Ascom Holding AG (ASCN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. This is your conference call operator. Welcome to the Media and Analyst conference call and webcast of Ascom about full year results 2020. [Operator Instructions] The conference is being recorded. At this time, I would like to turn the conference over to Jeannine Pilloud, CEO of Ascom.

Welcome, everybody. Wow, this is the first time that we have a web call together. It was only one year ago, we all did not think that we are still sitting in our home offices, waiting on a daily base or news about number of infections, new measures, and we were all hit hard in our daily routines by the crisis that we are all in. And yes, as a very international company, also Ascom has to learn to function in different ways. Thank you all for being with us today and also for your constant support in our development. I'm moving on one chart to the Chart #3. Our agenda today. I will do a short business review for 2020. Dominik Maurer will take over and continues with our financial reviews, some more facts and figures. And there is a -- it's a great pleasure for me to welcome 2 of our managing directors from the U.K. and the Nordics to give you a short intro on 2 of Ascom's lighthouse project won in 2020. I will finish our overview with the guidance and the outlook. And then there will be a Q&A. We are ready for the Q&A moderated by our support from [ Fiscom ]. I'm heading directly to the Slide #5. Our full year 2020 was with solid results in line with the communicated targets, and Ascom was returning to profitable growth. Despite the worldwide COVID-19, pandemic and economic crisis, we are still in the middle of this pandemic at the moment, but we reached our communicated targets. We work hard to manage the success of Ascom also in the future. We had 3.6% net revenue growth at constant currencies and we had a significant improvement in profitability. EBITDA margin is on 8.9%. Both incoming orders and order backlog showed strong developments. And this will help us in the coming months. Successfully, we implemented first the targeted cost reductions that we already talked about in August '19 and a leaner organizational structure that helped us a lot during this pandemic. Our balance sheet improved with return to positive net cash position. This, Dominik Maurer will elaborate later on a bit deeper. Good. We move to Slide #6. No media conference today without information to how we managed the COVID crisis. And also, Ascom -- as Ascom, we had COVID-19 projects around the world. And we were not only hit hard by some of the shortcoming in some projects, but we were also doing projects in this COVID-19 crisis. I take 2 examples out, USA. We helped to equip temporarily medical facilities in Chicago and New York. And some of you might have read in the newspapers about the 10 hospitals in the Central Park. Ascom is very proud that we could deliver the nurse call systems for these 10 hospitals. And the second one, in Italy, we were supporting several Italian hospitals in building up new ICU capacities. And this in the middle of the first wave, always is Ascom stuff that volunteered to deliver the needed projects and equipment. Also, nobody really knew what the real effects of this virus was at that moment in time. And we're very proud that our staff reacted in this difficult time in such manner. I am now on Slide #7. To summarize the situation last year, we had highlights and lowlights. To the highlights. We had double-digit revenue growth in the Nordics, in U.K. and in rest of the world, these always in constant currencies. We also have solid revenue growth in U.S.A., Canada and the Netherlands. OEM business stabilized in the second half year that was a bit hit harder in the first half by the COVID pandemic. We won important flagship deals. More to come. But we had also low lights. COVID-19 pandemic in particular the French market hard. That had a considerable impact on the business. The DACH region was suffering in the enterprise business. For example, retail, all retail as an industry suffered quite hard from the lockdown, and that led to less projects and less orders. Some projects were delayed, some were canceled or postponed due to the COVID-19 pandemic. And there is a consequence of COVID-19 as well, where the whole economic is suffering now a bit. There is a component shortage in the entire industry at the moment, and this will keep us awake in the coming weeks and months. Some more facts, I'm now on Slide 8. I like a lot, and that's really also in our strategy, that our healthcare sector grew 9.1% year-over-year. And this is accounting for 67% of total net revenue in 2020. In opposite, the enterprise sector was suffering. But as you saw, in average, we were growing in a low single-digit growth rate. In the solutions and software area, so Ascom's focus on complex software and solution projects was showed, and this is the base for our future success. And it's also already shown in the current success. Long-term contracts will foster innovation and joint development of solutions. As a consequence, service business increased its share of revenue from 38% to 41%. In the recurring revenue, we also have a slight increase. This is the right direction, but there, we have to work on even more because this is important for the growth in the coming years. From an organizational standpoint, our leaner organization, an implemented blueprint in the region showed more customer proximity, and this is one of the success factors also for 2020. Targeted cost reduction measures were implemented. Dominik Maurer will show some details to that later on. But let's also talk about some substantial wins. I'm now on Chart 9, and you see a selection of these wins. You will get an impression of the ratio between enterprise and healthcare, if you look at the colors, means like the green months or more in the healthcare segment, the blue ones, our enterprise segment, and you see that the business in the Healthcare developed positive, and this we will also see in 2021. If you look on the right side, you see 2 projects, 2 lighthouse projects that will be introduced later on. These were also larger projects that will keep us on our feet for the next couple of years. But as you see, there is a wide range of projects that were won in 2020. And this is a good promise for the future as well. Ascom's new focus on sustainable corporate development also has some clear objectives. And one example to mention here, strong ESG position confirmed by EcoVadis with gold status in their sustainability reporting. This is a good thing for Ascom and something that we are following very closely. And with this, I'm handing over to Dominik Maurer, our CFO, for some more facts and figures. Dominik, please.

