Nemetschek SE

XETRA:NEM

Earnings Call Transcript 2018-Q3

[Operator]

Dear ladies and gentlemen, welcome to the Earnings Call of Nemetschek Group. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Stefanie Zimmermann, who will lead you through this conference. Please go ahead, madame.

[Stefanie Zimmermann]

Thank you, operator. Good morning, everybody, and welcome to our conference call. Thank you for joining us to discuss our results for the third quarter and the first 9 months of 2018. Today's conference call is being recorded and replay of the call will be available at our website after the call. We have prepared a short presentation with the most important figures and highlights of the last 9 months. You will find the presentation of the 9-month report and the press release on our Investor Relations website as well. And finally, a short reminder, we will hold our first Capital Markets day on November 13 in Frankfurt. If you have not registered so far, please do so as soon as possible. All information in the program are available on our website. It will be great to welcome you at our Capital Market Day in Frankfurt. But now, let's start with the presentation. I would like to hand over to Patrik, who will lead you through the presentation.

[Patrik Heider]

Thank you, Stefanie, and hello to everyone. I'm glad that you have joined our call today. I will be brief in my presentation, so that we have enough time for your questions afterwards. Overall, the high speed of growth in Q2 continued in Q3. The results for the first 9 months 2018 are in line with our plans and we are well on-track to reaching a new record year and our guidance for 2018. Let me share some Q3 highlights before we go in details. First, we successfully performed a strategically important investment in the Manage segment with the acquisition of MCS end of August. Second, we have maintained the growth dynamic in the recurring revenues from subscriptions and service contracts. Additionally, our license business also grew double-digit in Q3. Third, our strategic investments are ongoing, and even with these investments of growth, our profitability is still at a very high level and on the top of our target range of 25% to 27%. Let's turn to page 2, our top key figures in Q3 2018. Unless otherwise noted, I'm referring to constant currency rates. The key messages here are continued double-digit growth and strong increase in EPS. Revenue grew strongly by 19.7% to EUR 114.9 million. Currency effects were nearly balanced in Q3. All and all, we had 2 acquisition effects in the third quarter coming from our new brand MCS, consolidated since September and RISA, the brand that we acquired last year. The inorganic effect of total was EUR 2.8 million, so that organic growth was high at 17%. The development of our recurring revenues from services contracts and subscriptions continued very strong growth of 26.5%, posting revenues up to EUR 58.3 million. Our profitability was nearly on the previous year level with an EBITDA margin of 25.5%. At the same time, we are making strategic investments to secure future double-digit growth. The EPS is developing very positively due to a strong operative performance, reported EPS increased by 19.9% to EUR 0.47.On page 3, you can see the cumulative 9-month figures. Revenue grew by 18% to EUR 330.9 million. In the 9-month figures, you'll see the currency effects of a total of EUR 11.1 million, driven by the first half. Despite these headwinds, we are able to enjoy a double-digit growth rate in the first 9 months of reported 14.2%. The organic growth was 16.1%. Reported organic growth, 12.4%. Recurring revenues are the main driver in our business model, with growth in the first 9 months of 24.2%. EBITDA grew by 17.2% to EUR 88.2 million. That leads us to a high EBITDA margin of 26.7%. In terms of our profitability, we are at the top end of our target range of 25% to 27%, while same time, investing in strategic projects. EPS is developing very strongly, growing by 22.9%. Consequently reported EPS increased to EUR 1.37. On a 9-month base, our tax rate was nearly at the previous year level at 26%. On page 4, you can see the segmentation of our revenues in recurring and software licenses. As mentioned before, recurring revenues developed very well with the growth of 24.2% in the first 9 months to EUR 162.4 million, compromising a share of almost 50% of our total revenues. In addition to the positive development of service contracts, the high growth was also driven by the very strong development of subscription. Subscription revenues grew by 54.5% to EUR 14.5 million by the end of September. I'm very happy to report that our license growth continued with the double-digit growth of 13.5% in Q3, leading to a cumulative growth of 13.2% in the first 9 months. On page 5, I would like to mention a few words about our progress towards internationalization. The U.S. remains the strongest growing region with a growth rate of more than 30% in the first 9 months. We saw the same growth in the U.K. This growth is clearly the result of the entry of several brands in those markets. Germany is in line with our expectations with growth of 7% in the first 9 months. We also expect for the first quarter not an accelerated growth in Germany, because the biggest trade fair in Europe, BAU is coming up in January 2019 in its biennial cycle. Turning now to our segment overview on page 6. The Design segment grew double-digits with the growth rate of 11.1% in Q3. The Design segment is where most of our strategic initiatives are being introduced, so the profitability is as expected a bit lower than last year. The Build segment is maintaining its high growth rate of more than 30%. On the margin side, the main drivers of growth are the improvements in efficiency. The Manage segment was significantly strengthened through the acquisition of MCS Solutions, headquartered in Antwerpen, Belgium. Some words to the acquisition. We also mention our M&A focus on the Manage segment to strengthen our competence in this area as a full end-to-end AEC life cycle provider. MCS Solutions offers modular and integrated software solutions for property, facility and work flows management and as well as smart buildings that was designed to optimize productivity and efficiency for building administrators. We see a huge potential in that market in the future. The first company engagement began in September, meaning MCS contributed revenues of EUR 1.4 million in Q3. Growth in the Manage segment grows therefore in Q3 significantly by 75%, while organic growth was as expected at 8.3%. Cumulative growth in the first 9 months amounted to 32.4%, whereby the organic growth was at 8.9%. The EBITDA margin increased from 20.1% to 22% in the first 9 months. The Media and Entertainment segment recorded a significantly accelerated revenue growth of 17.7% in Q3. Cumulative growth after 9 months was 11.5%, so we're back in double-digit area. The EBITDA margin increased significantly from 36.9% to 41.9% in the period from January through September. All in all, our 4 segments are in line with our plans for the year. Our cash generation, shown on page 7, remains good. Our cash conversion rate is still at high 81.8%. The operating cash flow increased only slightly by 5.8%, mainly due to higher tax repayments compared to last year. Cash flow from investing activities is mainly driven by our acquisitions. Cash flow from financing activities contains the dividend payments, the repayment of debts, new loans due to our acquisitions and a payment to increase the share from 70% to 100% of maximum. This development is leading us toward a net debt situation of around EUR 33 million. This financial health situation allows us to invest further into future growth, organically and inorganically. Turning now to our strategic projects on Page 8. Our strategic investments in internationalization, next-generation products and operational excellence are running well, and we are making good progress. All the above-mentioned highlights in the first 9 months reflect these strategic investments. First, the group set-up allows the brands to go international much more efficiently and faster than before. Let me mention one example. Bluebeam started to sell their products since mid of the year in Germany, with our support in terms of finding the right location, analyzing the market, finding the right people. Second, brands developed future solutions together when the market requires it. Additionally, we encourage brands to acquire at brand level. All in all, we performed 2 brand level acquisitions. Nevaris acquired the German market leader 123erfasst.de for mobile construction site management. Additionally, the Bluebeam acquired Project Atlas' groundbreaking visualization SaaS solution maps. This combination of visualization, collaboration and project documentation that our industry needs will facilitate last-minute decisions made in the field. Third, additionally, we are investing into the operational excellence with our group -- within our group to enable -- fuel our growth and increase efficiency. As we come to the end of my presentation, I would like to confirm our positive outlook for the year 2018. Our forecast for the year is to reach EUR 447 million to EUR 457 million in revenues, with an EBITDA margin of 25% to 27%, while additionally investing EUR 10 million into strategic growth initiatives. Before we start the Q&A session, I would like to invite you again to our first Capital Markets day in November in Frankfurt on November 13. What can you expect? My two colleagues on the executive board, Sean and Victor, will give you a deeper insight into the Design segment. Additionally, we will have the CEO of Bluebeam, the CEO of MCS, and the CEO of Maxim on stage to talk about the respective markets and segments. It's getting very interesting. I would be very happy to welcome you on our CMD. Thank you very much for your ongoing interest in the Nemetschek Group. I'm now happy to answer your questions.

