Cancom SE (COK.DE) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the CANCOM SE Earnings Call for the Full Year 2020. [Operator Instructions] Let me now turn over the floor to your host, Sebastian Bucher.

Dear ladies and gentlemen, welcome to today's call of CANCOM on the results of the financial year 2020. Our CEO, Mr. Hotter; and our CFO, Mr. Stark, are with us today and to give you some insights on the KPIs. And afterwards, there will be time for questions. I now hand over to our CEO, Mr. Hotter.

Good afternoon, dear ladies and gentlemen, and welcome to today's earnings call. We are very happy to be able to present to you results for 2020 that in our perspective came out quite well, especially against the background of these very unusual circumstances. We managed to achieve growth in revenue and EBITDA, continued to raise our ARR, and for the first time, ever showed a profitability of more than 10% in 1 quarter. We even were able to continue our M&A activities with a classical bolt-on acquisition in Germany to strengthen regional footprint in the Hanover area. Let us now look a little closer into the details of the fourth quarter. In Q4 2020, revenues grew by 1.4%. This figure was, on the one hand, influenced by a product mix that was more service-based, so lower volume but higher margin. On the other hand, we had to take out roughly EUR 30 million due to a reclassification of revenues in the context of the principal/agent, that means revenue recognition of software deals. Tom Stark will give more details on this topic later after in this call. This was the best quarter CANCOM ever has seen. The EBITDA jumped up 42% in Q4 compared to 2019. This is the result of a very tight management of cost factors that worked against us at the beginning of the year. Those of you who attend our calls regularly might remember that I explained the use of freelancers and subcontractors as one of these factors. By this cost management and with a very service-heavy sales mix, we were able to show, for the first time, the full strength of our business model when it comes to profitability. A margin of 10% is considered to be unachievable for a classical system house. But the system house 4.0, which is the term I like to use to describe CANCOM, can do this. The Cloud Solutions segment was the driver of this extraordinary development. Factors that burdened the margin were successfully managed, and this leads to a profitability of more than 25% compared to last year quarter, 23.9%. We saw a strong trend of, firstly, customers resuming their IT projects that have been on hold due to the pandemic. Secondly, a lot of quick-fix solutions have now to be included into existing IT landscapes. So overall, the demand for services was high and we also have quite a nice order backlog. So we think that Q4 was not only a very good end to year -- usual year, but it also -- it is a kickstarter for 2021. As I already said, a lot of customers had to start working on their IT again or had to add additional IT projects due to the current circumstances. So the demand in Q4 was not only strong in the Cloud segment but also in the IT Solutions segment. The need for high skill services and consulting was there, which resulted in an extraordinarily high EBITDA margin of 7.3% in IT Solutions compared to previous year, 4.4%. One of the main drivers for this demand comes from the public sector, especially education with a high proportion of high-value services and consulting. With regard to the full year, we were able to achieve growth under very special circumstances. We were able to get our EBITDA margin back on track after a bumpy start of the year with cost topics as well as negative one-off effects. And by the way, we are very happy having been able to show you, our investors, that our idea of an EBITDA margin above 10% can be realized. In the first quarter, we did about EUR 26 million of EBITDA compared to EUR 25 million the previous year. In the second quarter, we were hit by the lockdown, especially it was a hard lockdown in the automotive industry and the tool factory. They closed their factory, their production. In the third quarter, it normalized again. We did about EUR 2 million below previous year. And then we have this outstanding excellent fourth quarter, so we could fill the gap and achieve that we could grow in revenues and also in EBITDA. But please keep in mind that Q4 is always a very special quarter in our business. We cannot promise you a margin like this in every quarter from now on, especially not on group level. But we can promise to you that we keep on working hard on raising our margins in every aspect of our business. That means an EBITDA margin over 5% in IT Solutions and over 25% in Cloud Solutions are our current internal benchmark for the year 2021. On this slide, we present to you our current level of annual recurring revenues. The 12.6% growth rate was achieved fully organically and we have now reached the EUR 200 million threshold. We think that this level of growth is at the lower end of our organic growth potential for the ARR. So please be assured that this figure was influenced by the pandemic as well as long-term service contracts were not the top priority of our customers in 2020. We think that the realistic growth potential for the ARR organically should be between 15% and 20% for the next few years. After these remarks, I hand you over to my colleague, Tom Stark, who will lead you to some more financial performance indicators and the most recent development for our accounting policy.