Thanks, Jeannine. And also a warm welcome from my side, especially, as already mentioned by Jeannine, in these challenging days with COVID. Before I start, I would like to highlight and inform you that we are proud that we returned to a profitable growth in 2020. I'm now heading onto Slide #12, where I'm looking with all of you deeper into the numbers, and I would like to start with the key figures here. Revenue, a very positive growth of 3.6%, coming out of our Acute Care segment, supported by the growth of our project business, as already mentioned by Jeannine. We were able to grow across all regions, except DACH and France and Spain, the region of France and Spain. Incoming orders now, going to the incoming orders part, there, we were growing 6.6%, which was driven by our flagship Wales order. Without Wales, the growth would even be or would still be 1.1%. Same story on the order backlog which was growing 24%, including the flagship Wales project. Excluding Wales, the growth would be 15%, which is still very positive. On EBITDA, we were able to achieve an EBITDA margin of 8.9%, an absolute constant currency growth of CHF 24.6 million. Normalized for 2019, without the one-off effects and items we had, the absolute growth was CHF 14.6 million. As if we go further, we will understand how we achieved such a strong growth in profitability. Now looking on the group profit. We had there an increase of CHF 6 million, which was very, very positive too. Normalized for one-off effect here, the increase was even CHF 8.3 million. This reflects the strong increase in revenue, efficiency and cost savings which I will elaborate a little bit further later on, on the slides. On the FTE part and focusing on FTE, including third party, the overall workforce, with third-party employees meaning including direct contractors, we have reduced the FTE number by 92 or 6.2% minus, whilst driving increased efficiency in project delivery and sales generation. Now on the next slide, let's now focus on incoming orders, which increased by 6.6% on constant currency. As already mentioned, this growth was driven by our flagship Wales. And in Wales, with the order of CHF 60 million, we were able to win a really, really big deal, one of the biggest -- not the biggest one of Ascom ever. We had growth in all countries in Europe, except the already mentioned suffering market in France and Spain. Rest of the world would be flat with 2019 if taking a deal in Asia into consideration, which was not booked yet due to missing lock-in clause as a result of COVID. OEM. On the other side, there, we had a decrease, and we saw some slowdown from some of our OEM distributors in the early part of the year. Second half, as already said by Jeannine too, we saw a stabilization here. Summarizing now the incoming order part, we had a growth without OEM, including Wales of 7.6%. We had a growth without OEM and without Wales, still 2.1%. Now we are heading on the next slide, Slide #14, and here, I would like to give you a little bit an overview and more details about the revenue. And as you can see, we had a slight decline of the revenue from CHF 283 million. And you see on the right side that this all was caused by the exchange rate effect. We suffered over CHF 12 million directly coming from the exchange rate deviation. As in COVID times, the Swiss franc became stronger. I will now present and explain the main drivers for the positive increase in local currency on the following 2 slides. Now let's look on the revenue split and where the 3.6% growth on constant currency came from. First, we start with DACH. There, we had a decline due to the hard market conditions in the enterprise sector. A reduced -- a reduction on demand for mobility products, heavily influenced by COVID. But nevertheless, even in DACH, we were growing our recurring revenue part compared to 2019. Now on France and Spain, as already said, challenging and real challenging COVID lockdown conditions in the long-term care segment, one of our strongest or our strongest segment in France. And in the early part of the year, we were not able to catch up, although we saw positive improvements in the second half of the year. In the Netherlands, 2%. in Nordics, strong performance with 13.3% growth, mainly driven by Denmark, by the way, which is mainly due to higher Myco 3 sales in the region and project business. Now going on the next slide. I'm now on Slide #16, and let's look on what happened in U.K. In U.K. a very strong growth of 15.2%. And you may remember that's following what we had last year. U.K. was growing in 2019 heavily, was growing 2020 heavily, so we are continuing our path of the growth in that region. Where was this coming from? It came from acute care and enterprise. In Americas, and you may remember what we had in Americas in 2019. Now I'm proud to say, here, we had a strong IO and a strong revenue development. And why was this happening? We had a task force approach and change in leadership. And both combined with the growth in mobility, where we were growing 16% and services where we were growing in that market, 9%, which resulted in an overall growth of 5% in that, or in these markets. Rest of the world, the growth of almost 12% was driven here by mobility and software products. And even despite the COVID problems, we were having implementation postponements, but nevertheless, we had real positive countries, and I would like to mention here, Italy, Australia and Belgium. Negative COVID effect we had in Middle East and Asia. OEM, as already mentioned, a strong impact on COVID in the first half of the year, but positive improvement in the second, and all this together limited our full year impact to 3.2% decrease. Now let's go on the next page. I'm now on Page #17, and let's look the recurring revenue and the market segment overview. We grew in recurring revenue by CHF 3 million, which is a part of the Ascom strategy that you need not to start every year at the beginning, that we have already a solid base where we can build on the recurring part. However, I would like to remind you that recurring revenue growth is also negatively impacting our nonrecurring revenue. It's a trade-off, future revenue stability versus revenue of today. The growth in recurring revenue was, for example, driven by a high demand for Digistat products in Italy. As a result of COVID, the need for high-end solution and software solutions increased. Softer revenue results in a more sticky customer behavior. Now look, let's look at the healthcare and enterprise part on the segments. Healthcare share increased from 64% to 68%. Absolute, we were growing here CHF 60 million. The growth came mainly from the Acute Care part of the Healthcare segment, and we had a decline in enterprise, where we lost CHF 5 million against the year before, and that's coming directly out of the COVID effect of the COVID pandemic that enterprise was stopping the things they were asking in the market. Now let's move on the next slide, and let's see a little bit more the details on the profit and loss. And on this profit and loss, I would like to highlight some of the main points. We were able to grow the gross profit and reach a gross profit margin of 47.4%, mainly driven by improvements of the profitability in the service organization. With a higher utilization, better project steering and increased level of remote monitoring. Just to give you the example, the remote monitoring went up from 82% to 92% remote monitoring percentage. In general, we worked on the restructuring part mainly to move nonproductive employees to productive, leading to more billable employees. Now looking on marketing and sales. Marketing and sales is lower due to less hires and reduced discretionary spend. For example, here, travel and marketing due to the COVID effect. Part of this COVID effect, of course, will come back when the crisis is over. The marketing spend will come back and the travel and transport will come back too. We assume that here, CHF 4 million up to CHF 5 million will come back to the number what we had in 2020. We had a slight decrease in R&D due to the planned restructuring, but I would like to highlight that even in COVID times, we had not reduced here more. We were not jeopardizing our future by reducing things what you can do now to take out cost and to jeopardize, as mentioned, the future. On the admin cost now, if you normalize that and compare it to 2019, we had a lower number due to the fact that in 2019, we had a provision of CHF 2.5 million, which was a release of the provision, sorry, which was not repeated in 2020. The overall normalized EBITDA growth would be, as already mentioned, CHF 15 million after taking out the one-off effects between the 2 years. Now on the next slide, I'm on Slide #19, and I would like to show here with that slide how we were able to increase CHF 50 million in EBITDA, as already mentioned. And here, you can see the main pillars of this positive effect. The effect is mainly coming from the productivity, which was CHF 12.5 million better than in 2019. Out of this CHF 12.5 million, CHF 4.4 million was coming from the product mix, as we were able to sell products with a little bit higher-margin as an example here, the software selling. The main increase in that part came out from the improvements of the profitability in the service organization, as already mentioned, as said, influenced by a higher utilization, better project steering, and increased level of remote monitoring. All this together was bringing CHF 8.1 million positive effect against 2019. We had the cost reduction program, you may remember, where we were able to reduce CHF 8 million compared to 2019. But not all of the cost reduction here is coming out from our reorganization program. CHF 4 million out of that CHF 8 million, you can see here, came out of the COVID effects, which I already mentioned, travel, marketing and so on and so on. Both parts, the productivity related and the cost reduction program resulted in an ongoing cost reduction, which will bring us in the future to the -- to a yearly reduction of CHF 15 million as said. In the last conference as said in the half year media conference, which was part of our restructuring program announced a year ago. What was now the impact on the cash flow of all of that, and let's move to Slide #20 and let's see the waterfall chart of the cash flow development. To make it crystal clear and to bring it over, the cash flow development was really, really positive. As we had, first of all, a strong operational cash both influenced by the working capital management, combined with the good profit we were doing or realizing in 2020. In addition, we were having a small reduction in CapEx, which was influenced by IT, where we reduced CHF 3 million. And on R&D, we were having CHF 2.6 million less CapEx. But this CapEx on R&D, just to remind you, is the biggest part is own labor capitalization or labor cost capitalization. And this came out, not of COVID and other things. This came out due to timing and focus on projects we were doing. And in addition, due to the fact that we were not paying dividends, we could reduce our loans and pay back CHF 21 million of our outstanding debt. So let's now, on the final slide from my side, look on the balance sheet and what all the numbers I explained for having an effect on our balance sheet. And here, I would like to highlight 3 points, too. First, the change in cash coming out of the cash flow statement, I already explained, change in cash. We were coming from 22 -- net cash -- sorry, we were coming from CHF 22 million negative amount to now CHF 12.8 million positive. All explained from the cash flow, no payments in dividends and so on, which was reflecting here. The second point, which was heavily influencing that part too on the cash flow was a decrease in net working capital from CHF 249 million or 17% of net revenue. Just to do a comparison, last year, we had there, 24%. This is much better than last year and primarily caused to our focus to reduce outstanding debtors. And as said in the half year media conference, we were working hard. We continue to work hard on that. And even in COVID times, you could do there a lot and reduce the outstanding debt a lot. Our equity ratio increased too. We had an equity ratio of 29.5% and realized now 35%. Leading to a debt-to-equity ratio of 2.4% in 2019 and now 1.82% in 2020. To summarize all of it, the balance sheet, like all the other things has now heavily improved and shows. And I'm proud to say that we are on the right track. To make a shortened summary of all the numbers I presented, we are back on profitable growth with a higher gross margin with a healthier balance sheet in total. Thanks to all of you. That was my part, and I would like to hand over now to Paul Lawrence, as already initiated by or said by Jeannine, our Managing Director in the U.K., who will show you a nice project, he was able -- he, together with his team, was able to win in 2020. Paul, it's your turn.

