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

Ladies and gentlemen, welcome to the Capital Markets Day. Because of the pandemic, we are not able to do our own presence meeting. Warm welcome to Rudiger Rath. He joined us in the Executive Board 6 weeks ago. And to my right, Thomas Stark, our CFO. What we want to do today? Today, we want to give you some insights about our strategy, how we want to execute this and about our vision. So let's start. Ladies and gentlemen, first, I want to give you an overview about Cancom, founded 1992 by Klaus Weinmann and Stefan Kober. We did 2020 about EUR 1.2 billion in revenues with more than 4,000 employees and more than 20,000 customers in 60 locations, based in Europe and 1 in U.S. And we are listed at the MDAX. We can look back to a decade of dynamic growth. The last 10 years, from 2010 to 2020, revenue growth about 12.7% as a CAGR from EUR 360 million, up to EUR 1.17 billion. It's about 300% revenue growth. In EBITDA, we had 2010 about EUR 20 million in EBITDA, and we could grow up 500% to EUR 100 million. Important is that we could improve our EBITDA margin, our profitability from 5.3% to about 8.5%. And I'm convinced that we will have a good 2021. You have seen the numbers. The first 9 month, we did about 13% revenue growth in the first 9 months year-over-year and 40% EBITDA growth and 70% EBIT growth. Let's have a look at the share price development in the last 12 months. So share price up the last 12 months, got a share price gain about 35%, and we could definitely outperform the MDAX. I have shown you the last decade revenue growth and EBITDA growth. I think it was not a bad idea to invest into Cancom, yes? You see in the chart that we had a share price gain of more than 1,300%. And even compared to the top, top player in the IT market, Apple, Alphabet, Microsoft, IBM, SAP or Cisco, I'm myself very impressed about our share price performance. Let's look at the development of EBITDA margin. Here, we have some of the most important and largest IT system houses in the world. We had a steadily improvement of EBITDA profitability, up now to 8%. And you have seen our first 9-month number with EBITDA growth of 40%, and it was mainly because of a very good EBITDA margin. The EBITDA margin in the third quarter was 10.7% and in 9 months in average something about 9%. Let's have a look at the IT market growth in EMEA. These are a study 2 weeks ago from Gartner this year. So I think we are in the right market. IT, we are in the digitization age and the projection of Gartner shows a growth of about 4.7% for next year. That's great. Especially IT service business should grow 8.2%. And we have shown in the last decade that we are able to outperform this by 300% to 400%. And so I think we will get a good 2022, yes? Yes, we have the corona crisis; yes, we have the supply chain shortage; the chip shortage, but we are very confident that we will get a good 2022. Hybrid work styles are the new normal. Anytime, anywhere and any device. Especially in pandemic, it was a catalyst to -- of a home office remote work. We see one life, private and business, with the same device anywhere at any time. And you get excess with any application via app, traditional apps, cloud-native apps to any cloud, hybrid on-prem cloud, dedicated private, edge cloud, for example, the car, a Tesla, the car by driving is an edge cloud or public cloud. And you need all this access to the applications secure. What is the analyst view? What did the analyst tell us? Yes, they said that we are in the leader quadrant. And I would say we are very good positioned on the one hand to consult and sell products, and we are also able to run Workplace-as-a-Service out of our data center or on top of public cloud. Hybrid is the new normal. Because of hybrid is the new normal, we need new data center architectures and transform our customer to a next-generation data center for hybrid work. The ISG analysts shows us that we are again in the leader quadrant, especially to consult, to offer blueprint architecture for next-generation data center for this hybrid world or to run it as a service, yes? Cloud is the delivery architecture in the digital age. Again, what the analyst said? We are, again, in the leader quadrant. And I'm very proud to our teams that we could get so much know-how for public cloud transformation services and offering public cloud services. In both quadrant, you see we are at the top leader position. And I think that's great and make me very confident about the future. Security and control is first priority. If you get a security breach, it damage your corporate and even it can destroy the corporate. And therefore, control via security and the IT environment is key. In cyber securities, we are again in the leader quadrant. And it's very important to have the skills. We have an own security operations center, and we have a bunch of security-as-a-service products. Software defined and automation is key. For example, look at Apple. Apple is the #1 or sometimes the #2 of the companies with the largest marketcap. What makes the difference? It's not the piece of hardware of the smartphone. It's the software. It's the cloud architecture behind. It's the App Store. And that makes Apple unique and makes Apple to the valuables company in the world. Another example, Tesla, car manufacturer. It's not because they build cars. It's because of the cloud architecture behind and the software. Software makes the difference. Automation. Automation is key. Without automation in the IT, you are not scalable. You can't get the security in place and automation is the secret why the hyperscaler are so successful. And we have the megatrend everything as a service. You have seen on the slide the growth of the IT market in EMEA, the biggest growth we see in services. And especially Infrastructure-as-a-Service is growing very fast. That is mainly what the hyperscaler did. And Workplace-as-a-Service, Desktop-as-a-Service with growth rates Gartner projected 31%. Therefore, I will show you later our solution, Workplace-as-a-Service. Let's now start to talk about our strategy. Transformation into system house 4.0. We started in the past. And for example, here at the chart, you see 1992 as a reseller, typical EBITDA margin 1%-2%. Then we add solutions, more solution-driven. We add consulting, system integration and improve the margin to 4%. What I would name system house 2.0. From 2013 onwards, we enter the IT-as-a-Service market with managed service. And the secret and to leverage profitability means to have a shared service. You are able with one employee support more than one customer at the same time. So this is the leverage in the IT industry. And from 2021 onwards, I would name it system house 4.0, what means we offer not only shared managed services, we offer XaaS standardized industrial services, high scalable, secure based on own IP. And there, we can see EBITDA margins more than 9%. And you have seen in the third quarter, we did 10.7%. So we can get double-digit margins. And I think, to add to IT as a concept, traditional IT, the services, this is the key for success. This is the winning formula for system houses. On the one hand, IT as a concept, we sell products, we sell infrastructure, integrate infrastructure, consult infrastructure and combine it with support and managed services and XaaS, that means it's a complete life cycle, end-to-end, standardized and all alike. That is our new formula to get the best out of our customer relation, and it's a win-win for the customer and for us. A leading hybrid IT service provider, what does it mean? Typical system house business, reselling products, consult and integrate and offer support services. That's typical system house business, it's IT as a concept, customer owns the IT. And the cloud managed service business, IT-as-a-Service, means we offer him as a service. The profitability is increasing by 5x, 6x if you offer managed services as a shared service and best is to offer it as an XaaS service, that means it's standardized, short onboarding time, it's proven, it's secure. And if it's based on own IT, it brings 60%, 70% contribution margin. It's much, much more profitable. And I think this is very important to know that you need both business models, IT as a concept and IT-as-a-Service. We live in a data-driven world. Data is the new gold, the new oil, and we have to bring up the value of the data. We have to go more into the business, get more knowledge about the business. So we are not only important for the customer. No, we are relevant. And if we are relevant, profitability goes up, especially we offer more and more as X-as-a-Service based on our own IT. As I said before, to offer an IT-as-a-Service based on XaaS stacks, this is the best for profitability, and it's also a win situation for the customer because it's a proven technology. It's predefined with given SLA. It's fast in onboarding, and it's highly scalable. One example I want to show you now more in detail, it's our Workplace-as-a-Service based on our AHP multi-cloud platform. The heart of the AHP platform is the automation system, deploying the back end and also deploying the Windows 10 and Windows 11 multiuser workplace out of Asia. There's a security architecture embedded with single sign-on, with identity management in place, with quality management in place, what means a 3D architecture, production system, test system, development system. And with the transaction monitor, you can roll forward, roll back an operation center to manage the platform itself and monitoring, license monitoring. The application will be offered via a Windows 11 virtual desktop. Customer can, with App Store, self-provisioning application and the platform can be installed on-prem as a dedicated private cloud or in our data center or on top, for example, on Azure. Please, operator, show the video. [Presentation]