Thank you, Rudi, and hello to the audience. My name is Tom Stark. And very pleased, just as usually, to provide you with some additional information on the financial KPIs. And so we are going to start with the operating working capital on the next slide. And yes, there we are. Yes, we basically have met our goal and we have achieved to stay within the bandwidth of the target sector that we've communicated to you, as a financial community, the target of 0% to 2% operating working capital ratio to sales has been achieved perfectly. 1.3% is well within the bandwidth that we have expected, that we have targeted for. Let's get a bit more in detail. If you look at the 3 most dominant elements, we can talk about the accounts receivables. We have ended up the year with a EUR 331 million of ARs compared with EUR 274 million in the previous year. This is pretty much in line with the increase or the decrease of the accounts payable that have soared from a EUR 319 million to EUR 371 million. I think the position that is most of interest should be the accounts receivables. Clearly, we are in a pandemic and everybody is a threat of potential write-off that could happen, so let me comment on the situation of the ARs as follows. First of all, we have no change in the aging structure of our accounts receivables. So the aging structure of AR positions is approximately the same as we have seen it in the previous year. There's no single material bad debt that has occurred in 2020 that we have to take into account. On top of this, we have a high percentage of public sector revenues. Please be aware, we have approximately EUR 500 million out of our EUR 1,649 million of revenues that is driven by the public sector, which should be safe from a write-off potential perspective. Nevertheless, we have taken into account a potential deterioration of the willingness or the capabilities of our customers to pay their debt. We have increased our value adjustments in total from a EUR 424,000 to EUR 1.2 million roughly. So this is approximately 3x the amount that we have in order to take into account the potential deterioration of the situation. It should be very well balanced with the situation that we have at the moment. Factoring to interest of you, most often, has accounted for EUR 4 million in Q4. We are not using factoring as a strategic topic. We're only using it if we have long-term, well, receivables with a low-margin profile and we use it in order to balance the risk profile. We sell it without -- to a bank in order to get rid of potential risk of failure. So this is the information that I can provide to you with regards to the accounts receivables. Inventories went up by EUR 15 million from EUR 46 million to EUR 61 million. And there, we still can see some effects from the pandemic. I know everybody is aware that we had some supply chain issues in 2020 and that we have, at the moment, a supply chain topic as well. Let me comment on this as well. First of all, you might have got aware that we have commented in the financial statements that our backlog as of end of 2020 was at a level of EUR 363 million compared with a EUR 234 million in the previous year, so the backlog increased by 50%. Nevertheless, everything is -- this shows the potential that we have going forward and should give you an idea of how successful we have completed and finished 2020 and the fourth quarter of 2020. The supply chain situation at the moment is tense for sure, but we are now assured that we will decrease or manage to ship all the backlog in Q1 completely. But there is, inside, an improvement of the supply chain situation by the end of Q2. So we are still optimistic on this topic, and this should give you a clarity on the topic that we had an outstanding Q4, a huge backlog still to handle in Q1 and going forward and should provide you with clarity on the working capital ratios. Just accordingly, the development of the operating cash flow, yes, we are sure that we have an unprecedented situation of the pandemic in 2020. We have never seen a development as we have seen it in 2020 Q1 and Q2. So clearly, we see that Q1 and Q2 were the worst figures that we have ever seen. Clearly, we have communicated to you, we are trying to, well, manage the potential situation of a lockdown with, well, at least being capable of shipping goods to our customers. So we did not manage the working capital ratios and operating cash flow as tightly as we have done it in the previous years. This is an outstanding situation. And clearly, we have -- we are well on track with the development of our cash flow. After the 2 worst quarters in 2020 that have been basically affected by the pandemic, we have seen 2 very good quarters in a row, and the Q3 and Q4 in total have been the best half of the year cash inflow that we have ever seen. So we have promised to you as a community that we would achieve the best Q4 in terms of cash flow operating, and we have achieved a EUR 110 million after EUR 56 million in the third quarter. Clearly, there's room for improvement from our point of view with regards to accounts receivables and with regards to inventory management. But we see an improvement already ahead of us, so Q1 will clearly be better than the previous year's Q1. And for the whole year, we are optimistic to come back on track but however, depending on the development of potential pandemic effects. Let's go to the CapEx. CapEx ratio to sales has ended in 2020 with 2.2% after 2.1% in fiscal year 2019. Clearly, there has been an effect with regards to the revenue recognition. But basically, we are pretty much in line with our own expectation. Some comments on this KPI. We are looking at the development of the CapEx. You must be aware that we have EUR 14 million out of EUR 36 million from CapEx that is driven by the implementation