Okay. Thank you very much, Dominik, and good morning, everybody. Welcome. Thank you for the opportunity to talk to you today about one of our lighthouse projects, which is to deliver a critical care information system for the entire country of Wales. But just a little bit of a brief update as to what this project is all about. Principally, it was a public procurement by NHS Wales to procure a clinical information system for their adult critical care units, fundamentally to manage electronically all aspects of patient care. Just a brief overview of NHS Wales, it supports a population of 3.1 million people across 7 regional health boards. So principally, this is a 10-year contract. It is the single largest contract in Ascom's history, which we're very proud of. And again, this is to deliver a national critical care information system across 14 hospitals and approximately 190 adult critical care beds. So what are we going to deliver? We'll be delivering a single digital patient management platform for trauma patients. And additionally, we'll also be collecting automatically data from bedside medical devices, ultimately delivering a single critical care record to provide data clinical analytics as well as ongoing research. In respect to competition, it was pretty stiff. Could we have been challenged by better competition? Probably not. I say that because we respect them a lot. They're bigger than we are. They're very talented and they have deeper reserves. And normally, they beat the heck out of all their competition. And except one, in this case, and they certainly didn't expect to get beaten by Ascom. And that is one of the things that makes us so proud of our success. And so why did they choose Ascom? Next slide, please. At the outset, it required an investment of time upfront, around 18 months. That was about building the customers' confidence, shaping their thinking and allowing them to understand the benefits Ascom could bring to the table. We needed to understand that this is part of a much bigger picture of the Digital Health and Care Wales program, which is about transforming the way digital services are delivered. Fundamentally, it was about really listening to the customers' challenges and aspirations. For example, how do we, Ascom, support and improve the health and care services? How do we, Ascom, help to change attitudes? How do we, Ascom, help to accelerate uptake and sparing on new digital solutions? And early on, in response to COVID-19, we identified how technology has been absolutely essential to support the NHS in response to the pandemic. One of those primary outcomes being the need of greater mobilization and accessibility to real-time data and information for health professionals and patients. From an Ascom investment perspective, we will build a local presence at the heart of the NHS Wales to support these initiatives. Initially, we will build a satellite office in Cardiff in Wales, which is already live. And that's about delivering international expertise on a local level. And additionally, we're providing local investment and employment to the local community of Wales, which is really good for local community growth. Next slide, please. So in respect to execution, commercially, we're committed to deliver a single instance of the patient care record across 14 ICU environments. And that's about improving staff working practice, better patient experience. As I've mentioned, rich data analytics for ongoing clinical research. Principally, this is a managed service contract with a delivery plate of 3 years, followed by a support phase of 7 years. As you would expect, there is a highly populated and combined program board which is controlling the delivery phase step-by-step with executive sponsorship, both within NHS Wales and Ascom. The commercial management of such a high-profile project requires that we execute as close to the plan as necessary, such that we achieve the expected returns for our efforts. And a quick update on the implementation. Overall, we've got off to a very good start. And in particular, the working relationships show a real determination to succeed. Although we've had to remain flexible and adapt our normal working practices when deploying the project, for example, we would normally have a lot of face-to-face time, but we have moved this to entirely remote working due to the travel restrictions. The customer has been really impressed with how we've handled this, as well as Ascom and learn a lot in respect to efficiencies in how we deliver these types of large-scale projects. So in summary, it's a critical project that should make a real impact to the working lives of healthcare workers. Both workers who look after the most critically ill and indirectly, give those patients a better chance of recovery. All in all, playing our part in transforming how digital services are delivered within the NHS Wales improvement program. I can say that we're thrilled to be working on such a prestigious project, and we look forward to giving you further updates as the program rolls out. And with that, I would like to thank you and now hand over to Jens Andersen the Managing Director of Nordics, to talk you through a similar major contract in Norway.