What is our vision? Our vision is being the leading hybrid IT service provider. Our purpose, making life and work better with sustainable digital solutions. Take care of our mother earth and reduce carbon footprint. What's our vision for 2025? 2015, a pure-play system house with 10% services, revenues about EUR 700 million. 2020 leading IT provider, revenues of about EUR 1.2 billion. EBITDA, about EUR 100 million. Annual recurring revenues, EUR 147 million. And for 2025, we want to be the #1 number hybrid IT service provider with revenues more than EUR 2.5 billion and EBITDA of EUR 275 million and an annual recurring revenue of EUR 450 million. To reach our vision 2025, we have to leverage risk M&A. Here, you can see that on the one hand, we want to scale, that means more volume, more revenue by acquisitions of typical system houses in the core business, IT solution business; and on the other hand, getting more expertise, more quality by acquisitions, companies specialized as a cloud managed service provider, data analytics and AI and security, for example. And we have also to make acquisitions in our core region, in the DACH regions, to be the #1 hybrid service IT provider in the DACH region. On this slide, you can see our M&A strategy broken down into 4 indicative budgets. Investments in scaling up and enhancing our regional footprint is what you already know from us. In addition, we now want to actively target companies with special expertise in the technologies of the future. We call this Cancom Ventures. A minor part of our funds available for M&A will be spent to be an early mover into the field of things like AI and machine learning. We want to be ahead of the curve and enrich our portfolio in midterm by these investments. The focus for 2022 means leverage business by M&A. We have to boost our profits with standardized managed services and the so important XaaS services, increase vertical market focus and know-how specializing on certain industries, for example, our public sector, our health care sector. Elevate business relevance with digital solutions, getting more relevant, not only important, getting relevant. Cybersecurity to protect our customers' business and also protect our own business and continuing to improve our operational excellence. Thank you very much for your attention. So I want to hand over to Rudiger Rath, our Chief Operating Officer.