[Operator]

[Operator Instructions] First question we received is from Gal Munda from Berenberg.

[Gal Munda, Analyst]

The first one I have is just in terms of the operating margin and how we can see the, kind of, development for the year, considering the fact that you're already at the higher end of the range, with kind of a traditionally strong Q4 to come. Can you maybe talk a bit about that 10 year -- EUR 10 million year investment that you're doing, especially, is that what's showing in the CAD segment slight decline in terms of the margin. So how much of that investment has already been done? Or is done more to come in terms of the Q4? Because obviously otherwise, it looks like there might be some upside to the annual profitability range. So that's the first question.

[Patrik Heider]

Okay, thank you very much for the question, Gal. And yes, as you know we are investing the EUR 10 million in future growth opportunities and future growth and those are divided into 3 different categories: The first one is all about internationalization, so bringing European brands to the U.S., bringing U.S. brands to Europe, mainly. The second one is the future product solutions and next generation products, and this is definitely what you already mentioned, the one for example, for key account segments or the one when we investing into the CDE, Common Data Environment, platform with Bluebeam, and the third one is all about operational excellence within our group to enable future growth and to reduce complexity. And those are investments are reflected in different segments. And you already saw an acceleration in investments in Q3, so Q2 margin was a bit low in terms of -- was a bit higher in terms of margin, Q3 already at an accelerated investment mode. And this is why we come up with the idea that most probably we will end in the high-end of our quarter more to 27% than more to 25%, so that's definitely clear, but we will continue to go into those investments. And the different segmentations and the different investments into the segments are -- the key account part is definitely in the Design segment reflected. The CDE obviously, when it comes to Bluebeam is in Build segment reflected. But for example, internationalization is all across the brand portfolio. This is why for us, it's very difficult to announce really detailed figures, which goes to that basket and which goes to that basket. But to make you -- and to answer to question short, we will end in the upper end of the corridor in terms of margin, but we're going to continue those investments.

