old. And McKinsey expects that from now on, up to 2,000 brokers a year will retire. So the market is in a change, in a dramatic change. And what does that mean for us, for JDC or for the market participants?

We see mainly 2 trends. The first is that we have a huge market opportunity for younger brokers to enter the market, because the competition of brokers is decreasing in the future. Today the brokers are searching for customers. Tomorrow if the customer wants to have a broker, he has to search for a broker. So there's a good opportunity for younger people. And that's what we see and also at JDC, a lot of younger brokers with a good growth. Yes, that's a good development.

And second, it's a huge market opportunity to buy assets from broker who already have retired or who will retire or who should retire. And that's what we can tell you. In the future, we will not only focus on the consolidation of the corporate broker market with our Summitas participation, but we will also increase our efforts in the consolidation of the private broker market.

And we will -- means that we will buy brokers and we will buy portfolios, private portfolios, from brokers. And we will do this as JDC. We did this in the past, but we will increase our efforts, and you can expect us to show here more traction in the upcoming year.

The third point is AI. At the beginning of the year, we talked about the fact that we have projects in the field of artificial intelligence, and that projects should move our company forward. And we announced that we would not talk about that now, but when there was something interesting and meaningful to report, and that's the case today.

What have we done? We have revised our process for processing the insurance documents, and we are now already using artificial intelligence to read out and assign documents in 3 lines of business: it's car, it's household, and it's homeowners or building insurance. And that instead of our traditional OCR recognition that we are using or were using for 15 years.

The main achievement after 9 months of work is that now 90% of all documents, means policies and invoices, are processed straight through. That means from now on, there is no manual interaction needed. That's a very, very big success for us. And in some more detail means that we have an automated data input, no manual processes needed. We have a broader scope of data that means depending on the product line, we have up to 100% more product specific fields that we can show in our CRM.

We are able to read them out now. We were not able to show this data in the past. We are much more efficient and we can show better quality. We have a correctness and completeness of data, of 95%, means the 90% of all data that we read out is -- it's the right data for the right field and it's the right data, and this is much better than it was before. Of course, we have cost savings.

You can imagine it's already integrated into the JDC platform. But the most important thing, beside the 90% figure, is that it's absolutely scalable. If we tomorrow get the double volume, that's no problem for us. We just have to send more prompts to ChatGPT. We do not have to hire more people. Yes. Okay, we have to hire some more people, but we do not have to hire the people in the same relation.

We will now focus on the rest of the P&C lines and after that work disability. Then we will take a breath at the beginning of next year and think about which will be the next steps to implement AI tools into our organization.

Okay. And the last slide from my side, a lot of words from me, today is we have a new award. The [ Finance World Broker Pool Navigator ] was published some weeks ago and again third time, third year in a row, JDC gained an award with an outstanding valuation in all 6 categories. There were 18 pools that participated in this survey and we were the only one who had this outstanding yes in all 6 categories, which were broker orientation, product range, processes, marketing support, software support and sales support. So that's very encouraging and, yes, it shows that we are on the right path.

So far from me. Sebastian.

[Sebastian Grabmaier, executive]

Yes. Thank you, Ralph. Those of you who might have questions on the topic of Summitas, there's no slide included as it's now left the start-up phase, if you want. You might have seen the press release with Summitas. We bought a very big broker company, that's BVUK. It's the leading pension platform in Germany with more than EUR 40 million in turnover. So Summitas, after closing, antitrust clearing -- clearance came in today.

So after closing in December, Summitas will be like a real broker company with EUR 52 million in turnover and about EUR 13 million in EBITDA per year. Our stake is still 10% in the JV Summitas, and we will have invested EUR 10 million by the end of the year, and we're not diluted, so it's a very nice progress. They moved out of our offices, so they have their own company by now. And for the value contribution, we will earn a little bit more this year than we planned, about EUR 600,000.

And then earnings will go up to more than EUR 1.5 million next year. So you will see that we will not consolidate all of these pension and occupants, so the pension plans, special contracts to the platform. But we will receive quite an amount of service fees. So Summitas will have a very nice contribution to our gross margin line, and then to our bottom line of more than EUR 1.5 million next year. So also here company fully on track.