Thank you, Paul, and good morning. I'm joining you from our Ascom office here in Copenhagen. And today, I will share with you some more insights into the big framework agreement that we won in Norway. The contract we won is with the largest healthcare region in Norway, serving approximately 2.9 million people and consists of altogether 33 hospitals, but also a lot of other institutions. It was a dialogue based tender and it was really driven by their need for a common solution for communication and collaboration, driven a lot by all the new hospitals they are building. And also interestingly, it was an online tender only. We had the kickoff one year ago in January in Oslo. I recall that. And ever since, it was just online meetings with 50 people and so on, so quite a new and interesting experience that came out very good for us. It's a framework agreement delivering the Ascom Healthcare software platform, and it's a 6 years agreement covering all hospital trusts. It's software and professional services only and the purpose is to support utilization of the workflows, connecting point of care, devices, systems, care teams, and also, it includes a lot of integrations to existing information systems, such as patient journal assistance, lab systems, medical devices, et cetera, et cetera. Altogether, it includes 30 different integrations. So it's a really large project also. Next slide, please. So why did we win? As with many public tenders, the evaluation is based on quality and price. And we scored at Ascom 9.77 points out of 10 against a short list of 3 other regional competitors that also have global reach. So some of the highlights were from the customer side that were our healthcare platform, real time communication, collaboration, very broad, redundant, and support all the functions they need also in the longer run, but also due to our strong team in Norway and long history with this customer we -- it was highlighted that we really understand what's required to roll this out in their environment and also support them in their environment as well. So that was a really strong point. Also pointed out was our clinical implementation model because one of the biggest challenges they have in all this digitalization is also to bridge technology end users. You can imagine that, that's a really, really big challenge for all these hospitals is to engage the users. If you look to the right, you have a concept shown of the platform. So basically, what we are going to deliver here is the software in the middle, redundant, scalable and then connecting to communication devices, personal safety, alerts, logistics, nurse call, medical devices, et cetera, et cetera. With the purpose of securing that the right information is sent to the right people at the right time and place. Next slide, please. So how are we going to execute? We have already established a common steering group with the customer also, including representatives from each of the hospital trusts. And that, of course, with the purpose of having a very close and joint overview and plan for how we're going to roll out this massive project here. And also, it starts with a pilot project that is estimated to start here in April, and that purposes, of course, to industrialize the rollout in a way, do one, copy many, which is really the strength of software, and that's the purpose of the pilot. Also, we have a very strong team in Norway. So we have a local delivery model, very close to the customer and also including, of course, the global support from our R&D that will do a lot of these integrations as well as some additional development, and that will happen very, very close to and with the customer. So apart from that, we also need to complement our team in Norway, and we are currently in the process of staffing up to accommodate the rollout of this massive project here. And then we have matured a lot in the past -- over in the Nordics here with similar projects but smaller in Stockholm and in Copenhagen. And now we have to apply this to a larger scale. So this is where we have to apply this learning. This is -- this was a very brief overview about this deal that will be with us for many years ahead. And thank you for me -- for having me. And back to Jeannine.

