Ascom Holding AG (ASCN) Earnings Call Transcript & Summary

Ladies and gentlemen, I warmly welcome you to the -- today's annual media conference of Ascom. We are very pleased that so many people found their way here to the room -- to the Metropol Hotel, sorry, to join us for the media conference. I also welcome all people listening to our media conference over Internet. Today, our agenda consists of 4 parts. We start with the opening statement of our Chairman, followed by a business review by our CEO, Jeannine Pilloud. Then we will have the financial review done by Dominik Maurer, CFO, followed by the business drivers and outlook presentation of our CEO. Everything will be followed, as usual, by the Q&A. Today's speakers, you know them, is Valentin Chapero Rueda, our Chairman of the Board, for the introductory statement; then Jeannine Pilloud, our CEO; followed by Dominik Maurer, our CFO. With this, I hand over now to Valentin Chapero for the opening statement.

Thank you, Daniel. I just wanted to make a few remarks about where Ascom is standing today. Unhappily, we have been using a lot of patience from our shareholder base over the last years, and I'm afraid this will last a little bit longer. The basic reason being that, as I summarized here in this slide, that coming from a situation where Ascom was a multipurpose, multisegment company with different division, eventually in 2016, the company focused on what used to be called wireless solutions which was basically a device-oriented business unit, very strong in OEM, telephones, tech phones, Voice over IP, Voice over WiFi phones and some health care related activities. Between 2016 and 2019, we clearly focused on the health care market segment with quite a unique -- including also an acquisition in Italy, which is today called Digistat with quite a unique portfolio of products around health care, acute care, long-term care but also mobile workflow solutions within enterprise. This effort between 2016 and '19, as you know, produced mixed results. On one hand, I think we did manage to create quite a unique position, and you will hear more about that later on, on Jeannine's presentation, quite a unique position in terms of our competitiveness in health care and enterprise. But on the other side, we did miss to build a sustainable company with clear structures and with a strong execution culture. There, clearly, we had a miss, which produced the drastic changes that you all know of last year. So if you want, we did push a little bit the reset button sometime in the summer of last year. And now we're in the process of rebuilding our market impact. And I think we already start to see results in that directions. So we started -- we start now 2020 with a new management team, with the new organization and with a new philosophy, very strongly oriented towards the end-to-end responsibility in our local organizations because that's where the business is. It's clearly not a headquarter-driven type of business. It's a local business. And I think we did not give them the merit that -- and the independence and responsibility that they should have had in the past. Just briefly, in terms of market. We always talk about the market, but it's a little bit complicated because there is no such thing as one market. I mean we talk about the mobile workflow market, but if you look into the details, you have a significant number of very different suppliers, some of them focused on devices, some of them focused on middleware, some of them focused on applications. At the end of the day -- and that's, I think, the basic statement we want to make here. At the end of the day, there is no other company in this environment, let me call it this way, that addresses all the key components both in terms of hardware and software around a digital workflow environment. So from that point of view, we are extremely confident that Ascom still is the best-positioned company in that space. We do have the most comprehensive and integrated product and solution portfolio in this industry. Again, a very heterogeneous and fragmented industry. We do have a very attractive development pipeline based on our 5 competence centers worldwide in the different areas of the technology relevant for that marketplace. We have the best global coverage in terms of geography and local presence. We do have an extremely highly-skilled workforce, which is proven by the high number of lighthouse -- complex lighthouse projects, which we have been able not just to win but also to execute on. And last but not least, the new organization, with a much, much stronger local market focus, should help us to put all this horsepower on the road. That's just as a general remark in terms of where I see the company today. Again, I apologize for the fact that we are asking you for some additional patience, but I'm quite confident that we have done the right things over the last 6 months and that you will see results already this year. A few remarks about the upcoming Annual Meeting. You know that we have enhanced our Board significantly. Please take that also as a testimony to the capabilities of our company, the fact that 4 very strong personalities coming from -- I'll introduce them in a second, have decided to join our Board, I think, speaks also a very clear language in terms of how they see Ascom's position within that space. We also are suggesting several revisions of the Articles of Association. We do propose that we are allowed to increase capital by 10% either as -- I mean in both forms of capital increase, whether conditional or genehmigtes -- don't know how...

Authorized.