[Gal Munda, Analyst]

That's very helpful. And just to follow up, in terms of the subscription growth, clearly impressed with it, was 64.7% in Q3. Can you just talk a bit about the brands? Because historically you've said there's a couple of brands obviously that we know are offering subscription only. I wouldn't expect that those brands are the only ones pulling through this -- those growth rates. I would have potentially expected that some of the core products also, starting to be more adopted on the subscription, but maybe you can tell us more about that?

[Patrik Heider]

Yes, mainly -- you're absolutely right. Mainly, the subscription is still coming from the brands only being in subscription, as for example, brands like dRofus or for RISA is contributing a lot. The main parts regional-wise are still the U.S., continued to be the U.S. But more and more, we also have brands going with a hybrid model into the mode and companies like Graphisoft or Bluebeam also now offering some hybrid models, but the main part of this year's growth is coming from those brands who are purely in subscription. And regional-wise, they're in the U.S., mainly.

[Operator]

Next question we received is from Knut Woller, Baader Bank.

[Knut Woller, Analyst]

A follow-up on the question Gal made, just from the different angle with regards to the growth and investments, Patrik. When is a fair to assume to see first positive impacts from these new growth initiatives? Is it something that we should expect for 2019? And you highlighted that we have a couple of angles that you're tackling, I think one element is also that you'll try to focus on the larger accounts, which are part of an anomaly, traditionally Autodesk-focused customers. So here, I would assume sales cycles are bit longer, given that you're ramping up investments now. Is that something where we should expect something rather geared towards the end of 2018 and then -- sorry, end of 2019 and then accelerating in 2020? Is that a fair view at things? And out of my perspective, a different question regarding the mid-term margin potential of Nemetschek. Currently, you're investing clearly on growth. Would you agree from a medium-term perspective, once growth should slow below the currently around 15 CAGR that you're guiding, that the business model has the potential like other vertical software business model to reach margins in the range of the mid-30th region. Is that something that you should feel fine with? Or is that something that you think is totally out of reach?

[Patrik Heider]

Yes, thank you very much for the questions. When it comes to the growth investments, we need to -- as I already tried to separate those into different baskets, but the answer is, the positive impact you already see in our growth portfolio as well. I mean take for example, internationalization. Internationalization is already a big success reflected in the actual growth in revenues, so take for example -- without those investments into internationalization, we would be not in that growth range. But for the larger strategic initiatives, for the brands for example, when we take -- when we talk about the infra brand projects like for example, the large customer segments, you're absolutely right. Those effects we will see by the mid of next year, end of next year and then accelerating to go further. But also what we always emphasize, don't think about those strategic initiatives to have something additional on the already high growth we have, 13% to 15%. So what the idea behind those strategic investment is mainly, to sustain it for the ongoing years and periods, not to accelerate. This expectation would be too much, and we just accelerating. Because it’s already a high growth range, 13% to 15%, and the idea of those investments is to get that one sustainable for the upcoming years. And for the margin, you are absolutely right, you could see it differently. You could say, we're driving efficiency. We have an operational excellence within our group as well, and that might be above the 30%. I would not go and guide now immediately, the mid-30s, but definitely above and in line with the peer group may be. Yes, you're absolutely right. But then you would see tucked those investments at the moment from that margin, which leads us to the margin where we are. And you already see that indicated in the Build segment. I mean, how do we see -- with the Build segment margin is going up, and that definitely is something where we see an operational excellence of brands like for example, Bluebeam. And our position is, at the management team, as an Executive Board, as long as we can drive those revenue growth, we will continue to invest. The beauty of a software company is that when the indicators come up that the growth won't come anymore, we don't see that situation, then we can immediately change into improving the margin level. But from your perspective, you are right, with your second thought. The margin is definitely above the 30% possible, when the growth is coming down.

[Knut Woller, Analyst]

Excellent, Patrik. And just follow-up question with regards to the expense you did. Can you give us any color on the investments done after 9 months, so what of the EUR 10 million has been spent? And so do you think that you will fully use the EUR 10 million plan for this year?