Ladies and gentlemen, welcome. My name is Rudiger Rath, and as introduced by Rudolf Hotter before, I'm since the 1st of October member of the Board as COO and responsible for the entire operational businesses of Cancom. I am happy to guide you through the next 30 minutes, how we execute under constant change. The CIOs are under pressure because they have to decide on investments, on one side, to drive the entire IT environment by efficiency due to cost reductions and modernization. And on the other side, they get huge requirements from the business owners to drive digitization by innovation, by new technologies and both leads to investments. And we, as Cancom, help them to make better decisions. Our strategy has to become an Europe leader in hybrid IT services. That means we combine here the integration businesses with the model of a system provider and managed service provider. We cover the full IT life cycle of a customer with an end-to-end portfolio, and our services are aligned and standardized to fulfill the requirements of our customers. We, as Cancom, have the customer in our heart. We are following a customer-centric approach to maximize customer lifetime value and to get more relevance of Cancom at our customers. And that is 3 dimensions. We have one dimension, we cover the full customer life cycle with an end-to-end portfolio. We're focusing on what our customers need to become successful in their businesses, customers' success with vertical sales, business solutions, business consulting. And on the other side, we give the customer the best customer experience in working with us. How he engage with us, easy -- make it easy to work with us and as well give them the best competence and performance in our services. How we execute on that to increase our customer lifetime value. And as you can see on the slide here, there are 3 pillars: one, customer acquisition; second, customer retention; and third, customer development. Customer acquisition, be a leading brand, have professional competence. And customer retention, we have to deliver an end-to-end portfolio. We have to give them lifetime services. And if we are perform best in class, we are able to develop upselling potential and cross-selling potential, we can engage with business consulting to make it more successful. In total, all the 3 pillars play together to increase our customer lifetime value, in short, using, choosing, loving us to increase our businesses. The customer development getting more and more important to us. And I'd like to give you an example here how we do it. We have a vertical approach and the public sector. We engage on EU level with different institutions, on the federal, on the states and on the communities. And I'd like to give you a short overview, which customers we have on EU, federal and states, and you can see it on the slide. And it's important because we have to engage with our knowledge, with our peers on the customer side. And as well, as you can see, we have the communities, and we have community services in the cities, and we do, as Cancom, in total closely 40% of our businesses, which is with the public sector or close to the public sector. And if you see the vertical public sector, there is underneath a more specialization on education. There is K-12, higher education and research. And if, for example, as you can see that we deployed this year more than 700,000 devices to schools to make it possible that children and as well teacher can work and teach with digital equipment. I'd like to give you, as well on top, an overview about an additional specialization in the public segment, the health care businesses. Imagine about 40% of all hospitals in Germany are Cancom customers. We are covering leading German hospital chains and having about 50% of university hospitals. And that all together in the future business with them will be supported by the Hospital Future Law, which was released last year from the German government. Before I showed you how we engage, with whom we engage, now I'd like to show to you with what we fulfill the customer requirements, our Cancom portfolio. We have, as Cancom on one side to perform because our customers expect that, that we deliver in time, that he gets what he wants to get, that means business outcome. On the other side, we have to transform. We have to build services like XaaS managed services to help the customer to get concentrated on their businesses. It is important to do both: focus on platform with classic system integration businesses and transfer to new services, new digital solutions, and it is very important to do both and to execute on both. Our portfolio we develop in 2 dimensions, covering the full customer life cycle from reselling to a highly standardized and profitable XaaS solutions. On the other side, from IT to data to business solutions, which increase our customer relevance and profitability. We develop both together and is always our customer requirements and needs in front of us. As mentioned, the portfolio development was in 2 dimensions: customer life cycle, customer success. On the other side, we have to think on our Cancom IT architecture. We cover the full enterprise architecture stack of our customers in all verticals. And don't forget, security is always underneath. You can see the verticals, security, and we can go from the connectivity through the application or from the application down to the connectivity on any device and are able to support and operate that entire IT architecture of our customers. As I mentioned, the Cancom IT architecture covers a full enterprise architecture. But we have to talk about our cloud portfolio, we're covering all cloud segments. That means all type of clouds: private cloud, on-premise, multi-cloud, public cloud, and we think hybrid cloud will be the new normal. And we have a standardized approach how we engage with our customers. We move workload to the clouds, we operate these workloads on the cloud and we innovate if new services are available and creating added value from the cloud for our customers. And the whole Cancom cloud portfolio offers licensing, consumption, consulting, premium support, managed services and highly standardized XaaS solutions. And on top, we make it easy for our customers to engage with us with the Cancom cloud marketplace. That means we're covering the full cloud life cycle to fulfill the customer requirements. With the Cancom cloud marketplace, Cancom has a highly scalable platform for cloud sales and service delivery. Customers get all cloud solutions from one platform with one bill, 24/7 available. We're covering all large hyperscalers. You can see the AWS, Azure, Google and IBM. And you can see in the middle, a lot of application providers, which we as well have on our cloud marketplace. And on top, we have services, that means we do cloud migration on that, we can help the customers to make it easier to engage with the cloud portfolio in a simple way. On top of the Cancom cloud marketplace and the cloud solutions and the approach, as I mentioned before, we clearly offer managed services and XaaS. What does it mean? We have a broad Cancom service portfolio. And the customer has the choice between professional services for consulting and project management, support services in case they need help delivered by Cancom premium support and managed services with the options, remote on customer premise, hosted in Cancom data center or in the cloud at the hyperscaler premises. With Cancom XaaS solutions, we offer highly standardized managed services that customer can buy individually. And I won't forget, one major part, we feel it in private line and we feel it in business, security. There is an alliance risk barometer, which shows from 2021 that cyber incidents are the #3 global business risk, that means on the same level like a pandemic. And we shouldn't forget that the financial damage, which we know was in 2020 by EUR 223 billion, which Bitkom mentioned. It's a huge damage and clearly, therefore, security is as well a major part of our businesses. What current security topics do we cover? Cloud security, identity and access management, end point protection, vertical security on different devices. We have a great security operational center, short form SOC, to provide additional security services to our customers. And clearly, we standardize an XaaS solution, which as well includes security solutions. And our portfolio more in detail, we're covering all topics. We have partnerships with nearly all leading security providers around the globe. And the customer can choose which services he like to have or which fulfill best his requirements. We established the SOC and together with one major security provider, we built an international SOC standards and our customers definitely need support, and we help them to defend theirselve -- their businesses from cyber incidents. You can see several services where it's in a data center or it's a cloud environment, and we offer from security consulting, security support, managed security, Security-as-a-Service, the entire portfolio. I'd like as well to summarize a little bit. I explained to you to who we sell or engage our businesses, how we execute and what the Cancom portfolio covers. On top, clearly, we have constantly to increase our operational excellence. What does it mean? We have to increase our performance and the delivery model. We have daily changing requirements from our customers on automation and operational excellence. And we, by ourselves, has as well to automate and drive operational excellence. And on top, we have to increase our shoring quarter to fulfill the requirements from the market as well from ourselves on IT specialists. On top, we have always to listen to our customers, what does it mean for our portfolio? How he expect we deliver? We need to drive IT standardization, and we by ourselves has to run down our tools. On top, clearly, the vertical approach means we can't sell everything to everyone. That means we have to reduce our sell X and clearly constantly have a view on our SG&A development and have in mind which costs we drive and which costs we optimize. And the new work style, the hybrid work style leads to be leveraged. We have a different way of working in the future. Our employees expect a different way of working, how we engage with our customers and as well with our employees. And that will lead that we are flexible if we drive the hybrid approach as well in hybrid workplaces that we can attract new talents. I got it here through the last 30 minutes to what, how, to whom and what we expect from ourselves to drive operational excellence. Thank you. With regard.