Authorized capital, sorry, with a limitation to 10%. The idea is not to enhance our balance sheet with that. The idea is that we are confident that we will start to grow and that there will be opportunities out there in terms of investing into smaller acquisition targets, competitive distributors, technologies. And we would like to have that degree of freedom, just to make that point very clear. And then a number of minor details, which I don't want to go into now. You also know that we have decided not to pay out a dividend over the last years. We always had a clear relationship between dividend paid and profit generated. Since we did not generate much of a profit last year, unhappily, we decided not to pay out a dividend and to focus on using our cash in the best possible way for the development of the business. These are the 4 new board members. Nicole Burth, with HR -- financial markets and HR background, I think, will add to our Board significant people know-how and cultural change know-how. Michael Reitermann used to be a top manager within Siemens Healthineers, so has a very deep know-how of the U.S. market, especially where he lives today and for the last 15, 16 years. Laurent Dubois used to be in GE, the Head of the Healthcare Consulting Group or Healthcare Consulting Partners, I think, is the official name. So he is -- he has a 100% overlap in terms of our strategic future and his competence. And last but not least, Andreas Schönenberger, who, as you might know, has a history within Internet/Google Country Manager here in Switzerland and is today the CEO of a relevant health care insurance company. So I think with these 4 people, together with the 2 remaining Board members, we have a very, very strong Board. And hopefully, this Board will support the further development of the company going forward. And that's all I wanted to say. Again, thank you very much for your patience. We really firmly believe that we have done the right steps, and we are looking quite confidently into our joint future. Jeannine?

Thank you. Welcome, everybody, also over the web conference. We are going through very interesting times. We had an intense last couple of months to be ready for future growth. But let me first finish 2019 because that's why you're all here. Okay. Some short overview over our headlines, more details we will get with our financial overviews. Our net revenue impact by -- was impacted by a strong decline of the OEM business and also a disappointing performance in particular in the Americas and the Netherlands. There is also positive development in U.K. and also in the DACH region, which shows us also the direction we have to develop in and incoming orders were in line with the previous year, which shows that there is potential outside. There was a good growth in order backlog, which shows us that the projects are larger, longer and also that the recurring revenue projects are increasing as well. So our backlog looks good, and that gives us also positive signs. Our EBITDA was impacted by restructuring costs, and we talked about this in August and also in November, nonrecurring effects that we had as well. And you know as well as me that as -- taking over CEO, you always have to look and dive very deep in what's available and what's not. We had a positive group profit due to positive one-off effects. That's so much for the headlines. And a short look back on what we looked at and what was our commitment at the Investors Day. We stated the following things. We said the 7th of November that we have 4 areas where we are concentrating and focusing in, focus on health care, ICT and the enterprise value propositions. Then the increased software and software maintenance sales, that's where we intensified, also that the right processes are in place. Then increased recurring revenues, products and solutions, and we will talk about this later on as well and also having a committed Ascom team. How did we say we are going through this? We said there is a strong focus on execution and also -- and that's also the name of our transformation program, simplify all things, focus and then really execute. And this leads basically to the following identified strong success factors. We have success factors that are operational, financial and strategic. Let me go through the first area there. We, specifically during the last months, stabilized and transformed the business. We have implemented a leaner organization with strong customer proximity. We did set up a clinical solution team because we have more and larger projects, not only now, but also at the horizon. We had a realignment of the leadership team, much more flat organization, much more concentrated on our markets as well. And we have a new Head of HR appointed in February 2020. It's -- [ Gabi Undsen ] is her name and she's even here. Gabi, maybe you make yourself seen. Everybody sees her. She's over there. She is participating today also and is now in a very, very, very intense introduction program. So from a financial standpoint, we have the promise that we will lower our cost base by about -- I said CHF 10 million to CHF 15 million. I will show you later where we are there and where we are going to land. We also want to improve our financial steering. We did this already. So there is, by far, a better overview about what is possible and what not. And we have implemented immediately and that -- already last October, a profit and loss responsibility in the regions. That's end to end because it's very important if you sell something that you also have to control about how you're going to implement in the future. And let me tell you, it's not about just technical measurements. It's also about really giving people responsibility and letting them act. From a strategic standpoint, we have a very strong initiative to protect our traditional business, and I will talk later on about what is more traditional and what is more on the horizon. Then we developed the business around mobile workflow solutions. That's mainly our software suites that we have and that we are going to develop, and this is also where most of our opportunities are in. So the target business development process per region and market segment, that's very, very important thing to do. I will show you later on how is the potential in the different regions and country organizations we are in. And this shows you then where to invest a bit more energy and where maybe just keeping a strong position. So this is positioning us for future growth. And there are basically 6 points that we identify. We are in a high-growth market, as Valentin already said. We have a global coverage and a large customer footprint. We do have a unique health care and enterprise platform. This is what our customers are assuring us on a constant base. We have an innovation pipeline. We have a highly skilled workforce, and we have a comprehensive ecosystem for integrated solutions. Selected information about how we are going to do this and what the tool set is for that. One, what I mentioned already is our transformation program SIFOX. It's very, very important because if you do a transformation, it's not about the content and having set up a program. It's really about execution. And this means that we really have the additional strong support implemented even people-wise, also on C level. So we have different parts of this program. First of all, we are looking into organizational structure. There was the focus on implementation means like it's not only on paper, we really have to follow that through until the last level in the organization. We are concentrating on our core processes. It's mainly simplified and more customer focused. Skills and certification, strong, capable team and highly skilled workforce, also for the future, very important measure. Portfolio management there, it's very important to make us ready, that we are also innovative in the future because our solutions are seen in the market now as very innovative. But this is not something we should relax on. We have to move on and also knowing about needs for the future, where we are going to stand in 5 or 10 years. Our strategy there, it's mainly execution because we were discussing about what's important in these markets we are in. And let me tell you, execution is going to help you to really be successful to get there. Go-to-market, we need a -- lean and effective in all regions, organization there. It's direct and indirect sales. We have strong partnerships or strategic alliances, but we have to organize this in a much more leaner way. So -- and our delivery model, last but not least, there, we are very focused to work with local partners and also having good, very, very well-skilled partners there, not only to be capable to deliver also on all our projects, but also do things the first time right. And this is a -- maybe sounds easy, but it's not always the easiest thing to do. We have a lot of concentration on that as well. Let me show you a second segment you might be very interested in, very important prerequisite for being back on track is our cost savings program. We promised CHF 10 million to CHF 15 million. That was what I was standing for last August, and we are working very hard to deliver. And the outlook is positive. If you look at this, we already started last year. We took out from our cost base and the status of annualized savings as of '21. And you have to see that if it's a restructuring program, you first have to have people out of the organization, and then it really counts. We are on a very good way, and we're more with the CHF 15 million than with the CHF 10 million. And this is a good result, and thanks to the team and the efforts that are done there. And now that we are already with figures, I hand over to Dominik Maurer. He is going to present the figure part from 2019. Thank you.