[Patrik Heider]

I think we will, the EUR 10 million plan, and to be honest, it's already in line with the third quarter -- with the 3 quarters or 4 per year, I would say, we're around about 70% to 75%, and again, we catched up a little bit from Q2 in Q3. This is why it's always difficult to announce it per quarter. But overall, 70% to 75%, because it's all about finding people in the end of the day. Because for those investments, it's all about in personnel expenses. And I would say, yes, we will continue and work hardly in to go to invest it the full EUR 10 million in the year.

[Operator]

Next question we received is from Victoria Kruchevska, Commerzbank.

[Victoria Kruchevska, Analyst]

Couple of questions from my side if I may. Regarding the Build segment, maybe you can give some insight into may be some larger deals that you have closed. I mean what is the underlying reasoning, I would say, for this 35% growth in the third quarter? And maybe talk a little bit maybe about the profitability, I mean looking at the third quarter, it's declined. Maybe you can -- so like talk about that, it was my second question. And the third question is kind of like an overall picture regarding the M&A. I know it's been asked every single conference call, but what we might expect going forward? I mean now we have -- now you have improved so to speak or enhanced your Manage segment. Definitely, I would say a fairly underrepresented segment in the Nemetschek group. I mean what we might be expecting in the coming years and especially in 2019? What is missing? What piece is missing in your view?

[Patrik Heider]

Thank you, Victoria for the question. The first one to the Build segment, there is no different growth pattern than what we saw in Q1 and Q3 and Q2. And no, really that we need to or -- we have big, big only large customer accounts. We're growing in all segments. Yes, Nevaris is also growing nicely besides Bluebeam and that's what we see as well. I mean we have now Nevaris brought to an organic corridor, which is more to the high end of the organic growth range, which is to 15%, which is great. They announced some larger customers deals in the last quarter, but for them it's normal, they always go to those large customer segments. Bluebeam is continuing nice story, as you know. Internationalization is well on-track, they're still growing in the U.S., and this is why we're happy and see a no different growth profile to the quarters before. When it comes to your second question, the profitability decline, we see, as I already stated, positive. It doesn't mean that the CFO of group means the decline is positive, but it sees that we're going to invest and this is what we wanted, so we see even profitability on a high-level and, as I already stated, we will remain in the guidance is more to the upper end and in the end of the year, but we're going to continue. So there is no -- in our view, there is no critical aspect to see a decline in profitability. We're driving efficiency in the brand portfolio, we have some efficiency brands, as you know. 60% of our brands are in efficiency more, and we take those efficiency to invest strategic as a group into future growth. When it comes to M&A in the end of the day, this is a very important part in our business model. And now we are in a very nice position to M&A and you know that we always focus in this strategic positioning what we have. We are the only provider delivering the whole AEC lifecycle now worldwide. Nobody does it as we do it, from the beginning of the value chain to the end of the value chain, from the architect to manage. Now we have the full range covered what's needed from the market segments, and now we're on the beautiful situation to answer questions, if we -- do we make or buy, sometimes also often to make instead of going to multiple biddings, processes and expensive acquisition modes. For example, take the CDE. The CDE, as we know, is a world where 10x revenue multiples needs to be paid to get an acquisition target. What we do, we are in a position to make it by our own with Bluebeam and to develop further. That means that we are not reducing the M&A activities. If we do see nice targets, I come to that one in a second, then we are happy to continue our M&A, but you also see that we are going more and more into brand level acquisitions. Already this year, we performed 2 brand level acquisitions, one in Nevaris, one in Bluebeam. And in terms of complexity of steering the group, in terms of commitment to get that one successfully implemented, we love to have brand level acquisitions more and more. So that's the idea, but on the group level acquisition part, we're still having a nice pipeline. I mean there are still continued 8 to 10 targets. Probability is higher that we go to the Manage and Build segment, I mean definitely, there are much more opportunities in the Design and Build segment. And the probability is also still high, that it’s more in the U.S. or in Europe, less in Asia. And from a whole purchase price set-up, we are still continue -- I mean, the situation you see and I mentioned in my presentation, we're still very healthy here, and this is why, the purchase price power is ongoing nicely. And what you also see is and that's also nice, and gives us the right positioning for the future that how we buy companies, we are still buying companies in the stable corridor of 3x to 5x revenues multiples and 15x to 17x EBITDA. And we do believe that this is because of our business of our unique business model and we are more and more in the situation that people, brands and targets wants to join, not only because of the purchase price optimization of our group, but also because of the benefits. So that's around the M&A part.

[Victoria Kruchevska, Analyst]

Okay. Maybe a follow-up question regarding the strong growth in Q3. I was -- I'm wondering, were there any, on a group level, abnormal deals, I would say, deals which shifted from Q4 into Q3, so we would expect to rather slower growth, I would say, in Q4?