of new systems at CANCOM. You're pretty much aware that we have introduced and implemented a SAP S/4HANA in a -- for the service version for the service business 2 years ago. And now we are about to implement SAP S/4HANA for the trading business, and this topic will affect CapEx significantly. That means we plan a significant decrease of the CapEx starting 2022. And we hope to finish the CapEx ratios with regards to our ERP introduction in 2021. What depreciation resulted from CapEx, you can be aware of that in the financial statements in the annual report. The split of depreciation comprised -- the EUR 59 million of fees comprises of EUR 59 million CapEx that was spent for inventories, plans, properties and so on, and EUR 18 million of amortization for amortization of contracts of orders in purchase price allocations. The effect split is EUR 20 million CapEx for property, plant and equipment, EUR 13 million for rights of use in aid of amortization of software. Correspondingly, the -- some comments on the earnings per share and the amortization. Amortization, you can see on this slide in a split that we are usually providing to you from 2 dimensions. First of all, the split within the segment to provide you with clarity on that topic for your models, and secondly, also going forward. We see a significant decline of the amortization going forward from, as we expect in 2021, to end up with a EUR 13.3 million after roughly EUR 17 million in 2020. Going forward, Anders & Rodewyk, our recent acquisition in December, is not yet included. However, we only expect minor changes to future amortizations as this was a smaller acquisition, at least a smaller acquisition in terms of size. On the right hand, we illustrate to you the PPA effect on the earnings per share, and 2020 was affected by a EUR 0.33 effect driven by amortization. Let me point out one more thing on this slide. The undiluted earnings per share from continuing operations soared from EUR 0.99 to EUR 1.60, which is an increase of approximately 60%, obviously. This is driven mainly, or in part at least, from a result that is accounted for other financial results for the reporting period, and it mainly includes income from the revaluation of put call agreements that amounted to EUR 20 million. And therefore, and to let our shareholders participate in our successful year, we deliberately suggested to increase the dividend for the year 2020 to EUR 0.75 per share. That dividend payment after the Annual General Meeting will amount likely to a total of EUR 28.9 million. And finally, the payout ratio, including the effect from the other financial income, is 47%. Not including it, it's 70%. Some comments on the revenue recognition. So this is something that needs explanation and that we would like to explain to you as transparent as possible. I see companies in the peer group, so it's not only affecting us, it's affecting all of the companies that are in the peer group. They're in a debate about the assessment of revenue recognition. And this is mainly focused on the revenue recognition of standard life and sales. The question whether we are agent or principal is actually in resolution with the International Financial Reporting Interpretations Committee, the IFRIC, as all of the peers in the group are affected from this. So what does this actually mean? If you are assessed to be a principal, you are allowed to show the revenue just the way you are invoicing your customers. If you are assessed to be an agent and so then you are only allowed to show the margin as a revenue. And so there's a difference in the revenue recognition. We have like to illustrate to you in a table that can be found in the annual report as well the effect that would have such a change of accounting policy, depending on the decision of the IFRIC board or the decision of the peer group that we work with closely. You see that the 2 years, 2020 and 2019, have been shown on this slide and the table can be found in the annual report as well. The effect would be, if we would be classified as agent, a decrease of revenues and to the same amount as the decrease of cost of goods sold. Actually, this means gross profit has no effect. It will not be affected. No other financial performance KPI will be affected, neither EBITDA nor EBITA or EBIT nor EPS and so on. The thing that is positively affected will be the margin profile as clearly due to a lower revenue, we would have an increased margin profile. From our point of view, the best thing to do in a pending situation is to actively communicate. This is in line with some peers like Bechtle, showing the similar table in their financial statements as well. So the only thing we do is to transparently show you what the effect will be, it will not affect profitability. And as you can see, it does not affect the growth rate. It simply affects the total of the revenues that we can show from our point of view. So finally, let's take a look at the financial calendar. This is already disclosed on our website. The next date that we are going to meet each other or where we are going to release a new report will be on 30th of April, the nonfinancial report for 2020. I will not talk about any of the topics on the calendar. Just let me comment on the Annual General Meeting that will take place in Munich. It will take place as an online event, and clearly, the agenda will be sent to you mid-May. Finally, the thing that is not yet on the website but it will be disclosed from starting mid-April will be the participation of CANCOM in roadshows or on conferences to provide you with clarity where you have the ability or the possibility to meet us in person or well, in today's times, in a video conference, in what format ever. And that's the point where I would like to hand back to Rudi. Thanks a lot.