Welcome to our Capital Markets Day. My name is Thomas Stark, CFO of Cancom. It's a real pleasure having you here in the call, and I'm really looking forward to spending the next 40 minutes with you. Today, I would like to address basically 2 topics. First of all, I would like to give you some insights into our financial data: where are we today? Where do we want to go? And how supportive can we be in following Cancom's core strategy? Secondly, my goal is to talk to you about our latest ESG initiatives and to provide you with some more clarity on those topics. First of all, I would like to pick up all those that are not yet familiar with the company. One of the most frequently asked questions about our data is, well, you have just had some special impacts and some special effects in 2021 in the course of the business, could you comment on them and provide some more color on this development? So clearly, the most important effect that we have seen in 2021 was the sale of the U.K. business. This divestment actually was a very successful transaction from our point of view. We have generated a one-off profit of about EUR 230 million and generated a cash inflow of approximately EUR 400 million. Please be aware, this result is not accounted in our regular reported EBITDA or the other financial KPIs. This is a dedicated line discontinued operations. Secondly, I would like to hint for the effect that we have seen with regards to the EBIT contribution. In 2020, the U.K. business has contributed a EUR 5.2 million EBIT. So comparing those data underlines the success of the transaction. Consequently, we see the real result in the earnings per share. In 2020, we generated earnings per share of EUR 1.60; thereof, EUR 0.14 from Cancom U.K. In 2021, we can see an earnings per share of EUR 6.77 and from operations from continuing operations, we can see EUR 0.81. EUR 0.81 is a 71% better than the earnings per share of the previous year. So a great result from operations, a great result from continuing operations and showing the real potential that we have in the German market that we are focusing right after the divestment of the Cancom U.K. business. Let's go on talking about our current trading. In the group, first 9 months of 2021, we have seen real tailwinds in the business. What are the most important things to talk about? First of all, clearly, we have generated a real great improvement of EBITDA growth, roughly 40% year-over-year in the 9 months' period. The effects clearly are: due to the pandemic, there's an increased awareness of the customers to have the right IT infrastructure management in place. This is a very important topic and really supporting our business. Secondly, if we look at the cloud managed services, clearly, there is a tailwind from the development. Anybody has seen that there is a dominating and prevailing business model available, cloud-based services with a easy remote access are superior to traditional businesses. From our point of view, this is something that is really supportive to our business. Let me comment on one more thing. I think everybody of you is aware, we have a 45% share of public business. So very good exposure and a very good opportunity. A question that is often raised as well is to what extent is this opportunity, midterm, long term, short term or whatever. And just recently last week, we have talked about the coalition agreement that has been released by the government, by the future government, and they have deliberately decided to make a prolongation of the Deutsche [indiscernible] bank and even spend more funds for the Deutsche [indiscernible] bank until 2030. This clearly underlines that we are not talking about a one-off impact, that we're not talking about a short-term effect, this is a really huge midterm opportunity that we have. With our perfect setup, we are in the right position to actually be the partner of choice in this sector. One more information about our business model in the auto segment structure. You can see on this slide, we are reporting in 2 segments. IT Solutions segment comprises of project-based business. We are delivering architecture, consulting, implementation and integration services to our customers. And cloud segments are containing basically managed services that we are offering in a way with basically recurring revenue based on a multiyear or long-term contract with our customer. The KPI that best describes to what extent are we transforming our customers and ourselves is the so-called annual recurring revenue, ARR. You can see on the top part of the slide, and we see a nice development there. One thing that was asked ahead of the Capital Markets Day was could you provide us with some more clarity on the development of the annual recurring revenue. And for sure, we want to do this. On this slide, you see the development and the split of the annual recurring revenue, how does the revenue actually develop. We see a very small proportion of churn. This is something that is basically in line with the industry standards and shows the stickiness of the customers. So this slide is basically intended to illustrate 2 things. First of all, stickiness in the business is high. Secondly, if you look at the growth potential and where we have actually grown, we see a good upselling potential, and we see, well, minor from our point of view, new positioning. This is triggered by the pandemic, customers more reluctantly deciding or taking more long-term decisions or at least focusing with their IT spendings on remote access clients and devices that we have seen in 2021 until the end of the pandemic. Nevertheless, 23.6% growth rent are good in a given situation. We think there's upside potential, and we will restart gaining more new logos going forward. Let's flip to some forward-looking statements. How supportive are CANCOM's financials to really achieve the goals of our strategy. First of all, let's take a look at the, to some extent, most difficult to predict KPI, operating cash flow. Everybody is aware that we have supply chain shortages in our industry, not only in our industry and others as well. However, to what extent are we affected and what are the real impacts of these very extraordinary developments. Usually, we have a seasonality in the cash flow. The best cash inflow quarter really should be the fourth quarter. So this is something that is for sure and is ongoing valid even in the years of the pandemic and of the supply chain shortage. However, one of the upside potentials that we see in the operating cash flow, first of all, clearly, if we grow and accelerate the speed of the growth in managed services, this will be beneficial for the development of the operating cash flow. Managed services require less operating working capital than the traditional project-based business. So the more and the faster we grow in this segment, the better the outcome for the operational cash flow will be. So we actually see the impacts of the pandemic and of the supply chain shortage in the operational cash flow statements if you look at the time series starting with 2017. There are 2 positions or 2 points where we see a reduced operating cash flow. To provide you with some clearance going forward, clearly, this is something that is extraordinary. We should be able to achieve at least the level, and this is very cautious due to the actual situation and not knowing whether or to what extent we will still have some impacts in 2022. But clearly, there will be a level above the level that we have seen pre-pandemic. So there's a huge upside potential and the operating cash flow should be above a level of EUR 110 million. The way easier to talk about financial KPI is CapEx. If you look at the development of the CapEx, we have to take care of one special effect that is included in the last year's data. We are about to introduce some major systems, IT systems at CANCOM. We are talking about SAP S/4HANA implementation. We're talking about Salesforce and the ServiceNow. This will be a prerequisite for successful growth going forward. With the right IT infrastructure in place on our side, we assure constant growth and high efficiency going forward. Nevertheless, those positions are a main contributor to CapEx, and they will contribute until the real implementation going forward. So if you look at the ratio compared with the last 12 months sales, we see a significant downside potential for the real requirements of the demand for CapEx. If we eliminate those positions, we have a potential to reduce, in a midterm perspective, the CapEx ratio to 1.5%. This is something you have to bear in mind, and this is something that is way more easy to predict than the operating cash flow. Taking into account this development and those one-off effects, we see a significant downside potential for the development of the CapEx. Going forward, a goal of 1.5% CapEx, the last 12 months revenues should be in line with our