[Patrik Heider]

No, not at all. No, we can't see that one. As I said, we're not have having one huge contract or one huge order we need to report, no, not at all.

[Operator]

Next question we received is from Martin Jungfleisch, Kepler Cheuvreux.

[Martin Jungfleisch, Junior Equity Research Analyst]

I have two, firstly, to follow up on the earlier questions on subscription growth. Do you think that the demand for subscription graded software is now accelerating much faster than you had anticipated? And if you are now also obviously seeing increased pick-up in former license-heavy countries or user groups? And also, can you give an indication whether you think the share of subscription-related revenue can grow organically in the next 2 years? And also, secondly to follow up on some M&A-related questions. Can you give an update on your views on a potential acquisition in Asia? Or has this been become less important now? And lastly, do you think the competition and M&A deals has increased recently?

[Patrik Heider]

Thank you, Martin for the questions. First of all to the subscription, as you already know, we are living or we are thinking and have the philosophy to offer this hybrid model. In some years, we're still thinking there will be an existence for the perpetual license model and the subscription model, because we do believe there are regional differences and there are customer differences which needs to be considered. And we compare ourselves without comparing us to the company, but you can take this Microsoft model in the private consumer market as an example. And this is where we would like to head to, this is why it's very difficult for us, because we let the customer decide to guide an exact figure. But also that -- your -- to coming back to your question, did we see it, it's above our expectations, above our plans? No, we see that this was in plan, in line with our expectations because those are the brands mainly offering only subscription. But what also nice, and this is by the way one of the single companies -- software companies worldwide, when you saw the other software companies reporting, our license growth is very nicely developing. I mean double-digit in license growth and in subscription, such an acceleration that helps us very much in the revenue portfolio, which is 13% to 15% the corridor and we are even above here. And when you take our midterm guidance, our midterm targets in 2020, mathematically, that all ends that we need to remain in the 13% to 15% revenue corridor. So that means there will be a mixture between license and subscription. What we do is, and you see it more and more, we report not only revenue and not only license, we report everything very transparent when it comes to reccurring, what comes from subscription, what comes from service and maintenance. And that's what we do more and more to give transparency, but the overall revenue development is very positive and it needs to stay and will stay within this corridor. When it comes to your second question to M&A and Asia, with my comment to Victoria's question, it was not meant that it's less important, but maybe less probable. And why is it like this? I mean in those markets, except Japan, as you know, Japan is a fully already transformed end market and by the way, 9% of our revenues was -- within 10% from Asia total are coming from Japan. That means in countries and one of the biggest countries in Asia, of course, China, still the BIM regulations on not enforced or not obligatory there, but we see movement there. And I don't want to raise expectations, it's coming next year, but we do see the high probability that the next 2 years, the BIM regulations coming in place in China as well, and that means we will grow organically, because we already represented there. And that also means that then M&A activities could improve, because there are much more maybe interesting technologies coming up. At the moment, technology in Asia is less probably interesting for us than it is in Europe or in America. And the last question was competition and M&A, thank you. Competition and M&A, it's remaining always competitive. I mean there are always the same players in the biddings, I mean all the RIB, it's Trimble, it's Autodesk, all the players in AEC. But again, this is when it comes to our USP in M&A, it is our business model. I mean what founders does, yes, they look to purchase price optimization as well. But they also see the synergies, benefits when they join the Nemetschek group. And when you joined the Nemetschek group, you have some extraordinary benefits. First of all, you're joining a group, which is representing the open BIM. Second, you get not only a financial investment partner, you had a strategic investment partner who knows the whole value chain. And second, we leave the company as they are, we don't change those identities and I, as a former founder can continue my entrepreneurship within that group, that's the idea. This is why we never paid the highest check or we never offered the highest check. But normally, the interesting technology, we're winning. So competition is high, yes, a lot of competition. But we are -- that's no surprise or nothing which is new.

[Operator]

Next question we received from Andreas Wolf, Warburg Research.

[Andreas Wolf, Research Analyst]

It's Andreas Wolf from Warburg Research. Couple of questions also from my side. The first one would be on the price development, maintenance and subscription, what's the annual price increase potential of these revenue streams in the Nemetschek group? Is it something that is [ inflationing ] towards the calculation behind the funded and the revenue model year. Second would be on U.K. and U.S., so you've obviously highlighted strong growth in both regions. So with regard to U.K., are you replacing any competitors? What's basically the reason for your growth, as you entered the market with new brand. So is it mainly greenfield installations? Or are you replacing someone and who is it you're replacing? Mainly in the U.S. I would guess it's mainly greenfield installations, but maybe you confirm -- could confirm this.