Dear ladies and gentlemen, we think that 2021 offers more chances to us than risks. That is why we issued an outlook that on the first side, looks like those of the last couple of years, but please keep in mind that we still have no idea what will be the situation in a few weeks when we talk about lockdowns and such. So giving out an outlook that would be okay under normal circumstances is, from our point of view, already quite a positive one and an ambitious one, too. We see this more availability of vaccines, a rebound of economy from summer onwards, less lockdowns and a strong year-end business. We forecast significant growth in revenues and EBITDA for the group, meaning growth between 5% and 10% and very significant growth for the EBITDA. The Cloud segment should continue on its path of very significant growth, and with this, also the ARR. A continuing trend for more IT as a service, we move from an IT-owned world more and more in a consumption-based world. Very significant growth spans for everything about 10% growth rate. The IT Solutions segment is planned with significant growth, just like the last few years. I would now open up the floor for questions. Operator, please start the Q&A session.

[Operator Instructions] and the first question comes from Martin Comtesse.

I would start with 2. First one, some of your peers have actually elaborated pretty extensively on the current supply bottleneck. It wasn't so clear out of your press release today but you already mentioned it now. Can you maybe be a bit more specific and touch on the current situation? Where you see long lead times? How long they are? And is it across the portfolio? Or is it just specific vendors that you -- that faces supply bottleneck? And secondly, also on overall projects that you currently have in your backlog, is this predominantly reselling business into public clients? Or is this also a return already of larger data center projects that we are all waiting for, I guess?

Yes. Yes, there are some supply chain problems, especially in the -- for PC clients. But we could agree to the vendors to get a supply for the most important projects. You never know. You heard about the problem with containership and there are some problems in supply chain, but I feel good that we can manage it. About projects, demand on data center projects and data center infrastructure is back again. And I think there is the trend for digitization and hybrid cloud infrastructure because hybrid cloud is the new normal. We see more business and our funnel grow month by month. So we look optimistic in the next few months. What we don't know, what happens if we get again a lockdown with the -- in combination with the third wave, it's difficult to say. But customer, they will start again the data center project because they see the need for being competitive. So we are confident in the data center business, especially.

Okay. Maybe just 1 follow-up, if I may. Did I understand correctly that you said you're expecting already, in 2021, a return to basically 2018 level in Cloud Solutions at around 25%, and IT Solutions at 5% margin? But then I would assume that you already doubled your -- you're going to show very significant growth also on EBITDA level in that case.

Sorry. The last sentence, I could not understand.

Yes. I'm just trying to -- in the current situation, where you already have a better sales mix than 2018 in terms of more cloud exposure. And if you're looking at 25% EBITDA margin in Cloud and 5% in IT Solutions, that would deliver you, I would say, double-digit EBITDA growth on group level this year. So can we understand the guidance as being cautious or -- yes, in doing the numbers on?