expectations and should be a clear goal that we are setting for the development of the organization. So as a result and in combination with the forecasted operational cash flow development or potential that we see going forward and the CapEx development that we see going forward, we should end up with a noticeable improvement of free cash flow. Our clear goal is a cash flow conversion, free cash flow to EBITDA above 60%. Let's focus on M&A strategy. How supportive is finance to the achievement of our goals with regards to our vision. You have heard Rudi talking about the 3 directions for M&A.: expertise, scale and regions. I would like to address several topics on each of them, plus there's one more thing. Starting with scale. How does M&A transaction and well, integration actually work at CANCOM? If you look in the market, then the targets that are classified as adding up to scale, they usually have a limited portfolio in place. They are too small to actually afford a huge service portfolio. Buying them means enabling them basically to improve margin profile and their share of wallet at the customer side. If you have a target actually dealing with a specific topic and not being able to have, for instance, the capabilities for a user head disk for a managed service to offer, then it's very easy to enrich them. They can easily access the huge CANCOM workforce. They can easily access all the expertise and the competencies that we have in the company to address new topics on the customer side. So this is clearly helping them very quickly to increase the opportunities on the customer side. They should be able to increase the share of wallet and to accelerate growth. Secondly, clearly, being part of a huge organization like CANCOM is on top, enabling us to benefit from synergies. So they are on the one side, cost synergies like purchasing power. But on the other hand, there are benefits from an improved networking with the vendors. So when the relationship management benefiting from more back end is something that is addressed very quickly, and it is generating more profits at a very fast pace. Secondly, if you look at the expertise transactions, expertise transactions have, first of all, been precisely named by Rudi Hotter. Rudi talked about the main directions for growth, security, data analytics and last but not least, cloud managed services. Cloud managed services clearly are a broad area. Nevertheless, this is the way of delivering the things to the customers. Delivering IT solutions to the customers is a topic that enables us to improve our margin profile. On top, we can easily integrate such specialists with the dedicated expertise into our existing portfolio. The other elements named on the scale side are in place anyway. So on top, there will be benefits from purchasing power, increased portfolio and so on. So a meaningful direction for M&A transactions, both end. Last but not least, the regional aspect. We clearly defined the DACH region as the region of our core interest. So this is a clear way how we would like to go forward with regards to the M&A transactions. Finally, there's one more thing, and this is something that is new. When asked about what are the targets that you are looking at, what are the multiples that you were going to pay for them, then we have clearly -- then we have a very clear statement. Scale transactions are at a lower multiple, expertise transactions usually tend to have higher multiples due to the better margin profile and the expertise that we are winning and that we are integrating into CANCOM. One thing that is new is introducing CANCOM Ventures. One of the most important things and the key success factor for CANCOM is being leading edge in their individual industry, having loads of competencies in whatever discipline we are mastering. So knowledge of people is important. So additionally, and on top of the things we've already mentioned, we are deliberately going to spend money on new technologies, on start-up companies that might have in place dedicated expertise in new areas of interest. We have to make sure the company is staying ahead of competition, is leading edge and is leading in the given quadrants of the Gartner scales that you have seen on Rudi's slide. With CANCOM Ventures, we are not intending to, well, generate high profits within a short period of time. We are trying to get access to knowledge. We're trying to improve our technology setup. This is something that is more important than well just adding EBITDA to the company. This is assuring staying ahead of competition. The funds that we are going to spend on those companies and those technologies should be minor in value and in volume. However, this is something new, and this is something we think is really required to compete in the development of new skills. What about funding the M&A strategy? Let's say, if you look at our actual cash position and the cash potential that we have. As of the end of the year, we should end up with approximately EUR 650 million of cash. There will be EUR 100 million that should be required for working capital in the course of the year. And we have already initiated and announced the start of a share buyback program that could total up to EUR 230 million. So in total, we should have available funds of about EUR 550 million that we can dedicate for M&A transactions. Let me comment one thing on the share buyback program. There's a clear intention of using the share buyback program and the shares that we are buying from the markets and from the shareholders for M&A transactions. There has been no single transaction that CANCOM has done in the past that has not included an element to actually tie the management of the target to the CANCOM Group from a midterm perspective. So we always have integrated into our SPAs either an earnout element, an option element or we are using shares with lockup periods to tie the management to the CANCOM organization and to assure an alignment of interests of the managers of the targets with the goals of CANCOM. Let me now outline how we close the bridge for our 2025 vision starting today, ending 2025 from a funding perspective. First, taking into account our organic growth potential. Applying the normalized pre-pandemic organic growth rate of CANCOM, we would already add, surely depending on the multiple, EUR 70 million to EUR 80 million of EBITDA. Secondly, having seen the cash generation potential of CANCOM with a level of about 60% cash conversion, we will generate a considerable amount of cash in the next 5 years. Just consequently, this will add up to our growth potential. Thirdly, targets themselves generate cash and have additional growth potential. Both topics add to our future growth. Last but not least, even with our maximum accepted level of debt with the leverage of up to 1x EBITDA not yet included, we are absolutely capable of achieving the goal of a EUR 275 million EBITDA. This simplified and easy to follow view represents just an assumed development and can clearly vary. However, it perfectly shows the funding is for sure and doable. Growth and achieving the goals, it's not about cash and firepower in place, it's about identifying the right target. As a summary, we have a well-funded M&A strategy supported by finance properly. Let me finish the finance part with some comments on something that is not really directly connected with financial KPIs. But if you're talking about achieving the goals and talking about the CANCOM Vision 2025, a very often asked question is what are the restrictions, what are the potential headwinds that we are facing? And clearly, we should spend some time on talking about the war for talents. We are absolutely aware that in the given market with a high demand as a real tailwind for growth, we need people to grow. We have in place our own recruiting department topping more than 20 people taking care of acquiring the right skills. What else are we doing to resolve the topic of the war for talent? I would like to outline 3 things to you. First of all, we have in place a great goal and a great program to attract trainees and apprentices at CANCOM. A goal of more than 10% of the company being apprentices or trainees is a great goal and something that we have already achieved with a 9% ratio at the moment. So we are highly active in training people and getting them to the right skills and to be attractive for young people to become part of the success of CANCOM. Secondly, we have implemented a program that is intended to upskill the people that we have in place. We have started a program that is taking care of training and development. So we have to make sure that the people have the right skills that are working on the right techniques, and we spent quite a lot of money on actually training them. Third and most important, we have in place a nearshore strategy that is located in Slovakia. CANCOM Slovakia located in Kosice is a real success