Thanks, Jeannine. A warm welcome from my side, too. Let's now deep dive in the figures and let me start with the key figures, and then we will go down a little bit further -- in further details in each category. Positively, from my point of view, I can say that incoming orders, as Jeannine already said it, we were stable, and we were not losing there a big part. Now you're wondering why I'm saying that. If I'm taking out the OEM business, which we are all aware, which was not so good and taking that in constant currency out, we were reaching 0.9%, so more or less stable. As Jeannine already said, the order backlog, 22%, is really a positive part. It's positive part due to the fact that we are -- as she said it, adding part for the recurring business in the future, so that's really positive. On the other part, me, as a finance guy, I must say, yes, that we were having a bottleneck on the backlog, too, meaning that we were not able in all countries to really deliver what we were looking for to deliver. And of course, we will work on that part, too. Net revenue. As you're all aware of, we were shrinking, 8.5%. That's not good and that's what we are looking forward to work on and work on. We're already starting to work on that. This is not going to happen this year. And of course, if you're looking at now, when you have less revenue, this is directly reflecting on EBITDA as the EBITDA is directly connected to the revenue we have. When you are looking now and taking away the special effects we had, I must say that the EBITDA reached a margin of 3.9%. So all the one-offs that we had this year, taking that out, we would have reached 3.9%. When I'm talking about the one-offs there, we are talking about around CHF 10 million. And out of that transformation program which we started, including restructuring, we had there CHF 6.1 million of cost -- additional cost last year. As Jeannine already mentioned it, the group profit was positive. Operational normalized, we reached a volume of CHF 7 million. Now going a little bit further in the income statement and looking more on the cost side to show you a little bit what happened and to show you what was the influence coming out of the transformation program. I'm going through the categories and give you a little bit the highlights over there. First point is cost of sales. On the cost of sales, taking out the one-off items, we would be CHF 3.6 million better. On the gross profit, as already mentioned, we were having less revenue. Of course, that has a direct influence on the gross profit, and we were having, in addition, in gross profit, a different product mix than the year before. And we were having more costs, and we were having more costs on the people side and on the service side. And of course, as Jeannine said, we will work to reduce that. We addressed that already with the SIFOX program to reduce these additional costs we were having. Talking on marketing and sales. I trust that we had a small decrease of 2%. R&D, the R&D part, driven by the investments in our products, of course, we were having adjusted with all one-off items, an increase by around 4%. And as I said, cost is crucial. It's not just revenue. Cost is crucial. We are working heavily on our cost base with the SIFOX program to really be able to reduce our cost base because from my point of view, this cost base is too high. Now going a little bit on the incoming orders part. As already mentioned, incoming orders, we were stable all over, not taking into account the OEM business. If you're looking there, I'm proud to say that in our major regions in Europe, we were reaching 0.2%, and we were having there countries which were even increasing the numbers. What do I mean with that? Some examples. Switzerland, the U.K. and the Nordics, they were growing in the incoming orders. On the other hand, Netherlands and France, Q2 challenging markets, there, we were not growing. Unfortunately, and we already addressed that, if you look on the Americas, we have or we have a problem in the U.S. If you look that -- you see that in the incoming orders, and you will see that on the revenue part later on, too. There, we were shrinking, and that's what we are aware of, and we will work that this is not going to happen anymore. The same story with OEM, why we were shrinking, due to the fact that the business is changing there and we took the actions to change that for the future, too. Positively, now taking out one other part too, rest of the world was growing by 15%, which is a positive signal and which is a good story. Now looking from our incoming order to revenue. And to show you with this slide, we'll dig for a little bit more details what happened. More details meaning what is the exchange rate effect. So we were shrinking, yes, and we were shrinking absolute number, CHF 35 million. Out of the CHF 35 million, CHF 8 million out of them, so around 23%, came out from the exchange rate effect. The other CHF 27 million, I will now show you a little bit more in details what we had in