I already mentioned double-digit EBITDA margin is our internal goals. The fourth quarter was an outstanding quarter. We -- if we can get -- and we see that the trend to buy more IT as a service will give us a double-digit growing Cloud Solutions segment business, and so we see improvement in the margin. But more than 10% EBITDA margin, this is a tough goal and it will -- we will fight for this. But I don't -- I can't promise it to you. We will have something like 15% growing business in the Cloud segment, might be more. And this strategic inflection point moves more and more business from the classical IT system house business, traditional IT to the -- to IT as a service will improve margin. We will do our best.

Yes. Sorry, just to clarify. I didn't mean that you're going to reach the 10% EBITDA margin already this year. I just meant that if you can achieve the 25% in Cloud and the 5% margin in IT Solutions, you would reach double-digit growth on group level, also on EBITDA. But you're currently just guiding between 5% to 10%. That's what caused a bit confusion on my end. I understand that 10% EBITDA margin is not something that we can expect this year.

Yes. Let me add some comments on this as well. I think you're pretty much aware that we had -- that we are well-known for reliably communicating the forecast. So last year, we had to reduce the forecast and then top the forecast, which is a very uncomfortable situation, frankly speaking. So this is something we would like to have. Going forward, I think everybody is pretty much aware that we have tailwinds from the overall situation. The demand for IT business is high. The demand for various solutions and for solutions that have to follow on the initial investments in the previous year, this is really high and it should be, hopefully, an overlay of the, well, resurrection of the data center business that we have already commented on. So the prospects are fine. But in the actual situation, we would like to show to you, to the market, that we are very confident with this. We think we will have a growth rate and a growth potential to come. But at the moment, not being aware what the lockdown situation might be, whether what things might impact the Q1 or Q2 at the beginning of the year, this is something where we would like to be better more cautious. Nevertheless, strongly believing in the growth potential that we have and then the high demand that we have seen in the market. That's why I have commented on the create a huge backlog that we have seen as of end of 2020. And given that we have a normalization of the situation, we are pretty much aware that we have a great growth potential. And hopefully, we'll top the forecast that we have given to you as an outline.

And the next questioner is Lars Vom-Cleff.

I have a good feeling that you already answered some of them but I got temporarily excited, so apologies in advance if I ask something you have already answered. 3 questions, if I may. I think you already commented on the public sector and the percentage stake of revenues you generated with the public center. Could you repeat that again? Are we still talking about EUR 400 million, EUR 450 million of revenues in 2020?

Yes. Public sector, this was -- 2020, we see significant growth, so it was more than EUR 500 million out of our total revenues. And I'm sure this will continue. Every stimulation, what will be done for the economy, there are big budgets for the public sector and especially for the education sector. And this -- we grew more than 30% in public -- in the public area last year. And I think it has the best growth potential for us, 2021.

Perfect. And then regarding allowances for potential customer insolvencies. I think if I calculate, if I did the math right, it's currently 0.4% of your account receivables. You still feel safe with that ratio, don't you?

Yes, we feel comfortable with this ratio. You -- well, we have increased it or at least tripled it basically, what said, I think, in my presentation part. You're right, it's -- in terms of percentage of overall revenues, it's small, but if you look at the structure of the customers that we have and if you look at the historical development, we never turned out to have more than EUR 200,000 above write-offs, at least it's what I remember in the last decade. So we have enough potential in order to, well, master this topic from an allowance point of view. In another side, clearly, we are very restrictive in taking a look at the procedures that we have internally to approve potential revenues that we are generating. So there's an approval process in place that we strongly believe in of being efficient and mastering any potential risk by suggesting to potential customers or to customers of potential risks, what other ways might we have in place to resolve the potential issue by addressing CANCOM financial services solutions to the customer by identifying other means for getting the project done from a financial statement point of view in a balanced way for the opportunity risk profile. So this is what we have shown improvement in the last decade to master perfectly, and that's why we think we have done an adjustment of the allowance. It increases significantly this year, and this should be, hopefully, the best way to get a balanced view on this.