story. The intention and the purpose of it clearly was if we are offering managed services to our customers, let's benefit from the potential that we have with this kind of business model. Actually, managed services usually are offered remotely. They can be done from anywhere by the help of monitoring tools in support centers. And they can do -- can be done in a standardized way. So this is the perfect prerequisite for a site that is located not in Germany, but abroad. And this is the perfect way of accessing highly skilled people at reasonable pricing. Kosice is a real success story. Just being founded in 2019, we will end up 2021 with approximately 200 employees already working for our customers and adding and enriching our workforce dealing with Managed Services. The goals are ambitious. We intend to even double the number of employees in Kosice, Slovakia, and this is the perfect thing and the perfect strategy to have in place for overcoming the war for talent. So all 3 elements that we have talked about should help to overcome restrictions for growth. Finally, I would like to share with you our thoughts on corporate social responsibility. CANCOM cares. This is a word with a double meaning that I like a lot. CANCOM cares is a product that is intended to help our customers with support services, help with assistance and so on. CANCOM Care on top is something we created as a name in order to increase the awareness of our employee for management and clearly of ourselves that we have to take care of our responsibility with regards to environment, social aspects and governance. We have achieved some major milestones in 2021. I would like to talk to you and inform you about the things that we have actually achieved in the running year. First of all, we have, for the first time, released our sustainability strategy just recently. For the first time, we have named and addressed clear goals, transparent, measurable, what we would like to achieve with regards to our responsibility facing ESG topics. We will talk about this in more detail later on. Secondly, you can simply see and identify the major efforts that we have taken in order to cope with our responsibility in our nonfinancial statements. We have simply doubled the length while knowing that it's not depending on the length of the report. It depends on what we actually do. We have become aware that our stakeholders, despite of having a good description of nonfinancial statements, have difficulties in identifying what we actually are doing. So we have released a new ESG website where we are gathering and summarizing all the efforts and all the endeavors that we are taking in order to make sure that we comply with our own intentions and goals. Furthermore, we have, for the first time, participated in the carbon disclosure project. So we will receive the results end of December, and are now capable of actually really describing where are we producing carbon and where have the potential to reduce. Furthermore, we have reworked our company values. We have liked to show everybody in the company starting from the top management to all the leaders in the company ending up with all of the employees, never mind who they are, that we are accountable. We should actually take care. CANCOM cares. Finally, we have started our employee satisfaction survey with a great percentage of participation. We have received great feedback and can now work on this on an annual basis. I would like to address some more concrete details that are in line with our sustainability strategy. We have set clear goals for various topics. First of all, external training. There's a clear goal for pushing the total amount of external training in order to upskill and to train our employees. We have clear goals for reducing employee turnover. 10% to 12% is the goal that we are intending to achieve with regards to this aspect. We are taking care of social organizations. We have a nice concept in place where we take care of organizations that are dealing with social issues, and we are spending 0.5% of our net profits for those organizations, plus we assist them in case they have need for the products, for consultancy and so on. Last but not least, diversity growth. We have decided to have as a goal, the same ratio of women in leadership positions as we have in the overall organization. We want to make sure we are taking care in an equal way. As diversity is more than just the ratio of women in the organization, let me comment on the number of nationalities that are actually working at CANCOM. 65 different nations are taking care of our customer needs, an impressive number showing that diversity is alive at CANCOM. Additionally, we have set ourselves environmental goals. The first one and simply the most important is our net-zero goal 2027. We will talk about this later on in more detail. Secondly, we have a goal for renewable energy consumption. 95% of our energy we are using should be used by the use of renewable energy. The reason for not having 100% goal is simply as we are not aware of what are potential targets that we are acquiring contributing. Last but not least, we want to comply with anything that is dealt with the taxonomy that should be in place going forward. Overall, and it's an element that covers both social, environmental aspects in the same way as governance. And clearly, no fines and sanctions is something that should be for sure for all employees and for all management members and for CANCOM in total. Let me comment on our net-zero goal that we have issued just recently. There's a 2-step approach that we would like to follow with regards to our carbon usage and our reduction of carbon in the future. 75% reduction is intended to be achieved by the end of 2024, and the net zero should be achieved in 2027. So a compelling goal and way before the Paris Climate Agreement is intended to be net zero. This is something that is intended from us to achieve, and this is something that we are eagerly trying to achieve. Let me talk about what we're actually doing, harnessing the potential of green IT. Actually, if you look at CANCOM's content and of our business model, we are a company that is not only not carbon intense, but it is already -- that is also contributing to reducing the carbon footprint of customers and in the way we are doing this. I have just outlined 4 different elements to show. If you talk about the usage of clients, the replacement of clients, and for instance, the UCC solutions that we have in place, then it's quite clear. All those things are things that are contributing to the reduction of the carbon footprint. Clients, if replaced, should be at a lower level of power consumption than before. Solutions like UCC actually really reduced the need for traveling and so on. These are the things that we are actually doing and that we are delivering on our customer sites. If we're talking about data center services and we're talking about virtualization, we are talking about reducing the number of service required. We are talking about reducing the number of data centers required. Actually, these topics have massive impact on the power supply, and the power usage of such data centers are very promising and great impact that we have on the customer sites. In case of being in charge of not only consolidating but truly building data centers, adopting the right cooling technology massively impacts power consumption. We organize and plan and build that. Last but not least, we have a great green marketing department taking care of lengthening the usage of hardware of our customers and trying to avoid garbage and so on by refurbishing the products. This is something that is becoming more and more important and that our customers actually really rely on. So all the things are just a few aspects that show and underline, we are in a business industry that is contributing to an improvement of the carbon footprint of our customers. Let me finish the presentation with some comments on our ESG ratings. We are about to strengthening the dialogue with ESG rating agencies. We have achieved meaningful progress in cooperating with them. We have some ratings in the course of assessment. And the ones that have already been completed, we have finished and finalized with great improvements that really acknowledge our efforts and our endeavors in the area of ESG. Hopefully, I've been able to outline to you the most important topics of finance and ESG. And you have a good understanding of our ESG initiatives. Please feel free to take a look at our newly created ESG website where you can find more information in detail. Thanks a lot for your interest. It's my part to now hand over to the Q&A session. Please sign and close the dial-in details. Rudi Hotter, Rudiger Rath and myself will be available for questions. We will make a 5-minute break and are looking forward to you having you dialed in for the Q&A session. Thanks a lot. [Break]