[Patrik Heider]

Thank you, Andreas for the questions. When it comes to pricing, we always announce that we are normally growing the quantity and our portfolio pricing is not the biggest power we have in the normal AC portfolio. What means not normal? Here it comes to Build segment and it comes to Bluebeam, as you already know, Bluebeam had a pricing power and they did some pricing rounds and here we have -- the idea is -- and this is also reflected in the current growth rate. And because they are below the average price, when it comes to license EUR 4,000 to EUR 6,000, they were below, and what they do is, they driving efficiency and they had that power to bring this efficiency also into a price increase. And now, we've further developed them to the CDE platform, so we don't see critical for the next year's growth potentials, but the pricing in general that was your question, is not the biggest part in our growth portfolio. Second question was the U.K. and the U.S. The main reason why those markets are developing very well, because they're fully executing and been -- so for example the U.K. as you know, is the best example for transformation of BIM regulations into the markets in Europe, besides the Nordic countries, that means Scandinavia and Finland. And when it comes to the situation in the markets, we see both aspects, we see, of course, a competitive USP we have and then we're placing competition. It depends which competition, because all our brands are in a different competition profile. But also what we see that this market as you known digitalization is far behind, this market has enough potential for all market players to grow. So for example, when you go for the Design segment, you see of course, that all this is what's the growth driver behind in the Design segment, we have -- at the moment, shifting whole customer base from 2D to 3D, and that means that there are different opportunities here, we're going in bidding mainly with Autodesk products. But already in the U.K. market, only 50% of the users are only transformed to 3D applications. We expect that rate going up to the 90s-something, because for everybody it makes sense to go to 3D applications, so you'll see the next years' potential in that markets are still very healthy from a market perspective. So both aspects are important. Yes, against market competition, but also from the benefiting from the market potential, and the same to the U.S. by the way.

[Andreas Wolf, Research Analyst]

And one quick follow-up, if I may. With regard to Bluebeam, is it still mainly addressing users in the AEC industry? Or have you been able to also grow the users in other verticals that might be -- need the solutions?

[Patrik Heider]

Yes, we're only focusing -- as we are focusing to AEC only and the core competency we have in AEC. Yes, they have a very minor part of revenue as maybe in EPC or oil and gas and even for lawyers, but we are focusing on them. The main part, and yes, the 99% -- the 98% of the growth is coming from AEC, yes. And the main customer segment are general contractors and construction industry. And also, cross sellable potential what they have. Bluebeam is also interesting for architects and engineers in Design segment. And this is why, no focus clear to AEC, not outside our industry.

[Operator]

Next question we received is from Robin Brass, Hauck & Aufhäuser.

[Robin Brass, Equity Analyst]

I have two questions. One regarding also, what you mentioned on M&A, you said, you see more M&A on brand level in the future. Is this -- do you maybe that's the sub-brands know exactly what they need? Or is it also may be do that you want to at least to have the company overall more -- a little bit more lean given that you from many, many sub-brands within Nemetschek Group? And the second question is, looking at your current growth rate, you mentioned if you have 13% to 15% going forward, but currently you grow by 17% organically. Your 2020 vision might have been looking ambitious one year ago, but now it looks like you should easily achieve it, especially when you take into account the M&A. Do you feel comfortable with the 2020? Or maybe you update it soon during the Capital Markets Day? What can you say about the 2020 guidance?

[Patrik Heider]

Okay, thank you very much for the question. The first one is definitely both aspects you already mentioned, so the first one is all about and that's maybe my core competence to reduce complexity within the group, as a CFO, that's definitely something -- it's easier to have this deal, corporate governance part as well. But the other one, that's also very true and I mean, who's the competent entity in the market? Those are our brands. By the way, all the M&A level -- M&A on group level, they also come with the knowledge of the brands, they are in the markets, they're very close to the markets, they know exactly what we need to buy, and this is -- and it also makes sense, in the end of the day, there is a check always in integrated if the brands, which we are interested in. If it is only interesting for 1 brand then it's obviously fits exactly into the brand, that is the idea. So both aspects, we had already mentioned, are interesting and they're definitely right. This is how we see it. When it comes to your second question, the 2020, here, we may not -- we do believe that 13% to 15%, we are still very positive and you are right. We might be over the idea of 13% to 15% next -- this year, and also for the organic portfolio, but what we need to consider, when you see for example, it could be a negative subscription impact for the following 2 years, which might be more in the consideration when we talk about a higher volume, and what does the marketing, the strategic initiatives, the growth initiatives do? They should help us to do the opposite, and this is what I always state. We will have a negative revenue subscription impact short-term, but we also have the strategic initiatives, which helps us to even grow faster. And the middle remains the 13% to 15%, and this is why you should not expect an increase of 2020 targets already on a Capital Market day. We will look at that one, and you know us as a good and transparent financial market communicator, if we do feel that we need to increase it, we will do it.