Okay. And then the last one is a minor question just technically. I mean your tax rate for financial year 2020 is around about 25%, slightly more than 25%. And you've guided for, I think, with your half year results for a tax rate below 30%. Is 25% the new normal or shall we rather feed 28%, 29% in our models?

No, you're absolutely right. We have forecasted the intention in the earnings call, I think it was the end of Q2, was to guide you an outline the rest of the year. The thing that happened and it actually occurred in Q3 was the triggering event of the call put option. So this is something that is actually contributing to the EPS. So it's not in EBITDA, it's in financial income but it's not taxable. That means that we had an effect that there was not to be foreseen as of end of Q2, and that's why we have not been able to comment on this. I think the fair view and this will come back on your question for the tax rate for your model should be 31% approximately.

The next question comes from Andreas Wolf.

Andreas Wolf, Warburg Research. I hope you can hear me. So my question would be related to the services business. When pushing the reselling business in the first half of the year, you basically had the ambition to also create some momentum in the services business afterwards. Are clients already ordering services accordingly as you have expected this during the course of H1? So that's my first question. Second is a quick one. What is the CapEx that we should expect for '21? You already mentioned that it's supposed to be lower than in 2020, but what is the actual level here? And then the last question, the third question is related to cost savings related to travel and marketing expenses. Could you quantify this effect that you had in 2020? And should we expect the cost to reverse in '21?

Okay, about service business. The good results in Q4 are mainly caused of high demand on service business, and it's continuing. I explained that we were hit last year in the second quarter by the lockdowns. The difference to the lockdowns we see now, automotive companies does not shut down their plants, the production in the plants. And at the moment, we can deliver services, and that helps us because service business is very important for our P&L. And so we had high demand in the fourth quarter for services, especially also services on-premise at the customer. For the CapEx, Tom, you want to comment for the 2021 CapEx?

Yes, of course. You're right, Mr. Wolf. We expect an improvement for the whole year 2021. We are still in the midst of the starting point for the SAP project. The intention, clearly, is to show you, we have room for improvement. If you ask for '21 in a concrete way, we assume we will achieve a 1.6% to 1.9% CapEx in relation to sales and then further improvement in that. That's why I've outlined you that the costs in 2020 that have comprised approximately 1/3 of the overall CapEx that we have seen. We think we will fully benefit from this development in 2022 going forward. Hopefully, this clarifies your CapEx question.

And lower travel costs, yes, we have significant lower travel costs. It's very important that we learned to offer more remote services without so much traveling. And I think, Tom, what was the effect on travel costs?

Yes. You're right, Mr. Wolf. It was the marketing. It was the most dominant effect that we have seen on the cost side was clearly the travel expenses. We had a decline of EUR 5 million year-over-year in terms of travel expenses generated. But we always have to be aware that traveling means getting in contact with the customers as well. And the thing that we see as a potential for 2021 and going forward is that the more complex the projects are that the less likely you will sell them on the phone. So that means personally, I strongly believe there will be some way in between the data that we have seen at 2019 compared with 2020, the travel expenses will be on a lower level going forward but that will still be necessary as selling complex solutions will require direct contact to your customer. And if you're talking about CANCOM as being a leading digital transformation partner, we can only prove and convince your customer to have all the capabilities in place to do this with the customers to be the partner of choice for their individual transformation path by talking directly to them and convincing them of what you are able to do. And this is better in person than by phone.

Yes. So to win new logos, we have to be on-prem at the customer. And so we hope from summer onwards that the lockdowns disappear. And I think that compensate more than the reduction in travel costs. It's more important that we are able to send our sales guys and consultants to the customer site.

And we have one question from Gustav Froberg.

I just have 2, please, if I may. The first one is just on your fixed asset base. It looks like overall, your fixed asset base has shrunk a little bit in 2020 versus 2019. Could you help us understand the drivers for kind of how your fixed assets have developed? And then I'll save my other question for later.