Dear ladies and gentlemen, welcome to the conference call of cancom. At our customers' request, this conference may be recorded. [Operator Instructions] May I now hand you over to Sebastian Bucher, Manager, Investor Relations at Cancom, who will lead you through this conference. Please go ahead.

Dear ladies and gentlemen, welcome to our Q&A session of the Capital Markets Day 2021. I hope you have enjoyed the presentations so far and have gained a lot of insights that we wanted to present to you. Another technical remark, as we had the very prominent topic of the deconsolidation of our U.K. business, we have a presentation of the figures deconsolidated quarter-by-quarter for 2021 and 2020 as a presentation on our website in the Investors section already published. So with regard to your models, you can find final values here. So after that technical remark, let's start right away with the Q&A session. And operator, please take over.

[Operator Instructions] And the first question is from Florian Treisch, ODDO BHF.

I have several, maybe I will just start with the first 2 and leave the floor for the other participants. So the first and for me, the most important question is you have given us nice indications for cash flow for EBITDA development. But can you simply give us probably the most important number, what share of your revenue growth is actually coming from M&A and which share is coming from organic growth, i.e., your current base? And the second one is for your margin progression, you have highlighted these kind of hard fact numbers. If you just look at total market developments and the recent statements around bottlenecks and very favorable pricing, do you expect this margin progression to be linear? Or do you -- would you expect a dip first of all in '22 on normalized cost? And then depending on M&A progress to see a rising EBITDA margin in coming in the midterm only and not necessarily for 2022?

Rudi Hotter speaking. We project that we will do half by organic growth and half by inorganic growth. So to reach our goal -- goals, we need an EBITDA growth in average of CAGR of about 20%. And so that means M&A is very important to reach our 2025 goal with around EUR 275 million in EBITDA. About pricing power, we see the chip shortage, we see the supply chain problems. And I think we will have the pricing power, and we will keep pricing up. If nobody has -- can supply, so we don't want to -- well, we have to increase our pricing. And about the next question, Tom, might be -- you take it?

I think there were 2 questions here, the share of the growth, and Mr. Treisch, from start speaking, you're absolutely right. If you look at the bridge where we have shown how can we close the gap between EUR 100 million and EUR 275 million, you can quite easily identify in the simplified way of while doing this, we have approximately in about the same size for organic growth, and inorganic growth. Clearly, M&A transaction cannot be predicted. So this is something that occurs, that we are trying to look actively in the market, but predicting this can only be done in a rough guidance, and this should be well growth half by half is something that should be meaningful, depending on the size of the target and what's actually getting into our focus. And supply chain constraints. Second part of the question, Rudi already commented, we expect clearly in the fourth quarter to still benefit from that in the months to come and in potential relief of the overall situation. And this might come back slightly, but clearly we are now intending to outperform by benefiting from the actual supply chain shortage, at least from a margin profile.

Okay. Maybe just a little follow-up. So you would not expect a normalization of the margin levels we have seen in the last decade i.e., continuous pricing pressure on hardware? So you would stick with the new pricing level we have now reached is sustainable and as said also, a very meaningful driver for the EBITDA margin expansion in the years to come?