Yes. As when we come to the guidance, you see that our progress is well on track. You see we guided for a turnover of EUR 205 million to EUR 220 million. You will see by the figures, we have now with EUR 158.2 million, that's a little bit more than EUR 60 million to go. This would mean a growth of only 20-something percent, 22% of where we are.

So I think there we are well on track to also reach the upper end of the guidance. And also on the EBITDA side, coming from EUR 9.2 million, we want to achieve EUR 14.5 million to EUR 16 million. We're well on track to, yes, to end up in the EUR 15 million region.

So also our individual goals, integration of Top Ten, Ralph mentioned, is well on track. Also Summitas, we will receive more bottom line margin -- bottom line earnings than turnover. But at least on the gross margin we are above plan. And also, that's what Ralph said, our big marketing campaign to refocus on smaller IFAs. You can see that the breadth of IFA base is growing and also their share of wallet is growing. So also here, we can use our experience from the major customers, and have a broad impact on the market.

Also our IT cooperation with insurance companies. You could, yes, remember about 3 months ago we published that one of the very, very big insurers will join the platform with their 7,000 agencies. It's, I think, easy to know who this is. And so we are happy to have a full number of -- yes, there's more than 5 of the Top Ten insurance companies in Germany now having a platform contract with JDC.

Yes, we are not stopping here, but we have high, yes, benchmarks and more, yes, expectations in our IT platform. We are I think in front of the wave, and we will stay there. So we're not stopping to develop, but we want to stay the most advanced tech stack in the market. And, yes, Ralph mentioned AI is helping us here to save more costs and also become more efficient. So a lot of focus on that. And also so this leads to more further reduction of cost per contract. So economies of scale that show that earnings are growing more than our turnover, and also as our gross margin lines.

Yes, so very, very delightful that for the first time in history I think, Ralph, we can report like growth in all segments and professional business lines. That's quite historic. And we hope that this development goes as long as it -- as we can.

Yes. Thank you for your attention. We happy to take your questions now.

[Franziska von Lewinski, executive]

[Operator Instructions] The first question is would you consider up-listing the shares to prime standard? Can you give us insights into the status and scope of the recently announced customer wins? How do you expect the ramp up curve to look like, and what is the long-term potential for JDC to these contacts? Last question, are there further customer acquisitions in the pipeline that could close within the foreseeable future? Do you expect customer acquisitions to gain pace or will you have to put more focus on organization to realize the potential of existing contracts?

[Sebastian Grabmaier, executive]

Okay, Franziska, have a little different order of the questions, but I might answer the ones I can see. Yes, so the first question is like could we imagine to change our segment? The answer is yes. As you might know, this is a quarterly call, which we would not be obliged to do in the scale segment as far as we know. So we do this. We comply with all the reporting standards, and basically all other rules.

But takeover rules, it would be very easy for us to just move, yes, from scale to prime. And as Ralph mentioned, it might make sense. We are now becoming in an SDAX region, and if we go turn a little bit more, we are like a normal SDAX company. It would make sense to be part of this index and therefore, yes, we are talking to our attorneys. There's no big challenge to do so.

[Ralph Konrad, executive]

Yes, what we need is prospectus and the rest is already done. And so we are not preparing this at the moment, but we are prepared to do so when it makes sense. And we both think that will make sense in the future.

[Sebastian Grabmaier, executive]

Okay. Now you have to choose, Franziska, what questions go first, right?

[Franziska von Lewinski, executive]

Okay. No, we go now with the second question, chat in that order. So the second question is, will you buy broker pools or contracts from brokers and what if EBITDA multiply, do you expect to pay these deals?

[Sebastian Grabmaier, executive]

Yes, so we as Top Ten, it can be very attractive to buy broker pools and platforms and also brokers. We know if you buy individual contracts that this is more complicated basically as to data protection and also as to the practical move of the contracts to the platform. So we will focus on broker pools and brokers.

And the multiple depends on the size of the targets. Obviously you can see very, very, very high targets if you buy aggregators. You saw the evaluations when GGW was bought by Permira or MRHT was bought by TA Associates. So for the aggregators we see now very, very high elevations.