This is Tom speaking. What about the fixed asset structure you're talking about? We simply didn't get the beginning of your question.

Oh, apologies. Can you hear me okay now?

Yes, perfect. Perfect.

Yes, sure. I was just commenting on the point that it seems like your fixed asset base overall has decreased year-on-year, and I was wondering what the drivers are for that.

What do you mean particularly?

So it looks like your fixed assets are lower. If I look at both your, what it's called, property, plant or equipment, these assets are slightly smaller as well. Basically, the point I'm trying to make is your return on capital deployed has gone up, and I'm wondering why. We can take it off-line but...

Yes, I think let's take it off-line, Gustav. I can see that...

No worries.

Yes. Okay, perfect. Let's do it that way.

No worries. And then I have one more just on headcount, please. So can you just talk me through how utilization is looking for your employees right now and what your hiring plans are for 2021, please?

Yes. We want to grow double digit. Therefore, we need more consultants and system engineers. So we will hire, the next month, significantly more consultants and system engineers. It's tough. There is a little bit more of talent. But I think the crisis also helped us to make this happen. And we are confident that we especially can improve in service revenues.

And the next questioner is Martin Jungfleisch.

I have 3 questions, please. And if I can, I will go one by one. The first one is on ARR. I mean the ARR has improved quite a bit quarter-on-quarter with a 6% growth. What has driven this? Was this mainly the AHP or was it other managed services? And then on AHP, what are your expectations for this year? And how do you plan to scale the platform over the next couple of years?

I already mentioned, you see this trend more and more IT as a service. And hybrid is the new normal and the delivery architecture is the cloud way of computing. If we want to offer IT as a service, you need a future workplace. We have the strength for home office. We have the mobility trend. Therefore, our own cloud architecture is key for our cloud managed service business. And so we will have more access or service. That means it's an industrialized service portfolio, like the workplace as a service out of AHP, SD-WAN as a service, Wi-Fi as a service, and the advantage is the onboarding time is shorter. And I think we can get more profitability. The demand of such solutions is high. It's complex. Therefore, we already mentioned we need our consultants and our sales guys on-prem at the customer. And so we are very confident that especially our cloud managed service business will grow like we mentioned. And today's world is hybrid. That means nearly everybody want to run Office 365. That means it's a public cloud solution if we want to run a Salesforce as a public cloud solution. And we have hundreds of thousands of traditional software solutions. Therefore, it has to be hybrid. If you want to combine this and consume applications, you need the right architecture in place. And this will drive our revenues in both segments in the cloud managed service and in the traditional IT solution business.

Okay. And another question on cash flow. I mean your leases were up from EUR 11 million to EUR 17 million lease expense in 2020, and also the leasing debt went up to, I think, EUR 115 million from EUR 88 million, but there wasn't much M&A this year -- last year. So what has driven this big increase in lease?

So we have -- CANCOM has won a major contract and it's basically driven from this major contract, where we are in charge of, well, doing the [ iMac ] services and the help desk for 40,000 clients on the customer side. And the customer has liked us to simply, well, run it and get a fee for seat, and that means that we have to actually offer EUR 10, EUR 15, EUR 20, whatever euro per seat in month, and on top of this, the services that we are selling. That means, in this case, in this situation, we have decided to finance this, and this has led to the increase of the lease position that you're commenting about. So we will get, over the period of the next 5 years, the revenues that is a rent revenue for the PCs that we are managing on behalf of the customer, and that's the situation in this special situation. You might have come aware that the other income that we have has increased accordingly. This position is not recognized as revenue as well. This is other income. And that's the reason for the increase of the other income. So this is simply an accounting topic that we had to take into account and explain those 2 positions. Hopefully, this helps. And if you have further questions, please do not hesitate to contact me.

Okay. And then what do you expect for leases this year? Should it be like EUR 25 million? Or...

Well, the ramp-up of the customer was up in the course of the year, so the expectation is have a further increase of this position as we have fully delivered or -- we had fully delivered all of those clients, I think it was as of end of November, and the rest of the year was the ramp-up as we have 40,000 clients that we have to, well, manage and that we have to, well, provide the software in new service factory is quite a lot of things to do. This took some months in the year, so expectation is for the increase in this position due to this project.