[Robin Brass, Equity Analyst]

Okay, so -- but it also sounds like you stay conservative, I would say, in that regard, right?

[Patrik Heider]

Exactly.

[Operator]

Next question is a follow-up from Knut Woller, Baader Bank.

[Knut Woller, Analyst]

Patrik, just a quick follow-up with regards to the midterm growth angle. You reminded us that the growth investments that you're doing there to maintain the current growth rates. Looking at the micro environment, seems to be a bit more volatile. Would you agree on the thesis that you are more defensive in the -- in comparison to the last cycles, with regards to this growth angle of the story, also in a more volatile environment and given that large customer segment and could provide some tailwind here, so is that a fair way to look at things?

[Patrik Heider]

Yes, it definitely helps from debt perspective as well, but it's not the first priority perspective, we have to look at it, but you're right. In general, for the whole risk diversification dimensions, I'm sleeping very well as the CFO of that group, because of now we have several dimensions in terms of volatile markets and volatile developments, because we have this theme around the whole value chain and it means that when a Design segment is coughing that doesn't necessarily mean that also Build and Manage segment is developing badly, so that's just the opposite. What we see may be the architect and the engineers market, for example in Germany, maybe not developing as they did the last years, but that doesn't mean, in the Build segment, you see it what growth rates we're delivering also in Germany, they are nicely. Then we have the risk service implication dimension of recurring revenues and the license revenues, so recurring revenues with almost a share 50% is helping us. And then additionally, we have the dimension of internationalization set up, I mean now we're performing 30% in the U.S., we're performing 10% in Asia, and then the rest in Europe. All those dimensions, and this thing what you mentioned in detail for the strategic initiatives, they help us as well, even so we have to think about challenges and not in risks, but our main responsibility is also to think about risk and this is helping us to diversify all of our risks for potential volatile markets for example.

[Operator]

Next follow-up is from Gal Munda, Berenberg.

[Gal Munda, Analyst]

Just as a follow-up. You mentioned that this is kind of the market when it's also becoming a bit of a build versus buy decision. You mentioned, the CDE impact in Bluebeam. How long do you think something like that takes to build? If you're, kind of, starting to build that this year? Is it a multiyear project? And when could we expect kind of general availability for that kind of project -- product? And also, then the follow-up question, just on that EUR 10 million investment that you're doing this year, does that seem as a one-off investment this year? And as the OpEx base goes down next year as a result of that because a lot of the strategic initiatives have been done? Or is that something that you kind of think as a recurring investment might be consumed into something else next year?

[Patrik Heider]

Thank you, Gal, interesting question. For the first one, make or buy, definitely I would say, in software industry, the main priority is time to market. And you're absolutely right, we can't wait for a solution where the market is already going to be distributed for 7 years, as an example. This is why the main criteria for made with Bluebeam in the CDE world, because they're already there for 50%, I would say, in terms of functionality. So it's more closer to a year, I would say, next year, it's most probable that we can already show the first results. And why is it like this, because already Bluebeam has a market share in the CDE world with good market share and good start up, because what means CDE? CDE is also representing the major world of collaboration and collaboration is a big word, as we already know. But collaboration consists of different parts of collaboration. So already Bluebeam is the main player in documentation collaboration, they are the 1 delivering the documentation in terms of that will be 1 main functionality on the CDE growth. So make or buy, you always need as a software company time-to-market considerations and here we definitely saw that this is enough and early enough to go into that market because we are already there. And the second question is when the ongoing, I would not phrase it as a one-off, we will continue with our investments, as I already stated in terms of profitability, again I just repeat the idea behind, as long as we do see this growth opportunities, we will invest into those growth opportunities, and that's all about, I mean, operational excellence. This basket, we cannot stop at next year, it will continue. Internationalization, there's much more potential to go. And all the other strategic investments, we need to work, market facing, we do also see some potential for the next years. So I wouldn't say it as a one-off, even the opposite, I would say, we're going and we're going to announce them every year in terms of size. But we're going to continue our investments.

[Gal Munda, Analyst]

Perfect, that's really helpful. Just a follow up on Bluebeam, you basically mentioned how you're going international, especially in Germany this year. How advanced are kind of these efforts? And then if we think into next year, introducing kind of expanded product that potentially comes at a higher price, rolling out that into U.S., correlating all that with the fact that Bluebeam today is your single largest brand. How does that compare to your midterm targets? Basically, what I'm thinking is, is that incremental? Is that already baked those targets of 13% to 15% as a group?