Yes, 20 plus, plus, plus. So normally you should expect if you buy brokers 1 million or more, to pay like 8 to 12x in the commercial space and in the private space lower. So the very small brokers with a couple of hundred thousand in turnover or commission income, there's sometimes much lower multiples of 4 to 6.

[Franziska von Lewinski, executive]

Yes, thank you so much for answering the question. Next question. Did you lose tenders, and are you bidding for contracts of significant size? In what time frame can we expect new contracts?

[Sebastian Grabmaier, executive]

So until now, we have not lost one tender. We will lose one now of a big insurer. So everybody who knows the story, will have a smile on his face at least for a short period of time, let's put it this way. So there had to be a first time anyways. But then this is a very, it's a funny story behind that. We don't want to roll out here in the public space. And then new contract, you saw that we signed VGH which is the #4 public insurer in Germany.

So it's the -- it completes the number of the big, big top 5 public insurers behind the savings bank. So now we have access to the 300 or the 317 savings banks in the market. So that was the last bigger win. Now on the insurer side, as I said, we already have the top 5 of the Top 10 and more than 10 of the Top 20. So there is room for some more, but not endless. So the next -- yes, the next last market participant to win, is there some more corporate brokers out there, and also commercial brokers out there.

But otherwise we feel that we are well positioned in the individual broker space. We have 16,000 of 38,000 under contract from the banking side. There's about 63% to 65% of all the banking institutions and their volumes. We will have access to once the platform is rolled out. And also, as I said in the insurance base, there's a market share of our platform with the top insurers of more than 50%.

So we're very happy be on the breadth now. So it's more now focused on executing on the existing contracts onboard all these individual banking institutions or branches of insurance companies, and then start converting clients. So there's a lot of work to do, but contract wise I think we are quite far in the market.

[Franziska von Lewinski, executive]

Yes, thank you so much. Next question, how's the progress with R+V [indiscernible] and the new European insurance company announced on August the 5th? Is the expected --?

[Ralph Konrad, executive]

That's what Sebastian said. Maybe I can add here some flavor. In the last years, we added new big customers to new big customers every 2 months, and we onboarded them all onto the platform, and this happened very successfully. So we have now almost all of the professional institutions on our platform. There is some room for growth of course.

But now we have to make the business happen, and that's maybe the message. The future development of our group does not depend on a new big customer every 2 months, because with our customers we have enough potential to double or triple turnover. So it's a question of realizing the potentials within our customers.

[Sebastian Grabmaier, executive]

We can also be more precise. So with R+V, yes, we will quadruple the number of banks that are using the platform. But it's still a very long, long way to go until we reach the 800 banks. So this will still be a percentage wise strong growth. But then in absolute terms, not yet relevant for our growth figures. But obviously there's a huge potential behind this banking sector. Same goes for [indiscernible] and also SV that are just now starting to roll out the platform to the individual banks.

So turnover -- first like significant turnover can be expected next year. And also this very big [indiscernible], the platform is working. So there's the first contracts transferred via these links. So also here the service contract starts next year. So we will have your first impact next year.

And also here, can it potentially be bigger? So yes, again right [indiscernible] is the one who gave us their internal business planning, and we said this could be a loan a 100 million plus to the platform. The other insurer like insurance companies are same potential, right. So VKB is even bigger than Provinzial, SV is almost as big. And then this very big insurer is even bigger than every other insurer in the German market.

So yes, the potential is the same, but again, we need a lot of patience, because it will take years and maybe until it's completely rolled, up to a decade until this customer is fully explored.

[Ralph Konrad, executive]

But we are deeply integrated into the IT systems. It takes a long time, but it will last for a much longer time. That's the good message.

[Sebastian Grabmaier, executive]

Okay. The next question is regarding the AI tools, right?

[Franziska von Lewinski, executive]

Yes.

[Sebastian Grabmaier, executive]

The question is the use of AI tools. What is the impact in terms of absolute euro savings per unit with onboarding customers? Will this lead to potentially higher margins for the group over the long term?

It will not lead to higher margins because -- yes, the EBITDA margins, of course, but not gross margins. Because gross margin is commission in, mean commission out. You can calculate that on average, we need 5 to 7 minutes to read out and type in a document manually. And every time we use AI, we save 5 to 7 minutes from one person.