what kind of regions/country. Going through DACH. Good performance and even to highlight that we are having there a bottleneck in the qualified installation engineers. If that would be up there, we would even grow there more on constant currency. In France and Spain and in the Netherlands, as already mentioned, in incoming orders, we were shrinking there. We were having challenging markets. And in Netherlands, in addition, a bottleneck, at the same time in Switzerland, in qualified engineers for the installation. Nordics was suffering a bit but due to the fact that we had delayed product launches there. And coming now to the next slide, where you have U.K., really positive story, I would like to highlight there U.K. Brexit. Nevertheless, we were growing 7.2% on constant currency. And there, you can see that our Ascom strategy, what we have is right and that doing it right, we can grow the business. Taking out the other part. The U.S., as already mentioned, they are not so happy missing leadership, missing focus, which was driving the business there that there, we were shrinking, and that's not what we would like to see in 2020. Rest of the world, some challenging parts coming out of the markets. Here, I would like to highlight Middle East. These markets are a bit challenging for our side. On OEM, as already mentioned, weaker demand driven by change of the portfolio and the products. Let's now go in the other part and let's analyze our revenue on recurring, nonrecurring and health care and non-health care. We were able to grow the nonrecurring part, as already mentioned, 21% to 24%. So we were growing there, as Jeannine said it -- 21% to 24%, sorry. Now on the revenue, this went up 5.9%, which is around CHF 4 million in constant currency. This is following our strategy, and that's what we are looking forward to. As sometimes you're aware, you have always 2 parts [ on the metal ]. If you're doing recurring revenue or getting more recurring revenue, you have a trade-off. What we mean is that trade-off is coming from U.K., in future stability -- future revenue, stability in the future. But on the other hand, you lose today's revenue. On the health care part, the revenue share went up from 63% to 64%. Yes, there, we were shrinking in that part of the business, as you can see it. We have the 2 main markets. That's the U.S. and Netherlands where we will heavily focus in 2020 that we can change the trend there. Showing you a little bit what happened now in EBITDA with the so-called waterfall chart. There, you can see that we have 3 points or 3 main points, which I would like to pick -- pick out. Revenue decline of CHF 20 million coming out directly from the revenues. On the personnel costs, we were increasing personnel costs. 50% out of that is coming out of normal salary increase. And then we had the already mentioned one-off items of CHF 10 million. And if you add all these together, our EBITDA -- normalized EBITDA would be at CHF 11 million. Cash and cash flow. Cash is king. We started with CHF 21 million. We had operating cash flow of CHF 3 million. And then we had CapEx of CHF 16 million. You can see that on the chart. I would like to highlight here that part of the CapEx is product development and 30% is coming from IT -- our new IT, which we are rolling out, which influenced our CapEx last year. To summarize it here, the reduction on cash, what we were having, was caused by the fact that our operating cash flow of CHF 3 million was used by and was supported by additional borrowings from the banks and then was used for the CapEx and the dividend payments, which we've done in 2019. Last and not least, looking a little bit on the balance sheet. Here, I have 3 points which I would like to highlight. First point is cash, as I said it, cash flow. The net cash situation came from CHF 1 million positive to CHF 22 million negative. I already explained where this is coming from in the cash flow statement, so I will not go further in that detailing. Second part is net working capital. The net working capital came to CHF 68 million or 24% of net revenue. And if you look at that, that's similar what we were having the year before, taking into account that revenue was weaker in 2019 compared to 2018. So there, we are in line. Nevertheless, we need to work on the net working capital because that's, for us, an important part. And that, for me, as a finance guy, a part which I'm working on to do -- to have a better net working capital. Last but not least, equity. You can see here, our equity ratio of 29.5%. If you would add all the special effects, transformation stories, which I've mentioned, the CHF 10 million and calculate the equity ratio there, we are at 33.4%, not that 29.5%. So that you need to take into account. This was the part from my side. I would like to hand over to Jeannine, who is going to show you the business drivers and explain you a little bit more our business because we believe that's important that we give you a little bit a better insight in this part. Thanks.