Okay. No, makes sense. And then maybe a final question on M&A. I mean you have quite a good bit of money on the balance sheet. Is there still these COVID restrictions prohibiting you from doing good due diligence? Or should we expect something more near term in terms of M&A?

I think the limitations, we have overcome the situation of a, well, M&A market that has not been existing in Q2. I think the cautiousness of -- in the market, it has disappeared completely. So I think we're back on track in a regular deal flow or the inflow to assess them and to be aware what the best opportunity for -- and the best for CANCOM might be. So there should be no more restrictions from our point of view. We have overcome the situation.

And the last question comes from Florian Treisch.

I have also 3 questions, maybe one by one. The first was around the revenue recognition changes again around principal/agent effect. Well, from my understanding, you have already changed it with the final [ 2019 ] numbers with a new auditor, KPMG, in place. So I'm a bit struggling why you're now coming up with another reclassification, in particular, if we are now -- if you have already pre-released preliminary numbers. So obviously, you were confident before, but it was changed again. So what is happening here? And I would come with a follow-up.

Okay, sorry. So let me comment on this. You're absolutely right. This is something that is a little bit unusual to us. But we simply had -- we had -- let me comment on the thing that happened last year. Last year, we had talked about CapEx. So we have -- we view by PC and you have 1 price and 1 dedicated price for the PC, and there's a support package. It means you have an extended warranty or whatever for more than 2 years. And this is something that we had to reduce the revenues for those support services. We have done this last year and this was something which was accounted for being an adjustment to the accounting policy so far, which would be more appropriate. And this was an assessment that is done from us in combination and in cooperation with our auditors. It was triggered by the change of the auditor last year, and we changed to KPMG. So this year, we are talking about a more -- well, let's say, global, I think we are talking about licenses. And there's a debate whether what thing is the right thing. So the whole peer group is doing this the same way or about the same way. We are considering us with the presale services that we are offering to our customers, all the advice that we are taking care of, all the things to identify the right product for the customer in the license program, and to be in charge of delivering it and even not being capable of returning a license once we afforded to be a principal. So the overall integration efforts that we are doing, we consider this for being a principal. And this is the same way as Bechtle, for instance, or others are handling this. So now there's a debate, and this is why it's more global, that it has even been addressed by the IFRIC that are taken care of, well, the accounting standards, talking about whether it's at all possible to be in an intangible -- capable of being a principal. This is not triggered by our auditors. They agree that we have done the right thing. They would follow anything from external in order to have a different assessment, but it's not something that we are triggered by stand-alone. So this is something, and that's why I -- we are aligned with, for instance, basically, they have the same table in their report. And they have agreed in communicating this actively to the market, that there is something that might be changed in the course of the year depending on the debate and the discussion with a more global institution like the IFRIC committee or other players in the markets that are defining the rules for accounting policies.

Okay, perfect. The second one is around these put call options. Do we expect additional impact in '21 or the years after or is this now a done deal? And the last one would be around your considerable net cash level. Can we expect more aggressive M&A pushes in the current fiscal year and maybe also larger scale acquisitions on the agenda?

Yes. So 2 pretty straightforward questions. First of all, yes, you're right. The put call option topic should be resolved almost completely. There's a tiny potential further liability driven by put obligations, put and call options in the balance sheet. It can be found in the short-term financial liabilities, and they are at a level of EUR 2.3 million. So that's all and then we are done if it happens, but it depends on whether the owners of the options put or not. So pretty much straightforward to be answered. And secondly, yes, we are pretty much aware that we have an outstanding or very good cash position. And what we have communicated, we would like to go more aggressively in the market. But due to the situation that has been unprecedented in 2020, we have not done the steps that we had liked to do going forward. Clearly, there is a growth strategy in order to grow the company by M&A transactions that have always been a primordial part of our growth strategy.

There are no further questions from the audience.

Okay, thank you very much. So we close the session, the Q&A session. Thank you.