So of course it will save a lot of money. But you will not see this in the P&L, because we will not decrease the number of our employees, but we will be able to generate much more volume with the existing team. So forward looking, this will save a lot of money, 7 digit for sure. And thus it will lead to higher margins. Yes.

[Franziska von Lewinski, executive]

Yes. Thank you so much. We have 2 questions from the audio line. I would love to take them. So, [ Guillaume ]. Guillaume, you could speak now. Please try.

[Unknown Analyst]

Congrats for the good setup results. Two questions from my side. First, could you please come back on Summitas and the number of deal you have done this year. The contribution you anticipated, if you mind to come back on this and the perspective for the upcoming years. And then maybe on the political environment in Germany, which is a bit difficult at the moment. Is there any potential risk or regimentation change on -- that could impact the business? If you could comment on this point, it will be to be helpful.

[Sebastian Grabmaier, executive]

Did you get the first question, Ralph?

[Ralph Konrad, executive]

Yes. The question was what is the Summitas contribution this year and what are the perspectives, some more information as you give in this -- some sentence that you told.

[Sebastian Grabmaier, executive]

Yes. So the contribution and the bottom line, we had 600,000 this year 2024 and more than 1.5 million in the top line. How much we receive above the top line with the -- above the gross margin lines we don't know, because we have to see this BVUK broker, who is a very specialized pension system broker. Whether it makes sense to transfer all these contracts to the platform, we will see. Closing has not been done yet.

So we have a first look at all these processes done there. All we can say is that the service contract stands, and we will basically earn gross margin on the gross margin line level, and also the bottom line level, which this is what we want. And the top line we'll see.

[Ralph Konrad, executive]

But for sure, 600,000 in 2024 and EUR 1.5 million at least in 2025 EBITDA contribution.

[Sebastian Grabmaier, executive]

Yes. And then, Guillaume, on the political system in Germany, so well, that is obviously a very individual and subjective view that we have, is everybody who does business in Germany is more or less relieved that this, yes, coalition that did not really do a lot of good for German entrepreneurs and enterprises is now at an end. And it's now quite obvious that the new Chancellor will be a conservative person called Friedrich Merz.

So the CDU is in a lead of 32% to 35%, depends what polls you read, as compared to the rest of the last coalition, that's less than 30%. So there will be a new stable government in Germany, and it will be much better for, let's say, reasonable and also economic -- economy-sensitive government. As compared to a quite, sometimes very ideological, and yes, agenda driven moves that led to one of the biggest recessions in Germany ever historically.

So the good news is if you turn some measures back, it's very easy to bring Germany back to a growth path. So most of us here doing business are more or less delighted and look forward to elections, and also then to a new government that's then again economy friendly. I think sums it up, right.

[Franziska von Lewinski, executive]

So thank you so much. We have another question from Edwin de Jong. You should be able to speak now.

[Edwin de Jong, analyst]

Yes, that works. And congrats with the good results I must say it was very looked very, very nicely. And 2 questions from me on AI. So you've now, you're now using it for free product lines in P&C. And how fast is it possible to do the other lines? And another part of that question is of course you do now like 90% of documents with the system you have. Is it also capable of getting that to a higher level or is that in a way not possible? And second question, completely different. More on the gross margins in Q3. They were somewhat lower. Of course there was an effect of Top Ten. But maybe if you could elaborate a little bit on the puts and takes that were there in the development of the gross margin?

[Ralph Konrad, executive]

Maybe we can start with the answer to the gross margin question, because we have a comparable question in the chat as well. The colleague in the chat asked if there is a price pressure on margins. And the answer is yes, it is, because probably it's from 2 sides. The first is competition. We have now 3 or 4 big ones like JDC who try to be the winner of all. And of course in this situation there is competition also by price.

And the second is that we see that our bigger customers grow more than the -- than our retail brokers. And that means new business or growth is rather from a low margin business than from a high margin business. And that's the reason why gross margin is decreasing.

Last time you asked me what is the right -- not you in person, but you investors asked us what is the right rate to calculate. And we would say like 0.5% a year. But not forever of course, because what we always also see is that our competitors are now very professional owned by private equity companies. And private equity companies try to earn money. And the payout ratio to the broker or payout to the broker is the biggest cost portion that you have as a platform.