Thank you, Dominik. Very good because now, basically, what many of you were asking in the question-and-answer rounds was -- then sometimes what exactly is -- what are our business drivers and why do we put so much energy and invest our time now in the offering of Ascom. And it's very important to understand the complex business model and our products and solutions. And that's the reason why we have put now a little intro together just to show you in what markets we are, with what segments and how exactly our products look like. Because you have to understand what we talk about when we say traditional business and also when we talk about where future growth might be possible. Let me emphasize something that Valentin already mentioned in the beginning. 2 of the most important prerequisites for success of Ascom are our global presence and our large installed base. And it's very important also to mention that we have a very strong presence in Europe, and this is helping us today also because what we look at is competition that is very strong, for example, in the U.S. market, but not so very strong in the European market, where there's a lot of future market potential. But what do we deliver, in which segments, which is also important. Our product areas per market segment, and it's important to understand, this is -- basically, we have acute care and long-term care. These are the health, the classical health care segments, and then we have the enterprise business and also our OEM business. Our offering and our products are spread out around that because if you look at patient system, yes, it's very clear. They are mainly in our health care segments. But if you look at software part, already the software part is also strongly implemented also specifically the orchestration software, Unite in enterprise business. If you look at the whole mobility part, you see that all over, all across our segments, we are basically selling similar or the same products. And it's very important that you see that also services and support is important for future growth because of the recurring, because what we do there is not only consulting in complex projects, but also the integration work, customer care and the whole maintenance contracts that we have. Let me do a deep dive into our products there. This is the product portfolio from Ascom. Now you recognize, again, the patient systems, software, mobility and service and support. And there, it's a bit more spread out what it is. If you look at the patients systems, it's Telligence that's mainly used in acute care. This is a prerequisite, a hospital needs that they can be functional. Means like this is not something you can have or not, it's a must-have. And also, teleCARE that we have in acute part, mainly also in long-term care, more and more these kind of elderly homes, they do implement such systems, and that's the reason why there is quite some growth in because it's not only an existing base. It's also that there are many new facilities and institutions added to the market. If you look at our software partner, that's made -- that's the core part and it's also where we are growing the most. It's the Digistat software suite. It's not only clinical applications, it's also the whole orchestration and patient systems data -- base patient data systems that we are implementing there. And we are having really success in the market with that solutions. Unite messaging suite, very, very important. It's our core software offering still for all the segments we are in. It's used also to orchestrate, integrate and enable all the services and all the software applications that are needed for a workflow in a hospital environment. So -- and the mobility part, you see there that's what Ascom was known for, it's our traditional business. But not only we are developing the smart devices that we are also -- need a lot in our complex solution in a professional environment, but IP-Dect Voice over WiFi, then the whole accessories you need for the plus, still hot selling, paging and alarm is -- are things that we are selling all over our market segments. So services and support, very important in our larger projects that we more and more have. Project management and integration work is more and more coming. Very important because all these customers, they do have more or less complex IT infrastructure in their back office. And therefore, integration work, very, very important, and we are doing quite some work there. But on the recurring part, service and support is very important because our maintenance contracts, customer care, but also the consulting services for complex solutions are very, very valid. The combination of these products lead to our solution portfolio. And this is a picture you know already because we normally try to explain our health care platform with it. But what is the solution portfolio? It's basically that you take some of these products and you combine them in the way a customer needs it. We like very much if there is a new hospital build, if you can come and basically build the whole platform from scratch. But you have very rare in mature markets projects on the greenfield. So therefore, it's very important to have a modular solution that we can implement step by step. This also leads to the combination where we have long-lasting customer relationship where we can add and replace and up-sell from our solutions. And you see down there, the green part, very important. And I tried to mention that in advance. All these solutions, they have to work in current environment of a facility, and that's the most important part that we have with our professional services. And it's very structured sometimes and standardized, but there are quite some customers that needs these solutions customized. And the customization is not only at the interfaces. The customization is very often also with the requirements that the governments give for the operation of hospitals and also long-term care facilities. So if we compare us to some of the health care competitors in our area, and we did this for health care because otherwise, you have all the industries with our enterprise business. The Ascom is offering basically the must-haves for acute and long-term care. And our competition is doing so as well. You do not have to understand that they do nothing else. They do a lot of other things. But if we compare what we offer and where we meet our competition or sometimes also cooperation partners in the market, then this is the overview from our segments there. This means, for our market, as you can see, there is, compared to the market potential, quite some opportunity to grow for Ascom in our regions. And we have done this now in the priority where we see also that the potential in the market is compared to what we do today, big. So if you look at the U.S.A. and Canada, there is an increase in acute care and long-term care that we really are heading to and really have to develop in the go-to-market because we do a hell of a lot indirect there. But for larger complex projects, you also need direct sales. In the U.K., we have to maintain our position in the enterprise business because this is quite valid, and we have a large installed base there. But we have a very strong development in