Thank you, Jens and Paul, I am very proud on the teams that we could win these 2 lighthouse projects. And knowing your passion for the business, I have no doubt that we will be implementing these projects successfully in the U.K. and also in Norway. I'm coming now to Slide 32. Our outlook for 2021. 2021 will be another difficult year for Ascom. With a lot of uncertainties due to COVID-19 pandemic, including a possible shortage of components. But we are on it, and we are fighting this very hard to deliver as soon as and as accurate as possible. Ascom concentrates on further developing its product and service portfolio to exploit the market potential. And as you could see, it's -- the market is well aware that we are a strong player in this real-time communication and collaboration market. The optimization and further improvement of the margin and cost structure will continue to be an important focus. Now to our guidance on Slide 33, guidance 2021. Ascom targets for 2021 a low single-digit revenue growth and strives to achieve a double-digit EBITDA margin. And be aware that it's very important for us that this is in the end, the average of all our different segments we are in. We are still working strong on growth in the healthcare area, and this is fact. With this, I would like to open the floor for questions. Operator, would you please instruct the participants accordingly. Thanks a lot.

[Operator Instructions] The first question comes from Tobias Fahrenholz from Stifel.

Could you also elaborate a bit on your midterm additions? They haven't been touched now, but how does it look like with the top line, considering all your solid orders? You've seen all these public digitalization initiatives. How should we regard your average market growth potential, excluding COVID and component shortages? That would be the first one. And also midterm, when it comes to the EBITDA margin, you were not yet speaking about new ambitions here. But could you at least indicate internally, if you have seen further areas of cost improvement that can be a more positive or negative on this topic. This would be my question.

I hope I understood. Thanks for the question. I hope I understood everything right. I try to answer first to the midterm perspective. We will inform in the current of this year with more information due to the fact that this crisis is still going on, It's very difficult for us to say when the market is really, really picking up and how long we still have to live with this kind of crisis. But in minimum, growing with the market, this is what we have, and that's also what we're going to do in the future. If you talk about the EBITDA margin, it's about the same that we had to say. We really have to know how the development in our segments is to really -- being capable to charge this. It's not our aim to just shoot for figures and then in the end, trying to explain why we did not hit the target as it should be. But we have -- we see a very positive development. And also, and you mentioned this, with all these initiatives that we have all over in some of the regions, might it be by example, the 2 [ com connects ] in Germany. We do have quite some more awareness of what we are offering in the market, and this will give us positive tailwinds for sure. Does this answer your question?

Yes. And then maybe another question block is this. You highlighted EcoVadis here, but could you maybe elaborate a little bit with your own words, where you see the strengths and weaknesses in each of the 3 segments? And what can be improved? Or what can you see as the improvement targets here for '21 and '22?

Yes, you refer on the sustainable corporate development that we have, correct?

Yes. Environmental targets. Social targets as well.

Yes. Ascom already in the past, basically concentrated on not producing ourselves anymore to really basically also have a profit from producing together with others in -- with suppliers that are worldwide known and that are also basically are certified on -- in their own premises. That's a very important fact, means like we have a lot of focus on how we choose our suppliers that are going to produce for us and also are producing today for us. That's one thing. Second thing is very important. If we look at our focus in the more solution and software-oriented area, that we will even more focus on having this kind of efficiency ready, not only for Ascom itself with our own employees, but also making this possible for our customers all over the world. Yes. I mean, there is a lot more details, but I do not want to elaborate now, one hour. I have quite some passion for this topic. That's also coming from my education basically, but maybe we have later some more time to deepen on that topic.

The next question is from [indiscernible] from FDS.

It's Jorn Iffert from UBS. Okay. Very good. And the first one would be, please, on the 2021 outlook, what is your assumption for the sales growth in Healthcare versus the other 2 segments? And also, if I look on some competitors like Vocera, if I remember correct, the outlook statement is more positive going into '21. So why do you think there's a big difference for '21? And second question would be, please. On the gross profit margin. Usually, the second half is better versus the first half. 2020 was vice versa. Why was exactly happening? And what is your gross profit margin assumption for '21? And when do you expect to reach the 50% again? And the last question would be, please, on cash management. There was a good cash inflow from net working capital. CapEx was lower. I mean, do you see that these new levels are sustainable for the medium-term, so that your free cash flow margin at potential sales can be around 10% for the future?

I will answer the first one, growing with the market. It depends on what segment you take. If I look at the healthcare segment, and there, we have 2 segments that's acute care and long-term care, we see that there is quite some good growth, and that's mainly what Vocera is focusing on, good growth. And there we see, basically -- we see basically very similar. If you look at the long-term care, there, we are a bit more cautious because long-term care homes were hit much harder by the whole COVID crisis with not being capable to implement projects because with its on-site were forbidden in many regions -- in many regions worldwide. So how growth is picking up there. We are a bit more cautious to do a prognosis on and in the enterprise area, same thing because there are industries in like hospitality and also some retail areas where we had quite some shrinking last year and where they really have to pick up growth again. And that's the reason why, in the end, we come to a relative moderate growth because this is always the average of the average. So that's the point. Might it be that we are surprised that this crisis is ending faster than everybody is expecting now, then we have some good opportunities to even increase this a bit more.

Very well. Is that all the answer to the question?

Yes. The other one, I hand over to Dominik Maurer now.