Rudi Hotter speaking. We try to keep the better margin position. It is -- we will see especially supply chain constraints in the device area. And so if we can deliver the products, then we should be able to keep pricing up. When is the time that we get the normalization of this process? I think supply chain shortage -- chip shortage, we will see minimum until the middle of next year.

The next question is from Martin Jungfleisch, BNP Paribas Exane.

I have 2, please. The first one is on AHP. Can you disclose what the current revenues from AHP are? And how much of the EUR 450 million ARR targets would come from the AHP in 2025? And then the second question is on the midterm margin target. Next, an increase in the share of recurring revenue from around 15% of sales to 18% in 2025. Are there any other drivers to get margins to that 11% target?

So Rudi Hotter again speaking. AHP is Workplace-as-a-Service solution. If you offer IT as a service, it's always part. It's often the main part of the service. So it's nearly in every annual recurring revenue, we have a portion of AHP. So you already calculate that we will do something like 18% of revenues 2025. Yes, we think that the IT-as-a-Service business, special ex-AAS business will grow better than traditional business. In the last decade, we did always something like, in average, 14%. The first 9 months, you could see 13% revenue growth. So we think we get it done. And you are right, there will be a portion of about 18%. And how much is part of AHP? For us, if we want mainly if you offer IT as a service, you have to offer -- to run applications for the end customer. So this is our delivery architecture. So it's always part of the total service. And it's one of our unique selling points. If you don't have the right architecture in place, it's difficult to participate on this business.

So far, we have no further questions. [Operator Instructions] And we have a follow-up question from Florian Treisch.

Yes. Perfect. And the first one is also around the AHP Cloud. You have mentioned that your IP is really a differentiating factor. From my understanding over the last years, it's basically mostly relying on third-party solutions and you are on top adding your kind of IP. You just mentioned now with shift to Windows 11, overall changes in the market in your presentation. Can you maybe remind us a bit what is really your IP inside of the solution? And how independent are you reselling it? Or is it really only a part of your kind of normal device business? And the second part is, as you mentioned, M&A is such an important part of your strategy going forward. We have not heard any word around timing, which makes sense maybe as long as you have nothing to announce, but maybe give us some more insights what is probably the pipeline looking for? What do you expect to add on a kind of annual basis? What multiples are you targeting? In the end, we are easily getting to a value of EUR 1 billion plus M&A firepower needed to really get anywhere close to your targets. So can you maybe give us some more insights?

Okay, about AHP. What we did, we can -- it was developed as a dedicated private cloud solution. So we put it now also on top on Azure. So being able to offer a multi-use Windows 11 client. So this is the most modern architecture you can offer. What's our IP? Our IP is we -- it's our own development of the automation system of the control center. And I mentioned in my presentation that security is key given the end customer control. If you offer IT as a service, then the problem is that you have to offer it to several customers. Each of the customer run a bunch of applications, different applications. And without such a control center, you are not able to support all the patches you have weekly or daily to do on top of the applications. And that is what I mentioned. And this IP of the control center, the so-called AHP 1 is our IP and enables us to offer complete IT as a service with a bunch of XAS products. For our profitability, it's important to offer XAS, that means standardized, with given SLA, proven and be fast in onboarding. And that's our unique selling point for the XAS business mainly the product. At the other hand, you need something like Network as a Service, WiFi as a service, you need SD-WAN as a service, you need security as a service and all these products, it's always a bunch of other XAS. About -- yes, what's about our M&A targets. I think it's -- we could not talk about timing so much. We have now in negotiation, a very large deal. And we -- but we can't promise or give you internal details because at the end, it's always done if we have a signature under the contract. But you are right. For us, M&A is very important. We said to reach our goal. We need nearly half of organic growth. So it's a focus to do the right acquisitions the next month.

Great. Maybe a quick follow-up. What is large for you -- a very large deal for you to get a better feeling if you're really looking for transformational or kind of smaller bolt-on?

I want to grab a large, huge pipeline. And they are smaller companies, and they are bigger companies in the pipeline.

The next follow-up is from Martin Jungfleisch.

Also 2 quick follow-ups from my side. First one is again on AHP. How much more capitalized R&D would you require for the development of the AHP? And also, can you disclose what percentage of the CapEx sales target should be capitalized R&D and how much regular CapEx in the future? And then the other question is on M&A. For those 4 pillars for M&A that you presented, can you disclose a rough split how much of the M&A funds you would allocate to each pillar?

So we -- in AHP development, we will spend the next year annual EUR 1 million to EUR 2 million of the budget. And about the pillars, the indicative budget for our M&A strategy, Tom, you want to comment?

Well, Mr. Jungfleisch, I really already commented about -- commented on the good funnel that we have. We are pretty much read last year, we had complete breakdown of the M&A business. So there were no activities and then followed by high activities, we still see in the market. So the funnel is good. We have, from my perspective, really outlined what the pillar should be, what the goals of any of the pillars should be in order to actually contribute to the value of CANCOM and to the growth of CANCOM. And what comes next cannot be defined actually as M&A cannot be predicted in a reliable way. This depends on the course of the transactions that might be ongoing. So please expect that we only indicate -- well for the ventures, it's a new thing, the CANCOM Ventures. We will have allot just a minor part and the others will be allotted depending on what opportunity we see in the market, how we think we will beneficially integrate those companies that might be in our interest and so on. So this is something that we will disclose and all the other things depend on the actual cost of M&A pipeline and development.

We have no further questions. I would like to hand back to Mr. Rudolf Hotter for some closing remarks.

So ladies and gentlemen, thanks for your participation, and thanks for your time. If anything else comes up, please feel free to always get in touch with us in the IR department. And there's not much else to say then. Stay healthy. Thanks a lot, and talk to you next time, hopefully, in person again.