acute care, and this is something that is going to be supported by our organization as well. If I can mention there, and you could read this in the newspaper as well, NHS is having large tenders out and wants to invest billions and billions in this health care market to really upgrade their hospital infrastructure, and we are very well positioned there. So the DACH region, we have as well a very good position in the enterprise business. We are, for example, responsible for critical communication in most of the prisons in Germany. This is something you cannot show a logo from, but at least this is the case, but -- and it's very valid business, but we have to increase in acute and long-term care because there is potential in health care. And also, the German market is developing quite strong and the Swiss market as well. So France and Spain, we have to maintain the position, also in the Netherlands, and we have strong positions there. But we have to maintain them and do the up-selling part, do our homework as well. If you look at the rest of the markets we are in, we have to maintain our position, we have to do our homework, and we have some potential to grow in several of these countries, but we still have to work on current projects as well. There are very diverse opportunities, and we have to focus also to work on tenders where it's more potential to grow in the future as well. So -- and how we attack in our segments? Then you look at it from that perspective. And you see again, it's our segments that we have, and we even look at the product areas. If you look at market growth and our digital fleet, we are very successful in a competitive environment. This is our innovation part. There is really where we are leading the pack at the moment and where we have to invest a lot to stay ahead and also having compelling products. And we have a very advanced patient data management system there. If you look at Unite, in all our segments, there is an ongoing digital transformation. And this kind of orchestration software is needed to really fulfill the needs of modern IT solutions. And it's also an intelligent integration in one package. If you look at our patient systems, there, we profit from our large installed base. The replacement and up-selling, for example, is one of our opportunities in all the markets where we are in. Mobility, still strong in all our segments. It's a vital component for acute. But we are also concentrating and focusing on additional partners in OEM because we think that still, there is growth potential. So professional services in mainly 3 of our market segments, there is the recurring revenue we have to work on, and we also have to capitalize on our large installed base. These are the things that are addressed in our transformation program because, let's say like this, as stronger as we do this as fast, we will come back to growth and also maybe growth that is a bit faster than our markets are growing. Good. So -- and what are our success drivers for the future? It's 3 pillars that we have identified. It's the recurring revenue, it's large projects and it's ongoing growth with existing customers. If you have a large base in that area, second-generation selling and that they exchange all their systems they have, that's very rare. And that's the reason for intensifying on our existing customer base. So recurring revenue. It's also developing our -- or more our offering in cloud-based service. You know that all. Software as a Service will be more and more also in Europe a topic, not only in the U.S. Life cycle maintenance, very important. And also, our software maintenance agreements is more as we are growing with our software. So it's as more -- we have the opportunity to also having these kind of agreements in place. Larger projects, that's what we see. Projects are becoming larger tenders or bigger. It's not only one hospital. Sometimes, it's 10 and more hospitals that are basically the same tender. And there, we have the potential to deliver on larger and more complex projects. We are making Ascom ready now to really be successful there. So the clinical journey, that's something we looked at in November at the Investors Day already. Our clinical journey shows that, over the years, our larger customers, they are doing more and more business with different parts of our product portfolio. Let me show you 2, very shortly, 2 of our projects, 2 projects to show this. It's one -- it will be -- 1 of the Netherlands and 1 from Finland. In the Netherlands, it's the Slingeland Hospital. It's meeting complex needs there because -- and that's the reason why I took this example. And the customer requirements were mainly on integration because they had many different applications, even wearables, et cetera, et cetera. And they wanted to have one system orchestrate this and also monitor. And that's basically what is done. The solution is, and there you see it, is basically put together with several products and the software that we have. The value of that single project is CHF 1 million and now starts the clinical journey because this project is already live -- went live about 4 or 5 weeks ago and now starts the clinical journey with a lot of up-selling potential. So the second one we are looking at is Tyks Lighthouse Hospital. It's Turku in Finland. And the customer requirements there were very clear. They really wanted to have their whole workflow for the digital hospital orchestrated, and they also want to have the quiet work, means like no blinking, no beeping anymore. And from customer cases we showed already earlier, that silent ICU and quiet ward, these are applications that we are offering with the integration that are very future-oriented and innovative. So it shows also the future potential because, if you look at the Ascom solution there, you see that the main part is done with the software and then comes all the different hardware products that are linked with the software solutions we are selling there as well. This is a value of CHF 1.5 million. It's 10 years service level plan, and you see that this is a long-lasting customer relationship, and many tenders go exactly in that direction. And this is where we have to make Ascom [ quick ] to react and also work on these opportunities. So to finish the whole thing up, we talked a lot about the business now, but maybe you want to know now what's the outlook, and let us look into our outlook for this year. So our priorities for 2020, hopefully, are clear after what we told you now in the last -- it was almost an hour. Transformation includes the cost savings. There is a lot of focus on. We streamlined our innovation model to really attack the right tenders and opportunities and also making the organization ready for that and shape Ascom for future growth. If you look at that, for 2020, we look with net revenue for a low single-digit growth at constant currencies, and the EBITDA margin should have a high -- should be a high single-digit margin at constant currencies. Very important for us is that we now, with high pressure, finish our transformation and really working that we can reach this and basically having a much better outlook then from '21 onwards. Thank you a lot, and I think we come now to our question-and-answer part.