On the question on the cash flow, I'll start with the cash flow, and the protection, what we see on that part. When you're looking on net working capital, of course, this cannot be repeatable the way we've done it. We are still working heavily to come further down but the big jump we were able to do in 2020, and this jump, we will not be able to continue that in the future. Why is that? When I started, I checked the overdues and I looked what was done inside Ascom, and I realized that the focus was missing. So from my side, as the CFO, I started a program that every month, we check what is happening on the outstanding amounts on the debtors to really deep dive in and to check that the customers are -- if they are late, catched and then asked to pay or even the discussion sometimes if the payment was delayed, that we informed the customer that we will not ship anything in addition if the payment is not done. This was not done in the past, the way we're now doing it. And this was well accepted in the market and with the customers, that this turnaround, let's say, on that part. When you're now asking about CapEx in the future, I believe we will come back to the numbers we had. We will come back due to the fact that we are looking forward to grow. And if you grow, you need to have the portfolio for that. And therefore, I do not assume that we will continue on the level what we had. It will be something between what we had in the past and what we were having last year. Now on the margin discussion or question what you had. First of all, I would like to remind you it's average of the average, it depends a little bit from the countries. It's influenced by the product mix. So what we are selling actually in that month. Then corona, not corona, meaning in the beginning of 2020, there was less corona than at the end of the year. We were shifting business, we were doing more projects, and this has an influence on that part, too. And the question is, what is the hardware-software sales against project business you are doing? The margin on hardware-software is a different one than on the project one. And therefore, this is influencing the GP. But you can see, even with all that, and openly, I'm not the one who is comparing half year to another half for me. The important part is, where are we, what of margin we are producing and how we are producing this margin. And therefore, the mix in total of the year is the one where I'm satisfied with. And that's the reason at the end, we were able to do margin as presented to you. Was I answering the questions you had?

Yes. Thank you. If I may have 2 follow-up questions linked to these questions. I mean, keeping up with the profitability is, for '21, you are targeting a double-digit EBITDA margin and you must improve your EBITDA by CHF 4 million or CHF 5 million or so. But you stated, for example, marketing and selling will come back when COVID-19 is over by CHF 4 million or CHF 5 million. I mean what can we expect in terms of gross profit margin for 2021? Just a rough direction. Can it go between 48%, 49%? Or will it remain on this level? Just if you have a very rough idea. And the second follow-up question would be, please, I mean when COVID-19, the risks are easing and as things are normalizing, would you then expect a strong pickup in your sales momentum? Or is there anything else regarding product pipeline innovations we need to consider?

Good. Answering the first question. What you have on the margin and on the profitability and the overall EBITDA margin, part of it, as already said, the restructuring program was not kicking in all of the year due to the fact that we started at the beginning of the year to do the reshape, the reorganization, the switch to more available employees from nonbillable. Therefore, this will kick in, as said in 2021 in the -- already at the beginning. There is one difference on that. Now to your question about the margin, where I believe or what we believe we are going to see. It's going to be in between what you said, so 48.5%, something like that. That's a little bit the story. There, once again, it depends on how much software and hardware at the end we will have, so it can be a little bit higher or a little bit lower due to the fact that this is linked to the overall product selling we are doing, combined with the with the professional services installation work we are doing. And can you do me a favor and repeat the second part because I already forgot what you were asking.

Yes. On the margins, this was very helpful. And the second part was really regarding your sales growth. When COVID-19 risks are easing and things are normalizing, would you then expect a quite quick pickup in your sales growth? Or is there anything else we need to consider like innovation pipeline or anything which could keep sales growth down for a longer time period?

That's what we're not expecting. But what we see now and what we are experiencing is that the sales process at the moment is a bit slowing down. And that's one thing that we see and also experience with this COVID crisis. You and me, we might have adapted quite well to home office, some of our customers, not yet. And they're also expecting and hoping for the times when we basically can visit them and also discuss projects with them. We are expecting that sales is picking up. Also due to high awareness in the industry, specifically in healthcare, for all this needed digitalization processes. As I mentioned, the 2 [ comsats ], but also all the investments, for example, NHS is doing in the U.K. but also in the U.S., where a lot of projects are in the pipeline. So therefore, we are not expecting that from our own pipeline, we have a slowdown because the current portfolio is basically ready for rollout. And yes, we are basically improving this and developing this according to the needs of our customers, but there is nothing unusual happening at the moment or planned at the moment. Does this answer the question?

Yes.

The next question is from Yves Becker from Zürcher Kantonalbank.

I've actually just got 2 follow-up questions left. The first one is, again, on the outlook, just to be sure that I understand it correctly. And the low single-digit revenue guidance, does this already include a negative effect of the possible shortage of components you were talking about? Or is this not yet accounted for? And the other question.

Sorry. I can answer it. No, it's relatively difficult to see because at the moment, we can deliver whatever is asked for. So we just -- we do focus and monitor this very, very closely, but it's too early to say what effect it really has. So therefore, we did this guidance on a relatively stable economical development because there, it's difficult to say what impact it can have. But we measure it, and you can be sure that in August, we will almost telling you on the Swiss franc, how much the impact was.

Okay. Great. That's clear. And the other question is on your production costs as the raw material prices are rising. How do price increases affect your cost of sales? And how easily can you pass those price increases to customers?

It's depending on the product. But of course, you're right. Raw materials going up and not just raw material, even logistic cost is going up. We see that, yes. And up to now, we were handing that over. It's just a question if that's going to be able to continue or not and how much we're going to handle that over. That point, as said, it's the same with COVID what we had one year ago or a little bit longer. Nobody is really knowing how it's going to take and how we're going to be able to do it because it's a new phenomenon. And therefore, we are still confident that we will be able to reach the margin. But yes, of course, some of the troubles in the market can influence things.