And we're absolutely sure that we will see a different development here in the future, because if you look at JDC and if we would have a gross margin increase of 1% percent, that would give us next year probably EUR 2.5 million more EBITDA or more. So that's the situation right now. But we -- I personally and we think that this will change in the future.

And your AI questions [indiscernible] already approved and they have to connect to the system. The plan is to at least finish at the end of year or in the weeks of [indiscernible] in January and February. We have all the renewals of the P&C business. Yes. The screen shows me that my connection is stable. You can hear me, and we want to be ready when the tonnes of policies come to us.

[Franziska von Lewinski, executive]

Yes, we can -- we could hear you, but if you could maybe adjust your camera again, and then maybe say the beginning of the answer.

[Ralph Konrad, executive]

That would be a good yes. I miss it.

[Sebastian Grabmaier, executive]

Now you're back. Ralph. Sorry, sorry. Can you repeat the last 3 sentences maybe?

[Franziska von Lewinski, executive]

Yes.

[Ralph Konrad, executive]

Good question, but what was the trailer…

[Sebastian Grabmaier, executive]

Okay. I think we have a bad connection here, Ralph.

[Franziska von Lewinski, executive]

Bad connection.

[Sebastian Grabmaier, executive]

I hope that's enough for now, and I talk to you in person and tell you next week.

[Franziska von Lewinski, executive]

Let's go with the other questions from the chat. So we have another question. The share price is stagnant over 3 years. You already gave some comments regarding this. Could you please be more specific about your plans to grow significantly organically, not taking acquisitions into account. And why do you not communicate it to the market? Thank you so much for the question.

[Sebastian Grabmaier, executive]

Yes, we can see this obviously, right. All -- that's what Ralph mentioned. All the small cap companies had to take some hit, because of yes the upcoming spread. People invested more in large caps than small caps. And also obviously with a rising share price DCF factors are different. So we're not complaining. As compared to all the others, the development was quite okay-ish.

But that was part of the problem, because obviously a lot of small cap fund had redemptions, and we're just hitting the ceiling there that we are at their top names and hit like the 10% or 20% ceiling. So there have to be sales also by funds that they're really like us. Our plans to grow I think organically, we always said we target a 20% plus growth, and now Q3 was even 25%, if you deduct -- or more than 25% if you deduct Top Ten.

So we were very happy with like a now quite progressing organic growth. And that's also what Ralph mentioned before. The way to top up growth is M&A and there's different areas. Ralph mentioned the private lines sector in insurance where there is not much influence of the very big private equity spenders, and also on the platform business like there's not many companies buying platforms like Top Ten. So this is a very big field and there's also some big ones out there.

But as always, we're talking to many, many, many targets in the market. But then, yes, you can communicate as soon as it's signed as always. And therefore, yes, nothing as specific that we could tell you now. Yes, but basically as we said, we will be one of the consolidators in the market. We do this successfully with Summitas and our joint venture with Bain on the commercial broker side. But there's a lot of room to grow on the private line side, both brokers and platforms.

[Franziska von Lewinski, executive]

Thank you so much. Then we have another question. Would you consider up-listing the shares? Oh no, we had this already. Next question is can you give insights into the status and scope of recently announced customer wins, and how do you expect ramp-up. I know we had this question. And then, we have some -- there are questions from [ Mark Westing ]. Congrats to the great Q3 question. In a lot of markets, for example, in payment services, we see a trend that continuing digitization commoditization puts pressure on margins. Do you expect the trends to affect JDC margins in 3 to 5 years? For example, do you expect the commission percentage per contract to come down in the future?

[Sebastian Grabmaier, executive]

Yes. So as to competition, we see the highest competition among -- especially among the individual brokers now. So there is a trend to growth. So you see there's a great study coming out of us, compact that shows that the top 3 players is they are big, they're growing and they are profitable. And then the rest of the brokerable platforms that are smaller, they're not growing and they're not profitable. So that tells you a lot about volume.

So there was a lot of competition among individual broker -- yes, brokers and also when we went to the tenders of the institutional clients, it was not said that we have to win them as there was a fierce competition, especially also in price. So we see that the competition is very hard already, but we see some ease here, because now as our main competitors are owned by private equity companies, obviously they're also exit driven, so they want to earn some money. So we'll see that now there's cost cutting at both of our competing companies. And also there might be changes in price, as we expect the market to become more oligopolistic. I think, we will always price competitively.