Ladies and gentlemen, with this, we are coming now to the Q&A part. Of course, you are also allowed to ask your questions in German, if you like. Who wants to start? Yes, Tobias Fahrenholz, please.

Yes, Tobias Fahrenholz from MainFirst. First question, on strategic options. Are you still looking at these strategic options? Or are you blocking all requests at the moment? That would be the first one. Second, you haven't mentioned something on your midterm ambitions. Of course, it's time to deliver first year in 2020, but can you share any thoughts on this? And last but not least, the beloved last topic of COVID. Do you have any supply chain issues at the moment? And what kind of business do we do in the critical regions?

Thank you, Tobias.

Thank you. 3 short answers to the strategic options. We officially finished with the Board that process that we started in summer in last December. We are not blocking requests. There is -- there are talks going on about strategic alliances, partnerships, et cetera, but there was not a concrete offering in the last couple of weeks. So midterm ambitions, we still see that we are in a very strong market with strong products. And therefore, there is no reason to really, really, really change this. And the third one, supply chain. We actually do have at the moment no shortages in our supply chain due to the fact that we manage some of our logistics very carefully. But let's say like this, if the situation is like this or even increasing, we have to look at this on a basically daily basis. But for what our customers planned in projects for the next couple of months, we are ready to deliver.

And on the revenue part, just to highlight that, too. You were asking about that. We do not have a significant revenue stream in China or let's say it different, it's 0.00%, more or less.

Okay. Next question, please. Mr. Iffert, please.

The first question would be, please, on your potential there of a capital increase. Is this something which you would also do on the current share price level? Is it urgent that you strengthen your business via distribution partners or training your software partners? So that would be the first question. The second question is, I mean, as you mentioned, there will be more and more services offered via the cloud. Software specialists or a software specialist is easier to distribute their products. You are marketing from the hardware side. Don't you see the risk that competition on software is becoming much more tougher for you and you are like in a unique selling position? And the third question would be, you still have some businesses left like in Australia? Is these kind of businesses strategic for you?

Maybe to the first thing I can say you're saying something to avoid misunderstandings. We will send out invitation to the Annual General Meeting just in the next days. And there are some minor changes to the Articles of Association, and one is to set up the legal framework for a capital increase. And we already used to have this for many years before, so it's nothing new. And there is no concrete project to start our capital increases just to set up the legal framework, and I think this is pretty customary in most Swiss publicly listed companies. May -- I don't know if you want to add here something, but I just wanted to clarify this.

I go on the second one. Cloud is not a danger. It's an opportunity for us. Since years, we are investing a huge part of our R&D money in software development. And there, we are really leading, and this is not at all basically only concentrated on hardware. The hardware is in the future more that you have the devices into at -- to be an additional part in your software solutions that you're implementing within our -- with our customers. And therefore, this is an opportunity. But yes, we have to look at these developments, and our development -- our software has to be over the cloud as well as others. But we still have a lot of enterprise customers that do want to have it as stacked as well. So deciding about where to invest the money and where to move on is dependent from our innovation engine. That's the one thing. And the second thing is there, you always really have to observe very carefully how the technology is developing in the markets. That's very important. That's done. We have a very strong organization in marketing as well that is concentrated on that. And that -- then you were telling about Australia. We are looking on a regular base into our markets, and Australia has quite some potential to develop with the existing customer base. And -- but this will be evaluated very carefully.

If you allow me one follow-up question, please, on the distribution network. You mentioned that North America is very important also to strengthen the direct distribution. Can you give us some numbers here? What kind of headcount can we expect to be ramped up in the next 2, 3, 4 years in direct distribution sales force teams versus today's number?

At the moment, it's basically the whole -- 90% indirect and a bit of direct, but that's more a larger project where we have strategic alliances. There will be a slight shift there, but it's too early to say how much this is going to be. It's also dependent from the developments in the market.

Okay. Then Mr. Yves Becker, please.

I have a follow-up question on North America. You highlighted several times it is a very high potential and crucial market for you. Can you give us a little bit more lighter -- elaborate a little bit more on what you back there in 2020 in terms of sales development of profitability and what measures -- kind of measures you take there?