But just an experience out of this COVID time that we had in 2020, we never had really problems to ask basically to hand over a potential price increase, for example, in logistics or production to our customers. That was not a discussion at all. Let's see if this is continuing in 2021, but we will monitor this very, very closely.

The next question is from Serge Rotzer from Crédit Suisse.

I will ask question by question, if I may. So again, on this low single digit guidance, I'm wondering, could you explain me how the revenue recognition takes place at the moment? Because your backlog is on a record high level compared to the last 3 years. And so I'm wondering, you mentioned that you said sales growth is currently muted [ DOL ]. Is this on the existing backlog? Or is this on orders you normally get in, in the course of the year, it's [ 6.1 ]? So do we have to expect that the sales is even declining in first half and then will increase in the second half as then Wales kicks in? This would be my first question.

At the moment, it's too early to make a prognosis. We are basically kind of on track. But what we are experiencing and hearing out of the market is that really kind of like this starting of project discussions is slower because everybody expects that we will soon be back to normal and meetings, customer meetings can be done on-premises. That's what we experienced. You said at the high project backlog. Yes, this is something that's very important for us because as we have long-lasting projects that go over several years, it's a natural tendency that your project backlog is going up. This is not going to increase, increase all the time in that sense, how we had it now. That was more the shift from more product-oriented business to also software and solution business that you can clearly see now in our backlog figures. And that's a positive sign for us because this is work that can be done. But let's say like this, if a project is planned for 3 years, then the project is in 3 years, and you cannot do this in 3 months. So that's because you always have also talks on the other side that have to be done. But for us, this pipeline is a very positive sign because it shows that Ascom is on the right track there with the development.

And taking the point on the backlog. As Jeannine said, if you have a contract and you saw that contract of Wales of CHF 16 million, the number I mentioned, and you saw 3 years implementation phase and 7 years executing then due to the fact that you have one hospital after one other way you're doing the implementation, that's all in the backlog, and that went all in the backlog. So that's future revenue, recurring revenues, when you're looking now on the Wales on the 7 years contract on the service later on. So that's part of it, which went in backlog. First part of the answer. Second part of that, if you are winning bigger customers, you normally have a longer time frame to implement that because it's not just normal hardware shipping. It's the integration the way Jeannine explained it, it's software adoptions and so on, and this is all coming into the backlog then. In addition, what you said about first half compared to last year. Just to remind you, last year, January, February, March, yes, there was COVID. But on that time, COVID was more a word and not really hitting in all the markets or really present in all the markets. On these days, it was more Italy and so on. And now just to remind you, we have it all over. And when you have COVID, things are a little bit more complicated, both to the customer, to do implementation, to get the sign-off of a project. And as you may aware, we have percentage of completion, meaning we can just book the revenue when in smaller project, the customer has done the signature. So all this is slowing the things a little bit down. But if you're asking me, if there is a difference between last half year to future half year as looking half year back and half year forward. No, I do not see a difference. It's going to be the same. And therefore, we are quite confident what we see on the numbers and what we see January and February that we are on the right track to deliver what we set in the guidance.

Okay. Got it. Then the second question is to madam The second question is for Madame Pilloud. You mentioned back in our conference in November that you see a very, very, very high [ account ] activity. And you mentioned that you have a hit rate of about 70%. But I don't see so far that you get that much a [ boarded ] contract. Can you give us an update here where you are in the pipeline? Do you see that in a few weeks, months, there is a high probability that you can win material orders? Yes or no? Or is everything postponed? Yes. Can you give us an update?

If I look since last November, we made quite some media information about larger projects that we won. One of these you already have presented now from Jens Sand Andersen. That was won in December 2020. And I do not see this slowing down. What I mentioned is basically that, and that mentioned Dominik Maurer as well, is that it's way more complicated to organize all the talks and so on and so on. And it's not only learning for us, it's also for our cost and as Jens Sand Andersen mentioned, for example, this healthy logistics deal in Norway, basically, they saw the customer once, and that's more than a year ago and then basically all the rest was happening online. And this might be a nice experience, but I can assure you that most of the customers would like to have a mixture, in having personal meetings and online meetings. But what we see is that basically, the business is having a -- that there are projects going on is moving quite fast. And yes, at that time, we had, in certain regions, a very high hit rate or win rate. We will observe very closely if we can come to that and if we can still have this. Because a high win rate sometimes also means that maybe you do not offer where you do not see almost 100% chance that you're going to win. So always good facts have also a good side and sometimes also a bit of downside. Does this answer the question?

Probably a follow-up. Yes, probably a follow-up. Can you -- do you see that there are more projects now coming to the market and that this project obviously are also financed? Because I believe that it's that easy to get a budget for such projects.

What we can see is that there are quite some initiatives, governmental financed enforced initiatives. As I mentioned, the 2 [ comsats ] in Germany, NHS that is planning to build 40 new hospitals. These are the projects that are in the pipeline, they are financed, and we are on it. And that's only 2 reasons. The rest is coming as well. But we also have to be ready to do so. And I mean we are shaping and making the organization ready that this is possible, but we are on the best way. That's for sure. We are also not so happy that, let's say, like this crisis is going now on for one year because -- and that was mentioned as well. And maybe when we were talking in November as well, we could have been better without this crisis, and that's for sure.