[Patrik Heider]

Yes, of course. I mean the idea of internationalization is coming to those markets who were mainly conservative, like the German market and to bring finally that solution of Bluebeam. I mean 2 years ago, Germany was not at all prepared for such a solution, the efficiency, digitalization and construction. Nowadays, after the U.K. already a successful Bluebeam, I do believe that the Germans are also ready now for this solution of Bluebeam. This is also the reason why we bring them quite late after acquisition to Germany. And I am a German, I can be self-critical here, we're not ready for such a solution. But now, we believe that to what -- the BIM regulations are coming more, more in place, the solution is ready. And they go with the normal what they were success in the U.S., they go with that solution in the German market, because it helps the pain point to increase efficiencies for construction industry. When it comes to the future development of the solution of Bluebeam CDE growth, this is the idea because they already have 1.4 million users mainly sitting in the U.S. to increase their recruit in the U.S. on an existing customer base. So everybody from the existing customer base will benefit to get the product developed and of course, they will pay additionally and the idea could be that we go with a different subscription model into that world of the existing model. So when it comes your last question, is it already considered into the overall 2020 targets? Yes, of course it is. It's also what we need to see, I mean we can't deliver each and every year 30% plus in Bluebeam, that must be clear as well [ in there. ] But also, what we do believe that they will remain a strong contributor, because they become the biggest brand this year in this portfolio, which is great, but maybe not the 30% plus, of course not. But they will develop further and the ideas, the main headlines for the idea of future growth is development of CDE platform for existing customer base and grow and penetrate the original product of Bluebeam in internationalization. And that's the idea of Bluebeam, which is great and helps us to reach our midterm targets as well.

[Gal Munda, Analyst]

That's really helpful. And just to follow-up on Germany, you said, the rolling out now, is it the idea mainly to use the channel from Allplan and the like? Or is it also building its own the channel to sell?

[Patrik Heider]

Also here in Germany because we are market leader in Germany with our solutions in Nevaris. Also in Nevaris, because they have the customer access with the construction companies, that's their main interest. So several channels they are using. Also profits are very strong in Germany. So they're using the whole multi-brand and they're also going directly. So they have the hybrid model for Germany chosen, and they go and work both ways into that -- into the market.

[Operator]

Next question we received is from [ Omar Schmdit, ] [ Metlar ] Capital Markets.

[Unknown Analyst]

This is regard to the U.S. housing market. How do you see the current development of the U.S. housing market? Recently, we have seen some kind of declining indicators there, has the behavior of your customers already changed in the recent weeks?

[Patrik Heider]

Yes, thank you very much for the questions. We also agree on your view, we saw that as well. And it might be that the Design segment brands are not growing above the original corridor 13% to 15% in the U.S. so it's again, Bluebeam contributing the strong growth and that means, it's the Build segment. That's one aspect. I already explained in the risk diversification part with the question from Knut Woller. This is this when Design segment is a bit going down with indicators like housing commissions et cetera and then it might be not the way for the Build segment. Also what we need to consider, we're not anymore only depending on housing, because we're investing heavily into infrastructure. In our revenue portfolio, you can see around about 25% already coming from infrastructure projects. And infrastructure projects are the opposite in the U.S., true the housing might be the case, but infrastructure projects are the opposite. What is infrastructure? It's all about streets, tunnels, bridges. So here we see also a positive counter-effect, but you're right, from the -- from your perspective, but we can equalize it.

[Unknown Analyst]

Okay. And there is a follow-up question. You mentioned in your statement, that Graphisoft have entered into a strategic partnership in Singapore. Can you elaborate a little bit on the potential of this partnership here?

[Patrik Heider]

Yes, I mean we're a little bit hesitant, because it would raise maybe wrong expectation as long as we don't know exactly the potential behind to give any revenue figures out for that. But definitely, Graphisoft is our -- I would say lead trend in Asia. They're very successful in Japan and also being the consultant to the Chinese government when it comes to BIM regulations. And obviously, they already had have a nice -- Nikken Sekkei another nice partnership and what they have and that's the next one. And what helps us here in those corporations to get more and more the reputation of being really the BIM lead and drivers of this, the BIM lead in our portfolio when it comes to the European markets as well, so it helps us from all several aspects to accelerate maybe hopefully this the BIM acceleration in China, but also to win obviously some major projects in the rest of Asia, Southeast Asia. So we are hesitant to give quantified figures out, but obviously, it helps us very much in terms of reputation of being the open BIM provider.

[Operator]

[Operator Instructions] As far as there are no further questions, I'll hand back to Mr. Heider.

[Patrik Heider]

Yes, thank you very much for your really interesting questions today, for your interest in the Nemetschek Group. We're looking forward to the next contact and communications, especially when it comes to our Capital Market day next week. We are really positive for the remaining of the year. And I wish you all presently the best. Thank you.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded, you may disconnect.