Yes. Okay. In the U.S., we are still very strong in our traditional business, mainly with the patient systems. We are just ramping up and starting up some of the larger projects there that have more to do with our software offering. And this is the potential we do have in the future. Basically staying strong in the traditional business, having a lot of replace and up-selling potential, but develop our solution business in the North American market as well. And we do have quite some promising first steps there already from an opportunity point of view.

Okay. Then I have a follow-up question on the order backlog. Can you already say something about the profitability of the order backlog? Or do you...

The profitability -- sorry about the word -- there is no big difference between the one we had. So the order backlog is following the normal profitability that we have.

Exactly. You have to understand that if there is a large project that is going over years, this is backlog. And the project is calculated the same way as if you would do it in 1 year. So the margin stays the same.

Any further questions? Yes, please, here.

[ Jan Merz ] in [ Glarner Kantonalbank ]. I've got 2 questions. On the -- also on the order backlog. Can you tell us what's the part of recurring revenue in the order backlog is and how it's developing over the last 6 months and further ongoing? And second question on the OEM business. You mentioned that you took actions. So should we expect in the OEM business further ongoing that you break even? Or what's the size of the OEM business has to be that you break even there or still losing money there?

Maybe the second one first. With the OEM, we are not losing money. Obviously, it's -- if you sell or distribute to sell -- we are selling our traditional products there. As you could see in my information, the margin is quite high on that one. So with the OEM business, it's not about the -- that we are losing money there. It's about having more and more solid distributors that are selling our product. And there, you can develop the business, for sure. And with the recurring revenue?

On the order backlog, I have no report here in hand. We will provide you that next time.

But what we said is that recurring revenue is increased and also compared to what we looked at in August.

Any further questions? Mr. Becker again.

Again, on the recurring revenue part, you already -- you previously mentioned that you target a 50-50 percent split. It's in recurring and nonrecurring revenue. Do you now already have a time line until when you want to reach that?

No. We have a positive development there now, but that's something we have looking to more with our SIFOX transformation program to really tell you how fast we are going to reach that. Because it has to do with the offering portfolio, but it also has to do with how the development in the markets are. But it's correct. The asset is also the last time that a good benchmark would be having around 50% recurring revenue.

Other questions? Yes, Mr. Huber, please.

Reto Huber from Research Partners. Maybe I have missed the information I'm looking for. The first is your software content, how big is it now in your revenue mix? And then the second one, regarding your cost reductions, how sustainable will they be or do -- are you going to reinvest parts of it again?

Okay. With the software part, it's -- software is a huge part of our technology part because, as I explained with the solution, the hardware part is just at the end, and then it's -- and the technology part is around 65% of our business, and the pure software part means like there's somebody just buys a license is just around 8%, 10% until now. And you said how sustainable are the cost savings that we are doing? We are measuring this very hard, and the cost savings indeed now is really taking cost out of the organization where we see that we do not need this kind of, I don't know, performance or whatever anymore in the future. So that was more the rest of coming from a more divisional structure to a one company structure and also being more effective with whatever we do.

Okay. And then I have a follow-up question. How much will you invest then in your direct sales force in U.S.?

It's too early to say because there are still a lot of talks going on. And let's say it like this, I do not want to have groups and groups of direct sales. But if you have a few of the right people, you can be quite successful there. And it's about the opportunity and not about being -- spreading out the whole market.

Okay. Any other questions? Yes. Mr. Iffert, please.

Just a basic one. As software becomes more and more valuable for customers, do you already see that customers are less willing to pay certain prices for hardware products? Do you see pricing pressure to accelerate recently for hardware products?

If a hardware product is very long in the market, there is a certain pressure, specifically from distributors in OEM business. But from our professional customers elsewhere, we do not have a large pressure on that one. Maybe it has to do that our hardware is really used in a very professional environment and also has quite some of the features that they need specifically in their environment. But we do not feel yet a pressure there too much on -- for the 3 segments: enterprise, long-term care and acute care. OEM, yes.

Okay. So for example, Healthcare, with the Myco, you don't need to go down in the pricing in the last 3, 6, 9 months?

No. But pricing has to do with the solution. And that's what I tried to demonstrate. You have -- on one hand, you have the product, but you also have solutions where you put solutions together. And it depends also from the amount. If you buy 10,000, it's a different price than if you buy just 50.

Any further questions? Otherwise, I would close the Q&A session and thank everybody for coming here to the Metropol Hotel or listening to the webcast. And we are looking forward to see you again at the half year media conference in summer. Thank you very much.

Okay. Thank you. Thank you very much for coming and for your interest. Very interesting times ahead of us, and wish you all the best that we all can be successful in these times. Thank you.