I will open the line for the next question. [Operator Instructions]

It's Jorn, again, from UBS. The first one would be, please, on your R&D budget going forward. It was going up. I think it is a positive signal. What do you see in terms of, yes, customer requirements for new products? How fast is this innovation cycle which is upcoming now for the next 2, 3, 4 years? Is it similar to the last 3, 4 years? Is there a step-up on innovations required by customers? And what is your R&D budget? What are you planning here for the next couple of years? And the second question would be, please, on headcount. Your Executive Board was trimmed down. Do you feel comfortable with all the key headcount you have now in place in the different regions, also with the direct sales force teams? Or are there still some changes and investments required?

First, and -- okay. The first question, R&D budget. We are pretty stable there. If you look at the 2 sides, means on one side, the so-called portfolio we have on the hardware side, but it's not only hardware, it's software-related as well. And on the pure software side, we see a pretty stable development. What you have to see is the difference is, if you look at our mobility and nurse call so there is mainly that you have new products, you develop your products, but you're reacting on some of the requirements in the market. Might it be that it's on rate [ 11, 12 ] and so forth that you have to react on or other things. If you look on the software side, you have not only that you develop the software, but what you also have is that the linked investment you have to do in the implementation of the product. There, sometimes you have to do some customizing because all the customers, they have different environments they're operating in. But that we see pretty stable. We do not see that this is really, really, really changing a lot. But the R&D costs will be a substantial part of our investments as Ascom because that's where we keep ourselves in the market, and that's where we also want to be innovative to be successful in the market. That's for this. And with the Executive Board, yes, it is clear and I said that, from an organizational standpoint, we implemented quite a good balance between decentral and central responsibility. And this means that the end-to-end responsibility in the regions that, by the way, helped of to survive in the COVID crisis quite well, led to the fact that we have sales responsibility and also the delivery responsibility more spread out, and that's also more direct for me to lead, and that also led to the fact that we have to adapt to the organization. Maybe one thing more. The only role that we are missing at the moment, but where already a search is ongoing, is the marketing role in my team, and I'm hopefully -- I'm very hopeful that we can fill this role because it's quite important to have somebody with that knowledge onboard in the executive team.

[Operator Instructions] The question comes from Tobias Fahrenholz from Stifel.

Yes. Could you speak a little bit about currencies? I mean, in the past, we always have this negative burdens from the stronger Swiss franc. Now it's weakening. I would guess that, yes, at current fixed rates, maybe we are going to see 2%, 3% positive top line benefit. Could you comment here on the transaction and your sales and cost split? So when we do all these margin calculations for '21, should we maybe also see a slightly positive FX transaction impact?

Good. I start with the overall story. Ascom is a Swiss company on the Swiss market and is reporting -- in Swiss francs is reporting. If you look what we really produce in Swiss francs and where the cost is coming from, big part of the cost is always local for the implementation part and the project, as mentioned by Jens Sand Andersen or by Paul Lawrence, when they were showing the 2 projects. And when you're looking on the hardware part, there, the cost is coming out of the dollar. A big part is -- or 95% is all dollar denominated. And therefore, we will see, yes, if the currency, the Swiss franc is going to be weaker, I will then maybe have the possibility to show you next time the slide a little bit different, that it was not exchange rate devaluation, which was influencing it negatively, may even influenced then positively. So on that part, that's the overall story what is happening. And just to remind you, we are doing natural hedge and things like that, meaning we use U.S. dollar, which we generate in the U.S. and not translate that or change that in other currency. When we then have payments in U.S. dollar, we use these U.S. dollars, which we are earning in one of the regions. And we are doing that all over the place. Now looking on other costs we have, a big part of the cost is in SEK, or Swedish Krona, as R&D is there and other things are there like logistics and so on. So that's a little bit the picture of the currencies we have all over the Ascom group. Have I answered your question?

Yes. And maybe the second one, could you elaborate a little bit again on your supplier basis? So I mean you produce your devices there in Asia. How does it look like with the suppliers? Have you expanded the supplier network also regionally? Or how does it look like?

If you look at our suppliers, we have quite spread out. We also have suppliers in Mexico that produce for us for the U.S. market. We will focus on a few that are basically also suppliers that deliver other global companies. We make sure that these suppliers basically they're up to our needs and also with sustainable development. That's important for us. But it's also important to have reliable suppliers, and we are looking at this mix on a constant base and try to adapt wherever needed. And we also -- what we also do is because we have quite long-lasting projects, and we also have good prognosis about what we need in what amount of time that we try to place our orders quite early so that we can manage the [indiscernible]

The last question is from Reto Huber from Research Partners AG.

As the last question on your progress with your go-to-market strategy in the U.S. If I remember, you spent much time evaluating the resellers over the past couple of years there. I was wondering how many new resellers have you added to your network in North America? And maybe also, how has your partnering changed there with them?

I have to answer your question a bit more differentiated. What we did is that we really evaluated our resellers and in some territories, we might even have less resales, but more competitive ones with a better track record in the market. So that's one thing that's the indirect channel where we worked a lot on and elaborated this. We also have some new contracts and some were even communicated with larger resellers and distributors that are selling our goods. But what we are focusing on the go-to-market in the U.S. as well is having a more balanced out approach between indirect and direct and that's something we have built up and took the time in 2020 to really not only investigate, but also hire the people, means like we have now dedicated salespeople for some of the larger customers. Strategic alliances that we have with General Electric Healthcare. And also for some of the GPOs that are very important future customer clusters for us to deliver to. And that's important. We are on it, and there will be quite some, hopefully, success in 2021 already to report.

From my side, there are no more questions in the queue. Please go ahead.

Then thank you all for participating in our full year results conference. I wish you a very pleasant day, and I really, really hope that we can meet again in August and having, basically also some other chats at the end of the meeting. Maybe you are thirsty now for the next coffee. Thanks a lot. Wish you a wonderful day.