But these overpayments where services is given out for 0 or there's like these [ promo ] attitudes that come to my platform, I pay everything and you pay nothing, and then after 2 or 3 years we'll see what the right price is. That's rather leaving the market. So we think that on the margin side, it will rather we are in a good position to bargain for at least same and in many cases better margins for our platform.

And then also as we gain more volume from insurer-to-insurer, we can negotiate for better buying prices. And this will also enhance the margin. And the last comment on this is margin is not margin. So obviously also a small margin can be interesting when it's digital only. So, we like this execution margin part. So that's the first 10 to 12 percentage points of our margin. That's the decisive one, because basically there's almost no additional cost in taking in data and showing it. And then there is the service margin. So that's the, let's say from percentage point, 1:30.

[Unknown Analyst]

[Indiscernible].

[Sebastian Grabmaier, executive]

So Edwin, you have to mute yourself, please.

And so these -- so service margins, they are -- seem to be bigger, but then the earnings on these service margins are lower as we have to hire people to pick up the phone or to answer emails. And also, if we have like let's say an 18% service margin on top, earnings percentage might be 3 to 4 percentage points on the service margin. So it also depends on the quality of margin. But to answer it, yes. So the margins are as low as they can be, and they will rather be a little bit higher.

[Franziska von Lewinski, executive]

Thank you so much. Next question. I recall the revenue per contract being around EUR 35. Is the increase to EUR 40 due to the inflation of insurance contracts or a higher price from JDC?

[Sebastian Grabmaier, executive]

Yes. So Ralph, I don't know whether you…

[Ralph Konrad, executive]

Yes, I'm back. I hope you can hear me. I apologize, I'm not able to switch my camera on and the zoom app now went down I think 3 times, but I'm back.

Yes, the average price per contract was around EUR 35, a little bit lower. And with the inflation in the premiums, we will see a development in direction EUR 40. That's the right view on this.

[Sebastian Grabmaier, executive]

Yes. So the exact term is EUR 38.4 for the year 2023, and we see a price increase of at least 5% during the year '24. So EUR 40 is a good rule of thumb for our figures.

And then just to the system, the price of JDC is just one line below. So this is like we -- the revenue stream is a fixed percentage of premium. So that's inflation protected. And our price comes in on the next line, because then we deduct either EUR 4 or EUR 6 or EUR 8 bringing the payouts to whatever, EUR 35 or EUR 30 or the EUR 25 margin, depends how deep our services are.

I think we have one more Franziska. You're mute.

[Franziska von Lewinski, executive]

Last question, we have for Provinzial and others who administrate their business with third-party insurance contracts. Why are the Provinzial insurance contracts not also on your platform? If you could please elaborate on this.

[Ralph Konrad, executive]

Because they don't want to pay us commission for.

[Sebastian Grabmaier, executive]

Well, so in the end it's about giving the customer a 360 degree view on their entire portfolio. So we can either load up Provinzial data into our system or in this case our data into their system. And then Provinzial is very good at processing Provinzial data on Provinzial systems. So they don't need us much, and we earn money wherever we can help. And this is the third-party contracts.

[Franziska von Lewinski, executive]

Yes. Thank you so much. Dr. Sebastian Grabmaier and also Ralph Konrad. And also to you for your intention. We're coming now to an end today's earnings call. And thank you so much for attending. Should any questions arise in the future, please do not hesitate to contact us or the leadership team. I wish you a beautiful day and hand over now for some final remarks to you, Dr. Sebastian Grabmaier. Thank you so much.

[Sebastian Grabmaier, executive]

Yes, thank you so much for your trust and attention. So we're delighted that we can present these figures. So we are at the growth path that we always promise to you. And after planting so many projects and so many -- setting up so many new clients, now the time of harvest has begun. And so bear with us. I think we will have great times ahead fueling growth by M&A and also, yes, platform wins. So I think now will be the best time for investors in our company. Thank you, everyone. Have a great next quarter, and a good year and Merry Christmas.

[Ralph Konrad, executive]

Bye-bye.